Archive for category Academia

smartKPIs.com Performance Architect update 45/2011

It is time to reinvent management. You can help.

An interesting question I came across this week got me thinking. The question, rather rhetorical was along the lines of: “Why follow some model developed by a consultant when hundreds of smart people from hundreds of companies have spend tens of years developing and refining models line Baldrige and EFQM?”

The long answer to such a question, from my perspective is the following:

  • For the same reason the several of the dozen companies involved in the Nolan Norton Institute study experimented in 1990 with Balanced Scorecard prototypes expanded from Art Schneiderman’s original “Corporate Scorecard” piloted at Analog Devices. It is a classic tale of practitioner insight, mixed with academic rigour and consulting acumen and embraced by organizations willing to innovate while contributing to the enrichment of management as a discipline. (Details in the preface of Kaplan and Norton’s 1996 book.)
  • For the same reason Motorola’s CEO Bob Galvin embraced in 1985 the quality improvement ideas expressed in a research report by two of its employees: Mikel Harry, PhD. (academic rigour) and Bill Smith (practitioner insight, with 35 years of experience in engineering and quality assurance). Their proposed MAIC problem-solving approach became a stepping stone in the evolution of  Six Sigma. The D was added by IBM and other early adopters after Motorola winning the Baldrige Award in 1988.
  • For the same reason why after being presented in an efficiency report to the Executive Committee, Donaldson Brown’s return on investment formula was adopted by Du Pont in 1912. Brown was a 27 years old engineering graduate at the time. The subsequent work done by Brown at Du Pont and General Motors is legendary, with many cost accounting techniques and principles such as Return on Investment, Return on Equity, Forecasting and Flexible being established and used in a corporate context. They were gradually adopted by corporate America and grew to became part of the financial fabric of today’s corporate environment.

The short answer to the question is innovation and progress. Management is constructivist in nature. It is based on innovative ideas being proposed, tested and followed as they prove their value.

My 15 years of work as a management practitioner and consultant and 6 years of academic research offered me the opportunity to analyze plenty of models, frameworks, methodologies and abstract concepts. Some of them are puerile, some of them make sense to me, some of them don’t make sense to me, but make sense to others, many of them are trademarked in an effort to protect and monetize and lots of good work is inaccessible to many due to it being published in academic journals. My advice to anyone, be it consultant, researcher or practitioner is to never stop learning and exploring with an open mind. Great management concepts do not emerge overnight. Over time, some ideas lead to others, some impractical tools had some good points that inspired new hybrids, many organizations had the courage to support innovative staff members and consultant promoted prototypes and great things happened.

Then again, we have the option to put blinkers on and follow industry standards, widely recognized methodologies and popular management tools. That is perfectly fine, too. I myself hold a TOGAF certification (Enterprise Architecture) and I am an PRINCE2 certified practitioner (Project Management). That didn’t stop me to learn about and use components of the Zachman Framework, DODAF, FEAF (Enterprise Architecture), as well as PMBOK and other hybrid project management concepts. I enjoy exploring and generating my own taxonomies, typologies and conceptual systems.

Earlier this year, Gary Hamel launched a call for Management 2.0 in his blog posts: Inventing Management 2.0 and Improving our capacity to manage. The movement is already gaining traction at: The Management Innovation eXchange (MIX) and is supported by academic institutions (i.e London Business School), Industry Organizations (i.e. Dell, National Australia Bank) and research drive consulting companies (i.e. McKinsey&Company and Gartner). In my opinion, such a triumvirate is essential for progressing administrative science theory and practice.

Gary Hamel’s answer to the above question would probably be: It’s time to reinvent management. You can help.

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 29/2010

Separating strategy formulation from execution questioned in Harvard Business Review

One of the surprise articles in the July-August 2010 edition of the Harvard Business Review (HBR) is ‘The Execution Trap‘, written by Roger L. Martin, Dean of the Rotman School of Management at the University of Toronto and Professor of Strategic Management at the same school. Its publication comes as a surprise as traditionally, HBR has been favoring articles promoting strategy execution and the separation between formulation and execution. The support of the publication in promoting Kaplan & Norton’s ideas over the last 15 years was an important contributor to the ascent of strategy execution as a “buzzword”.

The article clearly states the author’s position right from the tagline: “Drawing a line between strategy and execution almost guarantees failure”. It reviews the recent history of the separation idea, mentioning names of proponents such as Jamie Dimon (now CEO of JPMorgan Chase) and Larry Bossidy (former AlliedSignal CEO). The phrase that encapsulates best some of the challenges in today’s management thinking is: “…[the] doctrine…is as flawed as it is popular. That popularity discourages us from questioning the principle’s validity.”

The pressures of concept marketing in today’s management thinking are illustrated by tracing back the integration idea to 1971, when Kenneth Andrews wrote in his book, ‘The Concept of Corporate Strategy’: “Corporate strategy has two equally important aspects, interrelated in life but separated to the extent practicable here in our study of the concept. The first of these is formulation; the second is implementation.” Gradually the push of the paradigm that separates strategy formulation from execution has gained grounds, pushed not always by sound data from the field, but also by marketing hype.

