Unit 2.1

Table of Contents

Unit 2.1 – Understanding KPI Metric Flow

Learning Objectives

Learning Outcome

Summary

Learning Objectives

• To understand various components of KPI metrics

• To understand calculation of market positions

• To calculate Net promoter score

• To calculate performance of various business processes

• To understand ways to improve quality of business operations

Learning Outcome

• Understand various components of KPI metrics

• Carry out calculation of market positions

• Calculation of Net promoter score

• To calculate performance of various business processes

• To understand ways to improve quality of business operations

Key Performance Indicator (KPI) is critical to achieve expected results in business. A clear understanding of important dimensions and aspects of business provide a better platform for effective and efficient decisions in business. The dynamic environment prevailing in business demands faster availability of data that are necessary to run the business efficiently. Since the business environment is dynamic, the data would be changing at a faster rate and it is necessary to gather updated information from the work and social environment. Understanding the status of operations will support performance of business through effective decisions taken using information available. Metrics available during performance is useful in changing the inputs to ensure expected results in output. There are many application packages available in ICT that support business through digital information available at the right time. The business planning done through availability of adequate information and business process implementation carried out through availability of information on operations will ensure competency and sustainability of business organisations.

Key Performance Indicator (KPI) is a metric value indicating the level of performance of a business activity. KPI provides measure on performance against the target. KPI is measured based on various parameters or dimensions of performance with time span. The metrics can compare present performance with past performances of an organisation. Proper reporting system can provide processed information in a way the management has predefined.

Steps in KPI

The various steps adapted to design efficient KPI are

Step 1: Establish Goals and Objectives

The purpose of a business activity should be defined clearly for achieving success in any activity.

The goals or objectives can be any of the listed aspects in business operations.

• Increase in sales.

• Increase in number of leads generated.

• Increase in brand awareness.

• Increase in e commerce revenue.

• Effective capitalisation of social network.

• Usage of entertainment habits of target customers for business advantage.

The organisations focus on the following activities.

• Brand building.

• Create drive to purchase more products and services.

• Decrease costs.

• Customer education.

• Customer service.

• Create self-service platforms.

• Provide adequate information.

• Create intranet services.

• Create measures to inform performance on goals and objectives.

Step 2: Establish Critical Success Factors (CSF) from goals and objectives

• Listing of critical success factors – macro to micro activities of organisation.

• Isolation of critical success factors that needs immediate attention.

• Establish metrics to measure the performance.

• Establish time frame.

• Establish control measures.

Step 3: Establish Key Performance Indicator (KPI) from CSF

• List out KPI relevant to CSF.

• Isolation of relevant KPIs.

• Setting up measurement methods for chosen KPIs.

Step 4: Collect measures

• Collection of data

• Converting data into information

Step 5: Calculate metrics from measures

• Expression of measures in standard forms.

• Averages

• Ratios

• Rates

• Percentages

• Deviations

• Maximum and Minimum values

An effective KPI must have the following features.

• KPI should be well defined and quantitative

• The information should be communicated throughout the organisation

• KPIs should support achievement of goals

• KPI should be applicable to the line of business in specific ways

18 Key Performance Indicators of business

Fig 2.1.1: KPI Structure

2.1.1 Number of Customers Retained

Customer retention strategy consists of various activities carried by an organisation to increase the number of customers who repeat their purchases. Customer retention strategy also works on increasing the customer usage of the products and services. Many loyalty programmes are planned by organisations to ensure customer retention.

The metrics used in calculation of customer retained are

1. Repeat Customer Rate.

2. Purchase Frequency.

3. Average Order Value (AOV).

Fig 2.1.2: Metrics used in Calculation of Customer Retained

1. Repeat Customer Rate

Repeat customer rate is the measure of the percentage of customers preferring to make a second purchase because of the level of satisfaction, and may continue to use product or service.

a) Number of customers with more than one purchase.

b) Number of unique customers.

2. Purchase frequency

Purchase frequency is the average number of days between two consecutive purchases of a customer.

a) Number of visits by a customer.

b) Time period.

3. Average Order Value

The purchase value of the average order is a measure to value the customer and number of customers multiplied by average order value will provide estimation on sale value of the organisation.

Customer Value

Customer value indicates the status of business.

