Of course this necessity of peering into the future in order to craft a proactive response applies to virtually any organization, in any discipline. One unique application of this facet of measurement is the prevention of gang violence in Los Angeles. With gang-related homicides numbering in the hundreds, it’s vital that police officers be equipped with the very best information in order to prevent future attacks on a population that is almost exclusively young and extremely vulnerable.

An anthropologist at the University of California Los Angeles (UCLA) is using a novel measurement approach to combat the problem. His name is P. Jeffrey Brantingham and his method is something called the Lotka-Volterra equations. Back in the 1920s Lotka, an American statistician, and Volterra, an Italian mathematician discovered that similar-sized rival groups of a species will claim territories whose boundaries form a perpendicular line halfway between each group’s home base. Brantingham and his team at UCLA took the equations and, using police data on the location of thirteen approximately equal sized gangs in East Los Angeles, mapped their ‘anchor points’ or home base. With the anchor established, they were able to draw corresponding boundaries for each gang’s territory and predict where violent clashes were most likely to take place. According to their model 58.8% of violence would occur less than a fifth of a mile from the border, 87.5% within two-fifths of a mile, and 99.8% within a full mile. Their predictions turned out to be remarkably accurate. Of the actual 563 gang-related incidents over a three-year period, 58.2% were within a fifth of a mile, 83.1% within two-fifths, and 97.7% within a mile.

The breakthrough in this approach is the accuracy with which the researchers can determine a gang border. Police have sketched gang maps for years, but are bound by the conventions of a standard map. That is, they typically draw borders along streets, rivers, etc. The UCLA team’s measurements allow police to pinpoint specific hotspots, and therefore allocate resources with far greater efficiency and effectiveness.

This story should serve as a reminder to us that no problem is immune to the powerful impact of performance measurement and management. Right now there are undoubtedly perplexing issues facing you that may seem to defy measurement, but if you scratch below the surface, look to history as a guide, and apply some creativity to the situation you will find a measurement that yields astounding insights.

Sources:
Joseph Stromberg, “Mapping Turf Wars,” Smithsonian, April 2013, page 24.

In my young days I worked for a big fortune 250 company. As the financial controller working in the shared services department, I had an experience which, I will never forget. All the managers (40 in total) were gathered for an extended management meeting and as a young controller I watched the Vice President speak to the managers.

He started his speech with good words. As we were in the corporate shared service center of a company of 20000 employees we were often regarded as “cost center” and “overhead”. We were not a part of the core business. But that day the Vice President “raised us up” and gave us value and new energy.

He started by saying “you are the oil in the machinery” and “without your services our company could never operate”. “You are valuable and the work you do is very valuable for the company”.

Then he started telling some challenging things to us like the overall cost in the company was too high, and that this was discussed in the last management meeting with the CEO and all the VP’s. The Group had to cut cost of about USD 100 million… and he continued with his magical words that transformed all of us:

“I am so proud of representing the shared services division, and I know what capacity is there in you. And I believe so much in you. So in the top management meeting I “jumped up” and said “I believe so much in my shared services division – we will take half of the cost cut”.

Normally this would have made people angry. I have never met people that are comfortable with cutting costs. But the VP’s speech changed it all. He gave us value and he believed in us. The result was outstanding. In less than one week we had a plan for the cost cut and we managed to keep our new budgets.

May be business schools should have more psychology in the subjects they teach. It is all about humans – Winning the hearts and minds of the people.

Title: The unique formula
Most of you may have heard about the formula E=mc². It is a foundational formula for the world we live in.

Similarly,the foundational formula for business is Strategy * Execution = Results.

A small repetition of the basic mathematic knowledge:

No strategy ⇒ 0 strategy * Execution = 0 results.

No execution ⇒ Strategy * 0 Execution = 0 results

Most companies have a strategy, but fail to execute it. In order to maximize the output of business, exercise on Execution. If your company does not have the skill of execution, go and get the competence. There are many good training courses in Strategy execution available.

Nowadays companies are taken aback by the short term winds and streams in the “business oceans” – and start to diverge from their original course and purpose. New seamen are set as captains, and new routes are planned. But probably we should lift our heads and navigate by the more long term vision, mission and goals of your company and “trust” the stars.

1)   Listen more: I’ve written previously about our tendency to be poor listeners (see “Are You Listening” at Senalosa.com), citing the sorry statistic that we listen at about a 25 percent comprehension rate. Two recent events brought this home to me on a very personal level. The first was a thirty minute so-called “exchange of ideas” meeting with the CEO of a company with whom I was considering a partnership. He spoke for at least twenty-seven of those thirty minutes, with no regard whatsoever for my input. Some exchange! More like a verbal tsunami. Not long afterward I was on the phone with someone who also graduated from the machine gun school of conversation. At one point, when I was able to squeeze a word into this ‘conversation,’ I mentioned the importance of listening in successful consulting engagements. He immediately broke in saying, “You’re right; I used to talk a lot, but now I mostly listen.” It was everything I could do to withhold my laughter. Not only is this behavior impolite, it’s counter-productive. We spend seven out of every ten minutes communicating with someone, and fully 45 percent of our time at the office is spent listening. If just a quarter of that information is getting through, think of the knowledge and productivity we’re squandering.

