"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order to things." — Niccolò Machiavelli

The Concept:

In the early 90s, fresh out of graduate school, I landed the job of “quality support specialist” at a Fortune 500 technology company. What is a “quality support specialist” you might ask? Good question. A “QSS” was a role designed to support the regional director in improving processes, analyzing process data, and improving overall organizational performance. As a QSS and it being the early 90s, we formed teams. Lots of teams. That’s what we did back then. Teams to analyze customer issues, teams to analyze workflow, teams to work cross-company issues with our business partners. I must have led (they called it “facilitated” – it sounds fancier) 20 or more teams in the two years I was in the role. Guess how many of these teams’ efforts led to lasting, meaningful performance improvement? I’m embarrassed to admit, not very many.

As someone who works in the “performance improvement” field, this is obviously more than a little frustrating. You spend significant time on these change management activities, and yet very little actually “sticks” and produces long-term results. After a few annoyed managers, a couple of aggravated team leaders, and team members who tremble and run when they hear the word “process,” you start to wonder: “why doesn’t this work?”

Later on in my career, as we have related in previous EIR’s, we DID achieve true improvement in a substantial-sized organization by introducing radical change, reinforcing that change with “guiding principles,” and communicating the results back to those in the organization. To this day, I’m not quite sure how we hit upon this winning combination – possibly it was our immense, unparalleled, big-brained genius for leadership, but more likely it was a combination of intuition and dumb luck. I don’t know – somehow it just worked – but I still wanted to know why it worked and how to make it happen every time…

Well, I didn’t find the answer in one of those “business-theory-of-the-month-club” books that everyone seems to rave about. I found it in two places – my own leadership experience and, of all places, the world of physics… The juxtaposition of these two unlikely partners led to a result that I had seldom seen in the process world – tangible, lasting performance improvement.

Here’s what happened: A few years after the QSS job, while browsing in a book store, I happened to pick up a book on how new theories in physics are changing our view of how things at all levels behave and interact. Among other things, the book illustrated a concept used in physics, biology, and other disciplines called “complex adaptive systems.” To keep it simple, in studying various systems – whether flocks of birds migrating south for the winter or African termites building a massive, complex mound – scientists have discovered some simple, key rules for how systems must behave in order to be highly successful. All complex systems follow the rules and all complex systems survive or perish based on how well they can adapt to their surroundings while complying with the rules.

As I was reading the rules, I kept thinking, “this is exactly what we did! This is what made our process changes stick! We focused on the ‘rules’ that drove our organization!” Through some combination of luck and intuition, we had witnessed the beneficial effects of the complex adaptive system principles in our own organization’s performance.

So then – what are these principles or rules that govern complex adaptive systems? How can the lessons of flocks birds and colonies of termites be applied to a human business organization and its processes?

The first rule of complex systems is to “shock the system.” In order to affect change in a system, you must create some sort of event that forces it to react and behave differently. Shocking the system is a notification that the old way of doing things is history and the new way is the only option. For flocks of birds, the shock may be the cold of the approaching winter. For termites, it may be floodwaters or predators causing them to seek higher ground. For business processes, the shock may be forced upon you (bankruptcy, major shifts in market forces, etc.) or you may need to create a shock that precipitates a desired change.

Inherently, most organizations simply do not want to change – they even have built-in mechanisms – methods, procedures, approval chains, sign-off requirements, etc – to slow the rate of change. This is not always a bad thing, but it does make planned change more difficult. In order to create lasting change, you must overcome the built-in factors that actively resist changes. You have probably experienced this firsthand in your organization. Let’s say you decide to implement a new web-based application for tracking projects in your business. What happens? Do people pick up the idea and begin using it as the new method for reporting, or do they mostly revert back to the old way of doing things? In our experience, the majority of people will resist change – even change for the better – and cling to that with which they are familiar. Science tells us that this is not only common, but it is a trait of all complex systems. Organizational systems have a build-in resistance to change - a natural desire to stay at a “stable” state, so don’t take it too personally when new ideas and improvements don’t get rapidly accepted.

