Dying of Thirst in a Sea of Data
If there is one thing that everyone in management seems to agree upon, it is the need to measure business performance. Unfortunately, “agreement” and “effective execution” are vastly different beasts. Very few organizations have truly cracked the code for the successful measurement of business performance.
Why is this? We all recognize the need for performance measurement. We have more data at our “virtual fingertips” than ever before, yet we seem more out of touch with effective performance measurement than ever before. The difficulties can be narrowed down primarily to three areas:
· Failure to measure the right things
· Failure to measure consistently
· Failure to take action on the information we do have
Failure to Measure the Right Things:
First, managers frequently fail to measure the aspects of the business that could really have a positive impact on performance. Management tends to measure either those things that are easy to measure (e.g. revenue, cost, head count) or those things that have been traditionally measured for that industry (e.g. mean time to repair for telecommunications, on/off-budget for project management). As a result, many metrics may be either useless or no longer relevant for the modern business. Rather than investing in the development of new, more effective but perhaps more difficult to gather and/or implement metrics, managers have become complacent with sub-standard performance information.
Failure to Measure Consistently:
Second, too many leaders simply fail to track the same metrics on a consistent, regular basis. At numerous organizations, we have heard the complaint that the “dashboard changes each month.” This is analogous to trying to improve your car’s gas mileage by looking at a different “metric” at each fill-up. First by tracking mileage with the fuel gauge one fill-up, then by using the on-board computer for the next fill-up, then by tracking the gallons put in the tank on the third fill-up, etc. Each metric might be useful taken by itself, but it is the consistency of measurement that is lacking. Leaders today often exhibit signs of “corporate attention deficit disorder,” leading them to constantly change metrics and formats in an attempt to gain new insight into performance. Unfortunately, in the attempt to gain more and more information, we actually lose insight into critical performance trends and shifts.
Failure to Take Action on the Information We DO Have:
Finally, as performance improvement practitioners, we find nothing more frustrating than watching an “operational review” meeting where the presenter flips through page after page of metric data at lightning speed while the executive team nods and makes “hmmm” and “ahhhh” sounds. The presenter makes comments such as “customer on-hold time is up again this month” and then flips to the next metric. It really begs the question – what are you going to do about it?!? There is no inherent “goodness” in the act of measurement. The only reason to spend the time and money to measure performance is if you are going to take action based on the reported data. If you don’t plan to make changes and improvements based on your metric reports, you can save money by just using the same report each week and even canceling the meeting…
Of course, the real solution is to tie the information about performance to actions intended to remedy the reported performance gaps.
Applications for the Executive:
Here are three steps you can take to ensure that the metrics you report can actually help you improve performance.
- Correlate your Metrics
Rather than reporting metrics because they are easier to gather (e.g. the IT systems that can easily deliver them are in place) or because they have always been used in the past, you need to determine which metrics actually matter for your business performance. “Balanced Scorecard” techniques start down the right path, but do not go far enough. The answer is to build a “Correlated Scorecard” that shows which metrics have the greatest impact on your business goals.
To build a correlated scorecard, start by arraying your metrics in a hierarchical format (like an organizational chart). For example, corporate revenue may decompose into regional revenues which decompose into office revenues, etc. Next, determine which handful of five to seven metrics are most important to your business (such as revenue, costs, and customer satisfaction). These are your “target metrics” and are placed at the top of your hierarchical dashboard of metrics. Finally, determine the influence that each “sub-metric” (those metrics far down the hierarchy) has on your target metrics. This is usually done through statistical regression modeling (available in software packages such as Microsoft Excel). The result should be a formula that will tell you the expected change in each target metric for a given change in the sub-metrics. How much will revenue change if customer service headcount increases? This model can answer that question. The key is not to predict exactly how much your target metrics will change, but rather to determine which sub-metrics have the most impact or influence on the metrics you really care about – the target metrics. Your new “correlated scorecard” should contain only those metrics that are the most highly influential on your target metrics. Through this technique, businesses can reduce the need to gather metric data that is less predictive of performance, thereby reducing reporting costs and allowing the management team to focus on just those measurements that matter most. (Note: This topic will be covered in more detail in a future EIR)
- Use Secondary Metrics
It is a simple fact that some metrics are harder and more expensive to gather than others. Whether the data just doesn’t exist or the system modifications would be too extensive – some metric data simply isn’t available. If this is the case, consider developing a “secondary” or “proxy” metric to measure the performance aspect of interest.
A “secondary metric” is a metric that doesn’t measure performance directly, but rather, through some other aspect of the business. For example, one executive we know was not able to easily track customer traffic flow into his branch offices, so he tracked paper cup usage in the branch offices’ free coffee machines instead. It sounds strange, but if you assume that employee usage stays consistent, then this is a pretty good indicator of customer traffic. The key is to track the trend of a secondary metric, not the actual value. You don’t really care about the number of cups, but the percentage increase/decrease trend over time gives you the information you need. Remember, don’t give up just because you can’t obtain a needed metric. Get creative and build a secondary metric to gain the insight you desire.
- Tie Metrics to Action
All the wonderful, correlated metrics in the world are completely wasted if they are not directly tied to action. To ensure that your metrics are tied to action, start by scheduling a regular “operational close” meeting at which you will review metric performance. All leadership should attend and the data should be presented by the responsible manager. This meeting should be held on a regular (and consistent) basis – we recommend a monthly meeting. The meeting should also be chaired by a strong leader who can ensure that each presenter delivers the required information in a standardized format.
The next step is key: every metric presented that is not performing as desired should have an action plan – a set of steps intended to remedy the performance gap. Further, each action plan must have an owner , a status, and a due date. At each operational review, the presenter must not only present the latest metric results, but also the status of the action plans designed to improve performance. It is also critical for the management team to hold managers accountable for making progress on each action plan.
Finally, re-vamp the way you select and manage projects. At too many businesses, projects and metrics are managed as completely separate entities. Our question is this - if your project doesn’t directly impact one of the metrics of the business, why do you have the project? When setting project priorities, request more than just the basic financial details for each project. Demand that every project request include a list of the metrics that will be improved and the amount and expected timing of the improvement. If your requester cannot deliver this type of information, you may have discovered a gap in your metric coverage, or the project may not be particularly valuable to the business. Using this technique can help your organization align desired metric performance with the projects that will help you get there.
About the Author:
Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.
©2006 NextWave Performance LLC