Five problems that many companies face in “KPI management”.Advice from a professional who worked as an instructor at Recruit for 11 years

As mentioned above, KPI management is to “identify the most important points in the business process (constraints ≒ important points ≒ weak points) and strengthen (≒ protect) them throughout the organization”.

Identify where to strengthen the most. Since it is “most”,There is only one KPI (process to enhance first). On the other hand, once the identified points become sufficiently strong, KPI management identifies and strengthens the next weakest points.

Weak spots in business processes sooner or later need to be strengthened. Conversely, unless you strengthen your weakest points, you won’t be successful overall.

In the previous diagram, even if processes 1, 2, and 4 are enhanced, the results will not improve unless process 3, which has the worst CVR (yield), is enhanced. This can be easily understood visually by looking at the height of the graph.

This is a general overview, but if you explain it in detail, the response will differ depending on the situation in which the “cannot narrow it down to one” in your question came out.

For example, when leaders who are familiar with business processes get together and discuss based on quantitative data and qualitative information, they narrow down to 2-3 KPI candidates. In this case, it’s likely that all of them need to be strengthened.

In other words, all of them must be strengthened in the end, so in the extreme, it doesn’t matter which one you start with. Start with the processes that are easy to reinforce.

If you’re saying “yes, can you give me some advice,” then you’ve got the point. that is,Strengthen the business process from the back,about it.

For example, let’s say that processes 1 to 4 are attracting customers, nurturing, receiving orders, and customer success, respectively, as shown in the figure below. Process 3 is to increase the CVR (conversion rate: yield) of orders from nurturing.If we can improve this first, we can increase sales in a short period of time.. Also, if the CVR here increases, the order CVR from attracting customers will also increase.

In general, the top of the business process is attracting customers, so this is the most costly. In other words, if the cost-effectiveness of attracting customers increases, it will greatly contribute to the increase in profits.

For this reason, when we compare the top of the business process, “attracting customers,” with the post-process, “order CVR,” we find that it is more effective to improve the latter and then strengthen other business processes.

Q2. What should we do with KPIs for indirect departments?

This is easy. All you have to do is give favor to the identified business process.

For example, recruitment and training are implemented for the weakest process. Indirect departments such as accounting will also take over the work of the weakest process. In this way, it is thoroughly strengthened.

For this to happen, all employees involved need to know where they need to strengthen the most (in KPI management this is called the CSF, or Critical Success Factor). If everyone knew this, they would understand why the back office favors CSF.

Q3. What should organizations that are not related to KPI do?

If you really don’t care, you don’t need the organization.

Decide on a strategy and create the optimal organization to realize it. We don’t decide the organization first and consider the strategy.

Therefore, the order of things is to create an optimal organization to execute the strategy of KPI management. Nevertheless, if the KPI is not relevant, the organization is unnecessary for the strategy and should be lost.

Q4. KPIs are created for each organization, right?

This depends on how you define and use your KPIs.

Set an important mission for each organization and set numerical targets to determine the level at which it will be pursued. This in itself is important.

However, as a higher level concept, there are important missions (CSF) and numerical targets (KPI) for the entire business process.

If you really want to call the numerical targets for each organization KPIs, it would be better to organize them hierarchically, such as “overall KPIs” and “organizational KPIs.”

However, all members must be aware that the achievement of the overall KPI is the most important.

Otherwise, each organization will focus only on achieving its own organizational mission, and the result will be unsatisfying: each organization’s mission was achieved, but the overall numerical targets were not achieved. Because it can get lost.

Q5. What is the use of KPI management in the first place?

In a word:KPI management is useful for overall optimal organizational management and can produce results efficiently.

Generally, companies want to operate efficiently, so they divide their organizations. For example, as mentioned above, it is typical to divide the organization for each business process, such as attracting customers, nurturing, sales, and customer success.

And give each organization a separate mission. Naturally, each organization works hard to achieve its mission.

For example, an acquisition organization gathers many customers in order to achieve an acquisition goal. Nurturing closes a lot of deals. Sales take a lot of orders. But what if each organization was only concerned with achieving its own goals?

The customer acquisition organization may attract customers unnecessarily with incentives. Nurturing may forcibly create business negotiations even though they know that the probability of winning an order is low. The sales organization may also take orders on a whim.

As a result, all the strain is on the final step in the business process: customer success.

in this way,We call this state of “partial optimization” the situation where “it’s all right if only your own organization is good.”. In a state of partial optimization, not only will there be conflicts between organizations, but many unnecessary operations will occur, and time will be spent on internal man-hours such as adjustments.

On the other hand, KPI management identifies weak business processes that should be strengthened as described above and strengthens them throughout the business process. In other words, management can be done with “total optimization” instead of partial optimization.

KPI management is not just about managing with numbers. This is a methodology for achieving overall optimal management.

If you want to learn more about KPI management, be sure to check out the related articles below that were discussed in the past in this series.

Ryuichiro Nakao: President of Nakao Management Institute. Completed Graduate School of Engineering, Osaka University in 1989. Joined Recruit. After serving as executive officer (in charge of business development) of Recruit Sumai Company, president of Recruit Technologies, and deputy director of Recruit Works Research Institute, he assumed his current position in 2019. He is also an outside director of Tabikobo, LIFULL, and ZUU, and a part-time auditor of LiNKX. His new books, published in 2023, include “64 truly useful management books compiled into one volume” and “When the leader changes, the team changes.”