Business Intelligence (BI) “solutions” with sizzling dashboard KPIs first promised profits in the late ’80s. Financial KPIs can help with fiscal discipline. But, their “try harder” novelty fades, and better results are rare. It turns out that – like all tools – BI/Dashboards don’t make for better carpenters, smarter strategic blueprints, innovative input KPIs, or, effective leadership.
Innovate With Downstream Symptoms or Upstream Root-Causes: Two Extremes
A trade association is wrestling with how to enhance their distributor-members’ financial survey report. Financial numbers are the most downstream symptoms of both your upstream actions and marketplace vagaries. How can the association work from symptoms towards better upstream thinking for their members? Try these new input numbers and calculations:
Numbers: Full-Time Equivalent Employees (FTEEs); Annual Total Invoices, and Line Items.
New calculations and correlations:
- Graph: Gross Margin Percent (GM%) v. Return On Total Assets (ROTA) for all members to show that there is no correlation.
- GM% isn’t in the Profit Equation, which is: Gross Margin Dollars (GM$s) less Cost-To-Serve (CTS) Dollars (to fulfill the order) equals Profit/Loss Dollars (P$s).
- What upstream tactics will increase the number of Profitable orders?
- Graph: Gross Margin Dollars/Full-Time Equivalent Employees (GM$s/FTEE) v. Return On Total Assets (ROTA). Prediction: high GM$s/FTEE firms correlate with high ROTAs.
- In columns, from left to right:
- Overall survey averages for: GM$s/FTEE, Profit$s/FTEE, Average GM$s/Order, Average Total Cost/Order, Average Profit$/Order, and Average GM$s/Line.
- Then, the same for each member (disguised) ranking them by GM$s/FTEE.
Increasing average GM$s per customer, sales call, inbound order, pick, delivery, or invoice processing increases productivity and profits. But, how and with what new metrics?
Answer: a distributor with Waypoint’s CTS-analytics uses these upstream, root-cause KPIs:
- The number of (team) proposals and solution-installs for key accounts to reduce hidden buying and servicing costs caused by small-dollar picks and orders. These solutions reduce both parties’ “soft-costs” by 5 to 30%+ of the customer’s annual spend. Grateful customers then increase purchases. If a customer boosts average order size 50% while also increasing purchases by 50%, then FTEE productivity (for the account) goes up 50%!
- Related downstream KPIs this distributor is tracking:
- Year-over-Year profit growth for key accounts
- Percent of all customers that are profitable. Starting at 20%, the goal is 100%
Improve financial numbers by measuring upstream, root-cause actions.