KPIs and Capability Statements

This article was originally published in the Jul/Aug 2014 issue of MultiLingual and is the companion text for the presentation given at Localization World Dublin on June 6, 2014.

Communicating value in business terms

Value, price, and features

It takes money to buy things, and saving money can be a virtue, a requirement, or both. Therefore, while everyone theoretically believes in the importance of speed, gain, quality, etc., most often the customer’s choice is based on price. And price is still the main driver even for translation buyers.

In fact, the current system favors lower costs and loyalty, rather than excellence, with quality being the unique selling proposition for the whole translation industry, thus making offers indistinguishable, and hence definitely irrelevant, at least in a sales perspective.

Quality is a feature, just like color in beer, while buyers care about the benefits they receive as a result, just like refreshment, possibly inexpensively, and eventually taste.

Communicating value in business terms

Any newcomer in the localization industry is faced with Former Chancellor of West Germany Willy Brandt’s postulate on global trade, “If I’m selling to you, I speak your language. But if I’m buying, dann müssen Sie Deutsch sprechen (then you must speak German).”

It is not so obvious, though, as many still are campaigning to educate the customer. In plain words, as industry guru Don DePalma wrote in an article for the Multilingual Magazine #57 Supplement of July/August 2003 titled Establishing Key Performance Indicators for Localization, “localization practitioners and suppliers [should] communicate their value in business terms.”

Value is in the competitive advantage a vendor could provide customers with, and the first step in making value perceivable consists in measuring performances against goals, thus substantiating one’s own existence and business on solid arguments and data that budget owners can understand.

What gets measured gets done

The saying “what gets measured gets done” has been in turn attributed to Lord Kelvin, Edwards Deming, Peter Drucker, Tom Peters, and others.

Unfortunately, we often get hung up on metrics and measuring things to the point that we sometimes lose track of measuring what really matters. Reportedly, Albert Einstein had a sign on his office wall that stated “Not everything that counts can be counted, and not everything that can be counted counts.”

The first step is then to determine the important business priorities, because on-time, lead time, and cost are the top priorities. In other words, any organization should focus on three areas: on-time delivery, lead time from receipt of order to shipment, and lower total cost to produce.

Critical success factors

To do this, meaningful goals must be set and contributing factors must be identified. These factors are also named success factors and are recognized as the issues or aspects of organizational performance that are important to perform well.

When the impact of these factors determine an organization’s life, they become critical success factors (CSF).

These factors usually pertain to the organization’s areas of excellence reflecting its business capacities at best, allowing it to gain and maintain a competitive advantage and facilitate customer satisfaction.

Price, delivery, quality, customer loyalty, and assets are critical success factor also in the localization industry. They all depend on different variables that could not surprisingly be related to the same business areas because the localization industry is a typical people industry, based on people processes.

Measuring CSFs allows the organization to have the pulse on the business. Knowing what and how to measure is crucial, though. In fact, when something is measured but it is not important, it probably won’t get done.

CSFs can be used to measure performances against pre-specified benchmarks and derive indicators to align daily activities to strategic goals. Since measurements can be very subjective, established metrics are necessary to quantify performances.

Here come performance indicators, expressing what is done (Result Indicators, RI), how it is done (Key Result Indicators, KRI), what to do (Performance Indicators, PI), and what to do to dramatically increase performances (Key Performance Indicators, KPI).

Maybe an automotive metaphor can help better understand the relationship between results and performance. The speed a car is traveling is a result indicator, while how economically the car is being driven is a performance indicator.

Key Performance Indicators

Some performance indicators can be used to measure a business’s success as a grade of the achievement of its goals. In this respect, such indicators express the value of the business’s activities, and are then called Key Performance Indicators (KPIs).

KPIs should be used to manage a business by helping assess progress against stated strategies. They must then be relevant to that particular business and its strategy, and supposedly have a significant impact. Therefore, they should be drawn frequently to drive appropriate actions.

