Entrepreneurship is not about a single end objective

Using Performance Indicators to Drive Your Business Strategy - White Paper

 

We’ve all heard the old management adage “you can’t manage what you don’t measure”, but in the world of big data where managers have countless reports and data at their fingertips, the key challenge for companies is to identify what they need to measure and to ensure they are measuring it properly. In many companies, existing reporting doesn’t provide the key data that employees need to identify performance issues and take action. Many organizations have a lot of financial accounting data but only a few measures that relate to strategic and non-financial performance. In many cases there is too much data, but too little information, with no linkage to the strategy of the business. How do you go about fixing this problem?

This article describes an approach to developing and aligning performance indicators with strategic objectives. Other processes, such as developing objectives and measures through a formal contin- uous improvement or ISO program can also be used. There is no single “right” way to decide on the best approach for your business; you need to consider what fits both within your business culture as well as the other systems you have in place.

 

A Balanced Approach To Identifying Strategic Objectives

It all starts with a strategy that flows from the company’s mission, vision and values (see Figure 1). If you do not have a strategic plan for your business, you need to start by developing a plan along with specific measurable objectives. These objectives could cover a broad range of perspectives, including these areas:

• Internal Processes - streamlining key processes, applying new technology to improve efficiency
• Environment and Community - support local businesses, community leadership and connecting with future employees
• Learning and Growth - increase expertise and skills through training or mentoring
• Financial – revenue growth, asset utilization, cash flow
• Customer Focus - customer satisfaction, identifying and targeting the most profitable customers
• Employee Satisfaction - staff retention and positive company culture

Identifying the Right Performance Indicators

Once strategic objectives are in place, you need to ask: what are the critical success factors required to drive each objective? For those success factors, develop a list of potential measures we call “indicators”, which will allow you to track performance. From this list of indicators, prioritize the ones that will have the biggest impact on achieving the strategic objectives. A simple example of how a strategic objective is converted to performance indicators is shown in Figure 2.

In order to measure performance, you must be able to readily obtain the data needed. Therefore, it is important to consider the availability of data, the effort required to obtain it, and any changes to systems or processes needed when selecting your performance indicators. If you are implementing performance indicators for the first time, keep it simple. Use data that is readily available in the organization; if you need to collect new data, ensure the benefit outweighs the cost and effort of obtaining it.

Cascading Objectives AND Performance Indicators to Align the Organization
Cascading your strategic objectives and indicators to all levels of the organization is a powerful way to align behaviour across your organization and improve performance. In order to do this successfully, you must develop indicators appropriate for the level of the organization at which they will be used. The manager or team using the indicator must be able to influence the results within their scope of responsibility. It is not necessary to have indicators related to each strategic objective; only the ones that are relevant to the manager or team. The best way to develop these indicators is to directly involve the people who are responsible for achieving results or have an influence on the outcome.

Setting Targets 

Establishing targets enables you to check if you are on track in reaching your objectives. There are a number of ways to set targets, but the main point to keep in mind is that you want your teams to be motivated to achieve the results.

A target can be set using an external or internal benchmark. External bench- marks are applicable in cases where you have access to published data on industry best practices. Frequently they are most applicable in areas such as cost, quality, production cycle time, sales and marketing. Internal benchmarking involves analyzing internal data to understand where the company performance currently stands in order to set improvement targets. If you do not have the data, it may be necessary to collect it for a period of time (e.g. 3 months to 1 year depending on the measure) so as to establish a baseline.

Stretch targets are a great way to challenge and motivate staff to achieve great results. When setting stretch targets, be sure to break them down into more achievable targets or sub targets and quantify them in a shorter time frame. This will reduce the anxiety amongst staff and help them see what actions are needed to achieve results.

An example of how an objective can be cascaded through the organization, with targets set that are specific to the position in the company is shown in Figure 3. 

Developing Reports and Dashboards
Once you’ve identified your performance indicators and set targets, the next step is to establish an approach to ongoing monitoring and reporting that can be used by managers and teams to track progress. The reporting framework must consider requirements of different levels of the organization and the reporting frequency that is required to support effective decision making.

