Rethinking the Way We Measure and Drive Organizational Successitpmg.com/files/Download/Rethinking...

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ITPMG. All rights reserved. Copyright 2009 - Confidential 1 Rethinking the Way We Measure and Drive Organizational Success Dr. Dean Spitzer Author of : Transforming Performance Management Business Performance Conference 2009 Miami, Florida September 16, 2009

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Rethinking the Way We Measure and

Drive Organizational Success

Dr. Dean SpitzerAuthor of :

Transforming Performance

Management

Business Performance Conference 2009

Miami, Florida

September 16, 2009

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Measurement is ubiquitous

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Performance measurement is powerful!

"Measurement always improves performance." [Buckingham & Coffman, First, Break All the Rules, p. 236]

"...everything that is measured improves." [Scheuring, Handbook of Performance Measurement, p. 2-6.13]

"Good data, properly distributed, transform organizations." [Whitely, The Customer-Driven Company, p. 175]

"Measures have great power, almost like genetic code, to shape action and

performance...Change the measures, and you change the organism." [Epstein & Birchard, Counting What

Counts, p. 145]

"Most often when we see illogical behavior, the fault is in the measurement system, not in

the employees." [Brian Joiner, Fourth Generation Management, p. 242]

"Changing the way we measure changes everything." [Meador, The Dance of Change, p. 299]

"An organization's measurement system strong affects the behavior of people both inside

and outside the organization." [Kaplan & Norton, The Balanced Scorecard, p. 21]

"The essence of a corporate culture is the firm's measurement system." [Strassman, The Business Value of

Computers, p. 73]

"The mere action of defining measures of success will change behavior positively or

otherwise." [Thorp, The Information Paradox, p. 164]

"Metrics are to a business what the five senses are to humans - systems of feedback that

improve our capacity to adapt and excel over the long run." [Tachi Kiuchi, "What We Learned in the Rainforest,"

Barrett-Koehler, 2002, pp. 152-153]

"Count what is countable, measure what is measurable, and what is not measurable, make

measurable." [Galileo Galelei, 1564-1642]

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Management is based on measurement,

and all other organizational systems are

dependent on the measurement system

No organization can be any better than its measurement system!

SalesResearch &

Development Production

Marketing

Customer

Service

Quality

Logistics

Human Resources

& Training

Management

Measurement

Compensation & Rewards Results

SalesResearch &

Development Production

Marketing

Customer

Service

Quality

Logistics

Human Resources

& Training

Management

Measurement

Compensation & Rewards Results

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"Only 35 percent of respondents rated their performance

measurement systems as effective or very effective."[American Institute of Certified Public Accountants, Performance Measurement Survey]

"…most executives today are making do with inherited and

outdated measurement systems that warp and distort their

business strategies." [Frederick Reichheld, The Metaphysics of Measurement,

Bain & Company Essay #2, p. 2]

"…as you move down in the organization, you will find that

often over 50 percent of the metrics being used have little

relevance to company results." [Amir Hartman, Ruthless Execution, FT

Prentice-Hall, 2003, p. 105]

"…a recent study found that only 29 percent of the interviewed

executives said they would bet their job on the measures of

customer satisfaction they had available to them; only 16

percent said they would bet their job on the measures they

had of employee performance." [Part 1: Resolving the Measurement

Paradox]

"The challenge for today's competitive environment is to

develop new and more flexible approaches to the design of

effective cost accounting, management control, and

performance measurement systems." [Kaplan & Johnson, Relevance

Lost, p. 224]

Measurement systems are broken

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Budgeting

Sales

Operations

Customer

Service

Human

ResourcesMarketing

Finance

Learning

One of the biggest problems in organizations is

lack of alignment among „measurement systems‟

Organizations with poor performance measurement will be poorly

aligned, with functions pursuing their own self-interest and often

working at cross-purposes

Project

Management

Information

Technology

Not only don‟t most organizations have a single integrated measurement system, but the disparate measurement systems don‟t even communicate!

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Organizations are drowning in data

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Measurement is a mess!

2

3

4

56

7

8

9

10

“A company's measurement systems typically deliver

a blizzard of nearly meaningless data that quantifies

practically everything in sight, no matter how unimportant;

that is devoid of any particular rhyme or reason;

that is so voluminous as to be unusable;

that is delivered so late as to be virtually useless;

and that then languishes in printouts and briefing books,

without being put to any significant purpose....

In short, measurement is a mess.“

[Michael Hammer, The Agenda]

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If we continue to think in the same ways, we will get the same

results…

So what can we do to rethink performance

measurement to drive increased

organizational success?

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Performance measurement must be transformed!

Inte

rac

tivit

y

Outstanding Organizational Performance

Transformational Performance Measurement

Fo

cu

s

Inte

gra

tio

n

Co

nte

xt

Basic Performance Measurement

Outstanding Management

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People's attitudes and feelings toward measurement are largely a reflection of

the perceived consequences and how much control they think they have over

the results. When they feel positive and empowered in what they are doing,

people tend to embrace measurement, and use it with great enthusiasm. They

realize that - win or lose - measurement is the key to improvement.

People's experiences with the “context of measurement”

determine their attitudes toward measurement

Both participants

and spectators love

measurement in

sports and games

Measurement at work is often

perceived negatively

We rarely, if ever, think of about “measurement experience “in organizations.

Context

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Which type of measurement is more common in your

organization?

Traditional Measurement

Monitoring

Reporting

Control

Justifying

Judging

Triggering rewards/punishment

Negative accountability

Positive Measurement

Visibility

Communication

Feedback

Understanding

Prediction

Learning

Improvement

Positive accountability

"Many measurement practices and systems signal distrust through their emphasis on

monitoring and control." [Jeffrey Pfeffer]

Context

Measurement typically has negative connotations

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Measurement is not the same as evaluation

Measurement

Evaluation (Judgment)

e-value-ation

Action

Too often evaluation and its consequences prevent learning from measurement

“Measurement is one of the most sensitive issues in any organization.” [Eliyahu Goldratt]

Context

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So much measurement is being used to report on past

successes and for self-serving purposes

•“See how much I’ve accomplished!”

•“Look how great our scores are!”

•“Now give me my bonus and stock options.”

•“Let me show you my business case!”

•“Let me show you how good we are!”

•“Let me show you our ROI!”

“In complex human systems, there

are always many ways to make

things look better in the short-term.” - Peter Senge

It is easy to manipulate measurement (and too often the organization doesn’t really want to know the truth).

Measurement done to prove will rarely improve!

Context

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Measurement

System

Measurement is imperfect

Flaws

Flaws Flaws

Flaws Flaws

Opportunity

Motive

Manipulation = f (Opportunity, Motive)

Context

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Almost no attention is given to the “context of measurement”

Context

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The root cause is the lack of Measurement Leadership

While most managers publicly extol the value of measurement, few actually use it systematically and well.

Measurement is everybody‟s job and therefore it‟s nobody‟s job!

Organizational leaders are more than happy to delegate measurement to "measurement specialists." They don't realize how strategic measurement is, and how much management attention it requires to do it right. Measurement is one of the most under-appreciated organizational activities, and measurement leadership is one of the least appreciated leadership roles.

Who is leading

measurement in your

organization?

Context

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How much opportunity do you think there is there for improving

the “context of measurement” in your organization?

Context

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Quick Assessment: Context of Measurement

Context

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Measures are a lens through which people “see” the world

Reality Data

Measures

Focus

“To change our perspective, we must change our measures.” [Source: D.R. Spitzer, Transforming Performance Measurement]

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Most organizations are full of “routine measures” that have been

accepted as “standard operating metrics” and rarely, if ever, change

Routine Measures

“Deciding what not to measure is almost as important as deciding

what to measure.” [Source: D.R. Spitzer, Transforming Performance Measurement]

Focus

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“Transformational measures” can help organizations focus on what

is most important today and for the future, rather than in the past

Routine Measures

Transformational

Measure

Transformational

Measure

Transformational

Measure

Transformational

Measure

“A fraction (.01 percent) of the variables determine 99.9 percent of the result.”

[Source: Eliyahu Goldratt, The Haystack Syndrome]

Focus

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Measures need to provide a more forward-looking and a

richer view of performance

Revenue

Customer

Service

Process

Innovation

Decision Making

Employees

Projects

Accounting Profit Economic Profit

Total Contract Value Share of Client Spend

Customer Sat Survey

Problems/Complaints

Sub-process Lead Time End-to-end Cycle Time

# of Patents Innovation Climate

Effects of Decisions Made Information Proficiency

Employee Attitudes Employee Experience

Projects Completed Project Portfolio Return

Customer Value Index

From To

Marketing Leads Generated

Customer Experience

Profit

Return on Marketing

Focus

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Southwest Airlines transformed its business by focusing on one

transformational measure

While many of the traditional routine airline measures might be valid

for Southwest, the key driver of its business model was low "cost-per-

passenger" and the primary driver of low cost-per-passenger was high

"aircraft utilization," and the primary driver of high aircraft utilization

was quick "turnaround time." No company has leveraged the strategic

importance of time as well as Southwest Airlines.

Cost-per-passenger

Aircraft Utilization

Turnaround Time

Focus

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Dell transformed its business by focusing on two

transformational measures

The success of the "Dell direct" business model, based on building

computers "to order" and selling them direct to customers, depended on

simplifying its supply chain. Dell began to measure "touches" (how many

times a component was touched by a worker), and set out to reduce that

number. More touches meant longer cycle time, increased costs, and

more opportunities for defects.

Defects

Cycle Time

Number of Touches Costs Profits

Focus

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Dell transformed its business by focusing on two

transformational measures (continued)

To respond to its cash flow crisis, Dell focused on a measure that ran

counter to traditional manufacturing thinking. Rather than focus on a

traditional measure like "manufacturing cycle time," Dell targeted a new

measure: "cash conversion cycle time" (or cash-to-cash cycle time) – the

time from the outlay of cash for parts to the receipt of payment for

completed computers. This measure helped Dell change its priorities from

"growth, growth, and growth" to "liquidity, profitability, and growth." Dell

took cash conversion cycle time from 70 days to less than zero -- which

means it now collects cash before paying for inventory!

Cash Conversion

Cycle TimeProfits

Cost of

Inventory

Focus

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Emergent and Transformational Measures

Customer Delight

Customer Loyalty

Customer Experience

Customer Engagement

Voice of the Customer

Customer Profitability

Customer Lifetime Value

Knowledge Stock and Flow

Learning

Organizational Agility

Strategic Readiness of

Intangibles

Project Scheduling

Collaboration

Reputation

Employee Engagement

Learning Effectiveness

Information Orientation

Information Proficiency

Innovation Climate

Partner Relationships

Organizational Trust

Social Performance

Corporate Social Responsibility

Sustainability

Organizational Health

Employee vitality

Executive Intelligence

People Equity

Service Quality

See “Transformational Measurement Action Plans,” Chapter 14,

Dean R. Spitzer, Transforming Performance Measurement (2007)

Focus

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Organizations must not be afraid to experiment with

measurement

Performance Area

Performance View

Performance View

Conventional

Measures

Emergent

Measure

Transformational

Measure

revisenot working

as desireddiscard

test

Performance Area

Performance View

Performance View

Conventional

Measures

Emergent

Measure

Transformational

Measure

revisenot working

as desireddiscard

test

One of the keys to emergent measurement is the “socialization” that occurs as the

construct and its measurement are discussed.

Focus

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Don’t be intimidated by the “measurement police”

Is it valid enough?

Is it reliable enough?

Is it accurate enough?

Is it precise enough?

…and, whatever you do,

don’t dare to be creative!”

Focus

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How much opportunity do you think there is for improving the

“focus of measurement” in your organization?

Focus

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Quick Assessment: Focus of Measurement

Focus

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Performance measurement is not about numbers and calculations; it is about understanding of relationships and how to use this understanding for continuous improvement of the organization and its component processes

Other Support Process

Measures

Manufacturing Measures

Customer Measures

Financial

Measures

Supply Chain Measures

Product/Service Quality

Measures

Sales MeasuresMarketing

Measures

IT Measures Innovation

Measures

Integration

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What are your most crucial measures and their interrelationships?

Understanding business drivers and leading indicators is difficult because organizations

still don‟t have a clear concept of what drives value.

What is most important to

our success?

Integration

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Measurement must reflect the organization’s business model

and the strategy

“Measurement lies at the heart of both vision and strategy. It's hard to overestimate its

importance in determining the future course of the business....It is measurement that allows

managers to harness vision to the earthly realities of daily business practice. Measurement

turns vision into strategy and strategy into fact.“ [Frederick Reichheld]

Business

Model

Strategy

Strategic

Measures

Execution

(Operations)Operational

Measures

Business

Model

Strategy

Strategic

Measures

Execution

(Operations)Operational

Measures

Strategy is about

making choices

Critical

Success

Factors

Integration

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Measurement must reflect how value is created and

destroyed in the organization

Revenue

Profit

Cash flow

Mission accomplished

Value drivers

Value Creation

value evaporation/loss

(value destruction)

Revenue

Profit

Cash flow

Mission accomplished

Value drivers

Value Creation

value evaporation/loss

(value destruction)

Strategy should be focused on making best use of the value drivers to create optimal

value from resources for stakeholders.

Integration

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What are the most crucial “value drivers” in your organization?

Integration

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Measurement should be integrated – both vertically and

horizontally

Integration

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How much opportunity do you think there is for improving the

“integration of measurement” in your organization?

Integration

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Quick Assessment: Integration of Measurement

Integration

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The purpose of measurement is not to collect data!

“Data is not knowledge. Let’s not confuse the two.” [W. Edwards Deming]

“The only source of knowledge is experience.” [Albert Einstein]

Integration

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Data

Information

Knowledge

Wisdom

Depth of Understanding

Eff

ort

Req

uir

ed

Data

Information

Knowledge

Wisdom

Depth of Understanding

Eff

ort

Req

uir

ed

Creating knowledge and wisdom from data requires more

than technical measurement skills

Integration

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Most people are ignorant about measurement

99% of people in organizations don‟t understand what the data really means.

Deception abounds everywhere!

Integration

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Performance Measurement Cycle

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

Integration

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Most performance measurement is broken

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

20%

70%

80%

60%

50%

20%

30%

30%

60%

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

20%

70%

80%

60%

50%

20%

30%

30%

60%

Integration

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Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

Store

Technology

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

Store

Technology

Organizations spend billions of dollars on business intelligence technology, but is it

making them more intelligent?

Integration

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Integration

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First, the Wizard yells and screams and makes a big deal about he is all-powerful and that they can

just basically, all get lost. But Toto accidentally pulls open the now infamous curtain, prompting the

Wizard to say, "Pay no attention to that man behind the curtain...", but the "Wizard" is "busted" and

now has to tell them the truth - that he really is a good man, but he's not a very good wizard!!

Caution: Remember the Wizard of Oz? What’s behind the curtain?

Integration

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Integration

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Dialogue: The missing link

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

CommitDialogue

Plan

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

CommitDialogue

Plan

Integration

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How much opportunity do you think there is for improving

the “interactivity of measurement” in your organization?

Integration

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Quick Assessment: Interactivity of Measurement

Interactivity

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Inte

rac

tivit

y

Outstanding Organizational Performance

Transformational Performance Measurement

Fo

cu

s

Inte

gra

tio

n

Co

nte

xt

Basic Performance Measurement

Outstanding Management

Performance measurement must be transformed!

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High-priority action items for beginning to transform

performance measurement in your organization

Identify and address measurement dysfunctions

Avoid using measurement against employees

Educate everyone about measurement and how to use it

Develop measurement leaders

Break down measurement silos

Reduce the number of metrics; challenge what is being measured

Continually focus and refocus on measuring what matters most

Identify a few transformational measures to experiment with

Promote better understanding of strategy and value creation (and value destruction); act on that understanding

Create a dialogue around measurement frameworks and how to create optimal value across the organization

Use measurement automation with care

Assess your organization‟s Performance Measurement Maturity and develop an action plan to begin the transformation

See “Performance Measurement Maturity” (Chapter 12) and Epilogue, Dean R. Spitzer,

Transforming Performance Measurement (2007)

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A journey of a thousand miles begins with a single step

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Rethinking the Way We Measure and Drive

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