Alongside Jon Hansen (Procurement Insights) and Sheena Donaldson (CIPS) I participated as a panelist in a webinar yesterday: “Measuring for Success in Source-to-Pay: The KPI’s You Must Track to Boost ROI.”
Rather than give a prescriptive list of must-use KPIs, the discussion ended up being around the setting of metrics themselves. I am actually glad this is where the discussion went as, in my opinion, there is no such thing as a “must use” KPI; it is entirely dependent on the specifics of our organization and the impact we are interested in having.
Some of the things we discussed:
- Beware the benchmark
When setting up KPIs for the first time, benchmarks are most helpful. We need, however, to be careful how we utilize them because if our organization is not a carbon copy of the benchmark cohort, using the benchmark unaltered can be problematic, dangerous even. It is best to use them only as a guide as we reflect on what behaviors and results we want to drive.
As an example, let’s take the “Spend Under Management” KPI.
Most organizations implement Spend Under Management as a way to measure the reach or influence of their procurement group. The benchmark suggests Spend Under Management should be 80%-90%.
The problem is that this number is calculated in several different ways (e.g., spend “touched”, spend under contract, spend that runs through the P2P process, spend that has a formal category strategy in place). How is the benchmark actually being calculating? Is that what we actually want? Do we have the resources to make a positive impact on that spend (however it is calculated)? Are we just checking the box?
Would we be more impactful if we had only 25% of Spend Under Management, but that spend is directly related to the strategic direction of our company, and enhancing our competitive advantage?
Those who aspire to 80%-90% Spend Under Management may end up spreading themselves too far and wide, when a more concentrated focus could exponentially increase impact and, ultimately, ROI.
- Too many KPIs
It is very easy to go overboard when building a performance scorecard for the first time. We have all seen dashboards that include 24 different metrics! Are we really tracking and managing to these, can we even do that? Are they vanity metrics? What are the two, three or four metrics (“core metrics”) that really matter? Can we identify/create these core metrics such that if we achieved or exceeded them, we would automatically handle some of the other things we used to track?
- Focus on the customer
Historically, we have focused on financial metrics (almost exclusively cost savings). Is that what we should be measuring?
In the webinar, we discussed the importance of understanding our value proposition within the context of our company.
There is a tech firm in Silicon Valley whose procurement value proposition is to save time for their highly paid and in-demand software engineers and executives; their departmental KPIs reflect this fact. Another company we know is making a big push into measuring Net Promoter Score. Whatever it may be, start with the customer (i.e., stakeholder) in mind and work backward into an appropriate metric, be it financial or another type.
By working with our stakeholders to understand 1) how the value they create is translated into top (or bottom) line impact and 2) what they would consider a “win” or value created, we can better align our mindsets and activities (and KPIs) to meet those expectations.
It is important, too, when working with our stakeholders to understand their perspective on value creation and measurement, that we not abdicate our responsibility to educate and advise them on effective strategies and behaviors.
Leaving a Mark
One of the takeaways for me from this webinar was how critical it is not only to choose KPIs, but also to choose them thoughtfully, strategically and carefully. “What is measured gets done”, so our choice of KPI will have a profound impact on our organization for some time to come.
A final thought: consider using KPIs to drive the changes we want to see, rather than simply to manage operational aspects of our performance that are already under control.
Some questions to ponder:
- What are the top three KPIs for my team? For myself in my role? For myself in my career?
- Am I/we using KPIs as a tool to drive change or just to measure operational performance?
- How often do I review my KPIs? Modify or change them wholesale?
- Am I guilty of measuring things I have a high confidence of success in achieving at the expense of those things that I know I am not very good at, yet want to achieve for the long-term benefit of all involved?
- How often am I measuring my progress in achieving KPIs? Do I have a plan for when I am not tracking on meeting my objectives (as measured by KPIs)
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