Handing the flag - Purpose of Hire
Factors are fallings into place now. We defined our race path, staring with the customer relationship team. The next question lies in what each team provides to the next unit.
We call this the happy scenario. As expected, in daily business, new challenges are continually arising, that need to be addressed and dealt with. This is the ideal business dream scenario.
I proceeded to ask the company's team if they agreed with me that the output of any organization is the purpose of their hire? All members answered in the affirmative, revealing that this is what had been discussed in the interviews during hiring. It's called purposes of hire as the members have the highest control of this part, with occasional support, but generally, their power is usually over 8/10
Setting the Purpose of Hire KPI
Since the team already knew everything discussed above, they felt that there's no new information had been given to them. In response, I asked them, how do you measure the team? In numbers? Again, there was a loud silence that filled the room. The gave estimates of numbers, but they had no solid bases. To help them out, I asked about the total fixed cost, including permanent employees. (I will not use accurate numbers for confidentiality and to only calculations)
Fees: 120 million
Estimated yearly profit: 10 million
Although it was clear that the team's purpose of hire was to bring bids to the company, it wasn't clear to them how to set the measure, so I used reversed engineering to do the math.
If your company execute projects that are worth a minimum of 130 million excluding external costs, what should be the value of the bids that the relationship team should be bringing?
Assumptions:
Winning rate = 50%
The average percentage of achievement of your team = 50%
The relationship team should bring bids with a minimum value of:
(130 million) / (50%) / (50%) = 520 million
Bingo, we have the target of the first measure.
Customer Relationship KPI 1
Bids value equal to 520 million
We moved to the other team, which is the estimation team, once again reviewing their purpose of hire and how to accurately measure their KPI. This is a reactive job, and it should be estimated on OLA.
Estimation Team KPI 1
Count of the submitted proposal on time overall requested proposals
To ensure the job is being done correctly, we added another measure here to provide the team is doing the right estimation.
Estimation Team KPI 2
Count of the submitted proposal we're not the highest overall submitted proposal
We kept moving to decide the measure for every team output. Purpose of hire KPIs
Setting up the Financial Control KPI
Now, a bigger question gets raised, what if our fixed cost gets higher, what if the relationship team request to hire an army to bring for us the 520 million? This marks the point where most companies get trapped. They get caught up in fixing and monitoring the top line, overlooking the costs. Even if they do monitor the costs, they may not know which job is costing them more money. This is where the design for financial control KPI comes in, which so essential for any company success:
If a company gets the 130 million gross profit, it will take 10 million as profit, and the rest of the money would need to be distributed to the various teams. Let's take a look at the percentages, but first, let's remove the support services and back-office as one cost
The relationship team shouldn't cost me more than 6.5 million, which is 5% of the total sales that we get. If for any reason, their percentage is higher, then they might be taking from the company’s profitability. This goes for all the teams. If their cost percentage is higher, it dips into the company’s profitability, causing them to go into loss.
These percentages can be decided based on historical analysis or based on efforts estimation. They should be visited regularly and monitored thoroughly.
We call this measure the “Financial Control,” and it's one of the most important steps as it distributes the financial responsibility across the team and allows them to become financially aware. It will help discover the leak in the cost if any, and it will grant flexibility for the team to grow. Now if the relationship team needs to hire more employees, they can, as far as the below measure is under control
Customer Relationship KPI 2
Percentage of team cost / total revenue is less than 5%
Some companies might link the percentage to the value of purpose of hire (520M) which means the measure now is Percentage of team cost / total bids value is less than 1.25%
I lean towards the second approach, only if another step is added. This measure would be a team goal. This would work to avoid having the individual spirit reduce the quality within the upcoming stages, but how do we define the team goal?
Setting up the Team Goal KPI
There are two ways to define the team goal. One can check what the organization is trying to achieve and connect everyone with it; or, the other one is to link the first team with the purpose of hire of the second or third team. To avoid having the relationship team bringing none qualified bids, we add a measure called team goal.
Customer Relationship KPI 3
Bids to order conversation rate higher than 25%
We know that the influence of the relationship team is minimal in closing the deal, but regardless, the power remains. They are the ones who brought the bid; they know the customer, and they can still help. In such cases, we introduce the weight, which is directly related to the team control over the measure. Setting weights will be discussed in later blogs
Summary of Relationship Team 3 KPIs with weight
On a larger scale, for example, in organizations, the flag is passed from one team member to another until it reaches its final destination, the customer. Behind the scenes, the office extends support to help optimize the function of the leading runners to overcome challenges and so they don’t lose sight of what’s essential the race. Keep your focus to define the most critical 3 KPIs for the runners:
Purpose of hire
KPI 1: Value of bids should be higher than 520 million
Weight: 10
Financial Control
KPI 2: Percentage of team cost/bids value less than 1.25%
Weight: 10
Team Goal
KPI 3: Bids to order conversation rate higher than 25%
Weight: 3
It didn't take me more two hours to set the practice. When I left, two hours later, I left the company's team with the tools to create their measures. Less than a month then, I met with them again and was delighted to see that they are experts in employee performance. They created clarity, aligned the team, and most importantly, they distributed the financial load amongst all the employees. Everyone is a partner, not just an employee. The partners no longer have rising tensions and a lack of communication amongst themselves. Together, they work towards a common objective and have a high level of ownership that will lead them to success.
In my next blog, I will guide you on how to hire partners and not just employees. As well as how to have your employees survive the rise in the gig economy.
Visit www.exceeders.com/store/simplestrata for more information.