Measure for Measure

By Nancy Lee Hutchin

Thinking you're managing a business smartly just isn't enough anymore. You need to know how well, or you can't make any real qualitative improvements. In the words of the late Phil Bernard, President and CEO of B-K Dynamics Inc.: "How do you know you're doing well, if you don't define up front what doing well means?" Welcome to the challenging world of performance metrics.

The sum and substance of management is coordinating and directing a group of individuals onward and upward. How the group is formed, the direction established, incentives developed, and progress achieved and measured form the core of the managerial process. That's why Scott Sink and Thomas Tuttle (Planning and Measurement in Your Organization of the Future, 1989) wrote, "The essence of management is that one cannot manage that which one cannot measure." Scott Adams, et. al., in an outstanding article ("The Development of Strategic Performance Metrics", Engineering Management Journal, Vol.7, No. 1, March, 1995) points out a list of "shoulds" for performance metrics:

  • They should be derived from strategy.
  • They should be developed for activities and business processes.
  • They should be dynamic, keeping pace with changes in strategies, processes, and the competitive environment.
  • They should be developed with a team approach.

Qualitative vs. Quantitative
For most of us, quantitative metrics are wonderful in their simplicity (how many Harley-Davidsons rolled off the line?), their clarity (how many Harleys were shipped back from dealers for quality problems?), their gritty connection to the bottom line (how much are we charging for a Harley and what is our profit per unit?) But when we approach qualitative metrics, most of us roll our eyes, despairing at ever finding an adequate measurement system to succinctly present to executives.

Sticking with Harley-Davidson, how can we measure its value to U.S. industry as the sole producer of heavyweight motorcycles? What is Harley's value to the image of U.S. products as the most recognized label in the world (right up there with Coca-Cola)?

When we come to qualitative, human-based metrics, we find a dearth of publications, a lack of good systems for measuring and a paucity of decent examples.

The best starting point for a robust and visual metric system that I've found to date comes from Advanced Management Catalyst, Inc. of Wiscasset, Maine. Dan Thompson, president, and Michael Kelly, chairman and vice president for research and development, have spent the last few years refining an approach that incorporates the agility principles they champion:

  • The system can be used for any size organization, from nations to individuals.
  • The system incorporates comparison to benchmarks or best-of-breed.
  • The system can be defined to the specific vision of the measured organization.
  • The system quickly and visually portrays progress over time, prime constraints, and overall health.
A polar or "spider web" chart is used to describe the relative achievement in one of six areas. The greater the area that is covered, the more successfully the organization is accomplishing its goals of moving towards the self-imposed standards of performance. Over time, a comparison can be made of changes in the spider web chart which will indicate very specifically and viscerally where the organization is making significant progress and where it might be backsliding.

The figure below represents the state of the U.S. shipbuilding industry, as evaluated by AMCi in 1995. The points on the chart represent ratios derived from the value between 0 and 1.0 given to the industry in comparison to a defined industry best-of-breed. Agility, for instance, was the cost for one ship versus a series of ships, with a benchmark of .7, U.S performance of .5, and a ratio of .71.

Recommended Measures
AMCi developed polar arms for the chart that pairs focused central tendencies with an opposite arm that represents the range of that tendency:

  • Synergy - Freedom
  • Value - Diversity
  • Agility - Stability
Thompson and Kelly's work in the area of agility has been published in ER, as well as other publications, and has lead to development of measures mirroring that philosophy. However, this approach would work equally well if the organization were to develop its own set of qualitative measures. For instance, USAA in San Antonio began an employee mentor program for youths several years ago because of the president's sense of commitment to the community. Charitable service to community could be integrated into the measurement system, based upon the organization's vision.

The system's strength is not only the capturing of qualitative metrics in a visual, time-reflecting way, but its flexibility to display the particular values which are deemed most important for the organization. It also avoids all-out polarization of these values: Both agility and stability can be regarded as a virtue, based upon the competitive market and the strategic vision.

(For other information on this metric system, contact ACMCi at (207) 882-8093 or write AMCi, P.O. Box 356, Wiscasset, Maine 04578.)

Nancy Lee Hutchin is staff consultant of enterprise engineering at Intergraph. She may be reached in Reston, Va., at (703) 264-5732 or via E-mail at nlhutchi@ingr.com.
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