Most companies measure success according to the "bottom line." Typically, that bottom line is the financial result of activities in the prior quarter, year, or other period. As such, the measurement is considered a lagging measure — a way to quantify the results (or effects) of other actions. When a company wants to improve the bottom line, the focus should be on the causes of leading measures. Addressing leading measures will improve the lagging measures.

The actions of George Fischer, former head of Motorola, at business review briefings exemplified this. After thanking participants at such updates, Fischer would exit before the financial results were presented. Although he would stay to hear Motorola’s performance on critical measures like quality, cycle time, and customer satisfaction, his dramatic premature exit illustrated his belief that taking care of the business drivers and leading measures would take care of lagging financial measurements.

A Simple Illustration
There are several ways to reduce costs associated with workers’ compensation claims (the effect), such as taking advantage of physician partnering or implementing return-to-work initiatives. All these actions focus on what happens after workers are injured or out of work. But more dramatic results can be achieved by focusing on the cause — e.g., by implementing preventive programs to reduce the incidence of work-related injuries.

You could take this a step further by identifying and focusing on specific causes that result in the most costly and most common injuries. Measurements several quarters in the future will likely reflect lower workers’ compensation claims, thereby recouping any initial investment in implementing preventive programs. Addressing the cause will address the measurement.

Measures also need to track the strategic direction of a company. If the company makes its money by being customer-service-focused, the corresponding measures should concentrate on and highlight customer service performance.

This isn’t to say you should ignore other dimensions of the company’s performance. Expenses and other important measures always need to be tracked and managed. But too much reliance on a balanced scorecard approach can sometimes be misguided. Classical teaching on strategy emphasizes some type of focus — whether it’s cost, customer service, quality, responsiveness, or other factors. The balanced scorecard has its place, but be sure not to downplay the value of a specific focus.

One simple but important aspect of measurement often overlooked is the definition of the measure. Failure to understand what you’re measuring is a sure way to end up with dramatically different interpretations of the measurement, making meaningful comparisons impossible.

Also, don’t waste time measuring for the sake of measuring. When deciding where to allocate resources, put time and money in those measurements that, when counted, will make the most difference.

Measurements are important tools for all organizations. Not only do they offer a snapshot of recent performance, but used properly they also help management focus on and evaluate causes and other strategic upstream activities. With such a focus, the company’s bottom line will take care of itself.