Many organizations use performance metrics as a method for staying on strategy and measuring their progress. For many, however, it’s difficult to tell whether the effort put into gathering and reporting the measurements is worth the results. For those defining their measures through review of a standardized laundry list, any performance lift is mediocre at best.
Reviewing the right measurements, however, can transform your organization and significantly improve your performance. If you don’t have time to waste on mediocre measurements –and who does– here are seven tips for selecting measurements that will help everyone be more effective.
- Create the Right Environment
The purpose of performance measurement is to increase effectiveness, not to provide a de facto annual performance review or compensation system. After all, it’s not the measurement so much as the conversation it inspires. As Larry Bossidy and Ram Charan tell us in Execution: The Discipline of Getting Things Done, “How people talk to each other absolutely determines how well the organization will function.”
If you use your performance measurements to determine how to be more effective, you’ll see dramatic improvements. Conversely, if you use them for evaluations, bonuses or especially punishment, you can expect data degradation and manipulation as individuals invest more of their energy into gaming the system than increasing effectiveness.
- Reflect Strategy, Not Process
Too often organizations get caught up in the brilliance and effectiveness of their process, confusing that with strategy. One company proudly displayed nearly 50 pages covered with rows of green-yellow-and-red bars. “Great,” I said, “you’ve clearly invested a lot in gathering and reporting data. But how do you know when you’ve missed the most important number?” Good question. Now it’s one predictive picture, on one page.
Even the most brilliant people can only consider seven concepts at once, and most of us max out at four. Unless your organization is composed entirely of the most brilliant people around, you need to reduce your strategies and your metrics to four concepts (or pictures) that they can consider and balance, at the same time. Thinking you can deliver effectively on anything else is a bit delusional.
Even the process of translating your strategy into metrics increases clarity and unity. As Peter Senge says in The Fifth Discipline, “We can argue like cats and dogs about the strategy, but without any way of getting at the assumptions behind the strategy, the argument is virtually pointless because we have no way of achieving a deeper, shared understanding.”
FedEx Delivers on Strategy
When FedEx moved into India and China, its model was well-established and working very effectively in more developed and industrialized countries. But FedEx recognized that its strategy was about providing its customers with a result, reliable delivery within a defined time. It was not about the process it used to deliver that result, a highly-automated hub-and-spoke package movement system. Rather than adapting the outcome to its process, FedEx adapted its process to the outcome. Instead of two or three hubs, it has 16 facilities in different states. With this structure it can speed shipments out of the country by clearing goods through customs ahead of time, and provide staff and forms that allow customers to manage shipments in their local language (of which there are dozens). DHL has a long established lead in India, but by most accounts FedEx has moved up to second place in this rapidly growing market.
- Seek Cooperative and Balanced Measures
Measures should balance each other, in reflecting your whole strategy but also in requiring ‘silos’ of function and interest to work together to achieve them. When aiming to do your best, it’s easy to forget that optimization of any one function almost always sub-optimizes the whole. Likewise, when one person or department can control the outcome of a metric, you’re more likely to see its results soar at the cost of others and to see gaming of the system.
You can’t get a balanced picture with just financial measures either. You need to include what it takes to succeed, even if it’s softer data, harder to measure and count. In “Coming Up Short on Nonfinancial Performance Measurement”, Christopher Ittner and David Larker published data in the Harvard Business Review showing that organizations which look at their performance by linking nonfinancial measures produce a 5% higher return on equity over a five-year period.
So look for measures that reflect the balance of your whole strategy and demonstrate the need for everyone to work together in achieving your goals. For example, if one area is charged with communicating the process and the other with building it, use a cooperative measure such as rate of adoption that requires communication and process to work together to reach the goal.
Starbucks Grows Out Of Its Brand
In February 2007 Howard Schultz, founder of Starbucks, sent a memo to the organization’s executives as they began strategic planning for the coming year. In it he lamented that, “Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.” He highlighted a number of decisions that, evaluated in the context of growth alone, seemed logical:
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- Flavor locked packaging that assured freshness but removed the sensual experience of watching as fresh coffee is scooped from the bin for your drink, and virtually eliminating the aroma of coffee when you enter the store, both powerful nonverbal connections
- New machines offering faster service but blocking eye contact with the barista making your custom cup of coffee
- Store designs full of efficiency but sterile and devoid of soul
Unfortunately all of these decisions were viewed solely within the strategy of rapid growth. There was no real balancing with measurements for other strategies around service and the brand, and their role in attracting and retaining customers, which shifted the balance until the engine powering Starbucks growth ran out of fuel. As Howard Schultz admonished, “…it’s time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience.” Now that Howard Schultz is back, that’s exactly what Starbucks is planning to do.
- Push for the Positively Predictive
Nothing builds and tests understanding like using your knowledge to predict. Many don’t try because it’s intimidating. What if you’re wrong? Well, if you are wrong, you’re integrating those wrong assumptions in your day-to-day decision-making anyhow. So what do you have to lose?
Shifting your measurements to a predictive stance is just like any other piece of the measurement process: progress is iterative. You can’t expect to be perfect. You can expect to learn more each time. Through the process of becoming predictive you’ll learn where acting makes a difference and what types of effort create real change, which also reveals areas that may deserve less attention for now. The more you learn, the more effective you become, and the more you’ll discover about your potential to add value.
- Require Value
It’s amazingly easy to build elaborate systems or institute excessively detailed reporting, but the output of these systems is no better than the input they receive. Will that additional effort for precision have a proportionate effect on results? Will the data be of sufficient quality to rely on its precision? Or instead of looking at minutes of processing time, for example, can an easily available proxy achieve similar gains, such as the number of times a request was accessed or touched as shown by the systems log or tick mark system? Metrics need to be meaningful while balancing the impact of their gathering and reporting with the expected return. Don’t let your curious side influence your better judgment.
- Avoid the Traps of Others’ Thinking
Be wary of following your old patterns of thinking, or advice so obvious that it’s not questioned. One trap often exposed by innovation and new market entrants is the quest for high value customers. Ask yourself, high value to whom? Just as iTunes and digital cameras changed the markets for music, photos and digital storage, so may “just enough” innovations for customers that may be just as happy with a lesser or different version of your product or service. So while high value customers are important, don’t let your pursuit of them blind you to the very opportunities that your upstarts and competitors are targeting.
- Change Now to Improve Tomorrow
You’re not the same person you were last year, and your business isn’t the same either. Perhaps last year the emphasis was growth, and this year it’s shifting to better processes, lower costs or improving your brand execution. Whatever it is, divorce yourself from what you’ve sunk into your existing measurements. Instead, think about what you need today. What really needs to get done? How will you know that it’s working? This is what boosts performance, and also, incidentally, tends to yield measures requiring more cooperative achievement than individual.
Becoming more effective is not always easy, but the reward for developing meaningful measurements can be truly transformational. Even when you don’t succeed, you’ll be better off than you are today. So what are you waiting for?