5 Goals For The Performance Measure Practitioner

It's time to take performance measurement and management seriously.

We've wasted too many years playing around at the edges of measuring performance in our

organisations. Debating over what kind of scorecard framework to use. Investing in dashboard

software because of the bells and whistles and flashing traffic lights. Measuring things just

because we always have or just because we can or just because someone asked us to.

If we want better results from performance measurement, and there's no doubt that most of the

potential of performance measurement is yet to be tapped, we have to take it seriously. And

that means treating it as a process that needs to be formalized, managed and improved.

This is the job of the Performance Measure Practitioner. It's an emerging role in many

organizations now, that have recognized that it will happen well when it's lead and managed

well. And one of the first things a Performance Measure Practitioner should have is a set of clear

goals for where they will improve their organization’s approach to performance measurement.

Given that most organizations are still struggling with the early stages of implementing

performance measurement, the following 5 goals are a realistic place to start:

GOAL 1: Improve managers' and employees' perception of the value and importance of

measuring performance.

GOAL 2: Lift the skill level of managers and employees in selecting meaningful measures

and using measures to support their decisions.

GOAL 3: Increase the active involvement of employees in selecting and implementing

performance measures.

GOAL 4: Reduce the cycle time of implementing new performance measures, from

choosing them to using them.

GOAL 5: Increase the proportion of strategic and operational business objectives that have

meaningful measures identified.

Certainly these are not the only worthwhile goals for a Performance Measure Practitioner, but

they are a very worthwhile place to begin, if you don't currently have any serious goals to focus

how you'll lead your organization to improve how it will measure and master what matters.

5 Steps to Find the Right Measures

How to find the right measures is the most asked question in the field of performance

measurement. And it's little wonder, because the more meaningful measures track outcomes

which tend to be less tangible than the traditional things we've measured, like how many widgets

we produced.

How do you translate results so intangible as employee morale or service quality or corporate

image into solid, robust measures?

The framework described here is an excerpt of the How-to Kit: How to Design Meaningful

Performance Measures, which provides a systematic approach for taking almost all of the pain

out of the challenge of finding the right measures.

STEP 1: Begin with the end in mind.

Performance measures are objective comparisons that provide evidence of an important

performance outcome. It is of the utmost importance to decide which outcomes are most worth

tracking right now. As the first step in deciding how to measure an outcome, write down what

the outcome is, what the difference is you are trying to create (and thus want to track using a

measure). Focus on one outcome at a time.

STEP 2: Be sensory specific.

When you have the end in mind, you are ready to get a handle on what specifically about your

outcome you will measure. This is where you take care in your choice of words to describe the

outcome as concretely as possible. Use "sensory" language - the language that describes what

you and others would see, hear, feel, do, taste or smell if your outcome was happening now.

Avoid those inert words that we so often see in our goal and objective statements, such as:

efficient, effective, reliable, sustainable and quality.

STEP 3: Check the bigger picture.

Check the bigger picture for what could happen if you measure your outcome. What level of

control do you have over achieving it? What might the unintended consequences of measuring

the outcome be (both the positive and the negative)? What behaviour would the measures drive?

Which other areas of performance might be sabotaged or limited? This is your first chance to

change your mind about what's most worth measuring.

STEP 4: What's the evidence?

Now, get ultra specific and figure out what the potential measures are that could let you (and

everyone else) know that the outcome is being achieved. For each of your sensory rich

statements from step 2, what could you count to tell you the extent to which it is occurring?

Which of these potential measures would be the optimal balance between objectivity and

feasibility?

STEP 5: Name the measure.

Naming your performance measures marks the point at which you know exactly what you will

be measuring. Be succinct and informative and deliberate, as you need to be able to continually

and easily identify each measure as it moves through the steps of being brought to life and being

used in decision making.

