Performance in the Cloud
The Wisdom of Crowds
At the time we started Mirror42 back in 2004 (Mirror42 is the holding company of KPI Library and its products — www.mirror42.com), we obviously had read ‘The Hitchhiker’s Guide to the Galaxy" (if you have problems understanding this sentence, I urge you to read the book). But we also came across “Wisdom of Crowds” (*), a book by James Surowiecki. Simply put the book explains why ten people know more than one, even if the ten are not experts. Why does this Wisdom of Crowds notion appeal to us at Mirror42, and why should it appeal to you?
More often than we would like, management teams at client engagements, asked us which KPIs they needed to use to run their business/department. In those early days we were focussed on making software for KPI management and not in the business of consulting, and we also lived under the impression that /they/ would know — but alas often they did not. After a few of those projects we decided that the KPIs we had collected and implemented deserved a place on the web, for free. It gained some attention, and as a side step we decided to develop it further with more features, and more KPIs and other content, as it developed in what now is KPI Library.
As we added new KPIs to the library we had two profound insights. One: visitors could be involved in determining which KPIs should be part of best-practices — we developed this into our KPI popularity concept. And two: visitors could be involved in providing KPI benchmark scores simply by telling us how KPIs score in their organizations — we developed this in our KPI benchmarks concept.
Traditionally, deciding which KPIs to use is either left up to outside business consultants, or internal roundtable sessions, or a combination of both. But as with standardized business processes (like SCOR for supply chain, and ITIL/Cobit for IT), why not -partly- standardize on KPIs, based not on input of one (or two) experts, but the popularity of KPIs based on input of tens of thousands of people around the world? (**)
The same applies to benchmarking. Traditionally, business consultants scan your organization, and compare results with other organizations that they have been comparing. More often you are compared to only a small sample group. It is not cheap and takes a lot of effort. Based on our Wisdom of Crowds approach you now have access to KPI benchmark scores at KPI Library for just a fraction of the cost and a fraction of the effort. And the nice thing is: KPI Library knowledge is growing day by day with new members joining.
Does our approach have drawbacks? Sure. People can give us the wrong answers, but the sheer size of the KPI Library community (and some policing from our end) ensures that these wrong answers fall out eventually, statistically speaking. It does not give you the 100% correct answer, nor does it pretend to give (I could have simply argued that no approach can give you the 100% correct answers). It gives in our opinion a good enough answer against low cost than can serve as a basis for further analysis and investigation. And with the growing Wisdom of our Crowd at KPI Library, it will only improve.
All the best.
-Erik
[*] The complete title is “The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations”
[**] I’m sure I will get slammed for this statement: KPIs should be driven by organizational goals, you fool! Well, if out of 100 organizations, all use 10 similar KPIs (besides other KPIs) why shouldn’t you at least consider using those 10 to measure your performance? You don’t always have to reinvent the wheel, especially when you’re just starting to implement these kinds of programs.
Manager, Performance Management Solutions at SAS
VP Products at Mirror42
Gary, thanks for the comments. I have lots of respect for your work and thoughts.
Would be interested in seeing some practical examples of what you call strategic KPIs.
I believe it should be possible to have a standardized set of performance indicators that applies to any business with some slight differences based on industry (those are so industry specific that it does only make sense to measure them if you operate in that industry). Also indicators for business processes only make sense if you operate those business processes.
In my world view companies operate business processes with performance indicators as outcomes (or leading indicators for future outcomes). A strategy influences business outcomes and therefore performance indicators that measure them. So, in this thinking you would have had the performance indicator before the strategy, otherwise you would not be able to decide on strategy (like the chicken and the egg, although I heard today that we had the chicken first based on new research).
An example. If you decide that there is a need of strategy shift with more focus towards costs, then you would at least think that within the company there is a sense of costs before that decision.
I can see examples where companies do not measure particular performance indicators yet, because they did not make sense to measure, because it did not fit historic strategy. For example, if you decide to sell through channels as a strategy, and you have not done before then obviously you do not have indicators for that business process yet. We could now have a discussion on the existence of the indicators before the change of strategic direction, but I guess that most companies know that revenue from channel was zero if they do not have a channel.
The best-in-class companies, I think, know what to measure, and what not (!), and how to adapt that measurement model based on new strategies.
Best regards, Erik
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Erik,
I agree with and support your ideas above and the mission of KPI Library. A term for the “wisdom of the crowds” is user generated content (UGC). There are many examples. To nudge local government to provide services, there are websites where citizens can report a problem, like a fallen tree in the road or a leaking fire hydrant. A work order is then automatically sent to to the town’s public works maintenance department. This creates accountability and visibility for town officials. They cannot hide. The citizen is repeatedly e-mailed until they confirm the problem was fixed.
Another example is Wikipedia. Just compare Microsoft’s failed MSN Encarta encyclopedia with the Website Wikipedia. The former paid experts to construct whereas the latter relies on volunteers to contribute. Which one succeeded? Not the paid experts. It was the volunteer contributors, just like KPI Library.
I do however have a note of caution. Although relying on other organization’s KPIs as a “quick start” for determining KPIs, my belief is for the vital few strategic KPIs, in contrast to the many operational PIs, one should tailor them by being derived from the organization’s strategy map. Strategic KPIs can be defined as “monitoring the progress towards accomplishing each strategic objective in the strategy map.” Since strategy is unique to any organization, their KPIs should not be what others measure (though some may apply), but rather should be what performance indicators uniquely monitor achievement and execution of the strategy against targets.
But having examples from KPI Library certainly helps.
I liked your article.
Gary
Gary Cokins, SAS