"The most important part of CPM is measuring what matters," says Butler Group's Ian Charlesworth. "The difficulty of KPI [key performance indicators] and metric design is downplayed by all the vendors in this space and, as a consequence, organisations end up measuring the wrong thing." Typically, companies measure factors that they can't control, which is not a good starting point for a performance improvement exercise. For example, they measure that customer satisfaction is going down, rather than measuring the underlying factors that have caused it to go down.
"Companies often deploy KPIs in CPM products right out of the box," says Charlesworth. "They are not working out what the KPIs should be and working out the right actions to take when the indicators change. This should be addressed right at the KPI development stage. Companies need to fundamentally understand what the department is intending to do and what is its key measure of success is. Once you know, you can work out what the KPIs should be."
However, these KPIs are a moving target and should change as the company's strategy changes. Unfortunately, many companies do not revise their KPIs to reflect changes in strategy and this is what Charlesworth calls the 'strategy gap'. "This strategy needs to be cascaded down to the individual department's and project's KPIs, otherwise what you are trying to achieve is out of step with what you are measuring. KPIs need to be grounded in reality, tied to the strategy of the business and have an individual responsible for taking action," says Charlesworth.
To prevent this strategy gap, the strategy makers need to communicate any changes down to the organisation. "There needs to be a framework in place with software and processes to connect the strategy changes through to the measures," says Charlesworth. "Large organisations have several thousand low level KPIs and managing that is very difficult without a framework."
Data quality is also overlooked by many companies when they are embarking on a CPM exercise. "This is very dangerous, because many of the data sources are prone to poor data quality. Historically it has had less of an impact, because the people using the information were business intelligence experts. Now that dashboards are used by a wider range of management, this amplifies the effect of errors and data inconsistency." It is vital, therefore, to undertake a data quality initiative before starting CPM.
Frank Buytendijk, research vice president, Gartner Group
Understanding exactly what a company represents is vital when working out how to improve its performance. Gartner Group's Frank Buytendijk says that the continuing focus on improving shareholder value is of detriment to many companies. "If you focus only on shareholder value, you lose the guidance of your intangibles, such as what you stand for and what you are good at," he says.
Buytendijk argues that although these intangibles are seen as softer measures, they really define the company and are effectively the performance drivers. "I would say if you treat your staff right, then they will treat the customers right and the shareholders will have nothing to complain about." Unfortunately, employees are usually way down the priority list when organisations undertake CPM exercises.
Not all companies have lost sight of the core values in the rush to address shareholder value. Ikea, for example, has a customer proposition of low-price, functional products with a high standard of design. This proposition is recognised throughout the world. Its internal values are similar. They are cost-conscious, the executives are modest and often work in the shop uniform, and they are always encouraged to think about improvement. These values are intangible, but they really define the company and are very close to the Swedish culture.
Although Ikea measures the same things that other companies do, the actions they take are quite different. "For example, revenue growth is not a measure of increasing shareholder value, it is a measure of increased customer satisfaction," says Buytendijk. This means that if revenues were to go down, the last thing they would do would be to close stores and lay off workers, as this would reduce customer satisfaction further.
"Corporate social responsibility is going to be another drive for performance, because it is about addressing multiple stakeholders," says Buytendijk. "If you focus entirely on the shareholder, then you are optimising your organisation in one direction, which creates an unstable system." It is only over the last 30 years that shareholder value has been creating this imbalance and CSR is a traditional value that people are bringing back. This will help create a more balanced organisation and create better-performing companies.
