Should We Abandon Performance Measurement! Presented by: Jeff Solomon Managing Director

Should We Abandon Performance Measurement! Presented by: Jeff Solomon Managing Director

The Elusive Search for the Secret of Success

Why Is Measurement So Powerful

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) Geographical measurement (e.g., location, distance, and direction) Medical vital signs (e.g., body temperature, pulse, blood pressure, etc.) Academic measurement (e.g., grades, competencies, credentials) Transportation measurement (e.g., speedometer, odometer, altimeter, fuel gauge, warning lights)

The Challenge of Organisational Measurement

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 Marketing Quality Human Resources and Training Research and Development Information Technology Service Delivery Compensation and Rewards Logistics Customer Service Results Management Measurement

The Functions of Performance Measurement Measurement directs behaviour Tell me how you measure me and I tell you how I will behave Measurement increases visibility of performance You can t manage what you can t measure Measurement focuses attention What is measured tends to get attention Measurement clarifies expectations People do what management inspects, not what management expects Measurement enables accountability Tells you how well you and your employees are performing against commitment Measurement increases objectivity People like measuring and even like being measured but don t like being judged Measurement provides the basis for goal setting SMART Specific, Measureable, Actionable, Relevant and Timely You will get what you measure Measurement improves execution When I see companies that don t execute, the chances are that they do not measure Measurement promotes consistency Outstanding performance is about consistency over the long term

The Functions of Performance Measurement Measurement facilitates feedback Great feedback might even be the key to unlock high performance Measurement increases alignment Consistent behaviour and performance is impossible without an aligned measurement system Measurement improves decision making The hallmark of any highly effective organisation is making good decisions and making them better, faster, and more constantly than their competitors Measurement improves problem solving It is not the 95% that is right that make something work; it is the 5% that is wrong that messes everything up Measurement provides early warning signals No matter how right the solution, what good is a problem that is solved too late? Measurement enhances understanding If you cannot measure something, you cannot understand it. If you cannot understand it, you cannot control it. If you cannot control it, you cannot improve it Measurement enables prediction Looking back is helpful, looking forward is essential Measurement motivates Measurement tend to make things happen; it s the antidote to inertia

Radical Treatment for an Acute Problem

Measurement is a Mess!

The Problem of Measurement Dysfunction 1. Informational measurement measurement used for informational purposes 2. Motivational measurement measurement used for rewards and punishment

Performance Measurement Systems Are Broken

Challenging Performance Measurement Myths In order to get performance measures to work, we need to challenge the myths they have been built on.

Myth # 1: Most Measures Lead To Better Performance While you might find some of the following examples of dysfunctional measurement unbelievable even unbelievably stupid sadly these situations are all true and surprisingly common: Private Sector Examples Fast Food Restaurant Chicken Efficiency Manufacturing Company On Time Delivery Sales Team Commission Purchasing Department Price Discounts Negotiated Warehousing Department Maintaining Low Inventory

Myth # 1: Most Measures Lead To Better Performance Public Sector Examples Government Agency Number of Cases Closed City Rail Service Achieve On Time Schedule Accident and Emergency Department Timely Treatment of Patients

Myth # 2: All Measures Can Work Successfully In Any Organisation, At Any Time Which type of measurement is more common in your organisation? Traditional Measurement Monitoring Reporting Control Justifying Judging Triggering Rewards/Punishment Negative Accountability Positive Measurement Visibility Communication Feedback Understanding Prediction Learning Improvement Positive Accountability

Myth #3: All Performance Measures Are KPIs The Four Types of Performance Measures Type of Performance Measure 1. Key Result Indicators (KRIs) give an overview of the organisation s past performance and are ideal for the Board (e.g., return on capital employed). Number of Measures in Use Up to 10 Frequency of Measurement Monthly, quarterly

Myth #3: All Performance Measures Are KPIs The Four Types of Performance Measures Type of Performance Measure 1. Key Result Indicators (KRIs) give an overview of the organisation s past performance and are ideal for the Board (e.g., return on capital employed). Number of Measures in Use Up to 10 Frequency of Measurement Monthly, quarterly 4. Key Performance Indicators (KPIs) are measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization (e.g., planes that are currently over two hours late). Up to 10 (You may have considerably fewer.) 24/7, daily, weekly

Myth #3: All Performance Measures Are KPIs The Four Types of Performance Measures Type of Performance Measure 1. Key Result Indicators (KRIs) give an overview of the organisation s past performance and are ideal for the Board (e.g., return on capital employed). Number of Measures in Use Up to 10 Frequency of Measurement Monthly, quarterly 4. Key Performance Indicators (KPIs) are measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization (e.g., planes that are currently over two hours late). Up to 10 (You may have considerably fewer.) 24/7, daily, weekly

Myth #3: All Performance Measures Are KPIs The Four Types of Performance Measures Type of Performance Measure 1. Key Result Indicators (KRIs) give an overview of the organisation s past performance and are ideal for the Board (e.g., return on capital employed). 2. Result Indicators (RIs) summarize activities of a number of teams and thus have a shared responsibility (e.g., yesterday s sales). 3. Performance Indicators (PIs) are measures that can be tied back to a team but are not key to the business (e.g., number of sales visits organized with key customers next week/fortnight). Number of Measures in Use Up to 10 80 or so (if it gets over 150, you will begin to have serious problems) Frequency of Measurement Monthly, quarterly 24/7, daily, weekly, monthly, quarterly 4. Key Performance Indicators (KPIs) are measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization (e.g., planes that are currently over two hours late). Up to 10 (You may have considerably fewer.) 24/7, daily, weekly

