There is a common belief that key performance indicators (KPIs) are for large companies. People working for midsize industrial companies might prioritize other tasks over KPIs. However, like most things in business, there are different ways of looking at things. Here’s what some have said about focusing on measurements:
In 1956, V. F. Ridgway published an article criticizing the focus on measurement. Columnist Simon Caulkin put Ridgway’s argument succinctly: “What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organization to do so.”
In 1963, William Bruce Cameron (not Albert Einstein, as many believe) said: “Not everything that matters can be measured. Not everything that we can measure matters.”
Caulkin and Cameron seem to be on both sides of the issue — measuring is good if you only measure the right things. That is also my position.
So, let’s assume that we can tell the difference between what is essential to measure and what is unimportant, as well as what is measurable and what isn’t. We can now proceed with a discussion about KPIs for a midsize industrial OEM aftermarket business.
Why Are We Discussing KPIs?
As Caulkin rightly said, “What gets measured gets managed.” Whether we have an existing service business or want to create one, we know the company must be managed.
If part of the service business model involves independent distributors providing the service, we certainly want to make sure they are performing up to our standards because repeat sales are heavily influenced by how our joint customers feel about the service they receive.
The Characteristics of a Good KPI
- Good KPIs measure desired outcomes. These could be your customer’s outcomes, your company’s outcomes, the service group’s outcomes, or process outcomes that drive the higher-level KPIs. Think about KPIs forming a hierarchy, with the customers’ or the business’s KPIs flowing down the organization so everyone knows how they influence the overall performance of the business.
- Good KPIs only measure the elements that the measured group has control of. For example, you can’t measure the field service team’s percentage of calls closed on the first visit if they do not have any control over spare parts stocking levels and locations.
- Good KPIs are reviewed, updated, or replaced periodically. They have to be kept meaningful and relevant as higher-level KPIs change. What was important five years ago may not mean anything today, and what is important today may not even have been around five years ago.
Setting KPI Targets
I do not believe in rolling out a new KPI and immediately assigning a target value to achieve because it is too easy to make a mistake. I like to create the KPI in conjunction with the people affected by it. Together, you can discuss the first target, but I recommend running the measurement for about three months to ensure you can measure what you want and see how the team is performing. After three months, you should meet with the original team members and agree on the current performance level. Then, you should whiteboard potential improvements and their impact on the intended outcome. These initial targets should not affect compensation.
After another three months, you can again meet and set achievable targets and figure out how you will reward the team when they hit the target. It could be a bonus, a public award ceremony, or any other way to reward people in your business.
My Favorite KPIs
- Aftermarket revenue % of total revenue
- Ratio aftermarket margin to equipment margin
- % revenue from services introduced in last 3 years
- Average call CSAT rate (1 to 5 scale)
- Average customer effort score (1 to 5)
- Average employee satisfaction score (1 to 5)
- % customers saying you are a partner, not a vendor
- Average annual employee voluntary attrition rate
- First contact resolution rate (for the department, not the front-line team)
- % parts returned from the customer site that had no fault found (NFF)
- Service contract renewal rate
- Service contract attachment rate
- % of calls escalated
- Amount of time needed to call a call with the customer very satisfied
- % spare parts purchased from you
While these are some of my favorite KPIs, you should develop a list you and your organization feel comfortable using. Whatever KPIs you choose should be able to explain how achieving a good outcome will help the company or your customers achieve its objectives. If you become the business KPI pioneer, do what you can and be prepared to make changes as the company’s KPI maturity level increases.
Related posts
- Understanding Desired Business Outcomes and KPIs Is A Must
- Using KPIs To Manage The Service Contract Sales Process; Part 1
About Middlesex Consulting
Middlesex Consulting helps our B2B product manufacturing clients grow their service revenue and profitability by applying the methodologies and techniques associated with Customer Value Creation and Customer Experience professions to assist its clients in designing and commercializing new services and the associated business transformations. Contact Sam here.
Image credit: Photo by Lukas