Performance reporting to some people seems akin to a root canal… except that it keeps happening over and over again.
Why do I say that? Well, talk to people in many businesses or government departments or even non-profit organisations and when each reporting period rolls around you hear the same old complaints about it being painful, costly, time consuming – and that it doesn’t make any difference to overall performance.
I actually find this really sad 🙁 … not only because under such circumstances the reporting that occurs is such a waste of resources and energy. But also because it is a missed opportunity for everyone – operational, management and executive staff – to show off the value that the organisation is creating, and to build on it. Reporting should be a chance to show off what has been achieved and root out any negative trends… that is, reporting should be done in a meaningful way.
What are performance metrics?
In an earlier blog I touched on the surface of performance reporting and here was my definition of performance metrics: the defined measures that together determine whether a specific business goal has been met. This definition may still leave a bit to be desired, but is good enough for now.
I see that there are two types of performance metrics.
Firstly, there are those types of metrics – usually termed Key Performance Indicators (KPIs) – that relate to the direct outputs of a business area. These can include measures that refer to the level of activity (eg number of applications processed), the cost of activity (financial measures such as expenditure) and the quality of activity (eg the number of customer complaints).
Then there are those types of metrics – I will call them Outcome Metrics – that relate to the long-term results of the business activity. Depending on the industry or sector, these metrics can be defined and tracked in a variety of ways (I’ve got some of my own ideas on how to do this), but one of the methods I hear most about is the Logical Framework Approach, in particular through Program Logic. These metrics are more long-term and are about reporting on whether the behavioural changes that the organisation’s activity is aimed at are actually being achieved.
I think it’s important to make this distinction, because they are two very different types of reporting which paint completely different stories about an organisation.
- KPIs check: ‘are processes being undertaken in a cost effective and efficient way?’ (This is an internal-facing check.)
- Outcomes Metrics check: ‘are the right (appropriate) processes being undertaken?’ (This is an external-facing check.)
Ok, while you’re letting that sink in I suggest you go back and read those dot points a few more times, but ask yourself which of these two types of metrics would add more to the success of an organisation? Which of these types of metrics is more likely to get to the root of organisational problems?
I’d like to also hook these back in with the Value Chain I explored in a previous blog on Value Chaining for Government. You may recall that I lurvvvvvvvvvve value chains, so it should be no surprise that I bring them up again! In that post I had suggested a possible value chain framework for government departments, which was consistent with the conventional split between Primary (core business) and Support (eg HR, ICT, Communications) activities. Well, while KPIs apply to all activities on a Value Chain, Outcomes Metrics do not. Outcomes Metrics only apply to the Primary business areas of an organisation.
Hmmm… It’s funny, the more I read over the last two sentences myself, the more I get tangled and start to doubt. Maybe it’s just late, or maybe I need to hear your thoughts. Or maybe we should go back to the last post’s example to see how the metrics you came up with align with today’s commentary!
Back to the Sweetshop…
Wally Sweetstuff wanted Ultimate Indulgences franchises to:
- be profitable,
- have the biggest range of their chosen sweet out of any store in the country, and
- increase the interest of consumers in exotic gourmet sweets,
and you had come up with a number of measures to monitor this.
For the first goal, you had identified a certain rate of annual profit as one KPI, which was standard enough (although there was quite a bit of data you had to collect to report against it).
For the second goal, you had identified two KPIs, although only one of them was related to your franchise. You knew that it would be of interest to your key audience (Wally) to know how the number of types of fruit chews you stocked, as well as the number of types of fruit chews your key competitors stocked.
The third goal, the tricky one, did not have a KPI associated with it (although it could do if ever required). However, you identified that there were several outcome metrics to report against though. These were: percentage of people who know about fruit chews and percentage of people who know how yummy fruit chews are (based on a sample), number of people on your newsletter email list, number of mentions there are of fruit chews in the media, number of sales you have, number of requests you get for new products, number of regular customers using your Lolly Lovers loyalty program, and number of ‘Candy Connoisseurs’ party bookings. Listing them like this may not be particularly helpful, but documenting them in some kind of outcomes hierarchy would make a big difference.
So how did Wally Sweetstuff react to your metrics? He was chuffed. You were the only franchisee to nut your way through his goals and at the end of your licence period you could show Wally that not only were you on track to be the highest profit store in his chain, but also that you were bringing in copious numbers of new customers into the elite circle of exotic candy fanciers. Not only did Wally renew your licence, but he gave you the option of taking over two of his flagship stores that were currently under bad management. Wow!
In fact, using your metrics Wally Sweetstuff is now so confident about the success of Ultimate Indulgences that he’s setting up a new franchise chain. It’s called Budget Dentistry. Please tell me you’re not surprised!
What do you think?
What do you think about my split between KPIs and Outcome Metrics? And do Outcomes Metrics really only apply to the Primary business areas of an organisation?
(Picture: ‘Amalgam’, in the public domain and sourced from Wikipedia at http://en.wikipedia.org/wiki/File:Amalgam.jpg)