In our last post we discussed how world-class business metrics must be designed to optimize a global business system rather than focused on local optima; seldom is the optimal target for a metric a behavioral extreme. Ideal design requires metrics to be defined in a hierarchical relationship with other metrics such that their interdependencies are recognized and respected, and trigger points are set to achieve maximum business value.
Putting each metric into such an hierarchy requires understanding its relationship to the ultimate goals of the business, and ultimately provides justification for each metric in a global context. Metrics which appear to be isolated from real value creation are likely obsolete or irrelevant; these should be carefully reviewed and discontinued unless they can be fully justified as essential for understanding how the overall system generates value.
As parent-child metric relationships are identified and ironed out in the context of a global metrics hierarchy, metric trigger points should be set to drive corrective action which consistently tends toward optimal business value.
Once this hierarchical relationship structure begins to take shape, which certainly takes time and is seldom perfect, strategic metrics can begin to be used to perform root cause analysis: when a key business metric is reporting suboptimal behavior which requires corrective action, and the immediate steps of the business process are not designed to correct this behavior, then if its child metrics are well-defined, one or more of them should also be triggering corrective action, enabling a manager to drill down and traverse the metric hierarchy looking for root cause behavior in one or more supporting business processes, reflected in their respective process metrics.
For example, when a Customer Service metric begins trending downward, it might be noted that Forecast Accuracy has also been deteriorating, or that inventory targets are being violated frequently.
Alternatively, when a parent metric is triggering corrective action which is not directly and sufficiently addressed by its immediate business process steps, and neither are any of its child metrics calling for corrective action, this may be an indication that the metric hierarchy is incomplete, misunderstood, and/or that related metric trigger points are inappropriate. This condition may be used to tune metric trigger points, and/or to enhance/add business processes and process metrics in order to fully understand and efficiently manage the total system.
If in the above example, Forecast Accuracy has been stable but inventory targets are still being violated and no other cause is obvious, further exploration of recent supply plan and production history might reveal that machine breakdowns have been more frequent and longer than expected due to last minute execution-level overrides of planned maintenance, indicating a need to add plan conformance metrics and business process to the metric hierarchy.
In our next post, we will look more carefully at the concept of corrective action, and how defining this carefully is essential is to any business metric.