you can only manage what you measure kapta ebook

Much to Rodrigo’s dismay, the managers’ meeting was not going well. “How many cases of our salsa

have been returned to the warehouse because of damage in shipping?” he asked his logistics manager.

“Can I get back to you on that?” was the non-answer. “We’re still inspecting the returns.”

Rodrigo turned to his sourcing manager. “Do you expect the price of pinto beans to rise more than

ten percent because of the dock workers’ strike?”

The sourcing manager shuffled some papers. “Umm, it’s not clear. I don’t have the current data. I’ll get

back to you on that.”

Rodrigo looked at his finance manager. “How about the cost of operating our plant in San Diego?

Would it be better for us to move it to Alabama?”

The finance manager peered at his tablet. “Well,” he said, “The jury is out on that one. We need

additional information. Can I get back to you on that?”

Rodrigo fumed. “Friends, our competitors are not stumbling around in the dark. They are moving

aggressively and with a laser-like focus. If we value our jobs, we need to figure out how to measure

our key performance indicators and put that information to use in our operations and our planning.

We can only manage what we can measure, and we need to start measuring in real time. I want that

to become a top priority for this company.”

www.kaptasystems.com 02

If we value our

jobs, we need to

figure out how

to measure our

key performance

indicators and put

that information

to use in our

operations and

our planning.

http://www.kaptasystems.com

http://twitter.com/kapta

http://www.facebook.com/kaptasystems

http://www.kaptasystems.com/


“You can’t manage what you don’t measure”

is a venerable management adage that’s even

more relevant in today’s competitive and fast-

paced business environment. You can’t manage

for improvement unless you know what’s

hitting its goal and what’s falling short. Without

measuring something, you don’t know if it’s

coming up short or if a better alternative exists.






Given the necessity of measuring performance areas, the logical first question is, “What should

be measured?” It’s not a trivial point. No one wants to waste time and resources measuring things

that don’t matter. You need to measure those activities or results that are import to achieving your

organization’s goals successfully. These are your key performance indicators (KPI) – also called key

success indicators (KSI) – that help your organization define and measure its progress.

The key performance indicators will differ depending on the organization. A business may have as

one of its KPIs the percentage of its income that comes from new customers. A KPI for a software

development company might be the number of defects in their code. A fulfillment department may

have as one of its KPIs the percentage of customer orders shipped within twenty-four hours.

A KPI is often represented as a percentage, such as “eighty percent of our customers are repeats” or

“sales are up three percent over last quarter.” Hence an individual metric in a KPI may be the result of

a combination of two or more individual measurements. For example, to calculate the KPI percentage

of orders shipped within twenty-four hours, a fulfillment department will need to both count how

many orders it receives and measure how long it takes to ship each order. Then the manager can

calculate the percentage of customer orders shipped in twenty-four hours and manage toward

improving that KPI.

You need to

measure those

activities or

results that

are import to

achieving your

organization’s

goals successfully.






What you measure depends on what the key drivers are for your business. To ensure its success,

what does your business have to do absolutely correctly? For Rodrigo’s prepared foods business,

key performance indicators for the outbound sales staff might include the company’s sales leads,

conversion ratio of sales leads to sales, the average sale value for each account, and inventory

turnover. For his marketing department, a leading KPI may be the market share captured by the

company’s canned refried beans versus its top competitors.

But too much of a good thing can be overwhelming. If you attempt to measure too many indicators,

there is a danger that you’ll spend time focusing on areas which are not important to the success of

your business.

When developing your key performance indicators, understanding your business model is important.

What products or services do you sell, who buys them, why do they buy them, and how do you make

a profit on the transactions? Generally, the two most important aspects of your business model are:

1. Why do people buy from you?

2. How do you make a profit from the transactions?

The first point – why do people buy from you – is deceptively important because it cuts to the very

reason that you’re in business. For example, in Rodrigo’s case the simple answer to the question

“Why do people buy from you?” is that people need to eat. The next level is, “Yes, but why do they

buy from Rodrigo?” The answer is the company’s unique selling proposition: Rodrigo provides

Spanish-influenced, prepared foods that are fresh, healthy, and affordable.

