Are You Measuring the Right Stuff?

It’s a simple question. Are you?

I’ll give you 4:1 odds that you’re not. Why? It’s hard to know what the right stuff is, and, these days, there seems to be an overwhelming focus on quantity, and not quality, and savings, and not value.

For example, if we’re talking about e-Procurement, many organizations measure the number or percentage of invoices processed through the system. (As many of the “leading” analyst firms report that as a good measure.) Sounds good, but since the 80/20 rule is just as applicable here as anywhere else, the reality is that 20% of your invoices take up 80% of your time (due to number of line items, number of amounts that need to be checked, number of errors that need to be fixed, etc.) and 20% of your invoices represent 80% of your spend. If those invoices are not being put through the system, then it hasn’t really reduced your processing costs all that much as the most significant cost associated with PO processing is the cost of the personnel doing the processing. What you need to be measuring is the % reduction in human interaction time. If a new system only reduces human involvement by 20%, it’s not working. Sorry.

If you’re measuring year-over-year savings, you’re not measuring the right thing. If your price went down 10%, but the market price of the raw materials dropped 20%, did you do a good job? No. And if your price went up 5% while market indices went up 15%, you did a bang-up job. You have to measure performance against market average, otherwise, you don’t know how good you’re really doing.

It’s like Charles said in his recent post, you’ll always think you [are] do[ing] a great job (until you benchmark). It doesn’t matter if you beat your performance goals by 50% if you’re still coming in 24th (out of 25). If you truly want to win, you have to be leading the pack, not trailing it, and for that you have to be measuring in a manner that will allow you to benchmark against the competition. (And not necessarily what the “analysts” tell you to measure.) So, are you measuring the right stuff?

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