Archive for July, 2011

smartKPIs.com Performance Architect update 42/2011

Initiatives for sustainable organizational performance

Continuing the exploration of ways for organizations to do more for biodiversity and environmental sustainability, here are three novel initiatives that may be established by any organization:

  1. Adopt a threatened animal species, plant species and habitat. In addition to the donations allocated to programs dedicated to their protection, such an approach would also raise awareness with both internal and external stakeholders. It would have a motivational factor for staff, knowing that through their work they do something for giving back to the environment. Thus, the company sponsored animal species and company sponsored plant would be symbols of organizational concerns towards the environment and complement their business driven role.
  2. Launch of a product or service with all profits generated through its sales donated to non-profits running programs focused on sustainability issues. A number of such examples already exist, with proceeds dedicated to humanitarian or research causes. Dedicating such an initiative to environmental causes, would complement the emphasis put on Corporate Social Responsibility.
  3. Donate 1% of revenues to environmental causes. Established in 2002, 1% for the Planet is a not-profit organization that has established a network of over 1,400 companies across 44 countries willing to allocate at least 1% of revenues (top line sales) directly to non-profit organizations focused on issues of sustainability. The donations can be allocated to non-profits selected from a list of over 2,600 pre-approved non-profit organizations from around the world. Not surprisingly, most of the companies that have committed to this cause are privately held.

Through such initiatives and similar other ones, organizations can gradually bridge the separation between business and environmental/sustainability issues. Protecting the environment should be seen as part of the business, built in the business model. Success stories such as Interface demonstrate the benefits of such approaches. However corporate environmental initiatives should not be seen as something that is in scope for large companies and market leaders only. Each organization, small or large has a footprint that should be acknowledged and compensated for. A change of mentalities and business models may be necessary for such a transition, enabling smaller, more agile companies to be at the forefront of such a change.

In addition to the organizational level impact, a secondary benefit of such initiatives is at individual level, as awareness in sustainability issues would cascade down from organizational level to employee level, thus being amplified through social networks. Ultimately both individuals and organizations have a footprint on the environment and a shared sense of responsibility should exist at both levels.

Aurel Brudan
Performance Architect,
www.smartKPIs.com

smartKPIs.com Performance Architect update 41/2011

Sustainability as a strategic theme or Balanced Scorecard perspective

In two of my previous blog posts I addressed the link between biodiversity, sustainability and performance, raising questions around the role each organization has in addressing these issues. Companies such as Interface have demonstrated that efforts to reduce carbon footprint and environmental stewardship practices are rewarded by customers and the stockmarket. Such examples are for now exceptions and more can be done to embed sustainability practices in organizations. Besides theory and rhetoric, there are a number of practical ideas that are worth exploring:

  • At a business philosophy level, environmental concerns need to be at the core of the business model and not be seen simply as a marketing / public relations stunt. Sustainability is today a key value driver of organizational performance.
  • Environmental / sustainability statements elements should be used across organizational performance management systems and not in isolation. While specific organizational wide environmental plans and reports are useful, elements of environmental rhetoric should appear in mission and vision statements, values and other elements of the corporate identity. Being at the core of who and what the organization is, sends a strong message both internally and externally.
  • Environmental / sustainability components should also have a prominent role in the organizational strategy. While many organizations have objectives and KPIs dedicated to these aspects, there is merit in considering sustainability a dedicated strategic perspective. The traditional approach of grouping organizational Balanced Scorecards in strategic perspectives is structured around: Financial, Customer, Internal Processes and Learning & Growth. One of the most powerful catalysts of increasing this profile is the inclusion of a sustainability perspective in addition to the traditional four perspectives of the Balanced Scorecard. Ultimately organizations don’t operate in a vacuum, as the environment influences their activity. A possible name for it is Corporate Environmental Responsibility or Sustainability, with objectives related to aspects such as: nurturing biodiversity, footprint reduction and community support.
  • A less drastic alternative to establishing a sustainability perspective is the use of a strategic theme that cuts across organizational strategy (and Strategy Map), linking sustainability related objectives and KPIs. A benefit of this would be a clear articulation of the financial support dedicated to sustainability aspects, as a subset of the financial perspective.

Some might say “we are in the business of making money for our shareholders”, however as the current system of ensuring biodiversity and sustainability is failing, perhaps the role of companies in this context needs to be revisited. While many programs are underway in organizations around the world, more can be done in terms of inclusion of staff across the organization, as well as inclusion of organizations of all sizes in aligning their performance management system with sustainability.

Aurel Brudan
Performance Architect,
www.smartKPIs.com

smartKPIs.com Performance Architect update 40/2011

Milton Friedman, Interface and performance ecosystems

There is widespread awareness today about the climate change and other environmental issues we are facing today at a global scale. In a simplistic way, I would categorize companies in three categories: the ones that don’t care, the ones that do something about it and the ones in the middle.

