December 13, 2022

Harmony: 8 Key Factors for Winning Measurement Systems

8 Key Factors for Winning Measurement Systems and The Piper Cub Dashboard

In our first two articles in this series on harmonized Management, Measurement, and Compensation systems, we posited the following: Lesson 1: Successful organizations have rational, documented systems which are purposefully managed to work in harmony. Less successful and ‘dysfunctional’ organizations often have the elements but have not focused on ensuring they reinforce each other to deliver desired behaviors. Lesson 2: Management Systems define Why are we here, where are we going, how do we get there — with a passion for repeatable, definable processes. We are going to explore the key factor for winning measurement systems in this article. The eight key factors are listed below:
  •  Leadership involvement and measurement training are critical
  •  Strong, clear alignment with the organization’s annual plan
  •  Direct cause and effect linkage to mgt & compensation systems
  •  Clear accountability and responsibility for inputs and outputs
  •  Communication and education are essential
  •  Link management incentives to bottom-line results measurements
  •  Cross-functional, enterprise dashboards drive collaboration
  •  Having a good dashboard is better than waiting for perfect.
Today, when we discuss measurement systems, we almost always include some form of dashboard. Why the dashboard analogy? Managing an organization is much like flying a plane. Even the most basic airplanes have dashboards with key instruments that are constantly scanned for status. A single-engine Piper Cub has a relatively simple dashboard:
  •  Airspeed (Growth rate)
  •  Altitude (Competitive position)
  •  Direction (North Star alignment)
  •  Engine Temperature (Employee Morale)
  •  Oil Pressure (Financial Health)
We’ve added in parentheses our business model equivalents, which we believe are essential health measurements of an organization in our Piper Cub dashboard. Growth: if you aren’t growing revenue and maintaining/improving profit margins, your long-term viability is in question. Airplanes may descend in control above a certain airspeed, drop below a certain velocity and the plan stalls and goes into a spin. Businesses have breakeven points, months of cash on hand, and like the airplane failing to understand and respect your basic survival parameters may require drastic and painful restructuring. Competitive position: you may be growing and losing market share at the same time. Benchmarking competitive position is one of the few external metrics in an effective measurement system and will also correlate highly with long-term shareholder satisfaction. Know your competition and use market research to understand from the market ‘why’ customers prefer their products. At the same time, what do customers want that is still not being met satisfactorily to provide you the insights into how to improve your competitive position. North Star Alignment: are you still aligned with your strategic plan? Is that contemplated acquisition a step forward, or a management distraction that does not build sustainable market share and shareholder returns. Employee Morale: we continue to assert that high employee morale is a necessary ingredient for organizational success. Are your employees increasingly losing confidence in leadership’s management system execution? Is attrition starting to increase? Are new internal ideas starting to dry up? An overheated engine (low employee morale) if not addressed urgently will adversely affect all systems in your organization. Financial Health: when your oil pressure drops, your engine is in danger failing – not good when you are at 10,000 feet above ground. Did you know most business declaring bankruptcy were growing at the time they filed bankruptcy? Competitive profit margins, positive cash flow, within-terms accounts receivable collections, and strategic cash availability (unused lines of credit, cash balance buffers) for economic downturns are all mandatory for sustained operations. We discussed the ‘spinning plates’ example in the Management System section earlier, and the construction of an effective ’Piper Cub’ dashboard allows winning organizations to keep all the plates spinning. As business grow and expand into multiple products and services, operating divisions, and geographies, the dashboard becomes more complex. Much like a multi-engine jet aircraft, their dashboards have more instruments, switches, and computers to inform and control safe flight operations. Overwhelming at first glance and requiring training and experience to fly with confidence. Much thought and experimentation were put into selecting what information should be displayed, how and where it should be displayed, and what standards or parameters are required to provide real-time warnings for immediate corrective action. For those who have flown in regional jets, during boarding and before flight you’ve probably heard the warning blaring from the cockpit as the ‘stall’ warning is tested. What stall warnings do you have built into your dashboard? So, let’s land the plane and build your winning dashboard. First and foremost, leadership must be actively involved at all stages of the dashboard development, construction, and implementation. The dashboard is a tangible expression of leadership’s priorities and is a living guide to an organization’s execution status and the opportunity to program floor and ceiling parameters for real-time ‘stall’ warnings. One of the most common failures of Measurement systems involving dashboards is the lip service provided by leadership. C-level executives create an initial atmosphere of support, and then rapidly disengage from the design of the dashboard. Defining the dashboard is hard work and provides subtle opportunities to enhance cross-functional teamwork and buy-in to the North Star. This period is exactly when C-level executives can to add their experience and vision to the organization while better understanding the limitations and workarounds required by employees to get the data to the dashboard. The other critical component for effective dashboards is training, for everyone. Information Technology will almost certainly be intertwined with the dashboard creation and maintenance. Employees and leaders will need to be trained in the dashboard IT requirements, both for standard reports as well as custom reporting. Dashboards are expensive overhead expenses, and only have value if they are relevant, reliable, and embraced by all levels and departments. What do we measure? We will assume the organization has a North Star strategic plan and creates annual plans and budgets for the incremental execution of the strategy. Plans are an effective technique to move from the 45,000-foot level of the strategy to more specific product, project and departmental plans for the coming year. Due to their more detailed nature, selected qualitative and quantitative milestones and intended results are the building blocks of the dashboard’s instruments. Dashboards and their metric components run the risk of losing sight of the forest for all the trees. Take an organization with seven or eight functions reporting to the CEO, and with three levels of management. And, let’s say that each management node creates five metrics for their annual deliverables and there are at least 3 individuals reporting to each manager. Counting