Webinar: Measuring and Improving Business Performance
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Management reporting systems are like power tools. They can help organizations measure and improve their performance, motivate workers, and achieve strategic goals quickly and effectively. But if you aren’t careful, it’s easy to make big mistakes, and maybe even injure yourself in the process. In this presentation, Professor Robert Bloomfield of Cornell’s Johnson Graduate School of Management will review best practices in management reporting, and provide some essential “safety” tips. Key topics include: - The importance of seeing beyond the measures to the true performance those measures are trying to capture - Using a Balanced Scorecard to define, achieve and improve your strategy - Choosing the right way to measure financial performance for your organization’s goals (whether it is a for-profit, not-for-profit or governmental concern) - Tying pay to performance, and more!
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Webinar: Measuring and Improving Business Performance
- 2. Safety Tips and Best Practices in Managerial Reporting Professor Robert Bloomfield Johnson Graduate School of Management Cornell University 2
- 3. Best Practices and Safety Tips Reporting Systems are powerful tools Here’s how to use them effectively…and safely!
- 4. Match Your System to Your Needs An Organization’s Managerial Reporting System Should Be Matched to the Challenges it Faces
- 5. No System is Perfect When you represent 3D info with 2D reports, you must make compromises
- 6. Two Conflicting Goals of Costing Systems Reporting Margins for individual products and services Reporting Efficiencies for individual processes
- 8. A Job Shop
- 9. Process Shops Emphasize Efficiency
- 10. Job Shops Emphasize Margins
- 11. Costing System Reference Guide
- 12. The Most Important Safety Tip Of The Day
- 13. Be Sure to Distinguish Between…. What Counts & What Gets Counted
- 14. Plato’s Allegory of the Cave
- 15. Reality is Composed of ―Forms‖…
- 16. …But We See Only Their Shadows
- 17. As Socrates puts it in Plato’s Republic:
- 18. Performance Measures are Not Performance
- 19. Forms (Constructs) and Shadows (Proxies)
- 20. Safety Tip: Watch for Measure Management Campbell’s Law • "The more any quantitative social indicator (or even some qualitative indicator) is used for social decisionmaking, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor." Measure Management • Improving the measure, rather than the performance the measure is intended to capture Two common methods • Distorting operations • Distorting reporting
- 21. Don’t forget the role of luck!
- 22. • I returned, and saw under the sun, that the race is not [always] to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all. • Ecclesiastes 9:11
- 23. Choose Your Poison Low Motivation • If you go light on incentives, will people work hard enough? Extra compensation • If you go heavy on incentives, you impose risk on your workers More detailed reporting • You can tie incentives to better measures, but it isn’t free!
- 24. Choose Carefully Whether to Pay for Outputs or Outcomes Output • The product or service provided Outcome • The intended result of the product or service
- 25. Why Governments Care ―Bragging about how many new schools you’ve built counts for little until children start graduating with economically useful skill sets. (Link)
- 26. FOCUS ON RESPONSIBILITY, NOT CREDIT AND BLAME
- 27. Authority, Responsibility, Accountability and Causal Attribution are all different Authority is the right to make decisions Credit/Blame is a causal attribution • Whose actions caused an outcome? • Hard even for solo actors—what about omitted variables and measurement error? Accountability is a reward or penalty • You are held accountable for performance if it determines your evaluation/pay Responsibility is a set of duties • Knowing what is happening • Explaining why it is happening • Proposing responses
- 33. Some Final Tips
- 34. Decentralize authority to those with specific knowledge
- 35. The Hayekian Organization If we…agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place….decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization (Hayek 1945, p. 524).‖
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- 39. Thank you for attending – Questions? Safety Tips and Best Practices in Managerial Reporting Professor Robert Bloomfield Johnson Graduate School of Management Cornell University To contact Robert, please click the following link and provide your name and email address: http://www.execunet.com/events?id=9381
Editor's Notes
- And that brings us to our class mascot, whom my wife has dubbed “Daisy”. Daisy is a star-nosed mole. That incredible pink thing covering it’s face is its nose, which is one of the most remarkable feats of nature you’ll see. Countless generations of adaptation have led to a nose exquisitely well-suited to its environment. The star-nosed mole lives in bogs and swamps, in a mix of mud and water. It survives by seeking out and eating small insects as rapidly as it can. It puffs air out of its nostrils and inhales immediately to sniff out its prey, making it the only mammal known to smell under water. The nose is connected so directly to its brain that it can decide within 25 thousandths of a second whether something is food or not, and grasp the food with its tendrils and place it in its mouth in not much longer. With 22 tendrils acting independently, it can sniff out and eat eight bugs every two seconds.Why is Daisy our course mascot? Because a reporting system is an organizations metaphorical nose, helping us sniff out opportunities to increase our profits, reduce our costs, and achieve whatever other goals are most important in our owns bogs and swamps. Daisy reminds us that our organization’s managerial reporting system should be matched to the challenges we face, just like Daisy’s nose.
