c


Sustained success of a firm is dependent on developing superior strategy and its implementation in an organization.
This is achieved by constantly monitoring, evaluating, and modifying it to achieve competitive advantage. Effective
formulation of new business strategies are predicated on the timely and accurate measurement of appropriate
business metrics. The role of monitoring and measuring and effective use of business metrics can hardly be
underestimated. It allows the managers to understand the relationship between its processes and the market space.
The authors of this paper have developed a systematic link between strategy, processes, and customer satisfaction
through their use of appropriate business metrics. This seamless look at an enterprise and its market environment as
a process improves the probability of success in developing competitive advantage through aligning the company's
strategy and its processes.
c

eport

 
Business planning (esearch)
Business plans (esearch)
Competitive advantage (esearch)
Business performance management (esearch)

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Askar, Mohamed
Imam, Syed
Prabhaker, Paul .

 

01/01/2009

 

: Advances in Competitiveness esearch
 

: American Society for Competitiveness
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: Academic; Trade
: Magazine/Journal
 
: Business; Business, general; Business, international
 : COPYIGHT 2009 American Society for Competitiveness   !






: Annual, 2009 
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: 17 



: 1-2

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: United States #
 
: 1USA United States

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204480543





_TODUCTIO_

Business metrics and performance measures serve as dashboard gauges that help in guiding the strategic direction
of a firm (ubin, 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.

LIMITATIO_ TADITIO_AL BUSI_ESS METICS

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.

[FIGUE 1 OMITTED]

While the traditional metrics have served adequately for the contexts they were designed for, they increasingly fall
short of reflecting today's business environment. Examples of shortcomings of such metrics evaluated in light of
today's powerful business drivers as provided by Campbell (1997) are:

* In software companies, the real assets include the people, software, and  D. Traditional accounting methods do
not record these "off-balance-sheet" assets. Hence, traditional metrics do not reflect these assets.

* In automotive companies, sales revenue and customer satisfaction are not always correlated. Within the industry,
one of the most important metrics that signals future sales growth and market-share formation is "customers' intent to
purchase." This is a non-traditional metric and is never revealed in traditional accounting information.
This metric is measured and reported by organizations such as J.D. Power based on customer surveys.

* In food companies, the metric "brand equity" reflects the degree to which a product has differentiated itself from the
competitors' products. This again is a nontraditional metric. It is not reflected in traditional financial statements.

The notion that traditional financial metrics reflect less and less current strategies has been argued throughout the
literature (angone,1997). A study conducted by Ernst Young LLP's center for Business Innovation concludes that
two-thirds of the allocation decisions financial analysts make are based on non-financial metrics. Specifically, the
three non-financial metrics that matters the most are (a) quality of product, (b) quality of management, and (c) market
position of firm. Calabro (1996), in discussing the results of this study, concludes that "the market evaluates a
company based on the perception of its non-financials. To realize full value for your company, you have to
communicate non-financial information." Unless a construct is defined and measured, it cannot be communicated.

DESIG_I_G _EW METICS

In coming up with new metrics, it is best to specify the properties desired in that metric and then define the metric. As
an illustration, consider the link between strategy and performance of a business. The metrics in use will ultimately
reflect the strength of the strategy performance linkage; however, different metrics will invariably reflect different
levels of this linkage. For example, in studying the impact of total quality management (TQM) programs, different
metrics may reflect different effects. A study conducted by Hendricks and Singhal (1997) that compares quality award
winners with other control firms shows that as quality increases (a) operating-income increases, (b) sales-growth
increases, but (c) costs do not decrease. Depending on which of the three metrics are being used, the impact of the
TQM program could be measured differently. Thus, based on the metric being used, one could end up with a biased
conclusion regarding the efficacy of that strategy.

There are several properties inherent in a good metric that has been identified throughout the literature. A list of these
properties can be summarized as follows:

* Metrics, designed for purposes of accountability (Cooper, 1996), should be constantly reviewed based on the
changing standards of accountability.

