The philosophy of this book is that the secret of successful companies is getting the detail right. Luck plays a part, charisma looks good, deal-making drives growth, but none of these can give sustained success. Luck runs out, charisma turns to out-of-touch arrogance, deals turn out to destroy value. Successful companies concentrate on what really adds value for themselves and their customers. They know what they are doing and they do it well. And they convey this focus on the right detail throughout the organization. So how can companies know what are the right things on which to focus management attention? How can they ensure that everyone buys in throughout the organization? By using one of the oldest methods in the management toolkit: by setting the right metrics for performance. Managers are overwhelmed by measures and information. Much of it is dross. So many measures are confusing. What they need is simplicity and clarity - a few key metrics. But they have to be the right metrics.
The right metrics are those that support the three key pillars of management action - the COT principles.
• clarity - set clear aims and reward progress;
• objectivity - understand the levers that really drive value creation;
• teamwork - get everyone pulling in the same direction.
Smart business metrics are the foundation of these pillars.
This book presents tools and case studies to show you how to analyze your business and set the right metrics. Tools that allow you to practise management as engineering, instead of a vague and insubstantial skill. Tools that give managers a framework to guide them towards the right decisions. And tools that give staff a reason to co-operate. The tools are based on facts: on data and on analysis. Yet this approach remains an art as much as science. There is still a strong need for experience, intuition and common sense. The tools used here reinforce the application of experience; they guide and strengthen managerial decisions and actions; and they add transparency to the managerial process. But this approach is not an easy option. Rigour requires effort. As in life, the principle of'no pain, no gain' applies. This book attempts to minimize the pain while maximizing the gain.
The book gives detailed examples of the art and science of understanding the key business drivers, and of designing smart business metrics around them. It takes you inside the metrics development process. It shows real examples of issues, problems and solutions. Some are clear-cut, many are messy.
How does this book help you to cut through the confusion and uncertainty of business situations? It lays out:
• a framework to structure your thinking about value creation;
• four principles of analysis that can be applied to uncover the levers of
• methodology steps that show how the four principles of analysis can be
applied to your organization;
• numerous case studies showing the mixture of science and art (experience,
common sense and judgement) that together lead to a deeper understand
ing of how to promote value creation by designing the right metrics.
The approach does not rely on an analysis of presently successful companies and what they may be doing well (if history is a guide, many of these will no longer be in favour in a few years time). It avoids the temptation to parrot the latest management fashions. It eschews simple 'one size fits all' solutions. Instead it provides a fact-based method to research the specific causes of success for your particular company, and to act on them. It celebrates the uniqueness of organizations rather than looking for the one way to salvation.
It also aims to avoid the trap of giving either head-in-the-clouds advice -great slogan, but what do you actually need to do and does it really work? - or of giving detailed textbook techniques that are only applicable to rare and specialized issues, and irrelevant to the average general manager. Most of the analysis found in this book can be done 'back of the envelope' fashion. This is a book for managers, not back-room specialists.
The book is in three parts. The first chapter introduces the importance and difficulty of finding the right metrics. Chapters 2-6 provide the meat of the approach: the framework for smart business metrics and detailed case studies of how they can be developed and tailored to the needs of specific organizations. Chapter 7 finishes by stressing the vital need to implant metrics as a living part of the organization by carefully planning their introduction and linking them to staff performance management.
Chapter 1 introduces the importance of having the right metrics for success. The right metrics are those that capture the real value-creating drivers for your particular organization. If you are going to use metrics make sure they are the right ones. This first chapter explores why understanding the causes of value creation and making the right value-creating decisions are difficult. Complexity, uncertainty and bias all make life tough for managers. The right metrics support their decision making and get them to focus on the important areas of value creation. Metrics not only measure, they guide.
Chapter 2 lays out a framework for thinking about value and metrics, and introduces the basic principles that underpin analysis of value creation in a specific organization. Chapter 3 examines metrics for outcomes. How can we get clarity and balance into our strategy and how can we ensure it is communicated and understood throughout the firm? Chapter 4 looks at metrics for value drivers - what aspects of our operations can be tuned for better performance today? How can we ensure that we understand and prioritize the real value drivers? Chapter 5 examines intangible value builders - the positions and capabilities we invest in today to bring rewards in the future. How can we ensure that we understand and prioritize the real value builders? Chapter 6 asks how can we encourage teamwork and get joined-up management - cooperation and a company-first culture - from the design of metrics. And it shows how metrics need to be designed to take into acount the reactions of staff, customers and competitors by understanding the dynamics of strategy.
Finally, Chapter 7 looks at implementation - how can we design and introduce smart business metrics? How can performance management be linked to the metrics? What are the change management issues?
Great financial benefits can be achieved by applying these principles and implementing the right metrics. But perhaps more important is the ability to implant a strong backbone in the organization - how smart business metrics can be used to gain clarity, direction and buy-in throughout the company. And to do this on a base of factual analysis, not mystic vision, not intuition and not power politics. Surely this is an outcome worth working for.