What Elements Define Key Performance Indicators (KPIs) In ERP?
As the old saying goes, “If you can’t measure business performance, you’ll never know whether you’re winning or losing.” While this hoary axiom may smack of nothing more than old school thinking, as a practical matter if a senior manager doesn’t wake up every morning fretting over ERP KPIs in his/her enterprise, chances are that individual will see the door sooner rather than later, because one can’t build sustained business growth on the basis of vaporware.
This sensitivity can be particularly acute when it comes to leveraging and implementing ERP systems. These systems clearly offer an ability to plan for one or more overall resource-based strategies, but if implemented properly, effective nested or subordinate performance metrics can also offer highly granular bits of information that allow a manager to identify and respond to potential problems well before any negative impacts are felt.
Recommended Reading: ERP Software Pricing Guide - Ensure your KPIs reflect the true cost of a system
Consequently, we though we’d take a look at the various elemental levels that make up a comprehensive array of ERP KPIs. First it may be useful to understand what KPIss mean at a strategic level. According to a recent 2014 Deloitte White Paper, “Key performance indicators are specific metrics that offer insights into the overall health of the business and alignment to strategic goals.”
While this consultancy suggests that ERP KPIs are only relevant in the case of measuring overall business strategy, similar key performance indicators directly apply at the ERP module level as well, and since we are all about drilling-down, this is where we will spend our time in this article. To begin, then, what ERP modules can accommodate KPIs, and as a practical matter, what kinds of metric matrices can be applied?
Marketing and Customer Relation Management modules are all about customer outreach, engagement, retention, and secondary business activation over time. Consequently, KPI metrics can directly apply to the following areas of focus:
Activity measured by customers-reached volume
Activity measured by customers-engaged volume
Activity measured by contracts closed
Activity measured by secondary outreach and up-sell re-engagement
This is where the money hits the road, and ERP KPIs here can make the difference between making it or creating a smoking hole in the ground:
Activity associated with overall/periodic transaction volume
Activity associated by total contract volume
Active measurement based on the delta between Gross-vs-Net revenues
3. Business Intelligence
Also sometimes colloquially known as the ‘Who Hit John’ module, in a practical Sense, BI relates to measuring ‘who’s doing what’, by ‘whom’, ‘how often’ and for ‘how much’:
Activity associated with competitor growth
Direct measurement between home and competitor share prices
Direct measurement between an enterprise’s product sales price point and direct competitor pricing
Direct growth measurements between home-vs-legacy-vs-emerging competitors
Effective advertising is essentially driven by cost v. total audience reach, demographic density, and today, geographical relevancy:
Comparative measurement between home and competitor ad placement
Measurements that compare placement cost-vs-audience reach, i.e. how much, how far
Periodic measurement associated with total audience growth-vs-decline
These areas of focus offer only a few rudimentary ERP KPIs that can be monitored within a comprehensive EPR system, thereby creating a series of flexible tracking and business response mechanisms. Consequently, and to finish the way we started, here’s another bit of sage and relevant advice from the proverbial Shin him as derived from thousands of years of reality, rather than idealist conjecture, "He that knows not, and knows not that he knows not, is a fool;" and old or not, that thinking sounds pretty commonsensical to me.
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