Two metaphors are used to illustrate the opposing views regarding strategy execution. The mainstream approach is built around the metaphor of the role the mind has in coordinating the human body. Similarly in organizations “thinkers” come up with the strategy and doers “execute”. The alternative metaphor proposed by Martin is the one that compares the organizations with a white-water river, where choices cascade down from upstream to downstream in the organizational hierarchy. This approach would enable more freedom to adapt decisions to the specifics of the environment in which each organizational level operates, all within a larger framework and direction given by the strategy (the river). To me these two opposing views can be associated with mechanistic, command and control thinking in the case of the military execution paradigm and with organic, systems thinking in the case of the interrelated, integrated view of strategy.

A second idea that emerges in the article is recursiveness, the replication of the same structure and approach at a lower level, of the component of the larger system:

“The employee is now not only the brain but also the arms and legs of the organizational body. He is both a chooser and a doer. Workers are made to feel empowered, and the whole organization wins.”

Other elements of systems thinking and the importance of learning can be traced in the article:

The choice-cascade model has a positive-reinforcement loop inherent within it. Because downstream choices are valued and feedback is encouraged, the framework enables employees to send information back upstream, improving the knowledge base of decision makers higher up and enabling everyone in the organization to make better choices.”

Overall, the article is a valuable contribution to the debate surrounding the benefits of employing a strategy execution paradigm, either at lexical level or management theory level. Due to its constructivist nature, management theory is continuously reshaped by such debates. What stimulates progress is challenging popular beliefs and assumed truisms by continuously analyzing them in the context of contemporary environment characteristics. To me, organizational performance management and performance architecture are more neutral integrating concepts that reconcile the differences between preponents of strategy formulation / execution separation. By raising questions about ideas considered as given, articles such as this one open the door to a reshape of thinking that marked strategy management literature for the last 20 years or so. Martin’s final thoughts at the end of the article are eloquent:

“It’s time to revisit and revise our upstream theory. The business world may be utterly convinced that better execution is the path to greatness, but in truth, a better metaphor would be much more helpful.”

Indeed, it is time.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

References

Andrews K. R 1971, The Concept of Corporate Strategy, Homewood, Ill., Dow Jones-Irwin.

Bossidy L, Charan R 2002, Execution: The Discipline of Getting Things Done, Random House, Crown Business, New York, New York.

Martin R. L. 2010, The Execution Trap, Harvard Business Review, July-August, pp.64-71.

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

smartKPIs.com Performance Architect update 28/2010

From performance management for control to performance management for learning

The following is an excerpt from a conference paper presented at the 2009 Performance Measurement Association Conference in Dunedin, New Zealand. An edited version of the paper was published in the Measuring Business Excellence Journal in 2010 (vol. 14, No. 1), under the title: “Rediscovering performance management: Systems, learning and integration

Traditionally, organisational performance management has been concerned with control, by setting and monitoring achievement of targets at strategic, operational and individual levels. Measurement has its benefits as it provides valuable information and measuring in itself stimulates higher performance. The Hawthorn effect and the Westinghouse effect or “Observer’s paradox” (Cukor-Avila, 2000) demonstrate the delicate nature of the measuring process and the impact that measurement itself has on the results.

At strategic level, senior management supported by management accountants and finance professionals focus their efforts in translating organisational objectives in quantifiable targets. These objectives and targets are delegated to functional areas for implementation. Compliance with set targets is checked on a regular basis. These strategic objectives are then aligned with operational objectives and individual performance objectives. However, empirical evidence shows that the focus on the measurement and control in the context of performance management has started to diminish in the 1990s, driven by the increase in popularity of the Balanced Scorecard (BSC), Knowledge Management and Systems Thinking. Even the BSC was first presented in 1992 as a measurement tool promoted by the management accounting school and having roots in the quality movement. However it evolved quickly to become a complete management system supporting strategy implementation as a core competency. As a performance management concept, the BSC enables not only measurement and control, but also communication and learning.

This shift is supported by proponents of the knowledge management/intellectual capital school of thought who argue that “the main problem with all measurement systems is that it is not possible to measure social phenomena with anything close to scientific accuracy” (Sveiby and Armstong, 2004). They invoke Heisenberg’s uncertainty principle to illustrate the inherent imprecision in measurement that exists even in “exact” sciences such as physics. The principle states that uncertainties, or imprecision, always turn up if one tries to measure the position and the momentum of a particle at the same time (Cassidy, 1993, 1998). Neils Bohr famously stated that “Accuracy and clarity of statement are mutually exclusive” (for further details see Pais, 1994).

Measurement for rewards leaves room for interpretation in the process of setting targets and measuring results and quite often leads to abuse. Using targets for control and linking the achievement of these targets to individual performance has the risk of staff members manipulating the system to their benefit and the expense of other teams and even the entire organisation.

The alternative proposed to measurement for control is measurement for learning, as illustrated by the table below:

Characteristic Measurement for control Measurement for learning
Measurement drivers Management Employees
Measures development Top-down commands Process-oriented bottom-up approach
Measurement role Measuring and managing work in functional activities. Measuring and managing the flow of work thought the system
Measurement focus Productivity output, targets, standards: related to budget Capability, variation: related to purpose
Results communication Restricted Open
Target driven by Budget/political aspirations Understanding achievement versus purpose
Follow-up to results Rewards, punishment and action to improve results Dialogue and improvement
Learning cycle Single loop Double loop learning
Link to rewards Link to individual rewards and recognition system Group rewards, based on improvement

Table: Measurement for control compared to measurement for learning, Brudan, 2010

A mechanistic view on performance management, focused on measures and targets in isolation, pay-for-performance, control and rhetoric leads frequently to unoptimized results. Opposed to this is a Systems Thinking based view on managing performance, that coupled with the emphasis on learning, highlight the need for an integrated approach to performance management. Effective performance management requires more than measuring and reporting in isolation, more than control and rewards. It requires an organic performance architecture, that values more performance management for learning is informed by a more humanistic performance philosophy.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

References

Brudan A.N. (2010) “Rediscovering performance management: systems, learning and integration”, Measuring Business Excellence, Vol. 14, No. 1, pp. 109-123.

