Confronting Metric Confusion

How CIOs successfully bridge business and technology to build a well-balanced performance management system

Not long ago, the CIO focused almost exclusively on functionality and architecture. Back then, CIOs weren’t necessarily considered true C-level members, and their divisions were viewed as cost centers. Today, the CIO is increasingly seen as a catalyst who helps the enterprise focus on business outcomes. The CIO does this by breaking through functional silos, working across departments and bringing performance management initiatives to the enterprise.

This article, written by BusinessWeek Research Services in partnership with SAS, discusses the fundamental role CIOs play in bridging business and technology to build a well-balanced performance management system. One of the authors of this report, Chris Rogers, moderated a panel on performance management at The Premier Business Leadership Series in Las Vegas in 2007. One of his panelists was Stage Stores CIO Jeff Kish, who explained the changing role of CIOs: “The role of the CIO has evolved. There was a time when the CIO was seen as a technocrat, and today those aren’t the successful CIOs. You really need a blend of being part of the business as well as understanding how systems and technology can help drive that business to profitable success.”

Read on about how CIOs are driving business success with performance management.   

In addition, although CIOs of the past tended to be strictly technical in nature, today’s CIOs tend to describe their roles as a balanced blend of both technology and business strategy (rather than pure technology). It’s this combination that can allow CIOs to significantly assist in solving the metric problem within the C-suite. And better metrics can lead to better PM, which can translate to better overall corporate performance. However, CIOs often have to work quickly to resolve this confusion; a recent survey by CIO Insight shows that the average CIO lasts only 5.7 years before moving on to a different corporation.

These are some of the findings of a new research study conducted by BusinessWeek Research Services and SAS. This study was conducted among a total sample of 317 CEOs, CFOs, CIOs, CMOs and COOs within large and midsize companies. In addition to exploring current perceptions, the study also sheds light on some PM best practices that CIOs can use to communicate with the other members of the C-suite and improve their corporate performance. It may be time for CIOs to take a second look at PM.

Finding common ground in the C-suite
The search for the best KPIs is most effective when a sense of agreement is achieved within the C-suite, and CIOs are well-positioned to create this kind of consensus. First, CIOs are well-rounded because they are traditionally rooted in technology and continue to become more immersed in business issues. In fact, the results of BusinessWeek Research Services’ yearly C-Team study points out that almost half of CIOs describe their positions as a balance between technology and business. Chris Rogers, Director of BusinessWeek Research Services, confirms that CIOs are becoming more business minded for a number of reasons: “CIOs have had to adapt. For example, over the last few years, CIOs have increased their understanding of financial and accounting issues in order to help the CFO with compliance. In addition, since technology now plays such a crucial role in customer services, sales and marketing, CIOs need to think like business people so that the technologies they recommend and implement will meet their organizations’ needs.”

Secondly, CIOs don’t tend to be preferential to IT departments. Instead, CIOs often have a broad business perspective, recognizing that other departments (such as marketing, sales, operations and corporate strategy) all play equal roles in achieving corporate strategic goals. In addition, CIOs bring a high level of analytical skills to the table. This allows them to evaluate their organizations’ current metrics and also implement systems to both develop and track any new metrics that the C-suite decides to pursue.

Also, CIOs can bridge differences in the C-suite by drawing on the commonalities that they share with each individual member of the C-suite. For example, the CIO and CFO both like to measure organizational effectiveness; the CIO and CMO both like to invest in developing new products and services; the CIO and COO both strongly believe that their organizations should invest more resources to improve workflow and business processes; and the CIO and CEO are the biggest advocates of innovation. Study results also show that, just like the rest of the C-suite, CIOs tend to favor balanced, smart growth instead of growth that favors either the top line or the bottom line. In short, CIOs can leverage the common ground that they share in order to mediate decisions on the best and most useful KPIs for their organizations.

KPI best practices
Although resolving KPI disagreements can be challenging, consensus is necessary for organizations to achieve success. After all, organizations that use ineffective KPIs can be hampered by factors like conflicting data, a lack of understanding and execution in regard to customer profitability, disruptions in corporate culture, and general fear. In contrast, the right KPIs are vital to improving execution and performance at all levels of a corporation.

On the other hand, more KPIs are not necessarily better. Many organizations use too many KPIs, practically drowning in metrics. This situation can lead to “analysis paralysis,” as organizations get bogged down in unhelpful measurement. Instead, organizations are often much more effective when they find a “sweet spot,” a certain number of KPIs that tends to deliver enough high-quality data without becoming inefficient and unwieldy. In fact, study results show that, in contrast to common perception, organizations need only about eight KPIs in order to boost their effectiveness.

