Attention: KPI sounds more a business jargon and I hate them so much that let us call them Targets. There is no wrong in calling KPI as KPI and it is the a good way convey the meaning, but my dislike for these business jargons, we will refer KPIs as targets through out.
Discovery of the connection between Targets and Valuation
Sometime before RupeeLife was born I asked us for an unheard need — a friend of mine wanted to know his business value on daily basis. He had co-founded a restaurant and he was going through a downslide and was contemplating to exit his business. Until a year before that the restaurant was doing fairly fine and then there was a crowding of new restaurants that took down its revenues.
In search to satisfy his thirst we ended up making a path breaking discovery of the connecting business targets, performance and valuation. The targets are tied with the profits or cashflows and if the targets are met then the valuation goes up and if the targets are missed the valuation slides.
Having a higher target doesn’t pull up the value but meeting the target does. The entrepreneur dreams of the growth, then sets the target and works for the growth and if the target is meet then the growth happens and consequently his business worth goes up.
This method divides the targets into three groups ensuring all the aspects of business growth is covered. First operational target, next marketing target and last financial target. His restaurants targets were daily non-wastage for operations, number of guests per day for marketing and daily interest cost for financial targets. With his restaurant facing declining sales, impact of rising interest cost and dullness with workforce it was losing the valuation quickly and the method kept predicting the deterioration perfectly. Our prediction would have not been that accurate had we stayed with regular valuation methods, but that we have included the targets and considered the actual performance versus the targets and took that as a indication of the direction of the business growth it yielded better results.
Using the business valuation as the single metics to measure business he was convinced it better to exit the business while it still had the glamour and started sending signals to the market. Within three months it was out for sale and the he exited the business.
This didn’t work well for us
The client credited his exit to this valuation method and he was well convinced that this method is worth commercializing as he believed more entrepreneurs can reap the benefit. From his experience with this method we saw it an integrated approach to know where you are and predict smartly on what will happen if the same trend goes on.
We did not to sell this service until we are sure that this helping us at RupeeLife. This meant that this method was out on the shelves for six months. We set our targets for operations, marketing and finance and tracked it. At operations our target was to deliver our works within 10 days. The 10 day assurance was a great attracting point among our customers and something that makes workforce, including me, more accountable.
But, soon we realized that the target was not working. We started seeing trouble with this approach. First of the trouble was the target itself was not smartly designed. Let’s quickly assess the smartness of the target by putting into a 5 point stress-test. A smart target will make up all these five checkpoints:
Is my objective Specific? Can I Measure progress towards that goal?Is the goal realistically Attainable? How Relevant is the goal to my business? What is the Time-frame for achieving this goal?
This operational goal of delivering in 10 days meet three out of the five conditions of of setting a smart target. It missed out big on the time-frame and thereby it had effect of realistically attainable. We didn’t define the time-frame within which 10 days assurance will be achieved. Anything without a time frame is a disaster. We struggled to keep the assurance during the early days. Had we give a two moths timeframe we would have avoided lot of fighting within the team.
Bigger issue was the process to get the result. We wanted a result of 10 days delivery assurance, but we never had a defined process to it. There was a rough calculation to the 10 day assurance, but a sturdy process was not in place. We had some sort of procedure but not a standard operating procedure for deliverables. Even automation of deliverable had a worse impact due to lack of these standard procedure and processes. Everyone acted on their common sense was working hard to fix on case to case basis. Another issue that popped up was a lot of confusion for the certain set of clients. There are some clients who neither know what they want nor accept whats given to them is the best unless they are logically proved. These are the people where the confusion was at its maximum.
Right here we were in a mess, but for sure this mess was better than having no such operational targets. Despite the mess we were bettering than pervious day operational efficiency, but we quickly needed to address two major concerns first, reduce the internal fights between the team and second reduce the client’s confusion
This is working well for us
Now that we knew the problems at hand it was easy to find that two right solutions.
- Implement the best process that supports the 10 days assurance and logically educating the “demanding” clients
Though it seems easy to fix the time frame first and come to this issue next, we found some real difficulty with this sequence. If we go ahead with the time frame first and “force fit” the delivery process then the workforce will feel let down and the morale will crash. All the workforce except the “corporate brand fanatics” or “money driven” see this as a disrespect and they hate these carp pressure of making them do stuff that are unproductive, especially knowingly.
Better approach is to tune the delivery process that has been discovered with the customers thus far. Customers have thought us what they want and what they don’t understand is the best for them. We need to break down the process into identifiable stages. I divided the entire delivery happening using a 10 step process and wrote a one page manual on “how it works”. The manual was open for criticism from every workforce. Every feedback improved the manual and workforce owned the process.
2. Fix a timeframe for achieving the 10 day assurance without in-team fighting
Having learnt that process which backs the goal is crucial as the goal itself and manual for such process it was elementary to fix the time frame. First, we quantified the time frame for each of the 10 steps in the process. Every step was allocated a day and we gave one month time to reach this perfection of progressing one step per day.
Its working perfectly well for us. 10-day assurance with 10 step process with a step progress everyday is now become the norm. The workforce is happy, the customers are clear and satisfied and more importantly there is no wastage of time or additional stress for the day.
Operational target is clear and the process to achieve the target is even more transparent, progress driven and stress-free. We were able to automate this process into our proprietary software and we have saved huge lot of time. We are now able to pass on the benefit of lower hours through lower billing to our customers.
We love the idea of operational targets.
Cheat sheet on how to set a a good operation target:
- Pick up a operations key factor: Be clear on the most crucial factor that affects the operations. It should save time, effort and money for you and your team.
- Set up the measurable target: Ensure the operational key factor is quantified with currency, count or percentage.
- Fix a time frame: Give sometime for the operational target. You will be running against this timeframe to reach the target.
- Back it with a feasible process: The process to achieve the results needs to feasible, filled with common-sense and ownership of the workforce.
- Keep iterating the process: No process is prefect on the first time. Be open and work hard on iterating it till gets near perfection.
- Time up: Even before you realize the time would have flown and you would have achieved so much at operations.