Quality Management System Guideline Document SFO BSC Implementation: Measures and Targets
Guidelines for Defining Measures and Targets A Measure is the means by which performance against an objective is monitored. Building a BSC demands that organizations possess a flexible and creative mindset when developing measures. They must recognize that: A. Measures drive the behavior changes demanded by the strategy. They will cause people to act differently, processes to improve, and new investments to be made. B. Measures enable executive-level discussion about progress and help answer the question “Are we on the right track?” Good measures enable us to ask better questions, rather than give neat answers. C. Measures are tools we use to create a climate for action and to support robust strategic dialogue. Successful organizations understand this and have no fear about experimenting with measures, imperfections and all. In other words, we may come up with some measures today that in a few months may be deemed inefficient or requires modification. This is an acceptable and expected occurrence. Selecting measures can seem very difficult at first but with an open and flexible mindset, a willingness to experiment, and comfort with a certain degree of ambiguity, our scorecards will quickly become integral to our organization’s success. A.
Steps to Identifying Measures
Step 1: Identify Measures With our strategic objectives clearly defined, we have established the scope and boundaries of what needs to be measured. We have homed in on how each objective contributes to executing the strategy and now we are ready to brainstorm potential measures and targets. There are generally between two and five possible measures for every objective on a strategy map. For each objective, the team should review the following:
What behavioral change does each objective demand? What improvements are required (e.g. faster, slower, more accurate, improved numbers, etc.)? What will the team need to discuss regarding each objective?
Best practices dictate that with the four BSC perspectives, a team can expect anywhere from 30 to 50 potential measures on a standard strategy map. IMG has nine objectives on our map and at an average of 3 measures per objective we can expect to have up to 27 measures. Step 2: Filter and Select Measures Once the measures have been identified, the team must streamline the list of potential measures to ensure only the best ones remain. To streamline the list, the team filters every potential measure using the following criteria:
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Quality Management System Guideline Document SFO BSC Implementation: Measures and Targets
Will the measure help decision makers understand strategic performance and communicate results to employees? Is the measure quantifiable and repeatable? Can the measure be updated frequently enough to be meaningful, such as on a monthly or quarterly basis? Can quantifiable improvement targets be established? Does the measure encourage and codify accountability?
B. Identifying Targets for Each Measure A Target is the level of performance or rate of improvement required in order to meet the objective. It is the quantitative representation of the performance measure at some point in the future (i.e., our desired future level of performance). The word “future” is key to the notion of targets. When developing targets, we can choose to evaluate performance against a goal just for this month, quarter, or year, or we could develop an even longer term objective requiring additional effort and performance. Types of Targets: Long Term Targets: Big Hairy Audacious Goals (BHAG) BHAG’s dramatically shake up an organization by throwing at it a monumental challenge that cannot be achieved through business-as-usual operations, but will instead require tremendous effort. Long term targets as evidenced by their dramatic challenges, are necessarily long-term goals with a clear and compelling finish line toward which all energies can be focused. The long time frame serves 2 purposes: o A worthy BHAG is unlikely to be met in a year or two. The extreme challenge it represents will take many years to conquer. o An extended time horizon ensures that management does not sacrifice long-term results for the sake of achieving short-term goal. Example of Long-Term Target: From Citibank’s strategy map: Objective: Increase customer base Measure: Number of new customers Target: 1 Billion customers worldwide
Midrange Targets: Stretch Goals Whereas BHAGs reach out and grab the entire organization, serving as a unifying focal point for one immense goal, stretch targets normally apply to a wider variety of activities. Essentially, we are taking the BHAGs and breaking them down into its component parts. For example, becoming number 1 or number 2 in every market GE serves requires specific targets to be met in every phase of the business. That’s where stretch targets come into play. Stretch targets are set 3 to 5 years in the future and while they are not quite as dramatic or outrageous as BHAGs, they do represent discontinuous operations.
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Quality Management System Guideline Document SFO BSC Implementation: Measures and Targets
Examples of Stretch Targets: Moving customer loyalty from 40% to 70% over a 3-year period Doubling stock price over a 3 year period
Short Term: Incremental Targets We all know that a journey of a 1,000 miles begins with a single step. So it is with the incremental performance target. These goals are normally established on an annual basis for each of the measures appearing on the Scorecards. They provide a quantitative goal for our measures and allow us to gauge our progress toward stretch goals or BHAGs if established. Examples of Short-Term Targets: 10% Increase in profitability for 2007 5% Decrease in Contract Cancellations for 2007
Do we need all three types of targets? All three targets can work together to shape an organization’s future. BHAG’s can set desired longrange future vision, which is then decomposed into a number of stretch goals. Feedback on the attainment of stretch goals is received by analyzing performance results in the short term targets. However, we do not need to identify all three types for every single objective. For example: Strategic Objective: Measure: Baseline: Long-Term Target: Midrange Target: Short-Term Target:
Increase customer base Number of new customers 1 million customers company-wide Double customer base in 3 years 50% increase in customer base in each business unit/year 25 new customers per salesperson per year
Items to consider when identifying targets:
Targets may require organizational support. The type of initiative developed in order to reach the target will determine the level of support required of the organization. Make the targets or goals realistic. Targets must be firmly rooted in reality to be accepted and attainable. Targets must be able to withstand scrutiny and reproach. All targets can and should be subjected to a rigorous review process to ensure that the numbers suggested are actually meaningful targets that represent significant effort to achieve. Rather than accepting targets at face value, we must challenge the target setters, questioning their assumptions, generating alternatives, and generally determining that the target is the result of careful analysis and not meticulous game playing.
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Quality Management System Guideline Document SFO BSC Implementation: Measures and Targets
Please take a look at the example below on how measures and targets are identified
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