A simple dashboard, which is a one-page tool displaying the performance indicators, targets, and historical data in a graphical form, can be an effective tool for reporting. The purpose of a dashboard is to provide a big picture view, focusing on the key performance indicators, and draw attention to areas of concern so that mangers can drill down into additional information that is needed to take action. There are a wide variety of software tools available for dashboard reporting; however, existing reporting systems can easily be used to create simple custom dashboards. In designing reports or dashboards, here are few things to keep in mind:

• Keep the data for each area of the business limited to a single, easy-to-read page
• Provide context to the data, historical trends and targets help the user to see if they are on track
• Use graphs or tables that clearly communicate the data
• Don’t change your reports too frequently, people need time to get used to them

Implementation

If performance indicators are new to your organization, you need to approach the design and implementation process as a change initiative. You should consider building these steps into your process:

1. Make it a priority – The President / CEO and senior management must support this initiative and ensure there is a sense of urgency within the organization to follow through with this project.
2. Develop a team – This group should have enough authority within the organization to lead the change and include people from various functions. This team needs to be given the time and resources to develop and implement the program. You may want to include an external consultant or advisor who can facilitate and guide the process.
3. Communicate – A clear and consis- tent message needs to be delivered to the business on the strategic objectives and changes that are being implemented to introduce performance indicators. This is not a one-time thing; use as many vehicles as possible to communicate the message (e.g. newsletters, staff meetings, workshops and one-on-one discussions with staff).
4. Empower employees – Involve a broad group of people in the process in order to gain their support and input in developing the performance measures through workshops, facili- tated meetings, or surveys tools.
5. Plan for and celebrate success - Set targets that are achievable so that people can see visible results from their efforts. Acknowledge and celebrate success, reward people who have been fundametal to achieving the results. Be sure to start this early enough in the implementation process to motivate staff and build momentum.
6. Keep the ball rolling – Establish an annual process to review and update your performance indicators to align with changes in strategy and set new targets. Continuously improve your approach by introducing per- formance measures to other levels of your businesses, or link it to your performance management system — any time you do this, remember to start at step one in this process.

Annual Review And Continuous Improvement 

Once you’ve established a performance indicator system, you need to revisit and refine it to ensure relevance to the business. This should be linked to an annual strategic plan review and budget setting process. You should review which measures have worked well and which have not; it is especially important to look at which measures need to be changed based on adjustments to your strategic objectives. If you need to develop new measures, brainstorm on the success factors and identify new measures for each level within the organization. Regardless of whether the measures are new or not, you should be reviewing your annual performance and setting new targets for the upcoming year. Once these are established, they need to be communicated to the appropriate level of the company.

Identifying and linking performance indicators to the organization’s strategic objectives provides a foundation for aligning activities across the business. Developing simple reporting tools or dashboards will improve communication, decision making and performance monitoring. Overall, this process will help you to continuously improve your business and adjust your strategy as needed. 

Further Reading:
Kaplan, R., and Norton, D., “Using the Balanced Scorecard as a Strategic Management System”, Harvard Business Review, July-August 2007
Marr, B., “How to Design Key Performance Indicators” Advanced Performance Institute, (www.ap-institute.com), 2010
Pateman, A., “5 East Steps for Developing Your BSC Measures”, Harvard Business Publishing, March – April 2004

Tips for Development Performance Indicators

• Link indictors to your strategic objectives and align them across your organization for maximum performance improvement
• Develop indicators that are measurable, simple and easy to understand for those responsible
• for the performance
• Indicators must provide meaningful information on progress relative to the objectives
• Ensure there is a clear definition and precise methodology for calculation
• Have clearly defined targets that are challenging and motivating, but obtainable with a reasonable amount of effort
• Review objectives, performance indicators and targets on an annual basis to ensure alignment with the business strategy
• Stay focused, limit number for each level or area of the business to 10 measures maximum

ABOUT US

McNally Brown Group is a boutique management consulting and business advisory firm that works with companies to improve business performance. We work collaboratively with clients to conduct assessments, develop tools, and facilitate implementation of strategic initiatives in a broad range of areas including strategic planning and implementation of key performance indicators and dashboards.

