Top 10 Steps to Better Design Strategy Success Metrics

Top 10 Steps to Better Design Strategy Success Metrics
Workplace metrics impact workplace behaviors and performance.  Strategic buy-in and strategy execution hinges on the ability to measure success accurately and transparently. Designing the right strategy success metrics can mean the difference between a leadership team collectively steering toward its strategic targets and veering off course.

Designed properly, strategy success metrics provide clear direction, motivation, and accountability.  Designed poorly, strategy success metrics can lead to unwanted behaviors, misaligned actions, and unhealthy cultures.  Consider the infamous example of Wells Fargo.

• Wells Fargo: Strategy Success Metrics Gone Bad
  To best implement their customer growth strategy, executives identified strategy success metrics linked to cross-sales to customers to measure performance. Makes sense right? Satisfied customers should buy more products and services.

  Unfortunately, the obsession with the success metric (and the associated rewards for achieving it), caused the sales force to lose sight of the strategic intent to build long-term and mutually beneficial customer relationships. Wells Fargo opened 3.5 million deposit and credit card accounts without their customers’ consent to meet aggressive strategy success metrics. And, in turn, severely damaged the long-term relationships that the bank strategically sought in the first place.

  They were fined hundreds of millions of dollars, damaged customer relationships, and sullied their brand.  In hindsight, it is easy to see that “cross-selling” by itself was not the best of strategy success metrics to measure and align with building long-term and mutually beneficial customer relationships.

10 Steps to Better Design Strategy Success Metrics

1. Define Crystal Clear Strategic Objectives Before Discussing Metrics
   The biggest mistake leadership teams make around measuring strategies is trying to define success metrics before they agree upon a clear and meaningful definition for success. That is a mistake.  You cannot adequately decide on “How to measure” until you agree on “What you are trying to measure.”

   Take the case of Wells Fargo.  If they had thought more deeply about what they were trying to accomplish, we bet that they would have designed a more balanced set of metrics than simply the number of new accounts opened per customer to measure long-term customer relationships.   Customer satisfaction and the adoption of additional products and services are two examples that come to mind.

   The next time you are in a meeting discussing strategy success metrics do not get stuck discussing the “How” before all key stakeholders agree upon the “What” — the full definition of what constitutes strategic success in a way that fully aligns with the organizational vision, mission statement, and corporate values.  This helps to keep the focus on what truly matters to the organization’s short- and long-term success.

   Are you clearly defining “the What” before you try to measure “the How?”

2. Focus on the Critical Few Strategy Success Metrics
   Not all metrics are created equal. Typically, only two or three metrics truly represent the critical indicators of progress toward strategic goals. Start by identifying and prioritizing the metrics that have the most significant impact on your main strategic objectives. For instance, in a corporate growth strategy, key strategy metrics to consider might include sales revenue growth, gross margin, win-rate, portfolio mix, market penetration, wallet share, deal size, sales cycle time, and lead conversion rates.

   The art is picking the one or two that matter most for your unique situation. For example, a client looking for profitable growth selected gross margin and win rate as the two high performance success metrics that mattered most to their sales strategy.  There cannot be any doubt about the direction and focus of what you want people to achieve.

   Have you prioritized what truly matters most?

3. Use a Balanced Approach
   Whenever possible, use a balanced approach that considers metrics across different perspectives (e.g., financial, customer, employees, and internal processes). A balanced approach helps to prevent overemphasis on any single area. Imagine if Wells Fargo had equally rewarded their sales teams for the customer adoption level of their new products how that would have changed behaviors.

   Are you designing a comprehensive measurement system that translates strategic priorities into a balanced set of performance measures?

4. Consider Leading and Lagging Metrics
   Leading metrics tell you how likely you are to achieve a strategic objective. Lagging metrics tell you if you have achieved the strategic objective.   Both are important.  Leading metrics are predictive and should be influenceable while lagging metrics measure goal achievement.

   For example, losing 15 pounds is a lagging success metric.  Burning an extra 750 calories a day is a leading metric.  Potent strategy success metrics have a smart mix of leading and lagging metrics to help keep people on the right track.

   Are you and your teams balancing leading and lagging success metrics?

5. Be Thoughtful about The Link Between Metrics and Rewards
   Tying rewards to metrics helps to encourage behaviors to achieve the target. It also increases the likelihood that people will do whatever it takes to hit the target even if it is at the expense of the overall strategy. (e.g., what happened at Wells Fargo). This can be avoided by balancing intrinsic and extrinsic rewards, keeping the larger strategic intent front and center, and using a balanced combination of multiple metrics and rewards.

   Have you thought through the potential intended and unintended consequences of your strategy success metrics?

6. Actively Involve Stakeholders in Design and Development
   Recent research by Bain found that the active engagement of stakeholders during the strategy design phase has the highest correlation to strategies being successfully implemented. We know that the same is true with strategy success metrics. You need the active, committed involvement of your entire work force to how their success and failure will be measured, tracked, and rewarded.

   We know from our organizational alignment research that employees understand the main objectives of a strategy more clearly when they are actively involved in its creation and development. Active involvement better positions employees to understand, commit to, and effectively challenge the link between metrics and objectives.

   Are you actively involving employees early and often enough?

7. Ensure Data Quality and Availability
   Accurate and timely data is critical for reliable measurement so that people trust how their performance is being evaluated. Only count on metrics if those being measured believe in their accuracy, completeness, timeliness, consistency, validity, and consistency. That means ensuring that data sources are dependable and that data collection processes are unbiased.

   Do people trust the quality of the data used for your strategy success metrics?

8. Review and Adapt Metrics Regularly
   SMART metrics are clear, relevant, meaningful, fair, consistent, accurate, trusted, timely, transparent, and just possible — a long but important list of attributes. They also need to be flexible enough to adapt to the inevitable changes since their initial development. For example, during an economic downturn, you might shift focus from aggressive growth metrics to efficiency and cost-saving measures.

   Do you regularly review and adjust metrics to reflect new strategic priorities, market conditions, and organizational changes?

9. Communicate and Embed Metrics in the Business
   We know from assessing organizational culture that for workplace metrics to impact behaviors, performance, and strategic success, they must be embedded in the way work gets done. Ensure that all stakeholders understand the importance of these metrics and their role in getting where you want to go. Embed strategy success metrics into the organizational culture through regular updates, performance reviews, and incentive systems.

   Are your strategy success metrics embedded in your business practices and team norms?

10. Use Dashboards for Real-Time Tracking
    Implementing dashboards allows for real-time tracking and visualization of key metrics. Dashboards provide a quick and intuitive way to monitor progress, identify trends, and make data-driven decisions. They should be accessible to all relevant stakeholders, ensuring transparency and accountability.

    Do individuals, teams, and functions have a straightforward way to see where they stand?

The Bottom Line
Designing effective strategy success metrics requires clear objectives, alignment with the business, and regular reviews. By ensuring data quality, communicating effectively, and utilizing dashboards, organizations can measure progress accurately and adapt swiftly to changes, thereby ensuring the successful execution of their strategic initiatives.

To learn more about better strategy execution and measurement, download 3 Big Mistakes to Avoid When Cascading Your Corporate Strategy