Cassidy, D. (1993) “Uncertainty: The Life and Science of Werner Heisenberg”, W. H. Freeman, New York, pp. 226-246.

Cassidy, D. C. (1998) “Answer to the Question: When Did the Indeterminacy Principle Become the Uncertainty Principle?” American Journal of Physics, Nr. 66, pp. 278-279

Cukor-Avila, P. (2000) “Revisiting the Observer’s Paradox”, American Speech, Vol.75, Nr. 3 pp. 253-254.

Pais, A. (1994), “Niels Bohr’s Times: In Physics, Philosophy, and Polity”, Oxford University Press, Oxford, England, pp. 304-309.

Sveiby, K. E. and Armstrong C.(2004). “Learn to Measure to Learn!”, opening keynote address at the Intellectual Capital Congress Helsinki, 2 Sept 2004.

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

smartKPIs.com Performance Architect update 26/2010

Vision statements as strategic management tools – Historical overview

Etymologically, both the words “mission” and “vision” have their roots in religion. Most religions, from Taoism, to Christianity and Islam have used the term vision in their religious texts for thousands of years. In these texts, the term “vision” depicts a sacred encounter which results in a view of the future or specific advice on how to approach a situation. Gradually, “vision” has started to be used initially in general and subsequently in business literature, to depict mental images related to the future.

The use of a vision statement in business organizations can be traced far back. As its inherent meaning refers to what organizations want to achieve in the future, it can be argued that any company statement that clarifies this aspect can be considered a vision statement, even if not explicitly labeled this way. In recent history, Sony was one of the first companies reported to have used the vision beyond a simple declaration, to drive organizational development and strategic decision making (Lyons 1976, Morita 1987, Nathan 1999). Another famous early adopter in the late 70s-early 80s was Apple Computer (Swanger and Maidique 1988, Schoemaker 1992). Initial literature on vision statements has associated the concept with leadership, as imagining the future is considered an attribute of a leader (Mendall & Gerguoy 1984, Sashkin 1988, Westley & Mintzberg 1989). One of the earlier definitions of the vision statement in a business context was offered by Kouzes and Posner (1987: 85), who defined it as “an ideal and unique image of the future”.

1990s represent the heyday of vision statements as strategic management tools, with a wave of articles promoting them (Filion 1991, Ziegler 1991, Larwood, Falbe, Kriger & Miesing 1995, Collins & Porras 1991, 1996). This wave of articles was followed by studies analyzing their evolution (O’Brian, Meadows 2001) and impact (Baum JR & Locke EA 1998, Raynor 1998).

Towards the end of 1990, the interest of both researchers and practitioners focused increasingly towards exploring the use of integrated approaches that link strategic management concepts related to corporate identity: mission, vision, values and capabilities or competencies (Raynor 1998, Stuart 1999).

A 2008 survey conducted by the management consulting company Bain & Company ranks Strategic Planning as the second most popular management tool after Benchmarking, while Mission and Vision Statements are on the third place (Rigby and Bilodeau 2009). Of the nearly 10,000 respondents 67% indicated that Strategic Planning and 65% indicated that Mission and Vision Statements are used by their organization. In terms of satisfaction, the same report lists Strategic Planning as the tool which users are most satisfied with (having a rating of 4.01 out of 5), while Mission and Vision Statements (with a rating of 3.91 out of 5) are ranked third. A review of the results of this annual survey conducted since 1993 reveals that the use of Missions and Vision Statements declined from 88% in 1993 to 70% in 2000, followed by an increase to 79% by 2006 and a further decline to 65% in 2008.

Despite the variance in research interest, usage in practice and the confusion with mission statements, vision statements are one of the most important strategic management and business performance management tools. They represent a much needed mental image of the future state, inspiring and motivating leaders and followers towards a common desideratum. In doing this, they facilitate alignment and decision making. While they vary in format and usage, vision statements generally represent a good balance between the efforts invested in development and the impact their usage has on results.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


References

Baum JR & Locke EA (1998) A Longitudinal Study of the Relation of Vision and Vision Communication to Venture Growth in Entrepreneurial Firms, Journal of Applied Psychology, 83(1):43-54.

Collins JC & Porras JI (1996) Building your Company’s Vision, Harvard Business Review, September-October: 65-77

Filion LJ (1991) Vision and relations: Elements for an entrepreneurial Metamodel, International Small Business Journal, 9:112-131.

Kouzes JM & Posner BZ (1987) The leadership challenge: How to get extraordinary things done in organizations, San Francisco, Jossey-Bass.

Larwood L, Falbe CM, Kriger MP & Miesing P (1995) Structure and meaning of organizational vision. Academy of Management Journal, 38: 740-769.

Lyons N (1976) The Sony vision, New York, Crown Publishers.

Mendall JS & Gerguoy HG (1984) Anticipatory management or visionary leadership: A debate, Management Planning, , November-December: 28-31.

Morita A (1987) Made in Japan: Akio Morita and Sony, London, Fontana Paperbacks.

