S1 the KPI Institute Acumen Integrat

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The KPI Institute

Facilitator

Adrian BrudanOrganizational Performance SolutionsManager, Acumen IntegratEditor IndicatoridePerformanta.roE-mail:[email protected]

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23 26 February 2012 , Chisinau, Moldova - Perforum
mailto:[email protected]:[email protected]


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The KPI Institute Session 1:Key Aspects of Performance Management and

Measurement

Discussion: Challenges in performance measurement

Understanding performance management and measurement historical overview

The role and value added by performance measures

Theoretical framing of goal and targetsetting

Balanced Scorecard - Overview

Aurel Brudan Measuring and learning with Key Performance Indicators, Melbourne, 19-20 January 2012 The KPI Institute Pty Ltd 2012


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Challenges in performance measurement

Which are the major challenges:

You are interested in addressing?

Your organisation/team is facing?

Are relevant to the practice overall?


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What does the term performance mean to you?


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Staff opinions on performance measurement

It is currently a waste of time. It represents nothing. A good idea in theory, but in application usually short-sighted and hypocritical.

Essential for the systematic management of human resources.

Performance Management is integral for the organization to achieve its goals. Need to

understand where we are against organization objectives.

Necessary but really annoying to do.

Performance management or PPDP as it's well known here is not done at regular intervals. Last time we had one done in our team was 12 months ago.

A waste of time. It seems that just doing a good job and concentrating on doing a good job is not enough for management to give you a CPI increase, you have to prove to them that you will jump thru hoops to make them happy. If you are good at sucking up to management then you will receive good reviews, if you have no interest in progressing, but want to just be recognised for doing an excellent job, you are over looked.

Note: unedited comments from staff members


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Positive metaphors on performance management

Performance Management is like driving on a journey to a destination.The more information and feedback together with the mostappropriate vehicle will get me and my colleagues to the destinationin a faster, safer and fuel efficient manner.

PMS is like a household, if all is done well it looks great and thigs arerunning well

Provision of a service without agreed performance managementparameters is like navigating a ship without a radar. The ship maynever reach its destination, may arrive late or damaged, because the

pilot cannot effectively navigate it.

Working on a sunny day - it can be frustrating while you're doing it butthe rewards for getting finished are there if you make an effort.



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Negative metaphors on performance management

All lights, movement and drama; scripting and weasel words providedundigested via the latest MBA trend; story, meaning and intent instantlyforgotten by everyone as soon as the show ends. Then do it all againnext year.

Performance Mgt is like visiting a dentist - hopefully once a year andcan be painful exercise !

Like a1930s school - to remove innovation and indivdualism whilstensuring conformity to a perceived business 'norm

Like a diet - loads of effort goes into it initially then it is forgotten andeverything goes back to the way it was before the diet began.



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On performance management

When talking about

Performance Management,

what words come to your mind?


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Terms linked to performance

Plenty of tools already in use. No silver bullet solution needed.

Better structure, alignment, integration and use of what is already in place seems to be theanswer to improve performance management practices.

Projects Meetings Plans Reports

Forums/Discussions Technology Rewards

Budgets KPIs Training Performance reviews Communications

. Are all identified as tools used together, part of the Performance Management System.

Mapping the linkages and understanding them together are part of the redevelopment of thePerformance Architecture, to make it clearer


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Challenges in performance measurement Organizational LevelSystem MapDesired State of EvolutionStrategy MapPerformance ScorecardOrganisational KPI CataloguePortfolio of InitiativesDashboardPerformance review meetings

Departmental LevelSystem MapDesired State of EvolutionStrategy MapPerformance ScorecardOrganisational KPI CataloguePortfolio of InitiativesDashboardPerformance review meetings

Individual LevelIndividual performance plans

Performance evaluationsPerformance conversations

Personal LevelPersonal performance plansPerformance reviews


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System integration

Organisational Strategy

Outcomes


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What is Balanced Scorecard?

Balanced Scorecard is a strategic planning and management system, widely used inenvironments such as business, government and non-profit organizations worldwide, in order to align business activities to theorganizations vision and mission, to improve internal and external communication, as well as to monitor organizational performance against strategic objectives.(The Balanced Scorecard Institute, 2010)

An instrument which translates anorganizations mission and strategy into acomplete set of performance indicators and which offers the frame for a strategic measurement and management system. (Balanced Scorecard Collaborative, 2005)

What is Balanced Scorecard ?


