Archive for August, 2010

smartKPIs.com Performance Architect update 34/2010

Good practice in performance management - systems, tools and culture

Oftentimes I am asked for advice on how to do performance management right. A very relevant question, as it is easier to make mistakes in deploying performance management practices rather than to get it right. Clarifying terminology and understanding the context of each entity is important in designing good performance architecture that fits its environment and cultural dynamics. Still, I consider that there are at least three key pillars of good practice in performance management:

• An integrated performance management system

• The use of tools to support the organisational evolution

• A performance culture oriented towards learning, innovation and happiness

The choice of terms is the first step to understand the merits of an integrated performance management system:

  • Integrated = that harmoniously unifies separate elements into a cohesive whole
  • Performance Management = actively driving the purposeful achievement of desired outcomes
  • System = a whole composed of several integrated parts

These are powerful descriptive terms. Many organisations still use terms such as performance management framework, guidelines, rules and regulations, reporting. These are limited terms, flavourless and rigid. Calling it a system immediately raises questions regarding its components, their relationship and the interaction with the environment.

Integrated reflects a philosophical underpinning of such a system, that acts as a central nervous system for the organisation, being connected to all other systems and transferring key data related to the decision making process of the organisation. It acts as a power board, to which other systems such as budgeting, communications, quality management, production, supply chain, portfolio management are plugged in. As the backbone of the organisation, this system ensures organisational direction is followed, progress is monitored and the relevant information for decision making is communicated.

Integrated also reflects a unified approach to managing organisational, functional area and individual performance. These three levels traditionally employ independent performance management systems that in theory should talk to each other, but in practice more often than not, don’t. An integrated performance management system embodies elements from across levels, with subsystems at strategic, operational and individual level. The major difference is developing a unified performance architecture that clearly maps the integrated performance management system of the organisation, instead of trying to patch out and connect subsystems to each other.

The acknowledgement of the use of management tools is another important ingredient of a performance management journey. As humans it is in our nature to use tools to achieve desired outcomes: ploughs to farm land, trams for transport and musical instruments for playing music. In an organisational context we need tools in order to achieve more. The range of tools in performance management is very diverse, as tools in a business context relate more to conceptual tools and actions rather than physical objects:

  • Key Performance Indicators
  • Targets
  • Performance reports
  • Objectives
  • Strategy Map
  • Performance Scorecard
  • Operational Dashboard
  • Online performance portal
  • Desired State of Evolution
  • Initiatives
  • Performance reviews
  • Individual Performance Plans
  • KPI catalogue
  • Performance glossary
  • Performance architecture

Acknowledging such tools and building a taxonomy easy to communicate/understand is an essential step towards a clear and elegant approach to developing and deploying an integrated performance management system.

While the system and tools form contribute to the structure of the performance architecture, the organisational culture brings it to life. Organisations are live entities with their own identity largely influence by the people that work together under its banner. While traditionally organisations have been managed using command and control thinking, today more and more organisations adopt systems thinking or a blend between the two. More and more knowledge workers have to make decisions independently and frequently and traditional approaches to management are falling behind.

Today, the social contract oftentimes extends beyond the traditional principal – agent (employer – employee) relationship driven by productivity and salary compensation. Nurturing employees to become the best they can be is rewarding on both personal and professional levels. An employee with a fulfilling personal life is a happier person and this happiness tends to have a positive impact on the professional life. A more accomplished employee in a professional sense also tends to impact positively on organisational performance in certain conditions.

So organisations that don’t look at the relationship with employees only in the strict sense of the principal / agent relationship may be the ones that are better at nurturing a culture of performance. Actively nurturing the personal and professional development of employees creates an environment prone to learning and innovation, where creativity and improvement emerge organically.

Such an environment requires a rewiring of the pay-for-performance mentality to learn-for-performance mentality.

A shift from performance for growth and profit to performance for achievement and happiness.

