ARTIKEL Bringing performance management alive How performance measurement becomes performance management by Peter Jørgensen Performance measurement & performance management There is just as much documentation on design of KPIs as there are IT systems for establishing measurement systems. The theme is often described under the headline performance measurement. This profusion of material contrasts with the amount of literature and empirical material on how we successfully bring performance measurement into play in the entire organisation. Even though this is treated under the theme performance management, we often experience that the two concepts are used at random or mixed together. At Implement Consulting Group, our focus is aimed at turning strategies and plans into action. In this context, targets and benchmarks are essential. Without knowledge of our starting point and which targets to meet, we lose focus on the desired effect and risk carrying out a project only for the sake of the project. Therefore, this article brings up the subject as to how we bring performance measurements alive in an organisation or in other words, it is about performance management. Characteristics of companies succeeding in performance management In our experience, companies working successfully with performance management have some common features. They have a balance between hard and soft factors thus, the dialogue in the individual company is not just centred on interpretation of figures and whether targets were met, but also on how they were met. The targets are broken down in such a manner that each level of the organisation has a set of KPIs. Their performance is visible to themselves and the rest of the organisation. At the same time, the correlation between the levels has been mapped to identify the effect from one level of KPIs to the above level. Thereby, it is possible to avoid that some KPIs become the subject of micromanagement in which we oversteer and lose ourselves in details. Successful companies are also capable of involving everybody, especially the lower levels of employees, in performance management conversations. This involvement is important as the employees often have first-hand knowledge which means that the road to direct improvements or hypotheses of possible improvements is not long. They also display a great amount of discipline. Knowledge sharing about performance and implementation of the above-mentioned conversations is by no means the project of the month for any of these companies. On the contrary, it is a scheduled assignment incorporated into the operation. Last, but not least, they are all successful in making the set goals both relevant and present for each employee. Their work with KPIs is both illustrative and visible. Based on these experiences, we have defined four principles, which are decisive of whether the implementation of performance management becomes a success. 1. Make it actionable Clearly describe the goal hierarchy, including which handles to pull in order to affect each KPI. 2. Make it formalised Integrate a future structure and future measurements into a regular and rhythmic meeting structure, thus forcing a dialogue. 3. Create the conversation Train managers and middle managers in the right conversation in order for the dialogue to be constructive and to have focus on actions. 4. Make it visual Visualise performance measurements on a daily basis in order to show the progress. This element is the litmus test of whether the system works. If the company is not successful in implementing the three above-mentioned elements, performance boards and displayed graphs will merely be a symbol of some good intentions that were never put into practice. 12 Viewpoints on Change
BRINGING PERFORMANCE MANAGEMENT ALIVE THE IDEA IN BRIEF Perfect KPIs do not exist. Data will always be challenged. Arguments raised against the measurement as imprecise will inevitably be a constant. Some KPIs will for diffe rent reasons even become unnecessary to follow on a regular basis. This should never be an excuse for not having or delaying a structured approach to performance management conversations. In contrast, the establishment of structure and action can be the lever for beginning to calibrate and understand measurements. To strengthen the sequence in performance management, we will describe four elements: Make it actionable Clearly describe the goal hierarchy, including which handles to pull in order to affect each KPI. Make it formalised Integrate a future structure and future measurements into a regular and rhythmic meeting structure, thus forcing a dialogue. Create the conversation Train managers and middle managers in the right conversation in order for the dialogue to be constructive and to have focus on actions. Make it visual Visualise performance measurements on a daily basis in order to show the progress. Make it actionable A prerequisite for us to complete an assignment is that we understand the purpose of it. Therefore, the first step to bringing life to performance manage ment is to make it both present and tangible for each employee. It is an advantage to begin this process by describing the correlation in relation to the whole and subsequently break down goals into subgoals. The breakdown of goals takes place partly to ensure a common direction towards a common goal, partly to estab lish operational goals for all levels in the organisation. It is important not to view this process as a task for a limited group of experts and/or managers. It is an advantage to break down goals with a large degree of involvement partly in order to estab lish ownership, and partly becau se the understanding of goals and their impact in relation to the whole must begin with the individual if they are to be made actionable. At the same time, the breakdown of goals helps us keep track of which measures