How to choose KPI’s for maximum impact in Recycling businesses
Howdy wasters! Most professional organisations these days use a number of different metrics or Key Performance Indicators (KPIs) to keep track on the overall business performance across different functions or divisions. These are often consolidated on a scorecard that is reviewed by senior management on a monthly or quarterly basis.
In many organisations these KPIs cover the following areas:
- Financial
- Operations
- Customer Satisfaction
- Quality
- Environmental
So what is the purpose of KPIs? Well, in theory they should provide a quantitative and/or qualitative measure of whether the business is making progress or not. However, according to top performance consultant, David Parmenter, KPIs that are measured monthly or quarterly do not create change within an organisation. To illustrate a real KPI in action, David relates the story of Lord King, chairman of British Airways (BA) in the 1980s who appointed consultants to recommend key measures that he should focus on to effect the turnaround of the ailing airline. The consultants came back with a single critical success factor: the timely departure and arrival of its aeroplanes. Lord King was apparently not impressed as everybody in the airline business knew the importance of timely flights. The consultants explained that this metric was in fact key to the business and had a knock on effect to a variety of other critical measures including:
- Increased costs in many ways including airport surcharges and accommodation for passengers affected by flight delays and missing connections.
- Poor customer satisfaction due to late departures resulting in fewer repeat customers
- Creating a negative image of the business affecting future pool of potential employees
- Knock on effect on staff morale having to deal with unhappy customers
- Increased wastage of fuel as planes tried to recover lost time instead of cruising at most economical flight speed
So Lord King adopted this KPI and whenever a flight was delayed by a specific length of time he would receive a phone call and would in turn call the responsible BA airport manager. This resulted in a dramatic decrease in flight delays and turnaround impact on BA in general as nobody wanted to receive an angry call from the chairman.
David goes on to explain key characteristics of KPIs as follows:
- That they are measured frequently e.g. daily or 24/7 (KPIs are not measured monthly as the horse has already bolted by this point)
- They are non-financial measures (i.e. not measured in £’s or $’s)
- That they are acted upon by the CEO or MD on a daily basis
- All staff understand the measure and whatever corrective action is required to fix/improve
- Responsibility for the KPI can be tied down to an individual or team
- The KPI has a significant impact on the organisation e.g. it impacts on other critical success factors
- Positive movement of the KPI affects all other performance measures in a positive way
So what KPIs should you choose for your recycling business to make the maximum impact? I think this really depends upon a number of factors including your key business goals, what stage of growth the business is at, how you are performing in relation to your competition and the needs and wants of the various stakeholders within the business. For example, if you are a software company and your vision is to be the number one provider of quality, Software-as-a-Service solutions for the recycling industry (what a lofty and noble goal!) then a critical success factor for your business might be percentage of market share. However, this is not a KPI as you can’t measure it daily. A good proxy might be the number of new customers on a daily basis. However, you do a bit more research and you realise that the number of new customers is directly proportional to the number of leads you have in your sales funnel which is proportional to the number and quality of marketing activities. So a KPI for this business could be the number of daily marketing campaigns.
When I first started contemplating KPIs for a recycling business I came up with the usual suspect of sales revenue, net profit, EBITDA, revenue and cost per tonne waste received, revenue per customer order etc. but as you will note from David’s advice, all of these are typically historical measures and are very much reactive. I also considered some of the key environmental measures that our We3 Recycler and carboncheck products track including percentage (%) reuse, recycling and landfill rates, energy used and CO2 emissions per tonne of waste processed and while these are clearly critical success factors for any recycling business they are once again past-looking measures. After much thought I arrived at a handful of KPIs that I would say are core to any recycling business:
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KPI
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Reason for selection
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No. of marketing campaigns
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If you are not reaching out and engaging with potential clients then the chances are that your business is either not growing or is not growing as quickly as your competitors. This applies to both inbound and outbound sales channels. There is also an element of reach and innovation that needs to be considered as part of this KPI
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Initiatives for improved reuse and recycling rates
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This directly impacts reuse, recycling and landfill/disposal rates and is a key differentiator for your business. If you can demonstrate to your customers and potential customers that your processes have better recovery rates and are more environmentally friendly than your competitors then this will have a ripple-through effect on your entire business
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Environmental/Security escapes
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Can ruin your business. Robust processes and internal quality testing should be in place to reduce or eliminate exposures.
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Timely and accurate reporting
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Customers and regulators are happy when they receive accurate reports on time. Continued tardiness of reporting leads to suspicions on whether companies are in control and can prompt unplanned audits or loss of business to competitors.
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Tonnes or quantity processed per hour
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You cannot sell what you don’t have (unless you are a broker of course and then you can sell anything J). You need to ensure that productivity matches you revenue targets and customer commitments
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By no means and exhaustive list. I’d be really interested in hearing from you recyclers out there on the specific KPIs that you employ in your business and the reasons why.
For more information on KPIs visit out www.davidparmenter.com or check out David’s book – Key Performance Indicators which is available from Amazon and other sources.