Fragmented Performance Measurement

How do we measure how a team is doing? By their game scores and won-lost record. Imagining any game without keeping score is hard. Without keeping score we are just having fun, or so we think. Serious training at least counts reps.

From infancy on, we live with performance measures baked into school, work, and other institutions. Most performance measures are “us-centered” and considered so essential to control that a tired, seldom-questioned business cliché is, “If you can’t measure it, you can’t manage it.” But sometimes, away from business, people measure just to understand what is happening, like census counts in a nature preserve.

Human activity is hierarchical and increasingly specialized, so performance measurements are too – and they are fragmented.

For example, total factory performance may be assumed to be the sum of the performance of each workstation. Then this aggregates into performance measurements for the entire company. Nowadays, many managers, but far from all, recognize that a total system’s performance is not the sum of its parts.

Good performance measurement for control helps motivate good performance decisions. For instance, in a well-run factory aggregate performance measurements emphasize the following, in order: Safety, quality (defects), delivery, employee satisfaction (or morale), and efficiency (productivity, cost, profit).

Usually omitted: product design, innovation, customer satisfaction, sales volume –activities that are typically outside a factory’s responsibility. Management trusts that these fragmented performance measurements integrate into a complete jigsaw puzzle. Measurements of “externalities,” like long-term effects of either products or operational processes on the environment, are outside this puzzle. Why?

All companies, and even government agencies and non-profits, live or die depending on financial solvency. Few other measurements carry such heavy, existential consequences. No matter how beneficial its social and environmental effects, any organization that runs out of money with no recourse shuts down.

Now go back three paragraphs. The factory performance measures emphasized by best practice companies are inconsistent with profitability being the dominant control measurement. That is, operational excellence and efficiency are not obtained by making every decision to minimize cost.

Fragmentation also stems from human limits. We can’t balance many measurements in mind when making decisions, great or small. Factory workers can’t equally heed 100 different performance measurements, so they naturally wonder which ones affect their rewards and recognition. For that matter, CEOs and boards of directors can’t equally heed hundreds of performance measures either. Companies succeed by focusing. Making decisions from a broad view clashes with the urges to focus and to be me-centered measuring outcomes.

From an investment view, staid institutions like pension funds can get only low returns from formerly safe investments. From a financial view, a broader perspective is to use big data and analytics to let institutional investors invest in disruption – hot start-ups – to kick start growth and yield. But does this address our most crucial 21st century needs? Perhaps we really need an entirely different point of view with a different value system.

Fig. 1. Proposed Categories of Performance Measurement

Fragmented Performance Measurement

Outside-in Balance

The array of measurements in Figure 1 represents a different value system. It violates any concept of simplicity or focus, and it is merely an example. It makes no pretense of being complete or ideal. Leaders can’t make sense of it if convinced that a few performance measurements (like profitability or the newest technology) are leading them “true north.”

The purpose of such measurements is not to race to markets or to maximize free cash flow. The purpose is to maintain balance with nature and among human needs. To do that, leaders and others must maintain situational awareness. Circumstances are constantly changing. From this view, the goal is to improve all life without making anything worse – the Precautionary Principle. Concepts of optimizing or maximizing do not apply.

An example is health care. The best health care is not to become sick enough to require remedial care – the “optimum” is zero. Financial incentives mislead curative care. Pay providers on a fee-per-service basis and, knowingly or not, the incentive is to over-treat. Pay a flat fee for each person covered (capitation), and the incentive is to under treat. Instead, health maintenance is a relationship with knowledgeable (and wise) advisors concerned only with keeping “patients” in a healthy state. Advisors are dedicated to that mission regardless of any exchange of money.

Give the complexities of medical knowledge today, and the amount of specialization required, such a future is not a return to tribal medicine men, or to country doctors. Instead, advisors of the 21st century have to access specialized knowledge quickly when a case presents complications beyond their normal experience, but modern technology may make that possible. (For example, an expert surgeon can guide an operating robot thousands of miles away.)

Beyond just health care, this vision is of local responsibility with access to global expertise as needed. Bring “Mohammed to the mountain” and not vice versa.

From a conventional economic view, shrinking revenue makes no sense. Health care activity shrinks rather than expands. Conventional economic growth reverses, and so do a lot of rules. The measures in Figure 1 reject the notion that passing a market test surely makes the world better. Consequently, business guidance has to learn to see great deal more that is outside its current framework. You need a different mindset to do it.

Indeed, from a larger view, one can argue that nature “cares” not one whit for economic logic, for any business model, or for human performance measures. Nature only cares about how we interact with it.

Dig a little deeper. Money is only a human motivational system. Most of its supporting performance measures are only a human motivational system. Perhaps money is just a grand illusion, a symbolic motivator of human activity, but not real. Two hundred years from now, will anyone care about our money today? However, nature and our great-grandchildren may care about what we physically did while here.

Conventional business logic presumes that future revenue pays a return on present investment. Business performance measures follow this logic. From nature’s view, that logic depends on believing that the future will pay for the past (including clean up if we can ever get around to it), largely ignoring the needs of nature.

Nature has no future revenue in the same sense as business. It only tries to regenerate itself. By nature’s logic, the present has to pay for the future, like sacrificial parenthood. “Revenue” to support us can only come from nature at its pace. We can speed that pace only if we do not exceed a rate at which nature can continue to regenerate.

The logic of precluding future cost and catastrophe scrambles conventional financial logic, if indeed, such a contrarian idea can be summoned out of the fog at all. Obviously, a new system of financial logic and supporting performance measures has to be based on new concepts of value – and on very different values.

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