Closing the Intelligence Gap - Gary Cokins on Performance Management

Let’s get a bit wild and imagine way out into the future about how a truly futuristic enterprise performance management (PM) framework might operate. (If you are impatient to read my blog on this, then go directly to the bottom and click on the link to the video. After viewing, hopefully then read this blog.)

Before we let our imaginations take off, we first need to agree on what an enterprise performance management framework is. I will stick with my long-established definition that PM is much broader than its typical description as a CFO initiative of better financial reporting with a bunch of dashboard dials. (As proof I have remained consistent, an in-depth description of PM is in my March, 2005 Corporate Performance Management – Myth or Reality?)

“Performance Management is the integration of multiple methodologies with each embedded with business analytics, such as segmentation analysis, and especially predictive analytics … to achieve the strategy and to make better decisions.”

A key part of this PM definition is the last words – to make better decisions. Ultimately we all need to understand and accept that good execution of an executive team’s strategy and its plans are the consequence of thousands of daily decisions made by employees at all levels in an organization. Today employees base these decisions on the limited information they have and often with their own self-interest or self-interest of the so-called silo department or process they work in. There can be conflict when decisions are not the best based because (1) the employee is unsure if they have the authority to make a type of decision, and (2) employee actions are not aligned with the strategic objectives formulated and constantly adjusted by the executive team.

A powerful lever for strategy execution is clarifying decision rights. As organizations grow in size, the approval process gets complex and foggy. Employees become unsure where one person’s accountability begins and another’s ends. Work-arounds then subvert formal hierarchical reporting relationships. Clarifying who has what decision-making authority and empowering decentralized decisions lower into the organization brings mission-critical agility .

Now to the future. As decision making becomes more decentralized and is delegated deep down to every individual employee, how can technology be harnessed to aid employees to quickly perform research and make the increasing need to make speedy decisions? Will they go their hand-held smart phone that is increasingly becoming computer-like? Maybe, but it is clumsy to do a Google search with a smart phone and tough on the eyesight as well. And each employee’s smart phone may not be tailored with rule-based decision making tailored to your organization and constantly changing conditions.

Watch this 8 minute Sixth Sense video of Patti Maes, a researcher of a Massachusetts Institute of Technology laboratory. (Think Tom Cruise in the movie “Minority Report.”) The video demonstrates examples for consumers. Shift your thinking to how employees could apply the same future technology for enterprise performance management.

I have examples I can think of. What are yours?

This week I attended the 12th annual Balanced Scorecard Collaborative (now called Palladium) Americas Summit conference. This conference attracts relatively more advanced and mature organizations who have implemented strategy maps and the balanced scorecard (BSC) concepts developed by Dr. Robert S. Kaplan and Dr. David P. Norton.

I consider this conference as an early predictor of what “new waves” and emerging trends may progress in the broader Performance Management community. For example, at this conference in 2007 I detected a shift for organizations to pay more attention to strategic projects and initiatives derived from the objectives in their strategy map – and then adequately fund them. This is now better known as StratEx for “strategic expenses” in performance based budgeting.

At this year’s conference I observed three areas receiving increased emphasis and attention to past years.

In Dr. Norton’s opening keynote speech he observed that a barrier slowing the progress in fully adopting the BSC methodology is what he calls “fragmentation.” This is the lack of coordination between and amongst various performance management methodologies (e.g., CRM, Six Sigma quality) and actions. His recommended solution is an “integrated technology platform” with software automation. That is, he viewed that moving from spreadsheets and PowerPoint to commercial BSC software solutions was essential to institutionalize and sustain an organization’s BSC.

The keynote speaker Howard Dresner, a popular IT analyst and business advisor, described the need to create a “performance-driven culture.” He pointed out that at this point in time BSC is well over 15 years old, and its underlying methodologies are proven. (Many of the conference’s case study presentations served as evidence of BSC’s success.) The barrier holding back progress with the vast majority of organizations is cultural including resistance to change and the absence of a “visionary leader.” Howard has developed a survey diagnostic that organizations can assess their culture’s readiness for applying BSC.

Professor Kaplan’s keynote presentation was titled, “Leveraging data and Results to Drive Operations.” A highlight of his message was his describing how business intelligence (BI) and analytics (e.g., micro-segmentation, regression analysis for correlation, predictive analytics) are growing as key contributors to completing the last stages of the Kaplan and Norton Execution Premium Process (EPP) described in their most recent book. Those latter stages address optimizing decisions with analytics.

