Performance measurements and quantifiable indicators are essential for the development, execution, and monitoring of the desired strategy, because “good financials do not always lead to good results”. The Delta Model aligns performance metrics to the strategic options selected and their required Adaptive Processes, and recognizes that these metrics will be fundamentally different depending on the strategic position they intend to support.
In the Delta Model, we use two types of metrics. First, we need aggregate metrics to give us the overall, integrated view of the business and the firm’s performance. Second, we need granular metrics to allow us to develop a detailed understanding of the economic behavior of very specific parameters that are critical to the success of the business.
The Aggregate Metrics used are those associated with the Adaptive Processes that support each distinct strategic option — Operational Effectiveness metrics focus on cost drivers, Customer Targeting metrics on profit drivers, and Innovation metrics on renewal drivers. These metrics also reflect the nature of the strategic options whose performance they are measuring — the Best Product metrics are product-oriented; the Total Customer Solutions, customer-oriented; and the System Lock-In, system-oriented. Of course, specific tailor-made metrics could and should be introduced in each individual business situation.
While aggregate metrics are essential for gathering the full picture of overall performance, they are not enough – “managing solely by averages leads to below average performance”. The objective of granular metrics is to understand the variability in the behavior of critical performance parameters such as product costs, customer profitability, worker productivity, and so on. The performance here is inevitably non-linear and we need to measure this variability in order to assess the root cause, so that we can begin to learn how to improve performance by making corrective actions or developing innovative solutions. This process of de-averaging performance, learning, and feedback is critical to linking strategy with execution.