Nathan J (1999) Sony: The private life, London, Haper Collins Business.

O’Brian F & Meadows M (2001) How To Develop Visions: A Literature Review and a Revised CHOICES Approach for an Uncertain World, Journal of Systemic Practice and Action Research, 14(4):495-515.

Raynor ME (1998) That Vision Thing: Do We Need It?, Long Range Planning, 31(3):368-376

Rigby and Bilodeau 2009, Management Tools and Trends 2009, a Bain and Company, Inc. publication, accessed at http://www.bain.com/bainweb/PDFs/cms/Public/Management_Tools_2009.pdf on 29 June 2010.

Sashkin M (1988). The visionary leader, Charismatic leadership: The elusive factor in organizational effectiveness, In J. A. Conger & R. N. Kanungo (Eds.), pp. 122-160), Jossey-Bass, San Francisco.

Schoemaker PJH (1992) How to Link Strategic Vision to Core Capabilities, Sloan Management Review, Fall: 67-81.

Swanger CC, Maidique MA (1988) Apple Computer: The First Ten Years, Strategic Management of Technology and Innovation, Homewood, Illinois, Irwin, pp. 288-320.

Stuart H (1999) A definitive model of the corporate identity management process, Corporate Communications: An International Journal, 4(4):200-207.

Westley R & Mintzberg H (1989) Visionary leadership and strategic management, Strategic Management Journal, 10:17-32.

Ziegler W (1991) Envisioning the Future, Futures, June: 516-527.

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

smartKPIs.com Performance Architect update 25/2010

Mission statements as strategic management tools – A brief history

The pursuit of organizational clarity and alignment towards a strategic direction has preoccupied researchers and practitioners for many decades. Especially over the last 50 years, a variety of management concepts have been popularized and adopted by organizations with more or less success.

Two such management concepts that gained popularity since then are mission and vision statements. They are considered strategic management tools or instruments, one of the clearest definitions for both being: “The mission statement is a statement of a company’s purpose,…, if mission outlines what the company is attempting to achieve at the present time, its vision offers a view of what the enterprise might become.” (Grant 2002: 60).

The term “mission” is reported to have been used first by Jesuit monks, to depict the act of sending monks on overseas missions, such as the missions in the 16th century in South America, following the landing of Christopher Columbus (Merino and Newson 1995). Over time, the use of the term expanded from religion to the military, who used it to reflect a specific assignment allocated as part of a plan or strategy. The link between military and business vocabulary was facilitated by books such as “On War” by Carl von Clausewitz (1832), considered one of the most important treaties on the philosophy of war. An entire section of the book (“Of strategy in general”) was dedicated to strategy and is considered today an important precursor of strategy management literature.

One of the earliest uses of a mission statement outside of religious and military organizations is reported to have occurred in 1941, when the American Journal of Economics and Sociology was established by Adolph Lowe and Franz Oppenheimer. As founding members of the editorial board they adopted a mission statement for the journal that called for cooperation and constructive synthesis in social sciences (Forstater 2002).

In business context, the use of the term mission had a different path. As early as 1960, Stoller and Van Horn wrote about how the military approach to planning can be applied in a business context. Smalter (1964) published one of the first articles exploring the influence of military literature on management practice. It explored in detail how the military concept of missions can be applied in business, however the term was used more in a “program-package” sense and not in the sense it is widely used today. Tombach (1961:54) had a different approach to using the word “mission” to cross-over from military to business literature: “the mission of defense […] can be broadly defined as that of preventing or minimizing damage to a target or target complex […] from hostile action.”

According to David (1989), the link to the business environment was facilitated by Peter Drucker, who started to write on the topic in mid 1970s. One of Drucker’s recommended questions for any organization was: “What is our business?”. David (1989:90) considered the answer is reflected in Drucker’s own words (1973): “A business is not defined by its name, statutes, or articles of incorporation. It is defined by the business mission. Only a clear definition of the mission and purpose of the organization makes possible clear and realistic business objectives.”

McGinnis (1981), Pearce II (1982), Staples and Black (1984) were among the first to dedicate entire articles to the discussion of the use of missions statements as strategic management tools. The term “mission statement” was understood as expressing the fundamental purpose specific to an organisation.

By 1986, two things occurred. On one hand, mission statements became widely used in corporate environments. Want (1986:48) notes that: “Executives and consultants alike are familiar with mission statements, and many have participated in the mission-writing exercise.” On the other hand, divergent views how mission statements should be formulated and used started to emerge. Pearce II and David (1987) proposed eight key components, among which mentions of target customers and markets, identification of products and services, geographic domain, core technologies and desired public image. Want (1986) lists as primary components of corporate mission statements: purpose, principle business aims, corporate identity, policies of the company and the values.

Regardless of these challenges, by 1990s research on the use of mission statements started to focus on their use (Ireland and Hitt 1992), their role (Leuthesser and Kohli 1997) and impact on firm performance (Bart and Baetz 1998). From 2000 onwards, researchers focused increasingly on questioning the value added by mission statements. Titles such as “Mission Statements: Are They Smoke and Mirrors?” (Bartkus, Glassman and McAfee 2000) and “Mission Possible: Do School Mission Statements Work?” (Davis, Ruhe, Lee, Rajadhyaksha 2007) are illustrative. Further research in the impact of mission statements on the financial performance concluded that they have little or no impact on financial performance (Bartkus, Glassman and McAfee 2006).

