“You get what you measure” is one of several foundation concepts for successful companies. The practical challenge, as I’ve seen during my 30+ year career, is to not measure everything but rather to focus on those key leading and lagging indicators relevant for achieving and sustaining success in your business.
Bernard Marr does a great service for business managers with his latest book “Key Performance Indicators”. The first and most obvious service is that he identifies 75 measures “that every manager should know.”
For each measure he provides an explanation of why the indicator is important, examples of how to calculate it, cost and efforts required to collect the data, target setting benchmarks, and – perhaps most useful – tips and warnings regarding each indicator.
He also includes a ‘Key Performance Question’ for each indicator. He defines KPQ as “a management question that captures exactly what it is that managers need to know.” This can be a useful aid in determining exactly which KPIs are relevant to your situation.
I tested how the book handled some of the most critical KPIs that managers should be focused on (e.g., return on capital employed (ROCE) also referred to as return on invested capital (ROIC), cash conversion cycle, and several others.).
Each of the examined indicators did an excellent job not only explaining how to use the indicator, but pointing out some of the subtle issues executives need to be aware of.
The second service Marr’s book provides is to emphasize the first step in this overall process needs to be defining the organization’s strategy and objectives. Only after this has been accomplished will it make sense to identify and link to the appropriate KPIs.
Sounds obvious, but you would be surprised by how many organizations are flooded with data and even metrics but lack a coherent strategy and objectives.
Meanwhile, there were a few things I expected to find in the book, but did not. There was a robust discussion about customer satisfaction, but nothing about supplier satisfaction (in my experience, this is an area of emerging attention by best practices organizations).
See also:
Supply chain management liability indicators
EMS provider financial indicators and due diligence
I would have also liked to see a discussion about the difference between leading indicators and lagging indicators, and a categorization of each KPI into one category or the other. Leading indicators give a clue to the likely future success of the organization.
They indicate whether you are building for the future, and can provide an early warning signal of future problems. Customer, employee and supplier indicators are among the strongest leading indicators of future performance.
Lagging indicators are like looking in the rearview mirror. It’s useful information about where you’ve been, but it’s dangerous to steer by. Financial performance, by its natural historical data, is typically a lagging indicator.
Overall, “Key Performance Indicators” is well-written, nicely organized, and a valuable reference for managers at any level.
The key, as it so often is with good ideas, is for the reader to not just read the book – but also take the leadership initiative and make it happen!
Robert A. Rudzki is a former Fortune 500 senior executive, who is now president of Greybeard Advisors LLC, a leading provider of advisory services for procurement transformation, strategic sourcing, and supply chain management. Bob is also the author of several leading business books. www.greybeardadvisors.com
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