Strategies to boost customer retention

The strategies used to boost customer retention are

Fig 2.1.3: Strategies to boost customer retention

Fig 2.1.4: Business structure with Customer retention

2.1.2 Percentage of Market Share

Market share is an important parameter for a company and acts as the base for most of the plans of an organisation. Market share is firm’s percentage of an industry’s total sales. Market share is the contribution percentage of a company’s products or services to total sale of products or services of the industry.

Market share can be divided by industry, product category, brand, and a variant in brand. The market position of a company in categories like market leader, market challenger, market player, me too player or Niche player is the status of the company, and activities are done based on market position. Market share indicates competitive position of a company with respect to other competitors in the industry. Market share uses 1. Economies of scale advantages 2. Creation of entry barriers and 3. Bargaining power of the company.

Steps in calculation of market share

1. Determine the period of market share calculation

2. Calculate company’s revenue

3. Find the total market sales

4. Divide the company’s sales by total industry’s sales

Steps for calculating the market share of a new product

1. Total market opportunity

2. Total available market

3. Total serviceable market

4. Market segment opportunity

5. Expected percentage based on strategy

Fig 2.1.5: Market share

2.1.3 Net Promoter Score

The Net Promoter Score (NPS) is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.

Net Promoter or Net Promoter Score (NPS) is a management tool that focuses on loyalty level of customers and the prevailing relationship between the company or brand with the customers. NPS acts as an alternative index to traditional customer satisfaction index. The scale range in NPS is -100 to 100. The customers are asked questions related to loyalty level and their orientation to recommend the brand or company to the customer’s social environment. Social environment is the customers’ family members, relatives, friends and colleagues. Global companies have adapted the tool to understand their position in the minds of the relevant customers. NPS acts as a dynamic indicator for strength of word of mouth support from customers and the strength of relationship. The NPS score is highly functional.

Net Promoter Score Calculation

The survey conducted to calculate NPS has one single question. The question uses 11-point scale with the rating option from 1-10. The question attempts to measure likelihood of recommending a brand or a company by the target customers. The survey groups the respondents into 3 categories.

Detractors: The NPS given by a customer can be in the range of 0 to 10. The detractors are customer group who may have negative orientation or dissatisfied with products or services offered by the company. The score 0,1,2,3,4,5, and 6 offered by the customers place them with a tag ‘Detractors’. A company should be careful with detractors because of the possibility of negative word of mouth generated by detractors. Company should focus on detractors to preserve market image for the brand or company.

Passives: The passives are customer group having neutral or undecided status regarding brand recommendation. The passives spread neither negative or positive word of mouth. Passives may move towards promoters or detractors or may continue to stay in passive category. Company cannot capitalise the category in a big way. The passives offer 7 or 8 as the score for NPS.

Promoters: The promoters are customer group having positive orientation on brand or company. Promoters are the source of positive word of mouth for the company and company makes best use of the contributions by promoters. Company can motivate promoters on a regular basis and capitalise the recommendations made by promoters. Promoters offer 9 or 10 as the score for NPS.

The NPS calculation considers number of promoters for a brand or company and number of detractors. The NPS value is formed by separating % of detractors from number of promoters.

1. Number of promoters

2. Number of detractors

3. NPS = % of Promoters – % of Detractors

Fig 2.1.6: Scale of Net Promoter value

Advantages of NPS

• Provides clear value for brand or company

• Easy to implement the tool, less time consuming and economical

• Easy to identify supporters for the brand or company

• Higher response rate

• Simple and functional

Disadvantages of NPS

• Not comprehensive

• Scale is imbalanced, narrow neutral space and positive space

• Reasons for the score is not defined

• Too straight and general

Reasons for using NPS

1. NPS value may reflect the position of the company in the market. The position of the brand or company in the mind of customers are measured. The score motivates the team or warn the team members to perform better.

2. NPS provides clear indication on the strength of word of mouth.

3. NPS is a clear measure of loyalty.

4. NPS provides clear categorisation of customers.

5. NPS provides indicator for overall improvement in business and open up space for improvement in Customer Relationship Management (CRM).

6. NPS is economical and easy to implement.

7. NPS consumes very less time.

2.1.4 Average Ticket/Support Resolution Time

The quality of service can be the best strategy to hold a customer in the long run and ensure his/her loyalty. One of the standard measures to measure the quality of service is the time taken by a company to provide the required service from the time of service call made by the customer.

Mean Time to Resolution (MTTR) or Resolution Time is the average amount of time a company’s service team takes to complete the service activity from the time of getting a service call from the consumer.

Calculation of resolution time of a service

Service call request: 10.50 A.M.

Service completed: 1.40 P.M.

