Monday, March 29, 2021

Innovation, Improvement, Investment Indicators

The well-selected performance indicators should be based on the alignment of strategy management and performance management as well as the comprehension of decision-management and performance management continuum.

Performance management is not an isolated management practice, but a holistic discipline to evaluate multidimensional business value. Managing business performance means translating strategy into operational terms, and mapping collective goals to individual tasks, to make the strategy everyone’s everyday job and a continual process. 

The effective performance measurement approach should enable business managers or professionals to define a set of key performance indicators, keep track of the progress made toward the predefined set of goals in a consistent manner. There are seemingly pairs of “opposite” aspects of performance indicators and measurements: objective vs. subjective, qualitative vs. quantitative, leading vs. lagging indicators, etc.

Objective vs. subjective: You can only manage what you measure. Performance measurement and management is both art and science. In modern socially responsible companies, performance assessment has a human component, which could be subjective. Because businesses today need to break down “we always do things like that” mentality, inspire creativity and alternative ways to do things. That means, to evaluate staff performance, it isn't just about “WHAT” you have achieved, but also about “HOW” you have achieved it. If your work involves a standardized process where you have to follow a procedure to get to a desired outcome, then performance is highly measurable. If the work demands creative problem-solving, there is more than one road to an outcome, measurement could be subjective.

Some say, Performance Management is always subjective, controversial, and contentious. The more meaningful and important the thing we want to assess, the harder it is to measure objectively. The performance evaluations should be a combination of both an objective and a subjective measurement. When the subjective measurement is included, it becomes a chance for the manager and the employee to start a two way communication. As the “HOW” aspect is unavoidably subjective, because it stems from perceptions. Besides “hard numbers,” there are “soft aspects” for assessing performance, so the good guidance needs to be formulated and deployed on consistent measurement.

Qualitative vs. quantitative: You can only manage what you measure. Without measurements, it can be hard to tell whether attempted improvements make the situation better or worse. From a business management perspective, quality is a function of scope, budget, and resources. Quantity is about workloads, productivity, products/services delivered, etc. From a data management perspective, by “quality data” – it means clean, organized, actionable data from which to extract relevant information and insight. The qualitative measurement intends to improve organizational effectiveness, the quantitative measurement helps management continue improving business efficiency.

The scorecard should have pre-built key performance indicators that reflect best practice measurement areas across the organization holistically. It is an effective tool to enable executives and leadership teams to improve business management via quantifiable and qualitative data. Executive scoreboard needs to be information rich for helping business leaders make effective decisions and enhance data-based communication in order to adapt to the fast-paced business new normal.

Leading vs. lagging indicators: The concept of leading and lagging indicators, relies on an understanding of the cause-effect relationships between Key Performance Indicators in the different perspectives. The lag and lead indicator concepts "warn" businesses that there is a multitude of relationships between KPI and there are multifaceted perspectives on different indicators. If the indicator allows you to take actions prior to having a bad result? If the answer is yes, it is a lead indicator. If it is no, it is a lag indicator. An indicator can be a lead for one person or team and a lag for another.

Learning and growth KPIs are “lead indicators.” Investment in new information technology provides new capabilities and competencies. Leadership and talent training are “lead factors.” So investments in leadership training affect the corporate culture and values, especially on innovation and empowerment. Financial KPIs are "lag indicators." In any time period, when evaluating the KPIs, the financial results are seen as the result of activities in prior periods. By clarifying the concepts such as leading indicators and lagging indicators, organizations can develop strategy maps, execute and measure things holistically and effectively.

Select the right set of indicators of improvement, innovation, and investment, and measure them effectively. 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 connect contextual dots and focusing on the overall business objectives as well. The well-selected performance indicators should be based on the alignment of strategy management and performance management as well as the comprehension of decision-management and performance management continuum.


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