The scope of governance's concern naturally exceeds the scope of production performance, representing a need to protect opportunity above and beyond performance targets. Innovation targets the expansion of opportunity, but inappropriate performance management will hold it back.
Investment and Values
Multiple stakeholders are affected by a business situation.
Each type of stakeholder recognizes implications of the situation that pertain to their own type.
Beneficial implications are seen as desirable distinctions that will occur in the situation or because of it. Stakeholders invest in producing them.
Those distinctions are values. One situation can generate multiple values for multiple stakeholders.
Overall, “business value” indicates that there is a net benefit, of lesser or greater worth, obtained from the group of respective stakeholder values.
The primary situations of business value are Need and Demand.
The goal of Performance
About half of the time, we use the term “Performance” as the name of something described with a fixed measurement. Because of that fixed aspect we think of performance as a state.
While performance management normally declares a desired future state, it is mainly used to fortify the consistency of activity expected to produce the state.
Said differently, “production control” is a more-than-fair description of the purpose of performance management, and that purpose is more important to the distinction of performance management than is any particular future state.
But the idea that we can systematically create that state generates some anxiety about disruptions to the system. Changepresents risks to the stability of the system underlying the imagined state of performance.
Production control accounts for the compatibility of performance management and governance.
Governance adds to control by bringing an intent to authorizeand prioritize permitted behaviors.
However, performance management can easily assume that its own distinctive priorities are what governance should be concerned about.
That is, Performance’s view of “effective” governance is governance as a form of securityfor performance’s production intent.
In effect, where performance is defending a predetermined output, performance management encourages governance to resist change.
Competition for investment
During periods in which current outcomes are acceptable, Performance management already has a politicaladvantage over Governance.
Performance is specially charged with delivering the results that “cause”the growth of profit and/or leverage from the current business position.
The investment in that “cause” hinges on the success of performance management as a mechanism for driving desired results.
Said differently, the actual business goal of performance management is Return On Investment (ROI) –management’s favorite subject.
Risks to ROI
In some periods, current outcomes may be unacceptable despite the effort of performance management.
A problem analysis of the deficiency can identify inhibitorsin at least three areas reflecting insufficient control:
•Counterproductive behavior (versus intentions)
•Inconsistent procedure (versus standards)
•Violations (versus permissions)
That is, the correctness, method, and authority of activity can all be compromised during production, frustrating ROI.
Counting what matters
In contrast to the notion of “causingROI”, the primary charge of governanceis to establish prerequisitesthat describe an environment of activity, and that align behavior for compatibility with that environment.Compatibility means that the business activity uses the environment without damaging the environment for other activities.
The investment in the environment counts on the success of governance as a mechanism for preserving that compatibility.
Said differently, the intended influence of governance is cultural and ecological, with a goal of compliance. Correctness, method and authority are all defensible aspects of compliance, and compliance offers security.
But the businessview of compliance is opportunity cost.
Cost of Opportunity
Opportunity cost represents a condition more familiar as trade-offs and risks.
A decision or action taken now, at whatever execution cost and benefit, also changes the ability or likelihood for something else to occur or be obtained.
That impact on alternatives or future options may be negative or positive.
For example, as a consequence of something done now, it may be more costly to keep any alternative or future option available or feasible.
Current versus “Other “ Opportunity
Typically, performance management has an intent to get what it currentlywants from production at minimum necessary risk to the probability of getting it.
What performance wants from governance is protection against that risk by preventing unnecessary detriments to the current opportunity in its focus.
Performance expects governance to work against the risks.Deterrents to the current opportunity –stemming from issues of correctness, method and authority –are to be pre-empted.
Necessary but Insufficient
But collapsing the span of governance to within the scope of the performance effort is a management mistake.
The effect is to replace the natural perspective of governance (which is broader than a designated production)withproduction optimization.
Meanwhile, reward and compensation mechanisms are usually attuned to this production optimization.
As a result, there is relatively little incentiveto work outside of it, even when necessary.