Applications for the Executive:

Okay – so science tells us that complex systems – such as any business or organization - are naturally reluctant to change. However, in order to stay competitive, we have to change. How can we “shock the system” and ensure that process and performance improvements get implemented and not simply pushed aside? Here are the three steps to create a systemic shock that can help ensure successful change:

1.  Float the new ship

The first step is to implement the change. The key here is communication – the more people know, the more they are “connected” to the change, the more likely you are to succeed. Changes die when they are not communicated to any but a select few. We are big fans of “beta testing” your changes to a small group, but the key is to get the body of the organization on board as quickly as possible. Organizational systems change only when they reach a “critical mass” of people that act or believe in a certain way. If the critical mass is not achieved, the change will die and the organization will revert to the old behaviors. Float your new ship; get as many people as you can on-board, and then…

2.  Sink the old ship

Too often, managers will give people an option – accept the change or don’t accept the change. Complex adaptive systems teach us that one of the keys to successful change is the lack of a choice. I experienced this several years ago when the company where I was employed rolled out a new, more efficient, web-based tool for processing orders. The web-based system replaced a 20-year-old “green screen” application that required the users to remember a myriad of order codes and to type orders in a cryptic language that the system could properly interpret. When the management team implemented the new system, they left the old system in place and you guessed it – the employees refused to use the new system. Even after training, for people who had been entering orders the same way for nearly 20 years, the change was downright frightening. Given the choice of the old, inefficient system they knew versus the new, more effective system they didn’t know, they chose the old system every time. The lesson here is simple – don’t allow people to “choose” not to change. Unfortunately, this rarely happens. Time after time we have witnessed companies’ failures to eliminate the choices: managers that create a new “expense report” process, only to continue to accept the old-style of report; IT groups that run an old system and its replacement in parallel for years, and so on.

Organizations and people like stability. If you are trying to affect a major change, you must “sink the old ship” quickly and decisively after floating the new one.

3.  Evaluate the survivors

You have implemented a changed process and eliminated the ability for people to continue to use the old process. The next step is to evaluate who has accepted the change and who has not. Even if you achieved critical mass (you got enough people on the ship) and you eliminated all options but the new way (you sank the old ship), some people simply will not accept the change. They will complain, they will tell everyone who will listen what a bad decision this was, and they will sow the seeds of dissent. With these people, you must make a decision – can they be converted to allies of the new way or do they need to leave?

Years ago, one of my former employees was a “ship sinking survivor” who did not take well to the change. After we implemented a new, automated project reporting application, he wasn’t very happy. In fact, he referred to the need to report status using the new tool as “chicken-@!$% window-dressing.” And he was very vocal in his proclamations. Not quite the reaction I had hoped for. It would have been much easier to allow his team to revert back to the old way of reporting, but instead, we kept at it. I asked him to tone down his opinions a bit – which he did – but he still wasn’t a fan. It took time for him to use the new process and personally experience the benefits to overcome his reluctance. Before long, his group was the most effective, most efficient in the organization in their use of the new process. They even made suggestions on how to improve the application further. Today when we talk, he frequently mentions how great that process was and how he wishes they had it at his new company. Once converted, former “change-haters” can become your most powerful allies in your change efforts.

However, some people will not accept a change even after discussing the rationale, the benefits, and the value of the new way. This poses a significant problem, as one of two things will likely happen: these personality types will either derail your change, or the change will reach critical mass and embed itself in the culture of your organization leaving those who refuse to accept the change ineffective. Neither one of these is a very good option – (a) either the change fails or (b) certain employees are unable to fulfill their new duties. To ward off these two bad options, we recommend the following course of action. Upon recognizing disruptive behavior, you should immediately sit the employee down and explain the options: either the employee actively supports (and uses) the new process, or they find employment elsewhere. You might find this hard-hearted, but think about the possible consequences of letting this person continue bad-mouthing your efforts. If the poor morale spreads to enough people to derail the whole change effort, you risk the time and effort you expended on the project and possibly peoples’ jobs, if the project was key to the health of the business. Work with your people so they understand the purpose and the importance of the change. Insist that they use the new process instead of the old way. If they cannot or will not make the transition, they have to go. False kindness is the enemy of lasting process improvement.

True, effective change isn’t random and it isn’t guesswork. It’s science. Like me, you may not have realized all of the underlying factors that were in play when you experienced a successful change, but they were there, waiting to be discovered. All organizations are complex systems and all complex systems follow a core set of rules. A flock of birds, a mound of termites, a human business endeavor - it doesn’t matter. Understand the rules, and you can more effectively implement change in your organization. Shocking the system is just the first step.

About the Author:

Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.

