Title: Business Metrics: A Key to Competitive Advantage
Abstract: INTRODUCTION Business metrics and performance measures serve as dashboard gauges that help in guiding the strategic direction of a firm (Rubin, 1991). The dashboard consists of appropriate gauges, metrics, which indicate the current performance, baselines, directional trends, and targets. These gauges indicate where a business is headed if the current strategies were to continue unchanged. Any change in the environment in which the firm is competing in will affect the performance of the firm. This lowered performance of the firm should then be captured as measurements by the gauges, metrics, as long as the proper metrics are being deployed. These measures would be the pivotal sparks leading to changes in the firm's business strategies. Timely and appropriate steering of a firm's business strategies is a key matter for any firm in sustaining business success. Such tight management of an organization's strategies, however, is possible only by the knowledge and measurement of the appropriate metrics. Different metrics serve different purposes. In general, there are business metrics for accountability purposes and others for organizational improvement purposes (Irwin, 1997). Some measures are used for the efficient strategic steering of a firm, while other measures are used for communicating the proper worth of a business to all interested parties. Business metrics serve the different interests of different stakeholders. Some business metrics are used as the basis for an organizational tune-up, quality improvement, or business process reengineering. In such cases, the stakeholders are generally internal to the firm. There are other business metrics that provide accountability measures used by shareholders, customers, vendors, or creditors in evaluating the general quality of a provider or estimating the future growth of a firm. The employees within a firm are the ones who ultimately implement the business strategies. Proper individual performance measurements help define and promote desired behavior, activities, and attitudes within an organization (McChesney, 1996). The right behavior must be consistent with and in support of the strategies an organization has adopted to move it towards its preferred future. According to McChesney (1996), people do what is inspected and not what is expected, thus requiring the proper channeling of the various metrics to employees at all different levels, (Aggarwal, 2004). Unfortunately, many people do not understand what the information presented by the business metrics means. Most employees are not mid-level and senior managers and therefore are unlikely to have a grasp of core financial concepts, performance improvement practices, and the tenets of operational excellence. To help in clarifying the proper usage of business metrics, this paper presents a survey of the application of business metrics in various business activities, highlighting the various constructs that guide the adaptability of the metric to the business application, ultimately providing managers and practitioners with guidelines for the selection of the proper metrics that serve the strategic direction of the firm. The paper presents some of the limitations of the traditional use of metrics, followed by some guidelines for constructing and selecting good business metrics. Following this, the paper presents examples of the applications of business metrics and their implications in the steering of corporate strategic directions. Finally, the paper concludes by highlighting the importance of business metrics and providing guidelines for managers and practitioners for selecting the proper business metrics to steer corporate strategic directions. LIMITATION TRADITIONAL BUSINESS METRICS Traditionally, businesses have used financial performance measures as their mainstay in (a) tracking their gains and losses, (b) formulating business strategies, (c) communicating market value to shareholders, and (d) analyzing competitors' strengths and weaknesses, Figure 1. …
Publication Year: 2009
Publication Date: 2009-01-01
Language: en
Type: article
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Cited By Count: 6
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