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Amelia Bedelia measuring 2 cups of rice |
One extremely competent CFO was looking for help with performance
management. His team defined 5 elements of success:
1.
Identify KPIs and prototype cascading dashboards
2.
Define metrics we should track for 5 business
units, 40 departments
3.
Create a metrics-driven culture
4.
Be sure to include leading indicators
5.
Set thresholds so we know when KPIs are outside
targeted ranges
If you were the management consultant on the project, where
would you begin?
One leading expert in
the performance measurement space notes:
"In the absence of a clearly articulated and up-to-date
strategy or set of objectives, a KPI team must spend significant time
interviewing departmental executives and corporate executives to understand the mission and direction of
their group before they can commence with the actual work of defining
KPIs.”
-Wayne Eckerson, Performance Dashboards: Measuring, Monitoring, and
Managing your Business
At the time I knew that companies including Intel, Oracle,
LinkedIn, Google, and Twitter began performance management systems with Objectives and Key Results (OKRs) with seemingly great success.
Everything they measured, they measured for a reason.** And they didn't hire Amelia Bedilia to define what to measure!
What I did
I began by asking what KPIs are already being measured to
get a baseline on where we are before trying to figure out how to achieve the 5
elements of success. The temptation to brainstorm KPIs and start reporting the
data we already have at our fingertips was strong! After all, we could quickly
create some cascading dashboards with available data and get a feeling of
making progress. We could even purchase BI software and visualize the data we
already have. But this process would be akin to looking at the data and saying “now
what” as opposed to agreeing on our vision and then clarifying it with metrics
that we can use to monitor and track our progress.
One very highly respected
leader within the organization told me the classic
sufi story about a man looking for his keys in a dark parking lot under a
lamp post even though he dropped them in the dark simply because the light is
better. So clearly I was warned not to make the mistake of analyzing data
simply because it’s available. Ultimately, leadership wanted me to help ensure
we measured the right things.
So, I took the guidance in the above quote to “understand the mission and direction
before defining KPIs.” The MOKRs approach ensured that the KPIs emerged
organically in the context of confirming strategic direction.
I’m pleased to share some example sets of OKRs from a marketing
team to illustrate how KPIs emerged during a 45-minute OKRs drafting session
with the marketing VP:
Marketing Team OKRs
O: Achieve lead targets provided by sales team
KR 1.1: Deliver 100 leads in
Q1, 200/Q2, 250/Q3, 300/Q4
O: Deliver quality leads cost effectively
KR 2.1: Identify best and
worst marketing event by analyzing ROI of at least 5 conferences
KR 2.2: Achieve an overall
cost of marketing per lead below $65 in Q1
KR 2.3: 30% of leads convert
to opportunity within 6 weeks of creation
First notice that this marketing team has a very focused set of OKRs with only 2 Os and 4 KRs in total.
Next, obeserve that while we identified 4 KRs, the following 3 KPIs
emerged as well:
1.
Leads (KPI from KR 1.1)
2.
Overall cost of marketing per lead (KPI from KR
2.2)
3.
Lead to opportunity conversion rate within 6
weeks (KPI from KR 2.3)
Notice that KR 2.1 does not really map to a KPI as “ROI of a
conference” does not fit the definition
of a KPI. However, by identifying the best and
worst marketing event by analyzing the ROI of at least 5 conferences, we may be more likely to achieve KR 2.2 to keep overall cost per lead below $65. The report from KR
2.1 is very likely to be actionable in that we can use the results of the
report to inform decisions that will optimize our marketing spend. That is, “deliver
quality leads cost effectively.” So, clearly a KR is not the same as a KPI.
How do you measure quality?
KR 2.3 illustrates how “quality” can and should be
measurable. At first, the marketing VP wanted to use a “lead score” as a
quality metric. However, the sales VP did not feel like lead score was
meaningful. Since the VP sales in this case does not feel lead score is the right thing to measure, it's not the right thing to measure!
Turns out, the sales VP cared only about the conversion rate to opportunity.
We knew that this averaged about 25% in the past and the sales team was not
feeling like the leads they received from marketing were high enough quality.
Ultimately, we set a target of 30% to represent an improvement over the 25%.
Simply by monitoring this percentage and knowing it was a key result, marketing
worked more closely with sales to ensure the right leads were provided and that
they did everything within their power to help sales reps convert those leads
into opportunities within 6 weeks.
How did we know we measured the right thing?
We got better
results, people worked together across departments. Most importantly, when we
saw the numbers at the end of the quarter, people cheered and wanted to move
the right things in the right direction even more to drive even better results
going forward.
So, are you measuring the right things?
**By the way if you put “Mission” in front of OKRs, you get MOKRs. I first learned about OKRs as MOKRs, and I think the above quote would suggest that we leave the M in there. For more on MOKRs at Oracle check out Never-before-disclosed Oracle Planning Techniques.