2)   Connect the dots: The CEO of a utility company asked his workers why they get up at 2:00 a.m., go out in the snow and risk their lives climbing a pole to get the electricity back up and running. Not a single one said it was because of the extra overtime money he’d receive. Instead, they replied that they did it because of the feeling they get upon seeing that cascade of lights come back on across the community. They know there are a lot of happy people there, and that provides them with a feeling of deep satisfaction. That’s connecting the dots between a job and the outcome it produces for a customer, and it doesn’t take a power outage to produce it. What can you do to make that connection for your employees?

3)   Question “expert” advice: I recently had the chance to hear a well-known business guru address an audience on a number of topics, including talent management and how to successfully negotiate change. His advice for talent? Hire all the 23 year olds you can because they’ll ask questions ‘older’ workers are too hardened to ask. Huh? This flies in the face of most thinking about maximizing human capital and harnessing employee knowledge. And it’s ridiculous to suggest that ‘older’ people don’t want to learn. Later, on the subject of change, he suggested that when people criticize the case for change ask them why five times and you’ll eventually get to something that’s embarrassing to them. I question this as well. Why would you try to humiliate someone to get them to support your change agenda? Surely there are better, more humane and dignified ways. There is so much advice out there these days, and in order to stay relevant and create attention for themselves in an increasingly crowded market, it seems some so-called experts feel they have to constantly push the envelope of accepted practice. However, in doing so their advice sometimes roars past the respectable label of iconoclastic and simply doesn’t fit with the reality on the ground. So listen to the experts (couldn’t resist another listening plug), but be sure to bring in your own unique blend of knowledge and experience when assessing their guidance and its relevance for your organization.

KPI’s (Key performance indicators) are a vital part of your Strategy Execution system. We should probably take a closer look at the three magic letters and see what they contain:

K – Key – remember only the important – the “key” – the few. I see many companies going into the KPI trap and measuring everything that moves. All things that “move” are subjects for measuring, but the question is still the same: is it the KEY? And KEY to what? Is it the Key to see that you are executing your strategy well?

P – Performance – are we trying to find out about the Performance? Or are we just gathering statistics, counting, and collecting all meaningless data?

I – Indicator – are we aware that what we are presenting as KPI’s are just indications? If it was the “full truth” it would have been another abbreviation – KPT – Key performance Truth. But we are not trying to tell the “full and only truth”. We are like doctors, only trying to make indications – good indications. If people say to me “this KPI is not measuring the 100% truth”, I agree with them. It will tell them what the “I” is representing, and moves on from that. This makes the conversation between employees and managers much easier.

Good luck with your KPI selection and don’t forget the three important letters K,P,I.

Meetings are a part of our daily life in corporations, but have you been questioning the value of meetings? Some love meetings, others hate meetings. I came across some interesting statistics* that I want to share with you.

• 55% of all meetings are dominated by one or two persons
• 32% of employees think that they can get sacked if they tell the truth in meetings
• 39% of decisions made are taken after the meeting is over
• 80% of discussions in meetings are about issues that people already agree upon

How can we avoid this?

• The organizer of the meeting should make more people talk – not just one or two
• Create a culture of openness
• Have decision points in the meeting – and not leave it to until after the meeting, to decide
• Cut through and ask “Do we all agree on this? If so – we don’t have to debate this anymore”.
• Clarify the objective with the meeting. Is it for making decisions? Is it for informing people?

*2004 – Survey commissioned for IMS

There is a clear cause effect relationship between how engaged the employees are and the profit a company makes. A study by Hewitt Associates shows that those companies with an engaged workforce (where more than 65% of employees consider themselves as engaged) are doing better than the stock market even at times of crisis. The companies where people feel engaged also record a higher customer satisfaction, increased productivity, lower turnover and lower sick leave rate.

The reasons for engagement or lack of engagement cannot be found in the budgets, but are found in the way the management of the companies think. Research shows that the way the management think and behave are affecting how employees conduct their job. When a manager shows interest in employees and helps in creating a work environment characterized by security and predictability, the employees experience a high degree of motivation and engagement and do their utmost to perform.

There are probably many ways to inspire and get people engaged, but I will mention some of which I think is important.

• The best way to engage people is to be engaged yourself – Find out what inspires you as a leader and make sure that you keep yourself engaged.
• Have high expectations – Inspire and challenge people to do their best without thwarting all their inspiration due to too many high expectations.
• Focus on the positive – Employees know if you really care about your job and whether your company is doing well or not. Real engaged leaders cannot stay away from speaking about things that are going well.
• Do not ignore the negative Engaged leaders are not only concerned about the good days, but they also have a realistic view about the negative that happens and tries to find out how to solve it.

Good luck with finding your inspiration!

The power of execution is one of the qualities that I appreciate most in my employees. As it is in most companies, you have a mixture of “talkers” and “doers”. Just think of the value creation your company could have if you could switch the “talkers” to “doers”.

What can help us facilitate this “conversion” process? Can the balanced scorecard framework help being more targeted towards execution? I believe so.

Putting people responsible for strategic objectives, strategic themes, kpi’s, and initiatives will drive people to take more responsibility and enter the execution mode. In addition to making people responsible you should aim for transparency, and conduct regular meetings to report status. This will also have wonderful effects and move people from “talkers” to “doers”.

