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November, 2010

Metrics, Scorecards and Key Performance Indicators (KPIs): 5 Principles to Make them Work for your Company

Many companies rely upon metrics, scorecards and key performance indicators (KPIs) - see definitions below - to measure and monitor the effectiveness of the components of business performance. Is this all you need - metrics, charts, variances - to be successful? No! Exception reporting, KPIs for KPIs sake, charting without understanding and responsibility does not guarantee or insure that you have an effective measurement process to drive the right behavior to accomplish your business goals.

The following five(5) principles are critical for a measurement system to work for your company.

  1. Strategic Plan
    The cornerstone of an effective business measurement system is the development of a cohesive business strategy that not only includes each organizational unit of the business but also the means or method to measure progress toward these objectives. Each business operation should know its role and assignment in contributing toward the overall strategic objectives of the business. A strategic plan is greatly enhanced when there is a clear way to measure how the strategic goals are accomplished and/or measure if the business is making progress toward its strategic objectives.

    If developed and assigned properly, Metrics, scorecards or KPIs, can be used to measure progress toward or the performance of an objective. However, to be effective they must align with executive objectives and operational capability. A strategy adopted at the executive level must be able to be reduced to one or more operational metrics that will engage the various levels of the company necessary to meet or exceed that objective.

  2. Measure Proven Processes
    Measuring a process that is not proven or is not stable results in inconclusive information. Measured processes need to be well documented and day-to-day execution should be consistent with the documentation. One indicator of a proven process will be how stable the measurement is of its key performance indicators. A stable process does not necessarily mean that it is operating at its highest or best level but that it is under control for the way it was designed - good or bad.

    A proven process is more likely to produce accurate and timely information. Decisions made on information from a proven process are more likely to be better and successful than from unproven processes.

  3. Measure the Right Things
    Not everything needs to be measured. Care should be taken to make sure that "metrics that matter" are measured. Metrics should be applied to operation components that have the greatest affect on the unit.

    Metrics that do not have value also take time to collect and manage. Employees know when they are involved in managing a non-value add metric which diminishes the value of the other valuable metrics.

  4. Review Process
    Metrics should be reviewed regularly. The review cycle may vary. It may be appropriate to review some on a daily basis, others weekly and with financial reports at least monthly. The review process must he held consistently and where indicated, actions taken, and follow-up assigned to responsible management who will report back on the action and results at the next review cycle - or sooner.

    The review process instills a discipline in the business that monitoring the performance of the organization is important, must have a priority that is not compromised and is noted for its ability to take action and correct out of control conditions.

  5. Does the measurement system drive the right behavior?
    At the end of the day the question is whether the measurement process is driving good actions and appropriate behavior. What actions and behavior? Will employees, supervisors and mid-level managers take independent action to improve their performance to the metric values. The metrics, if designed right, can be useful tools for those closest to the measured operation to take action to improve performance.

Summary
Metrics, Key Performance Indicators and Scorecards can be very effective engaging all levels of a company toward a common set of strategic goals to make the company more successful. Are your strategic objectives connected to you measurement system? Contact Brice Consulting on how you can have a more effective planning process and accomplish your business objectives.

Definitions

Metric: A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals. Reference: VJonDalalStreet

KPI: A performance indicator or key performance indicator (KPI) is a measure of performance. Such measures are commonly used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals. Reference: Wikipedia

Scorecard: A scorecard is a visual display of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen so the information can be monitored at a glance. Reference: Business Intelligence Blog


Regards,
Mike Brice
Phone: (206)226-1617
Email
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Feature Article

The following excerpt is from an article by Dave Logan who offers some controversial ideas regarding what might be traditional business practices. Take a look and see where you stand. Does his position challenge you to take a harder look at what you are doing?

In my almost 20 years of studying and consulting to organizations, as well as teaching their executives, I'm astonished at how bad ideas keep flowing into companies -- and how resistant most people are to letting them die. These ideas make companies weak, encourage employees to "quit and stay," crush innovation, and create cultures of despair.

Like weeds, bad ideas crowd out actual thinking and need to pulled up from the roots. What follows are the 10 ideas I've found to be the worst for the health of an organization. Do any of them sound familiar?

  1. Challenge everyone to live by the company values.
  2. Believe that the company is built to last.
  3. Since times are tough, suspend training.
  4. Believe that the one purpose of the company is to either make money or do good.
  5. Think that systems and checklists are the key to high performance.
  6. Read the latest management books and do what they say.
  7. Incentivize people to perform.
  8. Streamline operations to make the company more competitive.
  9. Set new strategy and expect employees to feel empowered to make it happen.
  10. Stick to what made the company successful in the past.

Management Resources
Articles:
Productivity: We spend a lot of time telling you about things you can do to increase your productivity. Sometimes, though, itís valuable to look at things a bit differently. What behaviors can you stop doing which will make you more productive and efficient?
Improve Your Productivity By Stopping These Bad Behaviors


Innovation: Innovation gets touted as the answer for everything from corporate ambition to national competitiveness.†Itís said to be the magic ingredient in giving a country a global edge. Itís considered vital to winning customers and maintaining profit margins. And yet, it may be among the most misunderstood concepts in business today.
Creating a Why Smart People Donít Try to Innovate


Good Habits: Managing the daily grind of a small business while remembering to keep an eye on the big picture is a challenge for any entrepreneur. Experts say that's why it's important to establish daily rituals -- something you decide to do every single day that will move the business closer to your ultimate vision.
Daily Rituals of Successful Entrepreneurs


Decision Making: While individuals ultimately make decisions, organizations influence and shape the decision-making process. In fact, an organization can boost its employees' capacity for good judgment and improve the chances they will make sound decisions.
3 Ways To Make Better Decisions

Video(s): 
Product Development: How do you score on what makes an unsuccessful product?
Pogue: Six Factors for Highly Unsuccessful Products (3 min)


Blogs: 
Winning: In the era of "Think Win-Win" and "Start with No" what are 5 actions that you can take to win in any business situation.
Doubling Your Strengths?




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