Transforming Performance Measurement


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Overview of how to transform performance measurement, based on Dr. Dean Spitzer\'s book "Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success"

Transforming Performance Measurement

  1. 1. Transforming Performance Measurement: Rethinking How You and Your Organization Use Measurement Dr. Dean Spitzer President Dean R. Spitzer & Associates
  2. 2. Measurement is ubiquitous We spend a lot of time every day measuring things. In fact, we are almost always measuring things: dates, time, size, weight, speed, temperature…and the list goes on and on. In our personal lives, we spend a lot of time every day measuring things. At work, there is even more measurement. Some form of measurement is involved in almost everything we do in life, even if we aren't explicitly aware of it. Consider some common examples of measurement tools and indicators: Time and date measurement (e.g., calendars and clocks) Weather measurement (e.g., forecasts, temperature, wind speed and direction, humidity, barometric pressure) Geographical measurement (e.g., location, distance, and direction) Medical vital signs (e.g., body temperature, pulse, blood pressure, etc.) Financial measurement (e.g., currency, paychecks, checkbooks, budgets, investments) Consumer measurement (e.g., prices, size and weight, quality measures) Political measurement (e.g., election results, voter attitudes, campaign financing) Sports measurement (e.g., scores and individual and team statistics) Academic measurement (e.g., grades, competencies, credentials) Type text Transportation measurement (e.g., speedometer, odometer, altimeter, fuel gauge, warning lights) 12 11 1 10 2 9 3 8 4 7 5 6 “We can and do all measure. Measurement is not first and foremost a sophisticated technical skill, it is an intuitive ability.” [Taylor & Soal] 2 © 2009 Dean R. Spitzer & Associates, Inc.
  3. 3. 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] 3 © 2009 Dean R. Spitzer & Associates, Inc.
  4. 4. 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 Human Resources Marketing Quality & Training Research & Information Service Customer Logistics Development Technology Delivery Service Compensation & Rewards Results Management Measurement 4 © 2009 Dean R. Spitzer & Associates, Inc.
  5. 5. Effective measurement serves many functions important for performance management §Clarifies performance expectations §Increases the visibility of performance §Enables goal-setting (goals are targets set on measurement dimensions) §Forges increased strategic agreement and alignment §Increases the holistic perspective at all levels §Focuses attention on what is most important §Promotes accountability (without measurement there can be no accountability) §Provides timely early-warning signals and facilitates prompt and appropriate corrective actions §Increases the frequency and accuracy of feedback §Motivates improvement §Increases objectivity and the perception of fairness 5 © 2009 Dean R. Spitzer & Associates, Inc.
  6. 6. 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 Finance Operations Marketing Human Resources Budgeting Information Technology Delivery Project Learning Management Customer Service Not only don’t most organizations have a single integrated measurement system, but the disparate measurement systems don’t even communicate! 6 © 2009 Dean R. Spitzer & Associates, Inc.
  7. 7. Organizations are drowning in data 7 © 2009 Dean R. Spitzer & Associates, Inc.
  8. 8. Measurement is a mess! In The Agenda, Michael Hammer puts it this way: “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." 10 2 9 3 8 4 7 5 6 8 © 2009 Dean R. Spitzer & Associates, Inc.
  9. 9. Performance measurement must be transformed! Outstanding Organizational Performance Outstanding Management Transformational Performance Measurement Interactivity Integration Context Focus Basic Performance Measurement 9 © 2009 Dean R. Spitzer & Associates, Inc.
  10. 10. Context Measurement is imperfect "All social measurement systems are very fragile and open to manipulation and there is very little we can do about it." [Karl-Erik Sveiby] Opportunity Motive Flaws Flaws Measurement System Flaws Flaws Flaws Manipulation = f (Opportunity, Motive) 10 © 2009 Dean R. Spitzer & Associates, Inc.