The artificial restriction of governance by performance management has at least two other important consequences.
•One is a relative dearth of proper scope-of-governance between and across production efforts.
•Another is significant resistance to changes that pose a risk to the optimization already funded and held responsible for ROI.
For many organizations, this surfaces as a segmentation of production into management silos.
Risks of Silos and Rogues
The “silo effect” gets staying power from what looks like successes, yet leaves exposure to after-effects not well governed. The scale of the silo effect can be small or truly huge.
•Products sped to market might get away with hidden production shortcuts while slower but better products get shelved.
•A big bank might successfully acquire a smaller bank that brings little in common with the bigger bank’s tracking and recognition methods, causing legal liabilities.
•In being a brand leader, a company may develop performance myopia that prevents it from acknowledging a small, different, industrially disruptive competitor.
Numerous “high-performance” perspectives make it easy to designate non- conformingefforts as low-value, complicating or threatening. Those other efforts can get quarantined regardless of whether they are good or bad.
The innovation dilemma
Production Optimizationcan turn conformity into an apparent virtue.
In responding to performance management, economies of scale and best practices can spread a production methodology as a requirement across most opportunities taken seriously for investment.
Departures from those norms, such as innovations, may get held back or screened out where they appear to be incompatible with the production approach credited for current “successes”.
But where current opportunities are notyielding desired levels of ROI, departures may be the strategic solution to obtain better results. They may specifically need to avoid the widespread conformity of performance management for production optimization .
Innovation as production
A governance model for innovation encourages methodology that allows innovation to have its own logically appropriate effect.
As a production effort, innovation intends to emphasize the acquisition of new concepts and proofs of those concepts in the form of viable deliverable resources for creating opportunity.
Governancethat supports reaching the logical outcomesof an innovation effort means that innovation is actually more likely to “perform” –to be productive of its intendeddeliverables. The intended outcomes of innovation are the targetsof innovation’s production.
Inside or outside of a portfolio, innovators are a certain type of producer: they are Suppliers.
In innovation, production follows values and targets that distinguish a supplier perspective from other rolessuch as Provider, or Client.
Governance of Suppliers and Providers
A companion key tactic for transformative production is sourcing.
Producers should be strategically selected for their ability to offer appropriatedeliverables that already have the necessary attributes.
Deliverables may be services.
Qualified producers must have already made a sufficient commitment to any innovation of their production.
According to their role, their commitment may create, offer or implement innovation.
Selection criteria focus on their compatibility to strategy goals and to the policies of the portfolio of productions.
Governing versus Performing
A business is a producer.
To keep execution aligned with business purpose, production should be managed for performance. But an appropriate model for performance management should be used.
To keep execution aligned with business values, production should be under governance. Business values intend to preserve current and future opportunity for the diversity of business stakeholders.
Governing Supplier Performance
A performance management system for Providers often predisposes governance to efforts for securing purpose--production’s optimizationfor delivery versus demand.
But the basis of “performance” for a Supplier is the relevanceof its production to the user need, including Providers as its business customer. A provider model of performance management is not the appropriate model for a supplier.
The Supplier has business values, supported by its governance, intended to help maintain relevance for its current and potential future production.
Innovation as production
Suppliers generate products that meet needs.
Innovationis a type of Supplier production, primarily intended to create and sustain new kinds of opportunity.
Suppliers serve Providers.
The Provider does not manage Supplier performance; the Supplier manages the Supplier’s performance.
The Supplier’s governance constrains the supplier production that can fall under performance management.
A Provider has governance that aligns the Supplier’s performance to the business values of the Provider’s stakeholders.
•Governance establishes a cultural environment for production
•Governance sustains a managed production environment for a diversity of productions.
•“Production” has two goals: net worth, andproduct.
•Innovation is a type of “production”.
•“Value” has a particular meaning in innovation.
•Business focuses Innovation on creating new product to enhance net worth.
•For a business, a “service” is a type of product.