Metrics Development
Taking it from the top

The biggest challenge in performance management often comes right at the beginning: metrics definition and development. Here are ideas to get strategic initiatives (and top executives) moving.

In most organizations, business performance management initiatives present a dichotomy. If the finance department is driving the project, the starting point is typically planning and budgeting. If IT is leading the charge, executive dashboards are frequently at the top of the list. The reasons are fairly obvious: IT thinks in terms of improving access to data, whereas finance focuses on improving its processes (particularly the painful ones). And there's nothing wrong with that: however, IT must remember that dashboard development is really more about addressing business issues than it is about technology. Without steady involvement by the business side, IT's dashboard projects are doomed to failure.

In this article, I'll describe some strategic points that are critical to the development of metrics that will truly have a beneficial impact on your organization. After all, that's the goal: there's no sense in embarking on a difficult challenge if the results only frustrate everyone in the end. Success comes when performance management enables everyone involved to take intelligent action toward a better future.

Consensus Definitions

The dashboard is the critical delivery vehicle for performance metrics. But before delving into metrics development itself, let's start with a few definitions. A common definition of dashboard is a tool used by managers and executives to monitor business performance. The key point is that a dashboard is nothing more than a tool: a highly visual interface that includes graphs, color-coded gauges, stoplights, and other cues to highlight variance from performance targets. What's most important is the content: that is, what's being measured and displayed on the dashboard.

The dashboard's content can best be described as a scorecard. A scorecard is a collection of key measures that the organization has determined are tightly linked to its success or failure in executing strategy. While dashboards are becoming a popular way to display scorecards, scorecards can also appear in the form of simple reports. I've seen team leaders use "dashboards" to align an organization by simply pinning the graphical measures to a bulletin board in the lunch room!

FIGURE 1 Top-down approach to developing KPIs and metrics.

Assuming that we agree on the definition of a scorecard, let's drill down one more level, to the key performance indicators (KPIs) that populate a scorecard. A KPI is a metric: but a metric isn't necessarily a KPI. A metric is really a measure of anything (the number of people who read this article, for example). A KPI is a measure that matters and is ideally actionable. A company will have many metrics, but few KPIs. And here we confront one of the toughest challenges: How do you get to that short list of agreed-upon key measures?