©2007 NextWave Performance LLC

The Concept:

Imagine the scenario: it’s April 1970 and the Apollo 13 spacecraft has recently been launched on its mission to explore the surface of the moon. Suddenly – an explosion on the spacecraft occurs! The famous words are uttered: “Houston, we've had a problem.” It is something for which no is prepared, no one is trained, something completely unexpected. Seeing what must be done, the mission control management team quickly springs into action. Management announces that it will solve the problem and immediately sequesters itself in a distant board room. The rest of the mission control team is told not to worry, to go about its work, and that management will deliver the “solution” soon. When questioned as to why the rest of the team isn’t involved in the solution, management mumbles something about “Sarbanes-Oxley” and runs back to the “war room.” All communication with the team is then severed to ensure that nothing leaks out until the perfect solution is ready. Hmmm…

Of course, in reality, the mission control operations team worked out a solution together, rather than having it delivered to them by the management team. Unfortunately, too often businesses today respond to crises and risky situations by adopting a “bunker mentality” and consolidating the responsibility for developing solutions to a few select leaders. You might ask: “what’s wrong with that? Isn’t the role of the leader to come up with solutions to the problems facing the business?

Actually, one of the problems that we frequently witness in businesses today is the consolidation of decision-making at senior levels and the lack of participation of “stakeholders” in the management of processes. Studies show that organizations that involve employees and key stakeholders in the decision-making process are greater than 30% more productive than those that make key decisions in a more centralized manner.

We believe that there are three primary reasons that the company that taps in to its stakeholders to make key decisions is more productive, including:

1. Complexity Reduction:

With the complexity of modern businesses, processes, and systems, it is nearly impossible for a leader to understand all aspects of a problem. By utilizing employees and other stakeholders in the management of processes, leaders reduce the likelihood of key issues being overlooked.

2. Creativity Enhancement:

Think of all the business and life experiences embodied in the employees of a business. By allowing these employees to use their individual creativity to try solving problems, you will likely generate solutions that would never have been uncovered if only the management team had been involved.

3. Perspective Broadening:

Those outside the intimate daily working of the process have different, unique views of the problem at hand. By harnessing the perspective of these stakeholders in fashioning a solution, the leader better ensures that the “fix” doesn’t cause more problems than it solves.

We recommend that businesses implement a “stakeholder involved” process – one in which information is shared, in which stakeholders help develop solutions to problems, and one in which process leaders are focused on fostering this collaborative environment. It is a very different model than what you most likely see today – one in which the creativity of employees is encouraged, not frowned-upon. One in which the primary role of the leader is to help employees and stakeholders understand problems and the critical business imperatives. The rewards are significant: higher quality solutions to problems, greater sense of “team” for employees and other stakeholders, improved morale as people see their ideas adding value to the company.

Applications for the Executive:

How do you create a stakeholder-involved process? Among the steps we recommend are the following:

1. Tap into stakeholder creativity

This sounds simple and logical enough, but it can be more difficult than you might expect. If your stakeholders’ primary experience has been one of “us vs. them,” they are going to be highly suspicious of the new, more involved model. Start by opening your “operational review” meetings to outside participants. Encourage their attendance and participation in the meetings. Share data on process performance – both the good and the bad – and ask for help in determining solutions. If you form a team to solve business issues, make sure to involve employees, upstream and downstream stakeholders, and possibly even vendors. By adding different perspectives, experiences, and thought-processes to your problem-solving toolkit, you will increase both the quantity and quality of possible solutions.

1. Don’t institutionalize localized solutions

Often, the first reaction to coming up with a great, creative solution to a problem is to take that solution and replicate it throughout the business. This idea is so great that every division, every office, everywhere should do the same thing! Unfortunately, the creative energy of your employees that you tapped to develop the solution gets stifled in the receiving organization where the solution gets “drop-shipped.” This method also assumes that all organizations have the exact same problems and surrounding circumstances, when in fact, each is unique. Use the solution as a “best practice” model and make sure everyone knows about it, but allow other organizations to develop their own “customized” solutions tailored to their specific problems.

1. Choose process leadership wisely

Don’t fool yourself – changing your management style from one where senior leaders make most key decisions to one where everyone is involved is a major change. Not everyone can accommodate that change easily. The fastest way to derail the implementation of a stakeholder-involved process is to have managers who won’t share information, who hide behind service-level agreements, who grab the reins when faced with a risky situation. If you have these types in your organization, we recommend that you take the following steps. First, make sure they understand what you are trying to implement and how they are expected to behave in the new environment. Second, monitor their behavior and their reactions to business problems closely. If they are unwilling or unable to involve the creativity of other in the problem-solving process, it may be time to re-assess your management team.

It is a new world out there. One where problems are too complex, situations are evolving too quickly, and competition is too fierce to allow isolationist management to run your key processes. Open the lines of communication, tap in to the collective creativity of your employees and other stakeholders and listen, and you will be amazed at the myriad of ideas and solutions that you might never have considered.

About the Author:

Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.

©2007 NextWave Performance LLC

The Concept:

Did you hear about that great new CRM/billing/inventory/ forecasting/fulfillment/ ordering/ whatever application? It’s going to save our business! I hear it uses bilateral n-dimensional hypercube technology in a virtual “on-demand” nano-warehouse environment to figure out everything you need BEFORE you even realize it! It synergizes, empowers, works out-of-box, seamlessly integrates (with no downtime), never goes down, pays for itself, and requires no training. The sales person told us it can be installed yesterday, costs virtually nothing, includes “platinum-level support,” is always installed on-time and under-budget, has nothing but thrilled users, and OF COURSE IT WILL INTEGRATE WITH YOUR PARTICULAR PROCESSES! Wheeeee!

Oh, if only this were just a bad version of a George Carlin routine. Unfortunately, it seems to be the path more and more companies are taking these days to solve their performance woes. To be clear, we are big proponents of using technology solutions to solve performance issues – but with one caveat. It MUST be done wisely.

The lure of the magic bullet application that solves all issues with no drawbacks is certainly enticing (my endless stream of smartphones can attest to that…) However, such a solution simply does not exist. It is our experience that the vast majority of “pick-a-system-and-just-deploy-it” type solutions result in partially deployed applications, solutions that fail to address key aspects of the problems to be solved, implementation costs that are 30-50% higher than expected, and deployment timeframes that are at least 25% greater than expected.

Whatever technology you choose must be the result of thoroughly and intimately understanding both the current problems being experienced and the desired “future state” you wish to achieve. Deploying a technology solution without understanding these two things is like a kid building a model aircraft carrier without any instructions. It might work out in the end, but at some point someone is going to notice that you used 27 tubes of glue, forgot the rudder, and it won’t float.

Why do companies routinely jump to the deployment of systems and application without thorough process planning? We believe the primary reasons to be the following:

1. A belief that technology alone is the solution:

As a society, we have been led to believe that technology can solve anything. By itself. This is almost never the case - miracle drugs work best with modified lifestyle, hybrid cars work best with a change in driving habits, and a technology solution to a business problem works best when preceded by a change in process strategy.

2. A demand that something gets deployed NOW:

Selecting/buying/building “feels” more like taking a proactive step to solving the problem to some people than does identifying current problems and planning out a future path. It is natural to want to give in to the desire to buy or build immediately, but action without direction can lead to disastrous consequences.

3. A lack of understanding of the intertwined nature of the problem:

Rarely do we find that a process stands alone with no interaction with other processes inside or outside the business. Process and their associated problems are always deeply intertwined with other process and cannot be changed without significant implications. As discussed previously ( EIR 1, Understanding the Organization as a System ), significant change to one process in a system can have serious impacts elsewhere in the system. You can’t change billing processes without impacting ordering processes. Lack of understanding of the intricacies involved in the company’s business processes leads many decision-makers into the trap of deploying without adequate process planning.

Applications for the Executive:

How do you combat the siren call to deploy the latest and greatest technology right this minute? We recommend the following three strategies:

1. Understand the Current Problem

The first step to developing a successful technology solution is to understand the problems that are causing you to seek a solution in the first place. Is it an inability to handle certain types of transactions? Lengthy cycle times? High levels of fallout or errors? We recommend that organizations develop a model of the current state of the process – including all the manual and automated steps that will be supplanted by the proposed automation. Additionally, we recommend that companies capture a list of the “disconnects” or process issues that are causing a need for change. With a process map and a list of problems in hand, it is less likely that the systems solution chosen will recreate the ugliness of the past.

1. Use the Future Flowchart to Build Requirements

The second step prior to choosing new technology is to develop a flowchart of the future state that you wish to achieve. By developing a detailed flowchart of the “future mode of operation” (FMO), you will accomplish two things.

First, you will have a document that helps you know what to buy or build. The flowchart can very easily be translated into detailed business requirements that can be used to assist in the technology selection.