  11. 11. Context People's experiences and the context determine their attitudes toward measurement 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. In fact, when people feel good about their performance potential, they want as much information as possible about how they are performing. They realize that - win or lose - measurement is the key to improvement. Measurement at work is often perceived negatively. Both participants and spectators love measurement in sports and games. “Measurement is one of the most sensitive issues in any organization.” [Eliyahu Goldratt] 11 © 2009 Dean R. Spitzer & Associates, Inc.
  12. 12. Context Measurement is not the same as evaluation Action Evaluation (Judgment) e-value-ation Measurement Too often evaluation and its consequences prevent learning from measurement 12 © 2009 Dean R. Spitzer & Associates, Inc.
  13. 13. Context Which type of measurement is more common in your organization? Traditional Measurement Positive Measurement § Monitoring § Visibility § Reporting § Communication § Control § Feedback § Justifying § Understanding § Judging § Prediction § Triggering rewards/punishment § Learning § Negative accountability § Improvement § Positive accountability "Many measurement practices and systems signal distrust through their emphasis on monitoring and control." [Jeffrey Pfeffer] 13 © 2009 Dean R. Spitzer & Associates, Inc.
  14. 14. Context 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!” It is easy to manipulate measurement (and too often the organization doesn’t really want to know the truth). “In complex human systems, there are always many ways to make things look better in the short-term.” - Peter Senge Measurement done to prove will rarely improve! 14 © 2009 Dean R. Spitzer & Associates, Inc.
  15. 15. Context The biggest problem with the context of measurement 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 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? 15 © 2009 Dean R. Spitzer & Associates, Inc.
  16. 16. Context Measurement Measurement Expectations Leadership Organizational History of Climate Measurement Measurement System • Measures CONTEXT OF • Measurement process Measurement • Technical infrastructure MEASUREMENT Resources People Measurement • Attitudes Measurement Communications • Motivation Constraints • Capabilities 16 © 2009 Dean R. Spitzer & Associates, Inc.
  17. 17. Focus Measures are a lens through which people “see” the world Reality Data Measures 17 © 2009 Dean R. Spitzer & Associates, Inc.
  18. 18. Focus Most organizations are full of “routine measures” that have been accepted as “standard operating metrics” and rarely, if ever, change Routine Measures 18 © 2009 Dean R. Spitzer & Associates, Inc.
  19. 19. Focus Sustainable organizational change is impossible without changing measurement system Leadership vision Pressure Pilot project “Quick win” Temporary enthusiasm Change Change Project Transformational Routine Vision More of the Same Measures Time 19 © 2009 Dean R. Spitzer & Associates, Inc.
  20. 20. Focus “Transformational measures” can help organizations focus on what is most important today and for the future, rather than in the past Transformational Measure Transformational Measure Routine Measures Transformational Measure Transformational Measure “When we change our ways of measurement, the fundamental ‘lens’ used to view things changes. Organizational transformation is what happens when people begin to see their 20 organization through the new lens.” [Dean Spitzer, Transforming PerformanceDean R. Spitzer & Associates, Inc. © 2009 Measurement]
  21. 21. Focus Transformational measurement requires looking beyond what we are currently measuring, making new connections, and crossing functional silos 21 © 2009 Dean R. Spitzer & Associates, Inc.
  22. 22. Focus Emergent and Transformational Measures § Customer Delight § Employee Engagement § Customer Loyalty § Learning Effectiveness § Customer Experience § Information Orientation § Customer Engagement § Information Proficiency § Voice of the Customer § Innovation Climate § Customer Profitability § Partner Relationships § Customer Lifetime Value § Organizational Trust § Knowledge Stock and Flow § Social Performance § Learning § Corporate Social Responsibility § Organizational Agility § Sustainability § Strategic Readiness of § Organizational Health Intangibles § Employee vitality § Project Scheduling § Executive Intelligence § Collaboration § People Equity § Reputation § Service Quality See “Transformational Measurement Action Plans,” Chapter 14, Dean R. Spitzer, Transforming Performance Measurement (2007) 22 © 2009 Dean R. Spitzer & Associates, Inc.
