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Performance Indicators & Balanced Scorecards. . . .

September 5th, 2008 Comments off

With all the discussions this week regarding IFRS I felt compelled to step back a bit and cover a slighter broader organizational topic – Balanced Scorecards. For myself, I love any indicator that is going to provide me some insight as to how the organization is performing, and hopefully the tracking has been in place long enough that I can start making year-over-year comparisons. However, the question I still have yet to see answered by any one team is “How many indicators are sufficient to provide you with an overview of corporate performance?”. Granted, these need to be broken up into financial and non-financial, but let’s just take one area. If you refer back to the book “The Ultimate Question”, there is really only one indicator that needs to be tracked….whether or not your customer will recommend you to others. Ok…perhaps a bit simplistic. But let’s look at the average approach.

For the companies I have been at, there have been anywhere from 6-50 indicators tracked on a monthly basis. If there are indeed 40-50 being tracked do I need to see these figures every month and draw some type of conclusion? Probably not. But I am VERY interested in the trends that these indicators may take over a period greater than a quarter. While I do want to see the data compiled monthly, a month does not make a trend. I also believe that it’s very difficult to narrow your indicators down to very small amount and gauge the performance for what could be a very complex organization. Are you going to only pick 6-10 indicators for a company that has R&D, Engineering, Quality, and Call Center functions? By the time you pick one indicator for each area you’ve hit your limit.

Aside for the standard financial indicators, I want to know about others that are directly affecting our customers. For instance:
– What are the number of current or past due “service” calls? Are we servicing our customers and delivering on contractual obligations?
– What are the number of warranty related issues? Not from a $$ perspective but from a “customer touch” perspective.
– Are our Service technician training levels appropriate for the install base in their region?
– What are the system performance measures from IT so that employees remain productive?
– What is our On-Time Delivery performance? I care that we booked the revenue but I also want to make sure we met our customer expectations.
– What is our performance for the accurate shipment of customer orders? How many orders were processed incorrectly?
– What is our order return rate? While not necessarily negative, it is a cost to the company.
– What is our employee turnover and is it due to termination or resignation?
– What is our capacity utilization / labor absorbption rates?

While not necessarily a “financial” performance measure, all of these indicators, and dozens more, have the ability to directly impact the bottom line financial performance. When the financials are closed at the end of the month and we see the final story I want to know exactly what was influencing our results and how we might be able to improve them moving forward. Perhaps there have been areas that have improved dramatically versus the prior year and it’s time to start fine tuning some of our process. How is your organization performing and how do you track it?

Thanks for reading. . . . .
Jeffrey Ishmael