Sunday, August 19, 2018

Three Pitfalls in Measuring Digital Performance

Not everything that can be counted counts and not everything that counts can be counted. - Albert Einstein

Digital transformation represents a break from the past, with a high level of impact and complexity. The change efforts need to be undertaken as the means of getting to a differentiated capability to accomplish a defined goal. Otherwise, they cannot have a clear focus and business rationale that is essential to gaining any traction in changing. Keep in mind, you can only manage what you measure. It’s important to avoid varying performance measurement pitfalls, to ensure that digital performance measurement is both qualitative and quantitative and tell the data-based compelling story of the digitalization.

Incomplete assessment of measurement variable: Digitalization is the multidimensional explorement. Metrics are not just numbers, they should tell the stories. Thus, the digital performance assessment needs to include the techniques such as the overall organizational health check techniques, employee engagement, customer feedback, business partner relationship analysis, etc, and those can be applied to give a holistic picture of what is working or not. When businesses only measure finance related performance, it only covers the part of the story. It is important to define the strategic level performance indicators which take into consideration the possible implication on the organization as a whole and the future orientation. The incomplete assessment of measurement variables would mislead the management making ineffective decisions or focus on short-term business results only. The comprehensive assessment of the measurement variable should tell the full story. It’s important to select the right set of business indicators and leverage metrics that includes reducing costs, improving system effectiveness & efficiency, streamlining business processes and providing continually expanding business services or solutions to substantiate ROIs. It’s also critical to stimulating information-based communication and harness the organizational based collaboration. The management should ask tough questions. The absence of inquisitive conversations around the issues about digital performance can lead to the disconnect between actions and the measurements of success. Metrics shouldn’t motivate a team to game the data, otherwise, they can filter and even distort qualitative evidence and prevent the management from seeing the truth, or distract the business from reaching the long-term business goals.

Irrelevant measurement indicator: Measurement is the means to the end, not the end itself. Irrelevant measurement indicator will waste time, add the other layer of management complexity, and decrease the business effectiveness. That said, every metric should have a good reason for being measured. And the output should actually be a throughput, it should be an input to something else. It’s important to define how you will measure the business success in meeting the organizational purpose and vision, for success will be predicated on the business strategy and sourcing models. However, in practice, there are management practitioners are extremely obsessed by metrics who end up creating a huge and sophisticated set of meaningless metrics; they measure things based on convenience, not on the ultimate business goals. Keep in mind, the right metrics are requested in the right context; it’s important to explain to the upper management of why they are requested, to ensure the management buy-in for the metrics collection processes, and really focus on key metrics that correlate to better business outcomes.

Inaccurate measurement data: Selecting the right measure and measuring it right are both art and science. Even you have a well-defined set of measurement, it doesn't guarantee you could measure them right. It’s crucial to take a systematic approach, put the cohesive effort into taking the correct measurement, collecting the obtained data, analyzing, evaluating and determining what the actions are needed to improve them. Business is looking for and identifying systemic issues and addressing the cause and corrective action. Inaccurate measurement data will distract the management from making the true improvement and achieve the ultimate business results, sometimes it leads to the wrong direction and causes more issues later on. The other big issue about metrics is that, once you have them, people will try to game them, improve the data without truly improving performance. Thus, it’s important to collect the right data and measure things in the right way, for motivating teams to achieve better business results; for helping connecting contextual dots and focusing on the overall business objectives as well.

Assuming an organization believes that metrics can lead to continuous improvement. There does not exist one tool that can be used to dictate the direction of the organization, you must use an integrated approach to evaluate business performance objectively. It takes leadership proficiency and management discipline to avoid the pitfalls and improve the overall business results. It won’t be just a matter of explicit communicating the intention behind metrics, but a matter of coaching and leadership to guide the team to understand the purpose of doing that and engaging on that. A measurement system should become a real foundation for continuous improvement.


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