My presentation will therefore endeavour to convince you that, irrespective of your size, it is worth measuring what matters! About twenty years ago I came across Robert Kaplan’s book on The Balanced Scorecard (a).
It made a lot of sense to me that this performance measurement framework that added strategic non-financial performance measures to traditional financial metrics would give me a more 'balanced' view of our company’s performance. After all, financial measures report mostly on outcomes from past actions. The Balanced Scorecard approach retains financial measures but supplements these with measures on the drivers of that future financial performance. Typically, according to Kaplan, a business should be viewed from four perspectives - Financial, Internal Business Processes, Learning & Growth and Customer.
COMTEC was growing and I needed to manage this growth. As I began the painful process of transferring responsibilities to a senior management team, I still needed to have an overview of what was going on in the business.
One of my first tasks was to set Key Performance Indicators against which we began to measure our performance (b). I liked the idea of measuring ALL areas of the business. Without understanding e.g. how successful we were at managing our supply chain, it would be difficult to remedy any potential reductions in GP%. I realised that the successful management of our network of suppliers was directly related to the competitive advantage we needed to develop to succeed in our very crowded sector. We set out therefore to motivate our project managers to truly manage with a mindset focused on performance and profitability.
Inevitably our first attempt at identifying possible KPIs in the different parts of the business resulted in a plethora of measures. Apparently, this is quite a common mistake to make which is based on a lack of understanding that performance measurements are better addressed when fewer metrics are used. One of the favourite jokes in the office at the time was that I would even measure the number of cups of tea our translators would drink on a Tuesday! Many reiterations of our KPIs followed. In time, we linked them to our strategic objectives in each area of the business and I am pleased to report that measuring our performance is now ingrained in our culture as is an awareness of its benefits.
My presentation at T-UPDATE on Management & Sales will therefore focus on these benefits. In the first part I will provide an overview of our balanced scorecard performance management system and how we developed and adapted this framework to our particular environment, with a little history thrown in! I will provide examples of the metrics we use to measure the performance of our network of suppliers, internal operations, customer facing activities, staff relations and how we continue to learn, innovate and grow and fulfil our wider social responsibilities.
How these quarterly performance results are presented and made available to our staff, customers and suppliers is equally important as the measurement itself. We make these results accessible in several ways. They can be accessed on our company’s intranet as a graph or table or in hard-copy for those who still prefer this format. We monitor trends over several years. Several key graphs, such as GP%, number and value of new business won and quotation conversion rates are pinned out on our Performance Results for all to see. This never fails to impress customers visiting the office!
The penultimate part of my presentation will focus on the relationship between performance measures and strategic objectives. Since I first came across the Balanced Scorecard, it has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system (c). Measuring in isolation is not an option. A well-designed performance measurement system has the potential monthly to transform a business plan from a passive document rarely referenced to a set of very clear "marching orders". By linking many of the items on the agenda of Management Review with the performance measurement results (I will provide an example) we obtain an indication whether the company’s strategy is being successfully implemented. But a word of caution, although good KPIs provide an objective way to see if strategy is working, performance metrics do not guarantee success! You can still fail by having the wrong strategies or not making the necessary adjustments when results show that you need to.
Finally, I intend to demonstrate some of the other potential benefits of creating a performance management system, such as using the measurement results to populate marketing materials and awards applications.
The new ISO9001: 2015 standard states ‘Sub-clause 9.1.1 requires the organization initially to determine what it needs to monitor and measure. Once this has been done it must then decide how it is going to carry out these activities to ensure that the results obtained are valid. ….. In addition, the organization must also determine when monitoring and measurement should be carried out and at what stage the results of monitoring and measurement should be analysed and evaluated…… The extent of the work involved will very much depend on each organization’s starting point.’ (d)
Performance measurement data is therefore an essential part of meeting the requirements of the standard. The availability of performance data collected over several years is also an important source of information for potential investors or buyers. It will turn your business into a genuine asset. That means a business that can work without you needing to be there and one that is something you can sell at an optimum price. Conversely, to have a good understanding of what to measure in a company will greatly facilitate a potential acquisition.
I promised that this session will be interactive. I will therefore be asking you to consider what and when you measure within your company, how you present this data and what you do with it. It’s not about measurement for the sake of it nor about creating beautifully crafted graphs. It’s about using performance measurement data to agree improvement in systems and processes, a virtuous circle over which you have complete control!
I look forward to seeing you in Berlin in April.
PS I am disappointed that I could not find one single image of a woman measuring performance. Apologies therefore to all the female owned LSPs!
(a) Kaplan RS, Norton DP. The balanced scorecard: translating strategy into action. Harvard Business Press; 1996.
(b) KPI’s are performance measures that indicate progress toward a desirable outcome
(c) Kaplan RS, Norton DP. Transforming the balanced scorecard from performance measurement to strategic management: Part I. Accounting horizons. 2001 Mar;15(1):87-104.
(d) Green R., MacNee C., Holt A., ISO9001:2015 Understanding the International Standard, The Chartered Quality Institute, September 2015.