But I have one question to the balanced scorecard community. The balanced scorecard is a good model that explains how the business is built up through the 4 perspectives. On average, a regular balanced scorecard consists of approximately 4 perspectives, 10 objectives, 25 kpi’s, and 50 initiatives per organizational unit. My question is: Is the balanced scorecard focusing too widely? Is an organization able to focus its energy on 89 things at once (4 perspectives, 10 objectives, 25 kpi’s, and 50 initiatives)?. Are we losing our focus when everything becomes equally important? What about “highlighting” special target areas in the balanced scorecard and focusing on changing only this part?

I am reading a book now which contains a framework for focusing a company’s energy towards a selected set of objectives and kpi’s. The framework is called 4DX — Four Diciplines of Execution and it looks promising so far. Here they put all the energy on a selected part of the strategy map/ balanced scorecard model. Could this model be merged with the balanced scorecard to get more effect for businesses?

These ads are there for a reason. We live in a mobile world in which people and companies are increasingly nomadic, following the path, however meandering, they believe will lead to greater success and prosperity. If that means relocating a business from Indiana to India, from Toronto to Taipei, then so be it. The benefits of these moves appear obvious and abundant – lower wages, cheaper utility costs, better tax rates, a pool of skilled workers, the list goes on and on. But does the reality match the promise? In many cases, the answer is no. AMR Research discovered that 56% of companies moving production offshore experienced an increase in total landed costs, and a 2010 Ernst & Young survey of CEOs found that more than a third stated the overall costs of entering high-growth markets like Brazil, India, and China were higher than expected.

Writing in the Harvard Business Review, authors Porter and Rivkin argue that location choices often prove less desirable than expected because managers overlook the current and future hidden costs associated with a move to a foreign location.[i] To avoid disappointment, and a river of red ink, I would suggest organizations relocating to a new location create a Balanced Scorecard to gauge the move’s overall effectiveness. Let’s consider such a Scorecard beginning with the Employee Learning and Growth Perspective and working our way up.

Employee Learning and Growth Perspective:

Traditionally, three areas of ‘capital’ populate the EL & G perspective: Human, Information, and Organizational. Each of these will be accounted for in our offshoring Scorecard.

• Human Capital: Offshoring is often undertaken based on the promise of a skilled and motivated workforce, one that is able to competently shepherd the firm’s products and services through production to ultimate delivery to customers. To ensure that is in fact the case, companies should include measures such as:
  • Strategic job coverage ratio (percentage of required skills possessed by the employee population)
  • Turnover
  • Training costs
  • Percentage of employees with advanced degrees (or other educational achievements)
  • Number of internal promotions – depicts the workforce’s ‘upward mobility’)
  • Number of workers hired versus projected (a gauge of skills present – if more workers are required, perhaps the promised skills are not present)
• Information Capital: Here we typically attempt to measure how well technology is employed in the service of strategy execution. For offshoring endeavors a key measure will be the percentage of employees using technology, which determines whether employees are able to use enabling technologies effectively.
• Organizational Capital: Considered the very ‘soft stuff,’ of company operations, and frequently represented by culture as defined by ‘the way we do things around here.’ A key measure to include in this category will be Employee satisfaction or engagement. Managers should carefully examine the responses of domestic employees and expatriates. Both groups could possibly struggle in a potential culture clash of geographically based ideals.

Internal Process Perspective:

Depending on the unique value chain employed by the company (the specific activities they pursue to drive value for their customers), measures in this perspective could vary widely. However, outlined below are a number of key metrics that should be carefully monitored by any offshoring entity.

• Quality: Especially relevant in manufacturing environments, companies must ensure new locations maintain existing quality standards
• Raw material usage: Related to the above, this will serve as a gauge of worker productivity.
• Scrap rates: Again, related to quality and productivity.
• Freight costs: They may increase as a result of reaching now distant markets.
• Innovation: More a topic area than a specific metric. Firms must ensure innovation does not suffer if manufacturing is physically separated from research and development. Number of new products and services in the pipeline, and sales from new products and services may serve as representative indicators.
• Supplier relations: Firms often spend years cultivating a trusted relationship with key suppliers. Will they be able to create such a bond in a new environment?
• Inventory turns: An important indicator of operational efficiency, which is often a prime motivator for moving offshore.
• Intellectual Property rights: One executive whose firm had moved their production to a new country described how they had removed units of measure on the gauges in their factory, fearing a loss of production knowledge. Protecting IP rights in countries with weak production may prove expensive.

Customer Perspective:

To compete effectively in today’s marketplace organizations must be masters of agility; swiftly responding to changing customer tastes and preferences, while at the same time meeting shareholder expectations. Offshore facilities can severely test a company’s ability to meet changing needs because of the lead times associated with distant locations. Consider a maker of fashion apparel. The items they’re shipping now may already be considered passé by the time they hit store shelves in far-flung locales, resulting in costly markdowns for the manufacturer. Here are some Customer-related metrics for your Offshore Scorecard:

• Cash to cash cycle: How rapidly you can transform raw materials into finished goods.
• Customer satisfaction
• Customer retention
• Share of wallet in key segments
• Likelihood to recommend

Financial Perspective:

This perspective represents the ‘end in mind’ of your strategic story – the logic suggesting that successful execution in the other three perspectives will drive sustainable financial success. In addition to the standard arsenal of financial metrics, here are a few that are more germane to an offshoring organization:

• Wage costs: Lower wages are almost always a strong impetus for moving offshore. Therefore, it’s vital you measure your costs to ensure you’re achieving the anticipated advantage. Sadly, you may find that advantage dissipating rapidly due to global pressure on wages. For example, in Shanghai, the wages of a typical line production worker spiked 125% between 2006 and 2011. In India, middle management salaries rose 13% in 2011.
• Currency fluctuations: They can have a dramatic impact on profitability.
• Taxes: Another prime motivator for making a move.

