Performance Management Defined (PM Series)

10 09 2009

One  item plaguing Performance Management is that the concept has no real meaning that is both commonly understood and concisely stated.  To some, Performance Management is financial, to others it is software, and to some just a phrase they like to use. To shed a little light on this, I thought I would ask fellow bloggers, Jonathan Becher and Gary Cokins to debate the various definitions.

  • How would each of you define Performance Management and what does it mean when it is successfully implemented?

You both write specific blogs about the definition of Performance Management (Becher/Cokins) and have been examing the idea for some time.  Have your opinions changed on its definition?  What have you seen the market do over the last few years that you agree with or perhaps disagree with?  Jonathan, you do a nice job providing an indicator of the level of maturity that Performance Management in that a Yahoo search resulted in 14 million hits while the well understood concept of Customer Relationship Management returns 15 million hits.  Clearly, Performance Management is now mainstream, but does it really have a buying agenda like Customer Relationship Management?  Or are people just buying parts and using the popularity of the term to elevate the project?  And even so, does it matter?





Employment Situation Aug 2009

9 09 2009

This is a new series of blogs in which I will call out and blog on a number of economic indicators based upon the musings of Bernard Baumohl in The Secrets of Economic Indicators.  In this series, I will work to provide a visual or two to explain the situation as well as a link to the press release.  The goal will be to post a blog covering the reported data and to build out a series of informational charts based upon the data.

Employment Situation is one of the more important indicators of US Economic health, and perhaps even more so in this economic climate.  It provides us an indication if the economy is expanding, or contracting in terms of jobs and therefor money to be spent.  Here is the press release from 9/4/09 which is August 2009 data.

Key points (from press release):

  • Non-Farm payroll employment declined by 219,000
  • Unemployment increased by 466,000 to 14.9 million
  • Unemployment increased to 9.7% (up .3%)
  • While job losses continued, the losses are not as bad as the months before
Aug 2009 Unemployment Data by gender and race

Aug 2009 Unemployment Data by gender and race

Analysis:  We are still losing jobs in the economy.  Teenagers are at almost 2.5x the national average, and minorites having 2x the increase as the average.

Risk:  While we have some indications that the recession is getting better, it is clear we have some elements that still have some ways to go.  If your business is targeted at teenagers and/or minorities you may want to plan for sales to remain weak until the trend at least turns back to positive growth.





The Spandex Rule

8 09 2009

“Because you can doesn’t mean you should” (unknown source)

While this is a little entertaining, it actually makes a great deal of business sense.  All too often we do things we should not do – and sometimes we did it just because we could or we wanted to.  Hope is not an effective strategy, and willingness should not be misplaced for must.

What we need to do is understand strategic gaps, and build out solid plans to close them.  We need to create a process to identify performance issues early in the cycle and put initiatives in place to fix them.  We also need to understand the core processes in our organization that create customer value and work tirelessly to improve them.





KPI: Overhead per Customer

22 07 2009

If you are trying to measure management improvement, how about looking at Overhead per Customer (or per transaction).  This should be a decent indicator in terms of management and overhead scalability.  If we are doing a better job of managing the business we should see some increased returns in the management function.

  • If the trend is increasing, we should be discussing the scalability of the organization.
  • If the trend is decline, is it for the right reasons?

While you are at it, you might also include cost of sales per transaction.  This one is perhaps a little more debateable in that we don’t want to artificially manage this number.  Reducing the number of sales reps, may drive down the number.  Reducing compensation plans may chase away our better sales reps.





KPI Library: Profit per Employee

14 06 2009

If you are looking for a productivity or effectiveness KPI, a sure place to start is revenue per employee (unless you are in the public sector).

  • It is a straight forward calaculation
  • It is easy for every employee to get their heads around
  • It is a measure of scalability
  • It is a crtical measure for long term success
  • It triggers great conversations about the health and direction of the company

It has one primary weakness in that it is a lagging indicator.

Similar metrics to this are Revenue per Employee, Expense per Employee, Expense per Sale, Profit per Transaction, Profit per Customer.





