As businesses grow, decision making can become more and more difficult. In today’s complex business environment, knowing how your business is performing is absolutely essential. The management dashboard has become a common tool for companies of all sizes. It helps avoid information overload by presenting key metrics in a digestible format.
Dashboards allow managers to make complex decisions with confidence. You can see the current situation, much like a dashboard on a car. You can see your organisations profit, loss and perhaps even some customer satisfaction indicators.
But here’s the deal…. It can be tempting (and enticing) to measure the wrong thing and to reward people in the wrong way. In doing so, you inadvertently drive the wrong behaviours; disengage your staff, and even worse you might even end up making the wrong decision with confidence.
As the old adage states “you get what you measure and inspect”. But that’s not necessarily what you want or expect!
An example: Hiding work makes a middle-manager’s dashboard useless.
I remember a brief spell working with an organisation back in the days paper files were kept. Each file had a “review date” written in pencil, and every evening an army of file handlers would come in and sort the files due for that particular day.
One if the core metrics measured by that particular organisation was “length of work in backlog”. This was seen as a key measure that would contribute to customer satisfaction, and it was taken extremely seriously. The backlog consisted of all customer correspondence – letters, faxes, forms etc, including the files. It was increasing and increasing and departmental heads were asked to solve the problem. Bonuses were at stake, so it was a politically sensitive discussion!
A suggestion was raised. Why not reduce the number of paper files by simply combining them together? If we have, say, 100 files outstanding, let’s batch them together and count them as one item. We’ll have one file per review day, and the work will be reduced.
With my head in my hands, I strongly disputed and challenged this suggestion. It fudges the numbers; it doesn’t reduce the amount of work. If that proposal had been adopted, the middle manager’s dashboard would simply have been defective. Work would have been hidden. Senior management would have been inadvertently misled and might have made the wrong decision (“Hey, the xyz office have cleared their backlog…. No need to recruit those extra employees.). The reality is that 100 work items are still 100 work items whether you try to pretend they are 1, 17 or 20,000. Imagine if a mechanic took a similar approach when calibrating the speedo on your car. You’d look down and feel reassured that you’re doing 55 MPH, but motorists behind you would be honking their horns because you’re actually doing closer to 25!
A far better solution in these circumstances is to study demand. Why do you hold so many paper files? Do you need them? Why are you getting so much customer correspondence? Is it driven through value demand or is it the result of mistakes? In this specific example a review of the paper files found that a significant proportion could simply be pulled and shredded.
The conclusion: Track meaningful KPIs
Whether your organisation is mid-market, or multinational, there is no doubt that dashboards are useful and can help provide clarity and can give you a 360 view of your business. But remember, numbers are abstract. They might show you where a problem lies, but you’ll need further analysis (and probably more data) to get to the root cause. Process and data are intertwined.
If your organisation has grown from a small enterprise to a mid-market size enterprise, then you may well be developing and relying on Key Performance Indicators and Dashboards to keep track of your business. After all, now your company has grown, it’s impractical for you to have direct oversight of every area. If you’re in this category, here are some tips that will help you to get the most value out of your KPIs:
- There is a danger that “You’ll get what you measure”: As organisations grow, there’s a danger that people focus too much on the numbers and KPIs themselves rather than the intention. By making the metrics visible, people focus on them — think of the backlog example above. Be aware of this, and define a range of KPIs – perhaps using a balanced scorecard that examines the business from different angles.
- Numbers locate but don’t diagnose a problem: Raw data will often give you an indication of where a problem lies, but it won’t diagnose or solve the problem. Knowing sales have dropped and customer satisfaction is reducing is useful, but the root cause might be something extremely complex. Knowledge of process analysis can really help here. It’s well worth considering some business analysis expertise to help you, or develop a BA capability in-house. This will pay dividends in the long term.
- Search for the opportunity: Don’t focus purely internally; make sure you have a selection of metrics and KPIs that are specific to your external market. If the market changes, and you see it first, you can seize opportunities before your competitors!
Dashboards are only useful if they represent the actual conditions that your business is facing. Set the indicators and metrics carefully, and ensure your teams do the same. And if the indicators show there’s a problem, you’ve found the perfect opportunity to study the process and fix it!
Does your organisation use “management dashboards”, and if so, how do you choose what KPIs to measure? What problems have you faced? I’d love to hear from you – please feel free to add a comment below.
This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet.