Collecting more data but gaining less insight.

• Author: Axson, David A.J.
• Position: Business information in decision-making

How to improve performance measures to make better decisions faster - without the guesswork

The way you gain advantage today is not necessarily through enhancing your product quality, pricing or marketing, because all of your competitors will simply follow suit. You own the winning hand if you can make better decisions more rapidly.

But how do you shorten the mean time to make a decision? Your alternatives center around your people and the information they have to work with that is, how you make decisions. That's why leading-edge companies are betting on a more effective performance-measurement and planning process designed to help managers make decisions quicker and better.

For example, Sprint Corporation uses data from its call record systems to identify very quickly whether a promotion is generating increased call volume from the desired sources. If it's not, the company can pull the promotion and redirect the dollars elsewhere. If it is, Sprint can increase the intensity of the promotion.

Unfortunately, today many companies couldn't answer such a question in a timely manner - or tell you which of their products make money, how many customers buy more than one of their products or why customers leave them and go to competitors. Sadly, for all of its sizable investments in technology, management simply has more data, not necessarily better information. What's lacking is a focus on what information is important to make various types of decisions.

To get the information you require to make quicker and better decisions, you must have a more effective performance-measurement and planning process. Sprint is nimble in its decision-making because its finance organization led the design and development of a new decision-support capability that explicitly matches the right analytical tools to each business decision.

Sprint and other companies that are leading the way in this new endeavor are embracing a framework that has three elements: defining a focused set of performance measures, linking measures and decision-making, and delivering the right information to decision-makers at the right time.

Why You Make Money

To pave the way to better and faster decisions, companies are defining performance measures in their business, and these measures have several key characteristics: They are few in number, and they focus directly on achieving the company's strategy, whether that be growing revenue, increasing profitability, satisfying customers, being innovative or keeping employees happy.

But these performance measures may not be what you'd expect. While the traditional view is to measure the results of the business - revenue earned, profit made, expenses incurred - these clear-thinking companies are striving to understand what drives revenue, profit and expenses. They study leading indicators and predictive measures as well as lagging indicators and traditional metrics, seeking to understand the financial results of operational actions.

The first step in determining appropriate performance measures is to understand what causes you to make money or causes your customer to buy your products or services. You don't start by looking at the current balance sheet, P&L statement or financial reports. You do start by asking what makes your product superior to your competitors'. Is it better price or quality? Your distribution, service or another factor? This permits you to understand the drivers of success for your company. Then you determine how to measure those drivers, selecting the best leading and lagging indicators.

JD Edwards & Company, a leading publisher of enterprise resource planning software, recently developed a new process for establishing performance measures and is rolling it out over the next two years along with a new tactical planning effort. Determining performance measures starts with JD Edwards'...