- No reporting system is perfect, for the same reason that a flat map can never perfectly represent a round planet. You’re going to have to stretch or tear the paper somewhere, because you can’t squeeze a 3D surface on to a 2D service. You’ve lost a dimension, so something’s gotta give. Now, mapmakers can choose from many different compromises (called “projections”) to get the most accurate representations of the part of the earth they care about most. The rest will be distorted, but that’s ok, as long no one really cares about those parts.Now, a reporting system takes a huge amount of data and tries to represent it in a few pages of reports so we humans with our tiny brains can understand what’s going on. Just as with the map, you can’t squeeze all that data into so few pages without losing a dimension…or really, many dimensions. So accountants are going to have to make compromises as well.
- Here is the list of our options for map design (or, returning to Daisy, nose design). Over the course of the term, we will look at all of these, and you’ll get a sense of which choices are best for which situations.
- I responded to this by figuring out what I wanted my students to learn each day, and writing a short essay. That’s turned into this book, What Counts and What Gets Counted. The idea comes directly from philosophy. You see…well, hold onAll videos for this book can be found at:Part I: New Eyes for the Right Nose (7 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwaK_GBe4nv_echjjhsWI2AB Part II: Performance Reporting (12 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwY4tFjOjwYqPPOMo3XLCucF Part III: Forms and Shadows (11 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwa9mmaiJU7F9peyQRmaEjVv Part IV: Accounting Basics (6 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwb4rHyNfZflrlFXVjguOtrH Part V: Allocating Overhead (11 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwb_T1XwtoQM3cJkJah28me0 Part VI: Capacity and Surplus (17 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwbTcr6fB3TVuvVye3n1gFcp Part VII: Coordination (19 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwZGVvE8b8n9ebNyBBVNLuR2 Part VIII: Sniffing Out Efficiency (8 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwbS2LbZ443HFJxnbHkfFhgj Accounting With Our Bare Hands (15 videos)http://www.youtube.com/playlist?list=PLhj9XCdPnIwY9ea5mc6r7L3c15q50fcVK
- Stuart Varney transcript excerpt:SV: Here’s what Robert Frank wrote: “Contrary to what many parents tell their children, talent and hard work are neither necessary nor sufficient for economic success.” He says success has a lot to do with luck. Professor, do you know how insulting that was? I came to America with nothing 35 years ago and made something of myself, I think through hard work, talent and risk-taking. And you’re going to call that luck.RF: No, I didn’t say that. What I said actually is that if you have a lot of talent and work very hard, you’re probably still not going to be a big success. There’s still a big element of luck.<snip>I reviewed some footage before coming down, and I would say, respectfully, consider the possibility you’re very lucky.
- One of the most famous examples of outcomes used in private-sector contracts.
- It might be easy or hard to hit an output target, but at least you know what you need to do: apply effort, skill, time and money in some combination. But you might not have the ability to hit an output target, because others must do their part, and you can’t control them.
- Here’s the challenge before you: As you look at your organization, you will see lots of imperfections in its reporting system. Is that a free lunch? Something you can change to improve performance? Maybe. But not necessarily, because we know that systems are imperfect. Maybe we are just seeing the results of an intelligent compromise.