Mini Case Study 4

Metrics

Print

For managers to effectively carry out their management functions, they need to set and monitor objectives. Well-defined objectives tell the organization's people what they should achieve, and by measuring the achievement of objectives, managers can determine whether changes are needed.  

To be useful, objectives must be measurable. A contracted manufacturer, for example, can know whether it is meeting the objective of no more than one defect per 10,000 parts made. In contrast, "maintain high quality" is vague; it can't be measured objectively. A measurable performance objective is often called a metric (Cheng, 2014; Dykes, 2010; Magalhães, 2014). When describing a metric, we refer to the units of measure, such as defects per 10,000 parts, profit margin, or percent of customers who would recommend the company to a friend. 

Other terms for metrics are performance metrics and performance indicators. When managers use metrics to evaluate how well someone is performing a job, they may call the metrics accountability measures because that person is accountable for achieving the specified results. 

Measurability alone does not ensure that a metric is related to the organization's success. For example, a manager could perfectly measure the number of hours each salesperson spends on the telephone yet learn nothing about what contributes to revenue growth. Recognizing this, many organizations establish and monitor key performance indicators (KPIs)—performance metrics that contribute to achievement of an organization's overall strategic objectives (Magalhães, 2014; Kestrel Management, 2016). For a business, KPIs support profitability and long-term value creation. For a nonprofit organization or government agency, KPIs support success in carrying out its mission. 

Metrics and Organizational Success 

If an organization's managers have chosen metrics that drive strategic success, measuring activity in terms of those metrics will give the managers objective information about whether the organization is accomplishing what matters (Balanced Scorecard Institute, 2016). Likewise, when managers focus on the KPIs when leading and evaluating employees, they make it likely that everyone will be directing the most energy and attention to the activities that contribute to success. According to management experts Kaplan and Norton (1992, p. 71–79), "What you measure is what you get." 

Indeed, there is evidence that in organizations using KPIs, performance is stronger. A telecommunications company improved its growth by getting objectives and managers' incentive pay aligned on KPIs that drive customer experiences (Bhattacharjee, Müller, & Roggenhofer, 2016). Mintz and Currim (2013) found an association between the use of financial metrics and successful performance of marketing mixes. 

Any given manager and team should have only a few KPIs to focus on. A reasonable number would be four to ten KPIs (Yarwood, 2015). Each team should know its KPIs and how each is linked to achieving broader objectives. If a team has too many metrics, they probably are not all key performance indicators, and it may be hard for the manager to unify the team in an understanding of what they are trying to achieve.