Spitzer Spitzer & Associates

Keynote
y Address:
Rethinking the Way We Measure and
g
Drive Organizational Success
Dr. Dean Spitzer

p
President
Dean R. Spitzer & Associates & Author,
Transforming Performance Measurement
Why do we need to rethink
measurement?
2 2009 Dean R. Spitzer & Associates, Inc.

Measurement is ubiquitous
We spend a lot of time every day measuring things. In fact, we are almost always
measuring things: dates, time, size, weight, speed, temperatureand the list goes on
and on. In our personal lives, we spend a lot of time every day measuring things. At
work,
k there
h iis even more measurement.
Some form of measurement is involved in almost everything we do in life, even if

we aren't explicitly aware of it. Consider some common examples of measurement
tools and indicators:
Time and date measurement (e.g., calendars and clocks)
Weather measurement (e.g., forecasts, temperature, wind speed and direction, humidity, barometric pressure)
Geographical measurement (e.g., location, distance, and direction)
Medical vital signs (e.g., body temperature, pulse, blood pressure, etc.)
Financial measurement (e.g.,
(e g currency
currency, paychecks
paychecks, checkbooks
checkbooks, budgets,
budgets investments)
Consumer measurement (e.g., prices, size and weight, quality measures)
Political measurement (e.g., election results, voter attitudes, campaign financing)
Sports measurement (e.g., scores and individual and team statistics)
Academic measurement (e.g., grades, competencies, credentials) Type
text
Transportation
p measurement ((e.g.,
g , speedometer,
p , odometer,, altimeter,, fuel gauge,
g g , warning
g lights)
g )
12
11 1
10 2
9 3
8 4
7 5
6

Performance measurement is powerful!
p
"Measurement always improves performance." [Buckingham & Coffman, First, Break All the Rules, p. 236]
"...everything that is measured improves." [Scheuring, Handbook of Performance Measurement, p. 2-6.13]
"Good
Good data
data, properly distributed
distributed, transform organizations.
organizations " [Whitely,
[Whitely The Customer-Driven Company
Company, p.
p 175]
"Measures have great power, almost like genetic code, to shape action and
performance...Change the measures, and you change the organism." [Epstein & Birchard, Counting What
Counts, p. 145]
"Most often when we see illogical g behavior,, the fault is in the measurement system,
y , not in
the employees." [Brian Joiner, Fourth Generation Management, p. 242]
"Changing the way we measure changes everything." [Meador, The Dance of Change, p. 299]
"An organization's measurement system strong affects the behavior of people both inside
and outside the organization.
organization " [Kaplan & Norton, Norton The Balanced Scorecard
Scorecard, p.
p 21]
"The essence of a corporate culture is the firm's measurement system." [Strassman, The Business
Value of Computers, p. 73]
"The mere action of defining measures of success will change behavior positively or
otherwise " [Thorp,
otherwise. [Thorp The Information Paradox,
Paradox p.
p 164]
"Metrics are to a business what the five senses are to humans - systems of feedback that
improve our capacity to adapt and excel over the long run." [Tachi Kiuchi, "What We Learned in the Rainforest,"
Barrett-Koehler, 2002, pp. 152-153]
"Count what is countable,, measure what is measurable,, and what is not measurable,,
make measurable." [Galileo Galelei, 1564-1642]

Management
g is based on measurement,,
and all other organizational systems are
p
dependent on the measurement system
y
No organization can be any better than its measurement system!
Human Resources
Marketing Quality
& Training
Research & Logistics Customer

Production Sales
Development Service
Compensation & Rewards Results
Management
Measurement