One of the most comprehensive reviews of the topic by Stallworth Williams (2008) concluded that despite the challenges in the formulation and use of mission statements, they shouldn’t be considered fads, as they withstood the test of time and continue to matter.

Mission statements continue to remain an important strategic management and business performance management tool, helping with grounding organisations by clarifying their purpose or reason to exist and framing the context of their operations.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


References

Bart C, Baetz M (1998) The relationship between mission statements and firm performance: An exploratory study, Journal of Management Studies, 35(6): 823-853.

Bartkus B, Glassman M and McAfee B (2000), Mission Statements: Are They Smoke and Mirrors? Business Horizons, November-December: 23-28.

Bartkus B, Glassman M and McAfee B (2006), Mission Statement Quality and Financial Performance, European Management Journal, 24(1): 86–94.

David F. (1989) How Companies Define Their Mission, Long Range Planning, 22(1): 90-97.

Davis JH, Ruhe JA, Lee M, Rajadhyaksha U (2007), Mission Possible: Do School Mission Statements Work?, Journal of Business Ethics, 70:99–110.

Forstater M (2002) How the AJES Got its Mission Statement in 1941, American Journal of Economics and Sociology, 61(4):779-786.

Grant RM (2002) Contemporary Strategy Analysis, 4th edition, Blackwell Publishers, Oxford, UK.

Ireland RD and Hitt MA (1992) Mission Statements: Importance, Challenge, and Recommendations for Development, Business Horizons, May-June: 34-42.

Leuthesser L and Kohli C (1997) Corporate Identity: The Role Of Mission Statements, Business Horizons, May-June: 34-42.

McGinnis VJ (1981), The mission statement: A key step in strategic planning, Business, November December: 39-43.

Merino O, Newson LA (1995) ‘Jesuit Missions in Spanish America: The Aftermath of the Expulsion’. Paper presented at the Conference of Latin Americanist Geographers, accessed at http://sites.maxwell.syr.edu/CLAG/yearbook1995/newson.pdf on 29 June 2010.

Pearce II JA (1982), The Company Mission as a Strategic Goal, Sloan Management Review, Spring: 15-24.

Pearce II JA, David F (1987) Corporate Mission Statements: The Bottom Line, The Academy of Management Executive, 1(2):109- 115.

Smalter DJ (1964) The Influence of Department of Defense Practices on Corporate Planning, Management Technology, 4(2):115-138.

Stallworth Williams L (2008), The Mission Statement – A Corporate Reporting Tool With a Past, Present, Future, Journal of Business Communication, 45( 2): 94-119.

Staples WA, Black KU (1984) Defining Your Business Mission: A Strategic Perspective, Journal of Business Strategies, 1:33-39.

Stoller DS, Van Horn RL (1960) Design of a Management Information System, Management Technology, 1(1):86-91.

Tombach H (1961) Critique of Air Defense Measures of Effectiveness, Management Technology, 1(3):52-62.

Von Clausenwitz C (1832) On War, 1st edition in English (1874) translated by Colonel J.J. Graham, accessed at http://www.gutenberg.org/etext/1946 on 28 June 2010.

Want JH (1986) Corporate mission, Management Review, August: 46–50.

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

smartKPIs.com Performance Architect update 24/2010

Benchmarking, Rank Xerox and Canon

Benchmarking as a management concept is reported to have its roots in land surveying, where the altitude of objects is estimated based on a pre-established point of reference on an arbitrary landmark (McNary, 1994). Frederick Taylor is reported to be the first to use benchmarking along with other principles in a business enterprise to improve performance. Elements of benchmarking can be recognized in Taylor’s scientific management approach applied during his time at Bethlehem Steel Company (McNary, 1994), popularized in “The Principles of Scientific Management” .

Benchmarking as we know it today was first applied by the Xerox Corporation in later 70s, early 80s. Faced with increased competition from Japanese imports, Xerox set upon improve its order fulfillment process and other processes deemed unproductive. One of the first accounts of the “competitive benchmarking” approach at Xerox was given in 1992 by Rob Walker, the Director of Business Management Systems and Quality at Rank Xerox (U.K.) Ltd. at the time. In his article “Rank Xerox – Management Revolution”, he describes in detail the challenges, changes made and impact of the “competitive benchmarking” approach at the company. Under the “competitive benchmarking” initiative. Xerox compared itself to its Japanese competitors as well as large organizations operating outside of the industry: “American Express for billing and collections, American Hospital Supply for automated inventory control, LL Bean for distribution, warehousing and order-taking” (Walker, 1992).

The ascent of benchmarking in the 80s resulted in numerous books and articles published, reflected in the business environment by an increase in the use of benchmarking around the world. Comparing to others is natural to humans, so benchmarking was rather easy to understand in theory. Applying it in practice and generating value from it is a different story.

In sports and tennis in particular, performance metrics are monitored by players and coaches to track progress and how the game plan was executed. In terms of benchmarking KPIs between players, this needs to be explored with care. The playing style is different from one player to another. One player might have a very powerful serve, but generally inaccurate. Another might have a high percentage of net approaches, but ineffective. On top of this, in tennis the concentration power and determination is in many instances more important than game statistics. Similarly, in business, many companies zoom to a different tune. While benchmarking sounds good in theory, there are many practical issues relating to data accuracy and relevance of results. There are many questions organisations need to clarify before embarking on such a road:

a. Who may the beneficiaries of such an exercise be?

b. What is the added value?

c. Who has done this well?