Time taken to complete the service call (SC): 170 Minutes

Suppose a company gets 10 service calls.

15 Help Desk Metrics

There are 15 metrics related to services that can provide an estimate on the quality of services. The metrics are

1. Number of new tickets (Fresh service calls)

2. Number of tickets resolved

3. Ticket volume by support channel

4. Time to first response

5. Average customer wait time

6. First resolution time and full resolution time

7. Response time bands

8. Ticket transfer analysis

9. Current backlog

10. Predicted backlog

11. Customer satisfaction ratings

12. Individual agent performance

13. Support agent satisfaction

14. Web traffic to the resource pages

15. Support request trends

Advantages of Mean Resolution Time

• Indicates the overall quality of services

• Integrates entire service system

• Helps to set up service benchmark

Disadvantages of Mean Resolution Time

• Grouping the service activities as few service categories and calculating mean resolution time can be a better option

• Time factor alone cannot represent over all service quality

• Focusing on faster services may affect quality of service

Effective Mean Resolution Time System

1. Use a fast and accurate incident management system.

2. Cut alert noise and filter non-alerts.

3. Keep incident acknowledgement times short.

4. Set priorities from the start.

5. Use real-time collaboration.

6. Establish response teams with clear roles.

The additional steps can be

1. Benchmark setting for each category of services.

2. Deviation analysis: Actual time consumed v/s Service standard.

3. Recording of cases and learning.

The extended system may include

1. Separate MTTR for each category of services.

2. Percentage of service calls resolved in every duration considered.

3. Total number of incidents and cumulative incident system.

Reduction of Mean Resolution Time

• Make logging tickets easy

• Leverage self help

• Understand criticality and importance

• Leverage through collective knowledge management system

• Get into situations and aspects of specific need for services

• Manage changes better

• Frame an internal penalty system for service lapses

• Increase commitment level of team members

In digital marketing, the mean response time for a customer enquiry is very important.

• A company should have adequate bandwidth to manage enquiry traffic

• Reduce the lead time

• Have a faster and specific response system

• Monitor service activities

• Status remainders

• Feedback system

• Historical record maintenance

Quality metrics in digital marketing: The quality dimensions in digital marketing can be broadly listed as 19 factors. Quality metrics are listed below.

• Overall website traffic

• Traffic by source

• New visitors v/s Returning visitors.

• Sessions (Number of visits received by the website)

• Average session duration

• Page views

• Most visited pages

• Exit rate

• Bounce rate

• Conversion rate

• Impressions

• Social reach

• Social engagement

• E-Mail opening rate

• Click through rate

• Cost per click

• Cost per conversion

• Cost per acquisition

• Overall ROI (Return on Investment)

Quality Concepts

• Be customer focused

• Ensure total employee involvement

• Be process centred

• Integrated approach

• Continuous improvement

• Fact based decision making

• Communication to everyone involved

• Strategic and systematic approach

Quality Improvement Process

The quality improvement process involves the listed basic concepts:

• Establish a culture of quality in activities carried out in the organisation.

• Determine and prioritise potential areas for improvement in all processes carried out in the organisation.

• Collect and analyse data relevant to processes carried out in the organisation.

• Communicate results to relevant hands in the organisation.

• Commit to ongoing evaluation of activities and improvement measures.

• Spread successes of quality improvement to various stake holders.

Quality Improvement Models and Tools

Quality improvement models are many. The various models could establish standard, systematic and framework for quality developments.

1. Plan-Do-Study-Act [PDSA] cycles.

2. Six Sigma is an approach that reduces defective items.

3. Lean management is an approach that reduces waste in the processes.

Strategic view of Quality Development

Strategy planning is done for long term development of an organisation. The core concepts of strategic quality management are

1. Customer focus

2. Leadership

3. Continuous improvement

4. Strategic quality planning

5. Design quality, speed and prevention

6. People participation and partnership

7. Fact-based management

Customer focus: Quality developments should match the customer needs and wants. Quality development initiatives should focus on making the product more suitable and fitting for the customers.

Leadership: Implementation of various quality improvement concepts depend on the commitment of leadership in providing best products or services to the customers. Leadership should focus on setting up a system and structure to implement quality system. Leadership should allocate adequate funds for quality system development. Leaders should have the capability to achieve success in quality implementation.

