Archive for May, 2010

smartKPIs.com Performance Architect update 21/2010

Plan-Do-Check-Act (PDCA) / Plan-Do-Study-Act (PDSA), Philosophy and Performance Management

One of the administrative science domains that feeds Performance Management as a discipline is the quality movement. The Plan-Do-Check-Act (PDCA) cycle is at the core of the link between the two fields. It has been promoted and used in its current form for over 50 years. However, its roots can be traced back to ancient Greece.

Socrates (469-399 BC) formulated the dialectic inquiry process based on the idea of questioning and modifying understanding through the conflict of opposing ideas. This technique was further refined by Aristotle (384-322 BC), who enunciated a method of scientific investigation that employed both dialectics and empirical observations. His deductive reasoning approach combined with inductive elements became the foundation of the western scientific method, influencing philosophy and scientific inquiry for hundreds of years.

The famous arab scholar Ibn Sina, known to the western world as Avicenna (980-1037), proposed two stages of the scientific knowledge discovery process: conceptualizing what is meant and verifying what is being conceptualized, the basis of what evolved into what is being called the “Avicennian logic”.

Francis Bacon (1561-1626), considered one of the fathers of the scientific revolution, employed such an approach in defining a more modern version of the scientific method, with the balance leaning more towards the induction reasoning. The conceptualization becomes hypothesis and verification is separated into two further steps: data gathering and results analysis.

In the 20th century, Dr. Walter Shewhart (1891-1967) brought this process of inquiry traditionally used in research and education in business organizations. His collaborator and mentee, Dr. Edwards Deming (1900-1993) refined and popularized this concept as the Plan – Do – Check – Act (PDCA). Deming called it the “Shewhart cycle” and later replaced Check with Study, however in common use it remained the PDCA process, referred to as the “Deming cycle”.

In the 1990s, with the ascent of new management concepts such as the Six Sigma and the Balanced Scorecard, the PDCA process morphs into the new mutations. In Quality Management, the Six Sigma methodology employed the DMAIC project methodology: Define – Measure – Analyze – Improve – Control and the DMADV project methodology: Define – Measure – Analyze – Design and Verify.

In Performance Management, when the Balanced Scorecard as a concept needed a more robust application framework in mid 1990s, the PDCA came to the rescue again. It provided the elements required for migrating the Balanced Scorecard concept from a Management Accounting stage to the Strategic Management stage.

Today, at the down of a new phase of evolution of Performance Management as a discipline, these stages of scientific inquiry of process execution form the essence of the “management” component in “Performance Management”. They illustrate that Performance Measurement is required but not sufficient. Sound Performance Management practices based on the PDCA cycle give context and make the entire journey of improving performance interesting and relevant.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


Relevant links

Aristotle: http://galileoandeinstein.physics.virginia.edu/lectures/aristot2.html

Bacon: http://plato.stanford.edu/entries/francis-bacon/

Ibn Sina: http://www.iep.utm.edu/avicenna/

Socrates: http://philosophy.lander.edu/ethics/socrates.html

Date: May 25th, 2010
Cate: Animals, Nature

Tags:

The antithesis of proud as a peacock

not-so-proud-peacock

smartKPIs.com Performance Architect update 20/2010

Performance Management - a story told through key survey figures and statistics

Performance Management is one of the most dynamic business disciplines today. Its evolution accelerated over the last 20 years and due to the large number of concepts it employs and unstructured body of knowledge, having a comprehensive big picture view of the topic is rather challenging. One way of achieving this is by reading a lot and doing a critical review to the various ideas proposed. Another option is by monitoring the pulse of the discipline as reflected in studies and survey reports covering performance management topics.

Listed below is a random list of relevant statistics published in performance management studies over the last few years. It is interesting to put them together as pieces in a puzzle, to create a picture of the state of the discipline. This is the plus. On the other hand, each study used different research tools and varied in rigor, so the results need to be analyzed in the context of the survey as illustrated in the original report.