The graph below raises another question:

Source: Google Finance, 2010

Did it ultimately work for Rank Xerox?

or even

What did Canon differently to generate such a gap between the stock price performance over the last 10 years?

Comparing performance across entities is even easier today. Availability of information technology and rich datasets facilitates benchmarking across multiple dimensions. However, embarking on benchmarking initiatives because “it seems to be a popular tool” or because it was recommended by a consultant can be risky. Same as if it is pursued “just because we can” or with unreliable data. Done properly, it might still be a good idea overall, but then another question needs to be asked:

Are there any other better ideas?

Yet again, Study puts initiatives management in a new light.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


References

McNary, Lisa D. 1994, “Thinking about excellence and benchmarking”, The Journal for Quality and Participation, July-August 1994, v17, n4, p90(1)

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

smartKPIs.com Performance Architect update 6/2010

An introduction to theory in performance management: Goal Setting Theory

In my previous update I highlighted the benefits of increasing theory awareness in performance management practice. It has the potential to positively impact the process of selecting, developing and using performance management solutions. Over the next few months, I will gradually introduce some of these theories, in no particular order.

A very important theory informing performance management is the Goal Setting Theory, which is considered to be one of the most effective motivational theories. It was formulated inductively based on empirical research conducted over nearly four decades by Locke and Latham. Its roots are based on the premise that conscious goals affect action (Locke & Latham, 2002).

An important note to make is that the use of the term “goals” in this theory. Goals are considered here to be the object or aim of an action. As the terminology used in performance management as a discipline is loosely structured, the goal setting theory itself applies to objectives, Key Performance Indicators and targets as well.

Principles

There are four general principles that are linked to an increase in motivation, thus generating optimal performance:

  • Goals should be challenging, but attainable. Locke and Latham (2004) found a positive, linear function in that the most difficult goals produced the highest levels of effort and performance. They also found that performance decreased once the limits of ability were reached or when commitment to a highly difficult goal lapsed.
  • Goals should be specific rather than vague. Research by Locke and Latham (1990) showed that specific, difficult goals consistently led to higher performance than urging people to do their best. As specific goals vary in difficulty, goal specificity in itself does not necessarily lead to high performance, but reduces variation in performance by reducing the ambiguity about what has to be achieved. (Locke, Chah, Harrison, & Lustgarten, 1989).
  • Employees should be involved in the process of setting their own goals. When goals are self set, people with high self-efficacy set higher goals than do people with lower self-efficacy. They also are more committed to assigned goals, find and use better task strategies to attain the goals, and respond more positively to negative feedback than do people with low self-efficacy (Locke & Latham, 2002, Locke & Latham, 1990). The goal–performance relationship is strongest when people are committed to their goals.
  • Goals should be measurable in terms of being clearly understood by employees: quantity, quality, time, and cost. For goals to be effective, people need summary feedback that reveals progress in relation to their goals. If they do not know how they are doing, it is difficult for them to adjust the level or direction of their effort or to adjust their performance strategies to adjust their performance strategies to match what the goal requires. Summary feedback is a moderator of goal effects in that the combination of goals plus feedback is more effective than goals alone (Locke & Latham, 2002).

Mechanisms

Locke & Latham (2002) propose four mechanisms through which goals affect performance:

1. Directive function. They direct attention and effort toward goal-relevant activities and away from goal irrelevant activities.
2. Energizing function. High goals lead to greater effort than low goals.
3. Impact on persistence. When participants are allowed to control the time they spend on a task, hard goals prolong effort (LaPorte & Nath, 1976). There is often, however, a trade-off in work between time and intensity of effort. Faced with a difficult goal, it is possible to work faster and more intensely for a short period or to work slower and less intensely for a long period.
4. Affect action indirectly by leading to the arousal, discovery, and/or use of task-relevant knowledge and strategies (Wood & Locke, 1990).

While Goal Setting Theory is generally analyzed at individual level, its principles are considered relevant at organizational level, too. Locke (2004) argues that goal-setting is effective for any task where people have control over their performance. Research in this field currently explores goal setting theory at both individual and organizational level. Elements of the Goal Setting Theory are present in various degrees in all aspects that relate to performance management practice. Linking theory to practice is up to all of us.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

References

LaPorte, R.E., & Nath, R. (1976). Role of performance goals in prose learning. Journal of Educational Psychology, 68(3), 260-264.

Locke, E. A., Chah, D., Harrison, S., & Lustgarten, N. (1989). Separating the effects of goal specificity from goal level. Organizational Behavior and Human Performance, 43, 270–287.

Locke, E. A., & Latham, G. P. (1990). A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice Hall.

Locke, E. A. and Latham, G. P., (2002), “Building a Practically Useful Theory of Goal Setting and Task Motivation”, American Psychologist, Vol. 57, No. 9, pp. 705–717.

Locke, E. A. (2004), “Goal setting theory and its applications to the world of business”, Academy of Management Executive, Vol. 18, No. 4, pp. 124-125.

Wood, R., & Locke, E. (1990). Goal setting and strategy effects on complex tasks. In B. Staw & L. Cummings (Eds.), Research in organizational behavior (Vol. 12, pp. 73–109). Greenwich, CT: JAI Press.

smartKPIs.com Performance Architect update 5/2010

On the importance of theory in performance management

Performance management is one of those disciplines that seem to be intuitively easy. It is closely related to everyone’s life. We all hear about setting goals here, achieving targets there, implementing strategies, writing vision statements, living values and so on.

