In our wealth management mentoring process we work with clients on understanding the different between KPI’s (Key Performance Indicators) and Drivers.
Too often owners make one of two mistakes:
1. They will focus on KPI’s as something their people can do something about.
2. They have too many KPI’s in their company.
You should only have one KPI in your company. When Paul O’Neil ran Alcoa Aluminum he only had one thing he cared about. That one thing was safety. Because he concentrated only on safety, he completely changed every key area of the company
Everything at Alcoa was based on how they improved safety. Every part of the company changed their measurement systems to underscore safety improvements. Not only was safety improved, but communications, gross profit and net profit also improved. They improved so much that Alcoa became a darling of Wall Street.
I believe a great KPI is one that is really important to the company’s success. Often a KPI is a measurement that shows what happened in the past. It’s a measurement of what has gone before. The problem with a good KPI is that no individual can do much to influence its outcome.
You might believe the solution to a high level KPI is to develop many lower level KPI’s. I find this usually confuses people in the company about what is really important or all KPI’s get ignored because no one knows which one is really important.
Drivers should replace the zillions of KPI’s many companies have.
I often see people with localized KPI’s for each part of the company. This not only causes confusion for what is the really important KPI but also fosters silo thinking. When the entire company is focused on one KPI, they can start developing individual drivers that lead to an improved company wide KPI.
If your KPI is to improve profit before taxes some of the following might be good drivers:
- How many CIO visits each of your business development people do.
- How work flows through your organization for investment allocations.
- How long it takes to produce a financial plan.
- How accurately you choose who you make client proposals to.
The more you understand drivers and how they lead to better KPI’s the better chance you have of improving total firm operations. With one KPI you can focus on developing effective drivers. The people doing the work must directly influence the drivers you develop.
The more you help your people understand that they do have influence over a big measurement like profits, the easier it is to get everyone working in one direction. Well-designed drivers are easy for members of your firm to see how they directly impact improvement in their area. When team members understand how their work makes the drivers better it usually is easy to connect the dots to how the driver impacts the larger KPI.
As your employees start understanding how their work affects the big, important number excitement around drivers grows. This is especially true if you have a bonus program that shares firm improvement.
What do you do in your company to help people understand what they can do to influence your Key Performance Indicator? You noticed I wrote this in the singular didn’t you?