Measurement systems are broken
"Only 35 percent of respondents rated their performance
measurement systems as effective or very effective." [American
Institute of Certified Public Accountants, Performance Measurement Survey]
"most executives today are making do with inherited and
outdated measurement systems that warp and distort their
business strategies." [Frederick Reichheld, The Metaphysics of Measurement,
Bain & Company Essay #2, p. 2]
"as
" you move ddown in
i the
th organization,
i ti you willill find
fi d that
th t
often over 50 percent of the metrics being used have little
relevance to company results." [Amir Hartman, Ruthless Execution, FT
Prentice-Hall, 2003, p. 105]
"a a recent study found that only 29 percent of the interviewed
executives said they would bet their job on the measures of
customer satisfaction they had available to them; only 16
percent said they would bet their job on the measures they had
of employee
p y p performance." [[Part 1: Resolvingg the Measurement Paradox]]
"The challenge for today's competitive environment is to
develop new and more flexible approaches to the design of
effective cost accounting, management control, and
performance measurement systems." [Kaplan & Johnson, Relevance
Lost, p. 224]

One of the biggest problems in organizations is
lack of alignment among measurement systems
Organizations with poor performance measurement will be poorly
aligned with functions pursuing their own self
aligned, self-interest
interest and often
working at cross-purposes
Finance
Operations
Marketing Human
Resources
Budgeting
Information
Technology
Sales
Project Learning
Management Customer
Service
Not only dont most organizations have a single integrated measurement system,
but the disparate measurement systems dont even communicate!
O
Organizations
i ti are d
drowning
i iin d
data
t

Measurement is a mess!
A company's measurement systems typically deliver
a blizzard of nearly meaningless data that quantifies
practically everything in sight, no matter how unimportant;
that is devoid of any particular rhyme or reason;
that is so voluminous as to be unusable;
that is delivered so late as to be virtually useless;
and that then languishes in printouts and briefing books
books,
without being put to any significant purpose....
In short, measurement is a mess.
[Michael Hammer, The Agenda]
10 2
9 3
8 4
7 5
6

If we continue to think in the same ways, we
will
ill get the
h same results
l
So what can we do to rethink

performance measurement to
drive increased organizational
success?

Performance measurement must be
transformed!
Outstanding Organizational Performance

Outstanding Management
Transformational Performance Measurement
nteractivity
IIntegration
Context
Focus
In
Basic Performance Measurement

Context
People's experiences with the context of measurement

determine their attitudes toward measurement
People's attitudes and feelings toward measurement are largely a reflection of the
perceived consequences and how much control they think they have over the results.
When they feel positive and empowered in what they are doing, people tend to embrace
measurement, and use it with great enthusiasm. They realize that - win or lose -
measurement is the key to improvement.
Measurement at work is often

perceived negatively
Both participants
and spectators love
measurementt in
i
sports and games
We rarely, if ever, think of about measurement experience in organizations.

Context
Which
Whi h ttype off measurementt is
i more common in
i your
organization?
T diti
Traditional
l Measurement
M t Positive Measurement
Monitoring Visibility
Reporting Co
Communication
u cat o
Control Feedback
Justifying Understanding
Judging Prediction
Triggering rewards/punishment Learning

Improvement
p
Negative
Negati e acco
accountability
ntabilit
Positive accountability
Measurement typically
yp y has negative
g connotations
"Many measurement practices and systems signal distrust through their emphasis on
monitoring and control." [Jeffrey Pfeffer]
Context
Measurement is not the same as evaluation
Action
Evaluation (Judgment)
e-value-ation
Measurement
Measurement is one of the most sensitive issues in any

y organization.
g [Eliyahu
y Goldratt]]
Too often evaluation and its consequences prevent learning from measurement

Context
So much measurement is being used to report on past

successes and for self-serving purposes
See how much Ive accomplished!
Look how great our scores are!
Now give me my bonus and stock options.
Let
L t me show
h you my business
b i case!
!
Let me show you how good we are!
Let me show you our ROI!
It is
i easy to
t manipulate
i l t measurementt
(and too often the organization
doesnt really want to know the truth).
In complex
I l human
h systems,
t there
th
are always many ways to make
things look better in the short-term.
- Peter Senge
Measurement done to prove will rarely improve!

Context
Measurement is imperfect
Opportunity
Motive
Flaws Flaws
Measurement
System
y
Flaws
Flaws
Flaws
M i l ti
Manipulation = f (Opportunity,
(O t it Motive)
M ti )
16
2009 Dean R. Spitzer & Associates, Inc.