Myth #4: By Tying KPIs To Pay, You Will Increase Performance KPIs become key political indictors when they are linked to pay Performance with KPIs should be a ticket to the game Bonus schemes attached to Balanced Scorecard are usually flawed Measures will be manipulated

Myth #4: By Tying KPIs To Pay, You Will Increase Performance A Performance-Related Pay System Category Perspective Weighting Finance 60% Customer 20% Internal 10% Innovation and Learning 10% Economic value added Unit s profitability Market growth Measure Customer satisfaction survey Dealer satisfaction survey Above average rank in industry quality survey Decrease in dealer delivery cycle time Employee suggestions raised vs. implemented Satisfaction from employee survey (re: coaching, empowerment, etc.) Measure Weighting 25% 20% 15% 10% 10% 5% 5% 5% 5%

Myth #5: There Is A Need To Set Annual Targets Cap Total salary and bonus Hurdle Salary Incentive starts here Hold profits back Why Traditional Approaches Fail A Pull next year s profits forward Incentive stops here B Move profits into next year 80 % of Target 100 % of Target 120 % of Target Performance outcomes Adapted from HBR article Corporate Budgeting is Broken-Let s Fix It by Prof.Michael Jensen, Emeritus, Harvard Business School

Fixed Performance Contract Relative Improvement Contract Myth #5: There Is A Need To Set Annual Targets From a fixed to a relative improvement contract Fixed targets lead to incremental changes Relative targets lead to stretch changes Fixed incentives lead to fear of failure Fixed planning leads to focus on meeting the plan Resources allocations lead to cost protection Central coordination leads to inflexible response Variance control lead to excuse culture Relative rewards lead to confidence to take risks Continuous planning leads to focus on value creation Resources on demand lead to cost minimisation Dynamic coordination leads to flexible response Relative KPI controls leads to improvement culture

Myth #6: You Need Performance Measures In Order To Drive Performance If the organization has recruited the right staff, there is a clear understanding of what the organization s Critical Success Factors are, and if staff work in a supportive environment with great managers and leaders, the organization will succeed. Performance measures don t drive performance they support and enforce the positive environment that already exists. Organization with dysfunctional performance measures would function much better without them, for the following reasons: Improved Staff Management Evaluate Performance Related Pay Assess Balanced Scorecard Initiatives Measure Actual Team Progress

Myth #6: You Need Performance Measures In Order To Drive Performance Organization with dysfunctional performance measures would function much better without them, for the following reasons: Improved Staff Management Evaluate Performance Related Pay Assess Balanced Scorecard Initiatives Measure Actual Team Progress Ascertain the Organization s CSFs

Ascertain your Organizations Critical Success Factors How Strategy and the CSFs work together Organisation s Strategy Aligning Performance to Strategy Strategic Initiatives Organisation s 5-8 CSFs New Business Created Business As Usual: Doing What We Do Every Day Better

Myth #6: You Need Performance Measures In Order To Drive Performance Organization with dysfunctional performance measures would function much better without them, for the following reasons: Improved Staff Management Evaluate Performance Related Pay Assess Balanced Scorecard Initiatives Measure Actual Team Progress Ascertain the Organization s CSFs Monitoring the Organization s Performance Gaming of the Performance Management System

Suggested Action Steps To address the issues discussed above, I propose the following action steps: Do some background reading on the topic. Recommended reading which can be found under Resources on our web site would be a good place to start. www.performanceindicatorsafrica.com If you think you are working with dysfunctional measures, negotiate a three-month moratorium on using performance measures within your organisation. In this window of opportunity identify your organisation s Critical Success Factors to develop, implement and use Key Performance Indicators that link daily activities to the organization s strategy Your organisations Winning KPIs.

Performance Indicators Africa Performance Indicators Africa is a specialist business performance measurement organisation and is certified to deliver Winning KPIs MasterClasses. We specialise in assisting organisations improve business performance through effective performance measurement. We provide the knowledge and skill to develop, implement and use performance measures that align employees' daily activities with strategy the measures that matter most! I m p r o v i n g o r g a n i s a t i o n a l p e r f o r m a n c e

Winning KPIs Model Importance of knowing your organisation s Critical Success Factors (CSFs) Mission/Vision/Values Strategy (Issues and Initiatives) Financial Results Customer Focus Innovation & Learning Internal Processes Staff Satisfaction Community & Environment Critical Success Factors Key Result Indicators (max 10) Result Indicators, Performance Indicators (80 or so) Key Performance Indicators (max 10) Financial Results Customer Focus Innovation & Learning Internal Processes Staff staff Satisfaction Community & Environment

Questions

Thank you Contacts Jeff Solomon Managing Director +2783 252 6931 +2711 803 6080 jeff.solomon@performanceindicatorsafrica.com www.performanceindicatorsafrica.com http://za.linkedin.com/in/jeffsolomonzap