Today's business leaders must have the right information. Besides time-tested financial information, they need new, dependable measures of the enterprise's future performance. And they need real-time response tools to help them sift through the glut of information quickly and determine what is most useful in making business decisions.

Typical measurement centers on traditional performance areas -- financial, operational, or functional efficiency. Traditional measures are generally abundant, precise, internally generated, quantitative, and derived from operational accounting and information systems. In addition, they've generally been historical or "lagging." These performance measurement systems may be appropriate for sustaining business as usual -- managing day-to-day activities and compiling past-performance figures for accounting and other purposes. But such systems don't operate fast enough to handle the increasingly complex task of guiding organizations in a rapidly moving marketplace.

Organizations have to view performance measurement as a strategic activity, one that's crucial to achieving results and not merely measuring them. Measurement can help turn strategy into operational activity.

Performance information must be more relevant

Accounting and tax firm KPMG has researched how organizations are addressing the challenge of obtaining reliable information for decision-making in an era of constant change. KPMG interviewed Fortune 1000 and top public-sector executives from the United States and Europe to profile why and how prevailing business practices undermine measurement's impact on strategic implementation. The findings suggest that seasoned executives and government officials lack reliable information, pointing to needed improvements in how they get the information necessary to make and implement strategic decisions.

KPMG data also indicates that, as organizations are driven to respond in real time, leaders are dissatisfied with traditional measurement tools. They often feel overwhelmed with data, but not relevant performance information. Furthermore, the window for leaders to make key decisions is shrinking, even as the financial and business markets in which they compete are becoming less forgiving.

In short, these leaders are convinced the information they use to make decisions on the allocation and performance of assets -- tangible and intangible -- must be more fact-based and less anecdotal.
New methods of measurement

Executives are interested in gauging future performance by using leading indicators as well as past performance (lagging indicators). They believe effective measurement systems should include company-level and process- or department-focused measures, and should integrate both traditional and emerging measures.

Non-traditional measures tend to be less well-defined. They relate to intangibles and emerging areas such as a company's marketplace, stakeholders, strategic implementation, and resource management. Ideally, such measures would be predictive. However, they often rely on incomplete, anecdotal, and conflicting data that is gathered inconsistently.

Given the growing interest in combining new types of measures with traditional elements, leaders should consider the following questions for traditional measurement needs:

• Financial: Are you focusing on the right financial measures to judge the success of your company/divisions/units? Do you have the right balance between financial and non-financial measures to address key intangible assets?
• Operational: Do you have the right short-term operational measures in place to respond quickly when an activity central to the core business (for example, sales and delivery to customers) goes awry? To what extent do you measure both the effectiveness and efficiency of operational processes?
• Customer: How well do you measure and monitor shifts in customer needs and expectations? Do your operational teams clearly understand their role in fulfilling customer needs, and are they measured and provided incentives accordingly?
• Employee: Have you aligned compensation to your strategic aims, and how is performance measured, rewarded, and recognized? Do you regularly measure employee satisfaction and act on the results?

• Market: How well does your measurement system track changes in industry and external forces that influence the relevance of your strategy/business model? What do you need to measure and monitor existing and emerging competitor activities continually?
• Stakeholder: Do you understand who your stakeholders are and what their needs and expectations may be, and do you measure how you're meeting those needs and expectations, as well as trade-offs between stakeholders? Do you assume you know what stakeholders want? How well do you measure and monitor shifts in stakeholder needs and expectations?
• Strategic: Do your measures align with and help you implement your strategy? Have you reviewed and updated the measurement system for recent events, including strategic changes, acquisitions or divestitures, leadership changes, and industry or regulatory changes? Does the measurement system tell you if the strategy is "alive" and driving behavior in the organization?
• Resource: Do you have measures in place to tell you how well you're marshalling resources today and whether you have the right tangible and intangible resources to achieve your strategy? Do you have the right information to determine where you should be building and acquiring competencies (talent, collaborations, distribution channels, software, etc.) for the future?

• How can you identify measures that are linked to critical success factors and to your business risks, and that will help you execute your strategy?
• How do you identify the key predictors of performance that relate to your strategic objectives?
• How do you measure the cause and effect of strategic decisions?
• How do you benchmark your ability to adapt to changing business conditions?

• Emphasizes the need to understand what should be measured vs. what is measured.
• Details the elements that successful, aligned organizations say must be in place to harness measurement's power.
• Outlines emerging developments in reporting that may affect how leaders communicate measurement information into the 21st century.
• Encourages companies to integrate strategy, execution, and measurement as an efficient way to help leaders make decisions in a changing business world.

1. Management's view is not as commonly held as it appears at first sight.
2. Even when organizations are tracking intangibles, they only look at how much they have, not how those intangibles are used.
3. Compromises are made so the measures used don't properly reflect the underlying key success factors.

• Not aligned with strategic business objectives
• Dependent on lagging (past performance), not leading (future performance), indicators
• Poorly integrated with other information (internal and external)
• Far too reliant on financial measures

• "We were not completely sure about the accuracy of the data."
• "It was too complicated, and people didn't understand the measures. No one took the time to really understand and research."
• "It failed in the support department areas. There was a lack of understanding about the purpose."
• "It was the inability to tie back to corporate goals."