Why family offices should focus on 'soft' as well as 'hard' assets
Key Performance Indicators (KPI’s) have been credited by many as the backbone of business management. But how do these metrics fair in a rapidly evolving world? Research suggests that a focus on soft (as well as hard assets and predictive technology is the answer.

By Francois Botha
Published on Simple November 2, 2020

Anyone working in business is familiar with the old adage:“what gets measured gets done.” Key Performance Indicators (KPIs) have become an integral part of business management since the late 1980’s. When developed effectively, they can help to define a picture of success. People and functions are horizontally and vertically aligned towards specific goals, fostering a sense of both personal and shared accountability. In the fast paced world of business it’s often only what’s measured that gets done.

However, despite the obvious necessity to leverage KPI’s as a tool to enable success, an extensive MIT Sloan Management Review survey reveals that only 27% of companies strongly influence process and people management through their KPIs. What’s more – many businesses that actively evaluate organizational and functional performance against a set of KPIs limit their performance measurements to traditional ‘hard assets’. Spend, revenues and profits are important to track. But they do not give a full picture of how the company will perform in the future, nor do they necessarily align with the organisational strategy of vision. ‘Soft assets’ should play an equal role in a company’s performance metrics.

If we glance back into recent business history, we can find an example of a forward-thinking approach to balancing soft and hard assets. As early as 1992, Robert Kaplan and David Norton developed the Balanced Scorecard Framework (BSC) which operates with an emphasis on selected combinations of financial and non-financial measures. The BSC makes use of strategy mapping to better align KPIs to strategic objectives, going beyond outcome-tracking by incorporating critical performance enablers.

Anyone working in business is familiar with the old adage:“what gets measured gets done.” Key Performance Indicators (KPIs) have become an integral part of business management since the late 1980’s. When developed effectively, they can help to define a picture of success. People and functions are horizontally and vertically aligned towards specific goals, fostering a sense of both personal and shared accountability. In the fast paced world of business it’s often only what’s measured that gets done.

However, despite the obvious necessity to leverage KPI’s as a tool to enable success, an extensive MIT Sloan Management Review survey reveals that only 27% of companies strongly influence process and people management through their KPIs. What’s more – many businesses that actively evaluate organizational and functional performance against a set of KPIs limit their performance measurements to traditional ‘hard assets’. Spend, revenues and profits are important to track. But they do not give a full picture of how the company will perform in the future, nor do they necessarily align with the organisational strategy of vision. ‘Soft assets’ should play an equal role in a company’s performance metrics.

If we glance back into recent business history, we can find an example of a forward-thinking approach to balancing soft and hard assets. As early as 1992, Robert Kaplan and David Norton developed the Balanced Scorecard Framework (BSC) which operates with an emphasis on selected combinations of financial and non-financial measures. The BSC makes use of strategy mapping to better align KPIs to strategic objectives, going beyond outcome-tracking by incorporating critical performance enablers.

From customer satisfaction to internal efficiencies, to talent development, and culture, the BSC framework brings new considerations into the KPI mix. Yet today only a minority of companies are fully leveraging scorecards to drive effective decision-making. In the 27 years that have passed since the BSC was introduced, new soft factors like agility, purpose, and reputation have come to the fore. In parallel, new intelligent reporting technology has emerged, allowing progressive data-driven companies to get a significant head-start on the rest of the field. How we might breathe new life into this old concept and ensure the consideration of soft and hard assets in business decisions? And design metrics that are synced with the fast-paced business world today?

Agility is vital in a rapidly evolving world

Aaron De Smet, Senior Partner and Organisational Specialist at Mckinsey, defines agility as an organization’s ability to adapt in times of change. He argues that it is increasingly becoming one of the most important soft assets in business today. A climate of accelerating technological innovation, intensifying competitive pressure, and a fast-evolving customer expectation, means that agility has become modus operandi in modern-day business. Decision making must be flexible and swift in order to remain relevant beyond the time frame it is made.

Agility is the ability for an organisation to renew itself, adapt, change quickly and succeed in a rapidly changing, ambiguous, turbulent environment.
Aaron De Smet, Senior Partner & Organisation Specialist, McKinsey

Since the early 2000’s, Objective Key Results (OKRs) have been gaining traction as the agile cousin of the KPIs. In Measure What Matters: How Google, Bono and the Gates Foundation Rocked the World with OKR’s, VC John Doeer highlights how OKRs have helped tech giants from Intel to Google to achieve explosive growth and thrive. Often cited as the software business performance tool due to its popularity with the likes of Google, Twitter, Linkedin and Spotify, OKRs have been credited for pushing boundaries and creating the foundations for innovation. The metrics aim for 10x improvement (rather than settling with 10% improvement) whilst still designing room for failure and iteration. Where KPI’s are typically obtainable and in essence represent the output of an existing process, OKRs are aggressive and ambitious. OKRs are intentionally impossible to achieve – at least within the timeframe of a quarter. But by striving towards these ultra ambitious goals, organisations are able to iterate and push themselves further and further.