Overall they form an interesting read and while the degree of accuracy for their findings may vary, they can be useful in understanding the thinking and direction in Performance Management research and practice:

2010

  • ” …the most growth in BI [Business Intelligence] tools to support performance management has been in operations (51%), finance (50%) and customer management (49%) ” (Ventana Research, 2010)
  • ” …more than half of participants (53%) said that they are only somewhat confident or not confident at all that their BI [Business intelligence] technology meets the needs of the organization”…. with only 9% being “very satisfied with their organization’s BI efforts.” (Ventana Research, 2010)
  • “…lack of resources (60%) and lack of a budget (43%) are the two most common barriers to improving BI and performance management…. The top two people issues are lack of awareness (36%) and lack of executive support (26%)” (Ventana Research, 2010)
  • “…41% of participating organizations evaluate performance data and 29% are assessing metrics or measures to do so.” (Ventana Research, 2010)
  • “…two thirds (66%) of organizations are planning to evaluate new technologies for BI and performance management.” (Ventana Research, 2010)

2009

  • Balanced Scorecard is the sixth most used management tool all over the world. (Bain & Company, 2009)
  • 53% of the surveyed companies use a Balanced Scorecard, with an overall satisfaction score of 3,83 from 5. (Bain & Company, 2009)
  • “ On average, 84% of employees at Best in Class organizations were rated “meets” or “exceeds” performance expectations…” (Aberdeen Group, 2009)
  • “… An [Enterprise Performance Management] EPM system with strong reporting capabilities is a critical enabler for the Best in Class (companies) by enabling leaders and managers to make better decisions…” (Aberdeen Group, 2009)
  • “Most of the companies agree that systemically deriving KPIs from their strategy and effectively communicating that strategy are crucial to ensuring strategic objectives are met” (PricewaterhouseCoopers, 2009)
  • “….only 33% have implemented strategy maps. Nevertheless 67% of the companies use strategy development tools such as value chain analysis.” (PricewaterhouseCoopers, 2009)
  • ” While many companies say they derive KPIs from strategy (61%), a smaller number indicate that they have been through the process of defining strategic value drivers (54%) to break strategy and identify relevant KPIs.” (PricewaterhouseCoopers, 2009)
  • “On a scale of 1 (not integrated) to 6 (fully integrated), 73% of the companies rate their [Performance Management] process integration as a 4 or above.” (PricewaterhouseCoopers, 2009)
  • “…many companies focus on classic financial control measures. 81% stated that they use KPIs concerning profit or loss, liquidity, profitability and operational business.” (PricewaterhouseCoopers, 2009)
  • ” …along financial indicators, 51% of the participating companies explicitly indicated non-financial measures like customer satisfaction or quality of delivered services as KPIs in use” (PricewaterhouseCoopers, 2009)
  • “On average more than 80% of companies think their [Performance Management] PM processes need improvement…the planning, budgeting and forecasting processes seem to be especially problematic” (BARC, 2009)
  • ” ..the number of people involved in performance management processes has increased over the last years with an average of 30% across all [Performance Management] PM processes.” (BARC, 2009)

2008

  • Corporate performance management (CPM) is the highest priority in business intelligence (BI)…” (Gartner, 2008)
  • ‘’….through 2011, at least 50% of companies implementing CPM will simply automate existing finance oriented processes and fail to improve performance management processes across the organization.” (Gartner, 2008)
  • “……organizations that allowed their finance function to lead a CPM implementation were on average 25% less mature in their use of CPM than organizations that had an equal partnership between finance, IT and Key business users in their CPM project.” (Gartner, 2008)
  • [Global Market] “….financial measures still dominate. In every country, financial measures are the most frequently measured and over half of those surveyed report that over 50% of their measures are financial” (Neely et al. 2008)
  • [Chinese Market] “… 89% reported that they had adopted a formal structure for their enterprise performance management system.” (Neely et al. 2008)
  • [Japanese Market] “According to data over 60% of Japanese companies have now adopted performance management frameworks such as the balanced scorecard.” (Neely et al. 2008)
  • [U.K. Market] ” … only 17.3% believe they have the right number of measures, while 38.6% have concerns about the quality of their data.” (Neely et al. 2008)
  • [U.S. Market] ” Despite the abundant literature on mapping strategies, the majority of the respondents, 62%, do not visualize their strategies.” (Neely et al. 2008)
  • [Australian Market] “…65.5% of the respondents claim to have a balanced scorecard….. no other framework for enterprise performance management design being prominent in Australia, with 39.3% of respondents preferring to use their own basis for designing their enterprise performance management system.” (Neely et al. 2008)

