Less is More: Designing Performance Metrics
America’s biggest problem today is glut. The recession notwithstanding, we are saturated with stuff. I was heartened to read in the Wall Street Journal recently that supermarkets and discount retailers are cutting back on the number of items per category and brand that they carry. For example, Walgreen Co. is cutting back the number of superglues it carries from 25 to 11. Of course, 11 items is still an over-abundance but at least it’s a start.
We are also drowning in data. We’ve established personal coping mechanisms (or not) to deal with a never ceasing stream of email, direct mail, voice mail messages. But we are still vulnerable to the glut of metrics that our companies spit at us through an endless variety of reports. To cope, some largely ignore the data, making decisions based on gut instincts, while others pluck numbers from various reports and insert them into a personalized spreadsheet to do their analysis. Dashboards put a pretty face on metrics but often don’t do enough to slice through the tangle.
Strategy rolls down, and metrics roll up.
To deal with the glut of metrics, we need to take a step back and understand what we are trying to accomplish. Executives need to identify a handful of strategic objectives and devise metrics to measure progress against them. Each of these high-level metrics then cascades into additional metrics at each successive level of the organization. Each metric supports processes at an increasingly granular level and is tailored to a small number of employees who are accountable for its results. Activity at each level is then aggregated to deliver an enterprise view. In this way, strategy rolls down and metrics roll up.
The Power of One. So what is the right number of strategic metrics? One targeted metric may be all that is needed. British Airways reportedly turned itself around in the 1980s by focusing a single metric: the timely arrival and departure of airplanes. The CEO personally called any airport manager when a British Airways plane was delayed over a certain time to discover the reason for the hold up. The metric and the threat of a call from the CEO triggered a chain reaction of process improvements throughout the organization to ensure the event did not repeat itself.
Consequently, the airline reaped sizable benefits: it reduced costs involved in reaccommodating passengers who would have missed connecting flights and it avoided alienating those customers; it improved the moral of employees who no longer had to deal with angry or upset passengers; and it improved the performance of suppliers and partners who no longer had to rejigger schedules.
Ideally, employees each track about 3 to 7 metrics, each of which supports one or more high-level metrics. This is a reasonable number of manage and about the maximum number of things an individual can focus on effectively. More than that and the metrics lose their punch. Collectively, the organization may still have thousands of metrics it needs to track but all emanate from one—or more realistically about three to five strategic objectives which translate into 10 to 20 high-level metrics.
Thus, an effective dashboard strategy starts with defining strategic objectives and the metrics that support them. Dashboard designers should remember that less is more when creating performance metrics.
For more information on designing effective metrics, see Wayne’s report titled “Performance Management Strategies: How to Create and Deploy Effective Metrics.”
Posted by Wayne Eckerson on July 1, 2009