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

Configuring KPIs following their selection is represented by the documentation of the complete set of relevant details for each KPI and the activation of KPIs so that data can be reported and analyzed.

1. Link KPIs upstream with business objectives and downstream with organizational initiatives. KPIs should be connected to organizational objective as they make objectives SMART. Initiatives should be establish to support the achievement of objectives by improving KPI results.
   
2. Assign a data custodian responsible for gathering measurement data for the KPI. Data gathering for each KPI requires clarity and ownership. Having a responsible for collecting KPI data is a management approach to ensure accountability with data being available for analysis on time.
3. Assign a KPI owner responsible for the achievement of the desired results. Each KPI should have a manager allocated as its owner, to ensure responsibility regarding its analysis, results and improvement options.
4. Avoid tunnel KPI definitions – repeating the KPI name in the definition doesn’t add value. Good practice in working with KPIs requires thorough documentation of what they reprezent. Proper KPI definitions should go beyond repeating the KPI name, by providing a plain English explanation of what the KPI is about.
5. Categorize KPIs by their reporting status - active = data is tracked, inactive = data not available. Activating KPIs is the process of moving a KPI status from inactive, when the data is not available to active, when data is reported and a clear process is in place for doing so on a regular basis.
6. Clearly identify the unit type, most of the time % (percentage), # (number) and $ (dollar value). KPIs being measurable entities, they have an associated unit type. To simplify communication, the symbol should be used instead of the word expressing it.
7. Data accuracy for each KPI should be evaluated as low, medium and high and treated as such. Not all KPIs have the same data reliability. Survey based KPIs are always going to be less reliable compared to revenue KPIs, due to objectivity issues. Other aspects to be considered are data automation and auditing.
8. Determine the frequency of data generation and the frequency of reporting for each KPI. Data for some KPIs, such as ‘# Website visits‘ can be easily gathered on a daily basis. For other KPIs, such as ‘% Employee engagement‘, data gathering requires considerable costs and efforts, impacting a large number of staff. The frequency of reporting is influence by factors such as cost, efforts and technical complexity.
9. Develop a customized KPI documentation form that contains the relevant details describing the KPI. Documenting KPIs can be easily done in a template that structures the main description fields considered relevant for the organization. smartKPIs.com contains such a model that can be customized at organizational level.
10. Document if the trend is good when increasing, decreasing or when data is within a range. For some KPIs the results are good when they are decreasing from a period to another - for example ‘# Customer complaints’. For others, such as ‘$ Revenues‘, the results are good when increasing, while in the case of ‘% Budget variance‘, the results are good when within a specific range.
11. Document where the reporting data for each KPI is sourced from and who produces it. Understanding a KPI relies on having a clear understanding of the data behind it and its source.
12. Don’t worry too much about a KPI being leading or lagging. Differentiating between the two is debatable and confusing. What is considered a leading KPI for some is a lagging KPI for others. As agreement around this differentiation is oftentimes difficult to achieve, it is secondary in importance and impact.
13. Ensure each KPI is clearly explained in a definition and has a purpose for usage. The separation between definition and purpose is essential. The purpose expresses the reason for using the KPI and is one of the key components of the documentation form.
14. KISS - keep it short and simple: Use the # and % symbol to replace “number” and “percentage” in KPI names. Standardizing KPI names and shortening them supports communication and enables clear data visualization of KPIs in dashboard and scorecards.
15. Simplify KPI names by eliminating the word “of”. As a “common denominator” it can be cut from the name. KPIs are analytical in nature and where possible, their names should be as concise as possible. Definitions, calculation and purpose fields provide context and can be more wordy.

Aurel Brudan
Performance Architect,
www.smartKPIs.com

Selecting KPIs is a process which seems simple, yet is inherently complex, due to the interdependencies involved. Here are 15 things to consider before embarking on this journey.

1. Review existing internal reports and support documents at the beginning of the KPI selection exercise. These may include previous business / strategy plans, annual reports, performance reports and other documentation that relates to performance management, measurement and benchmarking.
   