Some may argue that creating a Balanced Scorecard after an organization has already moved Offshore is a case of ‘too little too late.’ Of course, extensive due diligence should be applied before embarking on a move as substantial as offshoring. However, by carefully analyzing strategic metrics, managers are able to proactively shape their offshore operations, learning where adjustments are necessary and determining what interventions are called for to ensure the investment yields its’ promised benefits.

This summer I hired a brand new Camaro. My friend was very impressed with the all the sensors the car had. Whenever I reversed, I could see where I went in a camera in the mirror. I could hear sounds indicating how close I was to the objects and I could see lines stipulating where I was heading. So based on all these sensors and a very good GPS we had a wonderful time in the US and made our way around. This made me think.

Do corporations have “sensors”? That tells them where to steer and maneuver in this fast changing business world? I was thinking back on conversations that I have had with people over the years. People telling me “I knew this would happen”, “we all knew”, “we tried to warn about this”, “this was market knowledge that we had but the management did not act upon it”.

There are people in your organization who are these “strategic sensors”. They are all over the company and have valuable knowledge – knowledge about customers’ needs, market development, drivers, and competition etc. – factors that are crucial for their company’s future development. Make sure that you find your company’s “strategic sensors”. They might be disabled by managers who filter information on its way to the top.

Make sure that you engage most of the strategic sensors your company have. Of course there will be a lot of sensors giving wrong indications, but can you afford not checking them out?

In order to enable the sensors to function, you need to create a culture for sharing new ideas, forwarding new hypothesis, and also create arenas to share and establish a common language on how to debate on strategy.

Probably you should send your employees to the Strategy Debate University where the strategic sensors come to life?! Or maybe you could create this internally in your own organization?

I have come across this quote several times in the last few months. I have been thinking about the reality of this quote. Why isn’t it strategy that eats culture for lunch?!

If we just compare the power structure of it, you will see who wins:

So, when you see the power balance between culture and strategy – I think it is time that we take the “alignment” part more seriously. Not only aligning and giving part of the strategy to individuals, but really aligning the company’s culture with its strategy. If not done properly culture will eat strategy not only for breakfast but for lunch and dinner as well !

Enjoy your meal…

I have been visiting several customers lately and have been seeing their scorecards. Among all, particularly in banking and finance I noticed that their scorecard is populated with up to 100 KPI’s!

They might have an objective – “high uptime on our critical banking systems” with 50 corresponding KPI’s that show the uptime status on each of the critical systems. The scorecard looks overpopulated and it is not easy to read how well they are executing their strategy.

My advice to companies that tend to fall into this “KPI Mania trap” is to consolidate. Instead of having 50 KPIs – one for each critical system _ you can make one KPI for “uptime critical systems” and show the status of all the 50 systems within that one KPI. You might want to put some rules that turn the KPI to red if one or some of the systems have had a bad uptime.

By doing this you can have a cleaner “first page” about your strategy execution and leave all the operational control parameters hidden “inside” the model.

IT Team Member: “We’ve been told that minimizing expenses is crucial to the organization, and so we’ve created a cascaded measure of reducing vendor costs. What we’re going to do is negotiate with software and hardware vendors, and consultants to try and drive down our overall IT costs.”

PAUL: “Sounds good. What’s the issue?”

IT Team Member: “Well, we’re concerned that if we insist on lower costs from our vendors that could lead them to cut some corners, and ultimately result in poorer service to our customers here in the company…and that’s the last thing we want to happen.”

It was clear from the look on his face this was a dedicated professional who wanted to do the right thing for the organization, but was concerned that measures on the Balanced Scorecard could actually harm his goals by creating some unintended consequences.

He was right to be concerned. It’s not uncommon, especially for those who are new to the Scorecard system, to populate their model with measures that have the potential of driving the wrong, or inappropriate, behavior. In this case, if the IT department pursued aggressive targets for vendor cost reductions, that could very well lead to poorer service and in turn negatively impact other aspects of the organization’s strategy execution efforts; a classic case of a measure producing an unintentional effect.

To overcome this issue, a useful diagnostic test for your Scorecard measures is to critically examine each and ask whether the potential exists for any to drive unintended consequences. If it does, you should add what are often termed ‘counter-balanced’ measures. In the case of my client from the IT Department he knew that reducing costs was important to the bottom line but didn’t want those lower costs translating to poorer service for his customers. Therefore, he chose a measure of customer satisfaction with IT services to counter-balance vendor costs. Over time he’ll monitor the two, looking for correlations that may require his intervention. If, for example, vendor costs do decrease but he also sees a decline in customer satisfaction he can hypothesize the two are correlated and use this information to possibly reconsider targets for vendor cost reduction. Maybe the initial target was too aggressive, leading to a degradation of the services provided to his customers.