In today’s knowledge economy, company value is no longer driven primarily by physical assets, but is increasingly attributable to non-financial business drivers. Success and future value creation depend on the effective measurement and management of these critical non-financial or intangible resources that comprise the intellectual capital of the business.

KPIs should then help monitor the production processes (sales orders, shipments and backlog, turned around times, suppliers’ delivery performances, quality standards, etc.) as well as customer satisfaction and managerial weaknesses and are essentially non-financial.

Anyway, this is no dogma, and one or two financial indicators can be useful too. For example, the capacity utilization ratio (CUR) is an indicator reflecting the way in which an organization uses its resources to obtain revenue and profit, thus of how efficiently and effectively it is managed. It calculates the total revenues earned per euro of assets. The higher the ratio, the better.

In contrast, customer satisfaction could be a misleading indicator. It cannot be calculated out of a formula, and the higher the value is not necessarily the better. It is a measure of how products and services supplied by an organization meet or surpass customer expectation, and it makes sense only when compared to specified predetermined goals. Customer loyalty would probably tell more about an organization’s capacity to satisfy and retain customers, especially when combined with client growth rate.

Also, 20 to 30% of KPIs is never measured or available, not only in the translation industry, specifically among LSPs. Measures are generally unpopular among players in the knowledge economy. Despite the widespread use of the word ‘industry’, translation businesses seldom show a real willingness and ability to act in accordance with business and industrial logic. In the translation business, then, the alleged axiomatic immeasurability, unreliability, or senselessness of almost any aspect of core production is paired with the typical unpredictability of arts.

Performance measures

Performance can and must be measured, though. The problem, if anything, is what to measure. Every organization should measure only what is needed to, i.e. what is relevant to its business as a critical success factor.

Every measure should be linked to the organization’s strategy and goals, and should be known and shared by the staff who should be empowered for participating and contributing. Measurements should enable management to take actions for continuous improvement. Empowerment means, for example, that staff should be given the ability to stop a production line without consultation when a quality defect is detected.

Therefore, establishing a sound environment in which KPIs can operate and develop is crucial, and KPIs should not be used for cheating on customers and staff, by showcasing zircons for diamonds or boasting improbable space programs.

Data for KPIs must be collected from producers, and teams must be adequately trained and supported to develop their measures. Managers should first identify the critical success factors for the organization, limit the number of performance measures, and provide for a repository to record these measures. Also, they must be allowed the necessary time to learn how to collect data, which data collect, understand this data, understand KPIs.

Finally, in a perspective of continuous improvement, KPIs must constantly be refined to maintain relevance.

KPIs should combine measure profitability, marketing and sales, operational processes, and organization efficiency.

Customer satisfaction

Let’s talk for a moment about customer satisfaction. It must be a signpost for staff to focus on the importance of fulfilling expectations. A satisfaction index of 95 percent is not necessarily more desirable than 85 percent. In the latter, there is room for cost-effective improvements. The former can be misleading focused on achieving the 5 percent missing, causing excessive strain and dispersion of efforts without a reasonable expectation for effective improvements. Indeed, it may more easily lead to misunderstandings and losses.

Customers could be ‘satisfied’, and yet not buy that much.

In this case, KPIs must be functional to achieve and maintain the expected quality levels, possibly by querying customers about what to measure to better serve them, what is important to them, and what measures they want to see.

Anyway, the customer satisfaction index is a key performance indicator and could be a call to action. For example, if it drops 25% in respect to last year, a few steps can be taken to try to understand why and remedy. One could start by asking the obvious question “why has customer satisfaction dropped?” A good answer might be equally obvious: “customers do not appreciate our service”. The following question could then be “why do not customers appreciate our service?” and this could be answered “they can’t know the date of delivery.” Here is a first link to other KPIs (delivery performance/reliability) that could have been overlooked.

Further questions could help, starting from “why can’t customers know the date of delivery?” that could be answered “they receive conflicting answers”. And this could stir the question “why do customers receive conflicting answers?” that could be answered “those who respond draw on different sources.” Eventually, the ensuing question “why do those who respond draw on different sources?” could be answered “we do not have standard procedures for responding to customer inquiries,” and this will definitely call for immediate action.

