Oops! The input is malformed! Canary Metrics, Part 1 by Janet Kuster, MBA, PMP, Christina Rouse, Ph.D. - BeyeNETWORK


 

Canary Metrics, Part 1 A Strategy to Maximize Future Growth

Originally published January 20, 2009

Canaries in the Coal Mines: Miners always kept a canary with them in the coal mines because the birds were so much more sensitive to air quality than the miners. If the canary was alive and singing, the miners worked. If the canary was dead or dying, the miners knew to immediately evacuate the mining shaft.

Value Proposition

Canary metrics are an organization’s crystal ball into future profitability! Carefully developed canary metrics serve as early notices of challenges and opportunities for the business.

KPIs No Longer Guarantee Competitive Advantage

While key performance indicators (KPIs) have been the “darlings of the dance” for many years now, identifying KPIs is no longer enough to provide a sustainable competitive advantage. At the intersection of theory and practice, KPI identification will buy your dance ticket; active monitoring will get you in the door. But then, how do you get to dance with the prettiest girl in the place? That requires a lot more planning and, most importantly, early action.

Organizations thought they were doing that by investing in technology for the last decade. From implementing complex ERP applications to upgrading their infrastructure, organizations have sunk huge investments of time and money into planning for the future. They have the data. They have fast hardware. Everything is best of breed. But their top and bottom line results are only marginally different, and the leadership is left wondering, “What’s going on?”

As a single symptom, it could mean many different things. It could be a lack of commitment by the business unit or a great solution poorly implemented. If it’s clearly not either one of these, the leadership needs to ask a tough question: Are we measuring the right things? The answer might be yes… and no. Properly developed KPIs can always add value to leadership decision making. With tight integration to organizational objectives, KPIs are indispensible in the boardroom and executive offices. It’s a given that organizations will continue collecting, monitoring, reporting and doing their best to predict their KPI performance.

But KPIs alone won’t provide a sustainable competitive advantage. For that, organizations have to turn to canary metrics – the metrics that actually drive the KPI performance. The hallmark of a good canary metric is its ability to warn the audience so far in advance that the KPI is never really in much jeopardy. Even if the KPI on the dashboard turns yellow, the canary metric has already turned the corner on the recovery. Ideally, the canary metric is so far back in the chain of events that the KPI dashboard barely has a chance to register an alert, as in the following dashboard illustration:

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Good canary metrics allow organizations to minimize performance-based risk and damage. Without the benefit of a canary metric, organizations with KPIs may reduce their risk but are still likely to face recovery issues and need to practice damage control.

Finding True Canary Metrics – Personal, Urgent, KPI-Driven

Good canary metrics all share the same attributes. They are unique to your business, time sensitive and true derivatives of KPIs.

  1. Uniqueness: Just as not all animals can do as good a job as a canary in a coal mine, not all metrics are candidates for canary metrics. The best canary metrics are unique to the business model and industry niche. An industry metric is not a good candidate unless you can personalize it to your organization.

  2. Time Sensitive: Miners knew to keep the canary in the shaft with them all the time, not just check it once in the morning or evening. The canary metric needs to be reported often enough to show early deterioration. Likewise, the most effective canary metrics are the ones that have a meaningful change on a weekly or daily basis. Meaningful simply indicates that observed daily changes will provoke management action such as redistributing work, changing prices or altering processes. Although some industries (notably financial) may benefit from hourly time segments, the majority of organizations will be able to develop canary metrics with weekly or daily incremental updates.

  3. KPI Derivative: By definition, a canary metric is derived from a KPI, preferably two or more levels deep into the supporting equations. The cause and effect should be clearly documented and obvious to the organization. Working from the KPIs backwards, management teams can identify the components that drive their unique KPIs. While KPI decomposition can result in a lot of metrics to choose from, redundancy and patterns usually emerge quickly. If not, using the 80/20 rule can narrow the focus to the most likely candidates for canary metrics.

Tying these three requirements together yields simple but elegant results that yield consistent performance and lead the way to a sustainable competitive advantage.

Canary Metrics Benefit – A Tool for Sustainable Competitive Advantage

Organizations should redirect their energies toward the development and monitoring of true canary metrics. With unique, sensitive canary metrics deeply tied to KPIs, the management team will consistently have enough time to take action so KPI performance doesn’t suffer. Even in the case of severe market disruptions, an organization with true canary metrics will be able to make proactive adjustments to maintain performance levels.

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Because canary metrics allow organizations to minimize performance-based risk and damage, an organization can reap sustainable market advantage.

SOURCE: Canary Metrics, Part 1

  • Janet Kuster, MBA, PMPJanet Kuster, MBA, PMP

    Janet is the PM & Delivery Manager for Incisive Analytics, LLC. As the leader of the core delivery team, Janet ensures high quality delivery on all client projects. She is well known for pushing her client teams’ thinking forward while maintaining focus on the client’s integrated strategic priorities and, of course, the critical path. Janet’s collaborative and diplomatic style consistently enables her to deliver excellent product value and achieve superior knowledge transfer in organizations focused on innovation and performance improvement. She may be contacted at Janet.Kuster@IncisiveAnalytics.com.

    Editor's Note: More articles and resources are available in Janet's BeyeNETWORK Expert Channel. Be sure to visit today!

  • Christina Rouse, Ph.D.Christina Rouse, Ph.D.

    Christina is the Chief Architect at  Incisive Analytics, LLC. An improvement catalyst, Chris applies business intelligence strategy for performance improvement. Leveraging two decades of data experience on a broad range of technical platforms, she developed a technology-agnostic approach to business intelligence consulting. Clients rave about Chris' unique blend of business acumen, technical architect and trainer skills. She may be contacted at  Christina.Rouse@IncisiveAnalytics.com.

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Comments

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Posted April 14, 2009 by Scott Sullivan scott.sullivan@oversightsystems.com

The biggest challenge is getting companies to admit that their multi-million dollar investment in erp may be sub optimized. Implementations typically are time based not change/feedback loop based. ERP fatigue is a common problem when a performance management inititative is started.

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