  23. 23. Focus Strategic Readiness of Intangibles is a promising emergent measure It is not enough just to have intangible assets. The competitive advantage of organizations in the new economy is increasingly dependent on how “ready” their intangible assets are for deployment in supporting strategy. Intangibles assets that are not ready are like unused inventory. 1. How well aligned are the assets with strategy? (0% - 100%) 2. How ready are they for deployment? (0% - 100%) Context of Measurement question: How can you have confidence in people’s ratings? 23 © 2009 Dean R. Spitzer & Associates, Inc.
  24. 24. Focus Time is becoming a crucial factor in today’s fast-paced world that demands agility “Cycle time to threshold proficiency” § Define “threshold proficiency” § Determine start and end times § Might have nothing to do with training § “Accumulation of experience” § Faster forces the streamlining of processes and the reduction of waste Charles L. Fred, Breakaway, Jossey-Bass, 2002] “It is our experience that TIME is the strategic weapon of choice for business leaders. When leadership treats time as the independent variable in its business equation, optimum quality and costs are the predictable results.” [Thomas Group] 24 © 2009 Dean R. Spitzer & Associates, Inc.
  25. 25. Focus Learning has become a social phenomenon: “Social Network Analysis,” a measure of how people really collaborate and learn at work Andy Frank Indojit Carl Karen Darren Sam Ming Neo Leo Earl Gerry Harry Jeff "The illiterate of the future will not be the person who cannot read. It will be the person who does not know how to learn." - Alvin Toffler 25 © 2009 Dean R. Spitzer & Associates, Inc.
  26. 26. Focus People Equity is a potentially transformational measure Alignment People Equity Capability Engagement PEOPLE EQUITY = ALIGNMENT + CAPABILITIES + ENGAGEMENT Source: Metrus Group 26 © 2009 Dean R. Spitzer & Associates, Inc.
  27. 27. Focus Qualitative Measurement, Estimating, and Subjectivity “Measurement is assessing the degree to which a variable is present….Notice there is no reference to numbers in that definition.” [D. Lynn Kelley] "A high barrier stands between us and the habit of making rough estimates -- the fear of getting the 'wrong' answer. There is nothing wrong with educated guesses as long as the uncertainty is acknowledged and managed. Contrary to what most of us have learned in school…an inexact answer is almost always good enough.“ [Arno Penzias] 1 2 3 4 5 6 7 8 9 Extremely Honest Not Honest At All 27 © 2009 Dean R. Spitzer & Associates, Inc.
  28. 28. Focus Developing emergent measures is an iterative process Construct (e.g., innovation, agility, leadership, climate, engagement) Potential Indicators Measures “Metrics” (characteristics) One of the keys to emergent measurement is the “socialization process” that occurs as the construct and its measurement are discussed. 28 © 2009 Dean R. Spitzer & Associates, Inc.
  29. 29. Focus Organizations must not be afraid to experiment with measurement Performance Area Performance View Conventional Measures Performance View Emergent test Transformational Measure Measure not working discard as desired revise One of the keys to emergent measurement is the “socialization” that occurs as the construct and its measurement are discussed. 29 © 2009 Dean R. Spitzer & Associates, Inc.
  30. 30. Focus What makes a measure ‘good’? 1. Validity: Are we measuring the right thing? 2. Reliability: Are we measuring it consistently? 3. Relevance: How useful is it? Does anyone really care? 4. Actionability: Do they know what to do about it? 30 © 2009 Dean R. Spitzer & Associates, Inc.
  31. 31. Focus Don’t be intimidated by the “measurement police” Is it valid enough? Is it accurate enough? Is it reliable enough? Is it precise enough? …and, whatever you do, don’t dare to be creative!” 31 © 2009 Dean R. Spitzer & Associates, Inc.
