Is it Time to Shun Vanity Metrics in Shared Services?
Is it Time for Shared Services to Shun Vanity Metrics?
If you've ever worked in a shared services environment, you're likely to be familiar with 'vanity metrics'. Vanity metrics can make a company look great, but they add little actual business value to the decision making process apart from adorning fancy PowerPoint presentations or using it as leverage to increase headcount.
When we only look at metrics such as how many invoices were processed, how many candidates were interviewed orhow many Lean Six Sigma green belts have been certified, we miss the whole point. The insignificance of these metrics is highlighted by their inadvertent lack of ability to produce any further insights about a process. Can a metrics like "invoices processed per month" directly impact the liabilities position of the company versus a metric that highlights aging of invoices based on the value/volume that has a direct impact on the financial position of the company?
Similarly, instead of measuring the number of Green Belts certified, a metric like audited financial impact of Green Belt projects has a direct bearing on how an organization is managed.
The biggest problem with vanity metrics is that they don't touch the greatest challenges for companies. Think about it: Finance is focused on issues like working capital, compliance, debt and liabilities. HR wants to attract and recruit high-quality resources. And for IT, it's about providing an almost perfect up time for email and the network.
Where do vanity metrics fall into these requirements? The answer is simple: they don't.
Let’s consider a few more arguments against the use of vanity metrics:
Vanity metrics didn't exist before the advent of shared services
Performance was managed by the achievements of departments or personal accomplishments that had a tangible impact on the business. If functions could be managed without the existence of vanity metrics in the past, it should still be feasible today.
Just because it's easy to measure, doesn't mean it is the most effective metric to measure
An old adage says if you can’t measure it, you can’t manage it. However, if you're measuring the wrong thing, then you're also managing the wrong thing. It is extremely important that enough deliberation is conducted on what metrics/KPIs to choose before these are activated. Sometimes, during a transition phase, organizations may end up using these vanity metrics to ensure that the new teams get to similar levels of performance as the original teams. These metrics should be discontinued once the shared services operations have stabilized.
Vanity metrics just don't pay off
A vast number of companies spend up to 10-15 percent of their operational and management overhead in generating and reviewing vanity metrics. Translate that to monetary terms: if your shared services engagement is about USD 2 million p.a. in size, then this overhead is about USD 200K-300K, or USD 1-1.5 million over the lifetime of a typical contract (5 years). That's pretty expensive. Are you really getting your money's worth?
A Different Approach
After a couple of decades managing through vanity metrics, some companies have started taking another look at the whole wisdom of doing this. Organizations like GE, Shell and Microsoft have started exploring alternate business impact metrics.
I believe that the shared services industry has now reached a level of maturity that allows it to re-evaluate the whole discipline of KPIs/metrics through a new lens.
What do you think?