Context
Almost no attention is given to the context of

measurement
Measurement Measurement
Expectations Leadership
Organizational History of
Climate Measurement
Measurement System
Measures
CONTEXT OF Measurement process
Measurement
Technical infrastructure
MEASUREMENT Resources
People
Measurement Attitudes Measurement
Communications Motivation Constraints
Capabilities

Context
The root cause is the lack of Measurement

Leadership
Whil
While mostt managers publicly
bli l extol
t l th
the value
l off measurement,t few
f
actually use it systematically and well.
Measurement is everybodys job and therefore its nobodys job!
Organizational leaders are more than happy to delegate
measurement to "measurement specialists." They don't realize how
strategic measurement is, and how much management attention it
requires to do it right. Measurement is one of the most under-
appreciated organizational activities, and measurement leadership is
one of the least appreciated leadership roles.
Who is leading
measurement in your
organization?

Context
How much opportunity do you think there is

th
there ffor improving
i i ththe context
t t off
measurement in your organization?

Context
Quick Assessment: Context of Measurement

Focus
M
Measures are a llens th
through
h which
hi h people
l see th
the world
ld
Reality Data
Measures
change our perspective, we must change our measures.

To
[Source: D.R. Spitzer, Transforming Performance Measurement]

Focus
Most organizations are full of routine measures that have

been accepted as standard operating metrics and rarely,
if ever
ever, change
Routine Measures
Deciding what not to measure is almost as important as deciding what

to measure. [Source: D.R. Spitzer, Transforming Performance Measurement]
Focus
Transformational measures can help organizations focus

on what is most important today and for the future, rather
than in the past
Transformational
Measure
Transformational
Measure
Routine Measures
Transformational
Measure Transformational
Measure
A fraction (.01 percent) of the variables determine 99.9 percent of the result.
[Source: Eliyahu Goldratt, The Haystack Syndrome]
Focus
Measures need to provide a more forward-looking

and a richer view of performance
From To
Profit Accounting Profit Economic Profit
R
Revenue Total Contract Value Sh
Share off Client
Cli t SSpend
d
Customer Customer Sat Survey Customer Value Index
Service Problems/Complaints Customer Experience
Marketing Leads Generated Return on Marketing
Process Sub-process Lead Time End-to-end Cycle Time
Innovation # of Patents Innovation Climate
Decision Making Effects of Decisions Made Information Proficiency
Employees Employee Attitudes Employee Experience
Projects Projects
j Completed
p Project
j Portfolio Return

Focus
Southwest Airlines transformed its business by focusing on

one transformational measure
While many of the traditional routine airline measures might be valid
for Southwest, the key driver of its business model was low "cost-per-
passenger" and the primary driver of low cost-per-passenger was high
" i
"aircraft
ft utilization,"
tili ti " andd th
the primary
i d
driver
i off hi
high
h aircraft
i ft utilization
tili ti
was quick "turnaround time." No company has leveraged the strategic
importance of time as well as Southwest Airlines.
Cost-per-passenger
Aircraft Utilization
T
Turnaround
d Time
Ti

Focus
Dell transformed its business by focusing on two

transformational measures
The success of the "Dell direct" business model, based on building
computers "to order" and selling them direct to customers, depended on
simplifying its supply chain. Dell began to measure "touches" (how many
times a component was touched by a worker)
worker), and set out to reduce that
number. More touches meant longer cycle time, increased costs, and
more opportunities for defects.
Defects
N b off Touches
Number T h Costs Profits
Cycle Time

Focus
Dell transformed its business by focusing on two

transformational measures (continued)
To respond to its cash flow crisis, Dell focused on a measure that ran
counter to traditional manufacturing thinking. Rather than focus on a
traditional measure like "manufacturing cycle time," Dell targeted a new
measure: "cash
" h conversion
i cycle
l titime"" (or
( cash-to-cash
ht h cycle
l titime)) the
th
time from the outlay of cash for parts to the receipt of payment for
completed computers. This measure helped Dell change its priorities from
"growth
growth, growth
growth, and growth"
growth to "liquidity
liquidity, profitability,
profitability and growth
growth." Dell
took cash conversion cycle time from 70 days to less than zero -- which
means it now collects cash before paying for inventory!
Cash Conversion Cost of

