- April 27, 2015
- Posted by: andreag
Where’s the data?
One of my favorite tools that we produce at PGS is an Instrument Panel. Why? It is the tool to show an organization not only its financial health, but the status of its core processes, progress toward its vision, satisfaction of its customers, etc. all on one page. In other words, it is a like the dashboard of a car – showing the status of the vehicle as a whole through the combined analysis of its various parts. It is an essential tool in the leader’s toolbox.
Unfortunately, the Instrument Panel is probably the most seldom asked for of our tools, and a challenging one. Of the few clients who have developed one, many have never fully realized its predictive power to improve/sustain performance. Whether you use our tool, a Balanced Scorecard or similar, the issue often seems to be the same.
My sense is that this results from two factors:
- Most leaders/managers find themselves overwhelmed, and analyzing a variety of measures seems to be a bridge too far, too much to take on. In short, fatigue with today’s agenda of to do’s makes taking on such an analysis a bit over the top.
- It takes a high level of confront to define and measure every month the underbelly of the organization. Not for the faint of heart.
How do you buck the trend? Let’s look at what to measure and how, to begin to breakdown the barriers.
What to measure and what not to
Despite the reluctance to take on a full-blown instrument panel, nearly all leaders I have worked with have a good handle on the financials of the organization. So what’s the problem? Financials are only part of the story. Have you ever heard the expression that managing based solely on financial statements is like driving your car solely by looking in the rear view mirror? Financial statements present historical and point in time data, the results of work done. They are valuable in that they tell you about the past, what has happened and where you are financially.
But financial statements do not tell you what dynamics in your organization are changing or point quickly enough to the need to do something differently. Financial statements don’t show you trends, the mindset of your customers and employees, or the health of critical processes.
More than financials
A solid instrument panel or similar group of measures looks at financial data in amongst other relevant data in order to show the whole picture of the organization. A recent article in Forbes magazine highlights “Why Dashboards Matter and Five Pointers to Get You Started”. It contains good advice, but does not go far enough, based on my experience. A dashboard needs to contain more than financial data. It should consist of the following:
- Measures of progress toward vision
- Measures of whether you are maintaining your key differentiators from your competition
- Measures of key systems, those that maintain the above, as well as track general performance
In short, you need to measure the drivers of financial performance, not just the financial performance itself. Measure the drivers and you will gain better predictability of future financial performance. That is, if you measure the drivers, then you have a shot at taking action before critical changes in the environment create a dramatic change in financial performance.
How to measure: the value of trend data
W. Edwards Deming stated that there are only two mistakes you can make in managing, 1) not acting when you should, or 2) acting when you shouldn’t. These mistakes most often happen from lack of good data, particularly trends or data showing changes over time. A good set of measures should show you trend data.
Why? You can look at a single data point and spot that something significant has happened, but you can’t answer the question re. whether or not to take action because that single data point may be an anomaly, sourced in a one-time occurrence. Taking action, e.g. changing policy, changing strategy, changing leadership, all to avoid a repeat occurrence could be disastrous.
How do you know whether the change is a one-time anomaly or what Deming called a “structural change” that won’t reverse itself and needs to be responded to by a leadership action? The answer is that you need to look at multiple points of data, i.e., look at the trend or plot of the data points from month to month over the course of many months. If you see three straight months of data that concern you, then, likely a structural change in markets, customers or your systems/performance has occurred, and you need to deal with it.
Designing a good set of measures that will enable you to be predictive means that you must analyze and give serious consideration to the following:
- What differentiates us from our competitors? Why are we chosen over other alternatives?
- What systems/processes/performance/service characteristics drive those differentiators and how do we measure those?
- What would measure progress against our overall objective, e.g. market share, improved health status, proven learning
Answer for your organization the questions above. Brainstorm all the possible measures, weed out duplications, then pull together 7-12 that will provide a comprehensive, valuable look at your organization as a whole on a monthly basis. Develop your charts and data collection sheets, and get started using your measures.
You will find that it takes discipline and a continued high confront level to design and use an Instrument Panel, or any set of measures, well month after month. If you are struggling to get started, or if you have some measures in place but would like some tools to use them more effectively, contact us. We would be happy to help you design a test measure or two to get started or to give you some good analytical questions to help in utilizing your current measures better at no cost.