Strategic Performance Management: Phil's Blog

Performance management challenges 2: Driving performance

Phil Jones — Thu, 19 Apr 2012 12:14:36 +0000

Challenge 2: Driving performance – KPI and driver models

Having got control of their organisations, (Challenge 1), executives then want to drive change and improvement. So, a popular second stage is to attempt to focus effort and create change using a combination of KPIs and Performance Driver Models.

Performance Driver Models are used to analyse financial or customer (beneficiary) behaviour, looking for drivers in the organisation that will improve them. Ideally, improving these divers will lead to improvement in outcomes. However, the focus is still more on measures and activity, rather than objectives and behaviours as in the more systematic Balanced Scorecard approach.

The intention of “Key Performance Indicators” is to focus the organisation on improving the performance of that single key measure. They are often chosen from performance driver models. Examples of these from the commercial world include airlines focusing on “flights leaving and arriving on time”, or hotels using “room occupancy”. A charity might look at “Donor legacies”, “Lives touched” or “Administration expenses”. This focus is intended to drive change and improvement that ultimately ripples through to the customers and finances.

This “second generation management thinking” often leads to second generation operational balanced scorecard applications that report both performance and the exceptions that need to be managed. This thinking focuses attention and usually adds some value, producing some operational improvements. However, the focus is still fundamentally operational and measure focused. The tool is a blunt instrument of change and its impact is often limited. Smarter executives realise these limitations and soon want something more strategic and effective at bringing about change. They quickly realise that to achieve this they have to step beyond these simpler approaches.

They have to step up to the strategic management system and fourth generation balanced scorecard approach.

Balanced Scorecards in Charities, NFP and Social Enterprise – Three mistakes to avoid.

Phil Jones — Thu, 19 Apr 2012 10:48:43 +0000

Mistaken approaches to Balanced Scorecard Perspectives for NfP organisations

To really create change and implement strategy in a charity, you need more than a simplistic scorecards. You have to be thinking modern Balaced Scorecard approach: One that systematically supports strategy and change. One impediment to their successful application is a failure to understand the operating (or business) model and convert apply that in the strategy map for the organisation. Get this wrong and all the other techniques that support strategy change and performance improvement, fall apart.

Over the years we have seen many suggested variations of the perspectives of the balanced scorecard. Only one works, but we will come to that later. Lets look at some of the most common solutions and mistakes:

A) Ignoring the cause and effect relationship across perspectives

A very common and simple approach is to ignore the relationship between perspectives and simply treat the balanced approach as a measure classification exercise. They take the approach that “If we create balance amongst our measures that would be better”.

However all this does is to create collections of measures in perspectives. When this gets excessive you end up with the measure mania and tyranny of targets that you want to avoid. Don’t even bother going down this route unless you are simply trying to get a grip on what is happening. If that is the case recognise that you’ll need to progress to a higher level very soon and measure mania will hinder this progress.

B) Adding extra perspectives

Another common mistake is to argue that the four perspectives need expanding and add further perspectives to accommodate aspects of the organisation. We have seen all sorts of variations for this. This fails for two reasons. They have again ignored and destroyed the cause and effect relationship that drives change and performance. They often mix up themes of the charity’s strategy with the balanced scorecard’s perspectives. So they might add a ‘perspective’ called “Fund raising”

This approach fails to realise that the charity’s strategic theme will cross all the balanced scorecard’s perspectives. For instance, for the theme “Fund raising” the income (financial outcomes in the financial perspective) come from satisfying Donor’s needs (captured in the customer perspective) so they give money. These donor’s needs are satisfied by the activities and actions of the charity (Objectives in the process perspective) which are underpinned by its capability to influence donors (Learning & growth perspective).

C) Rearranging the perspectives

Once it is realised that the cause and effect relationship is important, but that charities and nor-for profit organisations do not take money from their customers (even though they often do) some practitioners suggest they re-arrange the perspectives of the model.

One popular variation is where the financial perspective is placed below the customer one. This is, of course, a nonsense because this model suggests that the purpose of the charity is to create funds to give away directly to beneficiaries. This is very rarely the case.

Another solution is to move the financial perspective below the learning and growth perspective. This argues that funding is important and therefore underpins the charity’s activities.

Again this model fails. Funding is important, but the charity has to undertake activities to generate funds from donors and has to manage its costs. Both of these are outcomes of the charity’s activities. (In many ways this is identical to commercial organisations, except that funds that are generated are used for the good of a community or beneficiaries, rather than distributed to shareholders). Anyhow, the funding of an organisation is covered by other mechanisms within the overall Balanced Scorecard approach. This is described in detail in Jones 2011 (pg …)

So what is the solution, Phil?

The solution is to ensure you capture the operating model of the charity or Nor for profit organisation in the perspectives of the strategy map. What you need is to be clear where the organisation gets funding, how it controls if expenditure (the consequence of its activities, the needs of its beneficiaries, and the regulatory demands.

Well we call this the “four ball juggle”. Simply because charities and NFP have to satisfy these four demands at the same time. Now the trick is to model this in the top half of your strategy map. When you understand this you can then look at the actual strategies that are being applied to keep each of these balls in the air and capture those on the strategy map. This is precisely the approach we took with, for example, the Diana, Princess of Wales Memorial Fund. There was a moment of realisation in the room when the model clicked with how they were thinking. They realised that each of their very diverse initiatives, all fitted the same model they were using – they were simply at different stages of maturity.

With Dimensions, a £100m organisation, that looks after people with Learning Disabilities, their strategy map structure was so logical and helpful that they were being stolen from our desks, initiatives started up beyond the four pilot regions and spontaneous balanced scorecards started breaking out.

If you look at your balanced scorecard and you cannot see your business or operating model, and your strategy, then you should start worrying. because if you can’t how could your staff and there emerges the danger that the balanced scorecard is sending the charity off in the wrong direction.

Now the lower half of your strategy map is simple. It is the same as any commercial organisation. No need to pretend to place funding underneath (there are simple mechanisms in the approach that handle sources and application of funds). We do recommend including a values perspective as per our fourth generation balanced scorecard approach.

Want to know more?

If you want to find out more there are several charity and not for profit case studies on our site. We are also happy to explore with charities where they want to bring about organisational and performance changes, so simply pick up the phone.

Phil

Using basic balanced scorecards to get control of an organisation.

Phil Jones — Tue, 10 Apr 2012 12:31:43 +0000

Challenge 1: Getting control – operational Scorecards

Many Executives start in a search for control and the basic discipline of management reporting. What we call, “Getting a grip on the organisation”. The approach they use is often to collect a wider view of measures across the organisation, reported in a way that provides greater visibility of what is happening. They introduce these as relatively simple balanced scorecards. We call this “the first generation problem”.

These ‘operational scorecards’, as Balanced Scorecard co-author, Prof. Robert Kaplan calls them, focus on collecting measures in a variety of perspectives and reporting these to management. This improves the range of information available, increases control and often satisfies some basic governance needs. However, they rarely drive performance, strategy or change. Over used, they can lead to an excessive focus on measures and targets and can even cause dysfunctional behaviour.

This sort of scorecard, (Balanced scorecard is too grand a word) is useful and a necessary step in governance and control. However, most organisations find them far from sufficient to manage their organisation, well. They look for something more.

For that have a look at our papers on 4th Generation Balanced Scorecards.

Aligning projects and programmes with a cascade of strategy maps in a strategic balanced scorecard

Phil Jones — Mon, 09 Apr 2012 12:53:08 +0000

A linkedin question recently was about the integration of the Balanced scorecard framework and the Project hierarchy.

The questioner desctibed their situation like this:

“We have a top level strategy map for company-wide usually contains 15-25 main strategic objectives (for example: Regional sales growth). We are able to cascade each main strategic objective into functional or process level strategies in a hierarchy structure (for example Region A sales growth, Region B sales growth, …). This may continues to lower levels.

Based on the PMBOK standard, we have a hierarchy structure for projects: Portfolio, Program, and Project. Each Portfolio includes a number of Projects or Programs, and each Program may contain different projects. Each project also includes different activities/tasks.

A BSC covers valuable information regarding main strategic objectives and main projects (initiatives). Bearing this in mind, how we can relate Strategy hierarchy with Project hierarchy in order to align each staff to strategic objectives, or involve in strategic jobs (here Portfolio, Program, and Project). “

Answer

This is a common problem, one we have seen frequently, and is easily sorted. Don’t try to make an explicit link between the project hierarchy and the cascade of balanced scorecard strategy maps. There may be one, but not as clear as you think.

Lets start at the beginning.

a) remember that the projects are mechanisms of change that are designs to improve the performance of the objectives (in the process & learning & growth perspectives) of the balanced scorecard and the strategy maps.

b) Collect your portfolio of projects. Then apply the basic test against the objectives.