  32. 32. Integration Performance measurement is not about numbers and calculations; it is about understanding outcomes, drivers, trade-offs, etc. and how to use this understanding for continuous improvement of the organization and its component processes Financial Measures Customer Measures Marketing Sales Measures Measures Product/Service Quality Measures Manufacturing Measures Supply Chain Measures Innovation Other Support Process IT Measures Measures Measures “There is a strong tendency to state numerically as many as possible of the variables with which management must deal.” [V.F. Ridgway, Dysfunctional Consequences of Performance Measurements] 32 © 2009 Dean R. Spitzer & Associates, Inc.
  33. 33. Integration 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.” 33 © 2009 Dean R. Spitzer & Associates, Inc.
  34. 34. Integration Measurement must reflect the organization’s business model and the strategy Strategy is about Business Strategic making choices Model Measures Strategy Critical Success Factors Execution Operational (Operations) Measures “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] 34 © 2009 Dean R. Spitzer & Associates, Inc.
  35. 35. Integration Measurement must reflect how value is created and destroyed in the organization Value drivers Revenue Value Creation Profit Cash flow Mission accomplished 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. But we can’t just talk about value, we have to understand its drivers and do something about them. 35 © 2009 Dean R. Spitzer & Associates, Inc.
  36. 36. Integration Measurement frameworks help clarify the relationship among measures Leading Lagging Inputs Process Outputs Outcomes • Funds • Activities • Products • Internal • Skills • Behaviors • Services • External • Attitudes • Process performance • Inventions • Climate (quantity, quality, • Patents [see below] timeliness, cost) Outcome Outcome Outcome Outcome • Revenue • Profit • Timely delivery • Customer • Quality • Competitive • Customer loyalty • Cost reduction advantage perceived quality • Customer • Employee • Employee • Customer success satisfaction retention experience • Learning • Innovation Internal Outcomes External Outcomes (Customer Value) 36 © 2009 Dean R. Spitzer & Associates, Inc.
  37. 37. Integration Example: Measurement framework for innovation Outcomes Inputs Process Outputs (internal, external) Innovation Ideation IP Asset External Leadership Measures Management Relationship Measures Measures Measures Innovation Innovation Pipeline Internal Innovation Strategy Measures Relationship Benefit Measures Measures Measures Project Innovation Management Innovation Climate Measures Value Measures Measures Human Social Capital Measures Measures Innovation Efficiency Innovation Capability Innovation Capacity Innovation Effectiveness 37 © 2009 Dean R. Spitzer & Associates, Inc.
  38. 38. Interactivity The purpose of measurement is not to collect data! Wisdom Knowledge Information Data 38 © 2009 Dean R. Spitzer & Associates, Inc.
  39. 39. Interactivity But creating knowledge and wisdom from data requires more than technical measurement skills Wisdom Effort Required Knowledge Information Data Depth of Understanding 39 © 2009 Dean R. Spitzer & Associates, Inc.
  40. 40. Interactivity How intelligent is your organization? Data Information knowledge Wisdom Intelligence The most important part of measurement is to ‘learn’ from it! 40 © 2009 Dean R. Spitzer & Associates, Inc.
  41. 41. Interactivity Performance Measurement Cycle Plan Review Select Take Action Collect Commit Analyze Decide Interpret 41 © 2009 Dean R. Spitzer & Associates, Inc.
  42. 42. Interactivity Most performance measurement is broken Plan 30% 60% Review 30% Select Take Action 20% Collect 60% 80% Commit Analyze 50% Decide 70% Interpret 20% 42 © 2009 Dean R. Spitzer & Associates, Inc.
  43. 43. Interactivity Technology is an enabler, but not a panacea Plan Review Select Take Action Collect Commit Store Analyze Technology Decide Interpret 43 © 2009 Dean R. Spitzer & Associates, Inc.
  44. 44. Interactivity 44 © 2009 Dean R. Spitzer & Associates, Inc.
  45. 45. Interactivity Dialogue: The missing link Plan Review Select Take Action Collect Dialogue Commit Analyze Decide Interpret 45 © 2009 Dean R. Spitzer & Associates, Inc.