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Balanced Scorecard means several things. The first meaning, given when it was first

promoted in the beginning of the 90s, was that of an approach to generate a performancereport, by grouping performance indicators into perspectives. The mostly used were:Financial, Customer, Internal Processes and Learning & Growth. Gradually, thismanagement tool evolved into the base of a performance management system which uses performance plans at a strategic, operational and individual level as the basis for communication, monitorization and improvement of organizational performance.(eab group,2010)

The best theoretical contribution in 1997 offered by The American Accounting Association (Norreklit, 2003).

Balanced Scorecard is the most successful tool used in thearea of performance management.

In 2002, Balanced Scorecard was already being used by half of the first 1000 global companies. (Calabro, 2001).

What is Balanced Scorecard ?


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Dashboard a management tool introduced in 1930 in France, by French engineers(Mohsen Souissi, 2008) and described as adashboard , used by managers to guideorganizations to their destination. (Bessire & Backer, 2005).

The Plan-Do-Check-Act Process(PDCA), which is the base of practical

use of the Balanced Scorecardconcept was introduced by Edward

Deming in 1950.

The origin of BalancedScorecard

Source: Westminster College, 2010


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Management by Objectives MBO introduced in 1954, by Peter Drucker, in his book

called The Practice of Management

Total Quality Management TQM 1970-1980

Malcolm Balbridge National Quality Awards - 1987

EFQM Excellence Award European Foundation for Quality Management -1988

Each manager, from the CEO to the productionmaster or chief accountant, needs clearly set objectives. These objectives should establish whichis the performance that the employees department needs to reach.(Peter Drucker, 1954)

The origin of Balanced Scorecard
http://www.youtube.com/watch?v=6bjDYwyQUQ8&feature=player_embedded


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Scorecard

Initially, Balanced Scorecard was the result of a researchproject carried out for a year, between 1990-1991, todetermine the aspects which were measured and monitoredby 12 successful companies in the USA. The study wascarried out by Nolan Norton consultancy company, led by Dr.David Norton. Robert Kaplan was later brought on board, tooffer more credibility and an economic dimension to the study.


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Scorecard


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Scorecard


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BSC history in publications by Dr. Kaplan and Dr. Norton

publications

From the beginning of its promotion as a performance measurement instrument, Balanced Scorecardunderwent many changes, not all representing the contribution of US authors. Highly respected researchers,consultants and specialists around the world contributed with their expertise and knowledge to the continuousdevelopment and to a better, optimized use of Balanced Scorecard in organizations.

BSC history in international literature

The history of BalancedScorecard


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Source: Palladium, 2011

BSC Implementation Model Execution Premium

l d l


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Source: Balanced Scorecard Institute, 2011

BSC Implementation Model 9steps to success


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Current state

Environmental

Scan

Mandate

PerformanceDashboard

Portfolio of Initiatives

PerformanceScorecard

Desired State of Evolution Strategy Map

Initiative Description

Project StatusReport

KPI Trend Analysis

KPI Description

Performance Report

Risk Log

Individual Performance Plans

Budget

Performance Management System Architecture

KPI Trend Analysis

KPI Description

Tem late-uri re o ulate dezvoltatede Acumen Inte rat insco demonstrativ. A fi ersonalizate de catrefiecare or anizatieconform


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The internal business perspective . Whatmust we excel at?

The innovation and learning perspective .Can we continue to improve and create valuefor our services?

Source: adapted from Kaplan and Norton, 1996

The financial perspective . How do we satisfythe financial expectations of our stakeholders?

The customer perspective . How docustomers see us?


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Performance Management is the overarchingdiscipline that deals with performance. It reflects theapproach one entity has towards performance and itincludes sub-processes such as: the formulation of a plan (planning / goal setting); capability development; actively monitoring its implementation; performance measurement and readjusting the plan.

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Performance measurement is a sub-process of performance management that focuses on the identification, tracking and communication of performance results thorough the use of performance indicators.

It deals with the evaluation of results, while performancemanagement deals with taking action based on the results of the evaluation and ensuring the target results are achieved.

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Performance management levels Strategic / organizational performance management At strategic level, performance management deals with the achievement of theoverallorganizational objectives . Practitioners refer to it as corporate, business or enterprise performancemanagement, this being the highest and most complete level of usage of performance managementprinciples in organizations.