* Good performance metrics need to reflect progress against a plan (Fleisher and Mahaffy, 1997). This property
allows a metric to go beyond being just a measure. Metrics with this property are vehicles for organizations to clarify,
communicate, and manage strategy.

* Good metrics should closely reflect long-term organizational success and not just short-term financial gains. A
survey of 420 practitioners (Dempsey, 1997) suggests that analysts go well beyond traditional financial measures and
use a broad range of strategic leading indicators to assess long-term organizational success. Thus, it makes sense
that organizations use the type of metrics analysts use to evaluate them.

* Any good metric should be part of an integrated performance measuring system (Ghalayini et al., 1997). Metrics, no
matter how well defined they are, if interpreted in isolation, can lead to problems. It is best to construct metrics by
fragmenting the measurement system.

* Good performance metrics should be properly aligned with business strategy (Stainer, 1996). It is not uncommon to
find an organization redoing its business strategy but without concurrently redefining its metrics. As discussed earlier,
changing business strategy, without updating the metric, can lead to serious problems in measuring the strategy--
performance link.

Building on these properties, the next sections present several managerial applications for using business metrics
and how the proper selection of business metrics can help steer the strategic direction of the company towards
enhancing its competitive advantage.

MA_AGEIAL IMPLICATIO_S OF BUSI_ESS PEFOMA_CE METICS

Senior executives understand that their organization's measurement system strongly affects the behavior of
managers and employees. Therefore, they need non-financial measures besides the traditional financial measures in
their organization's measurement system. The inadequacy of traditional metrics is clear when it comes to measuring
the performance of different organizational functions. For example, there is a need to develop non-financial
measurements to evaluate the performance in functions like sales and marketing, manufacturing, information
systems, purchasing,  D, or any other organizational function. In this section, we will discuss, from a functional
point of view, the managerial implications of utilizing inadequate traditional metrics. The discussions will suggest how
new metrics are helpful in such managerial functions.

PODUCT-LIFE-CYCLE IMPLICATIO_S

A key aspect of the design of new business metrics is to take into account the product-lifecycle stage of products and
organizations as a whole. It is becoming increasingly clear that firms utilize different business strategies for different
stages of a product-life-cycle. Product-life-cycle management has become a mainstay of business strategy; so much
so that fundamental organizational decisions such as resource allocation, shareholder value creation, and customer
satisfaction hinge on product-life-cycle issues.

Product-life-cycles (PLC) are not only becoming shorter (Garud et al., 1995), but they also are increasingly skewed to
the left (McGrath, 1997). Any change in a product-life-cycle, length or shape, calls for a corresponding adjustment in
business strategies. If such PLC-based adjustments in strategies are not forthcoming, then the firm is in serious
jeopardy of failing to sustain its business success. The big question is what those strategic adjustments should be.
This is where business metrics play a critical role. An organization that is reading the contextually appropriate metrics
will be in a sound position to make the right strategic modifications, thereby sustaining business success.

For instance, as product-life-cycles become more left-leaning, time-to-market becomes a more critical business
metric (McGrath, 1997). Therefore, modified strategies that lead to a lowering of the time-to-market metric will payoff
significantly for left leaning product-life-cycles. The key here is that only firms that deliberately monitor the time-to-
market metric can leverage changes in their product-life-cycles. Other, less observant, firms may continue to place
sole emphasis on more traditional metrics such as manufacturing costs, sales revenues, market shares, etc., leading
to misdirected strategies.

According to Dellecave (1995), electronics manufacturers face product-life-cycles that are so short that the
customers' requirements may have changed by the time a component moves out of a design process. He suggests
that those manufacturers that continue to be successful have changed their strategies and are turning to distributed
computing to provide the efficiency and flexibility needed to meet customer needs in the face of shrinking product-life-
cycles. Similarly, Griffin (1997) suggests that companies are focusing more on shortening product development cycle-
times in order to effectively deal with compressed product-life-cycles. Product development cycle-times are the metric
suggested in this study.