- is this project necessary to achieve this objective?
- Is this project (or set of projects) sufficient to deliver this objective?
- Are the set of projects justified (economically)?
- Can they be delivered? Are there sufficient resources?

There is an example of this on my website. Look in the case studies under both the manufacturing video and the retailer. The retailer example is explicitly about project alignment. The manufacturing case study also includes references to teh projects that support the strategy and change. http://www.excitant.co.uk/casestudies/case_studies_access.htm

c) You will see now that the “Granularity” of a project is no longer whether it is a portfolio, programme, project, but whether the scope of a project is sufficient to alter the performance and achieve an objective.

d) What you might have at level 3 of the cascade is a set of projects (or part projects) that all support a set of objectives. As you move up strategy map cascade you might find that these form a natural group of projects and could start to collect them together to be managed as a programme under a single responsible owner.

D) It all comes down to natural groupings.

You can read a detailed explanation of how this works in my book, Strategy mapping for learning organisations, chapters 17 and 18. (Chapter 17 is about project alignment and chapter 18 is about the cost implications of projects, operational budgets and revenues.)

http://www.excitant.co.uk/product/strategy_mapping_book.html

The trick is to ensure that how you have divided up your programmes is consistent with the strategic cascade, themes and ownership of your strategy map. Just don’t make the tail wag the dog.

I hope this helps.

Does the Balanced Scorecard need to consider financial capital in the Learning & Growth perspective?

Phil Jones — Thu, 05 Apr 2012 08:15:22 +0000

The question

A recent question on a Linkedin forum was, “Does the BSC need to explicitly consider the financial capital in learning and growth perspective? ” The questioner followed up with “Commercial organizations need funds such as equity and debt on an ongoing basis for continued operations and growth. But the learning and growth perspective of BSC does not consider financial capital as another driver for growth along with human, information and organization capital”

So what was my reply?

The question was quite explicit and clear: “Should the balanced scorecard consider financial capital in the learning and growth perspective?”

Let me answer from my experience in four parts:

a) You are quite right to question whether an organisation’s capacity and capability to deliver its strategy is constrained by its access to capital. If it is, and if that involves not simply projects of funding, but improving its ability to access capital, then you might consider such an objectives in the corporate level strategy map.

b) However your question is more generic. Should “THE Balanced scorecard” include access to capital. NO. There is no such thing as “The balanced scorecard, only a framework in which clients put answers to questions about their objectives and their strategy. The objectives on any strategy map (and therefore the scorecard) are derived from questions about the organisation’s strategy, not a predetermined set of objectives. So it may be appropriate to ask about funding issues, but it should not be in every scorecard. I am sure you appreciate that.

c) There is a separate question for the “Customer” perspective about the expectations of shareholders and investors which will/could influence the price of capital and therefore necessitates some objectives in the process and learning and growth perspectives to do with how shareholders and investors, regulators and the markets are perceived. In my experience this is far more common. How do we influence our cost of capital, rather than how do we access it. However I have done work with companies on an acquisition trail and with high growth (eg 40% pa pa for 5 years) and for them managing cash and capital were both important. In both cases they were internally funded.

d) Who would have such an objective? In my experience of over 50 engagements I have come across this as a “Strategic issue” only a handful of times. Obviously many organisations need capital, but it is not always an issue as most have ready access or don’t need extra funding. Normally I find that it cascades into the strategy map for the Finance team “Financial strategy map” where more explicit objectives about investor relations, accessing capital etc are detailed.

Phil

We manage by absorbing friction – and building up heat!

Phil Jones — Thu, 22 Mar 2012 09:47:13 +0000

When I did my book launch at the Ritz this week, (Come on allow me to bask in glory for a while) . When I spoke I suggested that the way we manage is designed to absorb friction. Let me explain.

The challenge of converting strategy into performance is neatly summed up by one of my favourite writers on Strategy, Henry Mintzberg… He says…

“Strategy formulation is the interplay between a dynamic environment and a bureaucratic organisation – with leadership mitigating between the two.”

Three touching circles

For me this helps us to think of three interacting circles….

On the left – The complex, uncertain, changing environment

economic change – credit crisis
Structural changes in our industries,
The emergence of China: either as the sleeping giant awakening or the masters of the long play?
Legislation & government policy making
Changing competition and new technologies

Think of this left hand circle/wheel spinning, wobbling, changing direction….

