Mountains of words have been written on the ability to successfully implement Business Performance Measures yet it is recognised that many organisations do not have ways of measuring performance that drive behaviour in line with the strategic objectives. Why is this? Is it so difficult to identify and record the right measures for an organisation? A central focus of Make Change Happen is to combine hard analytical skills with softer people skills, which has led to repeated assignments improving the performance measures. Choosing the measures is only one part but there are many other pitfalls that lie in wait to thwart a successful implementation.
Strategy and Stakeholders
This is the most important starting point and the motto that “what you measure is what you get” sounds like a reassuring truism but sadly it is not true.
As an enthusiastic and analytical soul, I have on several occasions reviewed the internal strategic measures and figured that I could define new measures that would provide greater clarity over the drivers for corporate success. Then after spending a lot of effort working with people to put the measures in place, I have learnt that this will fail unless it is preceded by full engagement from colleagues and other stakeholders. The cultural, political and historical factors may appear invisible but they will prevent new information from being considered sufficiently important to change behaviour if the leadership team do not own the new approach.
So even with some good ideas of some improved measures, it is important to work through the potential ideas with everyone involved.
Start with the end in mind.
The second of Covey’s seven habits is very useful when considering performance measures. There are different frameworks and if one is not careful one can end up with a mountain of measures. In my view, the Balanced Scorecard is the best framework, which looks for both hard financial and softer measures across the following axis.
- Internal Business Processes
- Learning and Growth
Kaplan and Norton suggest that the number of measures using this approach should be restricted to around 20, allowing up to five measures for each of the dimensions. Within a complex operational business this may appear to be a very restricted set of measures but it is likeley that these strategic measures will in turn be supported by an operational dashboard for each functional area. These operational dashboards will comprise of a drill down of these core measures but will also allow for some additional local measures.
Principles of good performance measures
When looking to choose the best performance measures, in my view it is important to ignore the practical availability of data from the information systems in the first instance to avoid constraining the creative thinking. This can be considered after the first cut of measures has been chosen. However there are some important factors to bear in mind when considering potential measures:
- Frequency. For a measure to be effective there needs to be the ability to constantly update the measure and if this is not possible it should not be included. Sometimes it is possible to get round this constraint. For example with annual staff survey and customer data, it maybe possible to get information from small samples on a regular basis to measure underlying changes.
- Targets. To provide clarity it is helpful to provide guidance of the target measure and if it is known that the current performance is below target there maybe a target date to achieve the improved performance. Sometimes, it will be important to track trends, especially when a measure is within target but deteriorating or below target but improving.
- Balance. There should be a blend of measures between hard financial and softer factors, between forward and backward looking and also between cause and effect measures.
Get the right Measures
The choice of measures is sometimes seen as a black art. In Kaplan and Norton’s balanced scorecards and the Harvard Business Review on Measuring Corporate performance the choice of measures is left mysteriously silent. There is a temptation for this black art to be short-circuited with a quick internal process reviewing and rationalising existing measures. I think this is a shame and the cause of some failed implementations. The choice of measures is a creative process where it is important to listen and understand rather then come with pre-conceived ideas.
Most businesses have too many measures. To rationalise refine and also identify new measures is best achieved through a series of meetings or Workshops which will also achieve the engagement of the business and ensure that the new measures support a culture of collaboration and improvement in contrast to being measures used to attribute blame and shoot the messenger.
There are some specific areas where meetings or workshops will be required.
- Strategy. Performance measures are the domain of complex businesses seeking to align behaviour with corporate objectives. This means that often the creation of performance measures can be seen as an operational project to reflect the current strategy. However, as noted above it is vitally important to maintain the engagement of the leadership team with regular meetings to debate any emerging conflicts and to agree on the identified measures. The many conflicts between say profits and growth or between staff and customers will not be understood when discussing generalities and the detailed work of choosing performance measures is likely to challenge some of the tacit assumptions.
- Consistency Sometimes different parts of the business will be used to recording the same performance issue in a slightly different way. An example might be say recording margins before or after carriage costs. This creates confusion and means that the underlying processes are unnecessarily complex as the different measures are calculated and then reconciled. A meeting with both stakeholders can determine which measure to use.
- Bottom up Good people take pride in their work and they want others to either share their problems or acknowledge their success. Thus in addition to stakeholder engagement to properly understand the correct measures it is vital to engage with the functional areas to properly understand their concerns and objectives.
- Focus on processes. The creation of performance measures will focus on strategic outcomes but at the same time success will depend on the success and robustness of the key processes within the business. By definition processes tend to work across functions and therefore to properly understand how these can be improved will involve working across different functional areas.
- Cause and Effect. Sometimes one process will have an impact on another process, such as the impact of employee’s skills on say customer service. If performance measures are considered within functional silos, these linkages can be missed or a “cause” might not be owned where the impact is in a different area. Workshops can often identify new creative ideas to identify more powerful measures.
- Integrate with Risk Whilst the overarching vision and objectives will define most of the measures on the Corporate Scorecard, it is helpful to also review the risk register. Mitigation strategies will have been identified to address the core commercial risks identified but without performance measures, it is often not possible to determine the extent to which these strategies are both active and effective.
Getting the data
A clear understanding of the strategic measures should provide an excellent platform to review the IS and will often trigger a separate process to introduce new updated applications as well as potentially rationalising the existing processes.
In the short term it maybe necessary to publish an incomplete scorecard or create manual processes.
Getting Accurate Information
This is an important element which requires great care when introducing new measures into a business.
Often data will appear to be available but if it has not been used, the accuracy maybe poor and care is required to check the internal controls and quality of the data. Sometimes this can be quickly resolved but sometimes, the process will cut through different functional areas and implementing improved processes will be complex and time consuming.
It is an area of key importance. In the early days when issues are being identified with new information that has not been previously available any opportunity to discredit the information will be an easy target to deflect from the poor KPI’s. The information may actually be correct but if the movements appear erratic and unclear this will be used to discredit the measure so it is vital that the data is correct and movements are understood.
Having created and implemented measures that clearly reflect the strategy the journey is not yet complete. The successful implementation of Performance Measures is more about behaviour than accounting. New measures involve change, with both winners (unrecognised heroes) as well as losers who have poor performing areas that did not previously receive scrutiny.
It will be important not to create villains for any newly identified under performing areas and to put SMART goals in place to address the new issues which can be imbedded within objectives and appraisals.
An analytical accountant often assumes that the choice of numbers is their domain and can just be introduced. However, the intention to “change the way we do things around here” often means that the hard skills of “measurement and finance” have to meet with softer influencing skills.