Operational / departmental performance managementPerformance management at operational level is in the realm of operational management, as itserves is the achievement of operational objectives . Although aligned with corporate strategy, ithas a functional focus, using tools such as dashboards and scorecards. HR Dashboards are used tocollect and analyze human resources management indicators that guide the management decisionsof HR departments. Similar tools in other functional areas are Marketing Scorecards, PortfolioDashboards and Supplier Scorecards.

Individual performance managementThe traditional level at which performance management is used in organizations is the individuallevel, looking at theperformance of individuals in an organizational context.

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Performance Management in a historical context Wei Dynasty in China (221-

265 AD) imperial raters

Robert Owen (early 1800s)- silent monitors in cotton

mills

The KPI InstituteStrategic performance management


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Strategic performance management

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Strategic performance management evolution Traditional performancemeasures are primarily

financial, aimed mostly atoutcomes Notparticularly surprising since

most cost accountingsystems were developed in

the 1920s.

1920

Concept of a Corporation the first book to treat a

business corporation as apolitical and social

institution. Authored byPeter Drucker, it is basedbased on his observations

of management practices of General Motors (1943) andlaunched the idea of self -

governing plant community.

1946

Ralph Cordiner, the CEO of General Electric,commissioned a high-level

task force to identify keycorporate performancemeasures. The categoriesthe task force singled outwere comprehensive,however the selectedmeasures were all financial

1951

The term "management byobjectives" was firstpopularized by Peter Drucker in his book 'The Practice of Management'.

1954

By the 1980s empiricalresearch in strategicplanning systems focusedupon just two areas: theimpact of strategicplanning on firmperformance and the roleof strategic planning instrategic decision making

1980s

Interest in strategy as anarea of management studyfollowed the diffusion of strategic planning (long-range planning) among largecompanies. The first strategyformulation frameworksappeared (Ansoff)

1960s

Eccles publishes thePerformance MeasurementManifesto in Harvard BusinessReview. In this article, hepredicts a performancemeasurement revolution will takeplace in the next five years.

1991

The Balanced Scorecardemerges as a multifacetedconcept that can be used

for measuring performanceand executing strategy.

1992-2007

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Operational performance management

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Operational performance management evolutionThe performance of a Venetian

sailing expedition defined asthe difference between theamount of money invested bythe ship owner(s) and theamount of money obtainedfrom selling all the goodsbrought back. Luca Pacioli double entry accountingsystem.

13th

century

Taylors ideas wereadvanced by many othersincluding Frank and LillianGilbreth, who developedthe concept of time andmotion studies, which

required the measurementof every single movement

undertaken by a worker inthe course of their work.

1915-1928

The principles of capitalinvestment appraisal, budgeting,performance measurement,variance accounting and ROIwere introduced. DuPont andGeneral Motors experimented byintroducing decentralizeddivisional structures with profitcenters.

1920s

The General Motors system of performance measures, thedevelopment of which culminatedin the 1970s included several non-financial indicators, and can beenseen as the fore-runner of thebalanced scorecard approach.

1960s

A constant stream of newdevelopments in production andprocessing techniques suchas flexible manufacturingsystems, just-in-time production,materialsrequirements planning, enterpriserequirements planning, supplychain management and totalquality assurance

1980s

Statistical techniques were basedon the work of a number of

Americans most notablyShewhart (1980) Deming (1982)and Juran who had been largelyignored by their compatriots, butwhose ideas had beenenthusiastically taken up in postwar Japan.

1970s

the rise of business process re-engineering (BPR) which hadmain principles based on aconsideration of organizations interms of processes lookingacross organizations horizontallyrather than functionally.

1990s

The rise of Business Intelligencesoftware products had aprofound impact on howcompanies manage their operational performance.

Enterprise Resource Planningsoftware (SAP, Oracle, etc.),

combined with BusinessIntelligence software (Business

Objects, Hyperion, Cognos,etc.)enabled companies to reach

1990s-200x

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Individual performance management

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Individual performance management evolution The ancient Egyptians had toencourage their workers to buildthe great pyramids and,unwittingly, they utilizedperformance managementsystems to do so. Their systemrevolved around whipping thoseworkers who did not perform asrequired, to achieve their goals.

