We live in an age where we are dependent on glossy presentation and the immediacy of data. We forget that business performance can only be determined by how well we have done in the past.
We are often fighting so many fires we cannot find the time to examine past performance to determine what is actually achievable in the future. This is a mistake. A golden business rule is to set targets that are achievable. They can be stretching, but they must be achievable. The question is how is an achievable target determined? By examining past performance we can do the following:
Remove anomalies
Stabilise performance
Create acceptable ‘thresholds’
Base-line performance
Set targets and agree ownership
Let’s look at a scenario. The graph below shows a key performance indicator (KPI) for a typical company selling a service that requires something more than a standard contract. The history shows that from December through to June 2012 this measure, ‘Average Time to Contract in Days’ fluctuated wildly from 48 days at worst to 5 days at best.
By applying the first step from the list above, remove anomalies, through examination we can determine that in May 2011 staffing dropped from 3 to 1 causing an immediate impact. We can also determine that in Feb 2012 an extra temporary staff member was drafted in to tackle a backlog. By removing these anomalies we can see a more stabilised view of the data. However, the metrics are still often outside acceptable thresholds.
In this example, remedial action was taken to stabilise performance in June 2012 by adding a new permanent staff member. We can see from June 2012 through to Feb 2013 the performance has stabilised.
This period of seven months is also long enough to ‘baseline’ past performance to allow a meaningful future target to be set. One method that can be used is to look at the ‘trend line for the stabilised period and extrapolate forward to an agreed target, as shown below:
An element of caution should be applied to this method as ‘trend lines’ can often reverse simply by adding an extra month of data. The key here is to use the ‘stabilised’ period as your baseline. With the trend line going in the right direction, the performance thresholds (and therefore target) can be reset to achievable values. In this example, the new target was set April 2013 through a revised upper and lower threshold.
There are a few important things to note about using history to set targets:
Performance improvement is always a long-term activity – unless you know where you have come from, you will never know where to go.
True performance improvements can only be attained in a stable environment – where performance is fluctuating wildly, the underlying problem is usually obvious and can usually be fixed easily
Targets are good but thresholds are better – Having a target is a good thing. We need to focus our efforts. We also need to know what is not acceptable and the answer is not always binary. Moving towards a goal can be as motivational as hitting the goal.
There are three things that to look at when setting up and monitoring a business performance measure: 1. the measure itself, 2. the acceptable thresholds and 3. the trend over time. These are vital and of equal importance. Performance improvement cannot be planned without at least these three things.
Note: the above diagrams were taken from QuickScore. QuickScore is a business performance management and scorecard system developed by Spider Strategies and sold in the Europe, The Middle East and Africa by Intrafocus.
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