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Performance Measurement: The New School
by Ed and Steve Happ

Measurement is not a new business concept, but one that has been in use and evolving for many years. Traditional measures, inspired by government regulations, are mostly financial in nature, looking inward to determine the health of the organization through numbers. U.S. businesses have used these measures with success for years. The Japanese added additional inward measures that are process oriented. By studying cycle times and conentrating on continual process improvement, efficiencies were improved, costs were cut, and defecits reduced. This contribution to meausrement was a giant step forward, but major factors of business health are missed by introspection alone. Current measurement theory takes good financial measures, good quality measures, and adds an external perspective to give a balanced view of the organization.

The Historical Perspective

l. Traditional Measures

2. Quality Measures
» Process Oriented
» Reasons for Change:
Quality became own goal
Quality at expense of service
Also too inward looking

Measurement Trends
Old School
  • Historical View
    » eg. EPS Growth
  • Input measures
    » eg: ...
  • Financial-based
      » eg: profit margin
  • Activity/behavior- focused
      » eg: projects completed
  • Vertical view
      » functional/ departmental
      » eg: # invoices generated
  • Clubs
      » measurement as inspection, witch-hunt
New School
  • Future view
      » eg: innovation
  • Output Measures
      » eg: ...
  • Constituent-based
      » eg: CSI
  • Outcome/accomplishment-based
      » eg: project impact
  • Horizontal view
      » process/cross-functional
      » eg: speed/clarity of invoice
  • Cheers
      » measurement as points-on-the-board, winning
A Balanced View of Measures
Measurement is an excellent tool for executing a strategy. By periodically identifying the relative position to the ultimate business goal, the human desire for improvement and winning is applied to the business setting. Putting a score on an activity will increase productivity and drive the marker in the desired direction -- provided you measure the right things, in the right way. We've all experienced the phenomenon in sports. Think back to the last time you played a one-on-one sport, such as tennis, with a friend. You spent a period of time warming up by batting the ball back and forth with some effort. What happened when your friend said, "I'm ready. Let's start."? You suddenly stretched to get that ball, where before you had let it by. You put in the extra effort not to let the ball by so you didn't give away a point. Your productivity increased. Your effort increased. Your focus sharpened. The same will happen in business. Knowing what the score is and what creates a win is motivating.


Why Do We Measure?

If measuring something creates motivation and sharpens focus, what we measure is important. Keeping score on the wrong things, or in the wrong way, can motivate people to charge off in a direction other than the one you intended. So, how do we determine what to measure? First, start with the four Critical Success Areas (CSA's) of any business: Customer Satisfaction, Employee Satisfaction, Productivity, and Cash Flow or Shareholder Value. Second, list all the items of importance to the constituents of those areas. Third, determine how well you perform against each item of importance. Pull out the items of importance that we perform poorly against because they are the high priority, "fix" items. Prioritize the "fix" items and pick the top 3 or 4 in each CSA. Those are the items to set goals for, and then measure the progress toward those goals.

Setting goals is a topic all its own, since most companies do a very poor job of it.

What We Measure

Once the top 3 or 4 items of importance in each CSA are chosen and goals are established for their improvement, we have to determine how to measure progress. Various forms of data can be gathered on each, depending upon the goal. For example, counts and amounts (tallies, dollars), direct and derived (raw and ratios), soft measures (surveys), etc. To begin with, it is important to choose data that is readily available. Starting with an elaborate data collection system will often defeat the effort. In fact, the source of the data needn't be computerized at all -- the notebook talley, log sheet, or manual form is quite effective. More often, however, the data will come from computer sources such as the spreadsheet, the system report, the existing production report, or directly from the database of the company. In all cases, the measure needs an owner to ensure that the data is being reported, gathered, and assembled on a timely basis and with accuracy. Without an owner, the data will not flow and the measurement program will be defeated.

Now that the data is gathered, how do we report it and to whom? We are firm believers in Business Scoreboarding. What would the football game be like if there were no scoreboard? How would the players perform if they didn't know how many more yards they needed for the first down? How excited would baseball fans be if the game statistics such as the inning, the number of outs, or the score were not announced or displayed? The players and the fans are drawn into the game when they know what's going on. The same prinicles apply to business. Once you start plotting the progress toward a goal and post it for all to see, people work to improve their statistics for all to see. The scores should be prominently displayed like a scoreboard because, again, knowing what the score is and what creates a win is motivating. Use posters, bulletin boards, flip charts, broadcast EMAIL, etc. Remember to keep the display simple, using graphical representation wherever possible. Pages of numbers take too long to interpret and end up being de-motivating. Be sure to show the trend line so people can quickly and easily see if they're improving or not. Measurement events help to further the motivation. When the new scores come out, assemble people and annouce the progress. However, be sure to make a public display of the improvements and leave the slippage for private discussion.

How We Measure

The program doesn't stop with merely displaying or announcing stats, just as the football season doesn't have only wins and losses. The prize is a critical component of the program. At this point, most people think money, and despair because the budget, or policy, doesn't allow for it. Engage the imagination once again and look at football. Certainly, there's a lot of money involved in the NFL. But what about college.... particularly with those players who are not aspiring to the NFL? Those boys are paid nothing, but yet they work themselves to death. What do they get out of it...what are their rewards? There are the cheerleaders, the fans, the special treatment when they're winning, the rankings, the conference titles, the trophies, and the bowl games. These things are worth fighting for.

Back to business.... Rewards and prizes do not have to be monetary only. Studies have always shown that recognition and appreciation are stronger, longer lasting motivators than money alone. Reward programs is another topic all its own that we'll address in a later newsletter. At this point, suffice it to say that people work for their paycheck, they excell for that something extra. Rewards close the performance loop and fuel the drive for excellence.
What We Do With Measures

Summary