The CEO slumped in her executive chair in her office, and she stared blankly out her window. She was feeling tired, confused, and overwhelmed. Her desk was completely covered with reports and spread sheets, and her mind was inundated with numbers. “I don’t understand,” she thought to herself. “I know we need to measure our results, but I feel like a person dying of thirst who is standing in front of an ocean of salt water. I have all this measurement data, but it’s not in a form that I can really use to help guide us toward achieving our company vision.”
Leaders often can encounter “information overload” in their work. They know the importance of measuring results (e.g., “You can expect what you inspect”), but can find themselves faced with an overwhelming hodgepodge of numbers rather than a simpler and more focused set of data that is truly useful for making decisions that lead to achieving their organizational vision.
If we use the criteria above, we want our metrics to be important in determining lasting success, simple, and focused. So, how do we decide what “key success measures” are most valuable to guide strategic decision making?
Stephen Haines and associates make several recommendations. They caution us to avoid “comprehensive activity measures” and instead focus on high level metrics that measure progress toward achieving an organization’s vision, mission, and core values. Also, we want to be sure to measure the important outcomes of long term organizational success rather than only measuring what is easy to measure. Our measures should be able to be quantified in terms of 1) quantity, 2) quality, 3) time, or 4) cost.
They also posit that there are 4 essential key success measures and one auxiliary measure that are all of great value. The 4 essential key measures are:
- Financial viability. Example: profitability.
- Customer satisfaction. Example: performance on customer satisfaction surveys.
- Employee satisfaction. Example: performance on employee satisfaction surveys.
- Contribution to society. Example: number of trees saved by developing paperless processes.
The one auxiliary measure is: 5) Key operational results. Example: per cent of hotel rooms occupied.
Why are these measures important?
- Financial viability is important for organizational survival and growth. However, many companies make this the sole focus of their measurement efforts, relying primarily on budgets and sales forecasts. This approach typically results in an organization that is driven by its financial departments, and the important “people” outcomes that are essential to produce long term success receive short shrift.
- Customer satisfaction is important because without happy customers the organization will fail.
- Employee satisfaction is important because over the long term it is impossible to have an organization with unhappy employees that has happy customers
- Contribution to society (e.g., environment, ethics, safety, social responsibility) is important because every organization needs more than a simple profit motive to attract and retain the best talent and to sustain itself over time. An organization in which greed is a core value will ultimately devour itself (e.g., remember Enron and Arthur Anderson?).
- Key operational results are not considered an essential key success measure on the order of the first 4 and therefore are viewed as serving an auxiliary function. However, there are usually 1-3 operational indicators that represent the leverage points in your organization, and they can be a valuable addition to your metrics.
How do you arrive at your key success measures?
- First, examine your mission, vision, and core values to determine what outcomes your organization believes are important—then make these items your key success measures.
- Second, limit your key success measures to 10 or less so that your measures are focused rather than overwhelming in detail.
- Third, set an ultimate goal at the end of your strategic planning horizon, usually 3-5 years, and then create intermediate goals for the intervening years (e.g., if you are a startup with zero profit and your financial goal is to have 120k in profit in year 3, then you might set intermediate goals of 40k at the end of fiscal year 1, 80k at year 2, and then 120k at year 3).
Remember, what gets measured gets done. Therefore, it is essential that you measure the things that lead to sustained organizational success and achievement of your vision, not just short term financial performance or other dimensions that are easy to measure.
- Technique #1: Create key success measures that track outcomes instrumental to sustained organizational high performance, not just what is easy to measure.
Technique #2: At a minimum, include the 4 essential key success measures of financial viability, customer satisfaction, employee satisfaction, and contribution to society, and the 5th important but auxiliary measure of operational results.
Technique #3: To achieve importance, focus, and simplicity limit your key success measures to no more than 10.
Technique #4: To create your key success measures, first examine your vision, mission, and core values for the outcomes that will lead to sustained organizational high performance.