The link between business strategies and organizational goals is ever-changing. Constant, close monitoring of this
link, via the use of appropriate business metrics, is essential for sustained business success. Shrinking product-life-
cycles have turned the spotlight more glaringly on the cost metric. Electronics companies have adapted to this shift
by outsourcing key portions of their business functions (Levin, 1996). Using the proper metric, in this case, has
resulted in a definite strategic modification, the sudden rise of outsourcing as a key strategy.

In a marketplace characterized by brand proliferation, condensed development cycle times and product-life-cycles,
globalization and media fragmentation, and building brand loyalty is more important than ever but is getting tougher to
achieve (Munger, 1996). The fact is, these market characteristics are fueled by powerful business trends such as the
growing assertiveness of consumers and increasingly fierce competition and advances in manufacturing technologies
(Kotha, 1996; LaBahn, 1996; Goldhar 1995). Strategies, suitably modified so that they lead to an increase in the
brand proliferation metric or to a lowering of the development cycle-time metric, are the ways to build brand loyalty in
this newer marketplace. Others (Hughes et al., 1996) suggest that in the contemporary marketplace competitors
come and go, technological changes occur in an ever-increasing rate, customer wants and needs are constantly
shifting and a product's life-cycle may be shorter than its development time. In order to remain viable in this fast
paced environment, it is crucial that firms introduce new products frequently (aman et al., 1995). In this situation, the
proportion of a firm's revenue from new products is considered an important metric.

In the beverage industry, brand proliferation and shorter life cycles are typical (McSparran, 1995). Hence, a similar
metric to the above would be functional. According to Taylor et al. (1996), banks are competing in a fast-changing
environment where product-life-cycles are as short as 18-24 months and shrinking. Again, an appropriate metric
would be like the one above. Firms in the electronics industry manage their supply chain in a manner that quickly
pushes products out into a fast time-to-market environment (Taninecz, 1995). For electronics manufacturers faced
with a shorter product-life-cycle, the performance of the new product development function can determine the firms'
success. Loch et al. (1996) postulate that overall development productivity, measured by development expense
intensity, is the clearest predictor of business success. The latter is a timely PLC-based business metric.

It is well known that product marketing strategies vary depending on the stage of the life-cycle the product is in.
Moore (1997) extends this concept and suggests that at every stage of a technology-life-cycle there are key metrics
that need to be leveraged and key anti-metrics that should be de-emphasized in forming strategies. This concept can
be adapted to the product-life-cycle, as discussed below.

In the introductory stage of the product-life-cycle, the preferred marketing strategy is to seed the market by targeting
the "innovator" and "opinion leader" type customers. The marketing mix strategies are aggressive and driven by key
metrics, which are market acceptance of the product and customer satisfaction. The key anti-metric here, the one that
could lead to a premature market failure, is product profits. In the growth stage of the product-life-cycle, the preferred
marketing strategy is to focus on market penetration, with the goal of quickly establishing a dominating presence in a
niche. The key anti-metrics in this case are segment-share and time-to-segment-dominance. The anti-metric to be
actively avoided in this stage is total revenue. The third stage in a product-life-cycle is the maturity stage. The
strategic focus here is on standardization and securing mass-segment customers. The metric driving the strategies is
overall market-share and cost-minimization while the key anti-metric to be suppressed is customer satisfaction. The
decline stage is considered the final one in a product-life-cycle. Marketing strategies that are usually advocated at this
phase are segment-of-one marketing mass-customization. The metric driving these strategies is profits and the anti-
metric to be wary of here is design changes.

