Archive for category Performance Management

smartKPIs.com Performance Architect update 35/2010

10 Key Performance Indicators for 2010

smartKPIs.com contains over 5,000 KPI examples from 14 functional areas and 24 industries. A question raised by many is: ‘If you are to pick a handful, which ones would stand out?’

I have selected below 10 KPI examples of what we consider to be smartKPIs: they are widely used and relevant, the superstars of KPIs. This is not to say any company should use them. Simply, a list of 10 KPI examples anyone should take note of:

% Net profit rate – A profitable business is a sustainable business. It is however important to have realistic expectations. Returns of over 30% may be speculative, while in some economies returns of under 5% are lower than interest rates.

$ Revenue – Growing revenue is an expression of having the right product/service mix, supported by the right team delivered at the right time. Converting opportunities in sales is the essence of a sustainable business.

% Profitable customers – getting the balance right is the basis for financial success. Although oftentimes it is difficult to track, it is ads a great deal of insight and informs decision making. Activity based costing is key to getting this indicator right.

# Net Promoter Score – having customers that are not only satisfied, but are actively endorsing a company/product/service. Recently is has become a favourite indicator of customer satisfaction, due to its simplicity and relevance.

% On-time delivery – an operational focused KPI with wide reaching implications. It can be used in a variety of industries and functional areas, as time is an important resource to anyone. Oftentimes it acts as a bottleneck as it is influenced by many indicators and it impacts a great deal of other indicators.

% Projects on time, on budget and according to specifications – getting the triangle right is difficult and priorities may vary from one project to another. It is however a useful base to start from. Can be customised as per the preference of project boards and project managers to cover only specific aspect of the triangle.

% Processes optimised – one key managerial responsibility is creating the right environment for the staff members to operate in. This includes using a management system that is well thought of and refined. Mapping and improving work processes is key to using a performance oriented architecture.

# Employee engagement – Some say money can’t buy it. It is that extra level of commitment that is induced by motivating purposes, inspiring leaders and working environments that facilitate happiness in the professional life.

# Proposed improvement ideas per employee – inspired by H.W. Heinrich’s work in the 1930s or “the Pyramid Theory” as some call it. They main results are visible at the top, but you need to monitor the base to ensure the right outcomes are achieved.

$ Investment in learning per employee – Not the ideal indicator of training impact, but a widely used substitute. It monitors both training spend and the wide allocation of funds to avoid serial trainees.

An issue with KPI examples is that names don’t tell the complete story. To find out more about each of these examples and thoroughly understand them a separate blog post would be required for each, complemented by a complete KPI documentation form. In the meantime, www.smartKPIs.com is available to further explore relevant and well documented KPI examples.

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 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 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

smartKPIs.com Performance Architect update 30/2010

Ethical leadership and performance management

Managing performance is about achieving desired outcomes, fulfilling the purpose of an entity. Oftentimes it is a complex journey requiring a diverse set of abilities. One of the most important prerequisites of organizational success is strong, committed leadership. And even more important is being guided by ethical leaders. What is an ethical leader though?

Leadership is the ability to mobilise a group and guide them towards the achievement of a shared purpose. Ideally this would be a positive purpose, contributing to the betterment of both the group and humanity in general. However, there are many instances when the outcomes of leader’s actions were negative for both the group lead and the society overall. Even when the purpose followed is positive in nature, the means to achieving it are sometimes in contradiction with the values of the group or the leader, affecting them negatively or even outweighing the value added by the achieved outcomes.

An ethical leader is a leader that is not only driven by the achievement of positive outcomes, but also is employing a set of positive means to achieve them, striving to achieve a balance between the interests of the group lead, the personal interest of the leader and the one of society in general.

Leadership starts with a destination, a desired state in the future that the leader believes in and strives to achieve. To an ethical leader this vision of the future should reflect a wide panorama of images, that reflect not only the state of the group being lead, but also of the various entities that may be affected by the achievement of this vision. If for example the leader of a mining company is interested in expanding the operations by starting a new exploitation, in evaluating the merits of such an enterprise, he should consider not only the potential revenue generated for shareholders, but also the impact of the exploitation on the local community, the habitat, employees and the humanity overall. Such a calibration would ensure that one of the fundamental ethical principles: “the greatest good for the greatest number of people” is followed.

