Almost every organization has some form of performance measurement system in place to measure, assess, evaluate and monitor short, medium and long-term enterprise performance.
Without reliable, relevant and informative performance measurement systems, organizations would find it difficult to determine their key drivers of success, measure these well, successfully execute their strategies and create sustainable value.
Today’s dynamic business environment requires organizations to identify, select and focus on those critical few measures capable of delivering strategic insights to management that aid improved decision making.
The starting point involves aligning strategy management processes with performance measurement and management. This is key to ensuring that the metrics selected link directly to the organization’s vision and mission. Measurement must reflect the performance goals of the organization as a whole. The selected measures must also be communicated properly across the organization to ensure buy-in.
Performance measurement involves utilization of various resources. By measuring what matters most and focusing on the critical few measures, wastage and value destruction will be avoided. If everyone is aligned to a set of integrated measures instead of focusing on disparate measurement silos, value will be created. It is therefore important that the organization’s business model and its performance measures remain aligned.
When the organization starts measuring that which matters most or in other words the key drivers of value creation, management will be better placed to make decisions that truly leverage its business model and strategy. For example, most of the value created in today’s organizations is driven by intangible assets.
Regardless of their positive impact on the company’s market value, many organizations are still not measuring intangibles. Focusing on measuring what matters most will help management divert attention from the generic measures and focus on emergent measures that are crucial to the value creation process.
Instead of measuring everything or what is easiest to measure, the organization will be committed to measuring only what is most critical. Relying too much on numbers often leads people to focus on what they can count instead of what counts.
However, it is important to remember that the use of more relevant, insightful and innovative measures does not come on its own. A cultural shift with regards to performance measurement is required. The organization must embrace new measures and new measurement systems.
At the same time, management must find ways of addressing resistance to change. Mimicking industry standard measures will not cut it through. This is because performance measurement is business-model specific. Measures that are regarded highly in one industry might not bring out the desired change in another industry.
Measuring what matters most should therefore be regarded as a learning process. Management must not expect their selected measures to be accurate from the word go. As the business evolves and grow, new measures will be identified through increased understanding of the major drivers of value creation.
Accuracy is achieved over time. What is important is that the measures selected are relevant. As long as the organization doesn’t lose sight of the goal, why it is measuring, progress will be achieved. The truth that the organization is seeking will be found, right actions will be taken and in turn positive change will happen.