Performance Management is More than Just Performance Measurement

Michael A. Schiff
Principal Consultant, MAS Strategies

Topic: EXPERTS IN DATA WAREHOUSING

It is often said that if you can't measure something, you can't manage it. However, I believe that when it comes to performance management, measurement is merely a first step. Although reports and dashboards are quite suitable for communicating how things are, organizations need to use these measurements to determine if corrective actions are needed or to recognize any new opportunities they can seize.

That said, performance measurement is an important component of performance management and, in most cases, the very first step. Whether the results are displayed with dashboards, graphs, charts, or even simple reports, the need to monitor metrics and key performance indicators is an accepted fact of organizational life -- where "budget versus actual" is a measurement understood by all.

Once something is measured, you can determine if the results are acceptable and if not, determine how best to improve or correct the situation. In other words, performance should not only be measured, it should also be managed. When you implement performance management solutions, consider the following issues:

Aligning Operations with Strategic Goals

Although individuals and departments often have metrics that they are incented to meet these metrics support the overall goals of the organization. This may seem obvious, but it is frequently not true. For example, if call center employees are measured exclusively by the number of calls they handle per unit of time, they may be more interested in providing a quick fix and moving on to the next call rather than actually providing the best solution to resolve the caller's problem.

If the production-line management team is measured on how often the line is stopped, they might be incented to overstock manufacturing inventory just to ensure that there is never a stock-out situation. Despite the fact that great strides have been made with "just-in-time" supply chain management, it is still significantly more costly (perhaps even impossible) to never run out of stock than it is to do so only .01 percent of the time.

I know of a manufacturing company that had a division that made appliances. This division received complaints that refrigerators were arriving in retail stores without egg bins. It turns out there was a period of time the manufacturing parts inventory ran out of these bins. A production line worker, whose job included placing the egg bins in refrigerators, was going to the end of the assembly line and removing the egg bins from finished refrigerators just before they were being packaged for shipment. He took the egg bins back to his station and placed them in the refrigerators that passed his work station so that he could keep the assembly line moving! Although he met his metric (keeping the line going), his actions did not support the organizational goal of quality and customer satisfaction leadership.

Performance and Metrics are not Limited to Financials

As the widespread adoption of "Balanced Scorecard" since its introduction in the late 1980s has shown, performance management extends beyond financial issues to encompass metrics related to customer, business processes, and learning and growth. Since then, performance management has further expanded to include other topics. For example, many organizations are focusing on environmental (or green) issues, improving their image and reputation, or benefiting the communities in which they are located. Military and homeland security performance is focused on winning battles and preventing terrorism. Although most of us have used the phrase "bet your business applications," I consider military and homeland security to be "bet your borders applications."

Performance Management Embraces a Wide Spectrum of BI Technology

Performance management should expand well beyond identifying a problem and managing its resolution; it should also try to identify the root cause in order to prevent the problem from reoccurring. From a business intelligence perspective, performance management should take advantage of advanced analytics such as data mining and forecasting techniques. For example, a traditional performance management solution might recognize that turnover is very high in certain departments or divisions, but data mining can be used to identify what departments with low turnover have in common so it can reduce employee turnover.

Furthermore, it is not enough for a performance management solution to identify a problem and ultimately manage its resolution. It must do so in a timely manner. This often involves using broadcasts and alerts. For example, when there is a fire, the fire department must be immediately alerted or the fire may cause significant loss. In a business, it is not enough to recognize that manufacturing defects are rising. Production management should be immediately notified so that the source of the defects can be quickly corrected.

The Last Word

Performance management solutions should do more than simply identify problems and opportunities. Solutions must help to resolve or take advantage of these problems and opportunities in a timely manner. To accomplish this, performance management solutions will need to take advantage of a wide spectrum of business intelligence technology.

Michael A. Schiff is a principal consultant for MAS Strategies. He can be reached at mschiff@mas- strategies.com.