If you attempt

to measure too

many indicators,

there is a danger

that you’ll spend

time focusing on

areas which are

not important to

the success of

your business.






Since product quality is important to Rodrigo, his company measures such things as finished product

defect rates, and percentage of damaged shipments versus all shipments. What your company

measures will be unique to you.

Point number two focuses on the ultimate reality of business: you must make a profit. Cash flow is

important for all businesses. For example, measuring the average number of days you take to pay

your accounts payable, the number of days to collect accounts receivable, and the number of times

your inventory turns in a year can all help you determine your cash flow management.

Many companies track a slew of metrics. The issue is whether they are tracking the metrics that

will identify how they are meeting the strategic needs of the company and what is relevant to their

customers.

How you measure is as important as what you measure. For example, in a phone bank, each

customer service representative could manually tally their own calls and report the total to their

manager at the end of the day. Or an operator could count the number of calls transferred to the

customer service department. A third choice would be to purchase and install a software program

that counted the incoming calls, measure how long it took the prospect to answer each, record who

answered the call, and measure how long the call took to complete. These automatic measurements

would be complete, accurate, current, and unbiased.

The issue is

whether they

are tracking the

metrics that will

identify how they

are meeting the

strategic needs of

the company and

what is relevant to

their customers.






Collecting the measurements in this way, and combining them with other sales data, enables

the manager to calculate the percentage of customer calls that are answered and converted to

sales. It also provides additional measurements that help him or her manage toward improving

the percentage of calls that reach qualified prospects. Knowing the call durations lets the manager

calculate if some salespeople are chatting with prospects rather than being focused on selling.

You’ll want to evaluate ways to acquire key data in real time through automated or bar code

collection systems that are tightly integrated with your shop management or ERP solution –

preferably from the same vendor. If you’re like most companies, you’ll quickly realize that, without

some level of automation and a system to capture the data in real time, it will require significant

manual effort to collect the data to support these metrics.

To paraphrase W. Edwards Deming: If you don’t know how to use the measurements to improve your

process, the calculations have been a waste of time.

Measurements are often used as part of a continuous improvement plan, a concept that has been

given a variety of names including plan-do-study-act (PDSA), the Shewhart cycle, the Deming circle/

cycle/wheel, and the control circle/cycle. Regardless of the name, the goal is the same – to measure

the key factors and improve them.

You’ll want to

evaluate ways

to acquire key

data in real

time through

automated or bar

code collection

systems that are

tightly integrated

with your shop

management or

ERP solution...






It is important that you communicate your metrics to all levels of the organization. The CEO wants to

know what’s going on, employees need to know as well. They won’t be motivated to improve unless

they know how they’re doing. In addition, many of the best suggestions on how to improve will come

from front line staff who interact with customers.

The data should be available on a networked dashboard and presented in such a way that is easy

to understand, is timely, and illustrates the overall trend of the company. Finally, these results should

be used by key managers to drive decision making and improvements from the front line to the

boardroom.

Team and individual results can be disseminated using pie charts, line charts, key driver charts, and

other graphs on the networked dashboard.

Review your metrics and use them to guide your decisions. With your metrics in place, you can tell

which strategies are working and which aren’t. If you make a change, you can use the metrics to tell

you whether the change has improved results. A decision maker must both understand the origins of

the data and how it was manipulated. Each method of calculation has implications and limits, as do

the sources of the data. To be relevant, the measures have to be understood by those using them.

There are no magic formulas that guarantee success; only good management improves the odds

against failure.

It’s very important that you compare your organization to others in the industry to benchmark best

practices and ensure that your internal measures are driving increased productivity.

It is important that

you communicate

your metrics to

all levels of the

organization.






You can use metrics in two ways. In a traditional top-down approach, key figures reflect positive

measurement – for example, customers say that 98% of their sales orders are delivered on time. As

long as the business is satisfied with that KPI value, managers don’t care about the two percent of

sales orders that are not delivered on time. If the KPI drops below an acceptable level – for example,

if only 95% are satisfied – then managers will start focusing on how to boost the KPI again. Staff will

evaluate the possible influencing factors for the corresponding KPI that needs to be improved, and a

fix is made.

This approach is effective when you want to maintain the status quo, but it’s not very useful for

improving performance, because you cannot learn very much from positive examples.