the CEO-level as a fourth measurement level, this hypothetical organization could end up with the following number of metrics (trees) in their forest: Five Metrics per employee times three employees per manager times three management levels times seven functions would generate 315 dashboard measurable items, plus another five for the CEO, so the dashboard would need to include 320 items on the dashboard. Much like the dashboard in the 747 cockpit, how to maintain focus and real-time responsiveness with metric proliferation? Using current dashboard technologies permit tiered sub-dashboards and customized user credentials to for role-based dashboard views. Whenever possible, metrics should measure business process outputs which are more results oriented. Another way to consider if a metric should be included – is there a clear cause and effect relationship between a specific individual or department and the desired outcome. This is an important element of effective delegation to provide clear accountability and responsibility in the Measurement system. The dashboard becomes more than just a series of graphs charts, and tables – it matches deliverables and status to people removing ambiguity. And, this linkage between deliverable status and individuals enables a direct integration of the individual to the management and compensation systems. Erecting a measurement system without regular communication of the dashboard metrics status to employees is a bit like the sound of a tree falling in a forest if no one is present. The rationale for business measurement systems is to understand progress toward a goal or milestone, take corrective action as soon as possible, and provide tangible insights into areas requiring improvement. One of the reasons for failure of a carefully constructed measurement system with a nifty dashboard may be due to several factors, including:
  • Management has undercut its importance with employees by not participating in status meetings
  • Little accommodation was made to address the incremental workload required to get the measurement data into the dashboard platform, resulting in missing and delayed reporting
  • Inadequate training, putting participation in the ‘too hard’ category
Effective Management and Measurement systems create the necessary conditions for successful employee actions to delight customers and shareholders. The North Star was translated into actionable plans and projects for the current year, with clear responsibility and accountability, and with measurable impact on key ‘bottom-line’ results. If it were only that simple. We’ve included a relatively simple table of dashboard metrics at the enterprise level. These top-level metrics would multiply by product line, business unit, function & department, and individual. As we discussed previously, without focus and care the organization’s employees can quickly lose sight of the North Star with overly complicated dashboards. In the next article we will go into the attributes of successful Compensation systems. Linking Customer and Investor outcomes to Employee compensation became more prevalent and included more individuals in the organization with the proliferation of technology start-ups in the 80’s and 90’s. At the start of the 21st century, it became almost axiomatic that most if not all organizations should have some form of variable/success-based compensation program. Since investors tended to have some form of approval on these plans, they became closely aligned with investor results. There are interesting pros and cons of these variable compensation programs, we will just say here that they tend to be most effective with transparent, timely dashboard reporting of the parameters driving the compensation algebra. Transparent reporting is easier to achieve in publicly-traded companies due to the standardized reporting required by the SEC and daily stock price trading data. Privately-held companies are far more numerous, with about 23 million small businesses in the US according to the 2020 census. Of those 23 million businesses, approximately 17 million are sole proprietors and the balance (6 million) have multiple employees, most with 50 employees or less. It’s been my experience that the smaller the privately-held business, the less willing the owner/operator is willing to share financial results. We leave the reader to speculate on the reasons. Consequently, it takes an organization of a certain minimum size and complexity to be willing to deploy truly transparent and robust measurement systems with linkage to actual financial results. We will provide a summary in a subsequent article of an excellent book, Might Midsized Companies: How Leaders Overcome 7 Silent Growth Killers by Robert Sher. We are a big fan of Mr. Sher, and we recommend his book for all serious business professionals even if your organization isn’t in the $10 million to $100 million revenue range. We also want to emphasize the cross-functional benefits of an intelligent Measurement system and dashboard. As we keep saying, if you don’t keep score you are only practicing. Measuring cross-functional collaboration may require some creativity and can be reinforced by having both (and all) collaborators provide joint status reports rather than individual, siloed reports. Reporting on ‘our’ rather than ‘my’ results may take some coaching and counseling that will become a force multiplier for an organization’s future success. In closing, our final practical observation: Having a good dashboard is better than waiting for the perfect dashboard and software platform implementation. My Australian friends taught me the value of Ready, Fire, Aim in business. The perfect dashboard is thoroughly researched, has inputs from everyone part of the organization, waits for the North Star to be completed and translated into Product and Functional Plans, has external validated benchmarks, established those ‘stall’ parameters to provide automatic warnings when operating conditions are out of standard, and automates every data input to the dashboard so no person will impact the timeliness or quality of the dashboard reporting. All sound objectives, however, I prefer an incremental approach. Get a simple dashboard online with timely, reliable actual data reporting. Use those baselines to assist in creating the floor and ceiling parameters for ‘in control’ reporting. Be flexible as you learn from the first generation dashboard, add or subtract elements to measure. As the dashboard the employees mature and become more routine, start to add external benchmarks and look to automate data links. But FIRE the damn gun. While your competition is building the perfect measurement system and dashboard and flying the plane blindly, you are learning about your sales growth versus expectation, doing market research to understand how to improve, and almost certainly flying faster and more safely toward your destination. Lesson 3: Management and Measurement systems are partners that shine when done well, just like our favorite duos in film. Owen Wilson and Ben Stiller in Meet the Parents and Zoolander, or Paul Newman and Robert Redford in The Sting. Remember, to be a winner you need to keep score. The next article in the series will address the role of harmonized Compensation systems.
In this article:
Discusses the keys to strong measurement systems and related dashboard implementation.
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