Transforming Performance Measurement

Dean Spitzer

• Publisher: AMACOM
• Year: 2007
• ISBN:
  9780814430095
• Topic: Negocios y empresa
• Subtopic: Comportamiento organizacional

Performance improvement thought leader Dean Spitzer explains why performance measurement should be less about calculations and analysis and more about the crucial social factors that determine how well the measurements get used.

Transforming Performance Measurement presents a breakthrough approach that will not only significantly reduce those dysfunctions, but also promote alignment with business strategy, maximize cross-enterprise integration, and help everyone to work collaboratively to drive value throughout your organization. Spitzer's "socialization of measurement" process focuses on learning and improvement from measurement, and on the importance of asking such questions as:

• How well do our measures reflect our business model?
• How successfully are they driving our strategy?
• What should we be measuring and not measuring?
• Are the right people having the right measurement discussions?

Performance measurement is a dynamic process that calls for an awareness of the balance necessary between seemingly disparate ideas: the technical and the social aspects of performance measurement. This book gives you assessment tools to gauge where you are now and a roadmap for moving, with little or no disruption, to a more "transformational" and mature measurement system.

The book also provides 34 TMAPs, Transformational Measurement Action Plans, which suggest both well-accepted and "emergent" measures (in areas such as marketing, human resources, customer service, knowledge management, productivity, information technology, research and development, costing, and more) that you can use right away. Transforming Performance Measurement tells you not only what to measure, but how to do it -- and in what context -- to make a truly transformational difference in your enterprise.

CHAPTER 1

Why Measurement Is So Powerful

Measurement is not something new. It has been around since the beginning of time. In primitive, self-contained villages, there was little requirement for measurement. Advances in measurement were driven by powerful needs, such as the needs for social interaction and to move beyond subsistence living, which led to trade and commerce, and the need for understanding and mastery of the physical environment, which led to science. Trade and commerce have been such a crucial part of world history that they have become virtually hard-wired in our DNA—and it is trade and commerce that gave rise to most of early practical measurement, including weight, size, quantity, and monetary measures. Early measurement was based on human body parts—for example, the ancient cubit was the length of the pharaoh's arm plus the width of his hand—and a variety of natural artifacts (such as flowers, stones, and shells), which were used in exchange for goods and services. Over the centuries as more sophisticated needs emerged, more sophisticated measures were developed.

Thus, measurement arose because of the uniquely human needs for social interaction, trade and commerce, and the drive to understand the world around us. Most measurement today continues to facilitate the formation and operation of our current social activities and institutions. An important thesis throughout this book is that measurement is, at its roots, a social phenomenon—not a detached calculation of numbers. In fact, measurement was created to facilitate socialization, and its further development and effectiveness depend on a socialization process.

The social nature of measurement is well exemplified by how the measurement of time evolved from social need. In early cultures, time was not very important, and the position of the sun in the sky was sufficient for the level of time-consciousness needed at that time. As people became more conscious of time, they started valuing it more, requiring more time discipline. This led to more precise measurement of time, including the appropriate measurement tools, such as clocks and watches. David Landes said, “It can be persuasively argued that improvements in the measurement of time…were the most important physical advances in the history of Western Civilization, without which few of the other advances would have been likely.”¹

In fact, all scientific and industrial progress has depended on measurement and the continuing development and refinement of increasingly more sophisticated measurement devices—telescopes, microscopes, x-rays, atomic clocks, etc. As Louis Pasteur said, “A science is as mature as its measurement tools.”²

The Pervasiveness of Measurement

Today, if we were consciously aware of the pervasive impact of measurement on our lives, we would be very surprised just how ubiquitous measurement is. Almost everything in modern life is based on some form of measurement. Think for a moment about the critical role of measurement in your daily life.

