Developing Managers Through Performance Measurement

Performance Measurement Action Learning: A Management Development Tool

The benefits of possessing a state-of-the-art performance measurement system in a business organization have been widely discussed in business literature. The availability of timely performance feedback, the alignment of business activities toward common goals, and insights into the big-picture relevance of each person's job are just a few of the obvious benefits of using an effective performance measurement system. An aspect not as widely recognized or discussed is the additional benefits gained simply by going through the process of developing a performance measurement system. Using a case where the Measure Network was the system of choice, this column explores these potential benefits.

InfoTech Enterprises, Inc.

InfoTech Enterprises, Inc. is a Northern Virginia-based information technology company established in 1992 to provide information technology solutions and services to government and commercial clients. Among the company's technological capabilities is a specialization in combining Computer Aided Design (CAD) and Geographic Information Systems (GIS) for applications such as accessing and maintaining GIS database by the utility field crew from their repair trucks. In May 2001, the InfoTech management team began the development of a Measure Network for their company.

As a first step, the management team set out to more clearly understand how their company creates value. The team identified InfoTech stakeholders and the goods, information, services, money and intangibles that are delivered to each stakeholder. The most critical attributes (e.g. accuracy, speed) were identified for each of these deliverables, and a measure was created for each attribute to capture company performance on that component's value delivery.

Next, managers from each part of the company documented internal business processes in detail and again identified the most critical attribute of success for each process. After creating measures for each attribute of process performance, the InfoTech team documented the cause-and -effect linkages (value paths) between process and stakeholder attributes thereby linking everyday activities to actual value creation for the firm's stakeholders.

Value-based Thinking

After completing this initial work, InfoTech's management team observed a parallel benefit created while constructing the measurement system. They noticed that using the Measure Network's process for developing their performance system also created a deeper understanding of how to maximize value creation. Thus their managerial decisions began to benefit from this enhanced context.

During the past ten years, value-based thinking has moved from the chalkboards of academe to the boardrooms of many companies. Managers now recognize that business success is defined as value creation for customers, employees, investors, and other key stakeholders. However, lasting value creation is the result of performance, not intentions. The manager's task is to initiate and carry out strategies, plans and decisions that provide sufficient net benefit to satisfy the stakeholders.

Customers enjoy value creation from products and services only when they realize greater discounted net benefit than provided by competitors. Investors realize value creation when the returns they enjoy from the common stock of an organization exceed the standard set by other companies operating in the same risk class. The greater the understanding of exactly how each stakeholder defines value, the more likely the firm is to engage in those activities that enable value creation to be realized.

Focus on Stakeholder Deliverables

During the development of the Measure Network, InfoTech's management team focused heavily on the character of the deliverables provided to each stakeholder. For example, managers recognized that customers needed to understand comparative advantage when selecting suppliers. This understanding requires detailing the attributes of the services, not just the services' functionalities.

Consequently, InfoTech's managers identified the following key deliverable attributes for customers:

reliability of software products,
cost of technical support, and
depth of service capabilities.

When managers explored employees as stakeholders, they observed that InfoTech provides a better job opportunity than alternative employers. Previously, although employment superiority had been assumed, it had not been articulated nor measured. Managers specified the exact dimensions of the company's competitiveness in the following employee deliverables:

diversity of job tasks,
competitiveness of benefits, and
quality of work culture.

Naturally, this brief list did not appear immediately. The discovery process required analyzing and prioritizing employee deliverable attributes, listing attribute possibilities, weighing their relative importance, and deciding which ones were sufficiently important to deserve ongoing management attention. The effort resulted in useful input to the development of the Measure Network, and it also represented a more explicit statement and communication of the firm's value-creation intentions for employees. This had not been done before.

Value Paths

After specifying the most important stakeholder deliverable attributes, the InfoTech managers linked their day-to-day activities to value creation by developing value paths. The purpose of the paths is to link daily process activities to desired outcomes expressed in the stakeholder deliverable attributes. These value paths clarify the relationships between what companies actually do and what they are trying to accomplish.

Not only did the InfoTech managers see their own value paths more clearly than ever before, they gained greater appreciation for the activities of others and saw the interaction of processes supporting the same stakeholder deliverable attributes. They believe that the resulting ability to focus on value should help encourage the firm's effectiveness and efficiency in cross-functional activities, and thereby lead to improved performance of the firm as a whole.

