Last Updated: Feb 22, 2024

Increasingly, the CFO is playing a pivotal role in identifying and driving organizational transformation. Thegathering and utilizing of relevant information to make sound management decisions continues to be a top priority for leading organizations.

Despite advances in process automation, keeping employees focused on leveraging data to drive process improvements is not getting any easier. Many organizations, having invested heavily in new applications, have yet to see a return on the promise of improved business intelligence due to the seemingly overabundance of data. The adage ‘data rich, information poor’ seems more relevant than ever, with meaningful business insight remaining frustratingly out of reach for many.

To compound the issue, many companies become lulled into running stagnant and ineffective performance monitoring routines, increasingly perceived as another onerous chore for over-burdened finance teams rather than a meaningful review of operating results to find opportunities to drive profitability.

With that in mind, it’s worth a quick reminder of some best practices when it comes to performance measurement.

Regularly Assess What Success Looks Like

Without a clear destination, judging whether you’re on the right path is impossible. It’s worth considering what success means from multiple perspectives when reflecting on where you’re headed—from business owners and shareholders to clients and employees.

Occasionally, these perspectives can align, but very often, there will be tension. For example, for most products and services, customers will fundamentally expect to receive what was promised, at a time and price to which they’ve agreed. However, depending on the industry, a customer’s priorities may vary. Certain customers may value reliability over timeliness. Shareholder needs may also vary, depending on the organization’s strategic maturity. For example, different decisions may be required when prioritizing long-term growth over short-term cash flow.

It’s also worth recognizing that for any of these groups, what constitutes success is unlikely to remain static for very long, thus monitoring and reassessment should become a habit, not an exception.

Identify Metrics to Demonstrate Performance

  • Less can be more: Many businesses intuitively seek to gather any or all performance metrics possible, but the objective should be quality over quantity. Focusing on more than ten metrics as critical performance indicators significantly dilutes a manager’s time, increasing the likelihood of inaction. Demoting, delegating or even deleting less important metrics encourages individuals to materially focus on their pieces of the puzzle, which then will cascade as a benefit throughout the organization.
  • Avoid overly complex or difficult-to-gather measures: If a certain measure is complicated and time-consuming, the cost to gather may outweigh any benefit. It pays to focus on obtainable goals while remaining pragmatic about data gathering. If necessary, create a longer-term strategy to simplify the accessibility to the right data while maintaining momentum in the short term.
  • Start recording and creating baselines: Where measurements are created from scratch, a baseline must be established before making meaningful analysis and reliable business decisions. A baseline should also reveal reliability or standard deviation in performance – being consistently off-target can, in certain circumstances, be easier to remedy than unpredictable performance.
  • Innovate with new metrics: One way to avoid stagnation is to maintain evolution in the metrics used. Although it can be tedious to stay current with the latest management acronyms, they can be helpful in galvanizing management or workforce participation in performance measurement.

For example, some currently popular metrics in use:

  • Right First Time (RFT): You can be ‘right,’ but wouldn’t you rather be ‘right first time?’ Intuitively, the fewer iterations required, the more cost-effective and efficient a process.
  • On-Time Delivery (OTD): How often you deliver a product or service within the customer’s expectation (either contractual or perceived).
  • On-Time-In-Full (OTIF): Frequently used in the supply-chain domain, this is used to measure the contractual satisfaction of delivery.
  • Cost of Non-Quality (CoNQ): Sums up the expense of not achieving RFT and OTD. The financial consequences are both tangible (such as credits, penalties, cost of rework) and intangible (damage to reputation, lost sales opportunities)

Establish Relevant Targets

  • On the horizon, but not over it:Although most executives and managers are target-orientated, individuals quickly disengage if a goal is perceived as too far off. Timelines and assessment periods should be short enough so they are impossible to ignore but long enough to provide a sufficient window to deliver the objective fully.
  • Look at the competition: Industry benchmarks can be performance measures (time, quality or cost) achieved by a competitor or within a comparable industry. They can demonstrate what’s possible and be used to set goals within your organization.
  • Recognize cross-functional relationships: It’s easy for organizations to slip into a siloed mentality, with operational leaders who, although sympathetic to other functions, are highly focused and have a vested interest in achieving their individual function’s success. It’s vital to create an environment where interdependencies are recognized and goals are aligned, to enable business decisions to be made that benefit the company as a whole.

Routinely Drive Corrective Actions

Corrective actions may take time to demonstrate an impact. Hence, reviewing performance too frequently runs the risk of merely ‘firefighting’ issues of the day rather than navigating to a strategic endpoint. On the flip side, reviewing performance too infrequently can cause targets to drift out of reach.

Successful organizations tend to demonstrate the following characteristics as they consider performance.

  • Empowerment of line managers: Individuals tend to value things more once they own them, and it’s important to recognize that individual line managers are normally in the best position to identify opportunities to optimize and improve performance.
  • Digging below the first level of root cause: It’s not unusual for teams to accept the most obvious or apparent reason for under-performance when the true root cause may be layered well below. The ‘5-Why Approach’ is a great tool to us to avoid this as it forces reviewers to continue to peel away peripheral or collateral indicators.
  • Focus and prioritization of actions: It’s easy to take multiple corrective actions to improve a situation rapidly, but this can create two issues. First, when numerous initiatives are launched simultaneously, it can be very difficult to assess the impact of each action. Secondly, too many concurrent priorities can overwhelm managers.
  • Ability to fail fast: It’s imperative to quickly assess whether a corrective action will have the desired and expected impact. Successful companies increasingly allow individuals the freedom to fail, which has been counterintuitive to many corporate cultures.

Driving successful organizational performance requires CFOs and finance teams to establish an environment focused not just on measuring key performance indicators but the right ones. Knowing where you are is a start; knowing where you are heading is even better.

As an ‘always on’ activity, leaders should regularly evaluate performance against company goals to ensure they are on track and drive corrective actions when necessary. The teams’ ability to measure, course correct and enhance performance – through organizational and market changes – clears the way for companies to make sound management decisions, which is a top priority for all.