“Crude measures of the right things are better than precise measures of the wrong things.”

Here are five core measurement areas that provide broad and balanced feedback loops for assessing and improving organization performance:

1. Customers/Partners

Measurements could include performance gap analysis for each customer and/or market segment, external partners (such as distributors and suppliers), and all your internal partners. This area might also include price/value perceptions, customer/partner turnover rates, market share measurements, market perceived quality levels, and competitive benchmarking.

2. Innovation and New Markets

Here, you could measure revenues generated from new products, services, or markets. You might also measure the number of experiments, skunkworks, and pilots underway.

3. Competencies and Capabilities

These could include process accuracy and effectiveness, cycle times, project measures, reliability, on-time-performance, cost effectiveness, rework, error rates, and other non-value added work (using tools such as activity-based costing), knowledge and skill levels, or productivity levels (such as revenue per organization or team member).

4. Learning and Improvement

These could include tracking rates of improvement in the other four areas. You might also do self-assessments or bring in outside experts to examine the effectiveness of your organization improvement process. Another form of measurement could include quality audits and supplier certification.

5. Financial

These traditional and historical measures might include profitability, cash flow, return-on-investment, sales levels, or shareholder value.

Across these five core measurement areas, many measurements and supporting sub-measures are possible. That complex approach makes sense for some highly disciplined and measurement-experienced organizations. But the overarching goal in developing measurement and feedback loops should always be simplicity. Ideally, we want to identify the vital few measures within each area that have the biggest impact on performance. These come directly from our strategic imperatives, which in turn grow out of our Focus and Context (vision, values, and purpose).

A few core measures are then cascaded to all operational and improvement teams who use them to develop their operating targets and/or improvement objectives. Once these teams have made changes and improvements, progress is assessed. This important time of reflection and learning becomes input to the next turn of the cycle. The process looks like this:

The (often annual) improvement cycle starts with the organization’s vision, values, and purpose that form its Context and Focus. These establish the strategic imperatives or key goals and top priorities. From this, balanced measurements around the five core areas outlined above are developed. Operating and improvement teams then use these imperatives and measures in setting their operating targets and/or improvement objectives.

Based on this planning, changes are made and improvements initiated using process management, systems realignment, experimentation, pilots, and the like. All the while (and at periodic intervals), management leads their teams through a series of progress assessments. These learnings are captured, celebrated, shared, and incorporated in the next year’s cycle of strategic imperatives, core measurements, and so on.