Leaders (Project leaders, departmental leaders, organizational leaders, business leaders, government leaders etc) play a critical role in transforming performance measurement. They set the tone for measurement and improvement. Unfortunately, many boards do not see the importance of leaders in transforming their enterprise performance measurement capabilities.
As I have always said in many of my posts, measurement is very critical for driving business performance. Lack of concentrated leadership, where no one has overall responsibility of measuring and improving performance, often leads to disparate measurement systems, measurement silos, poor vertical and horizontal alignment across the organization and disintegrated data. Although most managers are constantly talking about the critical importance of measuring performance, in reality, very few of them are actually walking their talk.
The majority of these managers view measurement as a non-significant part of their responsibilities. In order to drive business performance, leaders need not spend all or the majority of their time only on financial tasks, but also on the non-financial areas of the business which are the real drivers of value creation today. Performance measurement is about evidence-based management. This means making decisions based on available evidence or facts and evidence/facts is mostly acquired through measurement.
Unfortunately, most leaders are still basing the majority of their decisions on gut feelings or intuition which practically require no time or effort. Used properly, intuition or instinct is an incredibly valuable tool but if used uninformed, it can be a very dangerous weapon against yourself. The problem with relying too much on intuition is that overtime, leaders become very much overconfident of themselves and the results are often catastrophic. It is important that, managers and lower-level subordinates follow their leader’s doings. If the leader is often relying on hunch to make decisions instead of making fact-based decisions, as other managers decide to follow the leader, a few mistakes can easily turn into hundreds.
In order to create value and drive business performance, leaders must jump in and get involved in transforming performance measurement within their organizations. They must create an environment in which performance measurement is valued at each and every level of the organization. A big part of this leadership involves identifying and taking advantage of the best opportunities, leveraging those that create value and avoiding those that destroy value.
In organizations where leadership is not involved in guiding and improving performance measurement, the following five signs are prevalent:
- Opportunities are missed: Performance measurement leadership provides a framework for evaluating who your best customers are; identifying your business’s most profitable projects, investments, products and services. Measurement provides facts and this leads to evidence-based decision making which often drives business performance. Without measurement, it becomes difficult for leaders to identify and select the most profitable customers, projects, products and services to invest in.
- Value is constantly being destroyed: Measurement helps identify areas where value is being created and where it is being lost. It is therefore important to have the right leadership capable of applying the right measures, frameworks and tools that can help the organization reveal a great deal of otherwise hidden truths. When it comes to capital allocation of resources, as a business, you want to invest in value-creating units instead of value-destroying ones. Investing in unprofitable units leads to more value destruction.
- There is too much waste: Waste is antagonistic to value creation. It is so sad that many activities within organizations are very wasteful and add no value at all. Examples of waste include missed deadlines, long lead times, unused ideas, unused skills, useless long meetings, defects, returns, reworks, warranty claims, unutilized assets and resources, high inventory levels, overproduction, absenteeism, wasted time looking for information etc. All these examples of waste can easily be identified or detected by measuring the right things and responding to measurement outcomes. Without measurement, leaders will not be able to identify most waste and what’s happening. Measurement helps you identify waste before it becomes a crisis.
- Fads and quick fixes prevail: The only way to establish what really works is by measuring. Faced with numerous challenges and in the heat of the moment, many leaders feel pressured to do something and anything hoping for a magic formula to resolve these challenges. Sometimes they are fooled by “management fads” or “the next big thing” and join the band wagon of these on-off initiatives. The problem with these is that they lead people to do what they hope is right but don’t actually know until it is too late. One way of not falling victim to these “fads” or “next big thing” calls involves the leader measuring the pilot program before fully buying into any program no matter how promising it seems. By being involved in performance measurement, leaders will be able to start conversations on what really matters and they can then focus and channel resources to those areas.
- Critical problems are not solved: Good measurement leadership helps identify problematic areas that are worth solving. It is important for leaders to recognize that measurement lies at the heart of both vision and strategy. For most organizations, serious problems are often hidden well below the surface and are rarely known until they have caused severe damage. By measuring and improving business performance, leaders are best positioned to identify problematic areas and devise strategies/solutions that can resolve these problems and lead to organizational vision attainment.