Measuring business activity properly, which means ensuring an intimate link between the measurements and your overall strategic objectives, is a powerful competitive weapon. JEROME LONG explains why.
Any business initiative or organisational activity needs to be measured. Doing so efficiently, effectively and with your overall objectives always in your sights, is as important as any other activity designed to make those objectives come true.
Measurement techniques need to have the flexibility and capacity for continual small adjustments of direction that you might expect from a magic arrow. And, like a magic arrow, they should be able to effect a very significant transformation in whatever youre aiming for.
The question is: how do you actually get to grips with doing the measuring?
There are, logically, four things to think about here. These are:
- Why are we carrying out the measurements?
- What should we measure?
- When should we measure it?
- How do we measure it?
Lets look at these key questions in this order.
Why are we carrying out the measurements?
To understand something we first have to find a way of measuring it, and it is close to impossible - in fact, it may even be impossible - to manage something you cant measure. Knowing whether an activity is getting better, staying the same or getting worse is powerful information when considering what actions are appropriate.
In practical terms what this means is that the reason why you are doing the measurement is to get everyone at your organisation aiming in the same direction. Measurement in effect tells your people what is important in working towards your goals and gently points them towards achieving those goals. Measurement tends to drive behaviour, and so by carrying out the measurement process properly you can help to create the behaviours your organisation needs for maximum success. The right measurements focus the attention and performance of all the people engaged in the activity on the most important aspects of what they should be doing. Indeed, very often employees may not know, focus on or keep at all times in mind what precisely they should be doing unless their activities are subjected to some form of measurement.
All hands-on experience of implementing measurement in the private or public sector reveals that measurement is an extremely powerful, flexible management resource that can be utilised to focus on those actions that will bring to fruition the organisations goals or the objectives of an initiative. Describing measurement as the magic arrow in your quiver of management skills is not a far-fetched analogy: a magic arrow is exactly what measurement should be, converting all the power and potential within your organisation into forward progress directed at hitting the targets that really matter for you.
What should we measure?
Generally, people tend not to do what you expect, but what you inspect. This fact, plus the observation already made that measurement tends to drive behaviour, constitute an unassailable argument that what you need to measure are the efficiency and effectiveness with which the processes that are vital for your organisations health, are carried out.
What you decide to measure must derive from your strategy because measurement doesnt just passively measure progress to date in realising your strategy, it is also a key means of actively getting a powerful handle on your strategy and making sure your strategy gets promoted and implemented.
The way to do this to link measures to your strategy is to map and measure your processes. Remember that after all a process is a series of activities that produce a deliverable to meet one or more needs of the process customer and that your strategy will encapsulate your organisations unique way of adding value and meeting the needs of your customers. Your processes should therefore be the representation of how your strategy will be implemented, and this is why process measures offer the best way to ensure strategy delivery.
Another way of looking at this is to regard measurement as being a vital tool that gives you access to better information with which to make better decisions.
Ultimately what you should be measuring are therefore the parameters at your organisation that are of vital importance for yielding information on which to base those decisions. Since your strategy is the foundation on which decision-making should be based, and your processes represent that strategy in terms of activities, it means that the right way to get the vital information to make decisions, and therefore make measurement work and be a real success, is to base it on measuring your processes.
In technical terms, there are broadly three things you can measure about a process:
1. The efficiency with which it is delivered
2. The quality of its deliverables against specification
3. How satisfied the customer of the process is with what has been delivered
Measurement is usually the more effective the more it furnishes a 360 degree view of a situation that embraces perspectives from all the parties who are interested in a particular process.
The actual identification of the customer of the process needs some careful thought. These customers are really parties who have some interest in the process that is being measured. Of course in a very real sense the most important customers of the process are the actual external customers of the organisation whose needs the organisation exists to meet, whether this is for profit or public service. But equally the process customers might also include the staff within the organisation who are internal customers, as well as a range of other interested persons, including any of the organisations stakeholders.
When do we measure it?
You should certainly be undertaking measurement regularly to make sure youre on target and to allow you to act on the information collected. Precisely when you make each of your measurements and report on them will depend on your capacity to absorb the information, how quickly time erodes the value of the information, and how costly it is to measure.
You will need to make crucial decisions about whether you need to measure certain factors in real-time or over a longer time period. Fortunately, excellent computer software is available that can give you a powerful handle on real-time measurements, often using dashboard type interfaces that make the measurement especially easy to view and assimilate.