The Deming Cycle

By Paul Arveson

W. Edwards Deming in the 1950's proposed that business processes should be analyzed and

measured to identify sources of variations that cause products to deviate from customer

requirements. He recommended that business processes be placed in a continuous feedback loop

so that managers can identify and change the parts of the process that need improvements. As a

teacher, Deming created a (rather oversimplified) diagram to illustrate this continuous process,

commonly known as the PDCA cycle for Plan, Do, Check, Act*:

PLAN: Design or revise business process components to improve results

DO: Implement the plan and measure its performance

CHECK: Assess the measurements and report the results to decision makers

ACT: Decide on changes needed to improve the process

Deming's PDCA cycle can be illustrated as follows:

Deming's focus was on industrial production processes, and the level of improvements he sought

were on the level of production. In the modern post-industrial company, these kinds of

improvements are still needed but the real performance drivers often occur on the level of

business strategy. Strategic deployment is another process, but it has relatively longer-term

variations because large companies cannot change as rapidly as small business units. Still,

strategic initiatives can and should be placed in a feedback loop, complete with measurements

and planning linked in a PDCA cycle. To illustrate the relationship of business unit processes to

strategic processes, we may construct two nested PDCA cycles:

This 'wheel within a wheel' describes the relationship between strategic management and

business unit management in a large company. There are actually several separate business units,

of course, each with its own set of metrics, goals, targets and initiatives. But this figure illustrates

the idea that the business activities constitute the DO part of the overall strategic effort.

The Strategic Management Maturity ModelTM

The SMMM Can Be Used to Assess Organizational Strategic Management Performance.

Many Institute clients ask a similar question as they work to improve their strategic management at their organizations: where do we stand compared with other high performing organizations? Until now, there was no clear method for answering that question. This recognition of a need for organizations to assess the quality of their strategic management led the Institute to develop the Strategic Management Maturity ModelTM (SMMM).

The SMMM was designed by and for busy managers who need a quick assessment of where their organization stands in terms of strategic management, to monitor progress in improving maturity of strategic management, and to allow benchmarking across organizations, or departments within one organization, in order to identify best practices.

There are two basic questions to ask of management: are we doing things right, and are we doing the right things? Operational management focuses on doing things right, and many tools have been developed to improve this (e.g. TQM, Six Sigma, business process reengineering etc.), including many maturity models. In developing the SMMM, the Institute has broaded the concept of “performance” to add strategic management concerns, which answer the second question, are we doing the right things. In any organization, it is the strategy, driven from the vision of the leadership, that defines what are the right things. Process improvements alone cannot guarantee that a company will be successful, or that an agency will achieve its mission. These two aspects of management – strategic and operational – complement each other, so both must be assessed to determine the organization's total management capabilities.

Saving Your Corner of the World With HPT

by Jennifer Rosenzweig, CPT, and Darlene Van Tiem, CPT, PhD

By any measure, the world today is in terrible shape. From an economic and social

perspective, the financial system is in disarray, civil unrest continues to grow, and poverty and

disease remain enormous challenges. Tightening the lens down to an individual level, jobs,

homes, and businesses are being lost at unprecedented rates. Tight credit and rampant fear has

limited spending, contributing to the slowdown, while even the best prepared households,

businesses, and governments have gone from thriving to barely surviving.

Clearly the world needs saving, and there is a growing chorus of voices who believe that

business, and not government or nonprofits, can be a catalyst for the needed change. Advocates

for this position have proposed that the current view of capitalism needs to evolve into one that

generates value not just for its direct stakeholders, but simultaneously creates value for the

world. This concept has been described as corporate social responsibility and sustainability, in

which business self-regulates and promotes public interest through the production of its goods

and services. One means to determine the impact is by applying a triple bottom line as a

measure, which uses not just profit as a success factor, but also businesses’ ability to foster the

improvement of people as well as the planet. Bill Gates has weighed in on this and offers a

vision that he calls “creative capitalism.” As described in the book by the same title, creative

capitalism is designed to combine the “self-interest,” which drives the competitive, free trade

system, with a desire to “care for others” (Kinsley, 2008). Gates believes, “This hybrid engine of

self-interest and concern for others serves a much wider circle of people than may be reached by

self-interest or caring alone” (Kinsley, 2008).

