KPIs: Are You Measuring The Right Things?

Operations & Training

By Roger McCoy, CFE

To gain a better understanding of the use and perceived effectiveness of KPIs by franchisors, I developed a detailed survey as part of my PhD in Franchise Management. The survey consisted of 19 statements related to their size, age, industry and their use of KPIs within their organization. Four types of KPIs were evaluated and described.

  • Financial – relate to details included in financial statements.  Examples are: Gross Margin, Overhead Expenses, Departmentalization, Balance Sheet Ratios. As a franchisor, tracking only Revenue would not qualify as a Financial KPI.
  • Operational – relate to items used to measure operational performance, but not commonly part of financial statements. Examples are: Average Sale, Sales Per Employee, Conversion Rates, Employee Calls Per Day.
  • Customer Satisfaction – relate to customer commitment. Examples are: Net Promoter Score (NPS), Customer Retention, Satisfaction Improvement, Repeat Customers, Complaints and Resolution Time.
  • Employee Satisfaction – relate to employee motivation and commitment. Examples are: Turnover Rate, Employee Productivity, Employee Complaints, Recruitment Costs.

The statements were designed to determine the level of use of these types of KPIs by starting with the most basic statement of whether they have been established. Each successive statement suggests the greater level of commitment within the organization including statements of whether they were promoted, trained, tracked, and reported; utilized in decision-making by the franchisor; their level of usefulness in group success; franchisor opinion of the KPI use and effectiveness by the franchisee; and the level of input by the franchisees in the KPI development and maintenance. 

The survey was emailed to approximately 4,000 franchisors in North America.

Survey Responses

The most basic statement was: “We have established KPIs for our franchise system” of the four identified types. “Highly Agree” would suggest a firm commitment. “Agree” would suggest at least some effort has been made. The other three options suggest KPIs have not been consistently established. As we progress through the survey, a greater involvement and commitment to KPIs could be demonstrated. KPIs couldn’t be “tracked” if they hadn’t been “established.”

As an example of the consolidated responses, the first statement is shown in Figure 1.

Figure 1 – Consolidated Survey Responses Example

We have established KPIs for our franchise system.

 

HIGHLY DISAGREE

DISAGREE

NEUTRAL

AGREE

HIGHLY AGREE

 

Operational KPIs

0.00%

20.93%

11.63%

37.21%

30.23%

Financial KPIs

0.00%

8.14%

6.98%

48.84%

36.05%

Customer Satisfaction KPIs

0.00%

26.44%

12.64%

34.48%

26.44%

Employee Satisfaction KPIs

0.00%

33.33%

33.33%

18.39%

14.94%


Of those responding, 67 percent, 85 percent, and 61 percent indicate they agreed or highly agreed with the statement related to establishing operational, financial, and customer satisfaction KPIs, respectively. This indicates they have started the KPI process. Significantly fewer agree to have established employee satisfaction KPIs at 33 percent.


Figure 2 – Consolidated Positive Financial KPI Response Summary (agreed or highly agreed)


Key Word      Survey %

Established    85%

Promote         85%

Train               77%

Track              83%

Report            75%
 

Descriptor                                   Survey %

Provide Software                          64%

Franchisor Decision Making         86%

Franchisee Decision Making        75%

Franchisee Input into KPIs           55%

Higher Franchisor Performance   76%

Higher Franchisee Performance  61%

Figure 2 shows 85 percent of franchises have established KPIs for their organizations. And to lesser extents they promote, train, track and report them. They also report that KPIs are used in decision making to a great degree (86 percent). And that the franchisors believe they motivate higher system performance (76 percent). Franchisors suggest that franchisees have a lower opinion of how KPIs increase performance.

Recognize the statements related to franchisees higher performance and whether KPIs are used by franchisees in decision-making, were answered by the franchisor only, and could suggest a difference in perception of perceived value between these two groups.

The franchisors report that only 55 percent allow their franchisees input into the KPI creation process. This could lead to dissatisfaction and detachment among the franchise group.

Broader Comparisons

To allow comparison of KPIs for various franchisor demographics; such as group revenue, number of locations, years in business, and industry type; we “normalized” the responses by computing the weighted average of each response.  Each response choice is given a point value: Highly Disagree – (2), Disagree – (1), Neutral – 0, Agree – 1, Highly Agree – 2.  The resulting Weighted Average is multiplied by 100 to provide workable numbers.  The highest possible score is 200, all Highly Agree.  The lowest possible score is (200).  An all Neutral response would result in a score of 0. 

If we review the progression of the weighted averages of the responses, we can evaluate the franchisors’ commitment to KPIs, by KPI type.

Figure 3 – Summary of Weighted Average Performance by KPI Type 

Key Word                    Operational         Financial          Customer        Employee

Established                              77                    113                  61                    15

Promoted                                 84                    108                  74                    20

Trained                                     67                    93                    54                    2

Tracked                                    55                    97                    43                    (23)

Reported                                  24                    82                    16                    (41)

Descriptor

Software Provided                    37                    54                    (7)                    (59)

Departmentalized KPIs             13                    34                    (30)                  (52)

Franchisor Decision Making    76                     110                  55                    (7)

Franchisee Decision Making   46                    75                    32                    (3)

Franchisee Input to KPIs           14                    23                    (10)                  (28)

Franchisor Performance            84                   105                  67                    9

Franchisee Performance           44                    55                    33                    (8)

Clearly, there is a significant decline in operational commitment from “established” to “reported” in all KPI types, with some averages actually going negative in the progression. The key statements related to whether tracking KPIs results in higher performance and their use in decision-making show a significant difference from the franchisor versus franchisee perspective.

Conclusions

The survey suggests strongly that franchisors agree that tracking KPIs lead to higher system performance. Even though the great majority of franchisors report KPIs are important within their organization, a detailed look by KPI-type suggests that financial KPIs are tracked to a much greater extent than the other three. This can be partially explained by the franchisor’s need to collect system revenue totals to facilitate royalty computation and collection.

Operations, customer satisfaction, and employee engagement KPIs are less established and tracked. Figure 3 suggests that rather than the overall franchisor apparent KPI commitment suggested in Figure 2, customer KPIs and to a greater extent employee KPIs, move into the negative areas in some cases. This suggests a lack of commitment for these types of KPI tracking.

Despite the general results showing a high commitment to KPIs by franchisors, much can be done to improve customer and employee satisfaction KPI tracking and reporting. And they’re directly related. Engaged employees can lead to satisfied customers. Tracking financial and operational KPIs, though important, are not enough to fully monitor system performance.

Roger McCoy, CFE, is a Senior Franchise Business Consultant for Direct Energy. He has been involved in franchising since 2004 and is a U.S. Army Veteran.  He recently completed his PhD in Franchise Management. This article is an abridged version of a PhD paper. Find out more.