Profits
Cycle Time Inventory

Focus
Emergent and Transformational Measures

Customer Delight Employee Engagement
Customer Loyalty Learningg Effectiveness
Customer Experience Information Orientation
Customer Engagement Information Proficiency
Voice of the Customer Innovation Climate
Customer Profitability Partner Relationships
Customer Lifetime Value Organizational Trust
Knowledge Stock and Flow Social Performance
Learning Corporate
p Social Responsibility
p y
Organizational Agility Sustainability
Strategic Readiness of Organizational Health
Intangibles Employee vitality
Project
P j t Scheduling
S h d li Executive Intelligence
Collaboration People Equity
Reputation Service Quality
See Transformational
S T f i l Measurement
M Action
A i Pl Plans, Ch
Chapter 14
14,
Dean R. Spitzer, Transforming Performance Measurement (2007)

Focus
Organizations must not be afraid to experiment with

measurement
P f
Performance A
Area
Performance View
Conventional
Measures
Performance View
Emergent test Transformational

Measure Measure
not working
discard as desired revise
One off the

O h keys
k to emergent measurement is
i the
h socialization
i li i that
h occurs as the
h
construct and its measurement are discussed.

Focus
Dont be intimidated by the measurement police
Is it valid enough?
Is it accurate enough?
Is it reliable enough?
Is it precise enough?
and, whatever you do, dont

dare to be creative!

Focus

f improving
for i i ththe focus
f off measurement
t in
i
your organization?

Focus
Quick Assessment: Focus of Measurement

Integration
Performance measurement is not about numbers and

calculations; it is about understanding of relationships and
how to use this understanding g for continuous improvement
p
of the organization and its component processes
Financial
Measures
Customer Measures
Marketing
Sales Measures
Measures
Product/Service Quality
Measures
Manufacturing Measures Supply Chain Measures
Innovation Other Support Process

IT Measures
Measures Measures

Integration
What are your most crucial measures and their

interrelationships?
What is most important to our

success?
Understanding
U d di business
b i drivers
di and
d leading
l di indicators
i di i diffi
is difficultl b
because organizations
i i
still dont have a clear concept of what drives value.

Integration
Measurement must reflect the organizations business

model and the strategy
Strategy is about Business Strategic

making choices Model
Measures
Strategy Critical
Success
Factors
Execution
Operational
((Operations)
p ) Measures
Measurement lies at the heart of both vision and strategy. It's hard to overestimate its importance
in determining the future course of the business....It is measurement that allows managers to
harness vision to the earthly realities of daily business practice. Measurement turns vision into
strategy and strategy into fact. [Frederick Reichheld]

Integration
Measurementt mustt reflect

M fl t how
h value
l iis created
t d and
d
destroyed in the organization
Value drivers
Revenue
Value Creation Profit
Cash flow
Mission accomplished
value evaporation/loss
(value destruction)
Strategy
St t should
h ld be
b focused
f d on making
ki best
b t use off the
th value
l drivers
di to
t create
t optimal
ti l
value from resources for stakeholders.

Integration
What are the most crucial value drivers in your

organization?

Integration
Measurement should be integrated both

vertically and horizontally

Integration

f improving
for i i ththe integration
i t ti off

Integration
Quick Assessment: Integration of Measurement

Interactivity
The purpose of measurement is not to collect data!
Data iis not knowledge.

