Performance Management - KPIs and the Brewery Analogy

Yes, that got your attention! But why the association between KPIs and breweries?

KPIs are of two types:

(1) KPDs – Key Performance Drivers
(2) KRMs – Key Results Metrics.

It’s the KPDs that are the real Key Performance “Indicators”, providing information about how well the underlying business processes are running.

Let’s think for the moment of a business as a money-making machine. There are typically a number of key stages with any business, in this example B2B (business to business):

1. Marketing function generates interest
2. Sales closes deals
3. Operations supplies the product or service
   
4. Finance collects the customer payment. and pays suppliers and staff
   

How do you monitor how well each of these (and any other) stages are working?

We are talking about business processes. So let’s look at how to monitor a manufacturing process. Yes, let’s look at a brewery, and imagine you are in the control room. What would you want to see on the control panels?

Simplifying the brewing process, we have at least six key stages:

• Receipt of raw materials
• Preparation for fermentation (Mash Tun, Copper and Hopback)
  
• Fermentation
• Filtration
• Bottling & Casing
• Despatch & sale

For fermentation you’ll want to know a number of key metrics, perhaps:

• Temperature & pressure (probably on gauges)
• Quantity of raw materials added per batch or hour
• Quantity of finished product compared to “standard” for the amount of raw materials (yield)
• Alcoholic strength produced
• Etc etc

These are all non-financial metrics, and are a mix of KPDs (driving the process) and KRMs (the result of the process).

Applying a similar approach to a sales team, for example, you can benefit from setting KPDs & KRMs for managing the sales funnel. Weekly metrics might include “value of quotes per week by salesman” plus “conversion rate from quote to sale.within x weeks”, where x is appropriate for the length of the sales cycle.

There’s the old phrase “What gets measured gets done”. You therefore need to be careful about which metrics you use, to ensure that in combination they drive behaviour that is congruent with the business’s goals. This is especially relevant where there are fractions e.g. converted quotes divided by total quotes raised. This is because it is easier to improve the metric by reducing the number of quotes in this example, by excluding those that are not virtually certain of success, than by actually improving the closing process. If the business prefers that quotes are also raised in situations where the order is not virtually certain, there needs to be another metric that encourages staff to raise them.

If you’d like further information, I wrote a whole series of articles on Performance Management . Or just give me a call.

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