Improving corporate performance measures to drive results.

• Author: Miller, Jack
• Position: Measurement

When the Royal Dutch/Shell Group announced its plans some years ago to sink an oil platform in the North Atlantic, the oil conglomerate was vilified as an environmental scofflaw. Chastened by the public black eye, it set about rebuilding trust in its corporate behavior. A new model of performance measurement was needed -- one that looked beyond its financials.

Shell responded by setting standards for measuring environmental, social and economic factors, such as greenhouse gas emissions, and obtained independent verification for the reports. By applying non-traditional measurement methods and backing them with external audit approval, Shell moved to recapture public trust and positioned itself to better gauge future performance.

Like Shell, corporate board members need, besides traditional financial data, new and reliable measures that address future performance. And they need immediate response tools to help quickly cut through the welter of information to judge what is most valuable for making decisions.

Traditional measurement, centering on time-tested performance areas, tends to address financial, operational or functional efficiency. Such historical measurement systems may be suitable for maintaining business as usual -- managing daily activities and tallying past-performance figures for accounting and other purposes. In general, these measures are plentiful, exact, internally driven, quantitative and generated from operational accounting and information systems, but they are too slow to handle the increasingly complex task of guiding organizations in a quick-moving marketplace. They also usually present historical or "lagging" indicators of a company's health.

Organizations need to view performance measurement as a strategic activity, critical to attaining results, not just measuring them. This means understanding what should be measured, in lieu of what is being measured.

Needed: More Dependable Data

Accounting and tax firm KPMG LLP interviewed Fortune 1000 and premier public-sector executives from the U.S. and Europe to determine why and how existing business practices undermine measurement's impact on strategic implementation. The findings, included in a report, Achieving Measurable Performance Improvement in a Changing World: The Search for New Insights, support the idea that corporate and government leaders lack dependable information, and point to necessary improvements in providing the information needed to make strategic...