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Measuring the Right Things
“What gets measured gets done.” It is a cliché but true. The very essence of all performance management scorecard systems is based on this profound fact. Setting a performance measure is like pointing a gun. If aimed properly and you hit the target, you get the results you aimed for—and there is the rub. Most organizations set the wrong targets and get the wrong results!
Whenever we work with organizations we routinely ask them if they have a performance measurement system in place. More often than not the typical response is: “yes, we do.” We are then proudly shown a set of reports or graphical charts (sometimes in color!) that the organization has developed. In a large number of cases we see measures of existing operational performance indicators such as financial ratios, sales statistics, inventory turns, personnel turnover rates and the like. These are as meaningful as measurements on the dashboard of a car running down a highway. They only show activity without any context. The real question is: where do you want to go and how far along the way are you to getting there? By simply measuring current activity you aren’t measuring progress towards results. Most organizations don’t link measures to their overall strategy. This is why many strategies fail. Said another way, building great results scorecards is primarily about building good business strategy and measuring the key things that matter to achieving the outcomes of that new strategy.
Telling Your Story
The most critical aspect of building a successful results scorecard is how well you define your business strategy outcome measurements. What are your key strategies across (or within) your organization? What are the key initiatives in each area? Are they linked and aligned across functions; marketing and sales, product development, operations, finance and human resources? What are the key results and outcomes that you are looking for in each area? But most importantly, how do they all work together as a simple strategy that everyone in the organization can understand and get behind? NASA developed our all-time favorite strategy statement in the 1960s: “We are putting man on the moon by 1970.” Everyone understood the fundamental strategy story. Behind that simple statement was a network of linked performance measurements. NASA’s strategy story described a complex outcome-based result that the entire organization could understand and execute. As a result, Neil Armstrong’s 1968 moonwalk took place two years ahead of schedule! If you work from an end state results perspective, you will get effective results. It’s that simple. We are not suggesting that a strategy be reduced to simple slogans but we do recommend that after the performance outcome measurements are developed, they be linked and communicated in a way that the entire organization can understand them.
Measurements Without Strategy Outcomes Are Meaningless
The most critical aspect of getting performance scorecards right is the process of developing the measurements themselves. If no basic strategy session is held with the primary stakeholders and implementers of the strategy present, setting performance measures by committee in a vacuum is a meaningless activity. You are better off not doing so because you risk selecting arbitrarily convenient measures that may drive you under in the end unless you are driven by strategy and execution.
How do you get it right? By following a strategy process that assesses where you are and where you want to go. It should describe your current state and your target state of what you want to happen—specifically, the results are you looking for. You should express these as desired outcomes: “By year X, we will be the leader in our market segment, as measured by Y amount of market share.”
The crucial part of the exercise is determining what the truly meaningful measurements of your performance outcomes are—these become your Key Result Indicators (KRI’s) across organizational functions. If monthly store sales statistics by geography, for example, are meaning indicators for market share, then use them. A better measure might include competitive sales results benchmarked against your own. The key is that you select measures that will directly determine how successful you are in achieving your targeted outcomes. The activity should be part of the strategy process and involve all the key stakeholders in a lively and spirited workshop discussion. The key question each person should ask about selecting appropriate KRI’s is: “if we undertake that strategy initiative, what are the most important ways we will know if we are getting there? How can we measure it?”
The Power of Focus
Less is more. Too many organizations think that by developing hundreds of metrics they will have more control over their outcomes. “How many should we have?” is a common and reasonable question with an “it depends” answer. While it is a good idea to have a series of nested metrics on any given strategy initiative, it is important to remember that by focusing on the critical indicators that truly bear down on your outcomes, you will be more effective in communicating them to your organization. There is a reason car designers only have a few active indicators on the dashboards of the cars they manufacture; drivers can only absorb so much information at one time while actively moving down the road. Your organization is no different. What IS important is that everyone monitor the measures that you do select ruthlessly. If they are not the central focus of every management or operational review meeting, then you have wasted your time developing the measures. When organizations simply post color charts on the wall and don’t use them as the key management tools of the organization it is always a sign that either the measures were wrong or that their implementation and communication was poorly executed.
In Bold Measurable Action Lies Greatness
Perhaps the most important dimension of building effective performance scorecards is the detailed work of defining results oriented action programs (vs. activity based) with assigned “owners” and quantified measurements for outcomes. “Are we there yet” is all you should care about when it comes to managing on a daily basis to achieve the performance results you want for your organization. A simple way to do this is to establish action plans for each area of your scorecard. Each quarter you should set a series of management outcome objectives expressed in quantitative terms. This ensures that at the end of the quarter there is no quibbling or fudging on what really happened. Thus, “Expand market share As Measured By (AMB) a 5% increase over our existing 32% share of market by the end of the Fourth Quarter (Q4)” is a concrete and objective measure of a concrete desired outcome such as expanded market share. At the end of the quarter you can assess whether you accomplished the outcome or not.
If everyone in the organization works the process of setting strategy and linking it to concrete results and works each day on taking key actions to guarantee the outcomes, the Results Scorecard will show the results!