From executing strategy to architecting performance.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

smartKPIs.com Performance Architect update 33/2010

From Canon to HP: values, objectives and press releases

In my previous blog post I reviewed the approach Canon Inc. has to strategic planning and how its actions reflect the corporate strategic direction. While researching the topic I came across the Hewlett-Packard Company (HP) website. HP is considered today the world’s largest IT company, with 304,000 employees worldwide, 1 billion customers in 170 countries, revenue totaling $114.6 billion for fiscal 2009 (HP, 2010a) and a market capitalization of $86.81 billion (Google Finance).

For the last few weeks HP has been in a turmoil with the abrupt resignation of the CEO, so I started comparing the press releases of the two companies for the month of August 2010:

Canon, 2010 (4 releases for the period, I have selected 3 in the list below):

HP, 2010b (15 press releases for the period, I have selected 6 in the list below):

In the case of Canon, as my previous blog post “Canon – kyosei, humanity and excellence” illustrated, empirical observations of secondary data available on the company website suggest alignment between the corporate philosophy, actions and results.

The situation is different in the case of HP. The corporate philosophy lists the usual elements you would expect to find (HP, 2010c):

  • Passion for customers - We put our customers first in everything we do.
  • Trust and respect for individuals - We work together to create a culture of inclusion built on trust, respect and dignity for all.
  • Achievement and contribution - We strive for excellence in all we do; each person’s contribution is critical to our success.
  • Results through teamwork - We effectively collaborate, always looking for more efficient ways to serve our customers.
  • Speed and agility - We are resourceful and adaptable, and we achieve results faster than our competitors.
  • Meaningful innovation - We are the technology company that invents the useful and the significant.
  • Uncompromising integrity - We are open, honest and direct in our dealings.

Even the objectives of the organization have some similarities to the ones from Canon, such as leadership and global citizenship. However, according to HP, they were first written in 1957 by co-founders Bill Hewlett and Dave Packard:

  • Customer loyalty - We earn customer respect and loyalty by consistently providing the highest quality and value.
  • Profit - We achieve sufficient profit to finance growth, create value for our shareholders and achieve our corporate objectives.
  • Growth - We recognize and seize opportunities for growth that builds upon our strengths and competencies.
  • Market leadership - We lead in the marketplace by developing and delivering useful and innovative products, services and solutions.
  • Commitment to employees - We demonstrate our commitment to employees by promoting and rewarding based on performance and by creating a work environment that reflects our values.
  • Leadership capability - We develop leaders at all levels who achieve business results, exemplify our values and lead us to grow and win.
  • Global citizenship - We fulfill our responsibility to society by being an economic, intellectual and social asset to each country and community where we do business.

When it comes to how HP press releases reflect these statements, a mixed picture emerges. A settlement with the U.S. Department of Justice (regarding an award schedule contract investigation) and the resignation of the CEO (after a sexual harassment probe uncovered subterfuge with company expenses) are actions largely misaligned with the stated values and objectives. No doubt HP is a successful company. Its financial results, commercial performance and innovation capability all contribute to making it the number 1 IT company in the world.

However the question of how important is the alignment between the corporate philosophy (vision, values, objectives) and actions is a valid one. Further research would be useful to uncover these relationships. Or perhaps only time will tell.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,

www.smartKPIs.com


References

Canon, 2010, Canon News / Press Releases 2010, available at http://www.canon.com/news, accessed 21 August 2010.

Google Finance, 2010, HPQ Stock price graph, available at: http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1284363992211&chddm=24633&chls=IntervalBasedLine&cmpto=NYSE:CAJ&cmptdms=0&q=NYSE:HPQ&ntsp=0, accessed 21 August 2010.

HP, 2010a, Fast Facts about HP, available at http://www8.hp.com/us/en/hp-information/about-hp/index.html, accessed 21 August 2010.

HP, 2010b, HP 2010 news releases, available at http://www.gartner.com/technology/media-products/reprints/hpipg/article1/article1.html, accessed 21 August 2010.

HP, 2010c, HP corporate objectives and shared values, available at http://www8.hp.com/us/en/hp-information/about-hp/corporate-objectives.html, accessed 21 August 2010.