To summarize, these are the three shifts in BSC messaging I observed:
- Institutionalize BSC with software automation
- Create a culture for alignment of strategy to operations with metrics
- Apply business analytics to optimize

I suggest you revisit some of my prior blogs (and stay tuned for my future ones) to read how I agree with these emerging messages.

There seems to be a growing interest in applying analytics to sports. One example is the popularity of the 2003 book Moneyball that describes the depth of analytics that general managers like Billy Beane of the Oakland Athletics apply to selecting the best players, plus batter and pitcher tactics based on the conditions of the team scores, inning, number of outs, and runners on base. I expand on this trend in an article titled Baseball + Analytics = Improved Performance. Why might this interest be?

Perhaps it is because people are so stressed with their hectic workday and family responsibilities that taking interest in sports events is a great release of tension. (Of course there are the gamblers, but they are a subset.) Can we detect from this trend of sports analytics the application of analytics in business?

One of my co-workers at SAS, Retha Keyser, recently shared with me an astute observation on how managers mature in applying progressive managerial methods. She noted that roughly 50 years ago, CEOs hired accountants to do the financial analysis of a company, because this was too complex for them to fully grasp. Today, all CEOs and mainstream businesspeople know what price-earnings (PE) ratios and cash flow statements are and that they are essential to interpreting a business’ financial health. They would not survive or get the job without this knowledge.

Retha then recognized that 20 years ago, CEOs of companies did not have computers on their desks. They did not have the time or skill to operate these complex machines and applications, so they had their secretaries and other staff do this for them. Today you will become obsolete if you don’t at least personally possess multiple electronic devices such as laptops, mobile phones, BlackBerrys and PDAs to have the information you need at your fingertips.

There are hundreds of examples of applying analytics to sports. One I recall is the IT analyst Steve Miller’s solution to debunking a conjecture of his son’s friends that a certain university had low academic standards and thus fielded better athletes. Steve's article Yuletide Lite Plus a Few Graphs describes his solution.

You cannot manage what you cannot measure. Raw data leads to information. Information can then be analyzed for decision making. Competency with analytics will surely provide a competitive edge for organizations that these skills with workers at all levels.

Text analytics may be the next wave of computer analysis. In contrast to quantitative analytics, text analytics broadens mining raw source data beyond numbers to include words, phrases and sentences – alpha characters.

The potential of text analytics’ applications and benefits are endless. They range from marketers more quickly, potentially in near real-time, detecting consumer trends to applications improving fraud detection. However, like any new digital frontier there are both promises and perils.

A New York Times article, When 2+2 Equals a Privacy Question, revealed some of the potential risks to personal privacy. The article presents an example where Netflix, the movie DVD rental company, provided a data set to researchers containing 480,000 of their customers’ movie preferences. The initial purpose was to seek improvements to its recommendation software. The customers’ identification had been removed from the data. However, researchers from the University of Texas were able to re-identify individual customer names by correlating the presumably anonymous data with digital trails left on blogs, Twitter, Facebook, chat rooms, and cinema websites like Imdb.com. (A Netflix spokesperson disputed the findings by claiming the data sets had been altered, but that is a different discussion for another time.)

When an example like this is applied to electronic medical or criminal records, the implications become more serious. Individuals may not want that kind of information revealed to motivated third parties like potential employers that can possibly cause social, professional and financial damage to an individual. (As full disclosure, my employer SAS offers text analytics solutions, and I impressed with the awareness and concerns that my co-workers have about this topic.)

Re-identification of presumably de-identified data shifts the discussion of text analytics into the realm of privacy and ethics. It is my hope that society comes to grips with ways to manage these risks. Analytics can be so much fun. Examples abound, not only with marketers anticipating trends and improving targeted messages and offers to customers and prospects; but also, for example, with sports enthusiasts who seek to resolve debates about “best” athletes or teams.

I confess. Despite my perception of myself as a tough guy – co-captain of my university football team – my eyes misted at the end of the 1998 Tom Hanks and Meg Ryan movie, You’ve Got Mail. In the film, Hanks’ new big box Barnes and Noble-like book store in NYC’s Manhattan had put Meg Ryan’s small West Side children’s book store out of business.

