by Betsy Burton and Samra Anees
One of the issues that continues to elude many business and technology leaders is defining effective performance metrics that demonstrate the business value of investments. In fact, we find that less than 40% of organizations define any metrics at all. And, of these, only a small minority of organizations ever go back to verify that metrics were achieved, or not.
There are many reasons why defining business performance metrics is difficult for organizations including not being clear about why they need metrics, a lack of understanding of what a metric is, and cultural adversity to tracking metrics.
Metrics can and should be a powerful tool to guide investments in people, processes, information, and technology. However, less than 40% of organizations define any metrics at all.
Why Do We Need Performance Metrics?
This is a really important question business and technology leaders need to address first when pursuing defining business metrics. There may be lots of reasons for defining metrics in order to demonstrate business value.
For example,
- You may be focused on demonstrating the business value of an investment to senior executives to highlight that a project is worth investing in or not.
- You also may need metrics to illustrate to business and IT peers that a project or program is valuable, in order to gain their support and resources.
- You will likely also need to have metrics that illustrate to your contributing team members that they are working on a project that’s important and valuable in order to motivate and inspire them.
All of these are valid reasons to have metrics.
This means, however, that there’s not going to be a single metric to address all of these different potential reasons and audiences. Organizations should use Aragon Research’s framework to help you identify the right type of metric for different audiences.
What Makes a Good Performance Metric?
I’ve often found that organizations define metrics that may be academically correct, but don’t link back directly to the impact on the business—the business outcomes. As a result, executives, peers and employees are left wondering what to do with the metric, and ignore it.
It is critical that you clearly link performance metrics back to the business goals and strategy and draw a clear business outcome-driven line of site between the metric and that strategy. An effective and impactful performance metric has 4 elements: 1) a business change 2) the degree of change, 3) the action and 4) a timeframe. For example: Increase overall sales by increasing product cross-selling (business change) by 12% (degree of change) in 2 years (timeframe) by applying predictive analytics to customer engagements (action).
How Many Metrics Do We Need?
While determining how many metrics is important, what’s more important is to define how many diverse metrics are needed. In most cases, there isn’t an acid-test metric that can fully embody the business value of any investment. What you need is a collection of quantitative and qualitative metrics that tell a well-rounded story of the business value of an investment, rather than just focus on ROI.
To be effective, any major project or program should have a small handful of metrics (5 to 7) that are a combination of quantitative in qualitative metrics and can be used with different audiences. To be most effective, a few of these metrics should link directly to the corporate performance metrics and/or the metrics of your senior executive sponsors. This will enable them to directly understand how it’s affecting their business and their role, and possibly their personal bonus.
How Do We Get Our Organization to Use Metrics?
- Don’t overcomplicate them. It is better to have a few metrics the people actually track and report back on, then have a lot of metrics that just fall by the wayside.
- Link your metrics directly to the business outcomes and value, as we’ve discussed above. Having metrics with the target audience and with a clear business outcome value an action can dramatically increase your organization’s usage of metrics.
- It is critical to ensure that metrics are not just being used as a “stick” to illustrate where a project is failing or where a team may not be meeting expectations.
Metrics must be used as much, if not more, as a positive re-enforcement then a negative. Realizing that a project or program needs a change of investment or needs adjustment should be positioned as a positive not a negative. This will encourage leaders and teams to use metrics to guide decision making, not resent them.
Bottom Line
Metrics can and should be a powerful tool to guide investments in people, processes, information, and technology. However, they are only effective if they are clearly targeted to an audience and a purpose, if they are clear and tell a story, and if they are linked to business outcomes.
Too many organizations have over-complicated their performance metrics and don’t track those metrics over time, which can lead to unwittingly wasting time, energy and money. Defining effective and positive business outcome-driven metrics can improve your business performance as well as strengthen the culture of your organization.