Check out Takumi’s NEW English youtube channel🎵
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https://www.youtube.com/@takuway
Learn from a pro with 11 years of experience as a Recruit KPI instructor:
"Don’t Mistake KPI for Numerical Management" /
How to Spot a Bad KPI in 1 Second /
A Visual Explanation of the Difference Between KGI and KPI
[MANAGEMENT SKILL SET]
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The Essence of KPI Management and Step-by-Step Explanation
1. Misunderstanding KPIs
- KPI (Key Performance Indicator) is not just about numerical management.
- 99.999% of companies in Japan misunderstand KPI.
- KPI is not a management tool; it is based on Constraint Theory (also known as the Bottleneck Theory). → Focus on one thing! Innovation cannot happen unless there is room.
- The essence of KPI is to identify and improve the weakest part of the organization (the bottleneck).
2. Correct Understanding of Management
- "Management" is not just "control," but rather a method of optimization to achieve goals—it involves creativity and ingenuity.
- The role of management is to achieve the goal using the given time and resources.
- KPI is one of the indicators used to reach the goal, and it is just a part of the overall management process.
3. Correct Method for Setting KPIs
- KPI is the youngest sibling of the four brothers: KGI, CSF, KPI, and Business Process.
KGI (Key Goal Indicator): The ultimate business goal (e.g., revenue, profit).
CSF (Critical Success Factor): The key factors for success (important points to achieve the KGI).
KPI (Key Performance Indicator): The specific metrics that quantify the CSF.
Business Process: The concrete actions taken to achieve the KPI.
Goal and KGI are a team
- Goal is expressed in language
- KGI is the numerical representation of the goal
CSF and KPI are a team
- CSF is expressed in language (focus all efforts on the most critical issue)
- KPI is the quantification of CSF
Using the goal of "scoring 100 points on a test" as an example, created by Chat GPT:
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💡 Summary
- KGI: "Score 100 points on the test!" (The final goal)
- CSF: "Study properly!" (The key to success)
- KPI: "Study for 30 minutes every day!" (Measurable indicator)
- Business Process: "Do homework, read the textbook, solve problem sets" (Specific actions)
4. The Importance of Focusing on One KPI
- By narrowing down to just one KPI, the organization's direction becomes clear, and the optimization of actions becomes possible.
- When there are multiple KPIs, the focus of the team members gets dispersed, leading to a decrease in overall organizational performance.
- There are psychological barriers such as the fear of being seen as foolish or the fear of failure, but it is crucial to have the courage to simplify.
5. KPI Management Based on Bottleneck Theory
- Identify the factors (bottlenecks) that hinder the growth of the company, and concentrate all resources on addressing them.
- The essence is not to "manage all numbers," but to focus on "improving the most important one."
- Example: When clearing a blockage in a hose, prioritize widening the narrowest part (the bottleneck) to allow smoother flow.
6. Practical KPI Management (How to Build the Right Organization)
- Autonomous organization=where the team can operate independently.
- Identify the weakest part of the organization and cultivate a culture where the whole team supports it.
- Prevent partial optimization within departments (e.g., discrepancies between sales, marketing, and customer success), and aim for overall optimization.
7. Visualization and Sharing of KPIs
- Keep KPIs simple and make it clear across the entire organization where the current bottlenecks are.
- Simply saying "I sent it to Slack" or "I compiled it in a spreadsheet" is not enough. A system where everyone has a common understanding in real time is necessary.
- For example, a physical board that is updated daily, like Toyota’s, is effective.
8. KPI Changes and Adaptation
- KPI's are not fixed and must be reviewed according to changes in the business environment.
- As the business grows, bottlenecks also change, so KPIs should be adjusted accordingly and in a timely manner.
9. KPIs and Psychological Safety
- Organizations that "allow for people within it to show their weaknesses" are the strongest.
- Around 40% of an organization's time is spend trying to hide or cover up weaknesses. By eliminating this waste, productivity can increase by more than 1.5 times.
Creating a culture where asking for help is encouraged improves the overall performance of the organization.
10. 10 Steps for Successful KPI Management
- Clarify the goal (KGI).
Identify the CSF (Critical Success Factors) needed to achieve the KGI.
Break down the CSF into concrete numbers (KPI).
Identify the organization's bottleneck.
Focus on one KPI (concentrate on the weakest part).
Set KPIs together with the leaders on the ground.
Regularly evaluate and update KPIs.
Visualize information across the organization and maintain a shared understanding.
Ensure psychological safety and create an environment where weaknesses can be openly discussed.
Use KPI management to continuously promote organizational growth.
Conclusion
KPIは単なる数値管理ではなく、組織の最も重要なボトルネックを解消するためのツールであるKPI is not just about numerical management; it is a tool to eliminate the most critical bottleneck in an organization.
"Those who master KPIs, master the business."
For an organization to aim for overall optimization, it is essential to focus on one KPI and improve the bottleneck together as a team.
