There is an old adage in management circles that “what gets measured gets managed.” For all its apparent simplicity, this maxim is actually very difficult to implement, as it requires you to know what to measure, how and by whom. Key performance indicators (KPIs) vary from business to business, depending on their overall goals and key business drivers, so blindly following the metrics applied by other businesses could spell disaster.
First, why is “managing the numbers” so important?
Successful performance management helps extend accountability throughout the business, ensures day-to-day activities are in alignment with your strategy and financial targets, enables faster and more confident decision making, and helps both management and staff to prioritise tasks, identify market changes and spot opportunities. It also ensures broader transparency of business issues, drivers, and impediments to success.
Understanding the What
It takes significant management resources to measure, plot and track performance indicators, so it is imperative to measure only what matters. How do you determine what matters? The answer requires an accurate understanding of how value creation occurs in your business.
You must identify facets of your business that:
- Are critical to its success – There are many daily tasks and activities undertaken by employees, but not all will be critical to your success.
- Reflect strategy and goals – Focus on those activities that are instrumental to achieving your longer term objectives.
- Are measurable and comparable – It is no use trying to measure something that is either ambiguous or subjective, or subject to fluctuation due to factors beyond your direct control.
- Are meaningful – Just because you can measure it, does not mean you should. Focus on metrics that can be linked to ’cause and effect’ bottom line impacts.
- You will act upon – If your company is not committed to acting on the data, it is a waste of time tracking it.
- Can be acted upon – Only focus on activities that can be corrected should problems emerge.
Understanding the How
There are no shortcuts to implementing a management program. It requires clear communication, employee consultation and engagement, and consistent application. Your implementation plan should address:
- Communication – It is important that everyone in your business understand why you are implementing metrics management, and how it will benefit both them and the company.
- Transparency – Ensure there is clarity around what gets measured and how. Uncertainty about the process could make staff nervous, or result in inaccurate data.
- Application – Separate firm-wide metrics from individual metrics. You should be able to articulate the linkages between the two types of metrics.
- Targets – Consult with employees and divisions to agree realistic targets.
- Measure – Agree a measurement process (including frequency of measurement and reporting requirements).
- Baseline – Set a period for benchmarking and devising a baseline for future comparison.
- Incentives – Identify the means for recognising or rewarding increased performance.
Understanding the Who
Measures do not exist in a vacuum. In most cases, management will not be responsible to monitoring and reporting management metrics. Accordingly, it is important to identify which individuals in your business are able to affect the indicator, and ensure there is a shared understanding of:
- Definition – What is being measured and how?
- Schedule – When and how often measurement must take place.
- Reporting – How to capture and report the raw data.
- Resources – The resources available to ensure timely completion of monitoring and reporting.
One final piece of advice – beware measuring too much! Some organisations have become bogged down in their own data after implementing dozens (in some cases, hundreds) of performance measures. The result is a chaotic reporting program generating a confusing array of measures that takes too long to collect and interpret, slowing down decision times, and often masking imminent risks.
Managers usually cause this by focusing on what they know rather than what is important, and by paying too much attention to day-to-day operational issues rather than adopting a longer-term perspective.