Executive Briefings

Aligning Metrics With Your Company's Strategic Vision

Analyst Insight: We have spent over a decade understanding what drives operational performance in DCs through the DC Measures Study. We've written that a DC's operations should reflect the firm's strategic direction. If the strategy is not communicated or understood, firm performance will be mixed at best. Combining over 2,000 respondents spanning five years of data, we've identified a common theme: the lack of alignment between the operational level and corporate strategy.   -- Karl B. Manrodt, Professor of Logistics and Supply Chain Management, & Donnie Williams, Assistant Professor of Logistics and Supply Chain Management, Georgia College & State University

Aligning Metrics With Your Company's Strategic Vision

Once an organization identifies a strategy, the operational functions should be aligned to support and achieve the objectives set forth by the strategy. At least, that is what theory would suggest, as well as articles written by academics, consultants and leading-edge firms. But after compiling five years of data and analyzing 2,467 respondents in our data set, our findings were surprising - and left us with more questions than answers.

We divided respondents by their strategy (cost, customer service, differentiation, and a mix strategy) to determine the top 10 measures for each strategy. Here's some of what we found:

Operational metrics are not aligned to a strategy. The top ten measures used by each strategy were virtually the same. By looking at the measures, one couldn’t identify which strategy was being used. Worse yet, there were very few statistically significant differences in actual performance between the strategies. Operationally, the firms were all the same. This means that, regardless of strategy, everyone uses the same measures.

Little agreement within a strategy as to what measures are most important. For a metric to be considered key to a strategy, we used a cut-off of 70 percent. That is, within a given strategy, 70 percent of the respondents had to have used the metric. This level of agreement was rare. Only cost strategy respondents agreed on the majority of measures; in most cases a strategy only had two or three measures that hit the 70 percent threshold.

There is room for improvement. We have experienced significant interest over the years in the metrics top-performing companies utilize to measure performance. Many have sought ways to benchmark themselves with these best-in-class organizations. Unfortunately, our findings suggest that most organizations are not aligning their DC metrics with the strategic direction of the organization. Over the long term, this may undermine the company’s ability to achieve strategic goals and objectives.

Validate Your Value Add. Want to align the firm’s strategic vision with the value derived from high performing DCs? Here’s how. Clearly articulate how your DC is supporting the strategy of the firm. Second, develop validating statements that link the tactical measures to the strategy. For instance, “We support 12 percent revenue growth (the strategic objective) by shipping 96 percent of orders in less than 24 hours. Third, measure your progress and find underlying issues that may hold up performance. Make sure you communicate your progress with the associates doing the work, and get them involved. Fixing problems is easier when everyone knows why changes are needed.

The Outlook

Take a hard look at your company’s strategy and ask yourself a few questions. How do you support the firm’s strategy? What does success look like? How do you know you are aligned with your strategy? Are you over-serving some customers, resulting in higher costs? After all, if you don't ask the questions, who will?

Once an organization identifies a strategy, the operational functions should be aligned to support and achieve the objectives set forth by the strategy. At least, that is what theory would suggest, as well as articles written by academics, consultants and leading-edge firms. But after compiling five years of data and analyzing 2,467 respondents in our data set, our findings were surprising - and left us with more questions than answers.

We divided respondents by their strategy (cost, customer service, differentiation, and a mix strategy) to determine the top 10 measures for each strategy. Here's some of what we found:

Operational metrics are not aligned to a strategy. The top ten measures used by each strategy were virtually the same. By looking at the measures, one couldn’t identify which strategy was being used. Worse yet, there were very few statistically significant differences in actual performance between the strategies. Operationally, the firms were all the same. This means that, regardless of strategy, everyone uses the same measures.

Little agreement within a strategy as to what measures are most important. For a metric to be considered key to a strategy, we used a cut-off of 70 percent. That is, within a given strategy, 70 percent of the respondents had to have used the metric. This level of agreement was rare. Only cost strategy respondents agreed on the majority of measures; in most cases a strategy only had two or three measures that hit the 70 percent threshold.

There is room for improvement. We have experienced significant interest over the years in the metrics top-performing companies utilize to measure performance. Many have sought ways to benchmark themselves with these best-in-class organizations. Unfortunately, our findings suggest that most organizations are not aligning their DC metrics with the strategic direction of the organization. Over the long term, this may undermine the company’s ability to achieve strategic goals and objectives.

Validate Your Value Add. Want to align the firm’s strategic vision with the value derived from high performing DCs? Here’s how. Clearly articulate how your DC is supporting the strategy of the firm. Second, develop validating statements that link the tactical measures to the strategy. For instance, “We support 12 percent revenue growth (the strategic objective) by shipping 96 percent of orders in less than 24 hours. Third, measure your progress and find underlying issues that may hold up performance. Make sure you communicate your progress with the associates doing the work, and get them involved. Fixing problems is easier when everyone knows why changes are needed.

The Outlook

Take a hard look at your company’s strategy and ask yourself a few questions. How do you support the firm’s strategy? What does success look like? How do you know you are aligned with your strategy? Are you over-serving some customers, resulting in higher costs? After all, if you don't ask the questions, who will?

Aligning Metrics With Your Company's Strategic Vision