Article
The secret to setting the right performance metrics
The Performance Measurement Series
03
Metrics: Identify your power performance metrics
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A blue line painted around the interior walls of an automotive parts factory is a simple stroke of brilliance in organizational performance measurement. As long as the plant manager can see the blue line, he knows that production and inventory management are on track. But the question is: how did the plant manager know where to paint the line?
Setting the right targets is essential for effective performance measurement, and ultimately, for getting the necessary insights to focus business optimization initiatives. It’s not about measuring everything, it’s about measuring the right thing—which requires both an art and a science to do well.
Measuring everything, measuring nothing
When it comes to performance metrics, most organizations have an embarrassment of riches. The availability of data along with the ubiquity of tracking tools and dashboards make it easy to measure financial performance, customer and employee satisfaction, operational effectiveness, quality, and more.
But quantity of metrics doesn’t guarantee quality of insights. Organizations that track many performance metrics often find it hard to focus on the most relevant ones. What’s more, they don’t always use performance measurement insights to guide decisions or influence behaviors. Collecting metrics without acting on them is a waste of effort in an environment where all eyes are on efficiency and business optimization.
Power metrics track leading indicators
The reality is that tracking performance metrics is a part of doing business—especially in the digital era where most organizations are swimming in performance data. Power metrics help organizations pivot from measuring what they can to measuring what they should.
Power performance metrics measure what matters most to business performance. Put simply, they are the most important leading indicators that enable organizations to course correct and avoid performance problems. These measures are always simple, visible, and actionable.
These metrics are unique to the business. For example, the auto parts factory relies on the blue line as a leading indicator of productivity. Net Promoter Score (NPS) is a leading indicator of customer satisfaction. And employee engagement is a leading indicator of retention. Some of the world’s top companies use power metrics for performance measurement. At Netflix, total hours viewed is a measure of engagement. Amazon tracks monthly purchases as a leading indicator of satisfaction and loyalty.
Power metrics in action
A media organization had to have content ready on schedule for distribution, or it risked losing viewers and advertisers. Workflow analysis revealed the necessary power metric: content must be ready two days before distribution. Everyone understood this power metric and were accountable for it.
The fundamentals of setting your organization’s power performance metrics
The most crucial aspect of the performance measurement process, setting the right power metrics, is often the most difficult. Here’s how to make it easier:
1
Make power metrics tangible and useful. Power metrics must be quantifiable and immediately relevant to the workforce’s day-to-day activities. Otherwise, employees struggle to rally behind them. It’s also essential that organizations can influence these power metrics. When they are outside of an organization’s control, course correction may not be possible or is likely to have minimal to no impact. Power performance metrics should always be in lock-step with business strategy. As an input, the leading indicator must drive the desired business outputs.
2
Rely heavily on data and AI—but don’t stop there. The right, reliable, and repeatable data is key to setting performance metrics that align with the business strategy. Yet, it’s not the only critical input to consider. Experience and observation provide invaluable context for the “why” behind the data. In fact, experience, not data, showed the plant manager where to paint the blue line.
3
Tap into the knowledge of your organization. Gathering perspectives from different departments and across roles helps ensure that power metrics are relevant to the entire organization. Bringing different people together regularly in cross-functional working groups is an excellent sounding board for problem solving and soliciting inputs.
4
Welcome trial and error as part of the process. Setting power performance metrics is never a “set-it-and-forget-it” exercise. It’s very possible that organizations may not get them right the first time. This is why a disciplined process to test and tweak power metrics in the spirit of the Plan-Do-Check-Act cycle is essential. Prioritizing adaptability and continuous improvement is especially important today. Dynamic change makes course correction the rule—not the exception.
5
Think through the unintended consequences. Leaders must determine if power metrics create risk for the organization, customers, or employees. Case in point: Airlines often set on-time departure as a power metric. If planes fully leave the gate only to sit on the tarmac waiting to take off, the airline officially hits the on-time departure target. But the customer experience is horrible, which is a clear risk.
The power of performance metrics
By setting the right power metrics, organizations can make the profound shift from measuring everything to measuring the right thing. This doesn’t mean that other performance metrics aren’t valuable and informative. They are.
Think of it like this: Today’s sports teams rely on metrics to measure everything from individual player stats to opponents’ tendencies. At the end of the day, however, the metric that ultimately matters most is whether the team wins or loses. Winning in business is really no different. That’s why it’s time to find your power metrics today.
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