  46. 46. Performance measurement must be transformed! Outstanding Organizational Performance Outstanding Management Transformational Performance Measurement Interactivity Integration Context Focus Basic Performance Measurement 46 © 2009 Dean R. Spitzer & Associates, Inc.
  47. 47. How ‘mature’ is performance measurement in your organization? 300 Transformational Performance Measurement TPMM Score Positive Transforming Collaborative Context Level 3 Basic Performance Measurement Systematic Negative/ Programmatic Level 2 Neutral Specialized Level 1 Ad hoc Context See Spitzer, D.R., Transforming Performance Measurement 47 © 2009 Dean R. Spitzer & Associates, Inc.
  48. 48. Transformational Measurement Maturity (context) § Performance measurement is widely used by all levels of employees throughout the organization. § The importance and value of performance measurement are widely appreciated. § Employees perceive performance measurement as relevant, timely, and actionable in their jobs. § Employees actively use performance measurement in their jobs. § Understanding and acting upon performance measurement data are viewed as key responsibilities of all employees. § Performance measurement is generally viewed as a positive force in the organization. § Performance measurement is used to empower and enable self-management. § Performance measurement is rarely used to blame or punish. § Fear of measurement is low. § Performance measurement is trusted. § Manipulation of measurement for self-serving purposes is very low or nonexistent. § Performance measurement data is discussed openly and honestly. § Employees are educated about measurement. § Employees are given the time and other resources they need to use performance measurement well. 48 © 2009 Dean R. Spitzer & Associates, Inc.
  49. 49. Transformational Measurement Maturity (focus) § This organization measures the things that matter most and not those that don't matter. § Performance measures accurately reflect the most critical aspects of the organization's business model and strategy. § Performance measures are regularly reviewed and revised or eliminated (as appropriate). § This organization has the right number of measures (not too many nor too few). § Routine measures are reduced when new high-leverage measures are added. § Routine measurement is being increasingly automated. § Progress is being made in measuring intangible assets and other difficult- to-measure aspects of performance. § Experimentation with emergent measures is encouraged. § Transformational measures are being widely adopted and used. 49 © 2009 Dean R. Spitzer & Associates, Inc.
  50. 50. Transformational Measurement Maturity (integration) § There is a holistic approach to performance measurement across the organization. § Measurement data is becoming more integrated. § Employees understand the cross-functional implications of their measures. § Cross-functional measures are developed and used. § There is increasing understanding of the relationships and trade-offs between performance measures. § There is widespread commitment to understanding the causal relationships among performance measures. § Integrative measurement frameworks are developed and used. § Ongoing effort is being made to align measurement frameworks with strategy, and keep them aligned. § Progress is being made toward creating one integrated organization-wide measurement system. 50 © 2009 Dean R. Spitzer & Associates, Inc.
  51. 51. Transformational Measurement Maturity (interactivity) § There is widespread and frequent interaction throughout the organization about measurement. § Frequent interactivity occurs regarding the selection of performance measures. § Developing and revising measurement frameworks are highly interactive. § Insights from performance measurement information are discussed in many forums. § The organization places a high priority on learning from measurement. § Time is made available to learn from measurement. § There are frequent and high-quality dialogues about performance measurement. § Executives are deeply engaged in measurement-related dialogues. § Measurement frameworks are continually and interactively reviewed and revised (as appropriate). § Interpretation of data is as highly valued in this organization as data collection and analysis. § Collaborative cross-functional learning from measurement occurs throughout the organization. § Revealing questions are constantly being asked about measurement. § Measured experiments and pilot projects are occurring throughout the organization. § This organization has effective social mechanisms for translating performance measurement data into appropriate action. § The capability of this organization for converting data into actionable insight is high. § This organization is effective at sharing insights from performance measurement. 51 © 2009 Dean R. Spitzer & Associates, Inc.
  52. 52. A journey of a thousand miles begins with a single step 52 © 2009 Dean R. Spitzer & Associates, Inc.