Do You Effectively Measure Your Business Value?

 

When I meet with both IT and business executives, I often find that they are very interested in quantifying their value of their organization and rightfully so. Scorecards, Key Performance Indicators (KPI’s) and Critical Success Factors (CSR’s) are all topics that are interwoven into those conversations. It’s important to do this but I often ask myself if we go a bit overboard on the endless need to see who has the most metrics.

 

I find there is certainly no shortage of these metrics. We all have a long list of them that we dashboard and report on. So why is it that IT has such a poor performance record with all these great metrics? For example, in a 2012 study by The Standish Group, respondents reported that they felt 50% of all IT projects are a waste of money. Moreover, we see reports from the Better Business Bureau that IT ranks 3rd in most complaints, just 2 positions worse than used car sales men.

 

I believe that it is a case of metrics overload combined with false metrics. In the Lean Startup community Eric Ries calls these vanity metrics. These vanity metrics are how they sound, ones that look great on paper but often have little to no relevance to the needs of the business.

 

The goal here is to shift from these vanity metrics to ones that really matter.  To do this we must shift to actionable metrics that connect to what the business needs to do. A really good starting point is to fully understand your business top down.

A very timely post by Harvard Business Review blog titled, “A Better Way to Think About Your Business Model” illustrates a great tool for executives and other strategic roles like enterprise architects to understand the business landscape to in turn measure its effectiveness. In this post, there is really good information on why it’s important to use the model.  

 

Mike Walker HP Discover Performance Blog: Business Model Canvas

 

 

The business model canvas provides that essential context into understanding your business. An added benefit is it can be applied at multiple levels not just in a top line corporate strategy perspective. You can apply it at a corporate level or apply it to a business unit.

 

This can be directly applied to the tools we use to measure our effectiveness. Take for example HP’s Executive Scorecard that has 150 pre-defined metrics but it is up to you to select the ones that differentiate your business.  

 

 

Mike Walker HP Discover Performance Blog: Executive Dashboard

 

 

If you’re a CIO, you are going to want to set your overall IT objectives in alignment with corporate strategy and changing business plans. To do this aligning spending, resources and optimization projects with business objectives becomes critical.

 

While the Executive Scorecard product is a great tool to help you monitor and continue to realize value from your IT investments you want to ensure you are focusing on what matter most to the organization. Practically, you want to get to the right actionable metrics with these guiding principles:

  1. Connect Metrics with Strategy – Understand your business, distill the value drivers and apply the right measures to those. Remember, metrics are subjective, concentrate on the overall goals of the organization to properly leverage.
  2. Avoid the Out-of-the-Box Metrics – These are context-less and may indirectly apply to your business but without fully understanding why you want to measure these you may find yourself not being as effective as you could be reacting to those metrics.
  3. Don’t Forget about the Intangibles  - Often referred to as “soft” metrics. These are important to understand as it is universally accepted that most of the macro tangible goals are realized through intangibles like organizational knowledge, culture or innovation.
  4. Actionable Metrics – Measure what matters to the organization. Once you have understood the goals and objectives in your strategy connect actionable and obtainable metrics to them.
  5. Keep Metrics Evergreen – Companies are like organisms, they evolve. Keep an eye out for those shifts in your company’s strategy. What you are measuring today may not matter tomorrow. 

 

More Information

 

 

Comments
MylesS | ‎05-29-2013 07:28 PM

Nice post. I would have loved to have seen the business model canvas. With this said, I think it is always important to start with business strategy and resultant IT goals as a mechansim to inform you of what is important. I agree that many times this will result in either unique metrics and KPIs or changing KPI goal levels.

mikejwalker | ‎05-29-2013 07:47 PM

Hi Myles,

Great feedback and yes I agree. I'm surprised I didn't have my standard disclaimer on this one. That was a miss on my side. 

 

The Business Model Canvas on addresses "What" your business is not "Why" it is doing it. The "Why" comes directly from strategy.

 

The first guiding principle that I should of elaborated on more, "Connect Metrics with Strategy – Understand your business, distill the value drivers and apply the right measures to those. Remember, metrics are subjective, concentrate on the overall goals of the organization to properly leverage." touches on this a little bit.

 

Always start with the strategy to guide the organization on what is important. This will rationalize into what it is and then into how it will achieve its goals and objectives.

 

Thanks again Myles!

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