Magic Metrics?

According to Mark Graham Brown, author of a recent article in the Business Finance magazine, it is rare for a single metric, like turnover or a customer survey score, to be a good standalone measure of an organization’s performance.

Mr. Brown states that most of the more meaningful measures on dashboards of executives today are indices, made up of three to five sub-measures. A summary of the nine most useful and creative performance measures he has seen in government and business organizations is provided below:

1. Communication Effectiveness — An important metric for organizations is one that measures how well they communicate to employees, suppliers, shareholders, and others. Some of the better communication metrics the author has seen weigh the frequency and media used to communicate important messages, as well as, the effectiveness of the communication. One client measures communication effectiveness by handing out anonymous short answer quizzes after a meeting or presentation to see if the audience heard and understood the main points. The same client also sends out email quizzes regarding print communication, such as newsletters or annual reports.

2. Customer Relationships — Customer surveys are rarely effective in measuring the level of relationship an organization has with its clients or customers. Airlines, for example, make most of their profit from frequent business travelers, so loyalty from these customers is critical. A number of clients have developed a Customer Relationship Index that includes two major components: customer attractiveness and customer relationship. Attractiveness scores are based on factors such as profit margin, volume of business, timely payment, and ease to work with. The relationship level is determined based on number of years working together, products purchased, personal relationships between representatives of the two firms, exit barriers, and knowledge of the customer’s business and needs. Clients who have used the Customer Relationship Index have found it directly links to gross margin and other bottom line measures.

3. Employee Satisfaction — Most clients in government and business have developed an Employee Satisfaction Index made up of a variety of measures such as casual absenteeism, complaints/grievances, voluntary turnover, employee focus groups, overtime, and employee survey data. While surveys are helpful, the author notes they provide one data point per year and morale can change dramatically in a few months.

4. Distraction Index — A large financial services firm the author worked with came up with this index, and many business and government clients have adopted it for their scorecards. Employees record hours worked each week and sort their time into three categories: job, administration, and programs.

Employees in several firms the author worked with found they spent less than a third of their time doing their jobs. Data on the Distraction Index provides senior management with hard data on why employees are stressed out and seem to have difficulty getting work done. Data on this measure is used to help eliminate administrative requirements and minimize time spent on management programs.

5. Trust Index — It seems like each week we hear about another major corporation where executives are being arrested or at least investigated for fraud and various other crimes. Some forward-thinking companies have put together a trust index. Included in this metric are practices to ensure honesty and integrity, such an outside review board for major decisions and performance, audits by objective outside organizations, and communication of clear rules to employees. Other parts of the index examine the effectiveness of these approaches, such as a survey of public or employee trust and disciplinary actions related to trust issues.

6. Aggravation Index — A number of leading organizations have daily measures to track how much they aggravate their customers or how difficult it is to do business with their firm. An airline has an index that includes the following measures:

  • How long customers wait on hold when calling the airline
  • How long it takes to find the needed information on the website
  • Number of calls that are accidently disconnected
  • Lost luggage
  • Delayed flights

A daily operational metric like this measures how much aggravation customers must endure to do business with your firm. When the aggravation level gets too high, customers leave and often never return.

7. Supplier/Partner Index — Many business and government organizations do much of their work using outside suppliers or contractors. A number of organizations have developed an index that tells them how their suppliers or partners are performing. Factors included in this index are criticality of supplier to the mission, ease to work with, supplier knowledge of your organization and products/services, responsiveness, timeliness, and quality of goods/services.

8. Project Management Index — Measuring recurring work like processing transactions or manufacturing parts is different than measuring projects where each one is somewhat different. Sometimes, everything an organization does would be classified as a project. Because each project is slightly different, some organizations have developed a Project Management Index that includes the following sub-measures: budget/cost performance, schedule/milestones met, quality/performance, and innovation. At the start of each project, the four factors are given a percentage weight. At the end of the project, or as each phase is completed, performance on the four factors is rated get an overall grade for project performance. Individual projects are also given a weight depending on the dollar size, labor hours, or criticality.

9. Intellectual Capital — Everyone agrees that intellectual capital or competencies are important to measure, but the author says he has rarely seen good metrics in this area. Some organizations track hours of training and whether an individual development plan (IDP) has been completed for each employee. Attending training is not a measure of skill or competence, as everyone can have an IDP and still not have the skills needed for the organization to be successful. The author has one client where each job description includes a list of the technical and non-technical knowledge skill requirements, as well as, the level of competency required. Employees rate their own skill levels, as do supervisors, and those ratings are averaged.

To view the full article, go to this web page at the Business Finance web site.