Download a PDF of this white paper

Using Performance Indicators to Drive Your Business Strategy - White Paper

 

We’ve all heard the old management adage “you can’t manage what you don’t measure”, but in the world of big data where managers have countless reports and data at their fingertips, the key challenge for companies is to identify what they need to measure and to ensure they are measuring it properly. In many companies, existing reporting doesn’t provide the key data that employees need to identify performance issues and take action. Many organizations have a lot of financial accounting data but only a few measures that relate to strategic and non-financial performance. In many cases there is too much data, but too little information, with no linkage to the strategy of the business. How do you go about fixing this problem?

This article describes an approach to developing and aligning performance indicators with strategic objectives. Other processes, such as developing objectives and measures through a formal contin- uous improvement or ISO program can also be used. There is no single “right” way to decide on the best approach for your business; you need to consider what fits both within your business culture as well as the other systems you have in place.

 

A Balanced Approach To Identifying Strategic Objectives

It all starts with a strategy that flows from the company’s mission, vision and values (see Figure 1). If you do not have a strategic plan for your business, you need to start by developing a plan along with specific measurable objectives. These objectives could cover a broad range of perspectives, including these areas:

• Internal Processes - streamlining key processes, applying new technology to improve efficiency
• Environment and Community - support local businesses, community leadership and connecting with future employees
• Learning and Growth - increase expertise and skills through training or mentoring
• Financial – revenue growth, asset utilization, cash flow
• Customer Focus - customer satisfaction, identifying and targeting the most profitable customers
• Employee Satisfaction - staff retention and positive company culture

Identifying the Right Performance Indicators

Once strategic objectives are in place, you need to ask: what are the critical success factors required to drive each objective? For those success factors, develop a list of potential measures we call “indicators”, which will allow you to track performance. From this list of indicators, prioritize the ones that will have the biggest impact on achieving the strategic objectives. A simple example of how a strategic objective is converted to performance indicators is shown in Figure 2.

In order to measure performance, you must be able to readily obtain the data needed. Therefore, it is important to consider the availability of data, the effort required to obtain it, and any changes to systems or processes needed when selecting your performance indicators. If you are implementing performance indicators for the first time, keep it simple. Use data that is readily available in the organization; if you need to collect new data, ensure the benefit outweighs the cost and effort of obtaining it.

Cascading Objectives AND Performance Indicators to Align the Organization
Cascading your strategic objectives and indicators to all levels of the organization is a powerful way to align behaviour across your organization and improve performance. In order to do this successfully, you must develop indicators appropriate for the level of the organization at which they will be used. The manager or team using the indicator must be able to influence the results within their scope of responsibility. It is not necessary to have indicators related to each strategic objective; only the ones that are relevant to the manager or team. The best way to develop these indicators is to directly involve the people who are responsible for achieving results or have an influence on the outcome.

Setting Targets 

Establishing targets enables you to check if you are on track in reaching your objectives. There are a number of ways to set targets, but the main point to keep in mind is that you want your teams to be motivated to achieve the results.

A target can be set using an external or internal benchmark. External bench- marks are applicable in cases where you have access to published data on industry best practices. Frequently they are most applicable in areas such as cost, quality, production cycle time, sales and marketing. Internal benchmarking involves analyzing internal data to understand where the company performance currently stands in order to set improvement targets. If you do not have the data, it may be necessary to collect it for a period of time (e.g. 3 months to 1 year depending on the measure) so as to establish a baseline.

Stretch targets are a great way to challenge and motivate staff to achieve great results. When setting stretch targets, be sure to break them down into more achievable targets or sub targets and quantify them in a shorter time frame. This will reduce the anxiety amongst staff and help them see what actions are needed to achieve results.

An example of how an objective can be cascaded through the organization, with targets set that are specific to the position in the company is shown in Figure 3. 

Developing Reports and Dashboards
Once you’ve identified your performance indicators and set targets, the next step is to establish an approach to ongoing monitoring and reporting that can be used by managers and teams to track progress. The reporting framework must consider requirements of different levels of the organization and the reporting frequency that is required to support effective decision making.

A simple dashboard, which is a one-page tool displaying the performance indicators, targets, and historical data in a graphical form, can be an effective tool for reporting. The purpose of a dashboard is to provide a big picture view, focusing on the key performance indicators, and draw attention to areas of concern so that mangers can drill down into additional information that is needed to take action. There are a wide variety of software tools available for dashboard reporting; however, existing reporting systems can easily be used to create simple custom dashboards. In designing reports or dashboards, here are few things to keep in mind:

• Keep the data for each area of the business limited to a single, easy-to-read page
• Provide context to the data, historical trends and targets help the user to see if they are on track
• Use graphs or tables that clearly communicate the data
• Don’t change your reports too frequently, people need time to get used to them

Implementation

If performance indicators are new to your organization, you need to approach the design and implementation process as a change initiative. You should consider building these steps into your process:

1. Make it a priority – The President / CEO and senior management must support this initiative and ensure there is a sense of urgency within the organization to follow through with this project.
2. Develop a team – This group should have enough authority within the organization to lead the change and include people from various functions. This team needs to be given the time and resources to develop and implement the program. You may want to include an external consultant or advisor who can facilitate and guide the process.
3. Communicate – A clear and consis- tent message needs to be delivered to the business on the strategic objectives and changes that are being implemented to introduce performance indicators. This is not a one-time thing; use as many vehicles as possible to communicate the message (e.g. newsletters, staff meetings, workshops and one-on-one discussions with staff).
4. Empower employees – Involve a broad group of people in the process in order to gain their support and input in developing the performance measures through workshops, facili- tated meetings, or surveys tools.
5. Plan for and celebrate success - Set targets that are achievable so that people can see visible results from their efforts. Acknowledge and celebrate success, reward people who have been fundametal to achieving the results. Be sure to start this early enough in the implementation process to motivate staff and build momentum.
6. Keep the ball rolling – Establish an annual process to review and update your performance indicators to align with changes in strategy and set new targets. Continuously improve your approach by introducing per- formance measures to other levels of your businesses, or link it to your performance management system — any time you do this, remember to start at step one in this process.

Annual Review And Continuous Improvement 

Once you’ve established a performance indicator system, you need to revisit and refine it to ensure relevance to the business. This should be linked to an annual strategic plan review and budget setting process. You should review which measures have worked well and which have not; it is especially important to look at which measures need to be changed based on adjustments to your strategic objectives. If you need to develop new measures, brainstorm on the success factors and identify new measures for each level within the organization. Regardless of whether the measures are new or not, you should be reviewing your annual performance and setting new targets for the upcoming year. Once these are established, they need to be communicated to the appropriate level of the company.

Identifying and linking performance indicators to the organization’s strategic objectives provides a foundation for aligning activities across the business. Developing simple reporting tools or dashboards will improve communication, decision making and performance monitoring. Overall, this process will help you to continuously improve your business and adjust your strategy as needed. 

Further Reading:
Kaplan, R., and Norton, D., “Using the Balanced Scorecard as a Strategic Management System”, Harvard Business Review, July-August 2007
Marr, B., “How to Design Key Performance Indicators” Advanced Performance Institute, (www.ap-institute.com), 2010
Pateman, A., “5 East Steps for Developing Your BSC Measures”, Harvard Business Publishing, March – April 2004

Tips for Development Performance Indicators

• Link indictors to your strategic objectives and align them across your organization for maximum performance improvement
• Develop indicators that are measurable, simple and easy to understand for those responsible
• for the performance
• Indicators must provide meaningful information on progress relative to the objectives
• Ensure there is a clear definition and precise methodology for calculation
• Have clearly defined targets that are challenging and motivating, but obtainable with a reasonable amount of effort
• Review objectives, performance indicators and targets on an annual basis to ensure alignment with the business strategy
• Stay focused, limit number for each level or area of the business to 10 measures maximum

ABOUT US

McNally Brown Group is a boutique management consulting and business advisory firm that works with companies to improve business performance. We work collaboratively with clients to conduct assessments, develop tools, and facilitate implementation of strategic initiatives in a broad range of areas including strategic planning and implementation of key performance indicators and dashboards.

