Recently I attended an information session in Ottawa about performance measurement for business leaders and financial people. Led by a well-known and successful software system vendor along with a leading firm in performance measurement, it attempted to respond to one of the seminar attendees’ comments: “There’s not a person in this room who doesn’t want to know what is really going on in his or her business at any moment. But how can we address it without crippling our companies with too much bureaucracy and expense?” The question was never answered over the two hours of the session.
Getting to the Basic Premises
A year earlier, the author was present at a performance measurement seminar put on by a management consulting association. Involving a recognized guru of performance measurement, the session was peppered with papers and explanations that were erudite, sophisticated, informative and complex. Yet the questions from the attendees were not answered easily; rather the curious received responses with more explanations, more charts, more theory and a lot of “perhaps, if……’s”.
No matter the subject, it should be explainable to novices and experts alike. If it is well-formed, it should answer questions factually and readily, unless…… Unless, it might not be so well-formed – that, perhaps, premise has been added onto premise and more premises heaped onto an initially weak premise. This paper posits that traditional performance measurement systems, unknowingly, start off with a weak premise.
Where to Start
If you want to know what is going on in your firm, you must:
- Know what to measure
- Keep the amount of information to a reasonably small level
- Know the leading indicators (as opposed to historical [too late] information)
- Have a reliable source for the information
- Have a constant up-to-date mechanism
- Not have the measurement processes overwhelm the other company processes
- Have a measurement system that fully integrates with other company operatives and goals
All measurement experts seem to agree on these.
The Usual Approach
The typical approach begins with an expert’s visit to the firm to perform an analysis so that the effectiveness of the measurement system will be, if not assured, at least enhanced. Priorities of what is to measured would be established. Good so far.
Then a discussion and analysis ensue to determine the key indicators for the business. Yikes! Who decides these? The CEO, the CFO, the business analyst, the management team? How do we know if they are right? What if they are wrong? If they are wrong, how many months (or years) will it take, after implementation, to find out?
Assuming the best available choices are made, the ‘measurement system’ at this juncture would be superimposed over the other information systems in the company. It may displace some and it may cause a repositioning of existing systems. Are you ready for that degree of change?
Problems with the Traditional Approach
Let’s us view a list of concerns one can anticipate with traditional performance measurement.
- It does not get readily to the troops in the front lines
- Often, only the CFO and the visiting analyzer understand it
- Management drives it – not the employees
- The CEO likes it but cannot touch it
- Changes to it with business changes are difficult, or cost an arm and a leg to implement
- The troops are wary of it but rarely see a benefit to themselves in it
- It may or may not bring about a responsive improvement in individual performance
- It is rarely integrated into the standard company operations but often is an add-on with all the add-on headaches – especially the cost of maintenance and the elitism associated with those running it.
- In drilling down deeper and deeper into the enterprise, the system makes people conform to measurements desired by the system which may be outside their normal job description measurements.
A Methodical Solution
We suggest that you:
(1) Take a page from chaos theory and start from the bottom up. If you measure every employee’s job, you measure the company.
(2) Provide a simple traffic light (red, yellow, green) dashboard display system for every employee, every department and the company as a whole. In an instant, the CEO can see if the company is on stream, if a department is off kilter and if a certain employee is having difficulty – at any moment of any day.
(3) Define the leading indicators for the business with a fresh approach.
These methods are explained as follows: methods (2) and (3) above are detailed in reference ; method (1) is addressed in this paper.
Readers of these papers were introduced to chaos theory in two previous CCCC Newsletters [references 1 & 2]. Briefly, chaos theory is based on the following: a very simple bottom-up decision is made repeatedly by lower level events or animals or people without any idea of the global picture. But out of that simple choice evolves a sophisticated highly functional result. Examples of phenomenon that evolve from chaos theory include the activities of an ant colony, the formation of a snowflake and the shape of a maple leaf. Each result is different within the genre, yet the general result is not only predictable, it is elegant. Each snowflake is unique yet complete; the ant colony differs from a neighbouring ant hill and each maple leaf is different from the one beside it, yet, nonetheless, the latter is a magnificently correct maple leaf.
Chaos theory can be applied to human-based endeavours. For example, the author includes his:
- Successfully solving over 500 corporate problems this way (a 100% success rate, by the way)
- Helping well-educated high tech people find jobs (career positions) in a crowed employment market (also at a near 100% success rate)
- Corporate performance measurement system (described in this paper)
People new to this bottom-up approach to performance measurement sense some downsides with it, which are:
- The basic premises have to be done ‘right’ and the discovery of ‘right’ for each employee takes a lot of patient work
- It is like mixing apples, oranges and orangutans
- Because it is fully integrated, that is, integrates the full operational aspect of the company, it entails considerable redesign in one’s approach to managing the enterprise (for the better, we might add).
Actually, none of these is a downer except in initial appearance, and more often to people imbued with conventional thinking. (To not take more space in mid-paper, each downside is expanded upon in the Appendix at the end of this newsletter.)
