Saturday, February 16, 2013

Measurement Improves Performance

 Measurement improves performance, and successively higher standards or goals result in successively higher achievement.  It is the idea so frequently evidenced in athletics by the announcement, “It’s a new record!”  Excellent companies use goals, and excellent companies keep raising those goals.
The most important set of measurements to develop are the organization’s KPIs (Key Performance Indicators).  These are the top line metrics that must be achieved for the enterprise (or supporting unit, division, plant, department, group, etc.) to meet its objectives.  KPIs can be both financial and qualitative, but should be highly correlated with the top priorities of the firm and the firm’s business model as developed during strategic Planning. Furthermore, if there are more than ten KPIs you probably have too many.  That goes for the KPI at the enterprise level or the KPIs for any of its supporting components.
My son was part of the Colgate-Palmolive finance team from 1992 to 1997.  He reports that they managed their entire worldwide operation with 10 Key Performance Indicators.  The first thing every business unit’s general manager would review when presenting to the CEO would be their results against those 10 KPIs.  The rest of the meeting was spent explaining how they achieved their goals or why they did not meet them.  It’s hard to believe a huge Fortune 500 company could manage a global operation using 10 measurements of success, but it’s true—and it was VERY effective.  Colgate is one of the most reliable businesses when it comes to consistency and predictability of revenue and earnings growth, and their KPI system is a key element of success in this regard.

I spent a good portion of my career working with law firms.  For them, KPIs included such metrics as leverage, effective rate, productivity, realization, days to bill and collect, client intake, closed cases, etc.  Whatever the nature of a business or organization, its success depends on certain main things and those main things should be the subject of your KPIs.
It's Nashville...with a devastating flood, abeautiful lawyer, a deadly secret, and wine to kill for--The Claret Murders, the latest Mark Rollins mystery adventure.

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