Key Performance Indicators (KPI) for a SME Network: How an organization can measure progress toward its goals by using the CODESNET Web Portal
Agostino Villa & Dario Antonelli Politecnico di Torino - CODESNET Coordinator
The CODESNET web portal, in its section denoted Virtual Laboratory, includes a number of SME networks presentations (V-LABs) whose data allows to evaluate the performance of an industrial organisation of this type. In principle, once an industrial organization has analysed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. KPIs are those measurements which can help an organization define and measure progress toward organizational goals. What Are Key Performance Indicators (KPI) KPIs are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization. Examples: a business unit may have as one of its KPIs the percentage of its income that comes from return customers. A school may focus its KPIs on graduation rates of its students. A Customer Service Department may have as one of its KPIs, in line with overall company KPIs, percentage of customer calls answered in the first minute. A KPI for a social service organization might be number of clients assisted during the year. Whatever KPIs are selected, they must reflect the organization's goals, they must be key to its success, and they must be quantifiable (measurable). KPIs usually are long-term considerations. The definition of what they are and how they are measured do not change often. The goals for a particular Key Performance Indicator may change as the organizations goals change, or as it get closer to achieving a goal. Key Performance Indicators (KPI) reflect the Organizational Goals An organization that has as one of its goals "to be the most profitable company in our industry" will have KPIs that measure profit and related fiscal measures. "Pre-tax Profit" and "Shareholder Equity" will be among them. However, "Percent of Profit Contributed to Community Causes" probably will not be one of its KPIs. On the other hand, a school is not concerned with making a profit, so its KPIs will be different. KPIs like "Graduation Rate" and "Success In Finding Employment After Graduation", though different, accurately reflect the schools mission and goals. Key Performance Indicators must be quantifiable If a KPI is going to be of any value, there must be a way to accurately define and measure it. "Generate More Repeat Customers" is useless as a KPI without some way to distinguish between new and repeat customers. "Be The Most Popular Company" won't work as a KPI because there is no way to measure the company's popularity or compare it to others. It is also important to define the KPIs and stay with the same definition from year to year. For a KPI of "Increase Sales", you need to address considerations like whether to measure by units sold or by dollar value of sales. You also need to set targets for each KPI. A company goal to be the employer of choice might include a KPI of "Turnover Rate". After the KPI has been defined as "the number of voluntary resignations and terminations for performance, divided by the total number of employees at the beginning of the period" and a way to measure it has been set up by collecting the information, the
target has to be established. "Reduce turnover by five percent per year" is a clear target that everyone will understand and be able to take specific action to accomplish. Some Hints for Key Performance Indicators of Organisational Success in SMEs Networks Many things are measurable. That does not make them key to the organization's success in SMEs Networks and/or networked enterprises. In selecting KPIs, it is critical to limit them to those factors that are essential to the organization reaching its goals. It is also important to keep the number of KPIs small just to keep attention of every SME in the network focused on achieving the same KPIs. That is not to say, for instance, that the SME Network will have only three or four total KPIs. Rather there will be three or four KPIs for the whole SME Network and all the SMEs within it will have three, four, or five KPIs that support the overall Network goals and can be "rolled up" into them. If a KPI of the SME Network is "Increased Customer Satisfaction", that KPI will be focused differently in different SMEs. The SMEs devoted to manufacturing and assembling final products may have a KPI of "Number of Units Rejected by Quality Inspection", while the SMEs mainly devoted to sales management may have a KPI of "Minutes A Customer Is On Hold Before A Sales Rep Answers". Success by the Sales and Manufacturing SMEs in meeting their respective KPIs will help the whole Network meet its overall KPI. Practical Consequence for SME Network KPI Assessment According to above statements, when considering a SME Network, two complementary approaches have to be adopted in defining KPIs for the whole Network and for the component SMEs. Accounting for individual SMEs, each one of them can be evaluated by typical KPIs for enterprises. Several performance evaluation approaches and related sets of KPIs exist in the technical literature, as for the SCORE method and the scorecard approach [inserire riferimenti]. For what concerns the whole SME Network, the choice of meaningful KPIs must be done on the basis of the network meta-model. Indeed, this is the description of the network as a whole, by specifying its own three functions: produce (by using the Operation Structure - OS), manage (by applying its Organisational Arrangement - OA) and negotiate with external bodies (through the Interface with its Socio-Economic Environment - ISEE).
Demand of goods
Demand of work
OA ISEE
Offered goods Work plans
OS
Offered resources
According to the SME Network meta-model illustrated above, a set of the most specifying KPIs can be found, as related to the three components of the meta-model itself.
The following table shows the potential links suggested to the CODESNET portal End-user:
The questions listed in the V-LAB …Correspond to the following main formats… attributes of an Enterprise Network Re. to the “Operational Structure”: 1. how production operations & a) type: supply chain; production volumes are distributed among network; service network; the enterprises; scientific park; SME 2. which different skills are association; development employed in the different agency;… enterprises, b) logistics (internal service or 3. which logistic network is used. outsourcing)
…and correspond to the following SME Network KPIs: a) Number of SMEs = network dimension b) Logistics KPIs: Internal Delivery Time (average) = inter-SME flow time Lead Time vs Clients
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Re. to the “Organizational Arrangement”: how management responsibilities c) Existence of leading firm(s); c) Number of Leading Firms are attributed to each enterprise d) Governance: type (political d) Type of Governance and how information are committee; support com/agency; Committee transferred & managed; management centre); interactions how internal agreements, or Note that these two KPIs must be with local political bodies and/or control mechanisms, are measured through suitable grades. enterprise associations. negotiated; which organization chart or coordination strategy is selected to assure best efficiency /effectiveness. Re. to the “Interaction with the Socio-Economic Environment”: how commercial agreements with e) Personnel skill level and qualifi- e) Average (or top) skill level external bodies are negotiated for cation; f) Investments in Innovation max profit for the network; Programs (rated over the f) Innovation programs through how a network innovation annual income) interactions with universities and program is decided by partners RTD centres. (and negotiated with financiers); which dynamic evolution of the network can be forecast.
This table shows how dedicated KPIs are related to the information collected by each SME network described into a V-LAB. Then, it gives a clear guide to apply a preliminary performance evaluation of a networks, as well as a comparison between two different networks.