to use in order to affect the result and thus a good starting point for formulating clear actions. Definition of actions and design of plans A requirement in order to define clear actions is transparency of the analysis and an understanding of cause and effect. In connection with this process, it may be necessary to define temporary measurements which provide answers to hypotheses about what affects the result of a given KPI or which monitor whether we do what we say we do. Often it is not possible to define actions directly on the basis of our KPIs. Instead they are to be defined at a lower level. A level where it is clear to the individual which actions affect the result. If we try to define actions at our KPI level, we risk that they become unclear or that they become focus areas and something we should be aware of from now on. The purpose of clear actions is not to open up the possibility of doing something to some extent. Instead they are to be defined in order for us to be able to answer yes or no to whether or not they have been carried out. Execution and follow-up Consequence and execution are words which may sound somewhat rigid and tough, however, this is not necessarily the case. By being clear in the formulation of actions or activities in a plan, execution and follow-up only become more simple. Follow-up should follow a consistent pattern to ensure that actions are defined and carried out. This will be described in more detail under Make it formalised. The chief executive of an organisation with more than 2000 employees made the following reflection: Issue no. 2 / 2010 13
BRINGING PERFORMANCE MANAGEMENT ALIVE We do not hold up managers against their KPIs we hold them up against whether they are capable of defining actions for their own work and business. If we have defined actions toget her and they have been carried out, it is our joint responsibility whether they had an effect it is not the individual manager s responsibility. In case this does not work, we try to create new hypotheses and solutions to how we may improve our performance. Make it formalised We believe that change is just as difficult to implement as it is to change habits because we interpret new habits as the essence of maintaining a change. We know how difficult it is to change habits, and the task is not less comprehensive when it comes to a large group of people. Nevertheless, this is what it takes for performance management to have an effect. Target figures and KPIs should not be studied in private. They only create value when they are discussed. Figure 1. Performance metronome applying takt and rhythm Takt and rhythm We can ease the collective behavioural change, e.g. by planning our meetings on the basis of a permanent structure. We can practise the ability to wonder together, thereby increasing the possibility of comparing across the organisation and as managers be a medium of knowledge sharing. It is an advantage to design the meetings as a cascade, in which information is gathered at the top and distributed downwards, which is to constitute the pulse of the organisation. Thus, the KPIs indicate the organisation s state of health, whereas the meetings are the actual pulse. In the end, the employees who handle customer relations or directly manufacture something for the customer are the ones who create value. Their measures for improvement may seem somewhat insignificant, however, in reality this is where the overall effect is largest. The chicken or the egg? One might ask what comes first: data or meetings. In our opinion, there is no doubt. Conversation is far more important than figures and data! Lack of data does not make it impossible to set expectations for the employees or to commend their efforts. The core is not a perfect set of KPIs that can be created along the way. Imprecise figures or lacking ability to measure are just an excuse for not systemising performance conversations. Our set of data will never be fully complete and will change over a period of time. If we wait for data to reach a certain level of quality, we risk never getting started. We need to begin by holding meaningful meetings and let this be the driver for improving data. Standard management Our world is constantly changing, and it calls for an increased focus on readiness to change, which means that we are faced with a paradox: How do we adapt immediately and on an ongoing basis without oversteering and/or losing focus? The day-to-day tasks for most organisations are very similar. Everybody is playing the same game, only the prerequisites are slightly changing. Take for instance a national railway company. The timetable is the same every day, the gross resources are the same as yesterday and the number of passengers is well-known. To this must be added unexpected events such as broken rails or trains, mismanagement and even bomb threats. On the basis of an amount of unexpected events, it is possible to design an organisation which focuses on acting based on the unexpected. This kind of game is very difficult to practise it is simply unpredictable. However, we are able to practise the basic game repeating itself every day until we know it like the back of our hand. By mastering the basic game, more room is left for handling unexpected events. The more we are able to learn by heart, the more we can carry out every day as an organisation with precision and accuracy in a well-known and consistent sequence. 14 Viewpoints on Change
