While most organizations realize that measurement is essential for managing, they don’t realize how important the selection and integration of their measures is. What gets measured gets managed and what gets managed gets done. Clearly it is critical to focus measurement efforts on the right things.
The right measures will provide right focus and clarity to management. What a company or a functional unit measures, to a large extent determines how its people behave. It is therefore important for leaders to be able to differentiate the critical few measures that will have the greatest impact and the trivial many.
Both focus and integration are essential to organization performance measurement success. Although having individual game-changing measures helps the company to create value, care must be taken to ensure that they are integrated across the organization.
If these measures are not integrated into a performance measurement framework that reflects the interconnectedness and holism of the entire system, they soon become ineffective.
The starting point in integrating your organization’s performance measurement is clearly understanding the different forms of measurement integration – vertical and horizontal. You might be asking, “What is vertical and horizontal integration?”
Vertical integration looks at the alignment between your corporate strategy and measures up and down through the organization. In other words, vertical integration looks at financial measures, customer measures, internal process measures and employee measures.
On the other hand, horizontal integration focuses on the alignment of measures across organizational functions and processes. For example, it looks at procurement measures, marketing measures, sales measures, customer service measures, logistics measures, production measures, finance and accounting measures etc.
In order to achieve any set goals, organizations should ensure there is coordination and the parts are working in synch. If integration is lacking, organizations are bound to operate at cross-purposes and waste resources that could be mutually invested to create real value.
Having many scorecards across the organization that are disconnected from each other is a sure sign that you are running a disintegrated performance measurement system. Individuals and functions might be achieving good scores but the truth of the matter is that nobody really understands what these scores mean in terms of the success of the organization as a whole.
Most companies are disintegrated because they are composed of individual functions vying for scarce resources, operating more like competitors than collaborators. These individual functions are making a gravely mistake of seeing the world through their own functional lenses (functions, roles and measures) resulting in waste.
Having a common perspective across the organization improves communication and helps the company to make use of the valuable synergies that are any organization’s greatest resource. This common perspective can only be achieved if the organization aligns its strategy with the business model.
Collecting largely unrelated and unmanageable measures can also lead to disintegrated measurement. Often the result is measurement gridlock because managers are forced into a state of paralysis as everyone seems to be pulling in different directions.
When managers fail to agree on which measures are strategically important because of poorly integrated measures, these managers end up pursuing their own or departmental interests ahead of those of the company and other stakeholders.
Just as real teams are the ones that succeed best in sports, in business, the entire organization must be aligned. People in different functions and units must be continually reminded to look beyond their silos.
If the quality of the data in use by the organization is poor or disintegrated, this will also impede integrative performance measurement. Today, organizations store a lot of data because IT systems are allowing them to do so.
To ensure that the data under storage is of high quality to support informed decision making when processed into information and knowledge, organizations must be able to adequately connect disparate data repositories.
The available data must be connected, consistent and easily accessible. Organizations whose functions are not very well coordinated mostly suffer from problems of data scatter, data disorder, data fragmentation, data hoarding, data ownership, dormant data or legacy data (data gathered because at one time management asked for it, but now might be obsolete).
Keeping the organization focused on the right targets and moving together in the right direction is key to achieving sustainable continuous performance improvement.
Management must strive to break down the traditional functional silos, drive more cross-functional integration and consequently more collaboration.