“What’s the value of measuring speed if you are driving in the wrong direction?”
“If you have too many rear view mirrors , it will be very difficult to see the road ahead”
I see too many managers getting carried away with measuring strategy. When that happens, it does the organisation more harm than good.
But how do you measure correctly. And what do you measure?
Here are 6 important measurement tips to focus on. You can use them to challenge existing measures of check the quality for new ones.
1. Measures: aim for relevance
Performance indicators should be deduced from strategic objectives and measure the degree of achievement. Focus your measurement on the outcomes, not the means. Here’s an example from Balanced Scorecard expert Carlos Guevara: “Once, in a BSC workshop, a Supply Chain Manager told me that one of her key objectives for the next year was to implement a new procurement system. She had even set out the measures and targets – in 15 months the system should ‘go live’. I asked, “Why do you need a new procurement system?”. After a few seconds pause, she replied: “You are right, that’s not my objective, that’s my initiative. My objective would be to improve the efficiency of procurement”. In this example, the real benefit, the outcome, is a more efficient procurement. And that outcome deserves a measure and one or more targets.
2. Measures: aim for simplicity
Using ratios – correlating two variables such as cost per unit or CAPEX per employee – may seem like a good idea at the start, but when your ratios are so complex that you can’t explain if it is going wrong because of your numerator or denominator, using ratios become useless. Measures should be simple to understand and easy to act upon.
3. Measures: aim for recurrent ones
Always spend enough time defining your measures. Stay away from those that can only be measured once a year. Great measures are backed up by reliable data, can be reported frequently and are easy for target setting. First of all, this means no ‘yes/no’ indicators. Indicators should be constantly measurable and suitable to show development over time (e.g. the improvement or deterioration of the indicator over several periods). This means that an indicator that is measuring the achievement of a certain condition, such as a quotation of the division at the stock exchange, is not a good indicator, even though the objective might show strategic relevance.
4. Measures: aim for consistency
Performance indicators have to be consistent over time and across several operating units. It starts with a clear indicator so that measuring the same value by two different people gives the same result and a stable measurement process. How? Make a definition card that clarifies the purpose of the measure, the source of its data elements, the calculation method, frequency of update, data owner or owners and evaluation limits. If management asks “Where did this number come from?”, you probably missed a few steps.
5. Measures: aim for a good mix between leading and lagging indicators
A lagging indicator is an indicator that looks at the past. It trails behind reality and offers an accurate, but historical view of the facts, such as turnover. A leading indicator tries to predict the future. It shows trends before lagging indicators show the actual result, for example, customer satisfaction before customer loyalty. Your dashboard should have enough leading indicators so you can predict where you are going and take corrective action if needed. Having only lagging indicators limits your corrective ability. Also, having a dashboard full of lagging indicators gives you a false sense of control.
6. Aim for efficiency
If it takes you a week to collect the data or you need to reconfigure your complete ERP system to get it automated, you are probably better off selecting another measure.