Second, the FMO gives you a checklist to help select a vendor, should you choose that route. Most software vendors count on the fact that you have a very fuzzy picture of what you actually need the software to do. If you don’t fully understand your specific needs, they will spend lots of time discussing all the wonderful features of their product instead of spending time demonstrating how the product meets (or doesn’t meet) your specific requirements. Build the FMO and insist that candidate software vendors review the flowchart and color-code each box on the chart - green (the software can perform that step right off the shelf), yellow (the software can perform the step, but only with customization), or red (the software cannot perform the process step). It is a surefire way of finding out how closely the technology matches your vision and how much custom (read: expensive) development work will be required. Plus, software sales people really love going through a huge flowchart and having to explain that their application only performs 20% of the steps right out of the box…

1. Deploy in Logical, Process-based Phases

Here’s how most process automation deployments happen: IT and/or the vendor develops a plan in which all functionality for a product line gets automated, then the next product line, and the next, and so on. They tell you that this way, they get to work out any issues or bugs and then each successive product roll-out goes much more smoothly. All true. What they DON’T mention is that this causes major process problems for the employees. Instead of just the old “bad” process/system, the employee now has to deal with the old process PLUS the new process – but just for certain products. It can end up as a nightmare scenario for quality and customer satisfaction.

Instead, try to deploy entire “clusters” of functionality at the same time. Your deployment looks like this: the “pricing tool” is developed and deployed for all products and the old tool/process is decommissioned, then the “billing tool” is developed/deployed for all products and the old tool is decommissioned, etc. An added benefit of this type of deployment is that even if the automation project gets derailed half-way through, you still will have sections of the process that have benefited from the work deployed to date.

Let’s face it – the promise of slick, new technology that will automate all of our processes while driving down costs and increasing productivity is very enticing. But, like most anything, a little caution is advisable. In whatever technology you choose, proceed first with process design to determine the optimal future state for your particular situation. Once that is complete, start examining technology solutions, but make absolutely sure that the process drives the technology choice. Don’t be forced in to a sub-par business process as a result of the system you chose.

About the Author:

Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.

©2007 NextWave Performance LLC

The Concept:

Studies show that as many as 75% of all process/performance improvement initiatives fail to deliver the expected results. It isn’t for lack of trying – Six Sigma, TQM, Kaizen, BPR – the list of methodologies claiming to have “the answer” to successful performance improvement goes on and on, yet so do the failures. Could it be that we are overlooking something? Something that may be the critical determining factor as to whether a change effort succeeds or fails?

After years of using highly linear, deterministic models that attempt to reduce organizational dynamics to simple equations, the tide has begun to shift. Change leaders are beginning to realize that flowcharts and metrics are not enough to create successful change within an organization. They are starting to realize that many influences – soft, “touchy-feely” influences – may impact a performance improvement project as much as the actual steps in a flowchart.

This new way of examining process performance is called “field analysis” and is integral to the concept of viewing an organization as a dynamic, living “system” [ see EIR 1, October ‘06 ].

Simply put, “fields” are those intangible factors that surround all processes and organizations and which exert significant influence on the probability of change success or failure. These fields include:

· Morale

· Sense of team

· Sense of purpose

· Sense of success probability (feeling that you can succeed in a given role)

Here are a few examples of how fields can influence performance:

· An organization initiates a process redesign project to improve the customer support/help desk process. After spending significant time and resources on the redesign, the implementation stalls and dies a quiet death. Interviewed help desk employees report that they felt a sense of “hopelessness” and that “nothing would really change.”

· A business implements a new initiative to improve the customer experience. Employees are told that “customer satisfaction is the #1” goal, however, leadership continues to push goals of increased sales over everything else. 90 days later, customer satisfaction has not increased and employee morale is at an all-time low.

· A technology-driven company is plagued with low morale in its Sales organization. Although various incentive programs are attempted, nothing seems to work. Sales people complain that the processes don’t allow them to sell effectively, but they are largely ignored. Key sales people stop trying to sell to new customers.

Each of the above examples was representative of the impact that fields can have on performance. Whether it is general poor morale, dissonance between what management says and what they actually do, or a feeling that you can’t succeed at your job, fields affect project success.

The problem is - how do you incorporate fields into the way you lead change activities?How can you harness these intangible, fuzzy concepts as allies that can help ensure positive results?

Applications for the Executive:

Although not as straight-forward as flowcharting a process, establishing new metrics, or adding new technology tools, improving your fields may be the single most valuable thing you can do to improve your business.