BRINGING PERFORMANCE MANAGEMENT ALIVE Therefore, we apply the term standard management for a part of the day-today management. The term standard management may seem negative because intuitively it can be associated with limitation of personal style. High Rising Star Star However, the mindset behind is quite the opposite. By establishing a framework and consistent structure, more time is released for performing personal management. Whether you are a painter, sports star or musician, all equilibrists possess a strong foundation of basic technique which has been trained over and over again. Following agreements Low Low Falling Star Figure 2. Performance best practice standards Performance Lucky Star High Best practice for managers In order to define a number of standard management activities for an organisation, it is necessary to examine what best practice is for the management performed by the best managers on a daily basis. It is not about attitudes but present actions. Which non-negotiable standards do we need to comply with? How should the business be run? Taiichi Ohno, father of the Toyota Production System, has stated the following: Where there is no standard, there can be no Kaizen (Kaizen: Japanese word for continuous improvements). The same applies in relation to improving performance. Figure 2 illustrates four types of managers. There is the type of managers who act according to defined best practice actions but whose performance has yet to reach a certain level. These are called Rising Stars they have adopted best practice methods and work systematically. In the diagonally opposed corner, we find the Lucky Stars. Some consider them cowboys. They are the kind of managers who follow their own course and without being able to explain it perform well. At the lower left corner, we find the ones who neither follow best practice methods nor perform. These are called Falling Stars managers who, if they do not move vertically in the figure, should highly likely find themselves another job. At some point in time, the Lucky Stars are highly likely to run out of luck or be overtaken by the systematic managers and consequently end up in the category of Falling Stars. The upper right category represents the real stars. It is from this category that it is possible to gather experience in best practice. The truth is that every manager probab ly moves around in these categories from time to time. It is, however, important that solo performance is not accepted and that it is articulated as it prevents sharing of best practice and prevents the overall level from improving. Create the conversation A manager needs to be capable of more than just monitoring his KPIs. He also needs to be capable of double clicking and interpreting the result. Furthermore, he needs to be able to understand and communicate connections in order for the development to be part of a coherent story that leads to clarity and conclusions. Taking a starting point in this, one of the most important tasks is furthermore to be able to facilitate a process that makes us wonder. Wondering A company, which we have worked for, Issue no. 2 / 2010 15
BRINGING PERFORMANCE MANAGEMENT ALIVE had the following goal: All telephones calls were to be answered within 60 seconds in 95% of all telephone calls. At that time, the level was at 80%. Therefore, the easy answer was simply to employ more employees, however, this would also be the most expensive solution. By double-clicking on the service level, the organisation noted that the level was at its lowest at three specific points of time during the day: in the morning, where the number of calls was at its highest, at noon, where the employees went to lunch, and late in the day, where the number of employees who were logged out from the telephone system was low in general. In order to find possible solutions to the situation, the employees were presented with data as a starting point for a dialogue on how to react to the low levels. The dialogue concerning interpretation of observations and formulation of actions takes place by everybody being part of joint wondering. The concept to wonder includes the fact that there is no search for scapegoats and that figures are not analysed with any hint of accusation. The reason for this is that it may be difficult to be faced with performance figures. Therefore it is important that it takes place in an atmosphere of trust. Telling a story It is important that a manager is capable of telling the story of the development of his KPIs, and here the understanding of breaking down goals is the ideal frame. The story is what binds target figures together with conclusions and necessary actions. The ability to bring a number of target figures from an unstructured presentation to a floating story about observations, analyses, interpretation and conclusions is an ability that we do not train enough. It is, nevertheless, an ability which we as we receive more target figures need to be able to master. Make it visual All of the above points are either invisi ble or something which has been reserved for management. By making advantages visible, we obtain two advantages. First of all, information becomes something we automatically share and it becomes available to all. Figure 4. Making targets, plan and actions visual Make the important visual A process of choosing what is most important is also taking place in connection with the visualisation. The best way is to make our KPIs visi ble. In more rare cases, we also visualise our plans for improvement. The reason why this does not take place very often may be that it displays the situations in which follow-up is not carried out. Very rarely, we experience visibility as to which management activities are a part of the daily routine. In the same way as takt and rhythm are instrumental in maintaining good habits, visibility is instrumental in us helping each other get the most important things done in the course of our busy everyday life. Figure 3. Joint wondering Secondly, we achieve visibility of whether it works. If the things we have made visible waste away, it is detected faster and the motivation for action is greater. Contact For further information please contact Peter Jørgensen (pjo@implement.dk, +45 2338 0047). 16 Viewpoints on Change