This article was published in the CAmagazine in April 2009.
Hype
You will often hear business consultants claiming that they offer “best practices” — that they teach their clients the most efficient and effective way of accomplishing certain tasks based on proven, repeatable procedures. Sounds great but be careful. The so-called best practice may be good for one organization but a disaster for another. It’s not best practice if the costs outweigh the benefits.
Reality
Organizations often set up operational processes that differentiate them from the competition. If those processes help them achieve their critical success factors (i.e., what they must do well to be successful), best practices might not apply and might actually be harmful.
Best practices should be useful in business processes that are the same or very similar across organizations, such as those related to project management or software development. There are also a number of best practices for collections, such as maintaining client conversations and to-do items.
Silo Syndrome
Many organizations also have to contend with the silo syndrome, where one department optimizes its business process at the expense of other departments. Best practices may be helpful here, since silos cannot be fixed by systems or technology. Managers or VPs of the departments or business units concerned need to be motivated somehow to work for the betterment of the whole organization. This may entail changes in corporate culture, organizational structure and compensation.
Benchmarking
Another best practice that can be applied to all organizations is measuring your performance against your past performance or that of your competitors, and most importantly doing something about it. Best practices require benchmarks or metrics. Ideally you should use metrics for your industry and size, but good luck in finding them.
Assuming that benchmark data is available, which ones should you choose? Start with metrics that are linked to your critical success factors (what you must do well in order to be successful). You should also understand the difference between leading and lagging indicators. Lagging indicators tell you about results — sales, gross profit and so on. Leading indicators foreshadow things that could happen. For example, rising error rates in shipping often precede declining customer satisfaction. Many organizations have adopted the balanced scorecard method, which is a tool for assessing an organization’s business performance from four perspectives: financial, internal business processes, the customer, and learning and growth.
SMART Metrics
Metrics should be SMART: specific, measurable, actionable, relevant and timely. If the numbers are not specific, the results will be open to many different interpretations. Similarly, you should not choose metrics that can’t be measured accurately or that are too difficult to obtain. Actionable means the metric should measure something that can be acted upon. Relevant means the metric should tie back to critical success factors. Timely is obvious.
The most important part of measuring performance is the action you take to solve any problems that are revealed. First you need to understand what caused the problem. In some cases it has to do with systems and technology or business process. In others it has to do with people and their motivation. If you are lucky, the problem won’t have to do with people, because other factors are a lot easier to change.