“Processes are what companies do”
Earlier, we covered the strategy-driven approach to determining KPI requirements. Today we’ll cover the process-driven approach. Closely examining your business processes in the framework of the process-driven approach will give you insight into how your organization adds value, and how you can measure the performance of its activities.
The business processes are a crucial starting point for defining the information needs and improving the performance of the organization (Kerklaan, 2009; Van Leeuwen, 1997; Tideman, 1993). This approach gives “certainty” that the required information is also relevant for the user. “Every company on earth consists of processes. Processes are what companies do” (Hammer, 1995).
Steps of the process-driven approach
The process-driven approach to determining KPI requirements contains several steps:
1. Make a distinction between primary and secondary operational processes
The primary process should be emphasized. This gives the organization insight into how the core of the organization functions. There are still information systems being built that primarily contain information from bookkeeping or personnel systems. Take the following practical example: “After first delivering the financial indicators from the source Exact, the other information areas will gradually be rolled out and presented.” These kinds of systems hardly generate revenue compared to information from the primary process. It’s possible that a secondary operational process doesn’t function properly. But if the financial administration doesn’t properly process invoices in the bookkeeping system, that’s not necessarily a disaster for the organization.
2. Describe the tasks, authorizations, and responsibilities (TAR) for every role
Not everyone clearly knows what their role is, what’s expected of them, and which activities they should perform. The individual goals of every team member should also be described. This HRM-like step will save you time down the line. This can let management information really make the difference in the long term, by linking it to desired behavior and individual skills. This may reveal any gaps in the knowledge, attitude, and skills of employees and managers. A Personal Development Plan (PDP) can close that gap. A PDP is an agreement between employer and employee about their personal development. The PDP should match the (strategic) goals and the key factors for good (financial) performance. But in the end, individual people make the difference, not a management system with pretty KPI dashboards and indicators. Although those are also essential to performance improvement.
3. Acknowledge the generic indicators
Almost every process has several generic indicators that can serve as a basis for performance measurements:
- Input and output: In terms of goods, information, and capital, describe the input and output of a process.
- Effectiveness: This can be measured by registering waste and excess; the difference between the input and output of a process. Most proposals start with a request from a potential client. The effectiveness can be measured by counting the amount of proposals that resulted in an assignment and dividing that by the total amount of proposals made. Reality is a little more complex, of course. What if the eventual assignment works out differently? Instead of getting an order for ten thousand units, they only order two thousand. Or the assignment is extended for ten days. An entirely different kind of challenge: what if the only proposals entered into the system are the ones where the account manager is sure that the client is going to sign?
- Lead time: The time between a client making a request and the moment the products or services are delivered. The lead time can also refer to the proposal track or the handling of a complaint, for example.
- Start-up time: Just about every process needs some start-up time to organize the process starting as soon as it receives input. Requirements like logging into a system, or starting up a machine.
- Request time: The time it takes for a customer to place a request with the organization. Does the customer need to be connected to ten different people, or can they order directly through the website? It’s the time between a client deciding to place a request and the moment the organization registers the request. This can be difficult to measure. It’s possible to request this information from the client.
- Queue time: This can be measured by time-stamping incoming requests in a process. As soon as the request is registered, you can measure the queue time. The queue time is part of the total lead time and can be interesting in order to see which parts of the process are problematic. That allows an organization to optimize the total process easier and more efficiently.
- Quality: This can be measured by comparing the specifications of the request with the produced result at the end of the process. You can also ask clients if their expectations were met and if they’re satisfied.
- Costs: The costs of the input and the costs of running the process (for example personnel, write-offs, and machines).
4. Make the above generic indicators specific
Make the generic indicators specific to the different business processes of your (intelligent) organization.
5. Tasks, authorizations, and responsibilities
Connect the TARs to the generic (performance) indicators so that process indicators are linked to responsibilities (see the figure below). That will clarify how it’s measured and which person or team is responsible for improving the score.
6. Acknowledge the dependencies.
Processes are often (very) dependent on other processes. A process by itself could perform very well, but that doesn’t mean that it can’t negatively impact other processes. A certain process could perform very well on lead time, which causes the queue time for the next process to increase exponentially, and with it the pressure. The first process is then inactive for a while, because it can’t dump its output, which results in a loss of productivity. The next process is stressed. It’s crucial to recognize the dependencies and the so-called critical path.
Figure: The link between indicators and responsibilities (of a web shop) is a logical step (but is often forgotten!).
Learn more about KPI requirements and Key Performance Indicators:
Don’t use too many indicators
The process-driven approach is ideally used as a follow-up to the strategy-driven approach. Otherwise you run the risk of too many indicators, including indicators that aren’t critical and important for fulfilling the mission and executing the strategy.