1.  Recognize & Redesign your Fields

The first step in improving field performance is to recognize what fields are at work. We like to do this through highly-focused interviews, but you can do it in your own organization by simple talking to your employees. Take every opportunity to interact with your staff and ask them about what they are seeing, hearing, and “feeling.” Don’t be dismissive or defensive. Listen to what the employees are saying. You might recognize these fields as “themes” that recur throughout your discussions.

Next, “redesign” your fields to better align with your goals. One way to do this is to make a prioritized list of fields, ranked by the “pain” each is causing, and developing specific projects to address each deficiency.

In the end, it is largely a “trial and error” exercise. Over time, you will learn what fields are having the most influence and what tactics have the most impact on those fields. The important things to remember are (1) pay attention to the fields and (2) take action to close gaps you identify.

2.  Time Your Projects

Timing is everything. Don’t start a key process improvement activity when morale is very low. Don’t try to launch a new system integration project when employees are preoccupied with a possible lay-off. It is not enough that the project has a positive return, is needed by the business, etc. It also has to be successful and that means it has to be timed properly.

Prior to starting any change project, brainstorm a list of the fields that may have an impact on your project’s success. Then create a list of “mitigation tactics” next to each of your most problematic fields. If you have highly problematic fields that you can’t address through your mitigation tactics – you have a problem. Consider postponing your project until the field issues have resolved themselves or you have developed appropriate tactics.

3.  Eliminate the Negative Factors

Unfortunately, during your field analysis, you may find that it is one of your own employees that is creating a negative impact on the fields influencing your organization. We’ve all had that experience – the “disgruntled guy” who would rather complain and find fault with everything rather than trying to help fix the problems. These people are poison to the fields of an organization. No matter how much time you spend trying to improve morale, sense of purpose, or sense of success probability, “disgruntled guy” can undo all of your hard work in short-order. You must decide if the value added by the disgruntled employee outweighs the drag on the group or if he can be convinced to change his outlook. Don’t make the mistake of trying to ignore the situation and hoping it will go away. It won’t, and it will jeopardize your efforts.

Although you can’t [easily] measure them and you can’t see them, you can certainly feel the influence of fields on your performance improvement projects. Recognize this influence and plan for it when considering projects and you will significantly improve your probability of project success.

About the Author:

Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.

©2007 NextWave Performance LLC

The Concept:

If there is one thing that everyone in management seems to agree upon, it is the need to measure business performance. Unfortunately, “agreement” and “effective execution” are vastly different beasts. Very few organizations have truly cracked the code for the successful measurement of business performance.

Why is this? We all recognize the need for performance measurement. We have more data at our “virtual fingertips” than ever before, yet we seem more out of touch with effective performance measurement than ever before. The difficulties can be narrowed down primarily to three areas:

· Failure to measure the right things

· Failure to measure consistently

· Failure to take action on the information we do have

Failure to Measure the Right Things:

First, managers frequently fail to measure the aspects of the business that could really have a positive impact on performance. Management tends to measure either those things that are easy to measure (e.g. revenue, cost, head count) or those things that have been traditionally measured for that industry (e.g. mean time to repair for telecommunications, on/off-budget for project management). As a result, many metrics may be either useless or no longer relevant for the modern business. Rather than investing in the development of new, more effective but perhaps more difficult to gather and/or implement metrics, managers have become complacent with sub-standard performance information.

Failure to Measure Consistently:

Second, too many leaders simply fail to track the same metrics on a consistent, regular basis. At numerous organizations, we have heard the complaint that the “dashboard changes each month.” This is analogous to trying to improve your car’s gas mileage by looking at a different “metric” at each fill-up. First by tracking mileage with the fuel gauge one fill-up, then by using the on-board computer for the next fill-up, then by tracking the gallons put in the tank on the third fill-up, etc. Each metric might be useful taken by itself, but it is the consistency of measurement that is lacking. Leaders today often exhibit signs of “corporate attention deficit disorder,” leading them to constantly change metrics and formats in an attempt to gain new insight into performance. Unfortunately, in the attempt to gain more and more information, we actually lose insight into critical performance trends and shifts.