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

smartKPIs.com Performance Architect update 32/2010

Canon – kyosei, humanity and excellence

Canon Inc. is today one of the largest electronics manufacturers in the world. They produce paper copying machines, printers, projectors, binoculars and calculators and cameras among others. While their products are widely appreciated for their quality and demonstrated craftsmanship, the business philosophy of the organization is truly intriguing. It is characterized by simplicity, long term thinking, humanism and harmony. It is also well communicated and most importantly, it works.

Discovering this philosophy is easy: it is two clicks away from the homepage: “Corporate info” and “About Canon”. The emphasis on people and dialogue starts with a message from top management. It shows that the company is made of people and thrives on the relationship with people. Messages from both Fujio Mitarai (Chairman and CEO) and Tsuneji Uchida (President and COO) conclude with the same phrase “…look forward to your continued understanding and support.” Both messages are brief and the key themes are illustrated by several keywords: Excellent Global Corporation Plan, total optimization and profit, Improved management quality, corporate philosophy of kyosei, overwhelming No.1 market position in all current business areas, “cross-media imaging”, joining the ranks of the world’s top 100 companies in terms of all key business performance indicators, spirit of “Speed and Quality”.

A unique characteristic of Canon’s corporate profile is having a declared corporate philosophy – kyosei. This was announced in 1988 and now used in Japan to express a range of meanings. Canon’s interpretation of the term is stated as: “All people, regardless of race, religion or culture, harmoniously living and working together into the future.” While a big ask coming from an electronics manufacturer, it outlines a commitment to cut across traditional boundaries of corporate priorities and operate using an integrative approach. This desiderate is more than corporate discourse, as it is supported by a long term plan to get closer to it.

The “Excellent Global Corporation Plan” was launched in 1996 and is now in the final year of its third phase. Five key strategies characterize this phase:

  • Achieve the overwhelming No.1 position worldwide in all current core businesses
  • Expand business operations through diversification
  • Identify new business domains and accumulate required technologies
  • Establish new production systems to sustain international competitiveness
  • Nurture truly autonomous individuals and promote effective corporate reforms

Of these, the most intriguing one is the inclusion of a people oriented strategy along with strategies that fall in the traditional business domain. This latter strategy is described as aiming at nurturing future global leaders and cultivating individuals society can rely on. It may sound surprising coming from an electronics manufacturer, as such aims are generally in the realm of educational institutions. It is however a type of thinking that should perhaps be embraced by more organizations committed to improving the quality of life in the 21st century.

Canon’s corporate DNA is simply illustrated by three elements: respect for humanity, emphasis on technology and enterprising spirit.

At an individual level, three guiding principles form the “San-ji spirit”, which dates back to the establishment of the company:

  • Self-motivation - Take the initiative and be proactive in all things;
  • Self-management - Conduct oneself with responsibility and accountability;
  • Self-awareness - Understand one’s situation and role in all situations.

The Key Performance Indicators used by Canon in managing its growth are illustrated in a separate section of the Annual Report:

  • Net sales
  • Gross profit to net sales ratio
  • R&D expense to net sales ratio
  • Operating profit to net sales ratio
  • Inventory turnover measured in days
  • Debt to total assets ratio
  • Canon Inc. stockholders’ equity to total assets ratio

While they are dominated by financial ratios, they reflect the same approach as with the corporate strategy – simple and informative. Each KPI is explained in detail in the 2009 Annual Report (p.44-45), outlining the reasons for selecting them, the value they add and the way they are calculated.

