In my last two posts (CPM: What to Measure and Implementing CPM), I tried to define what I see as the broad components of Corporate Performance Management (CPM) and some thoughts on what to measure. It wouldn't hurt to go back and briefly review those posts before continuing on.  I thought for this post, since we know how measurement fits into the overall management process and what is good to measure, I would cover some common characteristics of good measurement practices.

I think that good measurement practices can be grouped under the following categories:

• Regular and comparable
• Comprehensive & Concise
• Adaptive
• Focused
• All measurement and internal communication needs to be consistent
• What gets measured must get linked to compensation
•  Predictive rather than historical

I know that some of these items are common sense, but give me a few moments and lets drill into each of them and see if we can identify some things where we can all improve our measurement practices.

Regular and Comparable:  A good measurement system is one that produces results on a regular basis and one that provides a basis for comparison.  The term "regular" means different things to different businesses. Mining or big construction companies might not measure as often as a chain of retail stores where daily sales reporting (or even more often) is critical. Also, some of your reporting might need to be segmented as to timing. Sales might be daily or weekly, financials monthly and customer satisfaction quarterly. Pick the right periods and stick with it. Comparable means providing budget, or prior year or "targets" as well as actual results in order to provide some context to the numbers. I would also suggest that providing trailing 12 months info (instead of the more common YTD) is more useful for spotting trends, esp. negative ones. Graphs of trailing 12 month data laid on top of the previous trailing 12 is something I find especially helpful.

Comprehensive and Concise: If you look these words up in the dictionary, you will see that they are nearly antonyms of each other, but I think that good reporting has to meet both of these criteria to be effective. You have to provide a comprehensive view of the entire business, while at the same time providing it concisely enough that people who review the data will actually take the time to read the data.  Comprehensive means covering the P&L, revenues, segments, customer satisfaction, trends, budgets, etc. etc. etc. and concise means getting it down to something that can be digested in a short period of time. To some this means a "one pager", but for you it could be less than that, or it could be much longer. The answer to this in part rests with the attention span of your executive team. Also, it provides an opportunity to provide a "drill down" so that you can present the "concise" part on one page and then let people drill down into details of individual areas.  There is no one right answer here. I would only suggest that you ask yourself if your current reporting meets these two criteria and, if not, work toward improving it.

Adaptive: Our businesses are changing every day. Reporting needs to change with it. Changing your reporting is time-consuming and expensive. I guess the first point is that it can be worth investing in robust systems that allow for and even expect changes to your reporting so that each change doesn't have to be a big IT project. The more important point is that you have to change your reporting on a regular basis to keep it fresh, responsive and in line with changing business priorities. If midyear, you do an acquisition, or start a new line of business or change business priorities, do you change your reporting or do you just ‘wait till next year'. I would suggest that if you change it now, you will get off to a faster business start than if you wait. Even without business model changes, you should do a review of your reporting at least once a year to make sure you are measuring the right things. This takes time, but its critical.

Focused: As you are all aware (and as I discussed in my last column), what gets measured, gets done. Make sure your measurement systems are focused on whatever is important to your business and keep a close eye on it to make sure it doesn't result in unintended consequences. What are the 5 most important things that your business wants to accomplish this year?  Are you measuring these 5 things on the first page of your reporting package? If not, it is time to start from scratch on your reporting package.

Consistency in all reporting and communications: A common issue for me has been to keep consistency between our financial reporting and our compensation and our internal communications. That isn't to say that everything has to be the same among all three or that they need to have the same level of detail. But whatever is "most important" for your company should be included in all these views. I used one of our Dynamics partners in my last post as an example. They were starting a new CRM practice in their firm and they intended for that to be an important growth area for them in the future even though it was currently not material. So I asked him if his internal reporting had a section focused on CRM or if his compensation had been tweaked to encourage sales guys to sell CRM or if their last "all hands meeting" commented on the CRM business. When he replied "No" to all three questions, I had to wonder if they really considered CRM to be important to their future.

Links to Compensation: This is a corollary of the two previous points. If it is important enough to measure, it is likely important enough to be considered in overall compensation for someone in the company (and vice versa). I used to be naïve and believe that everyone was out for the greater good of the company (and no, I was never a communist.)  But I got over that a long time ago. If something is important to your company, measure it and compensate somebody for getting it right. Then it will get done. If it is not important, then don't measure it and don't compensate for it because otherwise this will get done too and waste precious resources that could have been re-focused somewhere else.

Predictive measurements: I saved the hardest one for last. If you are like me, you have many measures of "what you did", but not very many measures of "what you are going to do". Whenever possible, try and find measures that indicate the future health of your business.  We have a tendency to measure how we have done with such things as revenue, profit margins, etc.  But days sales in receivables or product pipeline or customer satisfaction or contract renewal rates might be leading indicators of good and bad things going forward. When these turn negative, you need to get someone focused on getting them fixed before they become problems. I am very interested in getting feedback from my readers (if there are any) about how they try and make their measurements more predictive and less of a history lesson.

This is now my third major post. Let me know what you think and where you would like to go next.

Craig Bruya
Chief Financial Officer of Microsoft Business Solutions