These ideas are powerful and thought provoking, challenging our understanding of what it means

to function as a business in today’s society. And the viability of these concepts is being debated

by the government, in the media, and inside companies around the world. But perhaps the best

way to determine their potential impact is to simply move from discussion and debate to action

and assessment. Only through the redesign of the business enterprise and the implementation of

new ways to create value can we truly recognize and galvanize these possibilities.

Which brings us to the opportunity for human performance technologists. One of the obstacles

that has slowed down progress is the question of where to begin and who best to lead the charge.

A case can quickly be made that the discipline of human performance technology (HPT) is

ideally suited to embrace these new concepts and to initiate change. HPT’s systemic approach,

insistence on adding value, and collaborative mindset all set the stage for helping businesses

adopt new ways of doing business that expand value beyond the bottom line. Roger Kaufman has

described this through his concept of “Mega.” As he states, “A Mega plan aligns everything we

and our organizations use, do, produce, and deliver in order to add measurable value to external

clients and society” (Kaufman, 2004). The idea of using HPT to “save the world,” was also

proposed and debated in a series of Performance Improvement journal articles, the core of which

was written by Andrews, Farrington, Packer, and Kaufman (2004).

But improving society by eradicating poverty, improving the education of our youth, and

eliminating disease is daunting, if not overwhelming. This seems so enormous that our human

reaction is to think, “Sounds like a job for Bill Gates.” Yes, Gates is ideally suited to the job, and

he is taking it on. However, there is simultaneously an opportunity to approach these concepts on

a smaller scale, in our own backyard, by changing our own small corner of the world.

Think about these possibilities: a business that is redesigning its manufacturing processes might

consider where its products end up at the end of their natural life and explore what it would mean

to build a fully recyclable product; a service organization could expand its expectations and

commitment to training its employees to include family and friends, further fostering a network

of individuals prepared to take on the challenges we face today; a company might create team-

building activities anchored in community service, thus building bonds between the organization

and the local town. And who better to analyze, design, and implement such ideas than HPT

practitioners?

Many of the needed tools are already in place; all that is required is for practitioners to realign

and enhance them to address the larger challenges inherent in social change. For example, is

sufficient attention given to understanding the external environmental forces that a business is

facing? Or is an “external” view limited to the issues of marketplace competition? If an intended

outcome defies measurement from a tangible perspective, do we set aside that goal? Or should

we more deliberately explore the assessment of intangible benefits, opening up thinking that

includes the potential for social impact? These are just a few ways that HPT practitioners can

reframe their standards and processes and go beyond project-based work to powerful, systemic

change that affects constituents beyond the immediate environment.

We are in the midst of terrifying change, but also exciting, profound change that will leave all of

us living in a new and different world. This provides an unprecedented opportunity for the

profession of HPT to make its own contribution. Instead of attempting to change systems back to

“the way they were,” HPT can be a catalyst for new thinking and action that allows business to

play a key role in building a healthy, thriving world. We encourage you to look around with

fresh eyes. How can you save your corner of the world?

References

Andrews, J., Farrington, J., Packer, T., and Kaufman, R. (2004). Saving the World with HPT:

Expanding Beyond the Workplace and Beyond the “Business

Case.”Performance Improvement, 43(2), 46-49. [DOI 10.1002/pfi.4140430210].

Kaufman, R. (2004). Mega as the Basis for Useful Planning and

Thinking.Performance Improvement, 43(9), 35-39. [DOI 10.1002/pfi.4140430909].

Kinsley, M. (2008). Creative Capitalism: A Conversation with Bill Gates, Warren Buffet

and Other Economic Leaders. Simon and Schuster: New York.

Jennifer Rosenzweig, CPT, is president of Libera Consulting LLC. She may be reached

at jrosenzweigh@carlson.com. Darlene Van Tiem, CPT, PhD, is the 2009-2010 ISPI president.

She may be reached at darlene.vantiem@faculty.capella.edu.

Objections to a Performance Management System, and Responses

© Paul Arveson 1998

1. The costs outweigh the benefits. What will we find that we didn't already know?

What is the cost of not proving your value? Our competitors will prove theirs.

Today, our customers expect us to show evidence of progress. They have been through the

performance management training too -- and the law (GPRA) requires it.

