Strategic Performance Management

Our target is to kill two people

Phil Jones — Thu, 12 Aug 2010 10:33:01 +0000

What could possibly make an organisation have a target that involved two people being killed. The Audit commission (RIP) is the answer.

I am developing a balanced scorecard with a Fire and Rescue Service and, obviously, they want NO deaths of injuries from fires. The typical number of deaths in their region is two or three a year. However, if they put a target of no deaths and, through no fault of theirs, some one dies, they the Audit Commission will say that they have missed their target!

However if they put two deaths, they have the ridiculous situation of having a TARGET of two deaths. Now, call me silly but the word target suggests that it is something you want to hit. Clearly you do not want to hit this target. So what do you do?

Well the answer lies partly in using a richer language. Two deaths is not a target, it is an “expectation”. It is the likely outcome, though undesirable that is. No deaths is the “aspiration”. It is what they are aiming at. The “target” is zero deaths.

The other part is in the interpretation of the target and the consequence of hitting or missing it. It is clear that no deaths is the target, but that the expectation is that, despite all their efforts, there might be some deaths due to fires. Two would not be an exception. Five would be. Ten would certainly be a problem.

The discussion about the “target” needs to be informed by the reasonable expectation of performance and recognising that, sometimes, it is outside the fire service’s control despite what they may do and all their valient attempts.

So use richer language when describing targets on balanced scorecards:

Targets
Aspirations
Expectations

Also be very clear what interpretation is put on achieving these aspirations, targets and expectations.

Phil

Do not rename the learning and growth perspective on a balanced scorecard

Phil Jones — Mon, 02 Aug 2010 08:55:41 +0000

So often I come across “balanced scorecards” that have re-named the learning and growth perspective as “people” or “employees”. They think it is more representative. However the original name was given for a reason. There are three good reasons for keeping the name “Learning and growth”.

First, names such as “employees” or “people” or “culture” are fundamentally static. They suggest that the purpose of the perspective is to measure employees and people and culture. Whilst this is useful it is about today, not the future. The name, “learning and growth” was deliberately chosen and designed to suggest movement. What do we have to learn? What do we need to grow? It is about change, rather than being static. Many organisations rename the learning and growth perspective “employees” and then place lot of static information and annual measures about their staff in the perspective. They are not thinking of the strategy and the change. They are providing a grip on where the organisation is now. In effect they are operating in either the compliance or operational perspectives. They are not asking, what needs to change, be learnt anew or grown as a capability, to deliver the strategy for the future. They are merely getting a grip on today. Useful, but not strategy and change

Secondly, changing the name not only destroys the dynamic nature of the perspective, it changes its scope. If the name is changed from learning and growth to “People or employees”, what role is there for technology, data, or physical capability? What about behaviours? What about skills and knowledge? What potential is there to discuss, learn about and develop alliances, suppliers and partners if only employees are considered? If the perspective is employees, where is the contribution of management? All of these can add to the organisations capability, and help to deliver its strategy. Basing the perspective only on people or employees narrows these aspects. Learning and growth opens up the scope.

Finally, changing the name also changes its relationship to the other perspectives. The name, learning and growth, begs the question,” What do we need to learn and grow?” The title people or employee at best begs the questions what people or employees do we have or need? This leads us down the narrower path of resource allocation and utilisation. This might be useful, but it’s a narrow view of people, which at best become human capital (as a commodity) rather than the place where the organisation’s real knowledge and capability resides. Learning and growth opens up the question to a wider set of answers and puts the emphasis in the organisation’s capability to include technology, intellectual property and culture, rather than jus people.

So, unless you want a static, unrelated perspective full of merely employee or people measures, keep the name as learning and growth. This enables you to ask the right questions that makes your balanced scorecard more dynamic, wider in scope and relate to the higher perspectives.

What is the difference between a dashboard and a scorecard

Phil Jones — Sat, 31 Jul 2010 16:29:58 +0000

As with many words in this area, they are used loosly. It helps if there are distinctions. It helps if you use plain English.

I use “scorecard” when I am looking at a table of figures with results on them. Its a set of scores on a card (hence scorecard).

I use “dashboard” when the presentation is much more graphical and especially when full of dials and sliders. The image of the report is more like the dashboard of a car or aircraft. Personally I am not keen on dashboards as they are often a triumph of presentation over content and information. Also vehicle dashboards tend to display what is happening now or current state, rather than what has been happening (eg how fuel consulption of speed varied). This “instant” view is not that helpful for a business. Unfortunately dashboard gets used a lot for any graphical performance report.

There is a richer report format that includes graphs of performance over time, (Rarely seen on a car dashboard) together with commentary, and actions that are being taken to resolve or address problems. This is much more a “performance report.” It is how good balanced scorecard reports are presented, but is not as simplistic as a simple scorecard.

