Performance Measurement White Paper: Four Keys to Improving Performance

Strategic planning and performance measurement are two of the most critical elements of business success. However, these approaches can’t fulfill their potential unless they’re grounded in actionable performance measurement initiatives.

Peter Drucker said it best: “You can only manage what you can measure.” This time-honored axiom continues to reward forward-thinking business owners and CEOs who want to grow their businesses, increase profitability and boost shareholder value.

There are four key elements involved in performance measurement. Following is a description of these elements and how each one should be carried out in a performance measurement initiative.

1. Critical Success Factors

These are indispensable activities that are essential to achieving business objectives. Without critical success factors, a business has no roadmap to help it navigate operations, which makes control more difficult as priorities constantly change. With critical success factors in place, leadership can commit resources to high-priority activities and establish metrics to gauge success.

The first step in developing critical success factors is getting executive support for the project. This includes assembling a team with members from stakeholder groups such as executive and middle management, the board of directors, staff, suppliers and customers. The team should identify the success factors most critical to achieving the objectives laid out in your strategic plan.

2. Key Performance Indicators (KPIs)

KPIs are measurements that make it possible to assess your company’s performance and gauge your success. Establishing and monitoring KPIs helps you stay focused on the most important metrics. By linking KPIs to your critical success factors, you can ensure the continuity of strategic intent — from the boardroom to the shop floor. With KPIs, you can easily determine if your operational results are in alignment with your target metrics.

You will use your critical success factors to generate KPIs. Next, decide which data sources and format you will use, such as internal or external databases or data aggregation. The final step is to decide how KPIs will be reported — for example, in real time or near-real time. Plan to review your KPIs on a regular basis to make sure they’re still relevant and what corrective actions should be taken for KPIs that don’t meet target goals.

3. Dashboards

A dashboard will make it easier to measure and report on your KPIs. By combining your dashboard with your KPIs, you can better monitor and manage business processes that impact your effectiveness. Your dashboard will help connect executive leadership with KPIs and critical success factors. Understandable data makes easier to take corrective action.

Dashboards can now be created using simple programs like Microsoft Excel and PowerPivot. Designing your dashboard starts with identifying your critical success factors and KPIs, as described above. Next, you will create a dashboard layout and visuals such as charts, graphs and gauges and add your data. The final step is to build user features such as navigation, data input, value range selection and security features.

4. Balanced Scorecards

These are strategic performance management tools that translate your objectives into target values so you can determine if your company is achieving the results you desire. They enable you to connect your strategic objectives with measurable business activities. Balanced scorecards also help ensure coordination among all departments toward meeting company goals.

The first step in creating a balanced scorecard is to get buy-in from key stakeholders. Next, identify and review your company’s strategic objectives and create a destination statement that describes what success looks like. The statement could focus on financials, quality, customer satisfaction, productivity or other critical success factors. The final step is to create a strategy map with cause-and-effect links between the different objectives. Make sure your employees understand how the strategic objectives align with their responsibilities.

Concluding Thoughts

When applied correctly, these four key performance measurement elements can deliver concrete benefits to your business, such as positive operational and financial outcomes. Most importantly, they can provide the kind of clear data you need to make better business decisions and improve your overall business success.

Click here to download the complimentary white paper discussing performance measurement in more detail. No registration is required to download the white paper.

Arthur F. Rothberg, Managing Director, CFO Edge, LLC