Perhaps the largest group is formed of the companies that don’t care, adepts of the principle that there are out there suitable institutions (government, UN bodies) to do something about these issues. This group is embodied by Milton Friedman’s quote in his notorious 1970 New York Times Magazine article, The Social Responsibility of Business is to Increase its Profits:

“There is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Unfortunately, human behaviour oftentimes has difficulties with finding a balance and all too often issues with traffic of influence, deception and fraud emerge as unwanted consequences of the profit driven behaviour.
Many organizations are doing something about it. At the forefront of sustainable business practices is Interface, the world’s leading producer of soft-surfaced modular floorcoverings. Its mission embodies an emergent approach to sustainability as a value driver for the business:

“Interface will become the first name in commercial and institutional interiors worldwide through its commitment to people, process, product, place and profits. We will strive to create an organization wherein all people are accorded unconditional respect and dignity; one that allows each person to continuously learn and develop. We will focus on product (which includes service) through constant emphasis on process quality and engineering, which we will combine with careful attention to our customers’ needs so as always to deliver superior value to our customers, thereby maximizing all stakeholders’ satisfaction. We will honor the places where we do business by endeavoring to become the first name in industrial ecology, a corporation that cherishes nature and restores the environment. Interface will lead by example and validate by results, including profits, leaving the world a better place than when we began, and we will be restorative through the power of our influence in the world.”

The financial results of Interface prove that embracing sustainability translates into excellent financial results. The gross profit as a percentage of net sale was at over 33% for the last 5 years. In terms of stock performance, for the five-year period ended January 2, 2011, its total returns to shareholders (stock price plus dividends, divided by beginning stock price) outperformed both the NASDAQ Composite Index and competitors (Self-determined peer group of 13 stocks). For $100 invested in January 2006, Interface delivered a cumulative total of return in January 2011 of $197, compared to $ 126 for NASDAQ and $80 for competitors.

For the organizations that are in the middle and are exploring options, an important point to realize is that today’s interconnected society is much different than the one in 1970. Running successful organizations in the 21st century, requires a different mentality and management thinking compared to the 20th century. The level of complexity, speed of doing business, transparency and consumer influence is unparalleled. Continuous change and integration are the new value drivers in today’s business environment. Even separating the business environment from the environment overall is not an option. Natural disasters, climate change and environmental footprint are key to the viability of business ecosystems. Especially as the efforts of government and non-profit organizations are not enough to deal with the complex issues surrounding our environment, it is time for corporations to take a more active role in addressing sustainability for both the survival of their business and the protection of the Earth ecosystems overall. Considering that everything we do is possible due the resources provided by Planet Earth, a moral “Earth tax” on the use of these resources is a duty at both personal and organizational level. Efforts in this direction already exist at institutional level, a recent example being the Carbon tax scheme intensely debated in Australia this year. However complementing these efforts with a grassroots global commitment to sustainability would be exponentially more effective. The foundation for such an approach is the belief that sustainability is today a key value driver of organizational performance. The sooner companies will adopt this the better it will be for all the actors in the ecosystem.

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 39/2011

Biodiversity, sustainability and performance

Although widely unacknowledged, as declared by the United Nations, 2010 was the international year of biodiversity. It was meant to raise awareness in the fragile state of many species of plants and animals around the world and mobilize in safeguarding biodiversity. There is much talk about climate change, however the profile of biodiversity as a world crisis is somehow overshadowed. Perhaps many made terms with the idea that more and more species and threatened and disappear: ”…well, there are plenty…there is not much we can do…someone will look after them..”.

While on the short term the impact of the disappearance of species may be small, the medium and long terms implications may be considerable. A recent example is the jellyfish invasion in many parts of the Sea of Japan and other parts of the world, attributed by many to the overfishing of small fish and the growth in dead ocean zones (portions of the ocean with depleted oxygen levels in water due to chemical unbalance). Around the world, biodiversity is an issue of alarming proportions. One hundred species per million are currently estimated to be lost per year (Rockstrom and others, 2009).

The 2010 IUCN Red List of Threatened Species estimates that:

  • 21 % of the total 5,491 described mammal species;
  • 12% of the total 9,998 described bird species;
  • 29% of the total 6,433 amphibian species;
  • 5% of the total 31,300 described fish species;
  • 5% of the total 9,084 described reptile species;
  • 3% of the total described 281,821 flowering plant species;
  • 29% of the total gymnosperms (conifers, cycads, Ginkgo and Gnetales) species

are deemed endangered or vulnerable to extinction. Due to the large number of plant species only 12,914 had an evaluation completed and of these 73% are considered threatened.

The United Nations Environment Programme (UNEP) has been publishing the UNEP Year Book since 2003, which reports on new environmental science and recent developments in the environment. The latest report for 2010, outlines new research that illustrate the boundaries have been crossed for climate change, interference with the nitrogen cycle and mostly biodiversity loss, of the nine components of Earth systems that show signs of global environmental change driven by human activities.

