Knowing your organization’s condition
What is the true condition of your organization today? Is it moving toward the vision? Are the strategic projects effective? Will the organization be solvent and healthy one year from today? What are the critical processes, and are they healthy? A good set of performance management metrics, an Instrument Panel, answers each of these questions.
A dashboard analogy
Consider driving your car. You would not stare intently at the gas gauge to determine the condition of your vehicle and progress on your journey. Nor would you stop every few miles to check the fan belt, oil and tire pressure. Rather, you use a variety of measures on the dashboard – the speed, water temperature, fuel gauge, navigation system, etc. to give you the breadth of information you need. Your assessment of these various gauges indicates when a more in-depth evaluation is necessary.
As a driver, these gauges are necessary to indicate that something is not as it should be, triggering your investigation to solve the problem before the car has much more costly or permanent damage. The same theory holds true for using an Instrument Panel in your organization.
Managing with measures
Just as your car’s dashboard enables you to read a problem with your vehicle in its early stages, the Instrument Panel helps you be proactive in managing the organization. Through analyzing the IP, you can identify and reinforce positive trends early so as to maximize their contribution, while also seeing and handling negative trends early to prevent costly damage from reacting late to a problem. You clearly see where the organization is on its journey, adjusting strategies as necessary or creating policy to reinforce its direction.
What measures do you need?
The Instrument Panel displays three critical pieces of information: the outcomes of an organization’s work, the effectiveness of strategic projects and the performance of critical processes. These measures combine to give the truest picture of the current condition of the organization, as well as serve to predict future condition.
The most common measures, and most widely used, are the Outcome Measures. Outcome measures show the end results of the work of the organization. Are you moving toward your vision, remaining financially sound, satisfying your customers and stakeholders? Measures such as net income, customer satisfaction and number of sales are all common outcome measures.
Management uses outcome measures to assess the overall health of the organization and its progress toward its intended future. These measures depict, therefore, the end results of the processes and programs management has implemented.
Strategic Measures track the effectiveness of the key strategies chosen to grow your business, as well as the health of your value proposition. We’ll look at these one at a time.
Every strategy the organization pursues to improve sales, increase market share, expand the product line, etc., is based on a theory that a particular initiative or strategy will be successful. For example, if an organizational goal is the increase sales, one strategy could be to delve into on-line marketing, another could be to target a different demographic with advertising, still another to provide discounts to current customers for successful referrals to new clients. Each strategy has the same intended outcome, but uses a very different theory or approach to get there..
Strategic measures are the way you can tell early on if the strategies or theories you chose are achieving the predicted results. And if they are not, you can modify your project or cut your losses early and move on. For example, if a strategic project was to grow your business through web sales, then you could measure web-generated revenue on the Instrument Panel to track the success of your Internet advertising programs. What are the strategic projects you have chosen to grow your business, capitalize on an opportunity or mitigate a threat? Measuring the results of that strategy on the Instrument Panel is an example of a strategic measure.
Your value proposition
The second group of strategic measures focuses on your value proposition. The value proposition is what defines the organization in its customers’ eyes, why they choose you over your competition. What is critical about you from your customers’ perspective? Why have they selected you or your products? And, are you maintaining that competitive edge? Strategic measures focused on the value proposition provide the answers. For example, if patients of a community health center consistently comment that the short wait time to be seen is one of the main reasons they use the facility, then monitoring wait time on the Instrument Panel would be considered a strategic measure.
Core Process Measures
The core process metrics are the final group of measures on your Instrument Panel. These measures track the critical processes of the organization, i.e., its basic core systems. There are processes within the organization that are unseen by the customer yet support the customers’ ultimate experience, key functions that keep the business afloat and should be monitored for warning signs of trouble. Where outcome measures focus on the end results of the work being done, core process measures address the work itself. Tracking time to hire new staff, number of marketing contacts made, errors in a production line would each be considered a core process measure on the Instrument Panel.
It is important to note that there can certainly be some overlap between the three categories of measures. For example, a key value proposition for a customer might be the turnaround time for a custom order. Custom order fulfillment may also be a key core process in your organization. Similarly, customer satisfaction is a typical outcome measure, but it may also be the primary focus of a key strategic project in the organization, and would therefore also be a strategic measure.
The point of defining these categories is not to get stuck trying to identify the specific category for a measure, but rather to recognize that you should have each of the three types of measures represented on your Instrument Panel. An organization with an Instrument Panel made up solely of outcome measures will not likely discover glitches in its essential core processes before dissatisfied customers are lost. Similarly, an organization tracking only the effectiveness of core processes may not see net profits dropping as more and more money is poured into improving systems without a check on the overall impact of those costs to the bottom line.
Instrument panels should change over time
One last note in closing. Don’t expect to design it perfectly the first time, and even if you do, don’t expect your Instrument Panel measures to never change. As you work from month to month with your Instrument Panel, you will begin to weed out measures that are not bringing valuable information to the forefront, while tuning up those measures that are. As the organization and the environment surrounding it evolve over time, so should your Instrument Panel.