Saturday, June 26, 2021


The maxim "you can't manage what you don't measure" has come to be taken as a truism.

The real purpose of Performance Indicators is to provide business insight and monitor the progress and performance. Without measurements, it can be hard to tell whether attempted improvements make the situation better or worse. However, performance indicators shouldn’t become another parameter which will diminish creativity or decrease productivity. 

The performance management needs to ask insightful questions to make sure the measurement makes sense; being able to show those quantifiable benefits in hard facts such as measurements helps greatly.

Does it have a purpose: Good organizations do follow a process and tick the boxes. Better organizations measure the important issues as they go along and adjust the plan/objectives/goals accordingly. The real purpose of performance management is to provide business insight and monitor the progress of strategy management. When selecting the right set of metrics for cost optimization, ask whether the metrics can reveal anything meaningful for the identified purpose, and ensure the management buy-in for the metrics collection processes. There has to be some sort of hypothesis - some sort of conceptualization of a useful outcome.

Define the right set of Key Performance Indicators which can reflect progress for the long-term goals of the firm. The way the KPI is measured needs to be an accurate reflection of the behavior the firm is looking to exhibit. It is crucial that the KPIs selected have to be adapted to the specific objectives that you want to achieve. Wrong selection of key performance settings could have a devastating effect on the business.

Is it simple? What gets measured, gets managed. Well defining the right set of metrics will never be an easy job, but always keep in mind the simplicity principles, and do not confuse the means with the end. Metrics is not the end-all solution to management, but simply another set of tools, data, and information sets to evaluate business results quantitatively. Make sure you don't have extraneous indicators that don't align with your question and well defined goals you set to achieve.

In some lagging companies, performance management practitioners are extremely obsessed with metrics and end up building up a sophisticated set of meaningless metrics; irrelevant measurement indicators will waste time and corporate resources, increase unnecessary complications and decrease business effectiveness. Keep in mind the simplicity principles, and do not confuse the means with the end. You choose the right set of KPIs by deciding which are seen as critical to making trackable progress in order to deliver more innovations. The fewer the better, but they have to be credible and relevant also in the eyes of the stakeholders.

Does it have an owner: Performance Indicator helps you make better decisions to improve performance. If your KPIs are opposite, they are not aligned to your organization's specific strategy. Especially nowadays, strategies are dynamic, so performance indicators should also be updated accordingly. Ownership is important to enforce accountability because the right metrics can be helpful to track progress in business improvement initiatives. The good metrics can help you get some objective perspectives on what you are trying to manage, and concentrate on measuring things that really matter. It cannot create ambiguity or conflict in the mind of the accountable party. It has a clear and direct ‘line of sight’ to a strategic goal or objective.

Performance Management needs to be accompanied by an agreed standard, defining tolerances for variation. It needs to be fully defined with specifications detailing its meaning, intent, relationships to other measures, calculation, requirements, reporting requirements and ownership. Without owners, perhaps those performance measurements become “orphans” that no one take care of later, and cause confusion and an unnecessary layer of complexity. If you want to do metrics, you want people to understand what those metrics are, what they are trying to achieve, and why you think it is appropriate in that specific context. With assigned ownership, you can change them from time to time accordingly to reflect the behavior you want to encourage and the goals you need to achieve dynamically.

Is it linked to the other measure: The problem with measurement is that more often, metric is very subjective. It is imperative that you link lower level metrics with higher level strategic objectives. That is, from a scientific methods perspective, 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 the frontline), and link related measures to reflect business logic and tangible results. 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 of chapters of measures that will be defined at tactical and operational levels; the higher level KPIs are tied to the next lower level; you can easily drill down and see which component of the top-level KPI is off target, so you can fix issues on time.

Lots of people institute metrics without understanding them or understanding the assumptions upon which they are built. Decisions are then made on these so-called metrics that are completely and utterly wrong. That makes performance management ineffective and strategy management suffers. The business hierarchies that are in alignment and that support the corporate objectives need to strengthen the performance measurement links for ensuring the company’s management can keep track of business performance in a tangible ways.

Is it cost-effective to measure? It is crucial that the KPIs selected have to align with strategic business goals and be adapted to the specific objectives that you want to achieve - creating business value, improving customer satisfaction, unleashing business potential, etc. It's important to collect the right data and measure things in the right way cost effectively, for motivating teams to achieve better business results; for helping to connect contextual business dots and focusing on the overall business objectives as well.

A well-defined set of measurements for digital transformation should contain a good mix of outcome measures or the long-term strategic value along with performance drivers to track the progress in the short term (operational measures) and strategic goals for the long run. Besides “hard numbers,” there are “soft aspects” for assessing performance, so the good guidance needs to be formulated and deployed on consistent measurement. Measure the right things, and measure them right, for encouraging positive behaviors.

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. The right metric is requested in the right context but without any explanation of why it is requested, without concern for whether the gathering is onerous, or without concern for whether there is a better or easier way to gather a metric that achieves the same goal, the measurement can easily go wrong. Effect performance measurement should cover all areas that contribute to value creation including service quality, employee engagement, customer satisfaction, and financial outcomes.


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