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Industry Insider
Best in Class Performance Metrics from Northpoint

by William Laurent, William Laurent, Inc.Monday, April 21, 2008

Dashboards that measure and manage enterprise performance are an irreplaceable resource for business intelligence (BI) and governance.  Most of these dashboards usually employ traditional (high to medium-level) financial measurements; however, a large majority of performance dashboards are not as effective as they should be due to incomplete or non-clarified performance metrics. In response to these BI dilemmas, NorthPoint Software has produced some groundbreaking research and insight into the definition and formation of key performance indicators (KPI) across a multitude of enterprise activities and market segments. NorthPoint’s best known assessment methodologies target various risks while creating parallel opportunities for achieving ROI in governance and BI with actionable and measurable STPs—Steps, Tasks, and Processes required to mitigate risks and drive dashboard-enabled corporate performance monitoring and improvement.

NorthPoint has defined 105 Critical Fundamental Business Activities that the “Best In Class” enterprises use to measure the general efficiency and effectiveness of their organizations and their business processes. Of great concern is that slightly less than 7% of all enterprises perform to Best In Class performance because, on average, between 40% to 52% of their fundamental business metrics (FBAs) are not measured or are incomplete, resulting in poor overall business management. Dave Chapman, President of NorthPoint, also espouses that most enterprises are missing from 25% to over 37% of the critical performance-centered knowledge needed to be effective, efficient, and resilient. Chapman elaborates, “In order to get the complete picture of how the business is running, in total, one must understand all the relationships of the operational ingredients inside the business which drive overall organizational performance.”

While an enterprise’s KPI dashboard may measure many metrics, on average between 600 and 1200 (with some companies measuring as many as 1800), the measurements are rarely complete. However, KPIs can not come to the rescue of missing intelligence, let alone support more timely and robust BI. If an enterprise is missing key fundamental business activities (FBAs) it will not be possible to have a balanced and complete set of KPI or associated metrics that have an implicit accuracy, speed, and precision of measurement. KPIs have, in general, been a disappointment to the executives and leaders of the business world because they have been incomplete; therefore, much of senior management has shrugged off the responsibility required to own and manage these performance indicators.

According to Chapman, many efforts to better measure performance were doomed from the beginning because required fundamental FBAs were incompletely or improperly identified and implemented. At the end of the definition and implementation phases, management could still not clearly understand how well the business was running as a whole.  The FBAs were not complete—i.e. applicable to the enterprise holistically—and remained siloed in their definition and execution; KPIs were still therefore piecemeal and non-comprehensive in nature. In other words, KPIs were contaminated (in both cause and effect) because they passed through numerous disparate business units. Thus, business units tended to disavow the ownership of the KPI’s, as they owned only parts of the process affecting the metric, which meant that the KPI’s were not based on robust or complete fundamental business activities—encompassing both their critical inputs and outputs. A valuable lesson has been learned: What is important when defining indicators of performance is that all business fundamentals are considered and clearly related to core business processes. There must be explicit agreement on what constitutes these fundamentals if detailed measurements and requisite metrics are to provide value. Otherwise data mining and BI efforts will never deliver the lofty levels of ROI which have been promised for ages by quality management gurus.

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