Continuous improvement: Continuous improvement is necessary for the competitiveness and survival of many organisations. The structure that works on continuous improvement is necessary for the organisation to stay fit in the market. A well-designed and well-executed management of all systems and processes are the necessity to ensure operational success of any organisation. The expectation of customers from a product or service will be always higher and organisations should be capable of meeting the challenges imposed on continuous value addition.

Strategic quality management: Strategic quality management is the functional ability of the organisation to carry out and implement strategic planning. The ability to deploy action plans on an organisation requires structural conformity to achieve results. Ability of the organisation to fulfil long term commitments.

Design quality, speed and prevention: Design is the functional structure to hold value in product or service. Design of product or service should be based on requirements of customers, technology available and structure and capability of the organisation. The design should ensure performance and defect-free products. Design should be functional and economical and should bring the best out of the input of resources.

People participation and partnership: No strategy can achieve desired results without the support from people involved in the implementation process. The implementing employees should realise the advantages and positive aspects in implementation of the decided strategy. Top management should ensure that the knowledge about strategy should reach each and every person involved in implementation.

Fact based management: Management should be based on information and data generated from various functional areas. Decisions should be taken based on information. Fact based management reduces decisions based on assumptions.

Strategy planning on quality improvement and deployment of adequate resources on implementation can produce sustainable development. Integrating all departments and departmental activities towards organisational strategy can make the organisation more competitive.

2.1.6 Conclusion

• Key Performance Indicator (KPI) is critical to achieve expected results in business. A clear understanding important dimensions and aspects of business provide better platform for effective and efficient decisions in business.

• Key Performance Indicator (KPI) is a metric value indicating the level of performance of a business activity.

• The various steps adapted to design efficient KPI are Step 1: Establish Goals and objectives; Step 2: Establish Critical Success Factors (CSF) from goals and objectives; Step 3: Establish Key Performance Indicator (KPI) from CSF; Step 4: Collect measures; Step 5: Calculate metrics from measures

• Customer retention strategy consists of various activities carried out by an organisation to increase number of customers who repeat their purchases.

• The metrics used in calculation of customer retained are Repeat Customer Rate, Purchase Frequency and Average Order Value (AOV).

• Customer value indicates the status of business.

• The strategies used to boost customer retention: Use customer accounts, Improve your customer service, Start a customer loyalty program, Send engaging emails to customers and Offer a discount or credit to return.

• Organisation can improve its customer support. Information communicated pre-purchase and post-purchase would support the customers.

• An effective customer loyalty program will support retention of customer and also will increase the revenue from the customers.

• Customer retention strategy includes ‘Sending emails to customers’.

• Email advertising is very economical.

• Discounts are one of the ways to bring in new customers and also will support customer retention.

• Market share is an important parameter for a company and market share acts as the base for most of the plans of an organisation.

• Steps in calculation of market share determine the period of market share calculation.

• Calculate company’s revenue, Find the total market sales and divide the company’s sales by total industry’s sales.

• The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others.

• The quality of service can be the best strategy to hold a customer in the long run and ensure his/her loyalty. Quality is capability of a product or service to satisfy the needs or wants of the customer.

• Strategy planning is done for long term development of an organisation.

Summary

• The modern management uses large information and dynamic data to carry out operations planned to achieve goals. The technological developments taking place in the information technology is able to support generation of relevant data adequately, accurately in less time span.

• Digital marketing has become a strong marketing section due to large number of customers visiting online platforms. Many companies were able to adapt to technological changes and capitalise the opportunities generated in digital business.

• Customer retention is the key focus for any organisation because customer retention is very easy and economical than getting a new customer. Organisations work on many strategies to retain the customers. Better understanding of the profile, interest, level of satisfaction, loyalty level and lifestyle of customers can ensure retention planning and implementation. CRM plays an important role in ensuring consumer retention.

• Market share of a brand or company is the indication of position and status of the organisation in the market. Every company wants to reach better market share and most of the activities carried out in the organisations focus on increasing its market share.

• Net Promoter Value is the measure of customer orientation and support to a brand or a company. The net promoter score is calculated based on the number of customers recommending a brand minus number of dissatisfied or negative oriented customers.

• Company should focus on providing fast and effective services to the customers. Mean ticket resolution time or average resolution time is the measure on responsive ability of an organisation to carry out customer services.

• Company should orient on improving the quality in a continuous way and the strategic orientation should be on providing best value bundle to the customers. The competition prevailing in the digital market and the expectations of customer on products or services are moving higher level and companies should work hard to stay competitive and should be in a position to capitalise opportunities generated in the market.