Metrics that Matter: Adding Strategic Metrics
By Ed Carroll, Online Business Systems
While compliance-oriented metrics are important to help stay on track, it is also important to use metrics to not only show strategic value, but also to help guide the future of the business. As companies seeks to adapt and grow within rapidly changing conditions, information available from the IT organization can provide significant business advantage and help make IT a better strategic partner.
On October 31st, 2007, a panel discussed the hierarchy of metrics needed for business success – not only efficiency and effectiveness metrics for particular projects, functions and capabilities, but more importantly metrics that demonstrate strategic value of information technology to the business framework and metrics that can guide the adaptive and opportunistic planning of the company's leadership.
Moderator:
Russ Sprunger, VP sales & marketing, EasyStreet Online Services
Panelists:
Rich Bader, CEO, EasyStreet Online Services, Inc.
Jon Marshall, president, Innovation Frameworks, LLC
Maridana (Mike) Fitzgerald, business unit general manager, Accessories Div., Tekronix
To download the combined power point presentation, please click here.
Metric toward strategic leadership
The perspective of this panel was that IT leadership needs to participate with the rest of corporate leadership at the strategic level – and some of the tools to do so are the metrics that come out of IT.
John Marshall, president of Innovation Frameworks gave the first presentation, an introduction to the metric pyramid. He explained that the usual metrics of plan vs. actual and project cost, schedule and functionality were basic-level metrics.
The second level, which he described as demonstrating value to the business, were macro-level statistics such as total percentage of projects completed on time. Then he defined the high water mark of strategic metric gathering – those metrics that matter to the strategic leaders of the organization. Providing metrics at the strategic level to the organization leadership provides the quantitative stuff for understanding if real strategic growth is happening.
Marshall made a point that qualitative metrics can sometimes be more valuable in identifying where an organization is heading. He also labelled quantitative metrics as lagging metrics; meaning that they only tell where you have been. This received a contrary comment from Rich Bader, CEO, EasyStreet, also on the panel. Bader’s view was that quantitative financial data can be a leading indicator if the question being pursued is framed the right way.
Another point from Marshall was that in order for metrics to be strategic, they must roll up from the ground levels below. He made three points out of this one idea through a story of when he led a large group at Tektronix. First, he insisted that higher level metrics would always reflect the worst metric in the rollup. In this way, a bad metric was never hidden at a higher level. This may sound draconian, but I believe the idea is that if the item is important enough to measure, then it probably also has impact beyond the group. Marshall’s plan is to reflect that broader impact of a lower level problem. For example, a delayed project would have a negative affect on a project schedule metric, but it also probably affects other plans beyond the immediate project. The second point of his story was to illustrate the importance of setting the bar high in order to stimulate growth. No one reaches for the stars, if told to only hit the moon. And the third point was to reflect how each subgroup’s metrics were a reflection of the group at large. “It was not acceptable for one group to say they were ok, while another group was having trouble,” he said.
The balanced score card
Rich Bader, CEO of EasyStreet, utilized the concept of the balanced score card to demonstrate his ideas. Bader identified four key areas to measure: financial, partnership, processes, and learning. He described financial as representing the strategic level in that it measures the business value the organization contributes. In other words, “Are you helping revenue to grow?” he said. He made a point that this is as critical for an internal IT operation, as it is for his outsourced IT business. Bader described partnership as measuring the satisfaction of your internal customers. Processes were the basic stuff, and he spent no time on that area. Learning, Bader described as representing the value of/to the team itself. Learning then is a representation of the growth of the team; are they learning.
A key point from Bader was that measuring the real strategic value of IT is hard. Then he told the story of an employee who requested the purchase of a new $20,000 router. This is probably a pretty routine purchase for EasyStreet, having many routers in its data center operation. However, Bader stopped the employee in his tracks when he asked him, “How am I going to make money on that new router?” He described the employee’s confounded expression as he returned to his cubical while shaking his head and muttering something like, “it’s only a @#$% router.” Then he explained how they came up with the idea of measuring the increased throughput the new router provided, which was presumably used in marketing material or presented as reasonable justification to increase cost to the client who benefited from the increase.
Bader also presented a “roadmap to reliability.” The roadmap lays out nine quadrants which I felt would be helpful in making cost/benefit trade-offs on whether a new item or change in process will provide sufficient return on investment to drive the operation toward the absolute best reliability. Sometimes, the cost of the absolute best is too high.
Bader’s last point was that for an IT operation like his, the starting point is trust. Forget all of the self-serving stuff. If trust is not the first fundamental, the rest is fluff.
Driving profitable growth
Ms. Mike Fitzgerald, general manager of Tektronix’ accessories division, presented a view of a product development organization that is intricately linked with IT. She explained that there was a time when IT felt that its primary job was to keep the Enterprise Oracle applications running. An important transitional step was to move a senior IT member onto the business staff. This was done to foster trust between the organizations. IT needed to be a partner so that products were delivered with their full support, and incorporating their ideas and input.
Fitzgerald gave the example that at one point in time, 50% of Tek’s tier-one products launched late – representing a significant lost opportunity to revenue, as well as missed targets. In the analysis, it was discovered that significant resources were assigned late to each of these product launch efforts. The root cause was blamed on the fact that no one had integrated resource plans, and each product development program was dependent upon everyone else completing on schedule, yielding resources for the next program. When one schedule was overly optimistic, when there was one slip, the dominos fell. This is where the partnership with IT was validated. Collectively, they created a web-based tool that enabled resource negotiations – demand and supply. This seemingly simply tool saved months of plan reconciliation by revealing the lumps and valleys of product resource loading.
One outstanding result of the new tool was that Fitzgerald’s gut feeling that they were understaffed in QA was validated very graphically. The tool proved that QA was over committed by 150%, a realization that broke the logjam toward hiring new QA engineers. Now, Fitzgerald says there is significantly greater confidence in revenue projection plans.
Conclusion
Some key ideas came from this CIO Forum panel discussion, even though none of the panellist were CIOs (one consulting practice president, one IT business CEO, and one large division general manager). Chief among these was the idea that measuring metrics with the goal of bringing IT into the strategic thinking levels is not about the tools, rather it is about the people. Metrics do not make IT strategic, but IT people using metrics to give them the data they need to be effective at the strategic level provides real value to the business.
About the author
Ed Carroll directs sales and marketing for Online Business Systems. His career has spanned sales, marketing, and development of software products and services for more than 25 years, with particular expertise in automating economic optimization, business intelligence and supply-chain management processes. He has provided strategic technology leadership in roles such as the vice president of engineering for Egghead.com, director of technology at Nike and director of software engineering at Boeing. He can be reached at ecarroll@obsglobal.com
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