When we create a Scorecard we’re attempting to tell the story of the organization’s strategy. Just as a story in a book or film is made up of distinct chapters or scenes, what really brings it to life and makes for a satisfying and compelling story is the way the individual components weave together. The same goes for the Balanced Scorecard. While the individual metrics appearing on a Scorecard are vital indicators of success, their greatest value comes when we look at them in concert with one another.

The Balanced Scorecard has been evolving since it was first mentioned by Art Schneiderman in 1987. Kaplan and Norton branded it and made it known to the world. They further developed it from a measurement system in to a management system, and connected strategy to the theory. Balanced Scorecard is still a widely popular concept around the world and new thoughts are evolving the theory.
As with any other theory, one day there will be a paradigm shift. The old beliefs will fall and new and better theories will arise. My question is “has the time come already”? When a new guru appears and introduces a new management theory that takes over the position the Balanced Scorecard has today?
The strength with the Balanced Scorecard is in the ease of communication around the words “Balanced Scorecard”. The words cover much of the theory.
If you are thinking of becoming a new guru and of introducing a new and better theory, I would like to give you the ingredients for success:

• Link up to Academia (well reputed business schools)
• Build your own CV
• Develop superb presentation skills
• Turn on your charisma
• Write business books (with a portion of your knowledge, do not write all at once)
• Money and fame should propel you to move forward
• Find industry players (Software, management consultants, and event organizers) to take you around the world so that you can evangelize your new theory. (the good thing with this is that they pay for you spreading the word, and it is well paid too)
• Find some high profile company that can be your practical evidence that the new theory is right
• Get articles published in the Harvard Business Review
• Work with the leading business schools to get your word across to the new students
• Find a unique name for the new theory
• If your new theory cannot be told as an “elevator speech” (max 10 seconds) – forget it

If anyone sees the new “Management Messiah” – please send me an email. I would like to get in touch with him/her.

I believe it reduces clarity in understanding performance to use more than two or three indicator colors.   I have seen many organizations actually use a binary system: red or green.  If you start adding colors beyond the red/amber/green, and using blue, my fear is that blue becomes the green, and green is yellow, and so on.  Are your employees aiming for green or for blue?  If everyone strives to be best, all the other colors get shifted down the line.   If you believe that you need more than three status categories, you might consider retuning targets or thresholds.

It is important to remember that the entire concept comes back to managing organizational performance.  Perhaps at the individual level it is more appropriate to recognize over-achievement in a way that is motivating and meaningful.

Perhaps the underlying issue is the performance culture related to how statuses are used in the first place.  I see some organizations that use a penalty/reward system, where people are ‘punished’ for their red statuses, and they are to be avoided at all costs.  As an unintended consequence of such approach, these organizations tend to set targets and thresholds in a way that inflates performance (ie. everything is always green, and perhaps this is what drives the need for a blue, overachieving indicator).  More effective organizations tend to use a system health approach.  In these cases, red statuses identify areas within the organization that require assistance, resources, etc.  Red is not necessarily a negative in this case, but rather a call to action.

In closing, I find the best approach is to keep it simple.  If you cannot see the overall performance on a scorecard from across the room, it is more of a report than a dashboard.

Over the years I’ve reviewed countless Scorecards and can say unequivocally that the Financial perspective is home to the most commonly used, least differentiated set of measures, none of which will be unfamiliar to you: Revenue, growth, profitability, return on sales, etc. As noted above, this is to be expected as the Financial perspective is home to the lagging measures that detail how success in the other perspectives impact the bottom line. While financial yardsticks of performance are typically the most widely known and available, I believe most organizations are under-utilizing this perspective of performance in conveying their true economic success.

Most private sector organizations operating in a competitive environment consider results from the Financial perspective to represent the ultimate arbiter of absolute success. The key word in that last sentence is absolute. The measures they employ provide an outstanding view of the company’s absolute performance, meaning the actual dollars in sales they’ve generated, exact percentage of growth, precise ratio of profits to sales, etc.  What they don’t tell us, however, is how well the firm has performed relative to its competition.

Michael Porter reminds us repeatedly that “Competitive advantage is a relative concept”[i] meaning that results must be stacked up against those of other companies operating in the same industry who face a similar competitive environment. Without this comparison, absolute performance is meaningless. If your company achieved sales growth of 20 percent last year that might be cause for cheers and back slapping all around until you learn that your key competitors all surpassed 30 percent. Knowing that, you quickly realize how much economic value you’ve left on the table.

What we’re ultimately attempting to capture in the Financial perspective is a verdict on the company’s success in achieving competitive advantage over its rivals. Since most companies track only their absolute performance on financial yardsticks, they’re unable to gauge their success when judged against peers. I would argue that virtually all financial metrics must be compared to industry averages or other key benchmarks in order to prove effective in judging competitive success. So, rather than raw sales growth, you would calculate sales growth percentage versus the industry average. Instead of Return on Equity, it’s return on equity versus the industry average. Perhaps the most important metric in this perspective will be Return on Invested Capital (ROIC). This fundamental measure examines a company’s profits versus all the funds it has invested to generate those profits; both operating expenses and capital. Returning to Porter, he cogently argues this is the only metric that reflects the true economic purpose of every profit-seeking enterprise: to produce goods or services whose value exceeds the sum of the costs of all the inputs, thereby ensuring resources have been used effectively. And once again, to ensure efficacy, ROIC should be compared to others in your industry.

