6, Issue 3
UNTANGLING THE MEASUREMENT MESS
Fast Cycle Time author Christopher Meyer thinks most organizations are in the middle of a measurement mess. Meyer (who came up with the measurement "dashboard" concept a few years ago in his Harvard Business Review article, "How the Right Measures Help Teams Excel"), says that when most organizations, like Harley-Davidson, went through their reengineering periods in the 1980s, moving away from traditional command-and-control to distributed power and cross-functional teamwork, they often left their measurement systems largely untouched.
As a result, they find themselves saddled with multiple measurement systems--financial, functional, and personnel--that don't talk to each other leaving people unable to see quickly a straightforward link between measurement and action. (When it comes time to evaluate individual performance, for example, Meyer says the measures are typically linked only haphazardly to functional measures and, at best, tangentially to financial measures unless the individual is senior enough to have P&L goals).
Noting the folly of trying to drive fast-paced contemporary business strategies and integrated organizational structures with antiquated measures from a pre-reengineered era, Meyer identifies several contributors to this measurement mess:
ŸToo many measures: "We're driving Ford Escorts using dashboards from a Boeing 747. People stare at the knobs and dials when they should be looking out the window."
ŸMeasuring what's easy to measure. Says Meyer, "Engineers and finance people would rather measure precisely an unimportant variable than measure an important variable imprecisely." But an imprecise measurement--with common sense judgment added--is often what's needed to forward significant action is...
ŸMeasuring mostly results when predictive measures would have the most value. Too often, says Meyer, it's as though the aim of our measurement systems is to inform us that our car just drove off a cliff, and who was driving, rather than alerting us--in time to take corrective action--that a cliff is on the horizon!
ŸMeasures are cost centered and use dollars as the "default denominator." What were the actual development costs of that product? But what about other critical factors, asks Meyer, like learning, speed of penetration, insight gained?
ŸMeasures are often functionally based. With product development increasingly a cross-functional game, using functional measures has two big shortcomings. The different functions often speak different languages; one function's measures may mean little to another. In addition, traditional functional measures don't look at things like team effectiveness, the capabilities needed to be on teams, whether a team started fully staffed, up to speed, and on time.
ŸMost measures are based on history, few are real time. What did a product cost to develop? How long did it take? How much revenue did it generate. Says Meyer, "We rarely look at what revenue was passed up. There was a famous McKinsey study that showed that if a project was 50 percent over budget but on time in a rapidly moving market you'd lose only two to three percent of the profits over the product's life, but if it was six months late and on budget, you can lose 28% to 35% of profits."
ŸMeasures are often seriously inaccurate and misleading. Meyer says this is the worst contributor. Unless your organization works rigorously with activity-based cost accounting (relatively few do), the odds are slim that you know the true cost of developing a product (or any other significant activity).
Meyer asserts that a healthy measurementbmc system has a simple purpose: to provide goal-centered feedback to allow you to detect problems and correct course. Good measures guide (Where are we going? Are we on the best path to get there?), forewarn (Is there an unanticipated problem or opportunity on the horizon?), inform (quickly and concisely, says Meyer: the few essentials needed to keep moving), and enable action.
Says Meyer, "We have too many measures in our organizations. If you have any measure that does not lead to action, trash it. Think of it as like a gauge in your car where the needle can swing to the left or right and you ignore it--you don't even think about it: toss it in the circular file, it adds no value."
Creating good predictive measures is relatively simple, says Meyer:
New Measurement Model
Meyer outlines a new seven-point measurement model:
Have project teams create their own dashboards, advises Meyer. But in today's post-command-and-control, networked organization, with widely distributed power, information, too, must be widely distributed. He advocates extending the dashboard model to Web-based measurement: let everyone know what all the parts are doing, what they see as important enough to measure, and how the parts integrate into a whole enterprise. It let's everyone know the score real time. But remember, concludes Meyer, "It's not just the measures...it's how the measures are used."PD
Copyright © 1999 The Management Roundtable, Inc.