During the movie, Hanks anonymously exchanges AOL e-mails with Ryan as a new friend and gradually an admirer. Despite her resentment of the known Hanks for his callous business style, she came to like him for his helpful advice during constant coincidental meetings in neighborhood stores, paralleling similar advice of the anonymous e-mailer – also from the same Hanks. At the movie’s conclusion when the two anonymous e-mailers agree to meet in Central Park, to Ryan’s surprise Hanks appears as the anonymous e-mailer at the agreed location. At first she is confused why he’s there too. Then she realizes Hanks is both the adversary she had come to admire and the anonymous e-mailer. They’d already fallen in love. Hanks approaches Ryan and says, “Don’t cry, Shopgirl (her AOL ID). Don’t cry.” Ryan replies, “I wanted it to be you. I wanted it to be you so badly.” They embrace. End of movie.

What does this have to do with Performance Management? You might be surprised by the number and frequency of unsolicited e-mails I receive with questions of all sorts from individuals ranging from university students to internal project champions to executives. I feel like I have pen-pals you established relationships with as a kid during Summer camp.

A common theme of questions inquire about how to get buy-in and support to pursue a Performance Management methodology quest, like to construct strategy maps, balanced scorecards, customer profitability and value management analysis, or driver-based budgeting and rolling financial forecasts. These solutions are not compulsory or the law, like Sarbannes-Oxley, but are optional. So persuasion is needed.

Like Hanks and Ryan in the movie, I am clueless who these people writing me are, except perhaps for a few clues. My answer, however, never wavers. To overcome the natural and expected resistance to change of co-workers, having the vision of a solution and practical steps (e.g., a pilot project) to implement it is not enough. One must raise a level of discomfort and dissatisfaction with the status quo to motivate people. That is, one must stimulate sufficient anxiety with continuing operations as-is and perpetuating making decisions on inadequate or flawed data, to overcome defiance and opposition by managers and employees to try something new – and needed for improvement.

It is not easy to be self-critical of your own organization. Further, it is a challenge to identify a coalition of co-workers who feel as compelled as you that adopting Performance Management methodologies is needed. But it must be done. You will need to decide if you are just a follower or a leader. “Don’t cry.” Pursue what you know is needed to make a difference.

Will executive teams inevitably be texting and tweeting each other with Twitter? If so, here might be a team’s exchange of tweets as their quarterly financial results are about to be reported.

