Keeping Score

Using the Right Metrics to Drive World Class Performance

Mark Graham Brown

• Publisher: Productivity Press
• Year: 2020
• ISBN:
  9781439886854
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

In Keeping Score, the author contends that metrics must be all-encompassing. They must focus not just on the present, but need to consider the past and future. They also must consider the needs of all participants, including customers, shareholders, and employees. Still one must know exactly what to measure, as measuring everything can be more damaging than measuring nothing. Taking a balanced Baldrige approach, this book shows how to evaluate current approaches to measurement and pinpoint false measurements. It covers the selection of financial metrics, ways to measure employee and customer satisfaction, and methods to track performance and measure quality.

Part I

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Evaluating Your Measurement System

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1 Measurement: The Key to World-Class Performance

Great advances have been made in the medical field during the past 10 years with the discovery of better techniques for measuring certain chemicals that are found in the blood. Prostate-specific antigen, for example, is a very good predictor of future prostate problems and even cancer. The science of measuring and predicting organizational health seems to be sadly lagging behind the medical field, however. Many organizations today use the same bottom-line-oriented measures of performance that they did 30 or more years ago. Measuring the right variables has a lot to do with the likelihood of your future success. Just as better blood analyses have allowed doctors to predict and control health problems before they get out of hand, business executives need to use better data to lead their organizations on a successful path for the future.

This book is about how to rethink your approach to organizational measurement. Some characteristics of this new approach to measuring organizational performance are concepts such as the following:

• Fewer is better: Concentrate on measuring the vital few key variables rather than the trivial many.
• Measures should be linked to the factors needed for success: key business drivers.
• Measures should be a mix of past, present, and future to ensure that the organization is concerned with all three perspectives.
• Measures should be based around the needs of customers, shareholders, and other key stakeholders.
• Measures should start at the top and flow down to all levels of employees in the organization.
• Multiple indices can be combined into a single index to give a better overall assessment of performance.
• Measures should be changed or at least adjusted as the environment and your strategy changes.
• Measures need to have targets or goals established that are based on research rather than arbitrary numbers.

CHARACTERISTICS OF AN EFFECTIVE MEASUREMENT SYSTEM

Vital Few Versus Trivial Many

The maximum number of metrics any organization should have as overall measures is 20. No one individual can monitor and control more than 20 variables on a regular basis. The key to having a successful set of metrics is paring down your database to the vital few key metrics that are linked to your success. Large high-tech organizations tend to resist the concept that a complicated organization can be measured using 20 or less metrics. Pointing out that large high-tech companies like AT&T manage to perform fairly well with four key metrics is somewhat misleading. AT&T may have four overall metrics, but thousands of individual metrics are collected, reported, and summarized into aggregate statistics that are indices of overall performance. For example, EVA, or economic value-added, may be the only overall financial metric that AT&T concentrates on, but it consists of a variety of subsidiary metrics. It is alright to have hundreds or even thousands of metrics in your organization’s database. It is just that no individual should have to focus on more than a few major ones. It helps to think of your measurement scorecard like a dashboard on a car, which has a few key gauges that need to be monitored fairly regularly, a few that need to be looked at with less frequency, and some warning lights that alert us to possible problems. The metrics that are not key to your company’s success can be looked at as the warning lights. These are important, but they may not need to be monitored every day or reviewed in meetings every month.

For example, I was recently working with a manufacturing company that was having trouble with the idea that safety not be one of its key metrics. The company had an excellent prevention-based approach to safety that had resulted in a safety record that was among the best in its business. It agreed to keep safety metrics in the scorecard, but make it a subsidiary measure because of its long track record of success in this area. Safety for the company was making sure there is enough oil in your car. Not having enough oil can certainly cause some major problems, but if you drive a new car and change the oil every 2,000 miles, you don’t need to spend much time watching the oil gauge as you drive.

Linkage to Vision, Values, and Key Success Factors

Along with having a reasonable number of metrics, another key to success is to select measures that are linked to your key success factors. For example, if you have identified the technical competence of your people as being something that gives you an edge on your competition, you’d better make sure that you have a measure of technical competence in your scorecard. Similarly, if one of your key success factors is your marketing ability, a metric is needed that measures the effectiveness of your marketing efforts. If you are serious about running your organization with a specific set of values, it is also important that you have metrics in your score-card that tell you how well you live by your professed values. For example, one of the stated values of Ciba-Geigy is to become known as a benchmark in the areas of safety and environmental protection. To achieve this vision, the company has some very good metrics in their scorecard, along with comparisons to others in the industry, so it can tell how close its own performance levels are to other companies viewed as world-class in these areas.

Metrics Should Focus on the Past, Present, and Future

The problem with most measures is that they focus on the past. How much money did we make last quarter, how many accidents did we have this month, and how many units did we ship? Measuring the most recent period’s performance is critical for any organization. However, if this is all you measure, you may not be around in the next 5 years. Past and present metrics are the easiest to come up with, because we typically have data on these types of metrics, and these results have actually happened. You don’t need to do any projections to find out how much money was made last month; you can look at the actual figures. Future measures help predict success over a longer term than next month or next quarter. An example of a future-oriented metric for an engineering and construction firm might be the dollar values of outstanding proposals. Locked-in future orders might be a future-oriented metric for a manufacturing company. Dollars in sales from new products might be a good present and future-oriented metric for a company looking to expand its sales by focusing on the development of more new products.

Metrics Should Be Linked to the Needs of Customers, Shareholders, and Employees

Selecting the right metrics or measures is actually much more than deciding what to measure. It is, in fact, a key part of your overall strategy for success. Select the wrong performance metrics and you may go out of business although all graphs indicate that you are healthy. Select the wrong metrics and your worst nightmare might come true—employees might actually perform according to these metrics. The concepts in this book are quite simple. It is almost common sense that all organizations need a balanced scorecard and that fewer measures are better than too many. However, coming up with a good precise set of metrics that actually predicts your success is quite difficult. Doing so often requires expensive research and some trial and error to settle on just the r...