Maine Medical Center represents one example of an organization that improved its effectiveness after streamlining its KPIs. Now, its executives and employees can properly measure and monitor a wide variety of clinical and business factors, 24 hours a day, seven days a week, 365 days a year. This allows everyone in the organization to focus on priorities, become more efficient, easily understand the clinical and financial impact of their behavior, implement successful performance improvements, and prevent many problems.

Leveraging effective corporate metrics
Although KPI analysis often requires an investment of resources, this investment can pay significant dividends. For example, solving the KPI conundrum can be the first step to a path of effective PM. And, at its best, PM encompasses initiatives that maximize the effectiveness of every aspect of an organization through quantitative measurement and analysis. Study results illuminate a number of specific payoffs for effective PM. For example, BusinessWeek Research Services compared the survey responses of CIOs whose organizations excel at PM with those whose organizations struggle with PM. Specifically, CIOs at organizations that excel at PM are more likely than other CIOs to say that their organizations also excel at innovation, organizational effectiveness, customer loyalty/retention, agility, up-selling and cross-selling, distribution, internal collaboration, workflow and risk evaluation!

Our study results also show that most CIOs believe PM can help organizations achieve their strategic goals, while other members of the C-suite don’t seem to be as favorable or familiar with the potential of PM. However, the connection between effective PM and corporate success suggests that CIOs and their organizations may benefit by devoting more resources to PM.

Best practices for CIOs
KPI development is just one of the first steps of effective PM. In fact, study results show that a majority of CIOs believe that an effective set of KPIs is an important prerequisite for effective PM.

Although KPIs are an important piece of the PM puzzle, what other factors are required to succeed at PM? According to our study results, CIOs within organizations that have successfully executed PM say that the following factors are the most important obstacles to overcome in order to execute successful PM: appropriate financial allocation (75 percent); consistent business strategies (65 percent); settling differences among corporate departments (65 percent); establishing appropriate KPIs (60 percent); integrating different applications and databases (55 percent); and changing the organization’s management culture (55 percent).

Throughout the PM process, CIOs can play an essential role in the evolution of their organizations’ KPIs. At the beginning, CIOs can analyze their organizations’ metrics statistically to figure out which ones are best at predicting and affecting financial outcomes. Then, as the process evolves, CIOs can continue to conduct analytical reviews at least annually (preferably monthly) in order to modify their metrics. Consistent evaluation is especially important because the effectiveness of specific KPIs often varies over time, according to which specific market dynamics are at play. Therefore, KPI selection and adjustment is a continuous process and journey, not simply a finite destination. In addition, this adjustment technique can help motivate employees to perform at optimum levels, giving them realistic targets that adjust dynamically according to market conditions. In this progression of analysis and adjustment, the CIO is perfectly placed to drive corporate success – especially because CIOs tend to be well-versed in their organizations’ strategic goals.

Streamlining PM

• CIOs are excellent candidates to mediate the KPI debate among the C-suite.
• CIOs are also excellent candidates to aid in evaluating current metrics and picking new (more effective) ones. 
• Organizations can benefit by devoting resources to uncovering a manageable number of effective KPIs. 
• Effective PM techniques can help organizations identify appropriate KPIs and can also lead to other kinds of corporate success.

Study methodology
BusinessWeek Research Services launched a research program in February 2007 to determine C-level executives’ views on the use and value of PM. This program was designed to develop ideas and insights on how organizations can optimize PM to drive accountability through all areas of a business to achieve profitable growth. To capture this information, the project used both quantitative and qualitative methodologies, including online survey interviews in February 2007 with 317 C-level executives in large and midsize companies from across the globe. In addition, in-depth, one-on-one phone interviews were also conducted with senior officials at large and midsize companies known to be actively involved in PM, including 1-800-FLOWERS.COM, Allstate Insurance, Energizer, Holt Cat, ICO Holland, Maine Medical Center and TD AMERITRADE. Interviews were also conducted with several leading industry analysts to provide context to the findings. This research article was funded by a grant from SAS but was written by Chris Rogers and Marc Scheer, PhD, both of BusinessWeek Research Services. The editorial department of BusinessWeek was not involved in this project. For more information, please contact Chris Rogers at chris_rogers@BusinessWeek.com.