Shared Corporate Strategy

The creation of a corporate strategy is something that most companies attempt with varying degrees of intensity and formality, and with or without wide employee participation. In some cases, a company's strategic development process is pulled along by one or a few executives who have little interest in receiving input from the rest of the organization or in obtaining consensus for the resulting strategy. In many other cases, a significant effort is made to be inclusive in the development of strategy, but employees can lack an understanding of strategic concepts and language; and therefore, be unable to effectively contribute to the process.

The development of the Measure Network at InfoTech provided a clear framework for the strategy planning process and used everyday operations language for strategic concepts. When the InfoTech development team had completed the identification of all the stakeholder deliverable attributes that the firm provides, a complete picture of current strategic possibilities was made available to managers.

As the team members prioritized their options in terms of relative importance to the company, their discussion shed light on each managers' undocumented, underlying strategic assumptions about which markets the company should serve and how they should serve them. Instead of unclear strategic concepts that may have been ground for unintentional conflict, InfoTech now had a prioritized, agreed upon set of stakeholder deliverable attributes. Additionally, the participation of a wide range of managers in the development process will likely lead to greater commitment to the strategy throughout the organization.

Process Improvement Opportunities

Thanks to the quality and reengineering movements of the past 20 years, a continuous improvement mindset has become relatively commonplace in today's business world. InfoTech Enterprises, like many others companies, has used the pursuit and achievement of ISO certification to better understand, control and ultimately improve its business processes. Like many of its peers, however, InfoTech's process documentation and streamlining activities have primarily focused on demand fulfillment processes such as providing services and creating software products.

In developing the Measure Network, InfoTech's business development managers had the opportunity to analyze, document and scrutinize their marketing and sales activities. From this effort they identified several improvements in their processes of determining market segments and identifying, qualifying and tracking business opportunities. They committed the resources and scheduled the changes to be implemented immediately.

In building their performance measurement system, InfoTech managers also began to view process improvement from a broader managerial perspective. Changes were proposed because of their impact across processes or their link to a key aspect of value creation, not simply because of some minor inefficiencies or inconsequential quality flaws. Going forward, InfoTech's managers expect that the use of the Measure Network will keep process understanding up-to-date by providing an ongoing mechanism for periodic process review and revision.

Individual Management Development

In summary, any activity that pulls managers away from their daily routine to think carefully about value creation, strategic development and process improvement is likely to have a positive impact on the development of individual managerial capabilities. Simply being selected to participate in the development of the Measure Network provided InfoTech managers with the sense that they were impacting an important development in the firm. Additionally, since measurement development must be cross functional and stakeholder-oriented, team members had an unusual level of exposure to other managers' ideas, and thus were able to think about parts of the business that were not usually their concern. Aiding this cross-pollination of ideas was the common language that results from developing the Measure Network. The structured language InfoTech employees learned to use is self-explanatory, and therefore, enhances willingness to communicate about complex systems and relationships.

The identification of value drivers, key attributes and effective measures clearly required the creativity of the InfoTech management team. In fact, the recognition that they are being encouraged to use their experience to find new ways to describe activities and objectives, and to exert discipline over desired results will likely encourage more creative approaches to management in general.

At the end of the first phase of the Measure Network's implementation, the InfoTech management team knew that their business and measurement improvement work, and its resulting benefits, had only just begun. Nonetheless, the team was excited about the tangible benefits they had already realized over the course of eight weeks of development. They had gained an increased appreciation for value-based decision-making, laid the foundation for a shared corporate strategy, documented opportunities to improve business processes, and enhanced management skills that are crucial for individual and company success. With these benefits in hand, they were ready to continue with the Measure Network and to use it to monitor and manage their business.

Reprinted with permission of Journal of Cost Management, "Developing Managers Through Performance Measurement" (Journal of Cost Management, November/December 2001) by Greg Reilly & Karlu Rambhala Copyright C by RIA/WG&L; all rights reserved.

Content date: Monday, October 07, 2002
Author: Gregory P. Reilly and Karlu Rambhala (greilly@measure.net )
Company: Measure.net and InfoTech Enterprises, Inc. (http://www.measure.net)

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