SALES A_D MAKETI_G IMPLICATIO_S

In a rapidly changing marketplace, where customers expectations change quickly and their ways of doing business is
increasingly fickle, companies need to correspondingly change their ways of doing business. If businesses do not
react to changes in customers' decision process by making changes in their ways of doing business, then they will
lose an increasingly larger share of their current customers (Colletti and Wood, 1996). This will happen even if that
business is able to recruit new customers at a fast rate.

A well known adage in sales says that you formulate selling strategies as a mirror image of customers' buying
strategies. Knowledge of how customers buy should determine how firms sell. Hence, observing and understanding
customers' buying behavior is critical. The measures and metrics used by organizations in tracking this construct
need to be in tune with current market dynamics and not reflect outdated situations and business contexts.

The "customer-churn" metric indicates changes in customers' ways of wanting to do business. Sales strategies that
work well in recruiting new customers may not be effective in retaining current customers. A high customer churn rate
may indicate the need for a change in the firm's marketing strategies to current customers.

Marketing executives typically track (a) market-shares, (b) sales volume, and (c) contribution margins. These
traditional metrics would then serve as the basis for reformulating marketing strategies. Such strategic reformulations
usually take the form of changing the marketing mix combinations. Changes in price levels, advertising, and
promotions tactics are typical (Band, 1988). However, there is clearly a need to develop and use causal metrics that
more accurately monitor the link between strategy and performance. Examples of causal metrics, in this case, would
be (a) customer loyalty, (b) brand equity, and (c) customer satisfaction. Causal metrics, generally, are more timely
and accurate indicators of customer dynamics. The challenge in implementing such metrics, however, is in defining
operational measures for them.

MA_UFACTUI_G IMPLICATIO_S

Manufacturing strategies are directly influenced by drivers such as technology and by manufacturing goals. As
manufacturing moves from a cost-cutting and efficiency mode to a growth and innovation mode, the metrics used to
track manufacturing performance towards its goals should also change appropriately. Similarly, as manufacturing
moves from satisfying the needs of mass markets to those of market segments to that of segment-of-one markets,
the metrics used to track manufacturing performance towards its goals should also change appropriately.

Consider the effect on manufacturing of the technology explosion. Advances in manufacturing technologies, such as
flexible manufacturing systems (FMS) and computer-integrated-manufacturing (CIM), have made it possible to mass-
customize (Goldhar, 1995). Thanks to such drivers, manufacturers will have to simultaneously strive to manufacture
innovative products at a low cost while maintaining high quality and providing outstanding customer service
(Watchorn, 1991). Even if mass customization does not create as much impact as the mass production system in the
previous industrial revolution, the principles behind it will certainly change the way business is conducted (Lau, 1995).
Just as traditional manufacturing methods cannot take advantage of newer manufacturing drivers, traditional
manufacturing metrics will not reflect appropriately the performance of newer manufacturing strategies. Thus, a
critical element in taking advantage of newer manufacturing technologies is in the development of newer
manufacturing metrics.

The danger in using an improper metric is that it will provide a false indication of performance. Consider the
commonly used factory metric, efficiency ratio. The efficiency ratio compares direct labor hours to machine hours. An
over-emphasis on this metric will lead to higher levels of inventory, which may not reflect customer demand.
Hendricks et al. (1996) write that Caterpillar implemented new financial and non-financial business metrics to
measure their factory performance. This move was a direct result of a change in their corporate strategies to move
certain factories from being cost-centers to profit-centers.

The importance of developing metrics in conjunction with strategies cannot be overemphasized. Take the case of
total quality management (TQM) principles in a manufacturing process. Chenhall's (1997) research, based on actual
firm data, suggests that for TQM to enhance the profitability of companies, the TQM principles should be developed
together with managerial performance evaluation systems employing appropriate manufacturing metrics. The
research specifically revealed that, amongst similar firms that had implemented TQM, those that had designed
appropriate business metrics also had the higher performance. Caldeira (1997) studies the best practices of quality
award winning firms and concludes that, among others, such firms seem to place a premium on valid performance
measures.