CEO: @CFObeancounter – DollarDude. How’d we do 3rd qtr?
CFO: @CEObigchief – Bad. Missed sales & profit $$$ targets. Profits ½ of $$$ plan.
CEO: @CFObeancounter – No way. Cant be tru. Y?
CFO: @CEObigchief – Ask the Huntr.
CEO: @SalesVPbagger – DollarDude says we missd $$$ targts, Top line. Bottm line 2. Y?
SalesVP: @CEObigchief – Beats me. All KPIs above plan. Nice bonuses. Party!!
CEO: @CFObeancounter – Huntr says he beat all hz KPIs. You lyin 2 me?
CFO: @CEObigchief – Huntr’s KPIs are bogus. He’s gaming the systm. Had lots of sales calls. Few sales. Bad target accts.
CEO: @SalesVPbagger – DollarDude sez lots of crummy sales calls. Bad accts. Tru?
SalesVP @CEObigchief – DollarDude should stick to counting the beans. We made 98% $$$ sales targt.
CEO: @CFObeancounter – Huntr says hit 98% $$$ sales targts. Y profits ½ of $$$ plan?
CFO: @CEObigchief – In the mix.
CEO: @CFObeancounter – Huh?!!
CFO: @CEObigchief – Huntr sold mostly lo margin stuf. I think.
CEO: @CFObeancounter – You think?! Wuts the facts?
CFO: @CEObigchief – Our cost allocations overweight the ez stuff. Underweight the tuff stuff. Tuff stuff then looks profitable. It ain’t. A mirage. Litl profit. Mayb losses. We sold a lot of tuff stuf last qtr.
CEO: @CFObeancounter – You lobbyin for that activity based costing u want? That ABC thing?
CFO: @CEObigchief – All our $$$ profit margins are distorted w/o ABC. We need reality, not broad averages.
CEO: @CFObeancounter – What about our cost performance last qtr?
CFO: @CEObigchief – Opns missed his productivity plan … agin.
CEO: @OpnsVP – Bigboy. DollarDude sez yu missed cost reductions. Y?
OpnsVP: @CEObigchief – DollarDude’s mis-focused. Didnt give us enuf budget to do it.
CEO: @CFObeancounter – Bigboy sez no $$$ 4 projects to cut his ops cost $$$.
CFO: @CEObigchief – Yup. U x’d out his budget $$$ to hit HQ’s budget profit $$$ goal.
CEO: @OpnsVP – Oops. My fault. Forgot u needed to spend $$$ to cut cost $$$. What now?
OpnsVP: @CEObigchief – We need better KPIs. My folks track OT hours. Keepin em lo. Leave early. Go fishn. Missed ship due dates. Some customers leavin’ us.
CEO: @CFObeancounter – Bigboy sez KPIs drive bad behavior. Poor srvc. Losing customers.
CFO: @CEObigchief – We need a strategy map, then KPIs from it.
CEO: @CFObeancounter – Strategy maps are kids stuf. Me with crayons? No way.
CFO: @OpnsVP – Chief sez u want new KPIs. Like what?
OpnsVP: @CFObeancounter – Like any mezr that links my opns to his strategic objectives?
CFO: @OpnsVP – Chief duznt like strategy map. Mayb we should draw one for him.
OpnsVP: SalesVPbagger – DollarDude sez we should draw Chief’s strategy map. Agree. But DollarDude should measure customer profitability. Your Customer Uno is killin me.
SalesVP: @OpnsVP – What u mean? Customer Uno is my big meal ticket.
OpnsVP: @SalesVP – Customer Uno jerks our schedules, always ordrs specials, hi tech support, returns stuf. I think we lose $$$ profit with em !!!!
SalesVP: @OpnsVP – U mayb right? Should we measure $$$ profit for all customers?
OpnsVP: @CFObeancounter – Huntr is cummin around to u measuring $$$ profit by customer. Can u? Then sales bonuses could focus on our hi profit margin $$$ stuf and on bettr types of customers.
CFO: @OpnsVP – But I’m not sure what our stuff’s $$$ profit margins are. I need ABC costing. Also need ABC for customer profit $$$ math. That $$$ spend is below the product $$$ gross margin line …. Costs of distn, channels, selling, and cust svc.
OpnsVP: @CMOadman – Scope. DollarDude is scaring me. Thinks u might be targeting unprofitable customers. How do u target new sales prospects?
CMO: @OpnsVP – Simple. Spray-and-pray advertising. If they have a heartbeat, we chase em. Grow mkt share at any cost. More butts-in-seats at my mrktg events = big $$$ bonus for me.
OpnsVP: @CMOadman – Wut if those butts-in-seats nvr buy our stuf? U still get bonus?
CMO: @OpnsVP – Yup. Big bonus for hi #s of webhits to our URL 2. Lately lots of kiddies web traffic. They can buy our stuff when parents give em an allowance.
OpnsVP: @CEObigchief – DollarDude and Huntr think we need ABC costing to measure our true $$$ profit of stuff, services & customers. I want KPIs that make more cents (ha! get my joke?).
CEO: @OpnsVP – Wut does Scope think?
OpnsVP: @CEObigchief – Scope wants no part of DollarDude’s ABC. Makes xtra work to targt more valuabl prospects. He’s chasing wrong markt. Likes his # of butt-in-seats and web-hit KPIs … regardless who they r.


MEMORANDUM
To: Sales, Marketing, Operations, and Accounting
From: Office of the CEO
Subject: 3rd Quarter Financial Results

We missed our third quarter sales and profit targets. Profits were 50% of target. Why? We don’t know where we make or lose money. We don’t know which types of customers and sales prospects to retain, grow, or acquire. We measure the wrong things.

I’m taking a vacation. You figure out how to fix this.

Big Chief

Do remember as a child playing musical chairs? While the music played you walked in a circle with one less chair than there were children. When the music stopped everyone scrambled to sit in a chair. Everyone won but one who was out. This was repeated until one lucky child won the last chair. Was everyone really a winner or all losers except one?