Establishing a destination that is in harmony with the interests of the variety of parties affected by it is an initial step. An ethical leader would follow it by ensuring that the journey towards this destination is completed by following the same principles. It is important not only to reach the destination, but also to get there by following ethical principles and ensuring a rewarding journey. In an organisational context this rewarding journey means, ensuring the members of the organisation not only contribute to the achievement of a shared purpose, but in doing this they grow professionally, learn, feel a certain degree of fulfillment, as they realize that their efforts have meaning and are in line with their values. Showing a genuine interest in all these aspects of the journey and finding a balance between them and the achievement of the purpose is not easy. Leaders face pressure from a number of directions and in dealing with these they have to make difficult decision. This decision making process is a key aspect of what differentiates a leader form an ethical leader. In this process an ethical leader respects not only his values, but also the ones of the parties affected by the decision, and seeks to protect the interests of all parties following utilitarian ethical principles.

A key characteristic of an ethical leader is the set of values that inform his actions. Having a deep respect of nature and its diversity is to me one the most important. Many of the challenges Planet Earth faces today are generated by the humanity. Greed, cruelty, pride, anger and disrespect are all contributing to them. An ethical leader is the one that is not only uncharacterised by them, but actively seeks to eliminate such behavior both within the group lead and in society in general.

Certainly this is a big ask, especially in the business world. This is why perhaps ethical leaders are difficult to find. Nurturing them is challenging in today’s world, however there is hope for the future, especially with a renewed interest in systems thinking that is complementing more and more the command and control thinking that dominated administrative science for centuries.

Another characteristic of ethical leaders is continuity and consistency in living their own values and of the group they guide. Aligning their actions across a variety of roles is important. Such roles cut across various facets of the life: parent, partner, worker, community member and citizen among others. Ethical leaders align their actions across all these roles so that they are guided by similar principles. They might not be leaders in all of these roles, however their behavior should reflect that they know not only to lead, but also to follow, that they are genuine not only at work, but also at home and in the community.

Clarifying what is not an ethical leader would also help in understanding the term better. Is a leader of an organisation that behaves unethically in a business context, achieves great success while doing this and makes large contribution for humanitarian purposes with the revenue generated an ethical leader? What about a leader whose success in an organisational setting is opposed by an unhappy, broken family, disrespect for the community and for nature in general? Sometimes it is difficult to draw a line. Still, the use of the term “ethical leader” should be selective enough to reflect the true essence of humanistic, leaders dedicated to the good of the society and nature overall.

Perhaps the simplest answer to the question is formed of three words: a good person.

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 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 27/2010

Lexical rivalry: “Strategy Execution” versus “Strategic Performance Management

Over the last few years, the use of the term “Strategy Execution” witnessed a dramatic increase in popularity in the business environment, mainly in the language used by consultants. Decomposing it reveals two terms commonly used in administrative science, both with military roots:

Strategy – plan of action

Execution – the act of putting a plan in practice

Together, they express the idea of implementing strategic plans in practice, achieving desired outcomes through sustained effort towards them, or performing as per expectations.

In essence … managing performance. In terms of meaning, each of these alternative options would be suitable as replacements of “Strategy Execution” to express the same set of ideas. If the meaning is not affected, what are the advantages and disadvantages of using the term “Strategy Execution” over “Strategic Performance Management”?

On the use of the term “Strategy Execution”

The first issue with the term is its mechanistic connotation. One of the reasons it is preferred by its proponents is that it illustrates the importance of delivering as expected, or getting things done. However, as both terms have military roots, they remind of the phrase “executing orders as instructed” and the strict discipline of military organizations. This gives the term “Strategy Execution” strict connotations of implementing strategic plans as instructed, without variation, same as “executing orders”. In an environment that is continuously changing, strategic plans are often outdated the moment they are printed. And executing outdated plans can be a risky enterprise. Sure, strategy execution is presented as including a process of continuously renewing strategic plans, which sometimes happens, sometimes, not. There is however a contradiction with the military sense of the term, where orders are in place until their execution and it modifying them based on intelligence from the agent or operator in the field doesn’t happen often.