Source: UNEP Year Book, 2010

The Global Biodiversity Outlook 3 report, published by the United Nations Secretariat of the Convention on Biological Diversity in 2010, confirms something many already knew: the target set by world leaders in 2002, to achieve a significant reduction in the rate of biodiversity loss by 2010 was not met. In addition, the five principal pressures directly driving biodiversity loss (habitat change, overexploitation, pollution, invasive alien species and climate change) are either constant or increasing in intensity. The report also states that the ecological footprint of humanity exceeds the biological capacity of the Earth by a wider margin than at the time the 2010 target was agreed. Progress in addressing such challenges is slow and made mostly at policy and governance level, thus having a delayed impact on biodiversity. While at least 31 bird species (out of close to 10,000) would have become extinct in the past century, in the absence of conservation measures, by comparison the figure is small. Among the conclusions and recommendations of the report, several highlight the need to elevate the profile of biodiversity as a key concern not only for governments and institutions, but for organizations and individuals as well:

  • Better decisions for biodiversity must be made at all levels and in all sectors, in particular the major economic sectors, and government has a key enabling role to play.
  • We can no longer see the continued loss of and changes to biodiversity as an issue separate from the core concerns of society.
  • The action taken over the next decade or two, and the direction charted under the Convention on Biological Diversity, will determine whether the relatively stable environmental conditions on which human civilization has depended for the past 10,000 years will continue beyond this century. If we fail to use this opportunity, many ecosystems on the planet will move into new, unprecedented states in which the capacity to provide for the needs of present and future generations is highly uncertain.

Such developments highlight stronger than ever the need for more emphasis on sustainability at organizational level. As existing efforts seem to be not sufficient, among the questions that organizations should ask themselves are:

  • Is it our business?
  • What can we do more?
  • How can we contribute to addressing biodiversity loss?

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 38/2011

6 Performance Management trends in 2011

As we are half way through 2011, it is an excellent time to take stock of the trends shaping up in the performance management space this year.

The link between organizational performance management and risk management. The topic of linking enterprise performance management systems such as the Balanced Scorecard to risk management has been discussed for some time now. The buzz around the topic accelerated this year with the topic being prominently on the agenda of the Balanced Scorecard Forum in Dubai, where a number of speakers including Dr. Robert Kaplan and Paul Niven addressed it. The question for many is who will be the first author to write a book dedicated to this link. Dr. Kaplan seems to be in pole position, with several of his recent presentations addressing the topic and a declared research focus on measuring and managing organization risk. The Australian flavoured ISO 31000 risk management standard has been around for almost 18 months now and can certainly use some help from the Harvard Business Publishing marketing machine in popularizing the topic and raising the profile.

Data visualization. Some of the benefits of visualization are that it helps in generating insights from unstructured data, while supporting communicating these insights to a wider audience. Proof of the ever increasing role of data visualization in communicating performance outcome is the co-optation of Edward Tufte, a leading visualization expert in the Recovery Independent Advisory Panel of the Obama Administration. His insights were essential in the design of www.recovery.gov and a recent article about Tufte introduces him as “the graphics guru to the power elite who is revolutionizing how we see data”. Today data visualization is used across industries and popularised by an ever-increasing number of infographics on topics that range from digital media to economics and social aspects.

Performance management in government and mandated by government. A number of countries have already enacted legislation that establishes the right and/or obligation for employers to establish criteria of evaluating the performance of employees, others are in the process of doing so (a recent example is Romanian labor law). In addition, countries such as Malaysia use KPIs to evaluate the performance of public service organizations and even MPs, a model that continues to gain ground. In the USA, a new bill was signed by President Obama in January 2011, representing the first major revision of the 1993 Government Performance and Results Act, outlining major changes to public sector performance management.

Transparency of performance reporting. We have gone a long way from performance results being in the exclusive domain of decision makers. Technology and changes in human dynamics facilitated both the will and means for disseminating performance data to wider audiences. Intel now making the performance report of its IT division available online. Federal IT spending in the USA is publicly available at www.ITDashboard.gov and in Australia, the performance profiles of over profiles of almost 10,000 Australian schools are available to the wider public on www.myschool.edu.au. The trend of performance transparency is likely to continue, in our information driven society.

Social media metrics and web analytics as ambassadors of performance management. The ubiquity of social media and the availability of data make it easy to ponder on figures and their meaning, introducing vast numbers of Internet users to concepts related to performance management. Questions such as ‘How do you measure social media Return over Investment?’ are asked more frequently and illustrate the increasing sophistication of measurement in this area. At the same time, Google Analytics is perhaps the most used free performance management reporting tool available today and an excellent resource to illustrate what performance management is about. It provides the data, reporting functionality, KPI selection/configuration, training and communication tools in an integrated seamless experience.

Happiness and performance. The link between performance and happiness is an area of increasing interest for both researchers and the general public. The change of perspective from managing performance as driven by the corporate agenda to managing performance for living a more balanced and fulfilled life (both corporate and personal) has the potential to transform attitudes and approaches to performance management. Several speakers at a recent conference in Australia dedicated to the topic of Happiness and it causes discussed the role of doing and achieving in the context of happiness. Measuring happiness is not easy, but research is underway measuring how happiness varies based on location, activities, people and time among other factors.

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