Web sites can enable and automate much of the work. This is a new method that is easy and

inexpensive to implement, relative to the tools we had a few years ago.

Performance measurement has been demonstrated to be a 'best business practice' in terms of

improving the bottom line in all kinds of companies (e.g. Motorola, Mobil, Cigna, the Coast

Guard, Minn. Dept. of Revenue, the City of Charlotte (NC), Veterans Admin., Rockwater

Energy, FMC, a bank, and an insurance company.)

2. But some tasks will be labor intensive: metrics definition, software development, data

collection.

It's true that defining metrics is time consuming and has to be done by managers in their

respective mission units. But once they are defined, they won't change very often. And some of

the metrics are generic across all units, such as cycle time, customer satisfaction, employee

attitudes, etc. Also, software tools are available to assist in this task.

Software development efforts should be kept to a minimum by using COTS products to the

maximum. There are now companies that specialize in this kind of product, but most agencies

can probably just leverage the existing financial data warehouse to support this system.

Data collection will be supported in many cases by using web-based forms. Manual work such as

collecting customer data, telephone interviews, etc. can be supported by broadening the work of

the existing 'financial assistants' to non-financial metrics.

3. We have only limited control over results. Why should we be held accountable for things we

can't control?

With our strategic initiative of customer service, we must take responsibility for our mission

effectiveness; we have to improve customer relationships; there is no alternative. Our customers

will understand our limitations if they are in a close partnership with us.

4. The results will be used against us.

The results can also be used for us. What has been hurting us more is not having any results to

show.

What better way to gain resources from the sponsor than to clearly show them the consequences

of the present situation.

We can't see our own blind spots. We need someone else to point them out to us. The

measurements add visibility, even if it is painful.

If we excel, it is NOT generally true that successful organizations lose budget.

5. Management will misuse or misinterpret the results. The process will be gamed.

That's why we need a balanced mix of several measures. Inspections such as Baldrige

assessments are done by a variety of dedicated people across the organization. They want to do a

good, honest job.

The measurements will be validated by an independent IG team or third party. 

It should be emphasized to everyone that the main purpose of the balanced scorecard is not

individual performance, but collective organizational performance. (Another separate system

should be used for individual performance evaluations.) Therefore, results at the lower levels can

be aggregated in such a way that individual employee performance is not reported out.  This will

eliminate a source of fear that will lead to gaming or failure to produce the data.

6. They will score us by inappropriate or unfair standards.

We get to define our own metrics, at least the ones that are pertinent to each mission. That's the

only way to define OUR mission effectiveness. And the other metrics, like cycle time and

customer satisfaction, are generic across all organizations.

7. Too much complexity: There are numerous systems and assessment criteria; how will we

combine them all? (ISO 9001, ISO 14000, Baldrige, ABC, EVA, CMM, Balanced Scorecard,

strategic initiatives).

I don't think it is necessary to make such a complex system. What is needed is a minimum basic

set of measurements across various business perspectives and aligned to our strategic plan, as the

balanced scorecard prescribes. We do need to develop ISO certifications when appropriate, but

the metrics for them could be simple, like 'percentage coverage' and 'cycle time'.

After all, the purpose of the system is to clarify our situation for senior managers, not to make it

more complex.

8. It's too big and ambitious and expensive to deploy a performance measurement system in this

entire organization. We can't afford such large-scale efforts.

Agreed. It should not be deployed across the organization all at once. Rather, it should start

small, in a business unit, and be allowed to develop incrementally. Experience will be gained

before company-wide deployment is considered. This reduces cost, risk, and disruption.

Background and History of Measurement-Based Management

© Paul Arveson 1998

Measurement-based or fact-based management is not new. A form of it was developed during

and after World War II when the so-called "Whiz Kids" became powerful managers at Ford

Motor Company through innovative use of company data. Robert MacNamara, one of the Whiz

Kids, went on to become Secretary of Defense, and introduced the same management methods in

the Pentagon during the Viet Nam war. This approach to management was oriented to an

industrial age that is now largely in the past. It strikes us as cold and impersonal, the mind-set of

Dilbert's boss.

