Performance = Process & Metrics, but which comes first?

Performance in business these days (and for the foreseeable future, I would imagine) is usually defined in budget discussions, then measured and reported by your Finance Department and for publicly quoted companies reported to the City. The Finance Department will of course liaise with the business functions/divisions to put together the budget, and (where the data is not collected automatically in some system) gather reporting figures.

 

The blatant misreporting of figures by a number of companies over the last few years has shown that the numbers don't tell the whole story. They describe the results of actions however inconsistent, flawed or manipulated those actions may have been.

 

So endemic is the perceived problem of reporting that the  Sarbanes-Oxley Act has been passed that forces top management to sign that the numbers have been produced correctly. This means that they must have confidence in the way the numbers have been producedSo much confidence they are willing to bet their job on it.

You could say that the numbers are the one common language in business, but as a common operational language the numbers on their own are just not enough, you need to draw together both the activities and the numbers.

 

Linking processes and metrics

 

Think about this: top management defines company goals and strategy and takes the lead on a number of key major initiatives. They will have defined the 'Critical Success Factors' (CSF) and will have outlined a budget. I am sure they will have included the Key Performance Indicators (KPI) so that the finance department can measure and assess the result. The people in charge of operations translate the efforts to be made into operational processes and this runs down the hierarchical chains of the company.

 

Yet the problem is that in many companies the two activities of (a) the definition of Key Performance Indicators and (b) translating them into operational processes to make it all happen, are not linked.  Each goes their own way.

 

As a consequence, the people in the finance department (who are doing all the work to prepare the budgets, deliver management reports and so on) have few links to what is really happening, and, conversely, the people in the operational end of the company probably have no understanding as to how their actions help in actually realising those budgets.

 

Enter the common operational language, where strategy gets translated from the top down in an uncomplicated way by defining processes linked to performance metrics. Whenever there are questions about how to do things (the operational people), or how well things are getting done (the finance people), anyone can have a look at the tools that have been used to record and describe these processes and find the most up-to-date information.

 

Corporate Performance Management

 

What I have described is sometimes called Corporate Performance Management, Business Performance Management or Enterprise Performance Management, i.e. the principle of displaying metrics and associated processes so that the overall performance of the business can be monitored and improved.

 

However, some IT analysts (such as Gartner) started off with a data- or metrics-centric view of performance management. Their view of performance management consisted of fixing the planning and reporting cycle. Currently, in most businesses, this is a series of MSExcel spreadsheets which are distributed throughout the organisation. This is being replaced by Planning systems for the budgeting cycle, and Business Intelligence and Scorecarding systems for reportingThis is not surprising as the Business Intelligence vendors are using their marketing budgets to drive the definition of CPM

 

What analysts are now recognising, driven by clients voicing their needs, is that there is a process element required to get the full picture. The previous metrics-only view is not really Corporate Performance Management, but Corporate Performance Reporting. There is no ability to change, as there is no relationship to process – the things that people really do.

 

No surprise then, that many of the Business Intelligence software vendors (such as Cognos, Business Objects and Hyperion) are now looking at how they add process management to their Corporate Performance management suites of software. I believe that this is more likely to be by acquisition (of software or software businesses) or through strategic partnerships than internal development, as the Business Intelligence vendors' world and expertise is in the management and manipulation of vast quantities of data. They have no experience in managing processes in the form of inter-related diagrams and their linked documents and applications. Combine that with the management of multiple versions and compliance and you have a very different problem.

 

What comes first: Metrics or Process?

 

Based on the understanding that both process and metrics are needed, then which comes first? This is a pertinent question as there are many companies who already have scorecarding initiatives which are defining metrics.

 

So what exactly do I mean by metrics?

 

You have a company which develops, manufactures and sells electronic equipment. Part of the strategy says that you need new product development to produce five new products, each with a minimum of £30 million sales each year by the third year as a Critical Success Factor (CSF).

 

The metric here is the number of new products with a minimum of £30 million sales per year

 

Therefore the underpinning Key Performance Indicators (KPI) in the six-stage product development process include:

• 20 new ideas at stage two
• budget tolerance up to 5% at stage four
• product approval sign-off process to take less than 30 working days in stage six.

 

This gives you a hierarchy of interlinked measures, so that people at every level in the company understand their responsibilities and have clear accountability.

 

So, if you believe the Business Intelligence software vendors – just install their software and start measuring things for which you have data. This is because their software is good at aggregating all the corporate data and presenting it in a meaningful way – as reports or scorecards. However, this is not as valuable as working out what you should be measuring and going to find that data.

Once people start being measured they will start to change their behaviour. This is human nature. Over time areas of poor performance will be identified and, in analysing the processes that are broken, you need to make improvements in the processes. This requires people to change – for a second time. You will also begin to fully understand the measures, associated with the new processes, that you really want to hold people accountable for.

So this demonstrates that the metrics-first approach requires people to change twice – once as you start, and then once again as you implement improvements.

However, a process-led approach starts with an analysis of the operational processes. This reinforces the strategic direction from the top. At the highest level you define the core processes and the corresponding measures. Both the process and the metrics are broken down hierarchically, level by level, at the same time.

The act of discovering the processes helps you simplify them and improve them. At each level the metrics reinforce the new processes. Therefore change is only needed once and it is supported by shared access and adoption of the processes and metrics.

"If getting people to change is difficult, then changing twice in a relatively short space of time is more than TWICE as difficult."

 

Powered By Qumana