How do we measure it?
In the organisational world, there are numerous proprietary and non-proprietary frameworks for measuring business performance.
One popular framework is known as the balanced scorecard. This approach to measurement involves focusing on a group of key measurement themes, and the development of performance indicators within them. Usually they focus on:
- customer satisfaction (this includes external and internal customers)
- business processes
- shareholder value
- organisational learning
However, organisations have some flexibility in selecting themes and if appropriate they can be modified or others can be added. What the themes are and what is measured within them will depend on what the organisations strategy is and how it creates value for its stakeholders. Implemented properly, the detailed balanced scorecard should follow from a process of strategy analysis or mapping, and the link from strategy, value and process to measurement themes and indicators is the key reason why the balanced scorecard has been so successful. The lack of such a framework is a key cause of failed implementations.
Another popular measurement methodology is known as six sigma. This focuses on measuring and eliminating errors in each stage of a process aiming to get to an error rate of less than one error in 294,000, which gives confidence in the process to a level of six standard deviations i.e. six sigma. The key methodology is essentially one of mapping and improving processes so that waste and error is eliminated, but its strength is that the emphasis is on listening to the so-called voice of the customer to identify what they see as critical to quality requirements.
This again makes the link between what is or should be measured and the value delivered to the customer by your organisations processes.
The overall aim of these measurement frameworks is then to cascade the measurement strategy throughout all areas and departments of the organisation; to generate Key Performance Indicators (KPIs) and measurable objectives, the measurement and achievement of which will support the execution of the strategy. Ultimately, whichever measurement strategy you eventually opt for, the prime requirement is to build into the strategy a real focus on the customer and your processes, then develop the KPIs that will promote the right activities, and cascade them throughout your organisation.
Your measurement process should then deliver measurable objectives which include the following parameters:
- direction (that is, increase or decrease)
So for example, a measurable objective might be that the average spend per customer per visit in a particular retail outlet increase from 75 to 100 by December 31 2007.
Business software dashboards can also be programmed to show charts, gauges, graphs or traffic lights for the main KPIs that are relevant to each role, allowing for quick and easy interpretation of the performance information. Each area of organisational activity or element in the business initiative could have different KPIs and/or objectives and/or dashboard layout depending on what processes they participate in or manage.
Having answered the four key measurement questions why, what, when and how, we can now summarise the best approach to carrying out measurement at a practical level and to ensuring that it really is the magic arrow in your quiver of management skills:
- define the vision and strategy, making sure you understand where you are going and how you create value for your customers and other stakeholders
- develop your processes to make sure they support your vision and strategy and that they deliver the right things to their customers
- break down your strategy and your processes to identify KPIs which will both communicate and promote ways of working which will help the achievement of your objectives
Shooting the magic arrow
- identify the measurable objectives (including KPI, baseline, target and timeframe) to support the vision and strategy
- link the objectives to individual managers performance
- communicate the high level vision, strategy and objectives so people understand the thinking behind the organisations goals and measures
- cascade down to all levels to identify KPIs and objectives appropriate for each process/role, linking to individual performance
- communicate KPIs and measurable objectives (including baseline, target and timeframe) at all levels
- measure, report and monitor
Adjusting the magic arrows trajectory in flight
- use the information gathered from your measures to make informed decisions and take appropriate actions to keep you on track to meeting your targets and objectives
- review performance and measures, including getting feedback from all levels to make sure the measures are still the right ones
- update measures as appropriate
At first sight, measurement does not seem like the most glamorous and exciting aspect of running your organisation and is therefore often not accorded the thought and attention it absolutely deserves and requires. But as with so many things in business and life generally, appearances can be deceptive. The truth is that it is only measurement that gives you a real understanding of whether your organisation is doing what it should be doing, and whether the people within your organisation are on-target and on-brand in every sense.
Without measuring the impact of any improvements we make, it is impossible to know how much things have improved or even if they have improved at all. The truth is that your magic arrow - measurement - is an incredibly powerful business tool to help you achieve success.
Jerome Long is a consultant at Decision Focus, a professional services consultancy that specialises in rapidly delivering performance improvement through process. Decision Focus was founded in 1995 and has carried out significant projects for a wide range of organisations across the private and public sectors.