Sheridan (1997) echoes a growing view that manufacturers are moving from a cost-cutting phase to a growth phase.
The notion that cost-cutting is not really a strategy for long-term prosperity is becoming reality. Manufacturers are
beginning to act on the belief that long-term prosperity can be derived through growth and market expansion. Care
should be taken that as manufacturers redefine their strategies, they also redefine the metrics. Otherwise, the
traditional metrics will incorrectly measure the effect of the strategies, leading to a more serious problem of incorrect
strategy formulation.

Applications of comprehensive Quality Function Deployment (QFD)--or QFD in the broad sense--to strategic
management have been known for some time, and its results have been discussed within the international
community of QFD specialists. It is therefore tempting to investigate the contribution of combinatory metrics to
strategy deployment. Combinatory metrics are constructed upon the capability of QFD to evaluate the deployment
topics' contribution to customers' needs (Fehlmann, 2003).

I_FOMATIO_ SYSTEMS (IS) IMPLICATIO_S

The impact of information technology on businesses has been significant. However, the role of information
technology, within businesses, is constantly undergoing evolutionary changes. In the past, investments in information
systems were primarily justified by determining cost savings through labor displacement and increased productivity.
In other words, investing in IS was taken to be, mainly, an investment in automation and efficiency. When five billion
dollar Massachusetts Mutual installed a new life and health claims adjudication system, the department was able to
process 10 percent to 12 percent more claims with 35 percent to 40 percent fewer staff members (Sullivan-Trainor,
1991), resulting in cost savings through increased productivity and labor displacement.

_ot all IS investments are wise investments. Managers need to put a price tag on the benefits of information
technology. Corcoran (1997) suggests that to successfully implement IS projects, managers must arm themselves
with a set of appropriate business metrics.

Compared to the past, the current role of information technology within organizations is vastly different. It is a primary
vehicle for redesigning the business process, not just a way to cut costs. Information technology has become so
embedded in business functions, that it is extremely difficult to identify and measure the yield due to IS. To illustrate
the complexity of measuring the impact of information technology, consider the research by ai et al. (1996). The
authors study the link between various business performance metrics and investments in information technology by
using statistical analysis on 210 firms. They find that, using aggregate metrics, the IS budget is not related to firms'
financial performance, but is positively related to firms' sales performance. Using intermediate metrics, such as asset
turnover and labor productivity, ai et al. (1996) find that the effect of IT investments on intermediate firm
performance is mixed. They concluded that it is essential to use intermediate and aggregate metrics in measuring IT
value.

A key element is the realization that the performance metrics used earlier for IS effectiveness will have no value in
assessing today's expanded IS role. Just as information technology has changed and the role of IS within businesses
have changed, it is crucial to constantly update the metrics being used. Metrics such as billing accuracy rates derived
from the efforts of cross-functional teams are becoming more popular as measures of business performance.
Increasingly, IS's fate is entwined with business units that are being judged according to those new business metrics
(Fabris, 1996). _ew metrics often combine IS and business unit objectives in one measurement.

Different business organizations have a somewhat different take on what metrics to use in evaluating the impact of IS
on a firm's performance. eturn-on-investment (OI) metrics and cost-benefit metrics are commonly used measures.
These metrics, however, are appropriate for an earlier time period when IS played a narrow role in businesses.
Additional metrics will need to be developed to measure, more accurately, the current role of IS. According to
Laplante (1996), yder System Inc. utilizes a multifaceted scorecard that includes the traditional metrics along with
customer-based metrics and competitor-based metrics. Similarly, ITT Corporation has come up with a performance
measure that encourages innovation. In addition to traditional benchmarking and OI analyses, the company tracks
the percentage of time, effort, and budget that the IS group in each ITT business unit devotes to revenue-generating
activities (LaPlante, 1996).

