In a series of papers, author and industry expert Frank Buytendijk examines the people side of business performance and business intelligence. How does measurement affect human behavior? How does organizational culture contribute to business intelligence? What does a rational decision making process look like? Which number games do we recognize in business? What is the best methodology to manage business performance?
In this introduction paper, Frank discusses how measurement drives behavior. Its role is critical to focus goals and objectives, but also to balance actions. Multiple levers are available to ensure organizations are successful with their selection of key performance indicators, dashboards, business intelligence initiatives and “big data aspirations.” Each lever is introduced in this paper and available for more detailed exploration in a four-part series. They include:
- Fact-based decision-making, or is it? Take a close look at the process of decision making to ensure a rational, appropriate process is applied.
- What is the best methodology? Getting to double-loop learning. Understanding the right measurement methodology is essential to achieving your requirements.
- Number games: making sure metrics drive the right behavior. Why it’s important to use measurements that incent actions that benefit the organization as a whole.
- It’s the culture, stupid! Unless measurements are linked to an organization’s culture, the effect will be lost.
We've also pulled out the first several pages of the whitepaper for you to read. Download the PDF on the right to read the rest.
Measurement impacts our personal lives every single day. If we want to lose some weight, we start by standing on the scale. Based on the outcome, we decide how much weight we need to lose, and every other day we check our progress. If there is enough progress, we become encouraged to lose more, and if we are disappointed, we’re driven to add even more effort in order to achieve our goal. In short, measurement drives our behavior. It can be witnessed in countless ways in our private lives. In fact, it is an important principle in the social sciences, often called the Hawthorne effect.
In the business world this is no different; measurement also drives our professional behavior. Once your business starts measuring the results of a certain process, your employees will start focusing on it. There are numerous examples: If the CFO starts tracking the days-sales-outstanding (DSO—i.e., the average number of days it takes customers to pay their bills) on a daily basis, instead of assuming that customers will pay within 14 days or so, the people in the accounts receivable departments are more likely to pay attention and exert greater effort to make collections. If hotel managers and their front desk staff are held accountable for the percentage of guests that fill out the customer satisfaction survey, they will be more likely to remind guests of the survey.
Measurement helps us not only to focus on our goals and objectives, but also to balance our actions. If you measure production speed alone in a manufacturing process, it is likely that quality issues will arise. For balance, you also need to measure how many produced units need rework. If a procurement department is only measured on how much additional discount it can squeeze out of contract manufacturers, it becomes hard to avoid unethical practices, such as the use of child labor in low-wage countries and the use of cheaper and environmentally unfriendly materials and production processes. Procurement departments need to identify a balanced set of metrics that includes ethical issues as well as price.
In each of the functional disciplines within an organization—finance, sales, marketing, logistics, manufacturing, procurement, human resources (HR) or information technology (IT)—measurement is a key element of management, and ultimately of bottom-line performance.
I am not suggesting that measurement is the only driver of performance: Business processes are crucial in creating an efficient organization that makes few mistakes and makes optimal use of resources. Leadership is important in order to create a culture in which people feel motivated to give their best. And a good overall strategy is needed to distinguish a company from the competition. However, measurement cannot be ignored, even if it is only to check if the other drivers for performance are doing the job.