March 29, 2019 – Florian Wilhelm, Practice Director Planning & Analytics, Westernacher
The Westernacher approach to KPI-driven Performance Management
Steering a company of any size is not an easy endeavor, especially when it comes to making critical decisions. Assuming that a good decision can only be made if a situation is fully understood, as much data as possible is needed to support the decision. As the pure volume of the required data would be far too much for a single person to take into consideration, performance indicators are being used to help to condense the situation into an easier to control set of figures. These indicators and the impact of the decision to be taken on these indicators is what should drive the decision. But, which are the right key performance indicators and how many of them can be handled by a single human being?
Westernacher has a clear understanding here. Given the design of your key performance indicators is right, no more than 5 KPIs should be controlled by a single person. Imagine having a machine with more than five steering wheels that need to be coordinated – this won’t work for long. To reduce the number of figures and increase their relevancy, a closer look at the existing figures and indicators used to do the job should be done.
There are only a few metrics and indicators which represent and measure a company’s strategy and the objectives derived from it in a very clear way. These we can consider to be key performance indicators.
Others that help to get deeper insight into the KPI would be considered to be performance indicators, which are only required to understand your KPI in a bit more depth. These would be used to prepare a decision, but not to finally decide.
Metrics on the lowest level of our KPI-Hierarchy help to build up the performance indicators and provide more quantitative information on your business. To make a real decision, these usually miss a lot of context as they are just reflecting the quantitative aspect of one single dimension.
A Machine manufacturing company has a strategy to grow their business in South East Asia by 20%. The vice president of sales has the clear objective to have 20% more value from won opportunities. His first metrics would be:
- No. of Leads
- No./Value of Opportunities
- No./Value of won Opportunities
Based on these metrics, first performance indicators can be derived:
- Deal closure rate
- Average Deal Size
- Realized Revenue
All three indicators are not key performance indicators as they don’t fully reflect the defined objective.
The key performance indicator would be revenue growth, which should be 20% more than last year for this region. This also takes into account a comparison with the previous year.
Just one KPI for just one single objective for an individual role has been defined here. This now needs to be expanded for further objectives, which are linked to the same strategy as the cost of sales and head count.
Once the definition is done, tools like SAP Analytics Cloud can help to track all three level of indicators in order to make sure all information is available in a single place and decisions can be made with all the information required. Based on well-defined KPIs and a good tool to measure and control them, steering your part of the company will become easier.
See an example of a Supply Chain Control Tower here:
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