A Handful of the Right Numbers can Trigger Such Change: The Power of Meaningful KPIs
By Susie West
Defining Success
Imagine this: you set up a shared services centre, or develop the one you’ve had for a while, and come to a point where you ask yourself the killer question: when do we know we’re ‘successful’.
It’s amazing how many SSOs start life without a success criteria in hand and a clear ‘how to get there’ plan in mind. If you can afford to work with the great consultants out there, determining the definition of success will be buttoned up in the offset. But if you’re using internal resource to get a mountain of tasks crossed off, certain ‘details’ can be eclipsed by selecting an ERP, or selecting a location. One factor that can sometimes be left on the sideline is Key Performance Indicators. And woe betide the SSO that leaves these as an afterthought… or worse still introduces them as reaction to underperformance.
True, KPIs always need revision as your operation tones up. And true, when you have full knowledge of your baseline statistics in, say Accounts Payable, it’s hard to shoot for KPIs which will last longer than a few weeks or months as change happens so quickly. But that’s the idea – they are fluid numbers, which tell you if you’re on track. So putting attention to setting out meaningful KPIs while the SSO is still in ‘start up’ will give you much needed fuel to ensure you’re focusing on the activities, which really matter.
Selecting the ‘Killer’ KPIs in Accounts Payable
But how? Speaking to a shared services centre P2P Process Owner the other day, he shared with me: “If I get a phone call from the Shared Services Director, or if he’s away and I get a call from the Regional CFO, asking me ‘How’s everything looking in AP Mike?’, I’m going to look like an idiot if I don’t have the three or four silver bullets of information at my fingertips so I can draw a complete picture.”
In his view there were only four metrics needed to fill in all the gaps and which carried any importance in Accounts Payable. All the others were secondary. By providing these four metrics Mike was convinced he had a complete picture telling him what the true state of AP was. So what were they?
Mike works for a massive food manufacturer, which has been built up over the years through M&A. The road ahead of him to move from tens of systems to SAP, and migrate as many businesses into shared services is certainly bendy and undoubtedly bumpy. But by knowing the four metrics, which were loaded with meaning, seemed to give him a clarity and confidence to navigate this path with a sense of faith.
All he really wanted to know at any time was:
A) Number of invoices processed per FTE per week
B) Number of exceptions
C) Number of invoices Receipt-to-Post in less than 7 days
D) Tolerance level
Taking Meaning From the Numbers: How to Interpret Your KPIs
Mike’s view was that each piece of the puzzle, when slotted into place, drew a full picture of AP and clearly illustrated how efficient the process was. For example:
KPI A) Number of invoices processed per FTE:
Knowing the numbers of invoices processed per FTE is very telling. Some FTEs are very productive, but is that because they are efficient, or is it because they are processing invoices for ‘good’ business units. This KPI will enable you to pin point the cause of under production, and present a solution. Knowing if the cause sits within the SSO or in the business, will help you draw up a plan quickly and craft the most suitable solution.
In addition to this, Number of Invoices per FTE tells you how much it’s costing the SSO to process each transaction, and how variable this is from week to week. This will feed into your charging model. It will also help with communicating the need for compliant behaviour within the business units, as they should understand quite quickly the consequence of, for example, a non PO transaction.
KPI B) Number of Exceptions:
This tells you how compliant your P2P users are. If exceptions are reducing, you can be sure that your P2P User Compliancy Program is working, and the messages are finally getting through to Suppliers, Buyers and Receivers of Goods. If 30% of your invoices mismatched as opposed to a typical 17%, you can pin point where the anomaly comes from and what the cause is. Having this KPI as a high level report, tells you quickly what the health of your P2P process is. Low exceptions, coupled with a low tolerance, means everyone is following the process rules and your P2P process is in good shape.
KPI C) Number of Invoices Receipt-to-Post in less than 7 Days.
This KPI is significant for the Business Units and Procurement. If the process is clean then only a handful of invoices should sit outside the 7 days. This means Procurement can start introducing Early Payment Discounts, with the knowledge that they can stick to their part of the bargain. In the world of Lean Sigma where the key metric is Time, this is one very meaningful KPI. If you do or don’t practice Lean, this number will flag that any batches of invoices outside 7 days warrants investigation and fixing.
KPI D) Tolerance: Some companies have a £50 tolerance. Others fix it according to a percentage. The higher the tolerance, the lower your exceptions will be, so both exceptions and tolerance need to be read in conjunction to actually mean something.
How Healthy is Your P2P Machine?
Essentially if you operate a scanning and keying (at header) environment and see the following KPIs, you can feel pretty comfortable with the efficiency of your process:
Number of invoices processed per day/week per FTE : 113 – 159/565 - 795
Number of Exceptions: less than 10%
Percentage of invoices receipt-to-post in less than 7 days: 90%
Tolerance: £10
However, move the tolerance threshold to £50 and the above numbers tell a different, and less impressive story. This is why KPIs need to link in and be interpreted in conjunction with others in order to mean something.
The secret with KPIs is to ensure they tell you the truth and quickly. We rely on KPIs to tell us what to do next: they are triggers, directing you to ‘do this’ or ‘do that’. Therefore, they’re pretty powerful bits of data. So ensuring they are meaningful will serve you in the long term.
In a Nutshell
So coming back to Mike and his KPIs, he stressed that each SSO has a different way of looking at KPIs and it boils down to ‘What does success look like? What does success mean to them?’ At a high level there are Business KPIs (concerning deliverables), and Internal SSO KPIs (concerning operations). Then there is the matrix of KPIs around Quality of Service, Cost, and Efficiency. But whatever level of the organization you are scrutinizing, making sure your KPIs are:
a) Few
b) Selected to feed into your definition of success
c) Linked to deliver the complete picture at the required level and
d) Loaded with the right information to trigger the right action
will compel you to channel your resource wisely and ensure the KPIs become tighter over time to reflect your ever improving operation.
