Editor's Note: No two successful performance management programs are the same, but all successful performance management programs share common principles. To shed some light on what separates a good company from a great company with regard to performance management, DC VELOCITY will publish a column on one of the 12 Commandments of Successful Performance Management each month. This month we will drill into the 10th commandment: Be flexible.
The 10th Commandment
Be flexible: When it comes to metrics, there's no Holy Grail
Though their managements would vigorously disagree, Wal-Mart and Target have a lot in common. They have similar retail formats. They sell similar products. And they undoubtedly use similar metrics to assess supply chain performance—metrics like fill rate, on-time deliveries, distribution costs as a percentage of revenue, stockout rates and inventory turns.
But that's not to imply their metrics programs are interchangeable. They're anything but. The two chains may use many of the same metrics, but they almost certainly set very different performance goals for themselves. Although they're both discount retailers, Wal-Mart and Target pursue widely differing strategies, and it's safe to assume that they set unique performance targets based on their strategic priorities.
The 12 Commandments of
1 Focus: Know your goals
For example, Wal-Mart has carved out a niche as the low-cost leader and is renowned for its legendary supply chain efficiencies. As such, it has undoubtedly set extremely aggressive goals when it comes to distribution costs as a percentage of revenue. If Wal-Mart's competitors are spending 4 to 6 percent of revenues on logistics, you can be sure that Wal-Mart aims to spend only 2 to 3 percent.
Target, on the other hand, has spent the last several years building a reputation as the store you can count on to have the hottest, trendiest new items on its shelves at all times. It's safe to assume, then, that Target has set aggressive goals for performance against the stockout rate metric. While Wal-Mart concentrates on rock-bottom costs, Target believes its ability to avoid stockouts will help set it apart from the other mass merchandisers.
All of which goes to show that when it comes to metrics, there's no Holy Grail. Even within a single industry, companies pursue different strategies, and their metrics programs should reflect those differences. That's important to keep in mind when it comes to both choosing which metrics to use and setting performance goals. Though software makes it possible to measure everything that moves these days, you're better off winnowing your metrics down to the vital few. Generate a vision of where you want to be three, five and 10 years from now, then select the key performance indicators (KPIs) that best monitor your progress against specific objectives.
Translating the company's goals into a clear metrics portfolio requires work, of course. But metrics that supply direct feedback on the company's performance against KPIs will help it achieve focus. Take, for example, the case of GE, which has mandated that each of its divisions be #1 or #2 in its market. The metric it has chosen (in this case, market share) supplies very clear feedback on performance. If a division measures up, all's well. If it doesn't, GE can react (usually by taking steps to exit that market) with confidence.
The next time you read the results of a metrics survey or sign up for benchmarking, bear in mind that it's important to be flexible. Just because "90 percent of respondents" are using a certain measure or are achieving a given level of performance doesn't mean it's right for your company. Stop and ask yourself "How does this relate to my company and my strategy?" before you set a program in motion that's right for the Wal-Marts of the world but wrong for your Target-style operation.