Download a PDF of this white paper

Leadership Lessons from Tug-of-War

 

“What am I creating?” is a critical leadership question you must ask yourself every day. Personally, it aligns your choices and actions. Organizationally, it orients your team’s choices—it creates alignment. The reason for organizations is to harness the collective power of the group.

WE can accomplish more than I, and our collective efforts are most impressive when they surge forward in unison. Alignment produces a multiplier effect that demonstrates that the whole IS greater than the sum of the parts. Teamwork, however, can also be challenging and frustrating as we subjugate our needs and impulses and emphasize consideration of others and emotional intelligence. On the downside, teamwork can rob us of our spontaneous expression and blur our coveted individuality. On the upside, teamwork can provide a platform from which we can accomplish meaningful and breathtaking achievements.

Teams generate power when everyone is focused on the same horizon.

When each member answers, “What am I creating?” in the same way, amplification occurs. By collectively focusing on the same objective, they harness the power of alignment.

Tug-of-war is a practical example of the power of alignment. I grew up playing this game a lot. The game cost nothing, was easy to set up, and was intensely competitive. With a heeled shoe we’d scratch a line in the dirt, then we’d split our group in two. Each group took hold of opposing ends of a strong rope, and on command we’d begin to pull. I remember the effort that we expended as we pulled the rope in order to draw the opposing team toward us and over the midway line. The biggest and heaviest team member was typically the “anchor” planted at the end of the rope. As the resident “big boy” I spent my tug-of-war career as the anchor. From here I had a clear view of my team as well as the opposing team. What I learned watching both teams is that the size, weight, and strength of the team were not the most important predictors of who would win the game.

By collectively focusing on the same objective, they harness the power of alignment.

Alignment was the winning factor. Teams whose members pulled together at the same achieved cumulative force. When our backs, feet, and waists were lined up and pointing in the same direction, we became unified. The combined force of an aligned team magnified our individual contributions exponentially. I remember many sunny days anchored at the end of the line, and hoping the opposing team would look disjointed, that their guys would be out of sync, pulling the rope at different angles. When even one person pulled at a different angle, the entire team lost their cumulative force and, rather than win, they struggled.

Organizations, too, are pulling against competition in an ongoing contest for market share, resources, and talent. This constant tension is a tug-of-war with consumers and competitors. Each organizational function is a hand on the collective rope. Aligning the functions is not a mere philosophical abstraction; it is a dictate of mechanics and physics. Team members pull the rope at the operational level. When R&D, for example, pulls the rope North and production pulls the rope West, the organization falters.

Leaders are engaged in a constant tug-of-war, with not just one, but multiple ropes being pulled by multiple teams in multiple directions. As so many factors push and pull leaders’ attention and energy, it is focus—”What am I creating?”—that shapes the most effective decisions. Clarity of choice and decisions arise when you can definitively answer, “What am I creating?” as a person, as a leader, and as a team. This focus is your vision and your commitment to the future, and it illuminates a path of decisions, relationships, and behaviors that pave your unique path to success.

Image credit- berkut2011 / 123RF Stock Photo

Eric Kaufmann (1 Posts)Eric Kaufmann brings a unique mix of professional and personal experience to his work of developing executive wisdom and guiding leaders to better decisions and achievement of superior results. Kaufmann, who was born in Israel and lived and worked in South Africa for three years, has two decades of experience in sales and management at Lanier/3M and Corning Clinical Laboratories. In 1999, he began a new chapter of his professional life, launching a consulting business in which he works with individuals and teams in senior management of Fortune 1,000 companies, primarily in the life science and technology sectors. Along with his real-world business experience, Kaufmann brings a range of other skills and perspectives to his roles as executive coach, keynote speaker and management consultant. Kaufmann’s first book, “Leadership as a Hero’s Journey,” explores the four traits shared by successful, passionate and creative business leaders. The book describes how they navigate through uncertainty and anxiety in order to improve the lives and livelihoods of those around them, and is due out in early 2013. When working with CEOs and senior managers, Kaufmann assists them in clarifying their corporate goals and vision; assessing the strengths and weaknesses of their management team; and identifying and eliminating obstacles to collaboration, trust, and productivity. Ultimately, his contribution leads to better decision-making and greater team engagement, resulting in faster and stronger market penetration, improved profitability and employee retention.