Metrics to Measure and Drive Performance – June 2014

This topic involves strategy.

A key element of success in an organization is its human capital.  Many organizations view human capital as equally important to the company’s products and services.  A large number of CFO’s believe sub-par human capital has kept their firms from reaching important financial targets and have hindered innovation.  In turn, these factors can cause a firm to inaccurately forecast demand;  prevent a firm from effectively expanding its markets; or maintain competitiveness in the marketplace.

Accordingly, one can argue that human capital must be managed as rigorously as financial capital.  Many companies fall short of their potential because they lack thorough, relevant information about their people to support effective strategy, hiring, and training decisions.  Furthermore, they encounter difficulty in measuring the cost of their talent.  Thus the need to develop and capture accurate data and metrics regarding the costs, productivity, and ROI of human capital.

Efforts to accomplish this are complex and often unique to a particular company.  The one common element in such efforts entails developing metrics that focus on the outcomes of business  processes rather than administrative goals.  These metrics are driven by the business dynamics of a particular company and involve measures such as time for a new product idea to come to market; error rate of a given process; repeat business from key customers; or speed of compilation of information for executive management.  Timely receipt of accurate metrics will enable the appropriate people to take corrective action.

There are many metrics for just about any process in a business.  The critical elements for determining the appropriate metric include: listening to customers; measurability; sustainability; and openness to refinement over time.  These metrics wil allow management to measure and evaluate the outcome of a given process, and the effectiveness of personnel in determining that outcome.

Once a metric is developed, it must be consistently applied and have affected employee “buy-in” as to its validity, and thus provide a platform to drive business performance.

For additional information on this topic, please follow the link: http://www.journalofaccountancy.com/Issues/2012/Nov/20126316.htm

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