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Valid or reliable – in the board room

by Jamie Flinchbaugh on 07-30-10

Board of Directors.jpg

In my last post on the theme of looking at metrics as either valid or reliable and the balance between them, I wanted to examine the impact on decisions in the board room. So far we have covered the following:

In the board room, one of the consistently large problems is the balance between the breadth of content that must be understood, and the limited bandwidth in which to absorb and process it. Boards are not a full-time role, but in some ways they need to cover even greater breadth than the CEO. This means designing indicators and metrics for the board to monitor is a daunting task.

In order to maximize the utilization of board time, use of a suite of reliable metrics can provide a steady point of focus. Most of these will be quantitative such as financial, customer-focused, or employee-focused. The use of ratios, as discussed in trying to break the tradeoff, is most helpful. However, the key decision for the board is then how to get more valid insights into what is going on.

How do we know when to do this? Some indicators might be:

  • The quantitative metrics change in unpredicted ways: this might indicate that the relationship between key variables have shifted, requiring deeper insight.
  • When there is a new learning edge required, such as a new market or customer-base.
  • When you need to assess the insights and knowledge of the management team to establish valid understanding of key issues.

A reliable metric is a benefit when bandwidth is a major constraint. But digging deeper into more valid means is necessary, but must be used selectively.

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