Failure to Take Action on the Information We DO Have:

Finally, as performance improvement practitioners, we find nothing more frustrating than watching an “operational review” meeting where the presenter flips through page after page of metric data at lightning speed while the executive team nods and makes “hmmm” and “ahhhh” sounds. The presenter makes comments such as “customer on-hold time is up again this month” and then flips to the next metric. It really begs the question – what are you going to do about it?!? There is no inherent “goodness” in the act of measurement. The only reason to spend the time and money to measure performance is if you are going to take action based on the reported data. If you don’t plan to make changes and improvements based on your metric reports, you can save money by just using the same report each week and even canceling the meeting…

Of course, the real solution is to tie the information about performance to actions intended to remedy the reported performance gaps.

Applications for the Executive:

Here are three steps you can take to ensure that the metrics you report can actually help you improve performance.

1. Correlate your Metrics

Rather than reporting metrics because they are easier to gather (e.g. the IT systems that can easily deliver them are in place) or because they have always been used in the past, you need to determine which metrics actually matter for your business performance. “Balanced Scorecard” techniques start down the right path, but do not go far enough. The answer is to build a “Correlated Scorecard” that shows which metrics have the greatest impact on your business goals.

To build a correlated scorecard, start by arraying your metrics in a hierarchical format (like an organizational chart). For example, corporate revenue may decompose into regional revenues which decompose into office revenues, etc. Next, determine which handful of five to seven metrics are most important to your business (such as revenue, costs, and customer satisfaction). These are your “target metrics” and are placed at the top of your hierarchical dashboard of metrics. Finally, determine the influence that each “sub-metric” (those metrics far down the hierarchy) has on your target metrics. This is usually done through statistical regression modeling (available in software packages such as Microsoft Excel). The result should be a formula that will tell you the expected change in each target metric for a given change in the sub-metrics. How much will revenue change if customer service headcount increases? This model can answer that question. The key is not to predict exactly how much your target metrics will change, but rather to determine which sub-metrics have the most impact or influence on the metrics you really care about – the target metrics. Your new “correlated scorecard” should contain only those metrics that are the most highly influential on your target metrics. Through this technique, businesses can reduce the need to gather metric data that is less predictive of performance, thereby reducing reporting costs and allowing the management team to focus on just those measurements that matter most. (Note: This topic will be covered in more detail in a future EIR)

1. Use Secondary Metrics

It is a simple fact that some metrics are harder and more expensive to gather than others. Whether the data just doesn’t exist or the system modifications would be too extensive – some metric data simply isn’t available. If this is the case, consider developing a “secondary” or “proxy” metric to measure the performance aspect of interest.

A “secondary metric” is a metric that doesn’t measure performance directly, but rather, through some other aspect of the business. For example, one executive we know was not able to easily track customer traffic flow into his branch offices, so he tracked paper cup usage in the branch offices’ free coffee machines instead. It sounds strange, but if you assume that employee usage stays consistent, then this is a pretty good indicator of customer traffic. The key is to track the trend of a secondary metric, not the actual value. You don’t really care about the number of cups, but the percentage increase/decrease trend over time gives you the information you need. Remember, don’t give up just because you can’t obtain a needed metric. Get creative and build a secondary metric to gain the insight you desire.

1. Tie Metrics to Action

All the wonderful, correlated metrics in the world are completely wasted if they are not directly tied to action. To ensure that your metrics are tied to action, start by scheduling a regular “operational close” meeting at which you will review metric performance. All leadership should attend and the data should be presented by the responsible manager. This meeting should be held on a regular (and consistent) basis – we recommend a monthly meeting. The meeting should also be chaired by a strong leader who can ensure that each presenter delivers the required information in a standardized format.

The next step is key: every metric presented that is not performing as desired should have an action plan – a set of steps intended to remedy the performance gap. Further, each action plan must have an owner , a status, and a due date. At each operational review, the presenter must not only present the latest metric results, but also the status of the action plans designed to improve performance. It is also critical for the management team to hold managers accountable for making progress on each action plan.

Finally, re-vamp the way you select and manage projects. At too many businesses, projects and metrics are managed as completely separate entities. Our question is this - if your project doesn’t directly impact one of the metrics of the business, why do you have the project? When setting project priorities, request more than just the basic financial details for each project. Demand that every project request include a list of the metrics that will be improved and the amount and expected timing of the improvement. If your requester cannot deliver this type of information, you may have discovered a gap in your metric coverage, or the project may not be particularly valuable to the business. Using this technique can help your organization align desired metric performance with the projects that will help you get there.

About the Author:

Kevin Smith is a co-founder and managing partner at NextWave Performance LLC.

©2006 NextWave Performance LLC