A recent New York Times cover page article, Buyout Firms Profited As Company Debt Soared, reminded me of this children’s game. But it was real life. It is a sad description of how the 133 year old Simmons Bedding Company headquartered in Atlanta was sold seven times in a little more than two decades after being owned by a parade of private equity investment firms. The last owner has now filed for bankruptcy protection. A fourth of Simmons roughly 4,000 employees were laid off last year as the company declined. It was crushed by an unpayable debt of $1.3 billion that grew from only $164 million in 1991.

Perhaps if the principles of performance management methodologies had been followed this company would be thriving, not humbled. James Taylor, the popular IT analyst and blogger, describes in his blog Survive, thrive and capitalize with BPM numerous examples of organizations that have applied performance management to be successful.

What is more sad about Simmons is every private equity firm made money including its last owner that netted about $77 million by collecting hundreds of millions of dollars from Simmons in the form of special dividends. This private equity firm also paid itself millions more in fees to acquire Simmons and then to manage it. Manage it? The executive the private equity firm brought in to run Simmons, who worked remotely from his Florida estate, earned $40 million in compensation, bonuses and perks before stepping down. Wall Street firms also handsomely profited by arranging each takeover and by selling the bonds that made this all possible including to the unfortunate final bondholders. There were no more chairs for them when the music stopped.

Is this the temporary creation of artificial wealth that is real to each buyout firm but destructive to an economy?

Many of us are managers but few of us ever become C-suite leaders and more specifically a CEO. But imagine if you just became a new CEO, and it is of a very troubled company. I wrote my monthly column about this for the web portal Information Management titled “Now, You are the CEO.”


I suggest you now click on my article’s hypertext and read it.


I received several e-mails about the article. Many of them were stimulated by the observation that research has revealed that the major influence for successful strategy execution does not come from shuffling boxes in the organization chart. Rather it comes from clarifying decision rights for managers and employees who are often confused if they have the power without seeking approvals to make certain types of decisions.


Employee empowerment can go a long way to generate innovation and test new ideas.

On the shelves in the business topics section of any bookstore are numerous books about leadership and management. I have never considered myself a motivational writer or speaker that describes the importance of executives’ rallying the workforce with inspiration. In my career I have seen examples of leadership that reflect their individual desire for power more than a duty to improving organizational performance. My writing and speaking interests are more with equipping managers and employee teams to help their organizations be better, faster, cheaper, and smarter.


Muscle or brain. Strength or smarts. I choose the latter in both cases.


The primary source for improvements in organizational effectiveness and decision making is shifting toward the use of analytics of all flavors. Traditional approaches like 1980s management by objectives (MBOs), bullying employees, and hollow wall banners of rhetoric (“Quality Comes First”) are being superseded by deploying and integrating analytics.


Applying analytics from the CEO’s top desk to each employees’ desktop enables an organization to solve complex business problems, manage performance to achieve measurable objectives with targets, drive sustainable growth through innovation, and anticipate and manage change. Just having a foundation for analytics is important too, and Ann All describes this well in her blog Process Management Is Weak Link in Real-Time Data Chain. She observes, “ … companies are having and will continue to have problems with all of the data they are collecting. It takes time and effort to run reports and get them to the relevant people and additional time for those people to tell the relevant systems what to do, assuming the right systems are in place.”


In particular a powerful flavor of analytics is predictive analytics. Applying predictive analytics results in making proactive, forward-looking decisions that go beyond low end query-and-reporting questions like "What happened?”, "How many?" and "How often?" to answer high-impact questions like “Why did it happen?”, "What will happen next?" and "What is the best that can happen?"


I credit the New York Times op-ed columnist Maureen Dowd for my blog title. Her column was “Less Spocky, More Rocky” describing politicians; but when I applied this title to mission-directed organizations, like yours, I swapped the two names. I would prefer to have an organization with Star Trek’s Spock-like logic and analytical skills than one like Rocky Balboa punching meat carcasses in a freezer.

Everyone is familiar with the relentless question from children in a car’s back seat during a long road trip impatiently asking, “Are we there yet?” To some managers this question can apply to the journey of implementing the full vision of the performance management framework. As an example, Michael Ensley recently wrote a blog asking Jonathan Becher and I “How would each of you define Performance Management and what does it mean when it is successfully implemented?” Jonathan responded first, in "Performance Management Defined (and Debated)." My turn.

