Friday, July 24, 2015

Business Performance Measurement: How to Take a Holistic Approach

A holistic approach is based on simple principles, and well align the strategic level of measure with operational level metrics.

As Drucker wisely pointed out, “you can only manage what you measure.” The purpose of defining performance metrics is to monitor the business progress and performance. But there are two levels of performance measurement: at the strategic level, organizations concern about the long-term business result, business capability building, customer satisfaction and employee engagement; at the operational level, business needs to take care of quarterly financial result, employees’ weekly report, customers’ purchasing transaction and more. So how shall you not only measure right but measure the right things right?

A holistic approach is important in order to set up a strategy for performance measurement definition. The holistic approach means to well align the strategic level of measure with operational level metrics. The holistic approach is fundamental to avoid "a one size fits all solution" that will only bring businesses to potential disasters. A holistic approach based on simple principles and categories will allow moving down to techniques and tool boxes as you propose them. The ultimate goal is to implement business strategy effectively through well defining the right set of measures at both strategic and tactical level. The holistic approach from top down is excellent. But the tactical level of  measures has to be in alignment with the business goals to be of value. The "one size fits all solution" is incorrect. The whole issue is to have a starting point and the performance metrics that come first at a strategic level are doing the job. They serve as headings to of chapters of measures that will be defined at tactical and operational levels. Doing so leaders may stay away from micromanagement and burn-out, thanks to a holistic approach, complemented by a cascade of smaller objectives and measurements that must always help you keep "the end" in mind: to make sure business goals on track.

Taking a systematic approach to measurement can avoid blind-spots in performance: It's fair to say that any organization that didn't have a systematic approach to measurement and analysis in both strategic level and operational level has a giant blind spot that is impairing their performance. In addition to having some kind of basic measure in each level, it's critical for the company to share that information among its primary stakeholders (leaders at the top, managers at the middle, and employees at frontline). Having the right performance indicators is very important. But acting on what those indicators are telling you is vital to sustaining and improving results. It's also important to be able to follow at least a few performance metrics very closely. By that, you should measure, follow up and take action on a weekly basis. Then you have some others metrics that are followed more infrequent, monthly, quarterly etc.

An organization also needs to define the set of measures that helps it make informed decisions.The people in the organization need to know and understand why the data are being collected and analyzed, as well as what decisions will be made based on the data. If the measures are ever used to evaluate or punish someone, you can forget ever being able to have good data from that point forward. Surely, there are also different types of decisions: strategic decisions made by the senior leadership team to keep business growth or drive leapfrogging transformation; operational level decisions made by middle management to “keep the light on,” and get project on track; or the tactical decisions made by frontline workers for daily business transaction. The measurement for Internal Process Quality, either for decision-making or strategy execution, is an excellent category, but the definition will vary considerably from business to business, or from department to department. Defining appropriate measurements and analytic techniques is a process in and of itself. And many times it is not properly performed. The ultimate goal is to define the right set of measures that can be used to make informed decisions. The people in the organization need to know and understand why the data are being collected and analyzed, as well as what decisions will be made based on the data. The distinction between the decision quality and the outcome is important as well. If the decision-making process is well designed, well executed and well measured, you have the highest probability of getting the best outcome in the state of knowledge accessible at the time of decision.

Well defining the right set of metrics will never be an easy job, but always keep in mind of the simplicity principles, and do not confuse the means with the end. If the organization is focused on improving and competing in the future, having everyone committed to the success is pivotal. Metrics helps you keep on the right track of the business objectives, but it is the means to the end, not the end itself.


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