This is a conversation about performance measures and analytics. More than simply “how do we keep score” (a lagging indicator), but how we quantify and measure an organization’s performance allows leaders to make decisions and change the conversation from “I think “ to “I know”. Applicable to individuals or organizations (Officer Evaluation Report) (10k) (PAR) Individuals have the quarterly or yearly performance review, in the Army, you’re obviously familiar with the Officer Evaluation Report.
SMART? (Specific, Measurable, Attainable, Relevant, and Timebound)Our goal with “SMART” performance measures is to eliminate the inherently subjective nature of performance. By making the measures objective, there can be no doubt about how individuals and organizations are differentiated.
But Organizations also give reports. In industry we call them these the 10k, which is required by the SEC for publicly traded companies with over 10M in assets and greater than 500 shareholders. BusinessRisk FactorsPropertiesLegal ProceedingsSubmission of Matters to a Vote of Security HoldersMarketConsolidated Financial DataManagement's Discussion and AnalysisForward Looking StatementsFinancial Statements
In the government, you have the same thing at the agency or Department level called the PAR (Performance Accountability Reports), codified by the CFO Act of 1990 and the GPRA (Government Performance and Results Act) of 1993. Set Goals, Measure Results, and Report Progress. PAR consists of essentially the same info as the 10k (audited financial statements, MD&A, AND Performance Measures.Why is this important for Industry? Incentives and Actions for profitability and shareholder equity. But for government, this drives the budget.
Measure what matters (KPIs) (Financial and Non-Financial data)Focusing only on financial measures lacks context.Measure the wrong things and you become irrelevant.Measure too many things and you suffer from “analysis paralysis”Think of QTB or USR reports, but how do we add context? What about reporting?
how to objectively measure what is inherently subjective in natureProfit Margin * Asset Turn * Leverage Dupont Ratio: NI/ Sales | Total Assets/Sales | Total Assets/Shareholders EquityWhen the ratios here change, leaders find out what is causing it. The numbers don't tell you what's going on, they tell you something is going on. Conversations in the right places help you uncover what is going on.
Inherent cost to productivity, the more reporting and performance measures, the less time spent on actual performance. (60 hours of work time less capturing)There is a huge opportunity cost associated with reporting, especially if it is ad hoc, manual, or one-off. We’ve all seen leaders who try and measure everything with a degree of micromanagement. As a product of the “zero-defect” Army of the 90s, I’m sure you can readily appreciate this. Think about the investments we make with information technology, how much focus do you see on automated reporting processes?Apple does this really well with their retail and online initiatives. So does Amazon.
As many of you know, I’m a huge Edward Tufte fan. So whenever he presents a set of data, we have to ask ourselves “compared to what” ?Data by itself without comparison lacks context. So really we have two kinds of comparative data to consider, Time Series, and Cross Sectional. You can see from the examples here how they might be collected.
There are multiple performance frameworks you might wish to consider, you’re probably familiar with some of these.LSS, ITIL, The Balanced Scorecard?We’ll take a look at some of the Army’s Lean Sig Sigma Performance measures towards the end.ITIL is relevant to IT projects, but the Balanced Scorecard is a pretty good and very popular method both in government and industry.
Because company executives would know which nonfinancial factors actually drove performance, those factors would be the ones measured and present on scorecards and reports. No longer would organizations gather and report metrics simply because they are familiar, or because a standard balanced scorecard format suggests them.Of real value is the linkage between financial and non-financial measures, this drives valuation of private industry and allows leaders and managers to gain real insights into their domain or organization.Here are two examples, Harrah’s Entertainment is headed by Gary Loveman, former HBS professor and gives extensive talks about competing on analytics.
Goals Measures Targets Goals Measures TargetsGoals Measures TargetsThe Army actually has only 4 goals, and I’ve taken these directly from the FY11 Performance Budget.http://asafm.army.mil/Documents/OfficeDocuments/CostEconomics/perfmgt//fy11PerfBud.pdfWe’re only going to really look at the relevant goals for those of us at LANDWARNET, which is Transform.
I’ve highlighted the goal, a single measure, and 4 of the 5 targets, none of which appears to be measurable. So are we getting this right? Especially considering Specific, Measurable, Attainable, Relevant, and Timebound?
This is much better. Again, we’re in the Transform Goal.I’ve highlighted The Measures and Targets here, do these seem to be Specific, Measurable, Attainable, Relevant, and Timebound?Goals, Measures, and Targets. Now, I ask you? How well is the Army doing with performance based contracting?Do you feel you know what the performance measures are for the contractors in your AOR? How about your own organization’s performance measure? How are we “keeping score”?
A few key highlights, which I won’t read again to you. But think about how you measure performance in your organization, and what measures (financial and non-financial) would be most relevant to improving your organization’s performance.
Analytical Performance Management
Analytical Performance ManagementStephen Batesseb@batescainelli.comhttp://www.linkedin.com/in/batessTwitter: @batess4 Aug 2010 #ignite LANDWARNET
Linkages• Harrah’s Entertainment found that for each 1% percent it grew its share of customer gaming budgets, its share price increased by $1.10• Victoria’s Secret determined that by raising the conversion rate (where a customer enters a store and actually buys something) by 1 percent brought more than $35M in sales and and more than $15M in operating profit. Davenport: The Rise of Analytical Performance Management 10
Army Goals, Measures, and Targets Army: FY11 Performance Budget Overview 11
Goal: Transform LANDWARNET• Measure: Transform the LandWarNet into a more effective, centralized, economically efficient, secure, operationalized, and sustainable network – Target: Complete fielding of regional hub nodes – Target: Consolidate information technology services into Area Processing Centers (APCs) – Target: Designate APCs in and outside the continental United States – Target: Standardize network operations command and control capabilities Army: FY11 Performance Budget Overview 12
Goal: Transform Army Business Process• Measure: Implement the General Fund Enterprise Business System (GFEBS) to move the Army to a cost and performance management culture – Target: Implement GFEBS at 20 Army organizations• Measure: Number of trained Lean Six Sigma (LSS) personnel to review and improve business processes – Target: Train 60 Master Back Belts, 1,800 Black Belts, and 1,250 Green Belts Army: FY11 Performance Budget Overview 13
Opinions are like …Everyone is entitled to their own opinion, justnot their own factsSpecific, Measurable, Attainable, Relevant,and Timebound performance measures caneffectively change the conversation from “I think” to “I know”Linkages between financial and non-financialKPIs are incredibly powerful 14