It seems obvious - use measurements of performance to manage and guide your business. Yet an entire discipline in business thinking has developed in recent years dedicated to this notion.

Business Performance Management (BPM) is not a methodology for managing, but rather a mechanism for recording business processes and business metrics and linking the information together to form a single consistent picture of how the business is performing(1). But is it as obvious as it seems? Every business uses some measure of its performance to influence its management decisions. What metrics should be gathered and used? And what more is there to BPM than gathering data and disseminating it to managers?

“A metric is not simply a measurement. It is a measurement taken over a period of time that communicates vital information about a process or activity. ”

Defining Metrics:

A metric should give some indication of how an activity is performing. For example, the number of employees in an organization is not a metric because it is not related to a particular activity. However, if a company is engaged in a recruitment effort to add to its workforce, the number of employees added over a six-month period may be a metric for that recruitment activity.

Steps toward Managing with Metrics:

1. Identifying Key Activities: Given the above understanding of metrics, the first step in implementing Business Performance Management is to enumerate and understand the key activities of your organization. Because BPM is a holistic approach, the key activities are not just those that contribute directly to the bottom line, such as sales and marketing. They include all activities without which your company would falter - both financial and non-financial.

2. Identifying Target Metrics: Once key activities have been identified, metrics must be associated with them. That is, since the activities are important, they must be measured in some way. Otherwise, how does your company know it is performing well in this key activity?

3. Establishing a Program for Collecting Metric Data: The data needed to support the metrics may already be gathered by your organization. If not, a program must be established for gathering the data. The data must be timely and accurate since it will form the basis of strategic decisions.

4. Providing the Metrics to Decision Makers: The metrics must be provided to those in the organization who can act upon it. In large organizations making the data available to the right people is often more difficult than it sounds.

5. Act upon the Metric: If the metric will not be used to adjust operations and business strategy, then there is little point in gathering it. Threshold levels of acceptable performance should be established below which action must be taken.

Common Mistakes:

Suppose the XYZ Software Technologies Company would like to get a better picture of its overall outlook and performance using metrics. XYZ embarks on a conscientious process of metrics management, identifying activities and metrics, gathering data, and disseminating the metrics. But at the end of this process little has changed. It is still a fledgling company struggling to maintain its position, never mind growing as it believes it should. Upon closer examination, it has made a series of errors along the way.

“Managing with business performance metrics seems straightforward, but things can, and often do, go wrong when the basics are not followed.”

First, critical activities have not been accounted for in their metrics. Sales, marketing, and product development and maintenance efforts have been identified, but their developers are spending 25% of their time supporting their current customer base, an activity unaccounted for in their list of key activities.

Second, even among the activities which they have identified, they are not always gathering the right metrics. Although product maintenance efforts, e.g., ongoing marketing and software maintenance costs, are being measured, they are not capturing return visits to customer sites, a significant expenditure and a key indicator of underlying issues.

Third, the data they gather is incomplete for some activities. For example, although a significant portion of the web master's time is spent on updating the corporate web site for new products, this time and effort are apportioned entirely to ongoing marketing expenses. More importantly, most of the data collected for all activities is at least a month or more behind their operations.

Finally, when metrics are prepared, only the CEO and top-level managers are given the information. Lower-level managers are only notified when a problem is perceived by the upper-level managers. Consequently, trends and warning signs are never noticed by the managers who know the situation best and who can act most quickly. As a result, action is rarely taken based upon the metrics.

Conclusion:

When properly structured, a system for managing your business through metrics can be a complete and dynamic management tool for measuring performance and guiding decision-making. But structuring the system requires a comprehensive and honest evaluation of your company's activities, as well as a commitment to collecting the data and disseminating the metrics to those who can truly act upon it.

(1) "Business Performance Management: Gaining Insight and Driving Performance," Hyperion.

About Ralph Dandrea:

Ralph Dandrea is the President of ITX Corp., and leads its Business Performance practice. He is experienced in business and information technology management and holds graduate degrees in business and law.

About ITX:

ITX Corp is a business consulting and technology solutions firm focused in eight practice areas including Business Performance, Internet Marketing, IT Staffing, IT Solution Strategies, IT Solutions Implementation, Technical Services, Internet Services, and Technology Research. To learn more about what ITX can do for you visit our website at http://www.itx.net or contact us at (800) 600-7785.

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