On the right – the processes and stability in our organisations

In our organisations we like stability: policies, practices, procedures, processes,
We are most efficient and effective when our business processes are stable, people come into work knowing what they are doing today and our customers get a predictable, regular service.
This is where our people operate, protected from the external environment.

Think of this right hand circle as a stable stationary circle

Between these we have a third wheel friction where heat builds up – sparks start to fly off. trying to be turned by one wheel and held stationary by the other.

This middle one, Mintzberg’s answer to the friction between them, as strategy moved from the outside inwards, is leadership. Leaders create the environment for strategy and change to occur

I believe this friction is also absorbed by how we manage….. and what we believe about how we manage.

Management processes absorb that friction which builds up heat

Our solution has been to create management practices and management processes that absorb that change, friction and heat, by being relatively static themselves. Using top down, one off strategy. Isolating the organisation from change. In effect alllowing pressure to build up on the outside that gets released every so often as the management practices allow the changing environment to filter through.

We do this in part by having annual management processes (ie lets check the outside world every so often, decide what to do, and ignore what is happening in the outside world for a while)

We tend to have annual strategy followed by implementation over a year
We tend to set budgets and targets over a year…
Our performance management of individuals over a year

And we see the problems this causes: our management processes performance plans become out-dated, budgets no longer relevant, targets off target. In fact we spend time managing this buffer which costs is money.

We also see it in sudden changes to the organisation. As a change is passed through the stationery wheel suddenly has to accelerate and then stop again to catch up with the external world and yet regain some stability and consistency.

We feel it in a build up of heat between the organisation and the environment. Change putting pressure on the organisation to perform and adapt.

Our management processes need to adapt

But how can we adapt if our management processes fail to adapt? We need management processes that do not absorb this friction, but release it slowly.

But we need…

More sensitive, adaptable, more responsive (Perhaps even simpler) ways of managing, that help us keep business strategy delivering operational performance.
The answer is yes – we are seeing this in the recognition that strategy is an emergent process, and the introduction of continuous forecasting and rolling budgets.

This for me is the route C21-10 management is taking. Adopting new ways of thinking as managers. Management processes and practices, such as fourth generation balanced scorecards that allow organisations to be more adaptable, flexible and rotate to some degree, releasing the friction that builds up and allowing organisations to become more adaptable and responsive.

Managing organisations in the same ways birds manage to fly together

Phil Jones — Thu, 15 Mar 2012 12:25:34 +0000

Treat this as an off the wall, whimsical post – with a serious intent….

One thing that we all see far too much of – Management.

One problem with many organisations is that we spend too much time managing, we create too many rules and practices and processes for management, in fact we create entire departments (HR, finance, training) to support managers.

All these people cost money.

All that time costs money.

However, we work within it, use it, accepts its rules.

But what if things were simpler?

In whimsical moments, I look at flocks of birds.

These are complex social groups (Just lime companies and organisations) completing a task (Just like people in organisations) - flying safely from one food source to another, from one continent to another (just like most organisations).

To look at the beauty and complexity of what is happening you would think it was complex to describe. But here is the rub. It is not.

There are only three basic rules that govern how a flock of birds work and fly together:

Separation – avoid crowding neighbors (short range repulsion)
Alignment – steer towards average heading of neighbours (local alignment)
Cohesion – steer towards average position of neighbours (long range attraction)

Now that is probably a surprise. With these three simple rules, the flock moves in an extremely realistic way, creating complex motion and interaction that would be extremely hard to create otherwise.

In more whimsical moment I wonder if this would map across to an organisation. Look again at those rules… and interpret them for business and organisations…

Separation – avoid doing someone else’s job (short range repulsion)
Alignment – make sure you are heading in the average direction as others (local alignment)
Cohesion – steer in the general direction that everyone else is heading… (long range attraction)

What if we found the few rules that dramatically simplified how we manage?

Leading and lagging indicators – making sense of them

Phil Jones — Sun, 26 Feb 2012 11:53:58 +0000

I see many conversations about leading indicators and so many people getting confused or having arguments about whether an indicator is leading or lagging. This article provides a simple way of breaking through this problem.

The whole debate about whether an indicator is leading or lagging is one of perspective. Not (simply) perspective in the balanced scorecard /strategy map sense, but in the sense of who is looking at it. You have to ask “For whom?” or “From whose perspective?” otherwise the conversation is meaningless.

For instance, sales created (signed contracts) is a lag indicator for the sales team who might treat the number of leads, client visits and proposals as leading indicators.

Signed contracts for sales is a lead indicator for finance as no money has come in yet. The revenue has not being realised.