Literally hundreds of measurement incidents trigger much of what we do during the course of a day—from the moment our alarm clocks wake us up in the morning. We spend much time each day measuring things: time (clocks and calendars), finances (paychecks, bank accounts, budgets, credit, investments, retirement plans), shopping (price comparisons, product quality ratings), weather (temperature, precipitation, wind velocity, humidity, barometric pressure), vehicle operation (speed and gas gauges, maintenance records, specifications), travel (schedules, fares, locations, directions, distances), quantities (lengths, volumes, weights), food (size of portions, recipes, calories, fat content), education (grades, test scores, graduation requirements), health (vital signs, lab tests, cholesterol, blood pressure, weight), sports (scores, batting averages, records), politics (votes, opinion polls)—and hundreds of other measures we use almost daily. Just think of how much measurement goes on as you drive your car or play a round of golf! As Herbert Arthur Klein so rightly said: “Man is a measurer of all things.”³

However, most of our daily measurements are so habitual we hardly notice them, much less label them as “measurement.” Because of the pervasiveness of measurement and its integration with so many other activities, it often blends into the background, and we tend to take it for granted. But it is rather obvious that, especially in today's complex world, we would be in great trouble if we didn't have measurement to guide our decisions. Consider just a few possible consequences of not measuring in our personal lives: We would never be on time, our health would be at risk, our finances would be a shambles, and we would be constantly running out of gas!

Geniat and Libert say (with only slight exaggeration), “Without the capacity to measure, we would be uncertain, literally, as to where we stood and where we are going. We would not know if we are rich or poor, hot or cold, old or young. The very word ‘measure’ pervades all fields…. You can't make decisions, connections, money, or music without true measurements.”⁴ To a large extent, the way we measure success determines the success we will achieve. Unmeasured things cannot be easily replicated, or managed, or appreciated.

Of course, while measurement is a necessary condition for success, it alone is not sufficient for it. We still must take action. A blood pressure reading is not very useful if we ignore it. If we pay attention, however, and take appropriate action, it can change our life—or perhaps even save it.

What makes measurement so potent is its capacity to instigate informed action—to provide the opportunity for people to engage in the right behavior at the right time.

The Challenge of Organizational Measurement

There is no area of human endeavor so much in need of effective measurement as are organizations. Organizations are probably the most complex entities in the universe—composed of thousands, even millions, of components. In fact, nothing has more “moving parts” than a large business or government enterprise!

The challenge is to manage those parts strategically, synergistically, and with appropriate alignment and synchronicity to attain the desired results. Measurement is the connecting fiber that can make all the parts work together. Achieving this kind of coordination and alignment is impossible without exceptional performance measurement.

Of course, smaller, simpler businesses can get by with much less sophisticated measurement. But even the sole proprietor or small business owner needs some measurement, and as small organizations grow in size and complexity, the role of measurement becomes increasingly vital.

Furthermore, the intensely competitive marketplace today demands a level and quality of performance measurement unlike any that ever existed. In the not too distant past, making money and winning at business was much easier: Companies could establish a competitive advantage quite easily and keep it for a very long time; market strength was virtually unassailable; customers were much less demanding; and leaders could manage relatively effectively with good-enough strategies and mediocre execution. But today, “good-enough” is not good enough.

Achieving and sustaining success in today's hyper-competitive marketplace is an ultimate challenge for any company and business leader. This is an era of unprecedented change, complexity, volatility, and risk—when everything seems to be moving at warp speed. There is very little room for error. The business imperative today is not just to perform excellently, but to perform excellently consistently. Organizations that understand and can use performance measurement to manage their strategy, systems, and processes more effectively and more consistently have found that it provides a tremendous competitive advantage.

As organizational change expert Daryl Connor said, “Never before has there been so much change so fast with such dramatic implications for the entire world.”⁵ Ironically, in order to adapt to change, organizations must become even more complex—and the more complex they become, the more difficult it is for them to be managed. And the more complexity and change there is, the more crucial measurement is. Managing a business without effective measurement is like piloting an airplane through a stormy sky without instruments. In any organization that wants to succeed today, top-notch performance measurement is no longer optional.

The Power of Measurement

There are some who say that rewards are the most powerful force in organizations. According to Michael LeBoeuf, the world's greatest management principle is “What gets rewarded gets done.”⁶ He said that he reached this conclusion after hearing the following parable:

A weekend fisherman looked over the side of his boat and saw a snake with a frog in his mouth. Feeling sorry for the frog, he reached down, gently removed the frog from the snake's mouth and let the frog go free. But now he felt sorry for the hungry snake. Having no food, he took out a flask of bourbon and poured a few drops into the snake's mouth. The snake swam away happily, and the man was happy for having performed such good deeds. He thought all was well until a few minutes passed and he heard something knock against the side of his boat and looked down. He was stunned to see that the snake was back—with two frogs!

Sound familiar? We have all experienced analogous situations where employees do something that is inconsistent with the goals or values of our organizations, and we can't understand for the life of us why they did it. The fact is that people do these things because their managers often inadvertently apply LeBoeuf's principle of “What gets rewarded gets done,” but they fail to implement an effective system of measurement to support it.