Oscar Wilde wrote that “punctuality is the thief of time,” but delivering in full, on time, all the time is a key success factor almost in any industry, and it is as important for LSPs as it is for airlines. The timely arrival and departure of planes impact nearly all the balanced scorecard perspectives of an airline. In 2013, Emirates was awarded the highly coveted ‘World’s Best Airline’ award, primarily for punctuality and timeliness.

What’s the buzz? Inside ISSELservice

ISSELservice felt the need to collect and measure indicators since its foundation in early 2006 to communicate its achievements and development to its parent company, ISSELNORD.

This urge became a must when ISSELservice decided to proceed with quality certification (UNI EN 9001:2008 and UNI EN 15038:2006).

So far, ISSELservice has measured its major processes: sales, marketing, management, administration, production, training, corrective and preventive actions as well as customer satisfaction with indicators (RIs and PIs) collected in in-house developed databases and a customized translation management system.

All relevant data is evaluated once a year, after comparing them with goals set and agreed at the beginning of each year with the company’s general management.

All relevant financial data, performance indicators — such as sales revenue, cost of sales, and other indirect costs, fixed direct costs and any other type of costs — is collected in a dedicated database and can be retrieved at any time.

As far as production performance is concerned, ISSELservice decided to measure production (quality service) based on the value of non-conforming documents, the number of nonconforming words, and the number of claims.

Actions taken are also evaluated, to achieve a higher number of preventive actions in comparison to corrective actions.

ISSELservice is also very focused on staff training. At the beginning of every year, ISSELservice management develops and agrees on a training plan with indication of subjects and number of training hours, on the base of staff skills and company needs.

Finally yet importantly, ISSELservice also measures customer satisfaction, based on the number of founded/unfounded claims. In fact, other indicators are not relevant to ISSELservice, which is mainly working on framework agreements (in some cases as exclusive supplier).

ISSELservice’s experience

ISSELservice is now evaluating what has been measured so far, why these indicators are measured, whether the measurements taken correspond to its needs and goals.

As highlighted before, ISSELservice is measuring processes using relevant RIs and PIs aiming at continual process and services improvement, based on the Kaizen principle.

All indicators measured by ISSELservice are level 1 indicators, mainly used internally to obtain a detailed picture of the situation and highlight any process or service aspects that may need improvement.

At the moment, ISSELservice is working on its CSFs to shape a more structured system and on level 2 indicators (KPIs) to communicate its value to customers in business terms.

To this end, last year ISSELservice started investigating whether the indicators measured met customer expectations.

On the base of this analysis, ISSELservice created customer-tailored templates to measure customer satisfaction.

For this purpose, customer meetings were held to define what service aspects and requirements were to be considered important (depending on the kind of service delivered, i.e. text comprehension, terminology, syntax, delivery on time, project management, etc.) At the same time, evaluation parameters were set (from 1 to 6) to get to meaningful KPIs.

To appraise vendor performances as a major CSF, ISSELservice developed a special TMS report based on the data collected after each production step (translation evaluation after review, final quality evaluation carried out by the PM in charge) on each translation job carried out by vendors.

All evaluation parameters are collected in the TMS and a vendor performance tracking report is created automatically based on a specific algorithm with parameters for on-time delivery, quantity carried out in a specific timeframe, and quality.

ISSELservice is building its KPIs from new foundations by setting stone upon stone.

ISSELservice’s goal

ISSELservice is working on:

  • Better highlighting and identification of CSFs;
  • Establishing KPIs, such as on-time delivery, lead time from receipt of order to shipment, lower production costs;
  • Development of new advertising material.

ISSELservice’s final goal is to communicate

value in business terms to customers and prospects.

KPIs in a showcase

LSPs could sell their services by displaying the value of their business activities through Key Performance Indicators (KPIs).

Just like diamonds and pearls, an LPS could showcase its Economic Value Added (EVA), i.e. the profit it earned less the cost of financing its capital.

