Q&A: Key Performance Indicators (KPIs) for Shared Services Centers

Q: We are a new Shared Service Centre and are in the process of making up the SLAs with our internal customers. We need to include KPIs that are meaningful to our clients. What should these KPIs look like?

Key Performance Indicators, or "KPIs", are one of the most important performance measurement elements of any effective Shared Services Customer Relationship Management (CRM) Framework. The performance of each process being delivered (as outlined in the agreed Service Level Agreements or, as I prefer to call them, Service Partnership Agreements) is measured through a range of KPIs. Having KPIs and being prepared to report and discuss them is part of an "open book" policy with regards to how the Shared Services operation will work with its internal customers, reaffirming the spirit of partnership and co-operation. KPIs should cover the key targets of customer service level, quality of service, cost and efficiency, although whether cost KPIs are actually included will depend on how services are priced and charged for. They should be generated on a periodic, often monthly, basis and be reviewed at scheduled Customer/User Forums.

Measurement is separately distinguished between performance of the Shared Services operation itself in meeting its agreed commitments to customers (Output KPIs), and the performance of internal customers in terms of meeting agreed "upstream" process input requirements and to follow agreed policies, procedures and escalation channels (Input KPIs). These agreed Input and Output Key Performance Indicators (KPIs) are measured, reported against and acted on as part of a healthy, continuously improving Shared Services CRM framework. In addition to these Input KPIs and Output KPIs, there should also be certain internal KPIs which measure the performance of the Shared Services operation itself, without these necessarily having to be included in and reported on through SLAs or SPAs. For example, internal cost KPIs will be very important to the internal management and control of the Shared Services operation itself.

It is important to highlight the word "key" here. These measures should be able to hit the key measures required to reflect performance and should not become a long list of numbers and data that get lost amongst eachother and take an age to calculate and report on each period. That is not to say that there shouldn’t be drilldown if areas requiring closer analysis and attention are identified, but the aim should be to have a relatively small number of "dashboard" KPIs that can help drive the customer relationship and support a culture of continuous improvement. Remember to keep this simple.

KPIs can and should cover all in scope processes, such as Procure-to-Pay, Hire-to-Retire, Record-to-Report, and Order-to-Cash. Some examples Input and Output KPIs for the Procure-to-Pay process might include:

Procure-to-Pay Input KPIs

• % of invoices received with or without matching Purchase Order (PO)
• % of invoices received from suppliers with or without approved vendor set up
• % of invoices received with receipt error
• Number of invoices sent out to the business for approval pending approval greater than x days
• Number of employee Travel and Expense claims submitted with policy exceptions

Procure-to-Pay Output KPIs

• % of requests for Supplier set-up or changes processed within the agreed time limits
• % of number of Supplier invoices paid on time
• Number of invoices/line items processed per period
• Time taken to satisfactorily address internal customer queries
• Time taken to satisfactorily address external supplier queries
• Number of payment exceptions processed (off cycle/non standard payments)
• Tracking backlog of invoices received but not yet entered into Accounts Payable
• Invoices (number and value) outstanding longer than x days beyond payment terms
• Number of days to process and pay an employee Travel and Expense claim

When including these KPIs in your SLAs or SPAs, consider stating targets for today and targets for down the track, for example in 12 months time. This is to ensure that agreed measures reflect reality today and then also lay down targets to be achieved over time through whatever business process improvements are being made and through working in partnership between the Shared Services team and internal customers. One could also consider the use of "stretch" KPIs but these should be described as such and assumptions clearly stated as to how these stretch KPIs might be achieved,

In determining what the "right" KPIs should be, yes look at external benchmarks where these are available as these can help to determine "what is possible" and can help directionally. But it is very important to understand actual performance today and how this can be improved. Setting a meaningless, wishful KPI target that can never be met by either the customer or the Shared Services operation is pointless, and indeed can be very damaging and demotivating.

It is also important to make sure that agreed KPIs can be readily tracked and measured, preferably through your existing reporting platforms (e.g. your existing ERP and Case Management tools). If this is not the case, then consider how this can be achieved so that tracking, measuring and reporting is not only straightforward but also so that the data produced can be trusted by all parties to the SLA/SPA. This is critical.

And finally, make sure that something actually happens in practice. KPIs, like any data, are worthless if they do not drive any discussion, follow up and action.

So, in summary:

• KPIs are part of any truly effective CRM framework in support of Shared Services
• There are Input, Output and Internal KPIs that should be tracked and measured, although only the Input and Output KPIs would normally be included in the SLAs/SPAs
• Make sure that only the critical measures are included in the SLAs/SPAs – hence the use of the word "key" in Key Performance Indicators
• Keep things simple and make sure that the KPIs can be readily measured and reported on using available recording and reporting tools
• Set targets that are practical, relevant and achievable, and consider stating them at different points in time and including agreed "stretch" KPIs, linking improvements to specific assumptions
• Act on them and adjust them over time if they don’t meet the purpose that they were originally designed for