In contrast, a bottom-up approach focuses on exactly those areas where problems occur. This

knowledge is derived from the two percent of customer cases where performance was not

acceptable. You can then perform a root cause analysis for each scenario in order to find out if you

encountered random or non-repeating environmental conditions, or if you have systematic problems.

This bottom-up approach is specifically designed specifically to stabilize and improve business

processes, and can be seen as complementary to the top-down reporting capabilities that are most

likely already established within your company.

No matter how you approach it, it’s important to go behind the numbers. Knowing your KPIs is only

the first step. To give them significance, you need to focus on the actions that drive the numbers.

If you know what a certain number needs to be, ask yourself what actions have to take place for

the individual, team, or company to hit that number. Ask how the whole company can contribute to

achieving its KPIs.

In contrast,

a bottom-up

approach focuses

on exactly those

areas where

problems occur.






A poor KPI is a symptom, not a cause. The proactive CEO or manager will not ignore the symptoms,

but will seek a remedy without delay. Actions lead to results.

Remember that it’s your people – employees, customers, suppliers, investors – who are the primary

sources of your metrics, and these metrics need to be reflected back and shared with those who need

to know. When the metrics show improvement, celebrate that success with everyone. Tell your staff. Tell

your board. Tell the co-worker you meet in the hall. And don’t forget to reward the people who were

responsible for the success, even if it’s just a phone call to say “thanks.”

Contrary to the philosophy of some management consultants that the customer is king, employees are

the most important people in any organization. It is the members of the organization who are responsible,

through their actions, for the success of the endeavor.

Effective management is the combination of the ability to make correct decisions and to inspire others

towards the strategic goal. Measurements are supplementary to the perceptions of those in charge. The

view that a manager has of the internal and external environment is an important guide to the state of

the organization. If the steps taken by management in the areas they control are not planned effectively,

then issues will come to the forefront.

In addition, hiring staff who clearly understand the goals of the organization and are able to identify new

opportunities spurs the CEO to be more agile and adjust his or her thinking on a regular basis. The CEO

will need to have an open mind because the employees will discover new paths to the goals as they

interact with each other and with customers.

Contrary to

the philosophy

of some

management

consultants that

the customer is

king, employees

are the most

important

people in any

organization.






“If you can’t measure it, you can’t manage it” is a useful axiom. But there’s great danger in

extrapolating it to the extreme by saying, “If you can’t measure it, it doesn’t matter.”

Developers are tempted to adhere to the precise content of a requirements document, as if fulfilling

the fine print is more important than making sure the product works. Project leaders can become

fixated on the process-prescribed approvals, while ignoring the mutual trust required to get them.

Technical leaders dismiss users who don’t live by the numbers.

Companies face two common knowledge gaps: a true understanding of their current performance,

and a deep understanding of what their customers need and are prepared to pay for. Metrics can

solve the first problem. The second problem is more intuitive, and requires a gut feeling for the

marketplace that few individuals possess. In most cases, there isn’t much hard data to work with. It’s

difficult to ask your customers, since they are likely to respond that they want higher service levels at

a lower cost (who doesn’t?). You need to drill more deeply into how your customers think about your

business and what role you play in their lives.

A more appropriate axiom might be, “Even if you can’t measure it, you’re still responsible for it.”

That’s because some things, like personal relationships and trust, are too important to be ignored

and too subjective to be measured. All the numbers in the world won’t help if your management is

not agile and does not respond to the relentless rate of changes in both your external and internal

environments.

All the numbers

in the world

won’t help if your

management

is not agile and

does not respond

to the relentless

rate of changes in

both your external

and internal

environments.





About Kapta Kapta provides executives with a cloud-based system to clearly

communicate company goals, track every employee’s expected contribution and review over-

all status through a real-time dashboard. Headquartered in Boulder, Colorado, and founded in

2011, Kapta gives executives a clear line of sight into each team member’s performance and the

system’s easy-to-use alignment tools keep employees on track in less than five minutes each week.

Kapta’s intuitive input process virtually eliminates “work about work” and instead provides employee

alignment and executive feedback to successfully scale your business.

For more information, please visit

kaptasystems.com





you can only manage what you measure kapta ebook

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