Once you've determined what to measure, you need to determine how to measure it. What would constitute success for your organization? The common approach is to use the budget/plan as the target of what you had hoped to achieve. Then, as the actual data comes in, you can calculate the variance. Once again, your plan should include operational as well as financial measures to enable the organization to determine whether it's performing as planned.
However, in today's highly competitive environment, is that good enough? Should your organization be measuring itself against industry competition as well? Let's say you targeted 90 percent client retention and achieved 95 percent. This sounds like cause for celebration. But what if your industry is on average achieving a retention rate of 98 percent? Then it's time to call off the celebration. The point is that you should look at industry benchmarks in addition to budget targets. While this can be difficult to do, it will become easier as performance management matures in various industries.
The Packaged Future
Vertical industry solutions and benchmarks are appearing on the scene to help companies move quickly forward with performance management. In the financial services industry, INEA, a small performance management vendor, offers solutions targeted at the needs of banks and insurance companies. Oracle's entry into performance management has focused initially on financial services institutions. Other vendors are offering packaged solutions for other verticals.
The benefits promised by packaged solutions are generally lower cost of ownership due to reduced training, consulting, and customization requirements; and a shorter implementation timeframe. For the development of dashboards and metrics, such promises are persuasive. What if you could buy a dashboard that came preloaded with best practice metrics for your industry? This approach would reduce considerably the time senior management has to spend on creating KPIs from blank sheets of paper.
Some studies suggest that 70 to 80 percent of a company's key metrics are very similar to those of other companies in the same industry. If that's true, with a vertical solution you could narrow your focus to the 20 to 30 percent of the KPIs that are unique to your organization's business. And if your competitors (and partners) are using many of the same metrics, it's much easier to perform apples-to-apples comparisons.
For financial services institutions, some industry-specific solutions come preloaded with calculations, such as risk-adjusted return on capital and assets under management. If you're in the financial services industry, do these look like measures you'd care about? If you had a dashboard preloaded with these and similar measures, wouldn't that save you time in the metrics development process? In the healthcare industry, vertical solutions include KPIs such as unplanned returns to surgery and nursing FTEs. Not to belabor the point, but why should you have to reinvent the wheel when you develop your metrics? Vertical solutions are clearly the wave of the future in performance management.
What's the Plan?
A final metrics development consideration is the resulting follow-up action plan. You need to select metrics that are actionable — and you need to have an action plan in place. In other words, don't measure something as a KPI that you can't change with specific actions. If you do, you may end up looking at a dashboard with all gauges in the red zone and people frustrated that there's nothing they can do about it.
Another unsatisfactory end is to have actionable metrics, but no action plans or ownership of the metrics. Before the gauges turn red, people need to know what action to take and who's responsible for taking it. For example, if customer retention KPIs reveal results far below what was planned, should you immediately commission a new satisfaction survey? Should top executives get on the phone with key clients to see what's going on?
Equally important is determining who decides what action to take. When the dashboard is telling you there's a problem — or even worse, a crisis — that isn't the time to figure out what to do. Those plans should be laid out during the same meetings that were used to develop the metrics.
What's next? Once your organization gets a clear picture of its corporate metrics, the next challenge is to drive the metrics down into the organization, with the appropriate selection of key metrics by department. One department that hasn't had much focus on this subject - and I believe is the logical group to take advantage of the metrics management — is the corporate IT department. Cost-effective deployment of technology initiatives, customer service measures, and corporate infrastructure performance can strongly benefit from the additional visibility offered by performance management metrics. Using your department as a pilot area for embracing metrics management can result in broader deployment success throughout the enterprise.
Well thought-out and agreed upon key performance metrics, with appropriate action plans, will put you on the road to achieving the promised benefits of performance management: tying strategy to execution and ultimately improving the bottom line.
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Craig Schiff is CEO of BPM Partners. A frequent writer and speaker, Schiff is an expert in technology and business aspects of performance management.
Metrics Development Tools: A Sampling
The marketplace currently offers a variety of tools that can be helpful in developing metrics. No tool can guarantee that you'll end up with the right metrics in place: but if your management team has done a good job in identifying key business drivers, tools can help you roll out a system that can scale to support enterprise demands. Here are three examples of metrics development tools to consider. These tools can complement the many existing dashboard products produced by these vendors and many others.
Cognos Metrics Manager. With a Web-based interface, this tool can work with many third-party data sources. It's certified by the Balanced Scorecard Collaborative. Metrics Manager boasts complete integration with Cognos's business intelligence and enterprise planning modules and a variety of other third-party data, applications, and information. In addition, the central metrics store maintains commonly shared definitions, metrics, and data.
Geac Strategy Management Module. Geac's tool offers a drag-and-click interface to create plan objects and help you map and track your goals with links to both financial and operational measures. Data behind these measures can come from Geac's Performance Management modules, a SQL database, or from linked text documents, spreadsheets, and Web pages.
Hyperion Metrics Builder. Using its sophisticated metrics library and Web-enabled dashboard, managers can easily and speedily identify performance issues and navigate to their root causes with Hyperion's product. An easy, wizards-based approach gives managers the ability to produce new KPIs for addition to their everyday desktops. — Craig Schiff