Selecting performance measures can be overwhelming. Particularly if the concept of objective business performance measurement is new to you or your team.
As a manager or business owner committed to achieving unusual levels of success, you understand why you need to lead this change. You understand how regular monitoring of key performance indicators can help decrease complexity, focus your workforce, and drive focused improvement.
The question is, "How?" How do you select the most important measures? How do you make sure this important work doesn't become overwhelming? How do you analyze your business to identify what really matters? And, most importantly, how does this work become part of your business...not a one time event or item on a to-do list?
You will see your business more clearly. You will make better decisions. You will make decisions based on objective information and a complete view of the business.
The Baldrige Criteria for Performance Excellence describes a set of core values and concepts found in high-performing organizations. One of them is management by fact. The 2011-2012 criteria say this about the importance of measurement:
"An effective business depends on the measurement and analysis of performance. Such measurements should derive from business needs and strategy, and they should provide critical data and information about key processes, outputs, and results. Many types of data and information are needed for performance management. Performance measurement should include customer, product, and service performance; comparisons of operational, market, and competitive performance; and corporate governance and compliance. Data should be segmented by, for example, markets, product lines, and employee groups to facilitate analysis."
Follow these steps to select the peformance measures that matter:
1. Perform an environmental scan and honest self assessment. A P.E.S.T. (Political, Environmental, Social, Technology) analysis, S.W.O.T. (Strengths, Weaknesses, Opportunities, Threats), and strategy map are great, simple tools that provide a ton of insight. Do this on a regular schedule that fits the needs of your business and the dynamics of the industry or market in which you work.
2. Consider what you have learned in the self assessment and decide on your strategic goals. These should be specific, actionable things that address weaknesses and threats. They should also take advantage of strengths and opportunities. They should address competitive weaknesses and/ or take advantage of competitive strengths. Challenge yourself to write them down. Make sure they are clear, concise, and objective (quantified).
3. Choose the perspectives from which you will measure business success. These are the key things that affect the ability of your business to meet customer needs and achieve strategic goals. In the quote above, the perspectives described include customer, product, service, operational, market, and competitive performance. Or, they could be grouped by customer, operations, product (or quality), financial, and workforce. There are no rules here. In this step, you are looking for a way to identify the important aspects of your business. This step allows you to seek measures that describe each perspective and organize them in a way that makes sense.
4. Identify and study each function of your business using the tools of value stream and process mapping. These tools help identify key tasks. Then, the results produced by these tasks can be analyzed in relation to the strategic goals identified in step 1.
5. Select key measures of success for each function that, when improved or innovated, would move you toward achievement of your strategic goals. For example, if it takes two weeks to deliver a product or service, but the the customer wants it to take one week, there is a gap. Mapping the process will help identify the obstacle(s) to meeting the one week expectation. The function that contains the obstacle can then be measured and tracked.
✓ Are the measures simple and easy to understand?
✓ Are the measures easy to collect?
✓ Can a process be put in place to collect them?
✓ Does each measure on its own, and all of the measures together, make sense to those who will use them?
Performance measures will help you gain a better understanding of your business. And, the journey to selecting measures is just as valuable as the ongoing monitoring and analysis. If you are not measuring your business now, get ready for eye opening insight as you begin to follow the steps outlined above.
Finally, keep it all in perspective. Remember the purpose. You are not developing something else to manage. You are creating something to help you manage better. You know why you need to do this. All that's left is to apply the "how".