Illustrating how Canon’s business philosophy goes beyond discourse to making a difference, the latest press releases featured on the homepage this month, represent a sincere combination of humanity and excellence:

All part of a forward looking corporate philosophy:

“…the presence of imbalances in the world in such areas as trade, income levels and the environment hinders the achievement of kyosei. Addressing these imbalances is an ongoing mission, and Canon is doing its part by actively pursuing kyosei. True global companies must foster good relations, not only with their customers and the communities in which they operate, but also with nations and the environment. They must also bear the responsibility for the impact of their activities on society. For this reason, Canon’s goal is to contribute to global prosperity and people’s well-being, which will lead to continuing growth and bring the world closer to achieving kyosei”

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

smartKPIs.com Performance Architect update 31/2010

Learning from practice - A brief history of performance measurement

Measurement is in the realm of mathematics. It is about keeping track, about establishing dimensions. Some of the earliest measurement activities in human history track back to 35,000 B.C. (Lebombo bone) and 9,000-6,500 B.C. (Ishango bone). Researchers consider them the first measurement tools in human history used for measuring intervals of time.

The Salamis metrological relief, dating back to the 4th century B.C. is considered an important measurement tool for architecture, as it illustrates the correlation between the different measuring systems used in Ancient Greece: Doric, Ionic and Common. This unification facilitated the construction of one of the symbols of civilization: the Parthenon, incorporating beauty, science and art.

In a business, measuring is linked to the use of money and can be traced back to Mesopotamia, where writing was first invented (3100 BC), banking was first developed (3000-2000 BC), and laws were first used to regulate banking operations (1792 – 1750 BC, The Code of Hammurabi).

Standards around measurement in a business environment are owed to the Venetians, who evaluated the performance of their sailing expeditions by calculating the difference between the investment made by the ship owner and the money obtained by selling the goods brought back by the journey. Venice merchant’s need for a more elaborate approach to evaluating outcomes lead to double-entry bookkeeping system, described by Luca Pacioli’s: ‘Summa de arithmetica, geometrica, proportioni et proportionalita’ (‘Everything on arithmetic, geometry, proportions and proportionality’), published in Venice in 1494. While Pacioli is considered today the “father of accounting”, the emergence of the discipline represents one of the earliest illustrations of learning from practice.

From this point on, the evolution of measurement in business was driven by three institutions: church, military and the public service, at both organizational and individual level. In mid 1500s, Ignatius Layola instituted a procedure to formally rate members of the Jesuit Society. In 1648 Dublin Evening Post in Ireland evaluated legislators by using a rating scale based upon personal qualities. Most Western armies did appraisals as early as the 19th century.

One of the earliest books on performance measurement that used used the term “measure” in the context of evaluating performance is: Efficient Democracy, by William Harvey Allen. It was written in 1907, not before the age of management consultants, business schools and strategy gurus. Allen was a practitioner, secretary of the Committee on Physical Welfare of School Children and General Agent of the New York Association for Improving the Condition of the Poor. He wrote on education, healthcare and philanthropy.

In 1920-1925 DuPont started using Return on Investment as a performance measure, one in a long series of business and technology innovations that emerged from the company.

In 1951, General Electric introduced the use of key corporate performance measure, through an initiative commissioned by the then CEO, Ralph Cordiner. The selected measures were grouped in categories such as market share, productivity, employee attitudes and public responsibility.

In the 1970s, General Motors used a system of performance measures that included non-financial indicators, considered a precursor of the Balanced Scorecard as measurement tool as introduced in 1992.

In the 1990s, performance measures use gained in popularity across a variety of sectors, most importantly in government. Not all implementations of performance management systems were smooth sailing and sometimes they generated more harm than good. However, both good and bad experiences contributed to making more informed decisions about the use of measures by learning from practice.

Where does all this history lead us? Practice has lead the emergence of management concepts and not the other way around. The use of performance measures has evolved organically over time, consultants being facilitators and enabler of better results, but not drivers.

Regarding the popularity of performance measurement terminology, as of August 2010, www.google.com searches illustrated the following results:

  • “kpi” = 9,670,000 results
  • “kpis” = 3,480,000 results
  • “key performance indicator” = 215,000 results
  • “key performance indicators” = 1,190,000 results
  • “performance measure” = 1,150,000 results
  • “performance measures” = 2,180,000 results

Ultimately, as Protagoras of Abdera said in Ancient Greece:“Man is the measure of all things.”

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect
www.smartKPIs.com

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21