Is Strategy top of Mind

10 05 2009

I recently read a few blogs from Jonathan D. Becher and it reminded me of a couple of stories.  I did a couple of webinars a year or so ago with the lead in being a question about how well do you know your corporate strategies.  What I consistently found was that 80%+ of the respondants could not cite the strategy off the top of their head.  This is clearly not new research as their are a number of people/companies that cite very similar numbers.  

I think there are a number of factors at play here:

  • Corporate Strategy has no lasting communication vehicle.  It is often discussed in conference calls and writen on walls, but we have no effective, living tool.  We need to build a communication plan around articulating strategy.  Here is a reference to an older blog of mine on Strategy Maps that touches on this subject.
  • We often lack a consistent framework for Strategy (or a single version of the truth), so we end up with a number of different frameworks for defining strategic objectives.  Corporate uses one framework, the business units another, and then each department creates something new as well.  What we end up with is too many messages and no clarity into priorities.  All of this becomes to difficult for anyone person to understand, so they just go about their day doing the things that want to do or that are easy to do.
  • We also have unstated strategic objectives, or as Oski refers to them in a comment on this blog post, “shadow strategies” where the organization says one thing, but actually does another. 
  • There is also personal politics and empire building that is probably more widely used than anyone would care to admit.  I have seen too many examples where people talk more about how big their team is than provide the value their team creates.  If this is what is top of mind, it is probably an indicator of their motivation.  
  • We don’t have a strategy management process.  Strategy is done independently from budget, or we hire some consulting firm to develop it and then the binders and reports are placed in an archive.




Setting Targets

23 04 2009

Setting targets for Performance Indicators should be well thought through. This should not be an exercise in looking at the historical average (unless that is specifically relevant) and then apply 10% as the desired increase. You will want to review history, but you need to understand the goal. It is also important to define the KPI clearly.

For example, let’s use the retail market’s target of sales to sales last year. Retail has traditionally looked at this on a daily basis, as well as rolled up to the week, month, quarter, and year. I have two primary concerns with this:
  • If the weather was bad, we ran a promotion, or some other contributing factor, we may not know it and are really not comparing apples to apples. Additionally, what if last year was really bad? Beating that number doesn’t do much for us. 
  • If we are reviewing this on a daily basis, we loose institutional knowledge due to the repetition. What if we miss a day? Is there any repercussion? What if we miss three days in a row? What if we miss 10 days out of 14? Were there enough days in there of good performance to hide the fact that a trend is occurring?

What would make more sense to me would be to look at this number as a rolling average, or take the total sales for the last 365 days / 365 on a daily basis. Here we can very quickly identify a positive or negative trend, as we don’t have to look at numbers that swing wildly by the day of the week. Instead of talking about  a couple of bad days, we understand that even though we had a couple of bad days, the overall trend is above the goal. We can also integrate our sales goal and show it relative to the trend line.  





Strategy Maps for Strategy Development

21 04 2009

The Strategy Map is one of the more interesting tools in terms of Strategy Development.  I know most people want to describe it as a Strategy Execution tool, but I see it as a great check to the overall health of your strategy?

  • Do you cover things other than the financial outcomes in terms of your strategic objectives?
  • Do you consider the customer voice, or desire?
  • Do you know where you are in your strategy lifecycle?

Some people like to design complex strategy maps that take months and months to develop with strategic objectives to cover all contingencies.  The font becomes too small, and the word optimize shows up too much.  

What if we took a different tact?  What if we use the Strategy Map as a santiy tool, to test the strategies to make sure they are top of mind and easy to digest?  Instead of creating too many objectives, we focus on clairty of thought.  We use the tool to make sure the organization can understand what we are doing and to then use the map to define the initiatives and performance measures that align their department with the overall corporate goals?





Complexity

21 04 2009

Think of all the complexity we have created as organizations. Whether data, process, people, and of course politics. We time stamp everything we can, we empire build, we work in silos, we do things to do things. Or even worse, we do the things that are easy, or that we like to do. And because of all this complexity there is no way to identify that those activities aren’t helping.

As a company or organization grows, this continues to add to the complexity. We get further and further away from understanding what creates value.

  • What would happen if we started to unravel the organizations complexity?
  • What if we created a new type of organizational hierarchy focused on value creation?
  • What would happen if we just focused our efforts on the stuff that matters?




