CHAPTER 4

CHAPTER 4 - Measuring the success of strategic initiatives

1.      Define metrics and describe the relationship between efficiency IT metrics and effectiveness IT metrics.

Metrics are the detailed measures that feed those key performance indicators (KPI). Efficiency and effectiveness metrics are two primary types of IT metrics. Efficiency IT metrics measure the performance of the IT system itself including throughput, speed and availability. Effectiveness IT metrics measure the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Peter Drucker offers a helpful distinction between efficiency and effectiveness. Drucker states that managers “Do things right” and / or “Do the right things”. Doing things right addresses efficiency (getting the most from each resources) while doing the right things addresses effectiveness (setting the right goals and objectives and ensuring they are accomplished). Effectiveness focuses on how well an organization is achieving its goals and objectives while efficiency focuses on the extent to which an organization is using its resources in an optimal ways.

2.      Explain why a business would use metrics to measure and success of strategic initiatives.

A business uses metrics to measure and success of strategic initiatives because business leaders want to monitor key metrics in real time to actively track the health of their business. Different financial ratios are used to evaluate a company’s performance. Companies can gain additional insight into their performance by comparing financial ratios against other companies in their industry. A few of the common financial ratios include internal rate of return, return on investment, payback method and break-even analysis.