 

The modern history of post-industrial management could be said to begin with the

work of W. Edwards Deming in the 1950's. Deming was an extraordinary teacher

who, although he was first well-received in Japan, eventually influenced

management philosophy everywhere. Deming, along with Japanese managers such as Genichi

Taguchi, introduced the modern emphasis on quality, innovation, and employee empowerment,

as well as feedback and measurement-based management. Others such as Peter Drucker, J.M.

Juran, Peter Crosby, and Tom Peters were instrumental in spreading the Deming philosophy

(with their own modifications) across America. But unlike the Whiz Kids and the others, Deming

urged managers to recognize the value of their employees as untapped sources of company

knowledge and ideas for improving quality. Perhaps this is one of the reasons that Deming's

ideas continue to influence management in the post-industrial era.

Measurement and Feedback

In traditional industrial activity, "quality control" and "zero defects" were the watchwords. In

order to shield the customer from receiving poor quality products, aggressive efforts were

focused on inspection and testing at the end of the production line. The problem with this

approach is that the true causes of defects could never be identified, and there would always be

inefficiencies due to the rejection of defects. What Deming saw was that variation is created at

every step in a production process, and the causes of variation need to be identified and reduced.

If this can be done, then there is a way to reduce the defects and improve product quality

indefinitely. To establish such a process, Deming emphasized that all business processes should

be part of a measurement system with feedback loops. The feedback data should be examined by

managers to determine the causes of variation at each step in a process, identify the processes

with significant problems, and then focus attention on improving that subset of processes.

Deming proposed a continuous cycle, usually referred to as the Plan-Do-Check-Act cycle, to

implement a philosophy of continuous product and process improvement.

TQM

The Deming philosophy emerged in the US government in 1987 via two initiatives, one military

and one civilian. Under Defense Secretary Frank Carlucci, the Total Quality Management

(TQM) program was introduced to create a new focus on total ownership cost in acquisitions.

This initiative brought significant changes in DoD policies, including the near-elimination of

MIL SPECs, elimination of employee performance appraisals ("Management by Objectives"),

and simplifications in the Federal Acquisition Regulations (FAR).

The Baldrige Award

The civilian initiative of 1987 was the Malcom Baldrige National Quality Award,

named after the first Secretary of Commerce under Ronald Reagan (who died

tragically in a horseback accident). Realizing the significant strides Japan had made

in industrial quality, particularly in the auto industry, Baldrige sought a way to

rebuild American competitiveness. The Republican administration was unwilling to

offer direct corporate handouts, but they wanted to do something to encourage the new

management philosophy. So they created a prestigious award that would be given to large and

small product and service companies that showed the best scores on a carefully-designed

questionnaire, the "Baldrige Criteria". Winners would receive a handsome trophy in a high-

visibility ceremony in Washington, and could use the publicity in their advertising. In exchange,

they would be asked to reveal some of their management's best practices so that other companies

could benefit from their experience.

After more than ten years of experience, the Baldrige Award has proven to be a good incentive

for many companies, and a predictor of future stock performance for its winners. Although a few

winners have faltered, their overall growth has outperformed the S&P 500 and other common

market indices. The Baldrige Criteria, which are refined each year, have become a credible set of

guidelines for business success. American competitiveness has indeed rebounded, as recent

economic data amply indicate.

What is so special about the Baldrige Criteria? What 'best practices' have they revealed?

The Baldrige Award questionnaire booklet is published each year by the National Institute for

Standards and Technology, which also administers the award reviews. The booklet contains, in

addition to the questions, several pages describing various underlying concepts and values. In

brief, what the Baldrige Award winners have in common is a management system that

incorporates something like Deming's Plan-Do-Check-Act cycle, in which both strategic and

tactical plans are deployed along with a measurement system, and feedback is obtained from the

data to monitor results and revise the plans. This is not implemented as a special project but as

a continuous cyclethat is aimed at continuous improvement and continuous adjustment of

strategy to new business conditions.

Lacking such a measurement system does not necessarily mean that managers are not doing a

good job, nor that people are not productive or happy. The Baldrige Information and Analysis

Criteria are simply looking for data to answer the question, "How well do we know how well we

do our work?"

The Measurement Imperative

In private companies, measurements are simply essential in order to provide a rational basis for

decisions. Jac Fitz-Enz (Benchmarking Staff Performance, 1996) offers the following

admonition:

"Measurement of any work process or practice is more than possible. It is imperative. It

applies in both routinized process work and in individual professional practices. Whether

we are talking about a benchmarking project or just tending to day-to-day management,

without number we don't really know what we are doing. If managers do not know

[measurements], I have only onequestion: What do you think they are managing?

Without metrics, managers are only caretakers. They are administrators of processes."

In government, is performance-based management another management fad that is going to

disappear tomorrow? On the contrary, it appears to be becoming more entrenched. An

illustration of that is the passing in 1993 of the Government Performance and Results Act

(GPRA) - the relevant excerpt of the Act ishere. This Act requires all government agencies to

deploy a strategic plan, set performance targets, and measure performance over time. Future

budgets for the agencies will be set (by the Office of Management and Budget, not the

Departments) with consideration given to progress in achieving performance targets. This is

reality -- the US taxpayer wants to see a government that has demonstrable results and progress.

Otherwise, there will be massive outsourcing of every possible function to private industry,

where market forces promise better performance.

In the Department of Defense in particular, it is clear that the GPRA will be taken seriously. The

Secretary of Defense, William Cohen, in his previous position was one of the Senate sponsors of

the GPRA. Recently he has flatly announced that there will be new rounds of Base Realignments

And Closings (BRACs). His goal is to cut civilians in the DoD by 40%. At the same time, he and

Congress agree that there is a need for the country to preserve its technology base and special

skills, so there is a desire for judicious, surgical-style force reductions. Quantitative metrics such

as scores of Baldrige-based self assessments will be one of the criteria considered in making

future decisions about these reductions.

The handwriting is on the wall.  Government leaders that want to survive must make significant

efforts to improve performance -- and be able to prove it with verifiable measurements.

But What Must Be Measured?

The earlier era of measurement-based mangement was focused on industrial

production. In operations such as automobile production, there are

numerous tangible, repetitive processes that can be precisely measured and

monitored. Shewhart, as early as the 1930's, had begun to institute such

methods as Statistical Process Control (SPC) for industrial processes. However, in the 1990's the

economic drivers are not industrial mass production companies and blue-collar workers, but

office-oriented production by 'knowledge workers'. In this environment, there is much that is

intangible, and some processes, such as R&D, are not even repetitive. So how can performance

be measured adequately in a modern enterprise?

In most traditional industrial and government organizations, there have always been ample

measurements of one particular kind: financial data. In private companies, profit or the 'bottom

line' is the ultimate indicator of success, and earnings are carefully watched. Public agencies

often operate at a loss and are subsidized, but the loss is targeted to a specified limit; the metric

to compute this is called the Net Operating Result (NOR). This is the dial that senior staff are

constantly watching.

Financial data are precise and objective. However, they do not tell the whole story of a

company's health. Financials are lagging indicators -- they show what happened in the past. What

we would like to have are some leading indicators to get an idea of what may be ahead. Lacking

these, companies often drive straight ahead in the fog and suffer the consequences.

The balanced scorecard offers an alternative to the traditional financial indicators.  It describes

and explains what has to be measured in order to assess the effectiveness of strategies.  The

balanced scorecard approach to aligning strategy with action is just as applicable in the public

sector as in the private sector, particularly for the reason that it does not focus so heavily on

financial metrics, such as profit, which are not relevant in governmental organizations.  Hence

the balanced scorecard is being seen as an appropriate way for the government to implement the

requirements of the Government Performance and Results Act.  Read more about this in the

other articles on this web site.

The Balanced Scorecard and Knowledge Management

© BSCI 2002

In recent years there has been a renewed interest in "human resources" and "collaboration" under

the term "knowledge management". In another white paper, the meaning of knowledge

management is explored in more detail. Here, the focus is on the relationship between the

balanced scorecard and knowledge management.

In their book The Balanced Scorecard, Kaplan and Norton set forth a hypothesis about the chain

of cause and effect that leads to strategic success. This cause-and-effect hypothesis is

fundamental to understanding the metrics that the balanced scorecard prescribes. There are four

stages to this chain of cause and effect, outlined as follows:

1. The foundation, or fundamental cause for strategic success has to do with people. Decades ago

Peter Drucker recognized that innovation from creative people provides the only assured source

of long-term success and competitiveness, because every other aspect of an organization can be

duplicated by others. The right people must be hired, properly trained and mentored, and the

learning process should become continuous and endless. Peter Senge, in his very influential

book The Learning Organization, described a healthy organization as one in which a learning

culture prevails, fostered both by formal and informal learning and by abundant internal

communication in all media.

2. In a learning and growing organization, where the culture encourages people make

suggestions and question the status quo, a steady flow of new ideas arises from the rank-and-file

employees. These ideas are vital to the future of the organization, because they come from

the experts -- the people who are involved with the business processes on a daily basis. This

insight about employees traces back to Deming, who saw the vital need for managers and shop-

floor supervisors to listen to workers' complaints and empower them to make suggestions and

improvements. Conversely, an organization that stifles or ignores new ideas from its employees

is probably doomed. The balanced scorecard, using efforts such as employee surveys and

analysis of training data, is able to measure the degree of learning and growth, allowing leaders

to assess the potential for long-term success.

3. Improved business processes lead to improved products and services. For example, if an

improved process saves time, this results directly in a shorter delivery time to the customer --

something that any customer will appreciate. In the government context, cost reduction is also

always of importance to the customer, because the customer is the sponsor of the whole

organization's budget -- direct and overhead. The balanced scorecard measures customer

satisfaction, but improving processes produces it.

4. Finally, improved customer satisfaction leads to loyal customers and increased market share,

which directly affect the bottom line -- whether that line equals profit, ROI (return on

investment) or ROCE (return on capital employed) in the private sector, or NOR (net operating

result) or IOH (overhead) in the public sector.

Note that the four steps in the causal chain are also the four perspectives of the balanced

scorecard in its original formulation. This shows the basic reason why the perspectives (and their

underlying metrics) are defined as they are. Any modifications to the metrics should take into

account the hypothesis that is being proposed as the cause of long-term strategic success.

This causal chain is illustrated in the figure below.

Corresponding to the steps in the causal chain are four general areas of strategic management activities, as follows:

1. Learning and growth is fostered by knowledge management activities and initiatives. These include strategic recruiting, hiring, training (both formal and informal), team development, document management, collaborative communication systems, knowledge and skills audits of employees, knowledge base developments, and fostering of communities of interest within the organization.

2. Business process improvements may range from moderate and localized changes to wide-scale changes in business processes, the elimination of paperwork and steps in processes, and the introduction of automation and improved technology. Deployment of the balanced scorecard measurement system itself is one of these processes.

3. Customer loyalty cannot any longer be taken for granted within the government, nor is it sufficient to manage it in an ad hoc or anecdotal way. Rather, customer relationships are becoming increasingly structured and measured. Not only must the agency work closely with customers on a personal level, it must also gain documented and continuous feedback on customer perceptions and loyalty. These efforts come under the general heading of customer relationship management (CRM).

4. Financial management -- in the passive sense of "bean counting" -- is giving way to proactive initiatives in Activity-Based Costing (ABC), Functional Economic Analysis (FEA), Earned-Value Management (EVM) and other practices by which managers can learn more from financial data, in order to track projects more closely and make better cost estimates. Also, innovations in budgeting -- including the GPRA's goal of linking performance to budgets -- are replacing Zero-Based Budgeting and other earlier techniques in government agencies. The availability of improved database technology with more business intelligence capability is turning financial management into an active part of an agency's overall strategy for success.

In conclusion, management experts agree that learning and growth are the key to strategic success, the foundation for the future. A learning and growing organization is one in which knowledge management activities are deployed and expanding in order to leverage the creativity of all the people in the organization.