Quality is a prerequisite for existence on market and it is then irrelevant in a sales perspective, but it can still be a part of an LSP’s offering if communicated in business terms that the customers can perceive, understand, and assess. In this case, the right liaison is the quality index.

Quality index is a multi-item measure of key dimensions of operational, product, and service quality consisting of a group of KPIs assessing the vendor’s capacity to meet the customer’s expectations at an acceptable cost.

In the showcase, an LSP could then display its quality index, made up of six indicators:

  • The DIFOT (Delivery In-Full, On-Time) rate conveying a measure of delivery reliability;
  • The Order Fulfillment Cycle Time, measuring the time from an order to the receipt of the product or service by the customers;
  • The FPY (First Pass Yield) rate, expressing the percentage of units coming out of a process with no rework
  • The Rework Level, giving the percentage of units requiring rework;
  • The rate of customer complaints solved, measuring the organization’s capability to deal with customer negative feedback about the goods or services provided;
  • The HCVA (Human Capital Value Added) conveying a measure of the extent to which staff add value to the business calculated by subtracting all expenses except for labor expenses from Revenue and dividing the adjusted profit figure by the total headcount.

By the way, complaints are not problems to be avoided, but important feedback, and as such should be welcome. Complaints allow the organization to know what is wrong with its product or service and how to improve it. Complaints highlight any weak links within the organization, they tell what is important to customers or give ideas for new products and services. Most customers do not complain and just take their business elsewhere. Therefore, adequate complaint handling, up to the solution of the problem and its communication to the public, could be a critical success factor.

The 6σ achieved level can also be displayed with the number of Yellow Belt, Green Belt or Black Belt professionals in the organization, if any.

The showcase to display diamonds and pearls to customers should be providing information, though, not only cold facts. To this end, LSPs could use capability statements instead of the typical marketing flyer.

Capability statement

A capability statement is a brief

description of the competences, skills, experiences, and performances of an

organization, showing why it is the best choice for a task or a project.

A capability statement should contain:

  • A company profile, declaring the company’s vision, mission and value statements, and its competitive advantage (how the company distinguishes itself and why it is better positioned in the market against competitors);
  • A listing of the company’s areas of expertise, services, and subject field(s);
  • A listing of the company’s technologies, certifications, accreditations, licenses, clearances, and awards;
  • A list of clients, according to subject field; this implies that different customers in different industry sectors should receive different capability statements;
  • A performance statements; in this respect, a few KPIs would help, grouped by topic and subject field relevance;
  • A qualification statement of senior staff and/or board of directors which should include experience, skills and basic education information;
  • A qualification statement of how the company performs its services;
  • A statement and assurance about what the client can expect from the company;
  • A list of strategic partners;
  • A testimonial or two;
  • Contact details, possibly for a single point to inquire according to subject field.

Conclusions

In his article for the Multilingual Magazine #57 Supplement of July/August 2003, DePalma argued that “LSPs should measure performance against goals and that practitioners both inside companies and at the firms that supply their localization service and technology needs often justify their existence and paychecks to each other, each building on the same arguments and data. Few appeal in terms that budget owners can understand, thus compounding the irony of people responsible for communication being unable to communicate.”

LSPs can differentiate by signaling their offering to customers using indicators that customers can understand. For companies fully outsourcing translation projects, a vendor’s KPIs can make the difference in establishing a long-term supply relationship. KPIs can tell customers how their translation budget is being spent, helping them run a parallel comparison with their own organization’s KPIs, understand localization as valuable and important, and consider it worth an investment.

KPIs can be used as a tool to measure the progress of the business toward its goals as well as a showcase for customers. In the first case, LSPs can use KPIs to measure process effectiveness, assess employee performance, customer satisfaction and productivity. In the second case, KPIs can be offered to companies with significant translation requirements to allow them to assess their vendor’s capabilities and effort towards them.

Jerry Garcia articulated a competitive strategy for the Grateful Dead saying: “You do not merely want to be considered just the best of the best. You want to be considered the only ones who do what you do.”

Author: Luigi Muzii

Luigi Muzii