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Prevent silo thinking with the right KPIs
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Prevent silo thinking with the right KPIs

Silo thinking: it has been around for ages and unfortunately exists in various sectors. From large insurance companies to retail, it hampers efficiency. Fortunately, there are several ways to prevent silo thinking within your company. We will explain this through the following three practical examples. Embrace KPIs that actually work!

Example 1: DSO in order. Net promotor score on zero!

You recognize the situation: the new annual policy from the insurer arrives. It concerns a commercial legal expenses insurance, and there have indeed been some changes in the legal structure over the past year. The insurer asks you to carefully review the policy document and email any inaccuracies. You do that immediately and receive an acknowledgment of receipt. You think: new policy, so there should also be a new invoice. Therefore, you patiently wait for the new policy document to arrive.

Weeks go by, probably due to a significant backlog in the underwriting department. Then, you receive a reminder from the finance department, asking you to make the payment. How is this for interdepartmental collaboration? The finance department prioritizes DSO (Days Sales Outstanding). For years, you have faithfully paid on time, and now you are being labeled as a defaulter! A day later, you receive a new policy document. Out of the three changes, only one has been correctly implemented. Once again, it becomes another perfect example to share at a party of how things should not be done.

But how then:

  • Promote collaboration between departments and verify in advance if there is an outstanding customer inquiry before sending them a reminder.
  • Make the acceptance department and financial department jointly responsible for customer retention (KPI: % of customers renewing their policies). Prioritize this KPI over Days Sales Outstanding (DSO).

Example 2: over the fence. I’ll get my bonus anyway

Of course, sales exist to sell products and services, and that should remain the primary focus. It is therefore logical to link performance indicators to generated revenue or order intake. Derived KPIs would ideally look at factors that drive revenue, such as quote hit rate and number of visits. There’s nothing wrong with that. However, what KPIs does your organization have in place for a seamless handover from sales to operations? Probably none. And that is precisely where the problem often lies.

We see it time and time again in our programs. It goes wrong during the handover. Miscommunication and uncertainties between sales and the next link in the chain result in significant failure costs and dissatisfied customers. It is not clear enough what is truly needed to effectively and efficiently set the next steps in motion. The quality of this handover is not measured, let alone managed. By also setting KPIs for this handover, the collaboration between sales and operations is strengthened, reducing errors in your organization and making your customers much happier.

But how can that be done?

  • Coordinate effectively among yourselves on what the output of sales should meet, so that operations can proceed immediately.
  • Don’t just steer sales based on sales KPIs, but also on the quality of the handover and the collective results of the chain.

The main performance indicator of the logistics department is focused on reducing costs.

Peter Geelen – iPM Partners

Example 3: Going to the store for nothing

It is every retailer’s nightmare: empty shelves. Empty store shelves lead to loss of revenue. That is also the case for this retailer. After several discussions, it quickly becomes clear where the problem lies. The main cause is the functional translation of KPIs to the various departments.

The Purchasing department determines which items are stocked on the shelves and at what price in this organization. They select the appropriate suppliers for this purpose. The stores are responsible for maintaining the store inventory and timely replenishment of the shelves. They place orders with logistics, which is responsible for replenishing the store inventory. This can be done in two ways: directly from their own warehouse or through direct deliveries from suppliers. The latter takes longer but is cheaper for the logistics department. It saves inventory costs and labor costs in the warehouse. The main performance indicator of the logistics department is focused on cost reduction. You understand the choice this department will make. The store ends up with empty shelves more often, and the customer is the one who suffers (and ultimately, the organization itself).

But how then:

  • Ensure that all links in the chain are responsible for minimizing the number of empty shelves.
  • Make the departmental KPIs subordinate to this collective KPI.

iPM Partners: specialist in KPIs that actually work!

Winning with the right KPIs: does that sound like music to your ears? With our years of experience, iPM Partners knows exactly what works and what doesn’t for your company, even within your industry. Contact our specialists today!

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