Besides the issue of how strict the discipline of executing should be, a second issue of the term is its lack of humanistic view regarding the members of the organization. The use of the term “execution” is inferring their contribution is only at the implementation level, without much input to the planning level. They are not there to think or plan, they are supposed to execute as instructed.

On the other hand, the term “Strategy Execution” is interesting, exciting and marketable. It stands out from the multitude of publications on performance management topics, and provides an excellent differentiation platform. It also builds on the basis built by names such as Ram Charan and Larry Bossidy, who published as early as 2002 a book on the topic of execution, laying the ground for a new wave of management books on the topic. In a way it is not surprising that most of the proponents of the term are American authors, as they many have mastered the principles of concept marketing, the marketing of management concepts and ideas to obtain support and attract followers.

On the use of the term “Strategic Performance Management

Often times the term “Performance Management” is used to illustrate activities related to the achievement of desired outcomes at individual level, by the staff members of organizations. In a way, it is safe to say that this use of the term has won the popular vote, as it is the most common use of the term. However, “Performance Management” is much more than that. If we are to imagine the term “Performance Management” as a cube, the use of the term at individual level would be only one facet of the cube. There are a multitude of other facets that complement the individual level, such as:

• Strategic (organizational)

• Operational (functional are)

• Team (at staff community level)

The essence of the term “Performance Management” remains the same across each of these facets. This is both an advantage and a disadvantage. Many authors prefer avoiding the term as using it is likely to lead the reader to conclude it refers to individual performance management, a topic that is for many neither fresh nor interesting. In term of the marketability of the term, its disadvantages are that it expresses many things for many people and publications face of risk of getting lost in the variety of existing publications on such topics.

At the same time, this variety is also an advantage. Performance Management as a discipline is informed by a variety of other disciplines such as Strategy Management, Operations Management, Human Resource Management, Project Management, Finance, Marketing and Communications, among others. It is in the unique position to act as an integrating management discipline, linking together elements from others, for improved clarity and alignment. The use of the term “Performance Management” reinforces the message of integrating disciplines not only at components level, but also in terms of the approach. Similar performance management principles can be applied at multiple levels in an organization, so why call them differently?

The 20th century was marked by analysis and decomposition of elements. In the 21st century, further benefits can be realized in terms of advances in management by reintegrating elements into a unified body of knowledge and not by continuing the trend of creating new “blends and trends”. New thinking is required and that is informed by integration and not isolation.

“Strategy Execution” versus “Strategic Performance Management”

Some prefer to use more fancy terms such as: “Strategy Execution” instead of “Strategic Performance Management“, or “Operational Excellence” instead of “Operational Performance Management“. As management as a discipline is a democracy, with its advantages and disadvantages, ideas promoted by a louder voice and by supporters triumph, sometimes at the expense of ideas more timidly expressed, though of the same quality, if not higher.

The lexical preference of “Strategy Execution” over “Strategic Performance Management” is such an example. What is not clear is whether the preference is informed by weighing advantages or disadvantages such as the ones illustrated above, or if the terms are used just because they are popular and the “management gurus” use them.

Ultimately it might not matter, as long as results are achieved. However, in terms of credibility of management concepts in the eyes of the public, there might be unintended consequences of such choices, such as the loss of credibility and reticence regarding management rhetoric.

Overall, “Strategic Performance Management” is a more humanistic, learning oriented and integrating term that provides a more vivid panorama of achievement. Put some blinkers on and what you are left with is “Strategy Execution”.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

Notes:

For more details on lexical rivalry see: Hofstadter D. R. (2001), Analogy as the Core of Cognition, available at: http://prelectur.stanford.edu/lecturers/hofstadter/analogy.html

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