How to Convert Interested Parties Needs into KPIs
First Things First
There are many different tools organisations can use to monitor their business, and determine which one suits your needs can lead to confusion.
Within ISO Certification requirements, you must set objectives that may appear pretty straight forward but then throw into the mix a requirement to identify KPIs. Many organisations then struggle around this concept and end up using KPIs for objectives because they don’t understand the difference.
If organisations use KPIs as objectives, they would not be meeting the requirements. On top of that, they won’t be demonstrating continual improvement because KPIs on their own don’t get you from A to B necessarily.
Objectives Vs KPIs
Objectives are different to KPIs; Objectives are easily defined as “a result to be achieved” and can be strategic, tactical, operational. An objective can be known as a goal, aim or target and seeks to set out criteria to achieve something. KPIs are measures around those intended results. They are the quantitive or qualitative figures that demonstrate performance in meeting those intended results.
To put this in simple terms, an objective is what you are trying to achieve, and the KPIs demonstrate whether or not you have achieved that objective or the journey to achievement.
To ensure you meet the standard requirements, you will need to have clearly defined objectives and KPIs in place to demonstrate you are meeting or achieving those objectives.
As an example, your objective may be to improve delivery performance. To do this, I would set a target to demonstrate I have improved (take the current On-time delivery and set a target for improvement). I then set a KPI to track this each month to indicate whether or not I am meeting my target or at least I am on the way to achieving it.
How to Get the Most out of Objectives and KPIs
Now we have that straight; we need to identify what our objectives and subsequent KPIs will be. It is a standard error to just grasp at any objectives you can think of; many will select the easy ones, and I can guarantee many of you reading this will have an objective of at least one of these:
- On-time delivery
- Quality
- Customer satisfaction
There is nothing necessarily wrong with the above, but on their own, they aren’t very exciting or earth-shattering. First of all, what is customer satisfaction? How is that defined, and what does satisfaction mean to your customers? Is it the same for them all, or has each customer got different perceptions of customer satisfaction? The answer to this goes deeper than what this article was intended for; I will cover this another time.
A more effective method is to use the interested parties needs and set your objectives around those. Interested parties needs are part of the customer satisfaction process. You then want to identify the risk around not meeting those needs and setting clear KPIs to demonstrate you are meeting those needs.
Get from A-D
A: Interested Parties Needs
Organisations implementing ISO Certification are also required to identify interested parties and their needs. These are other businesses, organisations or people who have a vested interest in your own business. Their actions and requirements can influence your business, and likewise, your actions and requirements can affect theirs. It’s essential to understand the needs and requirements of these parties for this very reason. Clients and consultants generally understand this, but they stop there once they have identified their needs; they do not appear to link everything together.
Whether you are ISO Certified or not, any business should be focusing on meeting your customer needs. Organisations should be taking those interested parties’ needs and ensuring they meet those requirements; if you don’t, then someone else will, so it’s essential to build your management system around this. You mustn’t just focus on the customer needs as there are many other parties who influence your business; I have written plenty of other articles on this.
B: Risks and Opportunities
Once you have identified those needs, you should think about the risks of not meeting those needs. What will happen if you are not meeting your customer needs? The chances are they will go elsewhere. The same goes for your employees; if you don’t ensure they are satisfied, they will find a new job (and satisfied isn’t all about money). Your suppliers, if you are giving them grief all the time and not supporting them, there is a risk they will not service your needs and meet your requirements going forward.
Let’s assume that one of your customer needs is to have all products shipped on time, but they live in the real world and have set your business a target of 95%. You may evaluate your current performance and identify that you are only achieving 90%; there is a risk if you don’t improve, your customer could go elsewhere. You may also determine other factors, such as the reason for you being late currently is mostly down to your inspection process taking too long. You have an opportunity to improve your on-time delivery by reducing the time parts are spent in inspection.
C: Objectives and Plans
I keep referring to Einstein’s theory of insanity throughout my posts, but I will use it once again as its important. The theory of insanity is
“Doing the same thing over and over and expecting a different outcome.”
This is something you need to keep in the back of your mind when you are setting objectives. To achieve an intended result, you need to do something different. For example, your on-time delivery performance is 90% and has been for the last two years. Simply setting an objective around achieving 95% and not making any changes will not achieve the desired result. If you are doing precisely the same as last year, why would your output be any different? With this in mind, you should set out a plan on how you will achieve that objective.
Staying on the same theme of on-time delivery for ease, you may decide that you will speed up the inspection turnaround time by employing an additional inspector or introducing a sample inspection programme. By achieving this objective, you will impact the overall objective of improving on-time delivery.
D: KPIs
We have identified the interested party need (customer on-time delivery). We identified the risks around not meeting this need (on-time is currently 90% and being impacted by inspection holdups). We have set out an objective around this need (need to improve from 90% to 95% through employing an additional inspector). As a way of seeing if we are meeting our objective, we now need to monitor our performance against inspection turnaround time.
You should set at least two KPIs surrounding this specific objective; the first one is overall on-time delivery and the second is the turnaround time within the inspection process. You may determine other KPIs around the inspection process or other processes, but we will keep it simple for now.
Let’s assume that as part of your plan on meeting your objective, you employed an additional inspector in January. They would take a month to get trained on the process and then introduce sample inspection instead of 100% in March.
Your KPI for each will then track performance each month against your target of 95% on-time delivery. We probably wouldn’t see any change in January, so your on-time delivery remains at 90% for that month; in February, you start to see a small impact and achieve 90.5% as they are still getting up to speed. In March, you introduced the sample inspection, and your additional inspector is now up to speed, your result changes to 93%. More tweaks and process improvements are made over the remainder of the year, and by December, you are consistently achieving 95%-96% on-time delivery.
The KPI for turnaround time of parts in inspection is also being tracked. In January, the parts spent on average six days within final inspection. Your new inspector joins and completes their training; in February, they start to inspect parts. In March, you introduce the sample inspection plan, and the turnaround time comes down to 4 days. You still have a backlog to clear, so over the next few months, you clear the backlog, tweak your processes, introduce new controls, purchase quicker equipment etc., by December, the average time in final inspection is down to less than 24 hours.
The improvements worked, and you now have a satisfied customer.
It’s essential to regularly track KPIs; leaving it to the end of the year to see if you have met your target is insufficient. What happens if you plot the results and by the end of the year and you are still hitting 90%-91%? The plan you had put in place didn’t achieve the desired results. Now you need to do something else, and you have wasted a year’s worth of effort as you still have the same issue. Keeping track monthly allows you to monitor progress closely and see small changes to your performance, positively or negatively, and make adjustments as needed.
In Summary
Objectives are different from KPIs; you need both to demonstrate continual improvement and development.
Objectives and KPIs should talk to each other; they are two separate activities but are linked by a common goal.
To identify the right objectives, focus on the needs of those organisations, businesses, and people who have the most influence over your business’s success.
Originally published at https://www.linkedin.com.