2. Use external lists of examples and other secondary documentation to inform and support KPI selection. It is always a good idea to begin a journey having the end in mind. Reviewing KPI examples used in the industry or functional area, by competitors or other organizations provides context around what is in used in practice by others and improves understanding around the desired output.
3. Engage internal stakeholders in the process of KPI selection through interactive workshops. KPI selection is not a desk exercise. It is an opportunity to communicate and learn, hence an open discussion in a workshop format is a better approach for enabling not only KPI selection, but also understanding and ownership.
4. Calibrate KPI selection around business objectives and value drivers. KPIs are not used in isolation. They are just one component of the value creation chain and of the performance management system. A simple way to position them is al links between business objectives and related organizational initiatives.
5. Select KPIs based on the realities of organizational activity and environment. Each organization is different, operating in different environments, with different guiding principles. Hence the KPIs used need to reflect the specifics of each organization first and industry/functional area characteristics second.
6. Maintain a centralized catalogue of KPIs for the entire organization. Structuring KPI documentation in a central repository facilitates their understanding and usage in a similar way across the organization, growing the know-how and facilitating KPI selection and usage on an ongoing basis.
7. Understand the difference between input, process, output and outcome KPIs. This value creation sequence is essential in facilitating the understanding of KPIs in the context of the value added by the process/activity they are related to. It is an essential mapping technique that facilitates KPI selection.
8. Don’t hesitate in changing KPIs in scorecards and dashboards. KPIs should reflect activity and activity should adapt to a changing environment. The use of KPIs should be fluid and flexible, reflecting the change in business priorities as a result of the change in the operating environment.
9. Review KPI relevance regularly. If new KPIs are required, they can be established at any time. An essential aspect of double loop learning. Using KPIs is not only about achieving set targets and objectives, but also about ensuring the objectives and targets were the right ones to be set in the first place and the KPIs used to track their achievement were the appropriate ones.
10. KPI selection and target setting should be done in accordance with organizational maturity and direction. There is no one size fits all approach when it comes to using KPIs. As strategies vary from one organization to another, the use of KPIs also varies.
11. Project milestones are not KPIs. Understanding the difference between what is and what is not a KPI is a prerequisite of successful KPI selection.
12. Targets are not KPIs. Understanding the anatomy of a KPI is essential in KPI selection and usage.
13. Some things are not worth measuring. For example measuring love might not be such a good idea. Not everything that can be measured should be measured with KPIs.
14. Some things are too difficult to measure. For example cuteness. The “measuring everything that moves’ mentality should be avoided.
15. Eliminate or replace inactive KPIs with simpler, yet measurable ones. Using some KPIs may have seemed a good idea at the time of their selection, however if measuring them proves to be too costly or time consuming, they should be replaced. An active KPI is better than an inactive KPI.

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

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

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

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

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

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

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

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

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

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

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

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

The 2010 IUCN Red List of Threatened Species estimates that:

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

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

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

Source: UNEP Year Book, 2010

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

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

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

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

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

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

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

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

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

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

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

The end of June marks in Australia the end of the financial year, a time to evaluate the past 12 months and reconfirm the plans for the next 12 months. In terms of growth, smartKPIs.com figures speak for themselves:

• 6500 KPI examples documented;
• 1034 KPIs in Practice reports analyzed and cataloged;
• 410 Blog posts written;
• 40 Example of organizational objectives listed;
• 36 iKPI profiles developed;
• 21 Performance Panorama interviews published.

Enabling these results are thousands of hours our research team spent on researching and analysing tens of thousands of performance management resources. The insights gained as part of this work were captured in a series of premium products launched over the last few months:

• smartKPIs Premium, containing 1500 KPI examples documented in over 30 fields;
• The Top KPIs of 2010 series of research reports, with 17 launched so far outlining over 400 KPI examples, proved to be the most popular with members of the smartKPIs.com community in 2010;
• smartKPIs.com pre-populated templates, containing 24 products supporting the deployment of KPIs in organizations through scorecards, dashboard and entire performance management systems.

Over the year, members of the smartKPIs.com team travelled for research, conferences or workshop facilitation in Australia, England, Lebanon, Malaysia, Qatar, Romania, Scotland, UAE and Vietnam, reconfirming the commitment to learn from practice, integrate academic rigour/insights and deliver practical solutions.

Attending and presenting at conferences was an excellent opportunity to test new ideas and keep up to date with developments in both performance management academic research and the use of performance management systems in practice. The tens of workshops delivered in multicultural environments, enabled the team to transfer knowledge and learn at the same time about the challenges organizations are faced with in the area of performance management.

