Setting Targets

Setting targets for Performance Indicators should be well thought through. This should not be an exercise in looking at the historical average (unless that is specifically relevant) and then apply 10% as the desired increase. You will want to review history, but you need to understand the goal. It is also important to define the KPI clearly.

For example, let's use the retail market's target of sales to sales last year. Retail has traditionally looked at this on a daily basis, as well as rolled up to the week, month, quarter, and year. I have two primary concerns with this:

1. If the weather was bad, we ran a promotion, or some other contributing factor, we may not know it and are really not comparing apples to apples. Additionally, what if last year was really bad? Beating that number doesn't do much for us.  
2. If we are reviewing this on a daily basis, we loose institutional knowledge due to the repetition. What if we miss a day? Is there any repercussion? What if we miss three days in a row? What if we miss 10 days out of 14? Were there enough days in there of good performance to hide the fact that a trend is occurring?

What would make more sense to me would be to look at this number as a rolling average, or take the total sales for the last 365 days / 365 on a daily basis. Here we can very quickly identify a positive or negative trend, as we don't have to look at numbers that swing wildly by the day of the week. Instead of talking about  a couple of bad days, we understand that even though we had a couple of bad days, the overall trend is above the goal. We can also integrate our sales goal and show it relative to the trend line.  

Align to Customer Value

On thing to consider in terms of developing KPIs (Key Performance Indicators) is how they are aligned to the customer's wants.  All to often we ignore this perspective, yet it is perhaps one of the most important factors.  

For example, one of the growing cost saving tools companies use is call automation services.   "For sales, press 1.  For customer service, please hold while we test your patience."  

Companies do this because they are measuring cost per call, or efficiency.  What the customer really wants is a convenient resolution to their call, or effectiveness.  Clearly these goals are working against each other and in most cases destroys customer loyalty and brand value.  

In the end, we need to balance costs with value, and we need to understand customer and corporate strategy.  Are we focused on customer intimacy as our core business focus, or operational excellence?  Are we measuring the business in a manner that reinforces our business model and customer value creation, or strictly by the bottom line?