Business performance measurement is critical for every organization – big or small. From the biggest corporation to the one person shop, without performance measurement, you simply don’t have a handle on whether your organization is working in a way that is moving it forward productively towards its goals. Just as important, you are missing a critical feedback loop that allows you to: learn more about how your organization REALLY works to produce results; identify and explore areas of underperformance; see whether targeted interventions are actually producing the results you want/expect; and pro-actively discover when improvements and/or a change in business direction may be required.
As the ever insightful Seth Godin pointed out in one of his blogs last week (click here), you just aren’t running your organization professionally without a system of measurement in place. To me, if you want to really be, and be seen as, a professional business leader, AND reap the benefits of professional business management, you MUST introduce and/or expand the use of business performance measurement in your organization without delay.
Whether you are thinking of implementing an approach such as the balanced scorecard or another business performance measurement framework in your organization, here are the steps I have learned, through experience, you must go through if you are going to introduce performance measurement within your company both effectively and successfully.
(1) Determine your business goals and define your performance measurement philosophy
Before you begin measuring you need to decide what to measure. My advice is to only measure the important stuff because otherwise you just end up measuring what you can whether it adds value or not. Since no business has the time and resources available to measure just for the sake of measuring, the best advice is to start with your business strategy, goals, and objectives – knowing how your organization is doing in relation to these key elements is the basis of good measurement.
It is also important to take the time to think about and discuss your company’s performance measurement philosophy. This includes the purpose of measurement, who will use performance results to do what, how you want to share performance results, and your indicator selection criteria. Taking this step early makes indicator selection and business performance measurement process design decisions easier when they come up later on and in the future.
(2) Select indicators that align with business goals
It seems obvious to tell you to choose indicators that line up with your business strategy and goals but how can you make sure that you actually do this? The key to success is to have a really good understanding of each business objective in terms of what it really is, what’s included and what isn’t, and the outcomes the objective is meant to produce. Once these “definitions” are in place, it becomes much easier to select indicators that relate to your business objectives. Selecting indicators that closely align with your business objectives is the only way to get the feedback you need on progress on those objectives.
(3) Define each indicator
Selecting your indicators is just the first step. You must also define each indicator including a word definition and, when applicable, a mathematical calculation. Why? Because it’s the only way to be clear about what is being measured.
Here’s a short story from my past to illustrate:
Revenue – seems clear enough, right? Well I was working in my BU in an insurance company and we had revenue as an indicator on our BSC. The corporation also had a revenue indicator on their BSC however the revenue results on our BSC and for our BU on the corporate BSC were never the same number! Needless to say, the auditors came knocking one day to point out the disconnect. After a little investigation, we discovered that the corporate definition of revenue and our definition of revenue weren’t the same. We got it all sorted out to everyone’s satisfaction but it really brought home the idea that, even with supposedly common indicators, being clear on an indicator’s definition is absolutely critical.
Clear definitions also ensure the consistent production of results that are measuring what you think they are measuring. Indicator definitions also include information about data sources, the frequency of data collection, data consolidation procedures, and data and commentary owners. Essentially, you cannot produce business performance results without clear and full indicator definitions.
(4) Assign one person to oversee your organization’s performance measurement activities
A new business process like business performance measurement won’t gain a foothold in an organization without someone to guide and manage its implementation and use. It’s important to identify the one person in your organization who will take on this accountability and the associated responsibilities. For more information, check out a recent blog post on this topic by clicking here.
(5) Spec out and build or buy your performance measurement presentment/reporting tool
Business performance results are no good to any organization unless they are visible and shared. How will your organization do this to the best effect? This question should have been answered in your performance measurement philosophy and should guide you in defining the specifications for your performance measurement results presentment and reporting tool. Once the specs have been created, you must make the decision whether you are going to build or buy a tool that will meet your needs (check out a previous blog post on this topic by clicking here). Just remember that excel isn’t a “free” option and that there are many high quality performance measurement software applications available at every price point. Once the best tool has been identified, it must be implemented in your organization – time for implementation will dictate the timeline for completion of many of the steps outlined below.
(6) Design your business performance results data and commentary collection process
How will data get into your presentment tool? When does it have to be there by? How will commentary owners know whether commentary is required? Who is going to post interim results and by when? What processes does your performance measurement presentment tool/application require? Basically you need to map out the steps that will take you from the start to a fully populated set of business performance results and commentary as well as the accountabilities and timelines for step completion. The result is a process map that can be communicated to, and followed and improved by, everyone participating in the business performance results production process.
(7) Design your performance measurement results review meeting
Once your business performance results are ready, how will you review and discuss them? Will you create a new meeting to do this or re-purpose an existing one? How frequently will they happen and who will attend? What will the standard agenda look like and who will do what at the meeting? Thinking this through, communicating it to participants, and coaching attendees for participation success is a critical step in a successful business performance measurement implementation process.
(8) Create data and commentary collection sheets, online forms, and/or repositories (if required)
Once your business performance measurement presentment and reporting tool has been selected and your data and commentary collection processes have been defined, you may have manual data and commentary collection processes that require the creation of data and commentary collection vehicles and tools. Create them now so that they will be ready to share with data and commentary owners.
(9) Identify data and commentary owners, define their role accountabilities, and create role documentation
Who is providing data and commentary for each indicator? What is the role of the data/commentary owner? What do they have to do by when? It is important to ensure that every indicator has at least one data and one commentary owner identified – creating a list helps identify ownership gaps and capacity concerns, and will make managing the data and commentary owner network easier. Role accountabilities will have been defined by the data and commentary collection process – creating clear role documentation for data and commentary owners that tells them what they have to do when helps data and commentary owners play their role in the business performance measurement process flawlessly.
(10) Let people know that they are data and commentary owners and provide them with training so that they can play their role
Data and commentary owners cannot play their role unless they know: that they have an accountability, what that accountability requires (including submission requirements and timelines), what tools they have access to (i.e. data and commentary collection tools, root cause analysis tools, etc.), and how to use them. Education and training will take care of this and must be included in your performance measurement implementation process.
(11) Decide if you want to collect historical data and, if you do, collect it
Will historical data add value in helping you evaluate the trends in your business results? If so, and if historical data is readily available, you might wish to collect it and then upload it into your results database. If you are going to take this step, do it at this point in the business performance measurement implementation process.
(12) Run a performance results collection process in “slow motion”
The business performance measurement process introduces many new responsibilities, tools, and requirements to your organization – often with very tight completion timelines. It’s a good idea to do a data and commentary collection trial run on a lengthened timeline before your first real results collection process. Doing this gives everyone the chance to get to know and practice their new roles without time stresses, and tests out both your results collection process and presentment tool. A trial run can often highlight opportunities for improvement that can be incorporated before you officially launch your business performance measurement efforts.
If you follow these 12 steps, I promise you that you and your organization will be ready to start collecting your business performance results in earnest and that the process will run almost perfectly the first time (I hesitate to say absolutely perfectly because, in my experience, something invariable comes up that you hadn’t anticipated, even with your trial run!). The benefit is that, with solid processes in place and some practice under your belts, you and your team will be freed to focus on understanding what your business performance results are telling you about your business and determining required next actions.
Business performance measurement facilitates the transformation of an organization into a flexible high-performance system that excels at: constantly aligning and re-aligning the activities, projects and resources of the organization with its business objectives; understanding how the business really works and what levers produce the desired results reliably; demonstrating agility in the face of an evolving business environment; and consistently achieving business performance results.
And hey – who doesn’t want that anyway?