Using effective measurement to drive company performance

The most successful companies have realised that their performance and business plans must be built around more than a single measure. However, many companies only focus on financial measurement, such as profit margins or return on capital employed. This means that they end up 'driving using only the rear view mirror'.

This is because financial measures only give you a view of what has happened in the past, and don't give a holistic view of the whole market, and the internal effectiveness and efficiency of your company. Whilst financial measures are very important part of running a successful company, they are what we call, LAG indicators. But these are not necessarily a guide to a profitable revenue stream in the future. What are needed are LEAD indicators.

Companies should really develop a set of measurements to continuously track their performance. This ensures that senior management is successfully achieving the drivers of long-term performance. So, the use of lead indicators is important. These are the indicators that track what the organisation must do well to accomplish its objectives. For example, customer service levels. These must be better than competitors, or customers may start switching to them.

One of the best tools around for developing a balanced set of indicators is the 'balanced scorecard'. ('Using the Balanced Scorecard as a strategic management system' - Robert S. Kaplan & David P. Norton, Jan-Feb 1996; Harvard Business Review).

Using their basic philosophy the aim of the balanced marketing scorecard is to focus companies on the key areas of their business that will generate a sustainable cash flow in the long run. Every company will have its own set of drivers, and consequently their own set of unique measures. However, these can all be put under one of the four areas that make up the balanced scorecard:

• The financial perspective - which financial goals do we have to achieve according to our strategy?

Example: Tracking your work pipeline will allow you to measure your company's medium term revenue trends to see if your cash flow is sustainable.

• The customer perspective - which service do we have to bring to our customer to achieve our financial goals?

Example: By measuring the amount of your workload that come from repeat business you can track how loyal your customers are.

• The internal business perspective - to satisfy our customers, what management processes must we excel?

Example: By tracking the win rate on different types of products/services/contracts then you can measure how effective you are for each, and where improvements are needed.

• The innovation & learning perspective - what do we have to learn within our organisation to achieve our internal goals and objectives and to grow?

Example: You can track the new skills that your organisation learns which allows you to measure the personal development of your team. Remember to focus on training in areas that will allow your staff to add value to the customer experience.

Whilst the balanced scorecard is an effective measurement tool it does not tell you if you have the right strategy, only how effectively you are implementing your current strategy. If the strategy is not right for the market then ultimately it will fail, no matter how well you are scoring on your balanced scorecard!

Visit our marketing strategy page to find out more about how to ensure you have the right strategy to get the most from your markets.

Case Study

At Leading Edge we have developed our own set of balanced scorecard indicators to help us measure our performance more effectively. For example, as a consultancy a key area for us is the need to innovate and develop new skills and techniques, which helps us deliver a better service.

By setting up the balanced scorecard we found that we were not always recording and sharing the skills and knowledge the members of our team were acquiring in a structured way. The balanced scorecard made us focus on how we should measure this. Staff now record learning points in our quality system which are shared with the whole team at a monthly meeting. We can now track and measure the number of learning points raised and know which areas they cover.

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