Phil

Don’t do a balanced scorecard for an organisation

Phil Jones — Wed, 07 Apr 2010 20:50:12 +0000

I sometimes get asked “How do you draw a strategy map on a page for a whole organisation?” The answer is the same as for the question, “How do you limit a balanced scorecard to 24 measures?”

The answer is you don’t. You don’t do it for a whole organisation. You do it for a particular management team and scope of control. You develop a set of strategy maps and balanced scorecards for a whole organisation.

A strategy map draws the strategy as seen from the perspective of a particular management team. If you are dealing with the Chief Executive and the Executive team, they you are doing it for them. If you are dealing with a management team for customer services, or the UK operations, or the IT management team, then it is for them, from their perspective. It describes that team’s perspective: what they have to focus on to create change within their scope of control. The few things they need to pay most attention to, to implement the strategy and to bring about change?

It is the same for the balanced scorecard that sits behind the strategy map. The team’s balanced scorecard should not contain all the measures in an organisation. They should contain the specific ones that the management team need to pay most attention to. Should they want more detail the management team should be able to look at more detailed strategy maps and balanced scorecards for the teams that work beneath them.

Refining and revising measures

Phil Jones — Mon, 05 Apr 2010 08:00:00 +0000

Why do we use objectives before measures? Because it makes it easier to refine and revise measures

In the absence of objectives, people designing performance management systems often compensate for problems with measures by adding more measures in the hope that they are communicating and covering all the aspects. This unfortunately leads to overload, confusion and unnecessary detail. This creates measure mania.

In contrast, objectives set direction: this is what we want to achieve. By defining the objectives and its characteristics first, you have a basis for choosing measures of that objective. You can then ask, “What should we measure for this objective” and then, “What is the best way to measure this?”

This approach makes measure design far easier and more systematic. It means that when looking at the measures of an objective you can always check to see how complete a picture they provide of the objective and its characteristics. We can tell how well they inform progress against the objective. We can tell how well they cover all the characteristics of the objective. We can tell if they are true fair measures of an objective, or a surrogate used to get a feel for the situation in the absence of better information.

A significant benefit of this comes when you find that a measure of the objective is not fit for purpose or not functioning well. When you have an objective, and its characteristics, you have a point of reference against which to choose a better measure. You can eliminate the less effective measures and bring in new ones. It also means that when a new measure is introduced, people can see why the new measure is better than the old one because they have the objective as a point of reference.

Avoiding premature measure design – use objectives first

Phil Jones — Sun, 04 Apr 2010 08:48:00 +0000

Why should a balanced scorecard have objective as well as measures?

Developing objectives before measures prevents premature measure design. This is the tendency for people to leap straight to measures instead of defining more clearly what they want to measure. If you decide how to measure, before you are clear what you want to manage, you will limit your thinking to what you think you can measure. As a result you will end up managing that which you think you can measure, rather that choosing measures for that which you want to manage. The problem is that people limit what they think they can measure to very tangible things (money, activity, outputs, and physical deliverables). These quantifiable measures are useful, but they are also a narrow view of the organisation. This thinking encourages greater numbers of financial and process measures and leads to the imbalance that the balanced scorecard set out to address.

Ultimately you do want to measure progress towards your objective. However, this gets interpreted as all objectives should be measures. Defining the characteristics of an objective clearly and then, separately, deciding which characteristics you wish to measure and how to measure those characteristics allows you to be clear about the difference between the objective and its measurement.

Avoiding dysfunctional behaviours due to measures

Phil Jones — Sun, 04 Apr 2010 08:45:00 +0000

More holistic – less divisive

One of the underlying causes of the dysfunctional behaviour sometimes experienced in performance management is where individual measures and targets look at only specific parts of a problem.As a result are asked to achieve targets that are locally optimal, but dysfunctional in the big picture and wider system.

By their nature measures are analytical: that is they take a part the organisation and take apart the organisation. Measures look at individual aspects (perspectives) of the organisation in the same way that a knife would carve the organisation into pieces. They focus on one aspect or dimension of the organisation or system, for instance money, activity, outputs. In contrast, an objective with well written characteristics is good at defining the whole system, not just part. This “analysis” is useful when you want to understand the parts and the detail. It is less helpful when you want to look at the whole, when you want to look at a more holistic, complete or systemic picture. Attaching targets and incentives to these narrow measures can cause people to try and achieve these narrow measures when in fact they are dealing with only a small part of the system and in effect sub-optimising.

Developing an objective before you start to develop measures means the measures no longer sit in isolation but are part of a whole story. The measures and the description of the objective provide a more complete picture that is less likely to be misinterpreted.

The value of multiple metrics in the Balanced Scorecard

Phil Jones — Fri, 02 Apr 2010 08:56:00 +0000

John Kay the economist posted an article about the value Balanced Scorecard in business.

In life, and business, we should judge ourselves by a balanced scorecard. Among the management fads and fashions of the last twenty years, the balanced score card is one that survives, and deserves to survive. The principle is that the performance of a business is judged, not by any single metric – the bottom line – but by a wide range of indicators related to a company’s distinctive capabilities, the source of its competitive advantage, its relationships with its stakeholders.

