The Magic of 1 KPI
Imagine, you own a business in a competitive and struggling market reeling under global recession. Your business is starving of profitability and growth. All you can think of are new measures, strategies and ways to uplift your business. You are trying everything in your reach, following advices, hiring consultants, but you can’t seem to figure out how to survive. Suddenly, a man comes along and turns your whole organization around. Now, your business is not just surviving but thriving. Profitability has reached new heights, and so has your reputation. So, what did he do? Some sort of magic? Who is this man who simply turned the whole company around?
This was the scenario of British Airways in the early 1980’s!
This man was the late Lord King, and his magic was one KPI. ONE KPI.
What are KPIs?
An abbreviation for: Key Performance Indicator – a financial value, for example sales, that can be used to measure the performance of a business, an employee, or an activity ((Dictionary.cambridge.org, 2018).
What was this magical KPI?
The timely arrivals and departures of the aeroplanes!
How did this work?
Lord King appointed consultants to identify the measures that would lead to a turnaround in the declining airline. They came back with lots of KPIs, but Lord King analysed all the recommendations and decided to focus on only one critical success factor – timeliness.
As this aspect was further analysed, KPIs were proposed, which were focused on late plane measures. This was taken so strictly that if any BA plane was delayed beyond a certain ‘threshold’, the BA managers of that airport would receive a personal call from the Lord King himself. Soon, BA was known for its reputation, and success followed.
Analysis of issues before implementing KPIs:
1) Late planes impacted costs, such as: airport charges, accommodation (for late passengers), wastage of fuel, wastage of food (small window between when the food can be served to passengers) etc.
2) Customers would not be content with delayed flights. Also, the people who come to receive the late passengers won’t have a happy experience, which could possibly rule out potential customers.
3) Negative reputation would mean lower potential future employees.
4) Rise in employment dissatisfaction levels due to dealing with frustrated customers.
Getting the planes to leave on time got rid of many aspects that were holding the company down. The costs arising from late flights weren’t an issue anymore. Customers were happy with timely flights, which drove in potential customers. With the flights flying out on time, came a positive reputation, which increased the pool of potential employees. With fewer or no frustrated customers, employment satisfaction levels were distinctively heightened.
It is very important to analyse the critical success factor following the KPIs of your business. No matter how big or small your business is, KPIs play a crucial role in its success.
As a CFO, I have seen many companies measuring more than ten KPIs, but in my professional opinion, I would suggest that KPIs are most effective when they are 5 or less. More than five KPIs would mean that they are no longer KEY, they are just performance indicators. You need to work out the most important performance indicator(s) and ensure that they are being utilized the most.
If you have been taking KPIs lightly (or neglecting it altogether), now is the time to think, measure, analyse and grow!
