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Measure What’s Important, NOT What’s Easy

Most of us buy into the need to measure performance.

Whether it’s the score of our team in a baseball game, your time in the last 10K run you did, or the average profit per employee in your organization, measurement helps us evaluate the current level of performance, determine whether we are moving forward in the right direction, and identify whether improvements are required when performance isn’t at the level we expected.

However, once you get on board the measurement wagon, it’s critical to realize how important it is to measure the RIGHT things. Unfortunately, it seems that many organizations measure what’s easy to measure with little thought about whether what they’re measuring is actually worth the effort. That is, few companies seem to consider whether they are measuring what’s important to measure.

The truth is that many organizations are swimming in data but, in many cases, it’s “legacy data” – data they have always captured because someone thought it was agood idea once.  In many organizations, this legacy data no longer really serves an obvious purpose however everyone is afraid to give these measures up.

It’s almost like they think that some data is better than no data.

However, this thinking doesn’t work. Particularly if the measures you are currently measuring and the data you are collecting aren’t delivering value to your organization. Measures and data that are easy to get and deliver little in the way of informational value are a lot like candy – it makes you feel good, doesn’t deliver much in the way of (nutritional) value, and is hard to give up.

What if your organization measured LESS by focusing on what’s really important? What if your company focused on the vital signs that added the most informational value to your use of measurement?

Think about how much time and effort could be saved and how much capacity could be freed up in your organization if people eliminated the time spent on collecting and looking at valueless measures. What if some of that time could be spent looking at and discussing the impact of measures and results with high informational value? Think about how much your organization could do and how much further ahead it would be if you measured less that told you more! This is what can happen when an organization focuses on measuring what’s important.

The first step in determining what’s important to measure is to be clear on what exactly you are focusing on in your company’s measurement efforts. Is it the performance of your business strategy? Is it the ability of your organization to execute your business strategy as defined by its various operational plans? Is it the ability of your sales team to execute your sales strategy and produce defined sales results? Is it the ability of your packaging line to perform at optimal levels? Is it the quality and efficiency of your claims adjudication and payment processes?

Essentially, this first step involves defining your measurement “playing fields” as well as the purpose behind your various measurement activities.

Once this has been defined, the next step in selecting important measures is to apply a few criteria that will help you identify ones that are high on the information value scale.

They should be specific. A good measure relates very closely to the thing you are trying to measure. It helps a great deal to have very specific information about the thing you are trying to measure in place before you try to choose relevant measures. For example, if you are trying to measure quality, it’s important first to agree on what you and your colleagues mean by quality. Is it just fewer or zero errors or is a combination of product cost, on time delivery, and delivery of a product to customer specifications? Essentially, what does quality look like in action at your company? Defining the essence of the thing you are going to measure makes it easier to select a good measure that tells you what you want to know about the thing you are measuring.

They should be simple. A good measure is simple to calculate and simple to understand and analyze. Measures that have complex calculations often produce results that people don’t understand and can’t relate to. More importantly, when you use complex measures, people at the front lines of your organization, where action takes place, don’t know whether they should, and how to, respond to the results. Finally, complex calculations can hide performance trends that would normally drive early action. For example, something I am seeing in my hospital clients is a move away from traditional infection rate reporting (rate per X patient days) – an externally driven measurement that is hard to take action on. Instead, they are reporting number of infections because a straight count makes it easier for nurses and doctors to quickly see whether they have a problem that needs further investigation.

They should be sensitive to change. Most companies measure things to keep a finger on the pulse of the organization. When you are measuring the vital signs of your company, you want to use measures that will pick up changes as soon as they happen. While you may choose not to respond to a change immediately, good measures let you know that a change has in fact occurred, giving you the option to respond based on your assessment of the nature of the change.

They should be timely. Good measures give you information to look at on a regular basis and quickly enough that you can take meaningful action in response to results when required. What is a good frequency for results availability? The answer depends on what you are measuring and why. If, for example, you are measuring the performance of a process and are using the results to make performance better tomorrow than it was today then a daily frequency may be appropriate. If, however, you are measuring employee satisfaction, quarterly may be the ideal frequency because it allows the impact of your action plans to be seen in subsequent survey results. Whatever frequency makes sense for what you are measuring, be sure to select measures that produce results data as soon as possible after measurement has taken place. For example, throughout my career I have generally observed that most financial results aren’t available until 3 – 6 weeks after the end of the measurement period. When this happens with your measures, you are essentially making decisions today based on very old information – things may have already changed! 3+ weeks is simply too long to wait to get performance results information for a measure. In contrast, a good measure is one where results are available <5 days after the end of the measurement period.