Sums it up for me really. I came across this whilst looking for articles on John’s new book, Obliquity, and how important it is to focus on the business rather than just chasing profits and sharejolder value.

He continued (and bear in mind this was 2003 when M&S were going through some problems,

For Marks & Spencer, whose competitive advantage rested on what I have called its architecture – the structure of its relationships with suppliers and employees – and on its brand and reputation, the components of its balanced scorecard would have placed appropriately more emphasis on people, and on the way people outside the company perceived it. We can see how these kinds of assessment could have restrained, perhaps even prevented, the calamities that befell these businesses. They relate the metrics of performance to the competitive strengths of the corporation.

How a well designed balanced scorecard would restrain and perhaps even prevented the calamities that befell this business. In other words, by having a wider focus you end up with a better performance. The single focus and objective can actually be destructive. A broader view, across perspectives, can help an organisation concentrate on its competitive strengths rather than (merely) its financial results.

I was particularly struck by his conclusion 4

We make a mistake when we look for purpose in a business organisation which is distinct from the functions that business organisation discharges. Companies do not exist solely to generate shareholder value, but it cannot be their objective to promote the public good: they have neither legitimacy or competence to pursue that goal. The purpose and function of companies is to produce, in their own distinctive fields of competence, the goods and services we want, as individuals and as a society.

Let me just repeat that last sentance, because it goes to the heart of strategy map design. The purpose and function of companies is to produce, in their distinctive field of competence, the goods and services that we want as individuals and as a society. What are the central competencies that you have to learn and grow and devlop as an organistion, to deliver the your goods and services for the good of the individuals you serve in our society?

That is teh learning and growth question, and one of strategy positioning that must be reflected in your strategy map

You can read John Kay’s full article which is from a lecture to the Department of trade and industry in 2003.

Obliquity: Why customers & competencies are most important on balanced scorecards

Phil Jones — Fri, 02 Apr 2010 08:40:00 +0000

Reading reviews of John Kay’s latest book Obliquity, they bring out how the theme of the book is that route to success is often through the search for something else: Taking the oblique route. It is a paradox, he says, that to achieve objectives you are better not have to focus on something completely different. Is the objective of profit maximisation the best way to maximise profits? Is a focus on wealth the best way to create wealth?

The basic tenet of Obliquity is that the direct approach is not always the best way. Attempting to maximise shareholder value can be the best way to destroy it. The best way to create value is to concetrate on creating a great business and serving customers.

I have had this conversation with clients about the structure of the balanced scorecard’s perspectives. “Doesn’t having the financial perspective at the top, mean that we are focusing on money? Perhaps profits or shareholder value” “Isn’t it flawed”, they argue “to have money at the top when the key thing we need to concetrate on is customers…if we do that well our financials will look after themselves.”

And I say, “You are right”. Just because money is at the top, does not mean that that is your major objective. Its simple, lets just make the customer perspective larger and more proominent and focus people’s attention on it. Then, satisfying our customers will ensure that we get the financial outcomes that we are also looking for. For the financial aoutcomes are the consequence or serving your customers. Do that well and the money will come.

So do not worry that the financial perspective is at the top of the balanced scoreacrd and startegy map. Of course you have to keep an eye on the money, but it is getting close to your customers that matters and that is the perspective you should focus on.

You can read more about John’s book and decision making here

Phil Jones

Strategy in uncertainty: what tools are useful?

Phil Jones — Sat, 30 Jan 2010 10:16:00 +0000

At an Institute of Director’s economic briefing in November, the Chief Economist of the IOD said that we are still facing uncertainty, its just that the uncertainties are changing. I think the uncertainty continues to change, especially with impending elections and economic fog. Therefore I find two tools most useful in this time of uncertainty (and changing uncertainty):

1) Value chain analysis (cf Michael Porter) to understand the landscape around the organisation. Once I understand the landscape, then the strategy (in its various forms should make sense – or at least you can see better the implications of the strategies). (To use a metaphor, it addresses the question – where on our map has this hurricane blown us?)

2) A simple question and listening to the response. The question is, “What uncertainties are your customers facing?”. (Again to use your metaphor, It addresses the question – how big is this hurricane, where is affected, where is a safe port and are we near some rocks?”)

The reason for this is that if you understand what is making people uncertain, then you have a chance of working out when those uncertainties will change and disappear (or soing something about them yourself). That means you can monitor the changing environment and its implications for the landscape and therefore make sensible strategic decisions. (You will know when the hurricane changes direction)

I have been doing talks and presentations on this subject (Managing Strategy in uncertain times) to various clients and groups – it seems to make sense to them, goes down well, and give them practical tools to address the (changing) uncertainties they face.

I call this approach “intelligence led strategic questioning” – you might call it “Talking to your customers about what worries them and matters to them”.

Phil
Managing strategy in uncertain times