To win in the global marketplace, organizations needs to be more nimble than ever before. OKRs are a way to do that.
John Doer, Author of Measure What Matter

Technologies such as machine learning, artificial intelligence and future computing are changing the way we work today. In parallel with this, we need to adapt our working styles and appropriate more agile measures like speed-to-market, decision-making time-frames in our company scorecards.

Family offices should use agility as an enabler to navigate the complexities of their industry.

Enhancing agility with technology

Rapid and efficient decision-making requires improved analysis and reporting tools that provide an ‘at a glance’ view on business health. The tools we use need to be dynamic in order for us to use them in real-time.

More and more companies are leveraging consolidated multi-variable reporting tools to make informed business decisions. Variables within this style of reporting include hard and soft performance indicators and be supported by AI and machine learning.

According to an MIT Sloan Management Review article Leading With Next Generation Key Performance Indicators, machine learning is poised to radically influence how executives use performance indicators to monitor and spur growth. As predictive algorithms are incorporated into business process planning and design, they seem destined to inspire next-generation digital dashboards.

Performance indicators will consequently offer predictive and prescriptive indicators, not just rearview-mirror reviews. Data-driven companies that leverage these advances by reconceiving their KPI’s or OKRs will enjoy distinct competitive advantages. Hernan Asorey, Chief Data Officer at Salesforce, emphasises the need for both the human and technological elements of forecasting. AI and machine learning should be understood as a tool of enhancement rather than simply a replacement for human decision. Leveraging the human element to augment what AI predicts is a key tactic to accelerate learning. By embracing forecasting technologies, businesses are able to create honest pipelines, verify hunches and create accurate measurements and levers for growth.

Forecasting should be treated for what it really is: a science. Without scientific logic, forecasting often happens on one of the two ends of a spectrum: either overly optimistic or overly pessimistic. Either scenario will affect a company, its investments, and, ultimately, its growth.
Hernan Asorey, Chief Data Officer at Salesforce

Being accountable to purpose

A performance indicator is only as valuable as the action it inspires. Before setting the right performance indicators, the groundwork must be done on what the company is trying to achieve – and why. Next-generation consumers and employees are motivated and inspired by a very different set of principles and priorities. A purpose-driven culture is essential to attracting next-generation talent and to connect companies and brands more authentically with their target audience. It is becoming increasingly important for businesses to establish a greater level of affinity and emotional connection with their customers. Companies are encouraged to clearly articulate their purpose statement — a reason for being that supersedes sales and profit and identify practical and organizational measures to track their commitment to this purpose.

When done in an honest, genuine manner, this can be one of their strongest soft assets. The field of impact investing and measurement has exploded over the last couple of years, with bodies such as the Impact Management Project demonstrating how what we’ve traditionally understood as ‘soft assets’ are able to be quantified and managed.

Other Soft Factors considerations in KPI Reviews

  • Corporate Culture: Corporate culture can be a powerful soft asset. Consider using internal surveys to track culture scores and to gauge employee morale, loyalty and satisfaction.
  • Brand and Reputation: Consider appropriate measures to track perceptions of your business amongst your target consumers or potential employees.
  • Talent Management: Incorporate measures to assess company performance in attracting and retaining the right talent, and progress with training and development, diversity scores, etc.
  • Customer focus: Consider measures that can track product satisfaction and brand equity and understanding where customers are at in terms of brand loyalty and advocacy.
  • Impact: Consider measures that can track the positive and negative impacts that your company has on people and planet.

Start Now

Future-proofing your business can start today. This is achieved by taking steps to align the focus areas of your functions and work-force to measurements that matter. Some introspection to really understand what success means for your company and what enables that success may be required. However, this is vital and what winning companies do. Reap the benefits by cultivating soft assets, demonstrating a real commitment to tracking your company’s performance against these soft and heard measures and embrace available technologies to support a more agile, data-driven approach to decision-making.

About the Authors

Francois Botha

Simple Founder. Strategy Advisor

Francois believes that the next generation of family leaders need new, simple tools and trusted experts with a fresh outlook.

Connect with Francois Botha View Francois Botha Profile

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