PUCHASI_G IMPLICATIO_S

As in other business functions, the drivers for purchasing have changed over the years. Purchasing is being
influenced more by longer term strategic considerations rather than by short-term operational ones (De ose, 1991).
There are three specific drivers that currently have a dominant effect on the purchasing function, though they were
not critical factors in the past. First, the increasingly common practice of outsourcing by companies has turned
purchasing into a profit-and-loss center from a cost-center. Second, rapidly changing technology and intense
competition are steadily shortening the product-life-cycles, which in turn impact the purchasing function. In fact, even
within a product's life cycle, the various stages of the PLC affect the type of purchasing strategy employed by firms
(Birou et al., 1997). Third, the pursuits of total-quality-management and just-in-time-management practices have
created additional and newer demands on purchasing. The presence of these newer drivers call for a redesign of the
metrics being used to measure the performance of purchasing.

The role of the purchasing function in best practice organizations is to add value to the business through the effective
development and management of the supplier base. In many business organizations, the only metric used to
measure purchasing performance is stock level (Parsons, 1997). This is the traditional metric for the purchasing
function. However, a business with a lower reorder level (OL) and lower reorder quantity (OQ) will have, ceteris
paribus, a lower stock level. This firm's purchasing function, based on the stock level metric, is operating very
efficiently. However, this firm has significantly increased its order-processing expenses. They are able to lower the
stock level by increasing the number of orders and their total costs have increased considerably. Such obviously sub-
optimal decisions are the direct results of using poor metrics, as the buyer was only performing according to the way
he was measured.

As Parsons (1997) says, if we want the purchasing department to achieve cost savings, then we need to measure
that with the appropriate metrics. Developing the appropriate metrics for purchasing gets complicated as lower costs
can be achieved through unintended means, i.e. through poorer quality, delivery, service or reliability. It is
undoubtedly clear that the metrics used for measuring performance of the purchasing function are critical. Whenever
there is a paradigm shift in the purchasing function, there should be a corresponding shift in the metrics being utilized.

ESEACH A_D DEVELOPME_T IMPLICATIO_S

Given the tremendous pressure on businesses to improve performance, every function in these business
organizations is being closely scrutinized for its value added. This emphasis on accountability has extended to the
farthest reaches of firms, even to research and development. There is renewed interest in developing proper
performance metrics. Measurements in science are in vogue. They are taking center stage because of the emphasis
in industry, government, and academia on measuring the value of research--in particular basic research (Jacobs,
1997).

The transition for several corporate functions from being cost-centers to profit-and-loss centers has hit even  D.
The challenge for  D organizations is to consistently contribute to the long-term generation of corporate wealth
(Jaskolski, 1996). However, a critical step in transforming  D into profit-and-loss centers is the development of
proper performance metrics. If we cannot measure the performance of  D accurately and reliably, then we cannot
design strategies for improving its performance.

 D directors continue to behave defensively when negotiating their budgets, while their colleagues who represent
other business functions use more aggressive approaches. Developing  D metrics that resemble the standard
business metrics used in other functional areas could support a more offensive approach (Brockhoff and Chakrabarti,
1997).

There is yet to be a commonly accepted set of metrics for measuring  D performance. Several years ago,
Schainblatt (1982) published the results of a survey of 34 leading US companies. esults showed that there was
limited use of  D performance metrics because their managers were skeptical of their validity. An astonishing 60
percent of all companies surveyed had no activity at all in  D performance measurement (Werner, 1997). Moser
(1985) analyzed the frequency of use of commonly cited  D effectiveness indicators. Like previous surveys,
relatively little use of these methods was found. In 1993, Tipping published the results of a survey of the use of  D
metrics within 100 U.S. firms. Only half of the firms routinely used any systematic method. Interestingly, Tipping found
that only those firms in which  D and marketing departments were strongly interdependent carefully assessed their
 D performance. Also, all the firms used  D metrics retrospectively, with no emphasis on using the measures to
develop  D strategies.