When is Performance Management successfully implemented?
For the second part of Michael’s question, I commented on a similar question in my June, 2009 blog, “Can You Ever Complete Implementing Performance Management?” posed by John Colbert, an IT analyst with BPM Partners:

There are many types of performance initiatives, arguably dozens, including profitability optimization and strategic planning. Executives select which initiative to pursue like choosing your food in a cafeteria line. The selections for any organization will depend on what is most desired. However, a key to getting synergy is to both integrate the initiatives' methodologies and imbed analytics of all flavors in each – especially predictive analytics…"

John also states, “… (P)erformance management is an ever evolving project that is never really ‘complete.’” This is my belief too. I have stated that there is no organization on the planet Earth that has completed the full vision of the Performance Management framework. But the smart and healthy ones have traveled far. It is like running a marathon without a finish line. But it is better to be running in the lead.

I expand on my observation in an earlier blog “One Performance Management – Many Recipes” where I state that

Just like our grandmothers each had their own recipe for a holiday fruit cake, organizations are concocting their own customized versions of the performance management framework. Increasingly there is consensus that performance management is not a process or a system, but rather it is the integration of multiple managerial methodologies like cog gear-teethed wheels in a machine to be synchronized – better, faster, cheaper and smarter.

How does one define Performance Management?
Now let’s address the first part of Michael’s question – a definition for performance management. One of the causes for impatience with the performance management road trip is there confusion, ambiguity and lack of consensus in the marketplace about the definition of performance management.

As evidence of this confusion just Google the term and you will see what I mean. Many of the hits are about employee performance management and appraisal, an HR and personnel task. Additional confusion is because different information technology research firms define it differently. And different consulting firms and software vendors describe it to fit their unique competencies rather than what their customers may require.

A major source of the confusion is that performance management is perceived by many as far too narrow. It is often referenced as a CFO initiative with a bunch of measurement dashboards for feedback and better financial reporting. It is much, much more and broader. More recent confusion comes from the term being narrowly applied to a single function or department, such as marketing performance management or IT performance management. These two examples are an operational view in contrast to the strategic enterprise-wide view that Colbert, myself and others share. It is not business process management but performance management.

Since my impression is that performance management is not a new methodology but rather is the integration of existing methodologies, none near optimal, and that have been in practice for decades – arguably even before computers – then my belief is it is better to discuss what performance management does rather than have arcane debates about defining what it is.

But if I was pressed, I would define performance management as follows: Performance management is the integration of multiple methodologies with each one embedded with business analytics, such as segmentation analysis, and especially predictive analytics … to achieve the strategy and to make better decisions.

It seems the Holy Grail for scorecards and dashboards seems to be organizations seeking to answer, “What should our key performance indicators (KPIs) be?” Websites such as KPI Library.com help address this challenge. At the heart of selecting KPIs should be their linkage to the executive team’s strategy. However, there are different stakeholders in an organization, such as internal manager and investor governance boards. Each stakeholder has different needs. Hence there should be different types of KPIs.

Performance measures reported in scorecards and dashboards is one of the components in the portfolio of integrated performance management rivaling in importance other methodologies such as customer relationship management and managerial accounting. Regardless of the type of KPI, analytics (such as segmentation, predictive modeling, forecasting, design of experiments and mathematical optimization) are ideally imbedded in each methodology, and they are critical for employees to achieve and exceed KPI targets.

Author Brett Knowles, founder of the consulting firm PM2 and a veteran of the balanced scorecard thought leader community, has given much thought to the topic of different KPIs for different purposes. In Volume 4, Number 6 of his firm’s Performance Measurement &Management newsletter Brett describes different types of KPIs in an article titled “Five Distinct Views of Scorecards – and Their Implications.” With Mr. Knowles permission, here they are abbreviated with my minor edits:

 Valuation – There is a need to describe what the organization does in a way that the financial world can understand: monetary currency (e.g., dollars, Euros). All activities need to be financially valued, including tangible assets (e.g., buildings and inventories) and intangible assets (e.g., brand equity and customer loyalty). Several methodologies exist that grapple with this need, including EVA, ABC, etc.

The challenge is that more than 80% of value is created by intangible assets, yet traditional accounting systems do not do a good job of capturing intangibles. The scorecard has proven to be a great tool for making the intangible assets visible and valuable.

Information in this area needs to be:
• Centered on outputs, outcomes or deliverables,
• Closely related to existing valuation mechanisms,
• Standard, repeatable and reliable.