2007

  • Measuring performance against goals and tracking KPIs occur in 80% of companies. (SAS, 2007)
  • “8 in 10 organizations in this research are engaged in measuring performance against goals, ahead of summarizing and consolidating information. Three-quarters are tracking key performance indicators (KPIs)”:

• Performance measures against goals - 81%

• Summarized reporting of financial performance information on department level - 78%

• Key performance indicators tracked - 76%

• Decision making based on understanding of which measures drive the business - 64% (SAS, 2007)

  • Benefits achieved based on performance management activities

• Competitive advantage: up to 63%

• Agility: up to 56%

• Compliance/Governance: up to 50%

• Budget/plan aligned with strategy: up to 47%

• Revenue growth: up to 47%

• Innovation: up to 44%

• Strategic alignment: up to 44%

• Response to market threats/risks: up to 41%

• Resource alignment/optimization: up to 38%

• Financial transparency: up to 38% (SAS, 2007)

2006

  • “In an evaluation of their budgeting, forecasting, and reporting processes, an astonishing 60% of companies surveyed exhibited limited adoption of [Business Performance Management] BPM best practices, 36% showed ‘some adoption’ while less than 4% showed strong adoption.” (Active Planning, 2006)
  • “Across all companies, 78% of respondents are still using spreadsheets as their primary budgeting and forecasting tool…..only 41% are using graphical dashboards or scorecards in their reporting processes…..and fully 76% have not rebuilt their planning model in over a year” (Active Planning, 2006)

2004

  • “Average companies include nearly nine times too many metrics, focus heavily on historical finance data and not enough on forward-looking indicators.” (Hackett Group (2004) as cited by PMA, 2005)
  • “Less than 20% of all typical companies have mature balanced scorecard implementations in place that are generating business value.” (Hackett Group (2004) as cited by PMA, 2005)
  • “…..world class companies are 159% more likely….. than typical companies to have mature balanced scorecards” (Hackett Group (2004) as cited by PMA, 2005)
  • “…companies report an average of 132 measures to senior management each month (83 financial and 49 operational). This is nearly nine times the number of measures suggested as appropriate when the concept of the balanced scorecard was introduced in 1992″ (Hackett Group (2004) as cited by PMA, 2005)

Same as in Performance Management, “seeing beyond figures” makes the interpretation and use of such results more balanced and relevant.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

References:

Date: May 18th, 2010
Cate: Animals, Nature

Koalas and extreme conditions

Koalas are small tree-dwelling, herbivorous marsupials found only in Australia. Phascolarctos cinereus is the scientific name, coming from the greek words for leather pouch, bear and ash-coloured.

Key info:

* Average weight ranges between 11.2 lbs.5.1 kg and 26 lbs/11.8 kg. Males are around 20% heavier than females
* Life span - 13-18 years
* Gestation period - 34-36 days
* Spend 3 of their 5 active hours each day eating and rest for 16-18 hours a day
* Diet is based on eucalyptus leaves (toxic to most other species), on average 0.5Kg (18 oz) each day

Koalas are rather inactive, spending most of their time in trees, resting or eating. There are many examples, though, when in extreme circumstances they pursue human interaction. The picture below depicts a Koala in a residential area, seeking relief from the heat after a week of 40+C (110+F) temperatures in 2009.

koala-in-maude-south-australia

Source: Resident of Maude, South Australia

smartKPIs.com Performance Architect update 19/2010

What is wrong with Performance Measurement?

