By Anthony Plewes, 18 April 2005 12:05
COMMENT Ian Charlesworth, senior researcher, Butler Group
"The most important part of CPM is measuring what matters," says Butler Group's Ian Charlesworth. "The difficulty of KPI [key performance indicators] and metric design is downplayed by all the vendors in this space and, as a consequence, organisations end up measuring the wrong thing." Typically, companies measure factors that they can't control, which is not a good starting point for a performance improvement exercise. For example, they measure that customer satisfaction is going down, rather than measuring the underlying factors that have caused it to go down.
"Companies often deploy KPIs in CPM products right out of the box," says Charlesworth. "They are not working out what the KPIs should be and working out the right actions to take when the indicators change. This should be addressed right at the KPI development stage. Companies need to fundamentally understand what the department is intending to do and what is its key measure of success is. Once you know, you can work out what the KPIs should be."
However, these KPIs are a moving target and should change as the company's strategy changes. Unfortunately, many companies do not revise their KPIs to reflect changes in strategy and this is what Charlesworth calls the 'strategy gap'. "This strategy needs to be cascaded down to the individual department's and project's KPIs, otherwise what you are trying to achieve is out of step with what you are measuring. KPIs need to be grounded in reality, tied to the strategy of the business and have an individual responsible for taking action," says Charlesworth.
To prevent this strategy gap, the strategy makers need to communicate any changes down to the organisation. "There needs to be a framework in place with software and processes to connect the strategy changes through to the measures," says Charlesworth. "Large organisations have several thousand low level KPIs and managing that is very difficult without a framework."
Data quality is also overlooked by many companies when they are embarking on a CPM exercise. "This is very dangerous, because many of the data sources are prone to poor data quality. Historically it has had less of an impact, because the people using the information were business intelligence experts. Now that dashboards are used by a wider range of management, this amplifies the effect of errors and data inconsistency." It is vital, therefore, to undertake a data quality initiative before starting CPM. (continued on next page...)
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1. Colin Cooper
You don’t have to start at the top. Alignment of goals and activity towards these goals can be put in place at a divisional or departmental level. That way you get a quick win without the corporate politics and a blueprint for future roll out through the organisation.
It’s critical to align around the goals or strategic objectives of that group and communicating these goals plays a major part so people know what the objectives are that they are supposed to be aiming at. Then you can ensure that the initiatives you put in place are relevant and actually contribute towards these goals.
These objectives can then form the basis of your performance management, monitoring and measurement so that your KPIs reflect your performance towards your goals. If you just start with your data then there’s a risk you measure what comes to hand not what’s important. The intangibles and qualitative have an important part to play in the mix particularly in leading indicators that will signpost future performance.