So what is a leading indicator for some one part of the organisation can be a lag for another. And vice versa.

I take the view that you create a balanced scorecard and strategy map, not for an organisation, but for a management team, and a set of strategy maps and scorecards for an organisation. Again this makes things clearer, as leading indicators lower down the organisation can be precursors to impact further up the organisation. What matters is from that management team’s perspective.

For instance completion of a IT project, say, is a lag indicator of success for the project team and a lead indicator of success for those responsible for realising the benefits.

Finally, of course, there is the relationship across the business model represented by the perspectives of the strategy map/scorecard cause and effect model: if I improve our capability or culture, it will improve our processes so our customers will be happier and give us more money.

So it is all a matter of perspective and any discussion of lead or lag has to take this into account. Most of the problem in these discussions is that, by default, a poorly defined “corporate” view is being taken. But which one, the Sales Director, the Finance Director, the accruals, the year end accounts, or the shareholders?

So, in answer to the question , “What leading indicator should I use?” the answer is simple. It depends who “I” is. It also depends what you are trying to achieve.

If you want to unlock your performance (and get a grip on whether you are making progress), then give us a call.

Should you copy strategy? Or must strategy be different?

Phil Jones — Fri, 10 Feb 2012 11:13:56 +0000

I frequently see postings and hear statements where people suggest that strategy is about being different. Startegy is about differentiation.

Saying strategy needs to be different is a myth. It is only a competitive strategy in a market to create distinct profits that requires difference. Actually strategy can be the same and can be copied – it is how you copy and when that is important.

Here are some examples where copying a strategy is both sensible and effective.

eg 1For instance, of the 180 public sector local authorities in the UK that do not compete. If 100 adopted many of the strategies of the 30 most successful there would be more successful local authorities.

eg 2 You could have several businesses in the same industry, adopting the same strategy in different markets. Or in parts of teh same market.

eg 3. If you want to also be as successful as the best salesman in your organisation, adopt the strategies he/she is using. You actually want to copy strategy.

Choosing a follower strategy, and adopting the same strategy as they do, is still a strategy. It is just that it might not lead to as successful results as the first mover. However, second movers can adopt the same strategy and be successful in the longer term if they have other advantages.

Here are two more examples where copying a strategy is fine:

eg 4: The strategy can be copied, but executed far better. It is as much about execution.

eg 5: The strategy can be copied and have far more resources behind it, so it is more successful.

As long as it is a clear problem backed up with thorough diagnosis, consistent choices of strategies and coherent action, then you can copy – but only if you have thought through how it will work, for you.

The big message from me is this:

If you want to copy a strategy, Copy how they think, not necessarily what they do. How they think is where strategy really resides.

What next?

We run a number of strategic thinking courses to help clients and individuals develop their strategic thinking ability. To find out how to think more strategically contact us.

What is the difference between strategy and planning?

Phil Jones — Sat, 04 Feb 2012 10:31:20 +0000

I get this question a lot. It is not that people don’t understand planning, but there is oten an unclear line in their minds between where strategy stops and planning starts. I have met senior people in “Strategic planning” roles who describe their job title as an oxymoron. A contradiction in its own sentence.

When I train people in strategy thinking I provide a clear distinction between strategy and planning. It is straightforward really (but frequently over complicated).

Strategy is about understanding your environment and making choices about what you will do. Planning is about making choices about how to use the resources you have and the actions you will take to achieve the choices made in your strategy.

Put very simply, imagine a box on the floor that represents your organisation: Strategy is choosing where to put the box, its size and even whether it is a box. Planning is working inside the box, deciding what to do about the choices that were made. Of course you still need action: executing those choices.

If you want to learn more I have some recommended reading: Have a read of “Strategy Safari” by Henry Mintzberg or “Good strategy – Bad strategy” by Richard Rumelt. Both are must read books on strategy and the whole breadth from strategy, through planning to action. Mintzberg’s “The rise and fall of strategic planning” is an important book on this topic. Sun Tzu’s “The art of war” is insightful, though somewhat confrontational in the choices of strategy and also can be a little obscure depending on the quality of the translation.

Alternatively, if you want to cut through all this material quickly and effectively, we do provide strategic thinking training and strategic thinking workshops. I have helped organisations as diverse as Oil & Gas and Charities, Central Government Departments and dot.com start-ups. So, if you are serious about being strategic, (as well as planning and acting strategically) give me a call. My contact details are on the page.