Werner (1997) compared the use of  D metrics by U.S. firms and German firms. He found that most U.S. firms
prefer output-based  D metrics such as patent counts, rate-of-return, total quality management audits, and
cost/time performance assessment. On the other hand, most German firms tended to use input-based performance
metrics such as annual expense per  D employee. Maximizing the results from each dollar spent on  D is an
increasingly important task in today's competitive global economy (Werner, 1997). Greater attention is therefore being
focused on the measurement of  D effectiveness through the development of appropriate metrics.

Others

In most areas, the use of proper business metrics to measure performance has become a high priority. Even areas
that traditionally did not measure performance are beginning to realize the need for sound metrics. In the healthcare
field, Palmer (1996) suggests that too few managed care organizations provide performance measures to physicians
for their use in quality improvement. Developing such metrics and encouraging the use of them will result in
significant improvements in performance. Wilensky (1997) finds that the privatization of healthcare is leading to the
development of more and better quality metrics.

The Balanced Scorecard (BSC) has emerged as an important strategic management system. By incorporating the
perspectives of customers, internal business processes, and learning and growth, it enables users to identify and
measure factors critical to an organization's efforts to become more flexible and responsive to customer needs.
Whether the BSC is used as a performance measurement or strategic management system, a company must
address how targets and goals--the metrics used in the scorecard process--are established. According to Weinstein
and Astellano (2004), while benchmarking best practices of other organizations and using stretch targets are
methods discussed in the scorecard literature, these approaches may undermine the credibility and usefulness of the
BSC. Such measurements are simply arbitrary goals and targets. It is critical that the right metrics are used in any
BSC analysis. The call for using a balanced scorecard reporting by healthcare providers is not unusual (Forgione,
1997). Such a report will include both financial and quality performance metrics. Such measures may be used
internally for quality improvement purposes or externally for marketing to the purchasing public.

Accountability in organizations in a knowledge-based economy should move decision authority from a centralized
vertical command and control structure to distributed decision-making at the right level. In reinventing corporate
governance, executive accountability and pay for performance, the board and the CEO should ensure that the level of
work and related accountabilities of the CEO are matched to the business strategy. They should also ensure that the
accountability and decision authority structure is appropriately cascaded into the organization and that performance
measurement and the requisite leadership capabilities are aligned at each work level (Van Clieaf, 2003). The
transparency of corporate governance processes is possible only with improved business metrics designed
specifically for that purpose.

CO_CLUSIO_

The theme of this article is to highlight the importance of using timely and current business metrics. Changes in
product-life-cycles and different stages within a product-life-cycle call for changes in the business metrics used.
Poorly conceived or inappropriate metrics result in an organizational insensitivity to changes in firm performance. As
Lewis (1996) puts it, regarding business metrics, "use it well and performance will improve. Use it poorly and only the
measure will improve." The gauges may show higher customer satisfaction, but the profits may not have increased.

Actively managing customers can improve profitability, and a firm's success depends on treating these customers as
key assets rather than just as a pool of transactions that follow from business activities. Customer performance
metrics provide objective criteria that everyone can view, understand, and act on in ways that are consistent with
overall strategies. Wyner (2004) states that they provide the vehicle for determining how well the business is working.
While some argue that there is a particular way to implement a metrics plan, no single metric or approach will be
appropriate for every company.

While strategy formulation and strategy implementation are essential to achieving superior organizational
performance, an increasing number of authors have concluded that implementing strategy is where companies
succeed or fail. Organizations that excel at execution know how to create value for customers and shareholders.
Spanyl (2003) suggests that companies that aspire to superior, sustainable performance cannot afford to be diverted
from its strategic goals--and that requires operating discipline.

A firm can only manage what it measures. But, by the same token, a firm should also measure only what it wants to
manage (Brancato, 1997). A business organization that continually monitors and effectively manages the use of
proper business metrics will have discovered a fundamentally unique source of competitive advantage.

EFEE_CES

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