Why Metrics-Centric Performance Management Solutions Fall Short

Information Management Magazine, March 2005

Jonathan D. Becher

The term "performance management" is appearing in many different places these days. Unfortunately, as with many new terms, a bewildering array of adjectives has been developed to describe various flavors of performance management: enterprise, corporate, business, financial, operational and workforce, to name just a few. Some of these appear to be different words for the same thing (e.g., enterprise and corporate performance management), but others are similar sounding terms for fundamentally different concepts. Financial performance management describes next-generation budgeting and planning, while workforce performance management refers to compensation and motivation planning for employees.

Despite their differences, almost all performance management solutions share one thing in common: their focus on improving performance begins with creating metrics from the data already available to the organization. While metrics-centric performance management is an improvement over traditional reporting and business intelligence, it can still fall short of an organization's expectations for several reasons:

• Explosion of metrics without any business context.
• Focus on financial metrics that emphasize past performance.
• Reliance on transactional systems that don't include subjective opinions.

In many metrics-centric solutions, metrics are created simply because the data is available. For example, it can be tempting to create a metric for the number of calls handled by each contact center agent. However, that metric alone may not convey enough information if the objective is either increasing customer satisfaction or moving to customer self-service. Unfortunately, starting with data often yields a proliferation of metrics that are not tied to the organization's goals. These organizations have graduated from being overwhelmed by reports to being overwhelmed by metrics.

The lack of context surrounding data-driven metrics is compounded by the fact that most metrics used in performance management systems are financial and represent information about the past. For example, even though revenue and profitability are two of the most common metrics used, "lead quality" and "time to close a transaction" may be more appropriate metrics for an organization that is interested in understanding momentum during the introduction of a new product. Relying solely on financial and lagging metrics is akin to driving while looking in the rearview mirror - it limits an organization's ability to proactively drive in their chosen direction.

Metrics-centric performance management solutions naturally draw from transactional systems (e.g., financial, CRM, ERP) for their data. Unfortunately, this means that the resulting metrics typically reflect an organization's activity, not the outcomes it is trying to achieve. Returning to the contact center example, it might be tempting to create an activity metric such as "percentage of calls returned in the same day" as a way of measuring customer satisfaction because this data is contained in most call center CRM solutions. However, the number of calls returned doesn't directly measure customer satisfaction. Instead, it may be more appropriate to regularly survey a portion of the customer base in order to gauge reported satisfaction. This survey metric, while subjective, more directly reflects the intended outcome.

Alignment-Centric Performance Management

Performance management solutions based on existing transaction data often produce a plethora of metrics that lack strategic context, reflect only past behavior and don't measure an organization's intended outcomes. To improve performance, organizations should instead focus their efforts on increasing operational alignment. An alignment-centric performance management solution goes beyond simply reporting on status to incorporate communication and collaboration throughout an organization. This means, for example, distilling the number of tracked metrics down to a few key performance indicators (KPIs), communicating the role of KPIs by carefully documenting their definitions and emphasizing high-level progress toward targets over displaying specific data values. Similarly, an alignment-centric solution encourages stakeholders to share their collective experiences with others, capturing best practices and allowing proactive adjustments to strategy. Rather than only measuring historic performance, an alignment-centric performance management solution motivates employees with common strategic objectives; manages operational programs that support those objectives; monitors progress toward incremental milestones and key performance indicators; and measures specific elements of operational performance to identify both existing problems and opportunities for growth.

1. Motivate

The first step toward achieving operational alignment is to communicate an organization's specific business goals to all stakeholders. For example, is the organization more focused on reducing the cost of service or deepening its relationship with the most profitable customers? By articulating strategic objectives in ways that every stakeholder - not just strategic planning groups - can understand, team members become more motivated and can better manage their day-to-day activities toward the organization's goals.

In many organizations, communication of strategy often revolves around a grandiose vision statement that declares what the organization hopes to achieve over the long term. However, this vision by its very nature provides little motivation to most employees and fails to influence their daily activities. Without motivation or influence, an organization has an army of employees operating with disparate agendas and doing little to effectively advance organizational objectives.

Often people shrug off strategy as "just words" and, therefore, spend little time determining the best way to articulate their organization's particular objectives. However, it is important to ensure not only that the words accurately convey the organization's intention, but also that they do so in a way that is meaningful to every stakeholder. Even the most aligned organization can become misaligned over time if people are unintentionally working toward different goals.

Pathways and strategy plans help people piece together the entire puzzle of how an organization seeks to achieve its vision. Pathways are useful for representing long-term goals that an organization must achieve to realize its vision. They provide a high-level road map for the organization, illustrating a systematic approach and change in focus over time. Strategy plans explain the organizational mission, showing the relationship between various strategic objectives and telling the story of how, together, they enable the organization to achieve its mission - a step toward the company's grandiose vision. Both pathways and strategy plans can be used for strategic planning by individual groups long before the organization begins to execute.

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