Best Practices: How to Design Performance Indicators for Maximum Benefit
Over the years, I’ve worked with a lot of people who were just taking their first steps into performance measurement. Without guidance, it is very easy for those first steps to involve looking over someone else’s library of 1001 indicators & metrics and picking a couple dozen that look good at the time. But that approach is likely to require too much data collection effort and fail to produce the kinds of successes your business needs. Here are my top 5 Tips for ensuring that your performance indicators focus your business on achieving its own goals and identifying watershed moments.
Take a Balanced Approach
Performance measurement should further your corporate strategy. In order to avoid measurement for its own sake, establish a clear link between each performance indicator and an organizational goal. I’m a big fan of the Balanced Scorecard since it helps you keep your focus on a balanced view of what’s important. Start by setting goals in each perspective of the Balanced Scorecard – Finance, Customer Service, Internal Processes, and Employee Learning & Growth. Set one or two goals in each perspective. Over time, you can build from there. Viewing your organization through all these perspectives will give you both an assessment of past performance and of activities which will create future value.
Choose Objective Measures from Existing Sources
Subjective statements, such as aiming to “be the best” in your market, have their place. But they are not well suited to performance management. Performance measures must be verifiable, which also means they must be quantitative. As much as possible, choose performance measures for which numerical data is available from existing sources. Data sources like sales figures, production numbers, training initiatives and customer surveys which you are already collecting have the added advantages of avoiding disruptions to your business, while reducing your implementation time. Look carefully at the sources of information you already have and choose performance measures you expect to have the greatest impact on achieving your goals.
Monitor Opposing Forces
For each performance measure you identify, it is essential to evaluate whether it is possible to game that measure to the organization’s detriment. For example, increasing your rate of production or speed of service could also result in increasing the number of errors or the cost of rework. Therefore, any such measure should be paired with a measure of potential adverse consequences.
Record Whole Activities Instead of Indicators
If your goal is to increase each day’s total sales, it will not help your cause to set up a performance indicator so that each day you enter a date and a total. Instead, enter all the relevant information about each sale that occurred: when, where, by whom, to whom, why, how and how much. By doing this, you preserve your ability to analyze and gain insights you cannot yet imagine. The data you enter in this way will allow you to present reports and scorecards with multiple levels of abstraction which will have meaning to executives, department heads, line employees and even customers.
Make it Interactive
Performance measurement is valuable because it communicates a set of priorities. Letting people know what’s important encourages them to make focused decisions. If your scorecard is not interactive, it will rob your people of the tools they need to make data driven decisions. Select a performance measurement tool that lets your people put indicator scores into a context that is meaningful to what they are doing at the moment. Letting people select the time period they want to review is not enough, they also need to have access to results by customer, location, and a range of other meaningful criteria.
What do you think? Are there other factors that should be considered when developing corporate performance measures? Let me know in the Comments.