We must never lose sight of the fact that for-profit businesses are attempting to achieve competitive advantage that leads to superior profitability. All industries have defined ‘profit pools’ and therefore, it’s vital that when assessing financial results we do so in the context of performance versus rivals. Only then does a firm possess a true and meaningful picture of the competitive advantage it does or does not enjoy.

One of my favorite fairy tales from when I was a boy is Winnie-the-Pooh. He was once asked “where should we go?”. “I don’t know he replied”. And then they ended up being there.

I see the same pattern with annual reports. It amazes me how companies with weak/no defined objectives and targets are writing their reports as they have had clear objectives and targets all through the year.

This made me do this cartoon. Companies with no objectives and targets are always reaching their goals. It is like they are “shooting the arrow” and see where it hits and define this as the objective/target.

Is your company shooting first and paint after, or do you have a target and a bulls eye to hit before you shoot?

I will leave it up to self-examination.

I once heard a story on how difficult communication can be between two countries. This story is from 1979 and is about the Egypt-Israel Peace Treaty. If today, you ask an Egyptian if they are at “peace” with Israel, they would claim “yes”. The word peace for an Egyptian means “we will not harm our neighbors”.

If you turn to an Israelite and ask if Israel has achieved “peace” with Egypt, he would most probably say “no”. The reason for this is that the word “peace” (shalom) for an Israelite means more than not harming/fighting with your neighbor. It encompasses qualities like brotherhood, love and joy. So this warm, loving friendship is contained in the word “peace” for an Israelite.

So words have different meanings based on language, history, background, education and so on. I see the same when I challenge businesses. When I challenge statements like “we should be the best in banking”, different individuals put different meanings to this. What is “best”? What do we mean by “banking”? Do we mean “the best”, or just among the best? Should we be the best in all areas of banking, or just in certain areas? I think it is important to do this kind of exercise and clarify our strategic communication.

If you are not sure what is meant by your company’s strategy – please ask for clarification. If you are a manager – you can never over communicate strategy.

After the inevitable waiting game, each of us hoping the other would take care of it, we gave in, stumbled out of bed, and went in search of the incessant beeping. On the way down the hall a thought slowly began to make its way into my consciousness, no small feat considering both my brain and body were protesting this unwanted intrusion into my sleep. The thought became clearer and more resonant until I said out loud, “This is a catalytic mechanism.” My wife responded with about as much enthusiasm as a marble statue of her might, so I repeated my somnolent insight: “This is a catalytic mechanism. The smoke detector!” The beeping continued but I was oblivious now, totally absorbed by my stunning discovery. As we located the beep and my wife secured a fresh battery, I continued: “The smoke detector going off like that forced us into action. There was really no alternative – we had to get up and change it or suffer the negative consequences, in this case being robbed of a good night’s rest.”

Of course catalytic mechanisms don’t just apply to late night battery changes. Jim Collins, who originally wrote about this topic several years ago, believes they are crucial for any organization that wants to move beyond bureaucratic exercises in pursuit of their goals, and described them as the ‘crucial link between objectives and performance.’[i] They can take many forms but the common denominator is a process or procedure that forces people to take direct action in pursuit of an important objective. Collins cites the case of Granite Rock, a California company that supplies materials and products to the construction industry. When you think of a rock company, and really who isn’t constantly doing that, I doubt you conjure up images of world-class customer service. But service at a level exceeding what you might expect at Nordstrom was exactly what the leaders of Granite Rock proposed to achieve. To do that they could have written vision statements, created an exciting communication campaign, or devised some complex service initiative, but in the end they chose one simple process; short pay. At the bottom of every invoice the company issued appeared a note reading: “If you are not satisfied for any reason, don’t pay us for it. Simply scratch out the line item, write a brief note about the problem, and return a copy of this invoice along with your check for the balance.” This is a truly catalytic mechanism. Any time a customer chooses not to pay the entire invoice amount it propels Granite Rock into action, digging deep to discover why the customer chose not to fully pay, and doing everything in their power to fix the problem to ensure it doesn’t happen again. Employees are provided with a crystal clear signal that anything less than world-class service won’t be tolerated.

It takes courage to initiate a catalytic mechanism because a well-constructed version will possess sharp teeth and produce legitimate consequences for the organization should they consistently fall short. The upside, however, is worth the risk. A catalytic mechanism has the power to motivate entire organizations, wow customers, and create sustainable results. I encourage you to look at your own strategy and strategic objectives through the prism of a catalytic mechanism. What process could you put in place that would force you to move beyond the corporate rhetoric and turn your dreams into reality? What’s beeping in your world?

Boards serve multiple functions, but perhaps their chief responsibility is approving and monitoring enterprise strategy. As noted above, the Board typically doesn’t engage in creating the organization’s strategy, that’s the province of the senior executive team, led by the chief executive officer. However, to fulfill their oversight role, Boards they must understand and approve the strategy, then continually monitor management’s execution efforts. Based on the findings of a study performed by global consulting firm McKinsey, effective monitoring is often easier said than done. The researchers discovered that a whopping forty-four percent of directors don’t fully understand the drivers of value for the organization on whose Board they sit. Without that knowledge it’s impossible to provide meaningful insights and advice, the very reason members were selected in the first place. Enter the Balanced Scorecard.

