Measurements that matter: Unlocking success through performance management

You are what you measure: Why effective metrics are the heart of performance management.

In the Forbes article “You Are What You Measure,” Jacob Drucker points out an essential truth: if you can’t measure it, you can’t improve it. This idea isn’t just theoretical; it’s at the heart and soul of effective performance management.

Imagine your organization’s performance as a roadmap to success, where strategic goals meet practical execution. Measurement is the compass that keeps you on the right track. In our  experience, performance drivers—those measurable factors that impact shareholder value—are the links between strategy and actionable metrics. They bind the vision to reality, ensuring that goals aren’t just set as some arbitrary exercise but actively pursued. By consistently measuring performance against these goals, organizations can assess when they’re on track.

But what exactly is performance management? Think of it as the art of gathering, analyzing, and reporting information that reveals how well an individual, team, or entire enterprise performs from the inside out. Whether focused on inputs, outputs, outcomes, or quality, measurement offers a crystal-clear view of successes and areas needing improvement to avoid imminent failure. American author and dot.com executive Seth Godin once said, “Don’t measure anything unless the data helps you make better decisions or change your actions.” Performance management is an objective way to see where resources can be better allocated, accountability strengthened, and decisions or behaviours fine-tuned for better strategic outcomes.

At the center of performance management are Key Performance Indicators (KPIs), the tools that bring consistency and clarity to tracking progress toward goals. Key is the operative word, and KPIs allow organizations to set a baseline of success, helping define performance and value across strategic, financial, people, and operational dimensions. They’re most effective when directly tied to what makes a business unique. Intel Corporation, for example, uses KPIs to measure every part of its operations, from manufacturing efficiency to customer satisfaction. The result? Measurements that matter and a steady pulse on performance that highlights strengths and identifies areas for improvement.

In the end, you really are what you measure. Performance management brings clarity, accountability, and focus to an organization, helping every part of it work in harmony toward shared success.

Turning metrics into meaning: An approach to creating key performance indicators.

As described in the book, Outside In, Inside Out, creating effective KPIs and a wider performance management system is more than just setting metrics; it’s about crafting a performance narrative that aligns with strategy and builds trust and execution. Here’s a process we’ve found successful:

1. Identify strategic objectives: As explained in a Harvard Business Review article, by Graham Kenney, KPIs must reflect your strategic priorities. So, start by mapping out high-level strategic objectives tied to your firm’s vision and mission. Consider your unique strengths, potential weaknesses, and the opportunities and threats on the horizon. Ask yourself if you’ve defined clear, time-bound goals.

   
   

2. Pinpoint performance drivers: These “value drivers” flow directly from your strategic goals and represent the factors that will push your strategy forward. For instance, if you’re focused on securing long-term client agreements, the performance drivers might include cultivating strong client relationships or meeting contract expectations that foster repeat business with clients.

   
   

3. Shortlist KPIs: Not all metrics are created equal. Prioritize KPIs that are closely aligned with your strategic objectives. Rate each KPI as high, medium, or low priority, based on its impact, and focus on a select few that will be most valuable in a performance-driven culture. Remember, in KPI selection, less can be more, focusing on metrics that really matter.

   
   

4. Consider ways to leverage artificial intelligence (AI): Consider ways to use algorithms to challenge and improve the performance management process. A report my MIT Sloan Management Review found that 34% of 3,000 managers surveyed used AI to create new KPIs, and of those organizations 90% see their KPIs improve.

   
   

5. Build a KPI scorecard and reporting system: Determine ownership for each KPI, ensuring clear responsibilities. Establish a communication cadence with leadership teams, setting expectations around how often KPIs will be reported and discussed. This ensures that everyone is aligned and engaged with the metrics that matter.

   
   

6. Document KPI definitions and calculations: Define each KPI precisely, detailing what it measures and how it’s calculated. This step is essential for clarity and consistency, ensuring everyone interprets metrics similarly. If people don’t understand the KPI, it will be hard for it to influence behaviour.

   
   

7. Set KPI targets: Look to industry benchmarks for inspiration. Establish a target value for each KPI, setting the bar at a level that reflects best practices and stretches the organization to achieve ambitious standards. As an American psychiatrist and psychologist, Milton H Erickson once said, “A goal without a target date is just a dream.”

These steps are part of a broader commitment to “measuring what matters.” By defining and refining KPIs through these principles, organizations can focus on metrics with meaning that track progress and shape the future.

The balanced scorecard: Bringing precision, perspective, and purpose to performance.

The balanced scorecard developed by strategy gurus Dr. Robert Kaplan and Dr. David Norton, is a management tool designed to keep a finger on the inside-out pulse of both internal processes and external outcomes, helping companies continuously refine and improve their strategic performance. It zeroes in on four essential business dimensions: financials, customer satisfaction, business processes, and innovation and learning. Think of it this way: while KPIs drive performance at the ground level, the balanced scorecard takes a top-down view, ensuring that the right mix of KPIs aligns with broader organizational goals.

One of the most powerful aspects of a balanced scorecard is how it gives leaders a more holistic perspective. The balanced scorecard empowers them to tie strategy and operational execution more closely. It also serves as a tool for precisely communicating strategic priorities to employees and stakeholders, using KPIs to set targets and monitor progress. So, everyone understands the key drivers of success.

Organizations are intricate, multidimensional systems, and effective measurement should reflect this complexity. Take FMC Corporation, for example. As one of the most diverse companies in the U.S., with over three hundred product lines spread across twenty-one divisions, FMC experienced confusion when various initiatives, each with its own message and focus, clouded its strategic direction. Leaders soon recognized that if they wanted to refocus a division, or even the entire corporation, they needed to start by realigning how they measured success. That’s why FMC’s leadership introduced a balanced scorecard, which was a game changer in terms of performance.

In summary, the balanced scorecard lays out a structured, inside-out approach to reporting across these four focus areas, each tailored to a relevant audience. This ensures that management reporting addresses the most vital strategic issues, keeping the execution of strategy on track.

Lastly, measuring to succeed: Crafting KPIs that shape sustainable results.

In the end, performance management isn’t just a process, but a mindset and behaviour that permeates at every level of an organization. The metrics that matter tell a story about our priorities, our values, and our vision for success. Understanding that we are what we measure empowers us to set KPIs that do more than track numbers. They foster accountability, drive alignment, and spark continuous improvement, creating a culture that celebrates progress and identifies opportunities.

Organizations unlock the potential for meaningful progress and a more straightforward path to success by measuring what matters most. So, as you craft and refine your KPIs, remember that the metrics you choose will shape your sustainable outcomes on your journey to success.

By Terry McKay – EY Canada Finance Transformation Partner & Dr. Lance Mortlock – Author of Outside In, Inside Out, EY Canada Managing Partner Industrials & Energy