If you are going to manage by numbers, make sure that they're the right ones. Most measures distort managerial behaviour and impair performance. You need to select and implement the key measures that will help you create value. You need smart metrics.
Part 1 Do your metrics miss the wood for the trees?
This part shows why smartmetrics are needed. All firms use metrics but most are poorly designed. How the wrong metrics distort performance and why individual managers will not make the best decisions for the firm without smartmetrics to guide them.
1 Doing the right thing
This chapter illustrates the problems of non-scientific strategy decisions: while the direction of strategy is right, the details are wrong
How strategy gets set - case scenarios of typical strategy setting processes
How poor measures lead to internal fights and lack of alignment eg data consistency vs usable reports, sales revenue vs profitability
How strategy leads to the right idea but the wrong results eg NHS, CEO bonuses, e-business, Enron and derivatives.
2 Why is setting strategy difficult?
This chapter explores the difficulty of getting the right strategic decisions: pinpointing what causes success.
The firm as a complex system.
The causes of complexity: autonomous agents (people and their behaviour)
Issues in complex systems: local optima (empire building); sensitivity to small changes (the devil is in the detail)
The problem of how to know which actions were responsible for success: the credit assignment problem
How these issues appear in practice. Case M&S
3 Pointing managers in the right direction
This chapter shows why managers need a framework to direct their efforts: their unaided intuition is not enough to figure out value drivers and measures.
Why smart people don't make smart decisions
Managerial decision biases and common errors: biases toward the simple, the recent and the local.
Why there is no 'invisible hand' of the market to guide them. Managers acting in their own self-interest will not produce optimal outcomes for the firm. Their different biases and interests lead to a lack of alignment and cooperation.
How firms attempt to impose alignment: process, culture, KPIs
KPIs as the link between value drivers and alignment
The problem of perverse behaviour under KPIs: meeting a stated goal while destroying unstated goals
How alignment affects performance: examples of poor KPI alignment vs examples of good KPI alignment
4 Applying rocket science
This chapter synthesises basic principles of analysis and measures from techniques used in different areas of management
A survey of techniques from various areas of management specialisms, including finance, marketing, operations research, business modelling
Synthesis of the basic principles to address the credit assignment problem: variation, grouping, preferences, linkage and dynamics.
Finding drivers in the depths of the organization. The need to take a whole organization drivers approach. Research findings on success factors for value creation programmes.
Issues in measuring drivers: problems of which financial measures (eg EVA vs TSR) at firm level, measuring both hard and soft factors, problems of group rewards, short vs long term measures, setting KPIs for interacting groups of drivers
non-measurable or rewardable behaviours - why they may be needed and how to get them indirectly via measures
Setting KPIs that promote alignment and joined-up thinking: whether the KPI set supports or destroys them. Dynamic analysis from different managerial and customer viewpoints.
Part 2 Constructing Smartmetrics for your business: Killer Analyses
This part shows how to construct the specific smartmetrics that are right for your business. How smartmetrics can have a major impact on performance on all aspects of performance including examples from M&A, marketing, finance, HR and operations.
5 Killer Analyses: setting the right KPIs
Paying for performance - setting executive rewards that reward effectiveness
Selling value - setting the right salesforce targets
50% of marketing is money wasted - find out which half
Futureproofing - putting a value on flexibility, the lease vs buy decision
6 Killer Analyses: joined up management
Synergy, synergy, synergy - realising M&A value
Black holes - getting value from large scale IT investments
Value, but not as we know it - e-business channels and the parent firm
Cheap and cheerful? - call-centre staffing and performance
Walking the talk - giving a consistent performance management message
Neighbours - organizational design and cooperation
7 Killer Analyses: finding the drivers
Value that grows on trees: value trees to find where value is created (and destroyed)
How many sizes should we stock? - understanding customer segments;
How to stop losing customers - churn and customer VAR;
Giving the customers what they want - product attribute mix - drivers of sales success eg price, discount, service, lead time, relationship (similarity product grouping to find distinctive atts -what really drives?)
Laying out the stall - retail store configuration and sizing
The War for talent - what drives attraction and retention and motivation, designing the total rewards mix;
Linkage - what are the behaviours that make for a good employee?
Part 3 Putting Smartmetrics to work
This part addresses implementation and change management issues of how to introduce smartmetrics within your organization
This chapter addresses issues of how to introduce the toolset within organizations
How to implement this approach to joined up management
Incremental value analyses vs big bang alignment
Upskilling managers for value creation and alignment
Use of external consultants
The price of value is eternal vigilance
"There are hundreds of books and articles about performance measurement, but few that really explain how to design robust measurement systems. This is one of the few that does and it does so in a way that is both engaging and actionable"
Andy Neely, Chairman, Centre for Business Performance, Cranfield School of Management
"Performance management is a critical concern for service businesses, and it's a difficult nut to crack. Smart Business Metrics shows how to improve performance based on the facts of each individual business, avoiding the trial and error approaches that often pass for expertise"
Camilla Aitchison, Director Management Development, Dixons
"A practical approach that brings to light how the right balance of art and science combined with tailored metrics for each organization removes the blindfold of 'me-too' solutions and leads to success in the company"
Kanogkpun Krabuanrat, Director, ACNielsen
Understanding your organization's key performance drivers is crucial to the success of your business. Too often, the wrong operating targets are set, and bad targets can bring bad performance.
Smart Business Metrics provides the tools that will enable you to make strategic decisions based on factual analysis. It shows how smart metrics can produce joined-up management to allow all parts of your business to work together to create value for the firm.
Bob Phelps is a director of BPN Consulting and teaches Strategic Decision Science at the Cranfield School of Management. He led the UK Analytics group at McKinsey and the European Measurement practice in Towers Perrin, as well as carrying out financial risk consulting for CCN Decision Systems.
He has managed the development of information systems for SWIFT and intelligent systems development for BP. Consulting clients have included major players in the financial services, telecomms, retail and media industries and he has extensive experience in Europe, the US and Asia.
He specializes in measuring and clarifying firm level strategy and helping management understand and focus on the key success actions unique to their business, supported by the creative use of modelling techniques.
He has edited books and published papers on strategy, decision making, operations research, information systems and artificial intelligence.
"There are hundreds of books and articles about performance measurement, but few that really explain how to design robust measurement systems. This is one of the few that does and it does so in a way that is both engaging and actionable" - Andy Neely, Chairman, Centre for Business Performance, Cranfield School of Management
"Performance management is a critical concern for service businesses, and it's a difficult nut to crack. Smart Business Metrics shows how to improve performance based on the facts of each individual business, avoiding the trial and error approaches that often pass for expertise" - Camilla Aitchison, Director Management Development, Dixons
"A practical approach that brings to light how the right balance of art and science combined with tailored metrics for each organization removes the blindfold of 'me-too' solutions and leads to success in the company" - Kanogkpun Krabuanrat, Director, ACNielsen