The financial services industry has been struggling for decades with the concept of measuring the performance of business strategies and operations.

But given the escalating value of accurate information, financial institutions have begun to approach the subject of measurement with renewed vigor.

Industry Week conducted a national survey of U.S. corporations on the activity of measurement. As we know, the manufacturing sector (comprising 65% of the survey's respondents) is an economic indicator for banking, so it is interesting to see how manufacturing is advancing the measurement concept.

Industry Week research examined how executives measure six strategic performance areas that are crucial to long-term success.

Customer satisfaction was ranked as the single most important piece of information for senior-level corporate management. Unfortunately, most managers do not have much confidence in the information on this area.

On the other hand, financial performance is, predictably, of crucial importance, and measurement of it is based on highly reliable information.

Two other areas, employee performance and "innovation/change," ranked very low in terms of management's confidence in the quality of the information, although both areas were recognized by at least 50% of the respondents as quite important.

Industry Week explored the question "Why do executives feel so uncertain about the quality of information concerning customers, employees, innovation/change, and external factors, such as community groups or regulatory agencies?"

Part of the answer lies in the perceived inability to establish measures that clearly define each performance area.

Few managers said that their organizations had been able to define in clear, unambiguous terms what they hoped to accomplish in certain areas. Even in the customer satisfaction, Industry Week's data indicate there is disagreement in many companies on what should be measured.

The survey indicated that the one area on which managers rely most is financials, where information is reliable and easily accessible.

In other areas, some of them pivotal (particularly customer satisfaction and employee performance), executives said their organizations were unsuccessful in generating reliable information. Therefore, they said, they don't rely heavily on that information in their decision-making.

Executives found that in only two of six information categories did they have reliable information. That wouldn't matter if better measurement had no correlation with better performance, but there is a correlation.

Industry Week compared organizations that were "measurement managed" with others that did not place much reliance on measurement.

The study showed a link between success and the effectiveness of measurement management. Of the measurement-managed companies, 97% reported success with a major change.

The Industry Week study supported the idea that good measurement is essential to good management. However, the components of this hands-on measurement approach go beyond financial performance and operational efficiency and are rigorously applied to the soft side of the business.

Three mechanisms were identified as the drivers of successful measurement-managed companies:

*Agreement on strategy. Only 7% of the measurement-managed companies (compared with 63% of the others) reported lack of agreement of top management on the business strategy and related measurable objectives.

*Clarity of communication. While many senior managers feel corporate strategy is crystal clear in their minds, it does not magically cascade throughout the company. A clear message is essential. If the message is unclear, management can force clarity by insisting on measures for strategic goals.

*Focus and alignment efforts. Many more measurement-managed organizations linked unit performance measures to strategic company measures (74% versus 16% for companies that did not employ measurement management), as well as individual performance measures linked to unit measures (52% versus 11%, respectively).

As the banking industry moves toward what I call the portfolio theory of banking - where core banking, though only one of several lines of business under the holding company umbrella, provides the synergy to make the whole greater than the sum of its parts - the focus and alignment efforts are critical to success.

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