In Parts 1 and 2, you’ve had the opportunity to jump-start your first steps to review, assess, create and/or adapt your business strategy for a tightened fit with recent changes in the business environment and customer needs. This included agreeing on your Market Discipline or Focus (lever 1) and creating your Strategy Map. There is still much more to come in our mini-series:
7 Levers to Strategic Success
- Market Discipline or Focus
- Strategic Understanding & Buy-in
- Balanced Metrics/Performance Indicators
- Scorecard & Business Performance Reviews
- Activities and Structure
Today, the focus will be on Levers 3 and 4, Balanced Metrics/Performance Indicators, creating your Scorecard, and Business Performance Reviews. This includes specifically focusing on developing the balanced metrics or performance indicators for each strategic goal you’ve included on your Strategy Map. Your Scorecard will be an important tool to enable regular, frequent progress monitoring of performance against your strategic goals.
To help lock in your understanding of this step, we’ve selected additional video further demonstrating the make-up of this key leadership tool. This one is “The Balanced Scorecard,” by IntrafocusUK.
Developing Balanced Metrics or Performance Indicators for your Scorecard
Your people go to work every day to complete a variety of tasks. They proceed by following management’s priorities as well as their own. Collectively, those priorities typically impact the timing and methods of task completion. Effective metrics or performance indicators help people to make choices that align with delivering on the company’s purpose, goals and competitive differentiation.
Most people agree that measuring something automatically makes it important. Balanced Metrics or Performance Indicators are tactical measures that have powerful impact on strategic performance. When leadership prioritizes important metrics, they influence what people decide do, when they do it, and how they do it.
Leaders and managers might ask themselves questions such as the following in identifying balanced measures:
- What measures besides financial metrics does our company use to monitor performance?
- Does my team have enough awareness, understanding and access to metrics that help to perform their jobs better?
- Do our metrics help people stay focused on delivering optimum customer value in line with our purpose and competitive differentiation?
- Are budgets established and linked to the business strategy tightly enough to guide managers in making spending decisions that support or enable achievement of the strategy?
- How often do we discuss performance against lagging and leading indicators with our people?
- How effective is our focus on and use of leading indicators in identifying and solving problems in time to positively impact the resulting lagging indicators?
Balanced Metrics consist of both lagging (or trailing) and leading indicators. Lagging indicators are performance results, and are often financial. Leading indicators monitor performance against targets and goals. Reviewing leading indicators in a timely way enables people to spot problems early–problems that could result in less-or-unsatisfactory performance on a lagging indicator in the foreseeable future.
Leading and Lagging indicators can sometimes be confusing to people. This may sometimes be due to the fact a lagging indicator can, at times, be used as a leading indicator. For example, if sales are below forecast in the first three or four months of a year, this may predict looming failure to meet the annual sales goal at year end. In this situation, people have the opportunity to identify and resolve the problem in time to meet the goal. Here, the monthly lagging indicators can become an early warning system similar to more typical, non-financial leading indicators.
Annual Business Performance Reviews
Most often, organizations use spreadsheets and set up systematic approaches to track performance against the metrics/performance indicators on the Scorecard. Performance may be monitored as often as daily to watch for early warnings from leading indicators.
A major benefit of using these tools is the capability they have to enable leaders to assess organization performance on strategy execution short term and long term. Annual assessments of the strategic performance of the entire business and year over year performance reviews can provide real clarity on what the leadership team is doing that is working or not working as well as planned, thereby positioning leaders to identify and lead change for improvement.
Metrics/Performance Indicators are used to measure and monitor performance at a variety of frequencies established by leadership. They may be reported and discussed as often as daily.
Lagging (or trailing) indicators are measures the reflect performance that has already happened. These are often financial results taken at the end of a specified period of time, such as quarterly revenue.
Leading indicators track activities that drive, or lead to a lagging indicator. They help make visible the existence of a problem and the need for a course correction; they predict success or failure of a lagging measure, in time for people to make changes that influence end results.
A simple example is weight loss. Leading indicators for weight goals include diet and exercise. Weight measured on the scale is a lagging indicator, showing weight measured after it happens.
Establishing an effective combination of lagging and leading indicators reduces risk of failure to achieve goals. They key to using effective metrics successfully is communication. This is where leadership becomes critically important.
Series Step 3: Balanced Metrics (or Performance Indicators)
Action 1: Create your Scorecard.
Action 2: Review and finalize your Scorecard. The video below is a tool to support you as you proceed with the next Action.
Action 3: Develop your plan to communicate your business strategy using your Strategy Map and Scorecard, to begin the work of building a strong strategic understanding among your stakeholders as well as buy-in of your internal stakeholders, your people.
What Are Your Thoughts at This Point in the Series?
What has your company’s experience been with developing and leading with Strategy? What metrics have you discovered to be most effective in the past? What will you do differently now? Please share your questions, results and comments with us! You’re welcome to contact us at your convenience.
Copyright by Rosanna M. Nadeau, 2022
Other segments in this mini-series
The introduction segment: “Sometimes, in business and in life, we find wisdom not in what people think, but in how they think” LINK: https://rosannamnadeau.com/2022/01/21/sometimes-in-business-in-life-we-find-wisdom-not-in-what-people-think-but-in-how-they-think/
Part 1 “The World Has Been Changing. Have You Adapted Your Business Strategy? Part 1” – Market Discipline or Focus – LINK: https://rosannamnadeau.com/2022/01/19/the-world-has-been-changing-have-you-adapted-your-business-strategy/
Part 2 “The World Has Been Changing. Have You Adapted Your Business Strategy? – Part 2” – Strategic Understanding & Buy-in – LINK: https://rosannamnadeau.com/2022/01/19/the-world-has-been-changing-have-you-adapted-your-business-strategy/
Part 4 – “The World Has Been Changing. Have You Adapted Your Business Strategy?” – LINK: https://rosannamnadeau.com/2022/01/30/the-world-has-been-changing-have-you-adapted-your-business-strategy-part-4/
Part 5 – “The World Has Been Changing. Have You Adapted Your Business Strategy?” – LINK: https://rosannamnadeau.com/2022/01/31/the-world-has-been-changing-have-you-adapted-your-business-strategy-part-5-2/
“The 4 Disciplines of Execution,” by Chris McChesney, Sean Covey, and Jim Huling with Beverly Walker and Scott Thele, Published by Simon & Schuster 2021
What’s the Difference Between Leading and Lagging Indicator, Forbes – LINK:https://www.forbes.com/sites/bernardmarr/2020/10/23/whats-the-difference-between-lagging-and-leading-indicator/?sh=85f9e695009a
How the Right Metrics Can Drive Strategic Growth and Profitability – LINK: https://rosannamnadeau.com/2021/05/27/how-the-right-metrics-can-drive-strategic-growth-profitability/
Manufacturing Metrics and the Yellow Brick Road – LINK: https://rosannamnadeau.com/2021/06/02/manufacturing-metrics-and-the-yellow-brick-road/
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