Picking measures for strategy implementation

Three simple rules for selecting KPIs.

Picking measures for strategy implementation - three simple rules…

Organisations are very good at measuring things: it is hardly surprising since we have had a lot of practice - the earliest records of formalised performance measures date from over 6,500 years ago! Modern organisations are awash with measurement data, yet despite this, in the area of strategy implementation organisations struggle to get the feedback they need. There is an easy fix though… ... realising that useful strategic performance measures need to focus on what is going to happen - they need to tell you about the future not the past. In this short article we will explore how you can achieve this.

It is not about measuring but managing

All measures record information about what has happened in the past, but managing is about changing things in the future: you want the performance information you collect to help you ensure your organisation achieves its strategic goals, not simply to let you know whether you succeeded or failed.

Picking useful measures to manage with require us to first understand how measures and managing are linked - by getting this linkage clear we will be better able to work out what measures will help us to manage.

Consider the information provided by a car to the driver. The various dials and gauges in a modern car report on the state of things that have happened in the past or are happening at the instant we measure them - for example how fast the car is going, how much fuel is in the tank, how far the car has gone since it was made. We use this information to inform decisions about what we will do in the future - for example to speed up or slow down, to add fuel or put the car in for a service. But most of the time our actions are not driven by the actual numbers, rather a comparison between the information given and our expectation (or guess) about what it needs to be. Take fuel: a car fuel gauge rarely provides an accurate or numerical measure of how much fuel is in the car, rather the fuel gauge gives a general indication of what is in the tank (so “about a quarter full” rather than “17.3 litres”). But is this vague / inaccurate measure good enough for us to manage refuelling the car to ensure that we don’t run out of fuel on a journey? Other car based measures (e.g. the “oil light” provide even less measurement data and yet still usefully inform our driving activity).

That these vague and inaccurately reported car based measures can be useful illustrates the critical issue in performance management design: these measures are useful because they provide enough information to allow us to compare them to some reference point - for example, is the oil pressure above or below the critical level for safe operation of the engine? For the engine oil this level is probably a fixed value set by the manufacturer, but for our fuel gauge, deciding whether a quarter full tank of petrol is enough fuel to get the car to the end of the journey relies on a second critical bit of information that only the driver knows - the destination of the journey. The driver needs to assess how much further the car has to go, and then decide if ‘a quarter tank’ is enough fuel.

This car example gives us three critical learning points for identifying useful performance measures for managing with.

  1. Measures are only useful when we can compare them to a reference value - knowing what a measured value is is not enough, we need to know what it ‘should be’ so that we can decide whether we need to act or not.
  2. While some reference values are set for us by others (e.g. the engine manufacturer in the case of the oil warning light), most of the time we set the reference values ourselves by making choices about what we want to do (e.g. in the case of the fuel gauge by choosing a destination for our journey).
  3. To be useful, the comparison between measured value and reference value needs to be done by the person who will act on the information, not someone else. It is not helpful to return from a journey having broken down or run out of fuel to be told by someone else “oh yes, I knew there was a problem but forgot to tell you…”.

Making use of these insights

The field of strategic performance measurement is awash with good intent. Countless books and articles highlight the need for simplicity and relevance in performance measurement selection - for example the early works on the Balanced Scorecard encouraged managers to focus on 20 or fewer measures to run their strategy, to link each measure to a reference value (a target) based on the strategy being pursued, and encouraged organisations to involve the managers who would use this information to be directly involved in the selection of both measures and targets.

Yet despite this and other encouragements, organisations continue to pick too many measures, fail to set useful reference values for the measures that are collected, and favour having experts choose measures on behalf of managers. 2GC’s 2014 Balanced Scorecard Usage survey found that an average Balanced Scorecard has 40 measures and was most likely not designed by the managers who were using it. We don’t have figures on the number of measures with target values set, but our own experience over many years is that typically only half of the measures reported on a Balanced Scorecard have target values.

Fixing this requires an organisation to change the way it chooses the measures it uses.

  • Start by being clear what the destination of the strategic journey is. If you don’t know where you are going it is very hard to decide if you have enough fuel on board. The Destination Statement discussed in the second of the articles in this series shows how this can be done quickly and easily.
  • Understand how you are going to achieve the strategic goals chosen. The activities you undertake to implement the strategy critically inform what measures you need to keep an eye on. Are you travelling by car or cycling? The Strategic Linkage Model discussed in the third of the articles in this series shows how you can get clarity on strategy implementation actions.
  • Get the measurement information to the decision maker. Sending the information to the wrong person, or reporting the information in a format that is hard to understand, gets in the way of decision making - and it is the decision making that will ultimately determine if your strategy is successful. Filling a car with super-accurate dials and displays increases the amount of information given to the driver about what is going in the car - but overloading the driver with information that is not relevant to the journey risks distracting them from the key information that they need to ensure the journey is successful. Think about that next time someone suggests the fix for your performance management problems is a bigger more complex software system to report data…

Monitoring - Intelligent measuring and the third part of the 2GC ACME strategy implementation framework.

Strategy Implementation is about getting things done (see first article in series for more depth on this point). Before you can begin implementation, you need to be clear on what the strategy to be executed is (Articulate - the A in the ACME process), and your organisation needs to know what they need to do for the strategy to be implemented (Communicate - the C in the ACME process). For you to be able to manage this strategy implementation project, you in turn need to know what is being done to implement the strategy: you will need this information to be able to Monitor what is being done (the M in the ACME process).

Strategy implementation is hard, but doesn’t need to be.

In this series of five short features we are describing aspects of 2GC’s ACME strategy implementation framework. This simple, robust and effective framework has evolved from 2GC’s 16 years of practical work with organisations around the world and across many sectors, is grounded in strong management theories, and reflects best practice methods in the steps it describes.

Image

To find out more about ACME and how it can transform your organisation’s strategy implementation success, read the other features in the series - previous articles are linked at bottom of page, for future articles sign up to 2GC’s email update service, or follow our Facebook, Twitter or LinkedIn pages to get notified as soon as they appear.

Share this post