Around the globe, thousands of organizations have turned to the Balanced Scorecard (and other measurement-related systems) to isolate the value-creating mechanisms of their strategy by identifying measures that translate strategy into meaningful action. One of the many benefits of using the Balanced Scorecard is providing the Board with powerful metrics that distill the essence of the organization’s strategy and clearly indicate what drives value for customers and shareholders alike. Armed with that knowledge, Board members can draw on their substantial reserves of knowledge and experience to actively participate and provide the counsel every management team requires. But as any practitioner will tell you, the Scorecard is more than an ad-hoc collection of measures scattered across four perspectives. The true value of the framework lies in the ability to connect the measures in a strategic narrative, understanding how they weave together, across the related perspectives. For a director to contribute meaningfully to an organization’s strategic dialog, they must first understand the intricacies and subtleties of the Scorecard model. If to them a Scorecard is simply a group of bucketed metrics, they will never derive the benefits possible from the tool, and are likely to squander much of their own potential value to the organization. Any Board member who takes their responsibility to the organization seriously, and respects their fiduciary duties, should never consider Scorecard training beneath them. To the contrary, they should encourage and embrace the lessons, as they will allow them to better serve their vital role in corporate governance.

What is implementation?

 The success of your performance management implementation involves more than choosing the right software.  You also require the right implementation.  But what is implementation?

With Corporater EPM Suite, customers license an out-of-the-box solution.  This means there is no development involved with the implementation.  Implementation consists of configuring the solution to meet customer requirements, and it occurs through a series of menu-driven activities.  Since there is no development involved, it eliminates development risks.  The solution is already in proven use with hundreds of customers.  There is no risk of running out of project development hours with a half-developed solution.  There is no need to maintain a separate IT development infrastructure, and the additional attention required for testing and acceptance.

What should you expect during implementation?  Before we get to that question, we should discuss a few issues.  Most customers need to balance a few factors, such as cost, resource availability, speed of implementation, knowledge transfer, and scope of the implementation.  Customers can manage cost by participating in the implementation process, and gain the added benefit of additional knowledge transfer.  This is dependent upon the customer’s own resource availability.  Other customers may choose that the complete project is delivered by the implementation team.  What is the intended scope of the implementation?  Shall it be staged in multiple phases, based on business units or functionality?  Or shall it be launched upon completion?

There are no set answers to any of these questions.  Performance management by its very nature is a dynamic set of management processes that need to change over time.  The implementation is of a “living solution” that will undergo iterations over time.  Strategic review cycles and annual planning may mean that some metrics or initiatives will be retired and replaced over time.  Initiatives and activities by their very nature are time-limited in their duration.  Many organizations choose to roll-out the solution organizationally, perhaps starting with a few top-level business units.  They add lower levels at later stages.  Some choose to start with high level data, maybe manually entered at the start, then connect to source systems at a later stage.  While it may be quick to implement in this manner, it loses the benefit of including historical data.

There are many issues to sort out before planning the scope of the implementation.  Corporater implementation experts can assist you in making the decisions that best fit your needs.  At a high level, the implementation is broken down into the following categories of activities:

Readiness Phase

This step involves clarifying the scope of the implementation.  It answers the questions asked above.  What is the scope of the work, what are the roles and resources required from both the implementation team and the customer?  In larger projects these may be clearly outlined in project plans and related documents.

Design Phase

Most customers are already at a stage of readiness regarding their performance management model, meaning that they have a clear understanding of the metrics they intend to report, how they are to be organized, etc.  What is often missing is a clearly defined set of targets, performance thresholds (for setting the status gauges), how they want the measures to be visualized (by charts, graphs, tables, etc.), rules for handling comments, workflow notifications, and other ‘details’ needed to fully leverage the solution.  The design phase clarifies all of these requirements.  Customers need to supply the information of the KPI and initiative metadata (what information they need captured and reported by KPIs), and provide input into the layout of the scorecard, objective, KPI, and initiative pages and reports.  This stage also consists of structuring the organizational and data models, so that the system can by logically navigated, and data can be properly viewed at each business unit.

Configuration Phase

Configuration consists of entering the scorecard and dashboard structures.  Corporater EPM Suite offers a templating system that makes it very easy to reuse common elements throughout the system without having to maintain each element independently.  Configuration is the menu-driven process of setting up the solution so that it displays and manages information as specified in the design phase.  If integration with source systems is also involved, it is connected and configured at this stage.

Testing Phase

In a perfect world, there would be no need for testing the system.  In a practical sense, testing occurs concurrently with the configuration phase.  It is the process of verifying that the solution reports the right information to the right business units, and that the solution is configured as specified in the design phase.  Customer acceptance occurs as a part of this stage.

