Establishing key measures which meet the business need for insight – Orgvue Knowledge Base

This article is one in a series sharing best practice insights for continuous organization effectiveness. Other articles can be accessed through links provided at the end.

Without active management, organization effectiveness deteriorates over time. Monitoring of key measures reveals where performance is getting off target to inform timely, incremental action. Without insight revealing the organizational reality, inefficiencies remain hidden until becoming so severe that costly, painful and disruptive interventions are needed.

This article outlines the best practices we see being taken to establish key measures of organizational effectiveness which meet business needs for insight.

Key measures extend beyond structural measures

Of course, good practice is to embed design principles – the guidelines applied at times of organizational redesign – as key measures. These alone, however, are usually insufficient as they tend to focus heavily on structural factors. Best practice is to establish a range of measures addressing three overall questions:

The size and cost of the workforce: Do we have a sustainable workforce cost base with the right resourcing levels in the right places at the right cost?
The organization structure: Are line management reporting relationships efficient and effective?
The composition of the workforce: Do we face risk due to the composition of the workforce?

Separate articles provide examples of key measures for each category. Follow the links at the end of this page.

Identifying key measures which meet the business need for insight typically requires input from multiple stakeholders. Collaboration with colleagues across leadership teams and functions – particularly Finance, Talent Acquisition, Talent Management, Reward and Diversity and Inclusion – is a valuable step to identify the data which is available, and stakeholders’ requirements.

“We got clear from the start on what could be reported to provide as much value as possible to the greatest number of stakeholders.”

There is one version of the truth: Finance, HR and business leaders continuously apply the same measures which are clearly defined.

A shared and common understanding is actively built through key measures being explicitly defined and consistently applied. A test of success is whether key business questions are answered consistently across different parts of the business. The question, “What is the size of the workforce” may be answered referencing FTE or headcount; might be limited to in situ employees or include unfilled positions; might be limited to direct employees or include contractors. There’s no right or wrong definition, but when core questions are answered differently, credibility is compromised.

“Previously, you’d get a different answer to seemingly basic questions depending on who you asked. Finance reported in-year costs based on fractions of FTE, and HR reported headcount and full year costs. We started by getting everyone on the same page with consistent measures supported by clear definitions.”

“When different measures are used across the business, you cannot gain credibility. For too long we were stuck in the place of ‘HR cannot tell us how many people we employ’.”

“We lost time because people had different understandings and were talking at cross purposes. It took too long for partners from different teams to understand different measures and the terminology being used. There was a translation requirement in every interaction which was inefficient. We have defined everything in the simplest of terms and eliminated any opportunity for misunderstanding.”

As with the first point, black-box development approaches are avoided: Collaboration with colleagues accelerates progress by getting clear on the strengths and weaknesses of existing arrangements and identifying practical opportunities for enhancement.

Consistency is also required regarding the sub-group units used for reporting: Best practice is to ensure that the subgroups used for reporting financial and operational performance can be replicated. A test of success is the ability to report key measures for the cost center structure used for corporate financial management and reporting.

Every key measure has a target and accompanying business rationale.

For workforce size and cost measures, targets commonly derive from annual budgeting and headcount planning processes with the fundamental rationale of ensuring a sustainable workforce cost base.

Regarding structural measures and workforce composition measures, good practice we observe is setting targets to reduce the number of exceptions. For example, measuring the proportion of managers with spans of control below defined ranges, or teams with low levels of gender diversity, reveals where action is needed so this can be taken when timely.

Targets relating to structural efficiency typically come from established design principles (e.g., maximum number of organizational layers), and measures relating to workforce composition are commonly sourced from by corporate guidelines (e.g. the proportion of female employees in leadership positions).

In the same way that measures are explicitly defined, the business rationale associated with each measure is established. Whenever possible, the case is made in terms of cost efficiency or risk mitigation. For example, avoiding excessive costs of managerial oversight evidenced through structural measures, or avoiding operational risk through an aging workforce nearing retirement age.

Separate articles providing examples of key measures reference the business questions which can be addressed through each measure.

Two final points:

Less is more: Reporting a clear and concise set of measures avoids the risk of analysis paralysis. Key measures can be organized by reporting frequency, subject matter and stakeholder audience. Observed good practice is to embed measures relating to the size and cost of the organization in the cadence of monthly/ quarterly business reviews, with broader measures relating to structural efficiency and workforce composition being the subject of separate, dedicated attention.
Don’t seek immediate perfection. It’s likely you don’t have immediate access to the data required to provide the optimal insight to benefit all stakeholders. Identifying and addressing near-term business priorities typically builds appetite from stakeholders to go further.

Separate articles provide example key measures, and illustrate the business questions addressed through each measure:

This article is one in a series sharing best practice insights for continuous organization effectiveness. An overview can be found here, and related articles can be accessed through the following links:

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