A simple answer is over-reliance on measurement and its merits.

Since ancient times, humans had a fascination with measurement. In discovering the natural universe, measurement has its merits and one might say it is indispensable. Evaluating the physical properties of the world around us, we have gradually developed a rather objective and accurate way to determine distance, weight, density among others.

In administrative science things are different, tough. Measurement is done by humans and results are used by humans in a much more subjective environment, conducive of errors. It is not something new, and it will not be easily addressed, if ever.

Protagoras of Abdera, who lived between 480-410 B.C. famously said: “Man is the measure of all things”. His words have deep philosophical meanings that reverberate deeply in a performance measurement context. The implications are on one hand at a practical level, as ancient Greek measurement systems used in construction and architecture were based on the dimensions of the human body. On the other hand, at conceptual level, it underpins some of the human evaluation dilemmas that has been in place for centuries.

A relevant example of this dilemma is the practice of conducting individual performance evaluation. The precise origin of performance appraisals is not known but the practice dates back to the third century when the emperors of the Wei Dynasty (221-265AD) rated the performance of the official family members (Banner & Cooke (1984); Coens and Jenkins (2000)). Fairness of raters was questioned since the third century by the Chinese philosopher Sin Yu who reportedly criticized a rater employed by the Wei Dynasty with the following words: “The Imperial Rater of Nine Grade seldom rates men according to their merits, but always according to his likes and dislikes” (Patten (1977) as cited in Banner & Cooke (1984)).

Fast forward a few hundred years and at the turn of the 20th century a performance measurement revolution is announced and driven by Harvard Business School researchers. Eccles published his famous manifesto on 1991 and Kaplan and Norton seized the opportunity to give the world the tool to drive change, fueling it with an equally famous article in 1992 that promoted the Balanced Scorecard as a performance measurement tool. They have quickly realized that measurement is not the key and shifted their efforts towards strategy and performance measurement overall. However, as a result of the growing popularity of the Balanced Scorecard as a strategic performance management system, the efforts of many researchers and practitioners focused on the measurement side of things, trusting that performance management is taken care of. Thousands of articles and books on performance measurement were written in the 90s, many addressing questions such as:

  • Why to measure?
  • What to measure?
  • When to measure?
  • Who should measure?
  • Where to measure?
  • How to measure?

 

By the beginning of the 21st century, the attitude towards Performance Measurement as a discipline was similar to the one towards Physics a century ago, when Lord Kelvin said: “There is nothing new to be discovered in physics now. All that remains is more and more precise measurement.”

Fueled by advanced in technology, accelerated rate of change in the environment in which many organizations operate and the enthusiastic momentum of the 90s, performance measurement continued dominate the Performance Management research and practice agenda. The fascination of the measurement promise is similar to the one in Physics. There seems to be an attitude that there is nothing new to be discovered in Performance Management now. All that remains is more and more precise performance measurement. As in Physics this view is far from being accurate. There are two major flows with is:

  1. It is not the data that matters, but what you do with it and the impact. Having a very accurate set of data that is used incorrectly and leads to the wrong decisions is worse than having a less accurate set of data, but used smartly in leading to the correct decisions.
  2. We should not discount the possibility that data accuracy in human administration is an elusive desideratum. Coming back to Physics, Nield Bohr’s statement gives food for thought: “Accuracy and clarity of statement are mutually exclusive”.

One of today’s tragedies provides the scene to put things into context. We might never know exactly the amount of oil that leaked in the Gulf of Mexico as a result of the The Deepwater Horizon incident. What matters more is not the exact quantities and linking them to bonuses for cleaning or penalties for the accident taking place. Learning the right lessons from such an incident, changing attitudes and behaviors and making a positive impact on both recovery efforts and the future operations of the company, response teams, the industry, local community and the regulators is what matters.