Meeting Management & Agendas

26 03 2009
  • How much money do you spend annually on meetings?
  • Do people show up on time, follow an agenda, and end the meetings on time?
  • Do meetings regularly create and review actions?

Meetings need structure and process, yet most meetings happen because of momentum. “We always meet on Fridays as a team.” We meet to discuss and communicate. Yet this discussion is typically around individual status updates, and less about what needs to happen, or hurdles that need to be cleared.

Shouldn’t every meeting have a well defined purpose to specifically create an action. Change “meet to review project status” to “meet to analyze project performance, understand risks, and make recommendations.” Now we go from asking people to attend the meeting TO preparing the team for the meeting. Roles and tasks should be assigned and materials need to be reviewed prior to the meeting.

Here is a link to Seth Godin’s blog on the same subject – Getting Serious about your Meeting Problem




Scorecards & Dashboards

16 03 2009

These are two terms that the BI world uses interchangably. The only thing they should have in common is that they both can visually display data.

Defined:

  • Scorecards are tools that help facilate discussions around strategy and operational performance management. The indicators (KPIs) should foster discussions about corporate direction, resource allocation, priorities, and initiatives. 
  • Dashboards should be used for tactical discussion triggers, like inventory orders, technical support, phone coverage, etc. 

What should be happening with these tools is a far more structured use for each (and throw in reporting as well). All too often these tools are used without discipline which leads to mulitple versions of the truth, lack of focus, red herrings, miscommunication, and ultimately a waste of time and energy.

IT and business users need to work together to better understand what each tool can provide, when that tool will be used, how it will be used, how it will NOT be used, and who should be using them.





Efficiency vs. Effectiveness KPIs

13 03 2009

Key Performance Indicators (KPIs) should be measures of risk to annual goals or strategic objectives.  If we can keep this list of KPIs minimal, we stand a much greater chance of keeping the organizational focus on improving key processes.

To derive these KPIs we need to understand the organizational inputs, outputs, and desired outcomes.  While this is a little academic, it is a good way to start to organize and define your KPIs. Outputs / Inputs are measures of efficiency, while Outcomes / Inputs are measures of effectiveness.  By overlapping the organizational or departmental focus we can align and define these KPIs to make sure they are driving the desired behaviors.  

Tradionally Sales and Marketing goals are to be effective, thus revenue per head, or win percentage are better measures.  While finance and IT are generally geared for efficiency withcost per order, or IT spend per target are more common.  

KPI design is far more difficult than people expect and is often unique to the environment as strategies, objectives, and priorities vary organization to organization.





Scalability as a KPI

7 03 2009

One item that companies should do a better job with is understand departmental scalability.  Are the company grows, do each of the departments grow with the same scale?  Does finance not scale because of compliance and risk, or because of broken processes?  How do we know if we can’t track Revenue / Departmental Headcount over time?

And if we do start to do a better job tracking metrics like this, doesn’t this give us greater insight as to where the organization gets the most bang for the buck?  As well as give us a defensible rational to defend against empire building for personal reasons?




Defining Operational Performance Management (OPM)

12 02 2009

OPM is part of a number of buzzwords within the industry that is often used, yet poorly defined. While it is part of a the Performance Management family (which is also overused, generally accepted, yet not well defined). For us to make the niche more credible it is important to have a generally accepted definition of what it means.

I have tried to frame OPM as a methodology, a framework, a process in which the focus is upon creating value with the customer in mind. Where Financial Performance Management strives to improve the budget development and budget management processes to enhance shareholder value, OPM takes us beyond the constraints of the financial mindset. We need to look at the processes and initiatives that drive customer value creation. Processes and initiatives like sales and marketing, operations, supply chain, pricing and discounting, etc.

It is clear these two legs (OPM & FPM) must work together, and one should not take priority at the expense of the other. All to often our budgetary process becomes our measure of success, even though it is a lagging indicator. Where OPM becomes particularly valuable is that if we are building customer value correctly, it leads to greater financial results. Are we better off to hit our budgets in a year when the market was wildly successful? If the market grew at 10%, yet one grows at their budgeted 8% – was management successful?