Leadership guru Peter Drucker's observation that you can't manage what you don't measure may be true, but it doesn't mean companies that measure performance will leap ahead.
Vancouver-based operational effectiveness consultant Connie Siu likes to talk about the IT department she was called in to assist that was tracking 55 measures.
"That's the winner so far," she says – the most measures in a race where excess isn't a sign of management success but of management confusion. The reverse, however, doesn't necessarily work out either. She recalls a company with only six measures on its dashboard tracking performance, but nobody really understood what they meant, killing the purpose of establishing a dashboard.
Ms. Siu cites seven issues to address in developing performance measures:
Clarity of outcome: Often the strategic plan is vague, with motherhood statements such as 'improving efficiency.' "Vague strategy statements sound appealing but often it is difficult to grasp what the intended business outcomes are," she notes in an article in CMA Update magazine.
For example, what does it mean to be "more efficient with assets?" A call for better cross-departmental collaboration may seem more straightforward, but that doesn't really get at the benefits, which needs to be known for effective measurement. Executives must clearly indicate what the end state should look and feel like – in as granular a fashion as possible.
Focus on priorities: These days companies can access online libraries that offer a host of key performance indicators to help steer your company. But she says that's dangerous because the indicators may not be as applicable to your business as it might seem. In retail, for example, inventory turnover is important, and often a key measure. But for an eBook seller, it may be totally meaningless. The average duration of a phone call in a call centre can be valuable for a customer service centre but wrong-headed for a social agency's crisis line. "Focus on what's meaningful to your business – your priorities," she stresses in an interview.
Focus on results, not actions: We tend to use milestones like completion of a task as performance indicators. That's great for project management but lousy to check how effective we have been since it loses sight of the purpose. Take companies that want to encourage community engagement. Counting the number of events may seem logical, but the number of people in attendance is probably the better measure of results.
A company may be delirious that it has achieved one million hours of community service through the volunteer efforts of its staff, but she asks: What are the results they have delivered? A better measure may be the number of winter coats collected for homeless people. So delineate the results you want, not just the actions that seem appropriate.
Focus on critical activities in addition to financial results: Financial results are a lagging indicator and by the time you get them it may be too late to change performance. Instead, measure the critical activities that drive the results. If at the end of the month accounts receivable are high that may be because customers are late paying or your system has bottlenecks. So measure the critical attributes of your process to know early when things are going awry.
Avoid measuring everything in sight: Don't go for a record in measures, trying to outdo that IT department's 55. Each measure requires time to gather the information and analyze. She can still remember a job as a financial analyst where 20 per cent of her time was spent on a one-page report each month – it was read by recipients, but she questions whether it was worth that effort.
Focus on the truly important measures, and put others aside, not highlighting them or in some cases not even bothering to collect them. She figures at a corporate level you should have no more than 10 to 15 measures. Departments will add some specific one for their own situation and so the company might have hundreds, but each area should focus on just a few.
Avoid comparing apples to oranges: Companies tend to get caught up in benchmarking – rating their performance against others in their classification. But she says that every company is different and what is standard elsewhere may be crazy for you.
London Drugs and Shopper Drug Mart are both considered "drug stores" but their revenue per square foot is probably not comparable because London Drugs has a sizeable electronics portfolio that raises revenue per square foot. Benchmarking can give you a sense of what's happening elsewhere, but she advises you "to use benchmarking with a grain of salt."
Establish an improvement mindset around the process measurement effort: The effort to use measures to evaluate process improvement can run into the ditch if employees are afraid the measures will be used to penalize them or if it promotes silo thinking because each department is more worried about its own scores than collaborating with others. So build a culture of process improvement, in which everyone understands the measures are for the organization to get ahead and won't endanger their own position.
"It's all about results," she concludes. "You want to focus on the specific results you want to achieve – what is meaningful for your business."
Special to The Globe and Mail
Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter