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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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