Antiquity

The emperors of the WeiDynasty (221-265AD)rated the performance of the official familymembers. Chinesephilosopher Sin Yu whoreportedly criticised a rater employed by the WeiDynasty:the Imperial Rater of Nine Gradeseldom rates menaccording to their merits,

but always according to hislikes and dislikes

221-265

1540-1560, a procedure to formallyrate members of the Jesuit Societywas established by Ignatius Loyola.

In 1648, it is reported that the () Evening Post evaluated legislatorsby using a rating scale based uponpersonal qualities.

16-17 th century

Performance appraisals in industry were most likely initiatedby Robert Owen in the early 1800s. Owen monitoredperformance at his cotton mills in through the use of "silentmonitors. The monitors were coloured cubes of wood withdifferent colours painted on each visible side. They weredisplayed above the workstation of each employee. At day-end. The colour of the visible side of the cube was associatedwith a rating to indicate performance. At the end of the day,the block was turned so that a particular color, representing agrade (rating) of the employees performance, was facing theaisle for everyone to see. White indicated excellent yellowindicated good, blue was used to indicate indifferent whileblack indicate bad.Anecdotal evidence indicates that this

practice had a facilitating influence on subsequent behavior.

1800-1817

In the 1970s in andthe 1980s/1990s in itwas governmentlegislationconcerning suchthings as equalopportunity, civilrights, etc. whichcompelledorganizations toadopt some sort of system.

1970s-1980s

Prior to World War II, performanceappraisal systems tended toexclude top management,generally used graphic-ratingscales. By the early 1950s, 61% of organizations regularly usedperformance appraisals, comparedwith only 15% immediately after World War II.

1950s

Innovative use is now being madein some organizations of a self-appraisal system, especially for managers and higher-levelprofessionals

1990s

The introduction and growth of strategic performancemanagement systems such as the

Balanced Scorecard that cutacross organisational levels,

linking strategic, operational andindividual performance

management in organizations.

1990s-200x

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Goal Setting Theory Goals should be challenging, but attainable. Goals should be specific rather than vague. Employees should be involved in the process of

setting their own goals. Goals should be measurable in terms of being

clearly understood by employees: quantity,quality, time, and cost.

Principles

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Goal Setting Theory1. Directive function. They direct attention and effort toward goal-relevant activities and away from goal irrelevant activities.2. Energizing function. High goals lead to greater effort than lowgoals.3. Impact on persistence. When participants are allowed tocontrol the time they spend on a task, hard goals prolong effort.4. Affect action indirectly by leading to the arousal, discovery,and/or use of task-relevant knowledge and strategies .

Mechanisms

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Command and control vs. Systems thinkingCharacteristic Command and control thinking Systems thinking

Perspective Top-down, hierarchy Outside-in, system

Design Functional specialisation Demand, value and flow

Decision-making Separated from work Integrated with work

Measurement Productivity output, targets,

standards: related to budget

Capability, variation: related to

purpose

Attitude tocustomers

Contractual What matters?

Attitude tosuppliers

Contractual Cooperative

Role of management

Manage people and budgets Act on the system

Ethos Control Learning

Change Reactive, projects Adaptive, integral

Motivation Extrinsic Intrinsic

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Pharaoh's ants use three types of pheromones: An attractive, short-lived pheromone that allows

trails to new food sources to be laid down whilstold trails to depleted foods sources evaporate; An attractive longer lasting pheromone that

allows reestablishment of old trails; and A repellent pheromone that acts as a 'no entry'

signal for ants.

http://royalsociety.org/Go-to-the-ant-and-be-wise/

http://www.sciencebuddies.org/science-fair-projects/project_ideas/Zoo_p016.shtml

KPIs as pheromones

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KPIs the blood that irrigates the PMS

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The KPI Institute / Acumen Integrat

Adrian BrudanOrganizational Performance Solutions Manager Mobil: +40 748 108 367

Telefon/Fax: +40 264 414 360E-mail:[email protected]

Web:www.IntegratingPerformance.com www.smartKPIs.com www.BalancedScorecardReview.com www.integratingPerformance.comwww.aurelbrudan.com

Visit our online resources: Contact details:
mailto:[email protected]://www.integratingperformance.com/http://www.smartkpis.com/http://www.balancedscorecardreview.com/http://www.aurelbrudan.com/http://www.aurelbrudan.com/http://www.balancedscorecardreview.com/http://www.smartkpis.com/http://www.integratingperformance.com/mailto:[email protected]

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S1 the KPI Institute Acumen Integrat