When you use this measure selection criteria, you will find that you are able to make more informed choices and select the best measures for your measure set. And, when you find a good measure or two for the thing you are striving to measure, you will all of a sudden feel ok about not measuring it ten different ways. This is because you have the confidence that those one or two measures are telling you what you really need to know about the critical performance elements of the thing you are measuring.

This is how focusing on what’s important to measure allows you to reduce the number of measures you have to look at to stay on top of the vital things in your organization.

Let’s be honest – measuring the right things isn’t always easy to do. For example, if you want to measure the performance of your internal learning and development program, you could measure the number of people who signed up and came for each course. That’s easy to measure. However, what you really want to know about the performance of your L & D program is its impact on the development of employee competencies and the degree of application of new skills on the job. This is much harder to measure but it’s worth working towards because it’s got a significantly higher information value rating than the attendance measure. As a result, it’s important to measure.

Sometimes you get lucky in your measurement efforts and you discover that what’s important to measure is also easy to measure. When it happens, that’s good. However, in my experience, it doesn’t usually happen this way. More often than not, the most important measures are a challenge to get but it’s almost always worth the effort and investment.

Remember: Putting together a set of measures with high information value should be your goal and it’s often a journey for an organization. Your challenge along the way? Don’t settle for what’s easy to measure – focus on what’s important to measure!

8 Comments

  1. Jcousineau
    Aug 17, 2011

    Great points, Sandy. My two bits: what you measure should also be performance-inducing. The very best metrics, IMO, are ones that (in addition to being specific, simple, sensitive to change, and timely) enable people on the front lines of execution to see, quickly, the impacts they’re having on the end-game. Such metrics, like you say, aren’t easy to come by. They are, however, game-changers.

  2. Sandy Richardson
    Aug 17, 2011

    I couldn’t agree more – if the measures you select do not drive and provide feedback on action, they are not the right measures. Thanks, Sandy

  3. Pranabusiness
    Aug 17, 2011

    Great article!
    Interestingly enough there was just an article in the Wall Street Journal today about the Author Tim Ferris. He’s the guy that wrote the Four Hour Work Week. Apparently, Amazon’s new publishing business just enticed him away from his current publisher, Crown.
    The publishing industry, as you may know, is in quite a state of rebirth. Big publishers are scampering to try to figure out new business models and innovative ways to deliver content to readers other than through books. This type of rebirth requires radical shifts from old ways of doing things to new ways. Innovation and new product development is critical.
    I’ve worked quite a bit in the publishing space over the years and most of the big ones primarily measure performance by EBITA or operating profit. Many senior managers and executives are judged by this metric and bonuses are often linked to it.
    The problem here is that an over-emphasis on EBITA encourages managers to focus on minimizing risk to the point where innovation is either slow to happen or never happens. Innovation requires risk. It requires change. And, it requires the freedom to take chances on new business models and revenue streams.
    This is a classic case of measuring what’s “easy” or what’s always been measured versus measuring what will drive the required behaviors to compete.

  4. Sandy Richardson
    Aug 18, 2011

    Your comment raises another interesting point. While we don’t want to be drowning in measures, the idea that you can measure business performance with one metric is a flawed one. Particularly if it is a financial metric. The answer is to create a small SET of indicators that are highly focused on the key objectives of the thing you are measuring. For example, in the case of publishing companies where innovation is critical for ongoing success, they will need measures of innovation as well as indicators of financial health included in their measure set.
    Our objectives in business are rarely one dimensional – the challenge is to create a tight measure set that will help you keep an eye on how your organization is doing in progressing forward to realize those objectives. Sandy

  5. M.eddurzi
    Aug 24, 2011

    Thanks a lot for this article ………. its great

  6. Sandy Richardson
    Aug 24, 2011

    Glad you found it interesting and helpful! Sandy

  7. Bill Horst
    Nov 3, 2011

    Sandy , great points . I often say the same thing. i am also a big believer in the benefits of transparency over complexity. I expanded on your blog post in my blog http://costingblog.wvco.com/ . Please check it out.

  8. Sandy Richardson
    Nov 3, 2011

    Hi Bill – I loved your post! The additional points you make are very important considerations that all organizations would do well to keep in mind. Glad my post gave you a jumping off point. Sandy