The upsides to the chaos-theory based performance measurement affect three groups: employees, managers and leaders as follows:
- Employees embrace it because, often for the first time, they understand their jobs and what is really expected of them
- Employees feel comfortable because it talks their language and it begins by talking their language, getting their input at the outset
- Employees revel in it because they see a chance to excel – to be recognized and rewarded for excelling
- Every day, every hour, or even every minute employees see how well they are doing against individually defined standards for the month-to-date, and for the year-to-date. They can respond immediately with more effort if they see themselves lagging
- Even employees on trips out of the country can make a daily check of how well they are performing; all they need is access to a computer
- As a consequence of the system, employees begin raising their own bars towards better performance – and keep on raising the bars of personal expectation
- Every time an employee experiences a change, you can readily change the measurement.
- Employees who cannot cut it or feel out of place in their environments leave the company on their own accord – so tasteless and expensive firing settlements are avoided
- Managers, first thing every morning, can look at their computer screens to immediately see how things stand in their departments
- Managers like the system because it increases their meaningful communications with their staffs
- Managers witness their employees raising the bar on their own performance long before the managers attempt to
- At a glance at any moment of any day, the manager can see who needs help and can contribute to addressing the current problem
- Employee reviews are fully integrated into the system; these annual (or preferably, quarterly) reviews become exciting rather than an act of drudgery
- Since personnel reviews should focus on the future goal rather than past errors, the employee reviews are an asset for both the employee and the manager
Leaders (Business Owners and CEOs)
- CEOs, at any moment (why not first thing every morning?) get a complete picture on their computer screens as to how things stand in their companies
- CEOs adopt it because it increases their opportunities for direct communications with their managers
- CEOs will realize their managers raising the bar on their own performance long before the CEO’s requests it
- At a glance at any moment of any day, the CEO can see which manager needs help and can assist the manager if appropriate
- At a glance at any moment of any day, the CEO can drill down to see which employees need help and check that the managers are addressing them
- If the CEO has an employee on a special assignment for the Executive Committee or the CEO, the employee’s performance for the task can be reviewed for its current status
- Like all personnel reviews, the managers’ reviews are fully integrated into the system; reviews become a wonderful exchange rather than a session of discomfort
Now weigh the ‘apparent’ downsides against the upsides (but refer to the Appendix, first).
The Weak Premise
The weak premise of conventional performance measurement, in our opinion, is the fact that the measurement begins at the top – with the desired corporate results and then drills down. Our premise is that you must begin with measurement at the bottom, the individual employees and work your way up to the corporate goals. At that point, extract the desired results based on the latest annual planning targets – which are also integrated into the system.
What does it Cost?
First, you should expect a 5 times return on your investment within 12 months of full implementation. Then you can enjoy that new savings forever. Our estimate is $1,800* per employee for installation – and since you are measuring the productivity of each employee, you can quickly find how long it takes to get a return on any employee.
* For a 75-employee company, decreasing with an increase in employee base, e.g. $1,400 ea. for 150 employees.
The Anticipated Results
The results you can expect include increased performance, the discovery of superstars amongst your staff, improved morale, installation of an across-the-board, individual-by-individual system of accountability, an ability to react quickly to problems, a positive response by your markets and customers who tell you they now feel like kings.
Oh, by the way, expect corporate profits to shift upwards by 3% of sales within the first year. That makes the investment in an attitude change very worthwhile.
Explanations for the three ‘downsides’ referred to above are:
Getting it ‘Right’
The first definitions of job goals have to be done ‘right’ and the discovery of ‘right’ takes a lot of painful effort. It is necessary to patiently work with each employee to discover what each does and what counts among the things that they do. What do they deliver to other people? Then you need to figure out the means to obtain that measurement. Finally you must ensure the employee establishes reasonable targets. However, once it is done, you set the tone forever for that position. Although it must be adjusted quarterly to reflect new targets and the changes that will inevitably occur in any position, these ensuing ‘labours’ are really enhancements to ensuring a continuously updated and responsive company – which should be done anyway.
It adds up to apples, oranges and orangutans. Eh???? It is important in this bottom-up approach to create specific measurements that are germane to each employee. Thus the measurement for Charlie can be quite different from that for Karen. However, it is the employees that are in the driver’s seat and the system can only work if the employee remains front and centre. Thus you cannot add up the measurements of Karen and Charlie because their tasks may have absolutely no relationship to each other. Fortunately it doesn’t matter. What matters is that Charlie and Karen each know how they are doing in what they are supposed to be doing and an environment is created for each person to excel. Besides, when you get to the measurement for the manager of Karen and Charlie you usually encapsulate the entire performance measure for the department. Look at it another way: if each employee excels at the job, the department excels. If each department excels, the company excels – irrespective of the measurements chosen.
Because the chaos theory-based measurement system is fully integrated, that is, integrates the full operational aspect of the company, it entails considerable redesign to the approach for managing the enterprise. Specifically, employees are viewed as the basic building blocks of the enterprise. Employees represent the ‘source code’. A whole shift of mindset must be formed to incorporate this type of thinking. Once it begins, employee morale shoots up, almost instantaneously.