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Stop Monitoring and Start Moving Dials

by Roger Baldridge, Director, Global Performance Management, SAS Institute, Inc.Monday, April 28, 2008

CFO concerns range from tactical budgeting and planning to the much broader, strategic issue of performance management. In my role as Director of Consulting at SAS, I often meet with CFOs who tell me they use dashboards containing key performance indicators to manage their businesses. Yet after further discussion, I find they are merely collecting these metrics as if piling them into a box. Unfortunately, inside that box, the indicators are no longer manageable.

Many CFOs use the dashboard as a management-by-exception tool. Instead of looking at the numbers, they watch the colors. If a dial turns yellow, it’s noted. If a dial turns red, they take action. If a dial is green, it’s ignored. The real tragedy is that when the CFOs investigate red exception outcomes, they are already too late in the game to make a difference.

Were they able to monitor the operation during the reporting period, rather than at the end, they could have requested interventions and corrective actions. Additionally, they would have found opportunities to learn from what they are doing well.

Most CFOs focus on profitability and cost control. They want everyone in the company to control costs and better understand which products, service lines and customers are more or less profitable.

Sales executives tell different stories. In most cases, they speak of investment and cost control is rarely mentioned. Many of them have spent their careers growing sales, but not necessarily profitable sales.

Marketing executives describe how they must cut costs and do more with less. They are increasingly asked to cost-justify campaigns and many are using analytical tools to make campaigns more efficient.

CEOs discuss broader issues. External pressures such as legal and regulatory, green initiatives, competition, and more are affecting them. They are concerned about financial factors but worry about the non-financial factors too.

Where is the alignment? Most executives cannot show me how their organizational goals relate to corporate strategy, and all of these executives have their own boxes of metrics.

Companies that have turned to strategy mapping to resolve these issues learn that the metrics they currently monitor have both leading and lagging indicators. They learn about the cause-and-effect relationship between lagging financial metrics and leading non-financial metrics.

For example, when companies monitor employee satisfaction, they can take corrective actions before employees resign. They use predictive analytics to forecast employee turnover, and they see how small investments in professional development or salary increases can reduce turnover and affect costs.

It is time for executives to think outside of the box. Successful companies are using strategy maps and balanced scorecards that show causal relationships between metrics and using statistical methods to identify relevant correlations between metrics. They are proactive about leveraging foresight and minimizing the impact of negative trends on financial performance, while learning from successes to increase financial performance.

All executives should ask themselves:

  • Can you understand the causal relationships between leading and lagging indicators?
  • Can you afford not to?

Other Resources:

Dashboards and strategy maps:
http://www.sas.com/solutions/spm/index.html

Worldwide consulting resources:
www.sas.com/consult/

About the Author

Roger Baldridge is a Director of Consulting at SAS
roger.baldridge@sas.com

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