 Navigation – Internal managers need to make informed decisions on a frequent basis that are consistent with medium- and long-term strategy. Strategy, cascaded downward into the organization through a strategic scorecard and operational dashboards, is going to dictate both what should be done and how important it is. This creates alignment of employees’ actions and priorities across all functional and regional boundaries and consistency across time. This where performance management methodologies and analytics play a critical role.

Information in this area needs to be:
• Very responsive to shifts in the work activities,
• Process based,
• Related to overall effectiveness and efficiency.

 Compensation – Scorecard frameworks lend themselves to rewarding employees for contributing to the success of the organization. Over-performers should be distinguished from under-performers. Compensation views differ from the previous two in that only a small portion of employees’ activities are closely related to the valuation of the organization and often the in-process information used for navigation is not results-oriented enough for effective compensation models.

Information in this area needs to be:
• Related to the value that the team can control and create,
• Output and outcome related,
• Accurately measurable and repeatable across locations and time.

 Benchmarking – The only way to determine whether your organization is making progress is to compare it to other “things” (“comparatives”). There are many comparatives available: competitors, best-in-class, world-class. In the true sense, even target, forecast and revised-forecast are all comparatives too.

The challenge with benchmarks is that the data is sparse and with “dirty” quality. Also, there can be apples-and-oranges inconsistencies (e.g., including or excluding data, measuring different start-and-end times of processes). Comparatives do not, typically, go into enough detail to provide operational insights into diagnosing any identified issues, nor do they cover the full breadth of your strategy.

Information in this area needs to be:
• Available from other sources,
• Understandable and relatively comparable,
• Strategically related to your organization.

 Evaluation – Periodically, there is the need to get an accurate measurement of how the organization is performing. Periodically the organization needs to undertake such activities as customer surveys, employee surveys, supplier assessments, etc.

These activities are too expensive and time consuming to be conducted often enough to be useful for navigation, but can be used to underpin selection and validation of navigation indicators, support compensation models and be used in reporting performance to outside stakeholders.

Information in this area needs to be:
• Survey based,
• Comprehensive and rigorous,
• Closely related to overall deliverables.


Brett summarizes by stating that most organizations need to consider their organization’s performance in two or more of these views. For example, a shared service IT department may need to prove and measure its contribution to the organization’s overall valuation, provide monthly navigational information for the project managers (and service level agreements [SLAs] for their customers), and develop a compensation package for use around the globe. They may also need to compare themselves to industry benchmarks and function points.

Brett adds that it is important to note that in many organizations it is possible to merge these various views into fewer and eventually just one. It is difficult, though, to begin with just one, as the numerous stakeholders need to first develop some confidence that the scorecard model adequately describes their view of the organization. Consider building the various views as a trick to speed implementation of your pilot scorecard. A simple way to do this is to keep the one strategy map, but link different indicators to it for each of the views.

My feeling is Brett is on to something important. As I have mentioned numerous times there is confusion and lack of consensus as to what a balanced scorecard is and associated ambiguity. Further many organizations neglect to first construct a strategy map from which to derive its KPIs. Understanding that there are multiple views can bring clarification.

In Peter Evans-Greenwood’s recent blog, Inside vs. Outside, he builds a case that it is not sufficient to shift from an organization’s internal historical view of information to react to towards a predictive view of information. To clarify, he means that awareness of external forces, such as changes in market preferences, is critical. His accusation is that organizations may get excessively pre-occupied by over-analyzing their existing internal data, the traditional space of business intelligence (BI). He suggests this creates an imbalance that should be corrected by greater emphasis on future impacts and the opportunities that can come with them.

He uses the example that traditional applications of BI in the music industry of monitoring and analyzing its sales of CDs obscured seeing the ominous signals from the rise of iPod and iTunes and their adverse impact on CD sales. I really like the diagram in Peter’s blog titled “Time and distance drive the value of information.”

Peter’s article has made me re-think my blog Rearview Mirrors or Windshield? In that blog I made a case that that despite all the buzz about applying predictive analytics, for most organizations there continues to be an untapped treasure trove of historical information to analyze and learn from. Peter’s article does not make me consider that an organization should reduce its efforts on analyzing historical information. It makes me believe even more emphatically that organizations need to expand their efforts much more with applying backward and forward looking analytics and to be even more inclusive of external and exogenous forces for opportunism.