Performance measurement puts too much value on measurement. And as Benjamin Franklin once said “I conceive that the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things.”

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

References

Banner, D.K., & Cooke, R.A. (1984). Ethical dilemmas in performance appraisal. Journal of Business Ethics, No. 3, pp. 327-333.

Coens,T., & Jenkins, M. (2000). Abolishing performance appraisals: why they backfire and what to do instead. San Francisco: Berrett-Koehler Publishers

Eccles, R.G. 1991, “The performance measurement manifesto”, Harvard Business Review, Vol 69, No.1 January-February, pp. 131-137.

Kaplan, R. S. and Norton D. P. (1992, Jan-Feb) ‘The Balanced Scorecard - Measures That Drive Performance’, Harvard Business Review, Vol.70, No.1, pp.71-79

Patten, T.H., Jr (1977), Pay: Employee Compensation and Incentive Plans, pp. 352 Free Press, London.

Date: May 10th, 2010
Cate: Animals, Nature, Uncategorized

The Australian Dingo - brief history

3 interesting details about the Australian Dingo:

1. considered the biggest terrestrial predator in Australia
2. arrived on the continent around 5,000 years ago
3. has its origins in domestic dogs that accompanied Austronesians in their voyages to Australia

australian-dingo1

More details:

smartKPIs.com Performance Architect update 18/2010

Performance Management case study: Balancing on-time service and pay-for-performance in urban public transport

Delivering urban public transportation services today is a challenge due to the slow process of upgrading infrastructure and the general trend of population increase in large cities. Finding a balance between service delivery and punctuality requires careful planning and active monitoring of results. The case study illustrated below highlights some of the challenges and trade-offs that have to be explored by each operator.

Company

Urban public transportation operator.

Setting

While in many cities the local public transport is operated by the government, a trend that gained momentum over the last 15 years is the outsourcing of the operations of the infrastructure. This way the government becomes a customer of a separate entity responsible for the service delivery to the wider public. The arrangement as benefits for both sides. The government shifts some of the pressure from citizens regarding the quality of the public transport services towards the operator, limiting a sensitive issue at election time. The operator manages a monopoly or in some instances is part of an oligopoly of service providers.

Mandate

Operate a safe and reliable public transportation system, delivering quality services for the public.

Instruments

To stimulate the improvement of services, Service Level Agreements clarify responsibilities of both parties and outline performance standards that the service operator needs to meet. A common element in such agreements is a pay-for-performance arrangement that rewards or penalizes the operator based on the achievement of set targets.

Performance indicators

Some of the commonly used KPIs in such agreements are:

% Planned services delivered (monitoring if services are operated)

% Punctuality (monitoring if the set schedule for each stop is followed)

These two KPIs are key to evaluating the customer experience. The first outlines if the routes planned to be serviced each day were delivered at all, while the second monitors how well were these routes serviced in terms of punctuality.

Scenario

One afternoon, a passenger on the way home from work gets on a bus, validates the ticket and takes a seat, waiting for the bus to arrive at the desired stop, the second last of the line.

At the fourth stop before the end of the line, the bus driver announces all passengers that he has been requested to finish the route early at that stop. Everyone is invited to get off the bus and once the bus is empty, it skips the last three stops of the route, continuing with the return service.

Our passenger has paid the travel fare, expecting in return the arrival to destination, as planned. The early termination of the route by the public transport operator resulted in diminished utility of the amount spent and in an incomplete journey.

Questions

* What is the relationship between the KPIs used to track service performance and the decision to change the route of the bus?
* How is the estimated impact on customer satisfaction of such actions?
* Why aren’t customer satisfaction KPIs used as widely as service delivery KPIs in transport operator SLAs?

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


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Cygnus atratus - The Black Swan in the Black Swan Theory

Native to Australia, the Black Swan’s existence was first discovered by Europeans in 1697. This inspired Nassim Nicholas Taleb in defining a Black Swan Event, a concept at the basis of the Black Swan Theory.

black-swans-in-canberra-australia