It is not the same for disciplines such as risk management and enterprise architecture – ask someone on the street a question in these fields and there is a good chance the person will be much quieter than expected. Ask the same person a question about performance management and the chances of obtaining a response are much higher.

All of us have been exposed to performance management in some form through our lives, starting with childhood. Performance management is about doing well in sports, doing well in school, playing an instrument, doing well at work and contributing to the organization we are a part of.

So intuitively we know what it is about, why it is needed and how it works. But how many times did we stop to think about these aspects? Or think about the way we think about performance management? Why does it work? What happens?

Such questions have been asked mainly by researchers (as oftentimes consultants are too busy consulting and experts too busy giving advice to ponder on such esoteric questions). As a result, responses to such questions remained mostly in the realm of the academia. And one of the all time favorite terms in academic literature, almost unknown (in the academic sense) to business practitioners is: theory.

The Merriam-Webster online dictionary states the following about theory:

  • Etymology: Latin (theoria) and Greek (theoria, from theorein)
  • Date: 1592. (Note: There must have been some other term used before that time, as theories are as old as Greek philosophy.)

Of all the uses of the term mentioned by this dictionary, the ones that I prefer are:

  • 1 : the analysis of a set of facts in their relation to one another
  • 3 : the general or abstract principles of a body of fact, a science, or an art <music theory>
  • 4 a : a belief, policy, or procedure proposed or followed as the basis of action <her method is based on the theory that all children want to learn>
  • 5 : a plausible or scientifically acceptable general principle or body of principles offered to explain phenomena <the wave theory of light> (Merriam-Webster, 2010)

So why is theory important in performance management? I propose three reasons why learning and thinking about the theory behind practice is important:

1. As performance management is such an embedded discipline in our life, it impacts us more than many others. It would be beneficial to know the logic behind many of the processes and tools used for performance management initiatives. A driver with a few skills in mechanics is a better driver than the one that doesn’t have a clue that there is an engine behind the bonnet and it requires fuel.

2. Understanding the theory behind practice puts us in a better position make informed decisions and to question solutions proposed to us. Too many performance management products and ideas and promoted and taken for granted. A more informed buyer is a smarter buyer and a happier customer.

3. Critically reviewing the theory behind practice enables us to question its validity and try improving it. How can we improve and advance performance management if we keep focusing on solutions without thinking why and how these solutions work?

Perhaps theory is another item on the already heavy list of elements the Balanced Scorecard should balance. Or perhaps we’ll forget give the Balanced Scorecard a break and start balancing things ourselves… Smartly…

Either way, next time you are offered a solution don’t forget to ask the question: So, what is the theory behind this? You might get lucky and the response will put a smile on your face for the rest of the day.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

References

Merriam-Webster Online dictionary (2010) Retrieved online on 6 February 2010 at: http://www.merriam-webster.com/netdict/theory

smartKPIs.com Performance Architect update 3/2010

Performance Management IQ Test or a hermeneutic dialectic process

A new feature available on http://www.smartKPIs.com starting with this month is the smartKPIs Performance Management IQ test.

It consists of a set of 24 statements that appear on the screen one at the time. The task on hand is to decide what each of these statements represents from a set of 12 options:

  1. Mission Statement
  2. Vision Statement
  3. Goal
  4. Objective
  5. Target
  6. SMART Objective
  7. Critical Success Factor (CSF) / Value Driver
  8. smartKPI / Key Result Indicator (KRI)
  9. Metric / Performance Measure / Performance Indicator
  10. Key Performance Indicator (KPI)
  11. Initiative
  12. Milestone

Only one option can be selected as there should be only one option closest to the way the statement is understood and perceived.

The term “IQ test” is pretentious and used to illustrate that being smart in performance management transcends the mechanistic approach of being right or wrong. Having this in mind, the test should be used more as a guide to discover the rich diversity of views on how key terms are or should be used in performance management. Overall the test should be a fun way to rediscover the basics of a performance management glossary. Ideally it should also raise questions about what actually happens in practice, away from the prescribing nature of management books, academic articles and management consultant’s opinions.

To me there are three key learning points illustrated by the test:

1. Performance Management as a discipline contains elements that closely link it to a multitude of other disciplines and organizational capabilities: Strategy Management, Project Management, Human Resources Management, Accounting and Psychology, to name a few. Understanding such linkages and the origins of key terms are an important step in building a robust basis for architecting organizational performance.

2. The popular understanding and perception of certain terms in practice may be very different compared to academic and consultant’s viewpoints. What matters in the end is how such concepts are used in practice to generate value and not necessarily which is the “perfect” definition of what a KPI is.

As Stringer (2007) put it: “Constructions are created realities that exist as integrated, systematic, sense-making representations and are the stuff of which people’s social lives are built. The aim of inquiry is not to establish the truth or to describe what really is happening but to reveal the different truths and realities – construction – held by different individuals and groups. Even people who have the same facts or information will interpret them differently according to their experiences, worldviews and cultural backgrounds.”