In an August 6, 2009 New York Times (NYT) article For Today’s Graduate, Just One Word: Statistics I am reminded of the famous cinema quote of advice to Dustin Hoffman in his career breakthrough 1967 movie The Graduate. It occurs when a self-righteous Los Angeles businessman takes aside the baby-faced Dustin Hoffman and declares, "I just want to say one word to you – just one word – 'plastics.’ ”

This spotlight on statistics is apparently relevant because this news article ranked in that week’s top two NYT e-mailed articles (and sixth the following week) as tracked by the Times. The article cites an example of a Google employee who “uses statistical analysis of mounds of data to come up with ways to improve (Google’s) search engine.” It describes the employee as “an Internet-age statistician, one of many who are changing the image of the profession as a place for dronish number nerds. They are finding themselves increasingly in demand – and even cool.”

Is statistics really a profession or is it a skill that is becoming of mainstream value due to the increasingly thinner margin for decision error and the requirement to gain insights and inferences from the treasure chest of raw transactional data that organizations have stored (and continue to store) in a digital format? The article states:

In field after field, computing and the Web are creating new realms of data to explore – sensor signals, surveillance tapes, social network chatter, public records and more. And the digital data surge only promises to accelerate, rising fivefold by 2012, according to a projection by IDC, a research firm. …Yet data is merely the raw material of knowledge. We’re rapidly entering a world where everything can be monitored and measured, but the big problem is going to be the ability of humans to use, analyze and make sense of the data. …(Analysts) use powerful computers and sophisticated mathematical models to hunt for meaningful patterns and insights in vast troves of data. The applications are as diverse as improving Internet search and online advertising, culling gene sequencing information for cancer research and analyzing sensor and location data to optimize the handling of food shipments.

The application of business analytics is becoming mainstream need. Dustin, there is likely a new movie script awaiting you. I can’t wait to see it.

This Tuesday August 18 at 11:00am EST I will be on a webcast panel discussion hosted by CFO.com titled Implementing Performance Management Methodologies – Pitfalls and Speed-bumps. I encourage you to watch it live or its archived recording. If you want to hear my formal presentation with slides on the topic you can watch it on an archived webcast also titled PM Pitfalls and Speed-bumps that I presented for the Institute of Management Accountants.

What is my message? My webcast descriptions state: “There are techniques that can prevent failure with implementing Performance Management (PM) methodologies such as strategy maps, balanced scorecards with KPIs, customer profitability reporting, driver based budgeting and others. First, one needs to understand what the barriers are. This webcast will describe why the adoption rate of PM has been slow, and lessons learned to overcome obstacles.”

These messages reveal my frustrations that so many organizations are hesitant or skeptical to adopt and implement performance management methodologies. Their value is so obvious. My main message is the primary obstacle is social – it is about peoples’ natural resistance to change, not wanting to be held accountable, and many others.

I first signaled this frustration in my blog From Nag to Wag – Why Performance Management Now, and I was more direct in my subsequent blog What Do I want my Epitaph and Legacy to Be? Read these blogs and you will detect my growing disappointment that managers and employee teams are being denied the methods, tools, and resulting decision capabilities.

If you like my webcasts, share the links with you colleagues and ask them after they view them, “Is this our organization’s root problem?”

James Taylor, one of the IT analyst thought leaders of the broadening scope of business intelligence, has written a thoughtful piece titled Analytics simplify data to amplify its value. In his article James states that he likes his article’s title as a succinct description of analytics. He states:

(Simplifying data to amplify its value) always struck me as going to the core of analytics – the power of analytics to turn huge volumes of data into a much smaller amount of information and insight. … In every case the analytics are simplifying the data (a picture, a graph, an equation not thousands of rows of data) and yet amplifying its value by showing a data consumer what the data means. … IT people need to educate themselves on the role of these different kinds of analytics and their potential. … . Your systems store and manage data so something that makes that data more valuable makes your systems more valuable.

There is some danger when people talk about the keep-it-simple-stupid KISS rule. They forget its corollary LOVE rule – leave-out-virtually-everything. Too simple may be insufficient to draw correct conclusions. James understands this balance, and he has been an advocate of good decision making regardless of all the buzzwords the IT community may use. Many organizations are drowning in data but often starving for information. I’m with James. Performance management methodologies imbedded with analytics of all flavors unleashes the potential power for good decisions buried in data from transactional systems.