Imagine if you had a single performance index for your business or organisation or department or process, you could immediately know where you’re heading, and what to do about it.
Hmmm. Sounds a bit too much like a crystal ball, the kind that a dark-haired, hoop-earinged russian gypsy would gaze into and see your future. Yet so many people love the idea of the performance measurement equivalent to the crystal ball – the performance index.
What is a performance index?
When you take a raft of KPIs and mathematically combine them into a single figure, you’ve got yourself a performance index.
This raft of performance metrics might be a collection of customer survey questions that get rolled up into a pseudo “overall satisfaction” index. Or perhaps a department’s or business group’s entire suite of performance metrics, cleverly combined into a “current status” indicator.
Sometimes some extra magic is woven into the performance index, in the form of weightings that are given to each performance ratio involved, with the intent of allowing the more important measures (or sometimes the better-performing measures) to have more influence in how the overall index looks.
Why do you want to have a performance index?
Too many performance measures to review and analyse is one of the most popular reasons behind the pleas for a performance index. “I don’t have time for all these measures! But I don’t want to miss out on anything either!”
The performance index is often just some ointment applied to treat symptoms of a deeper problem that many don’t realise can be solved directly.
If you have too many measures, then perhaps you’re not sharing them around enough among your colleagues, or perhaps your measures aren’t displayed in a way that makes for fast and easy and accurate interpretation at a glance. Perhaps you’re measuring things that you just don’t need to give your attention to?
What price will you pay for a performance index?
The trends of each of the underlying performance metrics in your performance index cancel each other out. For example, if cycle time is improving and customer satisfaction is declining, the net effect of these two measures on your performance index is highly diluted. But these are two very important signals for you to see and respond to, that the performance index is hiding from you!
And even if most of the underlying performance measures did lean the same way, and your performance index thus showed some kind of signal itself, what would you do next? You’d probably ask “why?” and then go searching for the answer. And how do you find the answer? You have to detangle the performance measures from the index to find causes. The performance index is just giving you extra work, not saving you any.
Should you use a performance index?
In a word, no.
Avoid using a performance index as your first solution to a performance measure overload problem. Much better for the performance of your business or organisation will be your taking time to ensure that you’re only measuring the things that matter most, that you’re able to quickly and easily and accurately detect the signals in your performance measures, and that you’ve got readily available information to make cause analysis a natural part of using your performance measures.
Remember that performance measurement is about valuable feedback to inform your future choices and actions toward improving the performance of your business or organisation. Most performance indexes don’t have the power to do this.
ABOUT THE AUTHOR
Stacey Barr is a specialist in organisational performance measurement, helping corporate planners, business analysts and performance measurement officers confidently facilitate their organisation to create and use meaningful performance measures with lots of buy-in. Sign up for Stacey’s free email tips at www.staceybarr.com/202tipsKPI.html and receive a complimentary copy of her renowned e-book “202 Tips for Performance Measurement”.
Although I agree with your concerns, Stacey, I do not think that they necessarily outweigh the benefits of using indices. I also think that if they are used appropriately, they will eliminate or at least mitigate some of the downsides that you mention.
You mention Customer Satisfaction and Cycle Time. I do not think they would belong in the same index. However, I could certainly see Customer Satisfaction being measured using an index. What one single metric can appropriately measure Customer Satisfaction? Is it a survey? Do we count repeat purchases? Do we measure tenure as a customer? I would suggest that we would need metrics for each of these and perhaps a few more to create a balanced view of Customer Satisfaction.
Thanks for all of your thought provoking writing on this important subject.
I think one single metric that can appropriately measure Customer Satisfaction is an average customer satisfaction rating, where in a survey you ask customers overall how satisfied they are with the service provided by the company, and they rate their satisfaction on a scale of 1 to 10 (say).
Repeat purchases, on the other hand, would be measured by things like % customers making more than one purchase, or average number of purchases per customer per year. The thing to be clear about is the results to do with customer relationships that you’re trying to measure. And each result will often have 1 or 2 measures for it. This is fine.
For example, this is the approach I take in some of the products I have around how to measure specific areas of performance, like website performance, or customer relationships, or marketing. (For more info, see http://www.staceybarr.com/measuresforcustomers.html)
This isn’t an index in the sense that I mean in the article. I don’t like indices that are weighted computations of several performance measures.