In terms of plans for the next 12 months, they are summarised by three words: quality, integration and learning. Continue to learn and facilitate learning in the area of performance management, develop quality content and design solutions for easy integration in organizations. For members of the smartKPIs.com community, this will translate in more free content as well as affordable tools, training and advice to support their performance management efforts and much more.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

Working with Key Performance Indicators (KPIs) requires selecting a group of relevant KPIs first. There are many options for this: start with a blank page, review other sources, or get someone else (such as a consultant) to do this for you among others.

Some of the general rules to follow on embarking on such a journey are:

1. Do your research. Selecting KPIs is a learning experience, a journey in itself. There are many insights to gain by taking it step by step instead of just getting to the destination. Research is an important component of this journey.

2. Acknowledge the uniqueness of your environmental settings. While some KPIs are widely used across organisations (i.e. % Satisfied customers, $ Sales revenue and % Profit rate), others are unique to each organisations as they reflect their strategy and specific conditions of operating. Each organisation should select the KPIs based on their relevance and not on their popularity.

3. Clarify what you want to achieve. If you want to improve things and learn from KPIs, you should not avoid selecting challenging KPIs, difficult to measure or difficult to improve. The easy choice is selecting KPIs that make you look good. While this may serve some purpose on the short term, on the medium to long term it will impact the relevance and credibility of KPIs in the organisation.

Having these general rules in mind, the question is: “Where do we do our research to inform the KPI selection process?”. The main sources of information can be grouped in three categories:

Primary Sources

• Front-line employees input – they are at the core of the value generation chain and know what matters for operational success.
• Input from managers – due to their perspective across the value generation process, role in shaping strategy and their relationship with various stakeholders.
• Board input – in many instances they mandate the use of specific KPIs and their selection in strategic / operational is non-negotiable.
• Input from suppliers – their insight in the supply chain is valuable as they can bring an external perspective to what needs to be measured and improved
• Customer input – their opinion matters.

Secondary sources

• Strategic development plan (3-5 years)
• Annual business/strategic plan
• Annual reports
• Internal operational reports
• Competitor review reports

External sources

• Printed catalogues (books such as: Performance Prism)
• Online catalogue (www.smartKPIs.com)
• Annual reports of other organisations (a good repository is KPIs in Practice)
• Expert advice (recommended lists such as the one in Performance Architect Update 35)
• Questions in discussion forums (such as LinkedIn or Answers)

Individually or in combined, these sources can generate a list of prospective candidates for KPI selection, anchored to organisational objectives. Ultimately the decision on which KPIs will be used should be based on discussions within the organisation to determine the most relevant ones. Consultants can be useful in this process as facilitators, but not necessarily as “fountains of truth”. Their role should be more as guides on this journey, providing tools, information and advice, but not developing the final list of selected KPIs in an ivory tower. Enjoy the journey!

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan
Performance Architect,
www.smartKPIs.com

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

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

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):

• Aug 16, 2010: Canon products selected for prestigious EISA awards in Europe
• Aug 13, 2010: Canon Aids Rain-Disaster Relief Efforts in China
• Aug 6, 2010: Canon Aids Flooding Relief Efforts in Pakistan

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

• Aug 16, 2010: HP Awarded $200 Million Contract to Maintain Medicare Part B Claims Processing System
• Aug 12, 2010: HP Achieves Recognition for Excellence in Tech Support and Services for Third Consecutive Year
• Aug 6, 2010: HP CEO Mark Hurd Resigns; CFO Cathie Lesjak Appointed Interim CEO; HP Announces Preliminary Results and Raises Full-year Outlook
• Aug 3, 2010: HP Identified as Leader in Leading Analyst Firm’s Magic Quadrant Report for MFPs and Printers
• Aug 2, 2010: HP Announces Settlement with U.S. Department of Justice
• Aug 2, 2010: HP Helps Armed Forces Communications and Electronics Association Improve Operational Efficiency, Reduce Carbon Footprint

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

• August 16, 2010: Canon products selected for prestigious EISA awards in Europe
• August 13, 2010: Canon Aids Rain-Disaster Relief Efforts in China
• August 6, 2010: Canon Aids Flooding Relief Efforts in Pakistan

All part of a forward looking corporate philosophy:

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

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com

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

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

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.

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:

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.

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

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

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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.

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