Mark Smith's Analyst Perspectives

Use a New Generation of Business Metrics and Key Indicators That Matter Most

Posted by Ventana Research on Jul 6, 2010 2:15:26 PM

The market for business intelligence (BI) and performance management has grown as more businesses see the need to understand, optimize and align performance at all levels of employees. But while the technology has evolved to become easier to use, organizations have been slow to use it to create performance metrics and key performance indicators (KPIs). At last that is starting to change. Our benchmark research in business intelligence and performance management found that 41 percent of organizations now deploy evaluation-based performance metrics, 29 percent are assessing them and others are planning to deploy some sort of metrics in the next year.

Performance-specific metrics and KPIs are the most prevalent type and can do much to promote operational efficiency. More innovative organizations have added a portfolio of new types of metrics that are more operational, such as process metrics, which 26 percent of organizations use today with another 49 percent are assessing or planning to adopt in the next year; these metrics are essential for targeting specific improvements to business activities across processes. Also important are metrics for the related activities of governance, risk and compliance (GRC). Here compliance with regulations is most in demand, with 21 percent of organizations currently using them and 49 percent assessing or planning to use them in the next year. For measuring risk the figures are 19 percent now using metrics and 44 percent that will in the next year; for governance they are 16 percent and 46 percent, respectively. Some IT industry analysts (See: “IT Analyst Firms Continue Confusion on GRC“) consider GRC to be simply auditing access to data and systems and users’ identity, but we see it as a larger undertaking that sets measurements as the baseline for key control processes. GRC in this sense requires a foundation of BI and performance management to create measures focused on processes. These metrics and KPIs can be distributed to other applications used by finance, operations and IT to support the GRC processes enterprise-wide.

At the same time organizations are looking to operate in a more energy-efficient and environmentally responsible manner, a process commonly referred to as sustainability. These efforts must be coordinated across the operations and finance groups that make key decisions on how business operates in various ways, including transportation, manufacturing, where data centers are located and how they handle energy consumption. These improvements can’t be made unless they can be measured. The research found that 15 percent of organizations now use sustainability metrics, and 51 percent of organizations will put them in place over the next year – that is the largest number of planned adoption among any of the categories we researched. Demand for sustainability will only increase, and metrics and key indicators are essential to establish it; organizations in all industries that don’t have them today will need them in the near future.

I have learned over the last decade that metrics and KPIs are critical as well in managing the human capital assets of organizations, which traditionally HR has tried to measure in silos of talent management applications. That approach falls short because to gain a complete picture, the performance, compensation, learning and succession measurements must be unified with the business-specific aspects of a person’s role and the organization’s process and operating performance metrics. Realizing this, some organizations have created key people indicators and specific underlying metrics in parallel to other KPIs. By integrating data from HRMS and specific talent management applications, the vision of human capital management can actually become a reality for organizations.

This example should show that organizations ought to take an expansive view of where and what kind of metrics and indicators they apply to manage performance across the enterprise, especially their processes and people. As I wrote, business metrics are the information currency that matters. Our benchmark research in decision-making and performance management indicates their importance for a range of business needs. Key performance indicators no longer can be narrowly defined – what you need to be successful is broader and deeper, and those who do not expand their notion and use of metrics will find themselves lagging.

This effort requires a deliberate focus on improvement. To apply metrics to specific areas means developing the context of an initiative; for example, in interacting with customers, customer experience management and agent performance management require their own metrics and KPIs, as my colleague has pointed out (See: “Customer Metrics – The Good, Bad and the Ugly”). Don’t underestimate the effort this requires: Technologically business has to establish a library and definitions of data that IT maintains across systems; as I have often noted, metrics-focused master data management (MDM) can enable this effectively. I urge you to take the breadth and depth of metrics and KPIs seriously; if you need help in organizing them, just let me know. We have helped many organizations supercharge their efforts and can provide guidance about the underlying technology where these critical measures are stored and computed. Just because you have not read about them in a book or a conference does not mean that they are not in use today and providing a strategic advantage for organizations that look beyond conventional wisdom of just utilizing key performance indicators.

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Mark Smith – CEO & EVP Research

Topics: Key Performance Indictors, KPI, Metrics, Operational Performance Management (OPM), Business Performance Management (BPM)

Ventana Research

Written by Ventana Research

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