Every day, I see or hear of disturbing behavior by individuals in organizations as a result of how they (and their performance) are rewarded: Sales managers who alienate key customers because they need to close a sale by the end of the month so they can get their quarterly sales bonus; corporate executives who allow expenses to be deferred to a subsequent period because they are rewarded for profits during the current period; employees who fail to share knowledge with others because knowledge sharing isn't counted in their performance appraisals. The list of reward-motivated abuses goes on and on.

So, was Michael LeBoeuf right? Is “What gets rewarded gets done” the greatest management principle in the world?

No—I think not.

Rewards are indeed extremely powerful, and people will naturally tend to do the things for which they are rewarded. But despite the plethora of books and articles (including several I authored) that promote rewards and recognition as the solution to every conceivable organizational failing or management woe, simply implementing a system of rewards is only one part of the solution, and it isn't even the most important part. In fact, this book resulted from my realization that no matter how important and powerful rewards are, they are no better than the measurement system they are based on.

But rewards aren't the only management system that can be problematic without good measurement. Measurement underlies every system in an organization—and that's why performance measurement is so important!

While “What gets rewarded gets done” may very well be one of the world's greatest management principles, there is another principle that is even more fundamental. In fact, it determines what people choose to do (and reward) on the job, and in their lives. This principle is: “You get what you measure” and its proper application will help you not only to use rewards better, but also manage everything else you do more effectively.

Performance Measurement Promotes Effective Management

Effective management is based on a foundation of effective measurement, and almost everything else is based on that. Bain & Company director emeritus and customer loyalty expert Frederick Reichheld unequivocally put it this way: “Measurement systems create the basis for effective management.”⁷

As Figure 1-1 illustrates, measurement determines what management does, and it works—through management—to touch every part of the organization, including compensation and rewards.

Organizations are conglomerations of many systems. Measurement is actually the most fundamental system of all. When the “measurement system” works well, management tends to manage (and reward) the right things—and the desired results will occur. The measurement system—for good or ill—triggers virtually everything that happens in an organization, both strategic and tactical. This is because all the other organizational systems are ultimately based on what the measurement system is telling the other systems to do. Unfortunately, as we will see, most organizations do not have one integrated measurement system, but rather many measurement systems located in functional “silos” and not well interconnected.

FIGURE 1-1. MEASUREMENT: THE MOST FUNDAMENTAL MANAGEMENT SYSTEM.

I am continually amazed how many leaders pursue the wrong things—and it almost always comes down to what is being measured. The wrong measures tend to trigger the wrong activities—because they represent what people “see.” Then these wrong activities generate the wrong results—no matter how well-executed the activities are. Most individuals and organizations don't get what they want because they don't measure what they really want!

If your measurements are out-of-whack, everything else will be as well. This is a real problem, because no organization can be any better than its measurement system. Here is just a small sample of bad things that happen to good companies that don't measure well:

• Strategy isn't well executed, because managers and employees don't know what the strategy means for their jobs.
• Operational performance can't be appropriately managed, because management becomes (at best) a set of educated guesses.
• Priorities are vague and conflicting, and goals can't be set because goals require the right measures.
• People don't understand what's expected of them, and when they do figure it out, it's often too late.
• Managers don't really know how well their functions, their people, and their initiatives are performing.
• There's frenetic behavior, lots of activity, but little seems to get accomplished, and nobody really knows what is paying off, and what isn't.
• There are Herculean efforts at problem-solving and performance improvement, but problems don't really get solved and nobody really knows which improvements are working or what caused the problem in the first place.
• The wrong things are rewarded, and the things that should be rewarded are not.

Do any of these symptoms sound familiar?

Nothing is more frustrating and futile to observe than the chaos and waste that proliferates in a poorly measured organization.

The Functions of Performance Measurement

Even if we don't always measure well, we tend to measure often. That's why this book is about how to measure both often and well.

You would be amazed to know how many times on an average workday you are involved in some form of measurement. It is the ubiquity of measurement that makes it almost invisible, and we have come to think of it as routine—as part of the standard infrastructure of the organization—and it has been allowed to evolve. But this is a mistake. Organizational performance measurement is much too important to leave to chance and evolution. Measurement at work serves a great many vital purposes, and the extent to which it...