kpi

To Measure is to Know

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Lord William Thomson Kelvin was a pretty smart guy in the 1800’s. He didn’t get everything right (e.g., he supposedly stated, “X-rays will prove to be a hoax.”), but his success ratio was far better than most so he did have useful insight. I’m personally a fan of his quote, “If you can not measure it, you can not improve it.”

Business Intelligence (BI) systems can be very powerful, but only when they are embraced as a catalyst for change. What you often find in practice is that the systems are not actively used, or do not track the “right” metrics (i.e., those that provide insight into something important that you have the ability to adjust and impact the results), or provide the right information – only too late to make a difference.

The goal of any business is developing a profitable business model and then executing extremely well. So, you need to have something that people want, then need to be able to deliver high quality goods and/or services, and finally need to make sure that you can do that profitably (it’s amazing how many businesses fail to understand this last part).  Developing a systematic approach that allows for repeatable success is important. Pricing at a level that is competitive and provides a healthy profit margin provides the means for growth and sustainability.

Every business is systemic in nature. Outputs from one area (such as a steady flow of qualified leads from Marketing) become inputs to another (Sales). Closed deals feed project teams, development teams, support teams, etc. Great jobs by those teams will generate referrals, expansion, and other growth – and the cycle continues. This is an important concept to understand because problems or deficiencies in one area can manifest themselves in other areas.

Next, understanding of cause and effect is important. For example, if your website is not getting traffic is it because of poor search engine optimization, or is it bad messaging and/or presentation? If people come to your website but don’t stay long do you know what they are doing? Some formatting is better for printing than reading on a screen (such as multi-column pages), so people tend to print and go. And, external links that do not open in a new window can hurt the “stickiness” of a website.  Cause and effect is not always as simple as it would seem, but having data on as many areas as possible will help you understand which ones are really important.

When I had my company we gathered metrics on everything. We even had “efficiency factors” for every Consultant. That helped with estimating, pricing, and scheduling. We would break work down into repeatable components for estimating purposes. Over time we found that our estimates ranged between 4% under and 5% over the actual time required for nearly every work package within a project. This allowed us to fix bid projects to create confidence, and price at a level that was lean (we usually came-in about the middle of the pack from a price perspective, but the difference was that we could guarantee delivery for that price). More importantly, it allowed us to maintain a healthy profit margin that let us hire the best people, treat them well, invest in our business, and take some profit as well.

There are many standard metrics for all aspects of a business. Getting started can be as simple as creating some sample data based on estimates, “working the model” with that data, and seeing if this provides additional insight into business processes. Then ask, “When and where could I have made a change to positively impact the results?” Keep working and when you have something that seems to work gather some real data and re-work the model. You don’t need fancy dashboards (yet).

Within a few days it is often possible to identify the Key Performance Indicators (KPIs) that are most relevant for your business. Then, start consistently gathering data, systematically analyzing it, and present it in a way that is easy to understand and drill-into in a timely manner.  To measure the right things really is to know.

 

What’s the prize if I win?

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In consulting and in business there is a tendency to believe that if you show someone how to find that proverbial “pot of gold at the end of the rainbow” that they will be motivated to do so.  Seasoned professionals will tend to ask, “What problem are you trying to solve?” to understand if there is a real opportunity or not. If you are unable to quickly, clearly and concisely articulate both the problem and why this helps solve that problem it is often game over then and there (N.B.  It pays to be prepared). But, having the right answer is not a guarantee of moving forward.

Unfortunately, sometimes a mere pot of gold just isn’t enough to motivate. Sometimes it takes something different, and usually something personal. It’s more, “What’s in this for me?” No, I am not talking about bribes, kickbacks or anything illegal or unethical. This is about finding out what is really important to the decision maker and in what priority, and then demonstrating that the proposed solution will bring them closer to achieving their personal goals. What’s in it for them?

Case in point. Several years ago I was trying to sell a packaged Business Intelligence (BI) system developed on our database platform to customers most likely to have a need. Qualification performed – check. Interested – check. Proof of value – check. Quick ROI check. Close the deal – not so fast…

This application was a set of dashboards with 150-200 predefined KPIs (key performance indicators). The premise was that you could quickly tailor and deploy the new BI system with little risk (finding and validating the data needed was available to support the KPI was the biggest risk, but one that could be identified up-front) and about half the cost of what a similar typical implementation would cost. Who wouldn’t want one?

I spent several days onsite with the prospect, identified areas of concern and opportunity, and used their own data to quantify the potential benefit. Before the end of the week I was able to show the potential to get an 8x ROI in the first year. Remember, this was estimated using their data – not figures that I just created. Being somewhat conservative I suggested that even half that amount would be a big success.  Look – we found the pot of gold!

Despite this the deal never closed. This company had a lot of money, and this CIO had a huge budget. Saving $500K+ would be nice but was not essential. What I learned later was that this person was pushing forward an initiative of his own that was highly visible. This new system had the potential to become a distraction and he did not need that. Had I been able to make this determination sooner I could have easily repositioned it to be in alignment with his agenda.

For example, the focus of the system could have shifted from financial savings to project and risk management for his higher priority initiative. The KPIs could be on earned value, scheduling, and deliverables.  This probably would have sold as it would have been far more appealing to this CIO and supported what was important to him (i.e., his prize if he wins).  The additional financial savings initially identified would just be the icing on the cake, to be applied at a later time.

There were several lessons learned on this effort. In this instance I was focused on my own personal pot of gold (based on logic and common sense), rather than on my customer’s priorities and prize for winning. That mistake cost me this deal, but is one I have not made since helping me win many other deals.