How to Use KPIs For Rapid Business Growth

November 1, 2018 by Stacey Barr

When business growth is rapid, that growth can be sabotaged by limitations. Here’s how the right KPIs can help to lift the limits through leverage, not force.

http://www.staceybarr.com/images/tachometer.jpg

Charlie Taylor, a PuMP graduate, wrote an article that does a great job of showing how XmR charts help us to “sharpen our senses” to the signals in our data. In this article, Charlie shares this story:

“Stan (real person; changed name) runs an Operations team of 200+ people in a rapidly growing business. He has to ensure the business can absorb the exponential growth in users — product is shipped, customers are supported, people are hired, processes get implemented, work is automated… Stan’s first pain is fearing the business might stall. Lacking capacity to absorb growth, marketing and sales would have to hold back for new stock to arrive or new staff to start.”

This is a classic “limits to growth” story that many businesses and organisations face, in different ways:

  • In the private sector, it’s like Stan’s exponential growth in users or customers.
  • In the non-profit sector, it might be growth in demand on aged care services.
  • In the public sector, it might be growth in unemployment.

We’re all affected by this “limits to growth” dynamic in some way, at some time.

Start by understanding the dynamic between the growth and its limits.

I first learned about these patterns of behaviour in systems, also called system archetypes, from Peter Senge’s book, The Fifth Discipline: The Art & Practice of the Learning Organization. Senge explains many system archetypes, and the first one is “limits to growth”:

“A reinforcing (amplifying) process is set in motion to produce a desired result. It creates a spiral of success but also creates inadvertent secondary effects (manifested in a balancing process) which eventually slow down the success.”

Pictorially, the limits to growth archetype looks like this:

http://www.staceybarr.com/images/limitstogrowthsystemarchetypediagram.jpg

Sector-specific examples of limits to growth.

I haven’t read it yet, but Donella Meadows’ book, The Limits to Growth, offers a very deep example of this archetype, in the context of population growth and the limited capacity of the planet.

As a private sector example, we have Stan’s business growth. His reinforcing (amplifying) process is the demand created by marketing to generate more users. Stan’s concern is that their ability to absorb the growth is limited by customer support staff availability and product shipping processes. It looks like this:

http://www.staceybarr.com/images/limitstogrowthbusinessexample.jpg

As a non-profit sector example, let’s consider aged care services. Their reinforcing process could be the demand created by more of the population living longer. They can grow quickly in response, by providing excellent aged care services. But if the demand increases too quickly, they will bump up against staff shortages and availability of beds.

And in the public sector, consider a government department responsible for employment. They could face the demand created by a recession. The recession causes business to cut jobs, and the unemployment rate rises. The department quickly hits the limits of their ability to create jobs to restimulate the economy.

It is important to measure the growth.

Measuring the growth behaviour in any business or organisation is important, to pick up as quickly as possible changes in the rate of growth. The steeper the curve, the faster the growth. And likely, the faster the fall that follows when the limits are reached.

And that’s the pattern we see in the KPI or measure of the growth: a rise and a plateau or fall.

http://www.staceybarr.com/images/limitstogrowthkpisignal.jpg

And it’s also important to measure the limits.

We won’t keep up with the growth unless we lift the limits. The redline of the tachometer in your car tells you the limits of your engine. Revving the engine past the redline will not produce more power (and may actually blow up the engine). Limitations in the engine – like the air-fuel ratio, the exhaust flow rate, and so on – have to be lifted to get more sustainable power.

This means we need to understand the limits and test our actions to lift them. So measuring the limits is important too. For example, Stan should not only measure the growth, Number of New Users, but also measure the limitations. Stan’s limitations might include these:

  • On-time shipping of customer products
  • Accuracy of shipping
  • Fast resolution of customer problems
  • Speed of recruitment of new staff
  • Lag time for new staff to follow set procedures

Limitations are mostly about measuring aspects of performance like utilisation, capacity, speed and accuracy. We find them in the business process that has the biggest limiting effect on the growth measure.

The limitations give us clues about finding leverage.

Stan can’t just keep pushing his team to work harder and faster. That might work for a few weeks, but it will backfire. He needs to think about leverage. And it’s in the limits that we find the leverage. Stan is already thinking about using automation, which could certainly lift the limitations by:

  • making shipping faster and more accurate
  • reducing the demand for new staff
  • making set procedures easier to learn and implement

Can you see how thinking with system archetypes can help us find what’s worth measuring? This is why I love systems thinking: it’s a whole new way of using KPIs and performance measures to get insights on how we can have more control over performance, like business growth.

When growth is constrained by limits, measurement should drive us to lift the limits, not push harder.
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DISCUSSION:

Where have you experienced rapid improvement in your organisation, that is quickly followed by a decline? It’s a clue that you have a limiting factor hidden somewhere, that has sabotaged the growth.

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  1. Free Polazzo says:

    What about when external factors results in a declining demand for your goods and/or services? To continue with your Not for Profit example . Say someone comes up with a cure and/or way to prevent Alzheimer’s? This could leave Non Profits who service aging people with too many beds and more staff than they need. How can we use KPIs to help us from avoiding staffing/building when we may not need so much? Or do we need other tools to do that?

  2. Tom Griffin says:

    An excellent example of an archetype – thank you, Charlie.
    I believe the stronger your system thinking muscle, the more effectively you will be able to use PuMP and other enterprise-level improvement tools.

  3. Chris Cousins says:

    Thanks for the article Stacey. A challenge in this scenario is convincing the C suite to invest ahead of those problems occurring. KPIs can really help here because you can model what the sales forecasts will mean to service levels, otherwise you’re always playing catch up.

    • Stacey Barr says:

      That’s true, Chris – when we measure properly and measure the true causes, we most certainly can build a predictive model that can paint the picture of the likely future if not action is taken now! And also what it might look like if we took the right action now…

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