Training

The best customer training occurs as the solution owner (or super user) participates in the configuration process.  This type of on-the-job training gives the added benefit of training on the actual customer business case— in the actual solution.  This is real-world training— not classroom training.  The customer benefits from the repetitive nature of building multiple KPIs, configuring several charts, graphs, tables, etc.  The super user then has a comprehensive understanding of how everything has been configured, and understands the business logic of the solution.  Classroom-style training is also available.  End-users generally require very little training, since the solution is intuitive to use, and end-users do not need to understand how to configure the solution.  They need to know how to navigate through the system through a web browser.  End-user training generally is conducted by the super users or other customer resources.

Summary

In a future post I will discuss project management.  Overall, there is generally little need to treat implementation as a “project.”  In fact, I don’t even like the word “implementation” as it applies to Corporater EPM Suite.  Implementation is not like an IT project.  As a solution to be run and managed by business users, it primarily requires the engagement and resources of business users.  The biggest “risk” we generally encounter is that customers start to truly understand the full potential of the solution once they start using it, and the project scope increases.  They gain a wider vision of how it can be used to solve other reporting problems, and expand how they use it.  At its core, this risk only speaks to how flexible and full-featured the solution is.

However, in most cases I find the opposite actually occurs – leaders are too quiet in the workshop. They sit back, a pensive look their constant companion, nod a lot, laugh when appropriate, but rarely offer their point of view. The desire to draw out the opinions of their team, seeking a broad spectrum of views is undoubtedly valuable and to be commended, but ultimately their reticence is at least as problematic as taking the meeting hostage by controlling the flow of dialog.

It’s an inevitable fact of organizational life that we all look to our leaders for cues. Therefore, when in a workshop or meeting, we find the CEO sitting back and offering no guidance or personal insights, other attendees can misinterpret that silence as a signal the chief isn’t engaged in the process. The leap of logic then continues to: If he or she isn’t engaged, then the meeting probably isn’t that important. And culminates with: if it’s not important, why am I here, when there is plenty of ‘real work’ stacked up at my desk right now?

At the end of the day, the CEO is there for a reason – to make the difficult decisions. Taking the counsel of well-informed subordinates, and listening to a diverse array of opinions is sure to lead to better decisions and improved buy-in from everyone, but when push comes to shove leaders must illuminate the organization’s path forward. I’ve had the privilege of seeing brilliant CEOs in action over the years, and one of my favorites was a gentleman who mastered the delicate balance of seeking input from others but always making a firm commitment based on his own knowledge and beliefs. In meetings this man, a brilliant individual by any account, was always attentive, asked seemingly simple questions, showing his vulnerability, but never failed to lend several insightful comments to the discussion. When it was time for a decision to be made he summarized the key points raised to ensure he was accurately portraying the opinions that had been presented, then proceeded to lay out the rationale for his decision. You were free to challenge it of course, constructive conflict was always welcomed, but when it was time for action he accepted responsibility and issued the final word on the subject.

We’re all leaders in some capacity. Lets remember that our challenge in that role is to seek the opinions of others, stimulate dialog on issues, and when the time comes always be willing to step to the forefront, accept responsibility, and perform the leader’s ultimate task – making decisions.

As a Strategy Execution advocate I gave a different speech. I was afraid that they would start stoning me when I referred to Jim Collins’s book “From good to great”. When Jim Collins researched what made companies, “World Class companies” he found something very interesting:

“We found no evidence that good-to-great companies had more or better information than the comparison companies. None.”

When I presented this statement I was glad that I had a body guard with me to protect me! I explained the difference between Strategic Performance Management and Business Intelligence.

So, I concluded the presentation with the following :

• BI tools are not built for Strategic Performance Management. You can try to get a BI tool to help you with your Strategy Execution Process, but it will be an expensive experiment and you will most likely fail
• A specialized tool for Strategic Performance Management is a necessity if you want to work with Strategy Execution in medium or large organizations
• A Strategic Performance Management Suite can add to the benefits of a well working BI platform.
• BI tools can be valuable, but they are cannot help you execute your strategy

Most for profit companies immediately grasp the relevance and importance of making this choice, accustomed as they are to waging strategy wars with their competitors. However, with public sector agencies the notion is often rejected on these seemingly show-stopping grounds: “But our ‘customers’ have no choice, they have to deal with us.” But is that really the case? Do we as customers of government agencies have no choice? I’d suggest it’s not the case, and argue that all customers of government agencies do have a choice.

Recently I worked with a Compliance and Enforcement group within a State government agency. When the question of value propositions was raised the “no choice” flag was quickly raised and the conversation seemingly halted. But one person in the group protested and suggested customers do have a choice; in their case the choice was whether or not to comply with regulations. He argued that in the end customers may decide not to comply with state regulations because the experience or cost of dealing with the authority simply outweighs the burden of any possible penalty.  Based on disappointing encounters in the past, customers may consider the state’s products to be outdated or inefficient, and declare the hassle factor is too high to warrant compliance. The lack of a compelling value proposition translates into substantially less revenue for already depleted State coffers.

This veteran of public service went on to suggest that if government agencies were willing to explore the value proposition idea and choose one, or a balance, that fit their environment, they could transform the customer conversation. Declaring a value proposition means critically examining everything you’re doing through that lens and ensuring all products and processes are consistent with your chosen direction. With products, experiences, and costs transformed, customers will choose to do business with the authority because the benefits now outweigh the costs. If you’re in the public service, I urge you to take a cue from this intrepid colleague, begin assessing your value proposition today, and remember that all customers do have a choice.