CXO

IT executives must focus on measurement management

Measurement-managed organizations are better at managing change and increasing ROI. Find out about the other benefits of using measurement-management techniques in your IT department.


By Michael Bitterman

Of all IT organizations, those using measurement-management techniques are in the minority. This fact has given rise to the "measurement paradox—the majority of managers extol the use of measurement, while only a few actually implement strategic measurement or performance management programs.

Why does this paradox exist? A number of very specific and powerful forces converge and prevent most organizations from adopting measurement-management techniques. Suffice it to say that organizations require systematic change processes to overcome the forces that prevent the organization from changing. It's the resistance or refusal to change that created and maintains the measurement paradox. Here, I'll talk about the benefits of adopting measurement-management techniques in your organization.

The measurement-managed organization
Measurement-managed organizations are those that have adopted a strategic and balanced set of key performance indicators (KPIs) with which they plan, implement, operate, and monitor the strategies, functions, and processes of their organization. In their paper, "Is Measurement Worth It?" John H. Lingle and William A. Schiemann discuss the findings of their research on measurement managed organizations (see Table A).
Measure of success
Measurement-managed organizations
Non-measurement-managed organizations
Perceived as an industry leader over the past three years (1999-2002)
74%

44%

Reported to be financially ranked in top third of their industry
83%

52%

Three year Return on Investment (ROI)
80%

43%

Last major cultural or operational change judged to be very or moderately successful
97%

55%

Relating measurement-managed organizations to performance

A number of characteristics help define measurement-managed organizations. These have been identified in a number of studies, including one by Lingle and Schiemann in their book Bullseye: Hitting Your Strategic Targets Through High-Impact Measurement. Table B describes their findings regarding measurement-managed organizational characteristics.
Reported
Measurement-managed organizations

Non-measurement-managed organizations

Clear agreement on strategy among senior management
93%

37%

Good cooperation and teamwork among management
85%

38%

Unit performance measures are linked to strategic company measures
74%

16%

Information within the organization is shared openly and candidly
71%

30%

Effective communication of strategy throughout the organization
60%

8%

Willingness of employees to take risk
52%

22%

Individual performance measures are linked to unit measures
52%

11%

High levels of self-monitoring are linked to unit measures
42%

16%

Cultural characteristics of measurement-managed organizations

As you can see, measurement-managed organizations operate in a number of fundamentally different ways than their non-measurement-managed counterparts.

Can IT benefit?
There is no question that IT will benefit significantly through the adoption of measurement-management techniques. CIO objectives are identical to those of their business peers: superior financial performance, the delivery of high valued services that meet the current and future needs of their customer communities, and the achievement of a best-in-class organization.

Measurement rapidly forges increased strategic agreement
In the absence of measurable objectives, you can't assume that a senior management team agrees on business strategy. Without agreement on the business strategy at the top, it's difficult to secure commitment, agree on resources, set priorities on major initiatives, or create integrated operational plans. Measurement helps remove the ambiguity and disagreement that surround high-level strategic concepts.

Measurement provides a common language
A basic requirement for the success of any IT organization is to have agreement between the senior leadership team and the IT staff about their goals and objectives and the strategies being employed to meet them. Few, if any, CIOs will admit that their organization is not in lock step with the stated mission, objectives, and strategies. Yet, if you ask the IT staff, including its management, what their priorities are and what they're measured against, more often than not, there will be minimal direct linkage between the answers and the stated objectives and strategies. Measurement-managed organizations utilize techniques that assess the level of strategic agreement with the senior leadership team and link it to the appropriate level within the IT organization.

Understanding of the business strategy tends to dissipate rapidly as it filters down from the senior team. Most employees don't feel they understand their company's strategy. Measurement-managed companies do a better job at communicating their strategy. Measurement provides a precise language for describing the values or beliefs of an organization, what that organization wants to accomplish, and how it intends to accomplish it.

The IT organization must deal with communications from multiple perspectives. The IT staff suffers from the same problem as the rest of the enterprise in not understanding or even knowing the enterprise strategy. But IT has the added burden of having to understand and execute its own strategy which, usually, does not link to the enterprise strategy. Measurement-managed organizations are using specific means to enunciate the expectations and outcomes of strategies. This is done in terms that are understood by those either affecting or being affected by the strategy, making the strategy known to all and keeping it at the forefront. These measures communicate progress, value, success, failure, and performance in a language that is understood by all involved.

Measurement helps forge alignment
Maintaining alignment represents one of the greatest challenges for companies in today's rapidly changing business environment. Achieving perfect alignment is unrealistic. Because organizations are continually changing in response to markets, M&A activity, and economic conditions, you must manage change on a continual basis. As the organization changes, some areas are aligned, others are not. How can organizations know if they're properly aligned? One answer is strategic measurement. Once you've defined the critical few measures that indicate overall alignment, you can more confidently manage the dynamics of your markets and workplace. You must update the measurement system as often as the business, the industry, and the strategy change.

In terms of alignment, measurement-management techniques help raise the commitment to higher-level strategic objectives. This is accomplished by having established the Critical Success Factors (CSF) for stakeholders and making certain that IT's CSFs are linking to them. Through the use of "cascading" measures associated with the CSFs throughout the organization, strategic objectives become relevant to each employee's department and job. It puts the business and/or IT strategy close to the heads and hands of every member of the staff.

Measurement increases a company's predictive powers
Strategic measures improve a manager's ability to anticipate future outcomes. Senior executives can set up an integrated relational database of key measures, allowing them to predict the effect of employee, supplier, and work flows on customer, market, and financial outcomes.

Today, more than ever, IT is focused on financial measures. Operational measures are also a hallmark of most IT organizations. These two types of measure share the characteristic of being retrospective. Measurement-managed IT organizations are employing prospective and predictive measures which allow them to take preventative actions, rather than react or respond to circumstances. IT's responsiveness to stakeholder requirements in a timely and effective manner is one of the means of communicating the value of IT investments. A CIO's ability to measure the "reach and range" of the infrastructure, the scalability of applications, and the proficiency of the staff can provide predictive tools in a rapidly changing world.

Measurement lets executives take a comprehensive view
With the integrated perspective strategic measurement provides, you're positioned to see how actions taken in one area of the terrain can affect performance elsewhere.

For example, in one financial services company I worked with, the organization discovered the power of bringing together and making available to everyone information from the credit, collections, and account management functions. The organization learned that a customer might leave based on gaps in any of these three functions and that a balanced combination of speed and accuracy is essential to high customer retention. Account managers want to extend more credit quickly, while credit officers want to ensure a capability to repay loans. Collectors must balance this with actions that can chase a customer away forever. Measures that span key performance areas help a management team consider and weigh the critical forces that determine whether the customer base will grow or shrink.

Few departments within any organization are more complex and multifaceted than IT. In the Information Age, enterprise IT must evolve from its Industrial Age metrics to more suitable ones. Using measurement-management techniques, IT can establish the appropriate set of key performance indicators that will lead to better decision making, increases in performance levels, greater customer satisfaction, and support for a continuous improvement program.

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