Data, data, data – we need data! We need data about our products, about our customers, about our suppliers, about our performance. We need data to manage and we need data about how we manage so we can manage better. The talk about data has become a bit overwhelming. Companies spend incredible amounts of money and overall energy to collect and analyze data. While I am not trying to say that we should not collect data, I am saying that we have to be much more methodical about what data to collect, and, more importantly, when! Data collection, just like any other project, requires prioritization – we need to understand what data we need, why we need it and when does it make most sense to have it.
Our desire for more data is partially driven by technological advances and simply having the tools to collect and analyze more data, but also partially driven by our style of management, our approach to decision-making. It’s not a secret that Agile is a new norm and a core belief in Agile is “embracing change”. This approach of accepting change freely reduces structure and creates a more chaotic environment – more change, creates more variation in the system, therefore it adds complexity, which is harder to understand and manage. So, naturally, a more complex system produces more data and requires a more sophisticated analysis to be able to make decisions regarding what to do and when.
I strongly believe that we should not embrace any change, but rather understand change first, before we choose to embrace it. Understanding what change helps and what change hurts is key for effective management. One of my most common recommendations to senior management is to do less, to reduce change that we introduce into the system. Doing "nothing", not taking an action, should be an option we choose more often.
So, if you agree with the logic so far, the next question to answer is “how do we know when to take action and when to do nothing”? The short answer is KPIs – key performance indicators. Again, nothing new about this concept. The difference that I am about to propose is in the structure of the KPIs, or what I call a KPI Framework. I won’t be surprised if this approach is being used somewhere, but I do know that the companies I have worked with so far, have not had such framework in place.
The way I recommend building a KPI framework is very similar to building a project work breakdown structure (WBS). I call this KPI WBS. In projects, we start with the goal, then have high-level objectives and then work our way down to detailed tasks. Whether you practice traditional PMBOK approach or leverage Agile, the same concept still applies. Call it an Epic or call it an Intermediate Objective, the concept does not change. When you apply the same structure to KPIs, the end result is a hierarchy where at the top you have Strategic KPIs, in the middle you have Operational KPIs and at the lower level – Tactical KPIs. Too often senior management concerns itself with Tactical KPIs and doesn’t have the right Strategic and Operational KPIs.
Let me give you an example. Let’s take a business that is part of all our lives – a bank. To determine Strategic KPIs, we first need to answer the question – what business are we in? What is the bank’s purpose of existence and how does it make money? Currently, banks ‘buy’ and ‘sell’ money. That’s it. Bank’s revenue comes from the difference between the ‘purchase price’ and ‘sales price’ of its product – money. Of course, there are other revenue streams, such as financial management tools and services, but they are secondary, at least today. So, if the goal for the bank is to buy and sell money, its Strategic KPIs would measure ‘Money Replenishment’, ‘Money Sales’, and ‘System Efficiency’. These three KPIs tell us how much “raw material” comes in and how fast, how much “final product” goes out and how fast, and, finally, how efficient is the system at converting “raw material” into “final product”.
Defining Operational KPIs is a bit more difficult. They should tell us how good we are at managing Stakeholder Experiences. To do that, we first need to map out the Value Stream that shows, at least at a high level, how the value flows, from “raw material” to sales and on to continuous servicing of clients. Ideally, we want to show where Marketing plays a role in the Value Stream, as well as key suppliers. For a bank, it starts with marketing effort that aims to bring money into the system, i.e. replenish it. After all, we can’t sell what we don’t have. So, marketing team comes up with creative ways to tell the public that they want to deposit their money at their bank for numerous reasons. Then, those brave souls that listen, start engaging with the bank via one of several available channels: branches, online, mobile. Assuming that initial engagement was positive, the prospect becomes a client and deposits funds, which land in one of many deposit “products” that a bank has to offer. Now, the focus shifts to servicing and maintaining this client, trying to expand the relationship and gain its “share of wallet” by offering a broad range of tools and services. Net money that the client has in his or her account also becomes part of a larger pool of money that can be sold.
This is where marketing team comes in again and tells the public that they should borrow money from this bank. Again, those that listen, start engaging via several different channels available and those that decide to become clients, end up buying one of the bank’s products. Once that happens, ongoing payments, maintenance and servicing takes place. This process plays out continuously and all other teams, including IT, HR, Customer Service, Finance, etc. – all play a supporting role. Some exist to monitor and control, to make sure the system operates within regulatory and financial constraints. Others play a “vendor” role, supporting business needs. Project Management Office, typically cuts through all boundaries and aims to drive effective change across all functions and, therefore, requires a holistic view of the system and its Value Stream.
Onboarding and Servicing Customer Experience KPIs help answer the question how well customers address their needs before they become clients and after. Support KPIs help tell us how well we manage Employee Experience, how reliable our Tools are, and do we have what we need to service our clients. Monitoring KPIs tell us whether we operate within regulatory and financial constraints. Change Management KPIs help us understand if we are changing in the right direction and at the appropriate pace. Which metrics are most appropriate to measure each Operational KPI depends on the business. For example, a bank may choose to measure how many people onboard in person vs. online and how long each process takes. An example of Customer Experience KPI related to servicing is Late Fees. If a client has lots of late fees, is he/she in the right product? Have we, as a bank, explained client responsibilities? Choosing the right Operational KPIs will require some brainstorming. A general rule of thumb should be to have about 5 measurements per Operational KPI.
Last, but not least, are Tactical KPIs. This is where detailed measurements are gathered. This is where we want to know how many calls came into a Customer Service department each day, how many were answered, etc. These KPIs help us measure team productivity. I am sure each company has dozens of Tactical KPIs that can be mapped to the Operational and, ultimately, Strategic KPIs.
Once we have the KPI WBS built, the next step is to apply Statistical Process Control chart (SPC) to each one of them. SPC will help us identify “signals” to which we should react. If we are able to get to a stable state where all signals have been analyzed and addressed, we can then turn to reducing the “noise” of the system, which requires a holistic view of the system as a whole with all of its complexity and interdependencies. A more detailed process map will be a handy tool to have.
So, what data to collect and when? Start with KPI WBS SPCs and then you can expand. If the goal is to improve Client Servicing, let’s focus on collecting that data and delay Client Onboarding data, including how well our products are being marketed. If our Client Servicing is in good shape and we need to focus on growth, then Customer Onboarding KPIs are key. It’s that simple.
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