3. Have an open mind in terms of rediscovering performance management through the lens of various viewpoints and be prepared to change perspectives or shift entire paradigms. According to one view, by completing the smartKPIs Performance Management IQ test you have completed a test and reviewed different opinions on specific topics. From another viewpoint (Guba and Lincoln, 1989), you have just completed a hermeneutic dialectic process, as new meanings emerge as divergent views are compared and contrasted.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

References

Stringer, E. T. (2007) “Action Research, 3rd Edition“, Thousand Oaks, CA, Sage Publications.
Guba, E. G. and Lincoln, Y.S. (1989), “Fourth generation evaluation“, Newbury Park, CA, Sage Publications.

smartKPIs.com Performance Architect update 1/2010

Performance Management and www.smartKPIs.com

aurel-brudan-wwwsmartkpiscomLaunched in November 2009, www.smartKPIs.com was met with overwhelming interest by tens of thousands of visitors from over 160 countries. A base of regular visitors quickly formed in a relative short period of time and it continues to grow with many registering as site users daily.

Why such interest in the subject of Performance Management and more specifically Key Performance Indicators (KPIs)?

What sets smartKPIs.com apart in addressing this interest in the subject?

On Performance Management

Business Performance Management is a dry subject for many. At individual level, annual performance reviews have been compared to preparing tax returns - it is hard to find someone who takes pleasure in completing them, but they are necessary and regular.

For others the topic is complex and rewarding. At company level, Performance Management Systems have been compared to washing machines that have to be properly installed and configured in order to operate as desired (Meekings et al, 2009).

Performance Management is still in the early stages of being established as discipline and the lack of standards makes using tools and concepts from this field a challenging task. There is a certain degree of confusion in the way terminology is used in the discipline both within academic literature, in practice and between them.

Faced with the challenging task of finding coherence in this universe of mostly unstandardised concepts, practitioners welcome tools and methodologies that bring clarity, structure and simplicity to Performance Management. The success of the Balanced Scorecard over the last 20 years is proof of that.

smartKPIs.com fits in this picture as a platform based community that can be used to:

1. Learn more and improve the understanding of Performance Management concepts

2. Review examples of Key Performance Indicators that went through a thorough documentation process

3. Manage personal libraries of KPI examples, selected by users as most suitable for the performance management initiatives they are involved in.

4. Source templates that can be used in better structuring the documentation used as part of organisational performance management frameworks or systems.

smartKPIs differentiation

The world abounds with Performance Management consultants and there are many resources available on the Internet. smartKPIs.com is not the first, nor the latest online platform available to the wider public.

What sets smartKPIs.com apart is:

  1. The combination of insight from practice with academic rigor. We value academic research and use its findings and principles. At the same time, abstract concepts are much better understood when analysed in context, in practice. In addition, practice refines such concepts and contributes to their evolution and usability.
  2. The ability to structure information in clear taxonomies, simplifying the analysis process. This enables visitors to better understand the discipline of Performance Management and the use of KPIs as a core organisational capability. The benefits, although indirect are to be seen at both personal and organisational level: “ I am convinced that the first essential of business success is the capacity for organized thinking” (Follett, 1940)
  3. Expertise in the field of Performance Management, through a “community of inquiry”. The definition of an expert is relative. Today, same as in old times, anyone can claim to be an expert in anything. Mark Twain is credited with using the phrase “an ordinary fellow from another town” as an explanation to the term. Will Rogers is credited with using the phrase “a man fifty miles from home with a briefcase” to express the same. In our times, the number of miles increased considerably and the briefcases were replaced by blogs, websites and accounts on social networking sites. In developing expertise we took the long but steady road of academic study, combined with learning from practical experience and generating new insights. Our approach to learning from practice is action research and it follows Peirce’s inquiry process of abduction, deduction and induction (Barton et al, 2007). More importantly, we have done over 10,000 hours of deliberate practice in the field of Performance Management both at team level and individual level by some of the team members. Academic research supports a causal relationship between the accumulated deliberate practice (guided, highly structured learning activity) and the level of expertise in an area. Deliberate practice being a “highly structured activity, the explicit goal of which is to improve performance” (Ericsson et al, 1993). Having said that, we are great believers in the power of collective intelligence. We see ourselves as informed facilitators of the interaction, collaboration and learning process that smartKPIs.com users will participate in.

smartKPIs.com metaphor

One metaphor that I think describes smartKPIs.com is comparing it to a tree.

  • It first needed a fertile land - Performance Management
  • A seed - myself as Performance Architect
  • A period of growth - the many years of deliberate practice
  • Branches - the team behind smartKPIs.com
  • Flowers - its website content
  • Nectar - the quality of the content
  • Bees - visitors of the website
  • Cross-pollination - the exchange of ideas in the online community
  • Fruits - Financial self sustainability of the website
  • Honey - Value generation for visitors, fed back into their organisations.

Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,

www.smartKPIs.com

References

Ericsson, K. A., Krampe, R. Th. and Tesch-Römer C.(1993), The role of deliberate practice in the acquisition of expert performance, Psychological Review, Vol. 100, Nr. 3, pp. 363-406.

Follett, M. P. (1940), Dynamic Administration. The Collected Papers of Many Parker Follett, edited by Henry C. Metcalf and L. Urwick, Harper & Brothers, New York, London

Meekings A., Povey, S. and Neely, A. (2009), Performance plumbing: installing performance management systems to deliver lasting value, Measuring Business Excellence, Vol. 13, No. 3, pp. 13-19

Barton, J, Stephens, J. and Haslett, T (2007), Action Research: An Exploration of its Logic and Relationship to the Scientific Method. Proceedings of the 13th ANZSYS Conference - Auckland, New Zealand, 2nd-5th December, 2007 Systemic Development: Local Solutions in a Global Environment