By Amy Townsend
Did you know that less than 30% of organizations define business value-based performance metrics, and less than 40% of those organizations go back and track these metrics?
In today’s dynamic business environment, it is critical to use metrics and information to help make better investment, management, and operational decisions.
A performance metric is a concise and measurable piece of data that helps inform decisions.
Without metrics, business and technology leaders are often left to make decisions based on limited performance data, estimated metrics, and, worst of all, gut feeling.
This blog covers reasoning for defining metrics, types of metrics, and best practices for defining effective metrics.
Why Is It Important To Define Metrics?
It's important to define metrics for the following reasons.
Focus and Feedback
Providing your team quantitative guidance on where to focus and feedback on where their peers see them delivering value.
Supporting Management
Providing management quantitative metrics that help them deliver on their own management KPIs (key performance indicators).
Promote Collaboration
Providing peers with information on what the team is doing and promoting the value that the team is delivering.
Demonstrate Value
Providing management and peers quantitative and qualitative metrics that demonstrate how they are helping the organization move forward in the longer term.
Types Of Metrics
There are three types of metrics.
1. Employee/Team Tasks
Measures the number of tasks completed by a person/team (projects, reports, responses, interactions, etc.)
Degree of Difficulty: Low
Business Value: Low without Value Metrics
2. Employee/Team Engagement
Measures how much a person/team is engaging with others (attending and participating in meetings, discussions, training, development, interviews, etc.)
Degree of Difficulty: Medium
Business Value: Low without Value Metrics
3. Employee/Team Value
Measures how the person is, directly and indirectly, contributing to business value (customer satisfaction, project quality, revenue impact, cost-saving impact, ideation, and innovation impact)
Degree of Difficulty: High
Business Value: High with Business Strategy and KPIs
Best Practices For Defining Effective Metrics
An effective and impactful performance metric has 4 elements:
- A business change
- The degree of change
- The action to achieve the business change
- A timeframe by which the change should happen
When defining performance metrics, it’s important to keep these best practices in mind:
- Use value-based metrics to guide task and engagement metrics.
- Define a few (4-6) metrics that leaders, employees, and partners can use.
- Focus on metrics as a positive incentive, not punitive.
- Define the appropriate balance of qualitative and quantitative metrics.
- Cascade metrics through to teams, individuals, technology, operations, etc.
- Regularly review progress on metrics.
- Update metrics based on business directions and trends.
- Be creative: new digital business models may require new metrics.
Bottom Line
It is important to define measurable metrics that drive business value. The key is to define a finite set of metrics that are quantitative and qualitative, and short- and longer-term, and to use these metrics in combination. These metrics should also be updated regularly to fit business directions and trends.