D k l d Lets
not confuse
f the
h two. [W. Edwards Deming]
The only source of knowledge is experience. [Albert Einstein]

Interactivity
Creating knowledge and wisdom from data

requires more than technical measurement skills
Wisdom
Effort Required
K
Knowledge
l d
E
Information
Data
Depth of Understanding

Interactivity
Most people are ignorant about measurement
99% of people in organizations dont understand what the data really means.
Deception abounds everywhere!
Interactivity
Performance Measurement Cycle
Plan
Review
Select
Take Action
Collect
Commit
Analyze
Decide
Interpret

Interactivity
Most performance measurement is broken
Plan 30%
60% Review
30%
S l t
Select
Take Action
20%
Collect 60%
80% Commit
Analyze 50%
Decide
70%
I t
Interpret
t 20%

Interactivity
Technology is an enabler, but not a panacea

Plan
R i
Review
Select
Take Action
Collect
C
Commit
i
Store
Analyze
T h l
Technology
Decide
Interpret
Organizations spend billions of dollars on business intelligence technology, but is it

making them more intelligent?
Interactivity
Caution: Remember the Wizard of Oz? Whats behind the

curtain?
First, the Wizard yells and screams and makes a big deal about he is all-powerful and that they can just
basically,
y, all get
g lost. But Toto accidentally
y pulls
p open
p the now infamous curtain,, pprompting
p g the Wizard to
say, "Pay no attention to that man behind the curtain...", but the "Wizard" is "busted" and now has to tell
them the truth - that he really is a good man, but he's not a very good wizard!!

Interactivity

Interactivity

Interactivity
Dialogue: The missing link
Plan
Review
Select
Take Action
Collect
Dialogue
Commit
Analyze
Decide
Interpret

Interactivity

f improving
for i i ththe interactivity
i t ti it off

Interactivity
Quick Assessment: Interactivity of Measurement

Performance measurement must be
transformed!
Outstanding Organizational Performance

Outstanding Management
Transformational Performance Measurement
Interactivity
y
Integration
n
Context
Focus
Basic Performance Measurement

High-priority action items for beginning to transform
performance measurement in your organization
Identify and address measurement dysfunctions
Avoid using measurement against employees
Educate everyone about measurement and how to use it
Develop measurement leaders
Break down measurement silos
Reduce the number of metrics; challenge what is being measured
Continually focus and refocus on measuring what matters most
Identify a few transformational measures to experiment with
Promote better understanding of strategy and value creation (and
value destruction); act on that understanding
Create a dialogue around measurement frameworks and how to
create
t optimal
ti l value
l across th
the organization
i ti
Use measurement automation with care
Assess your organizations Performance Measurement Maturity and
develop an action plan to begin the transformation
See Performance Measurement Maturity (Chapter 12) and Epilogue,
Dean R. Spitzer, Transforming Performance Measurement (2007)
A jjourney
y of a thousand miles begins
g with a
single step

Happy
Measuring!
Dr. Dean Spitzer
Dr
863-409-2576
deanrspitzer@gmail.com
www.deanspitzer.com
2009 Dean R.
R Spitzer & Associates
Associates, Inc.
Inc

Spitzer Spitzer &amp; Associates

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Keynote

Dr. Dean Spitzer

2 2009 Dean R. Spitzer & Associates, Inc.

Some form of measurement is involved in almost everything we do in life, even if

3 2009 Dean R. Spitzer & Associates, Inc.

4 2009 Dean R. Spitzer & Associates, Inc.

Research & Logistics Customer

5 2009 Dean R. Spitzer & Associates, Inc.

6 2009 Dean R. Spitzer & Associates, Inc.

8 2009 Dean R. Spitzer & Associates, Inc.

9 2009 Dean R. Spitzer & Associates, Inc.

So what can we do to rethink

10 2009 Dean R. Spitzer & Associates, Inc.

Outstanding Organizational Performance

11 2009 Dean R. Spitzer & Associates, Inc.

People's experiences with the context of measurement

Measurement at work is often

We rarely, if ever, think of about measurement experience in organizations.

Triggering rewards/punishment Learning

Measurement is not the same as evaluation

Measurement is one of the most sensitive issues in any

14 2009 Dean R. Spitzer & Associates, Inc.

So much measurement is being used to report on past

Measurement done to prove will rarely improve!

2009 Dean R. Spitzer & Associates, Inc.

Almost no attention is given to the context of

17 2009 Dean R. Spitzer & Associates, Inc.

The root cause is the lack of Measurement

18 2009 Dean R. Spitzer & Associates, Inc.

How much opportunity do you think there is

19 2009 Dean R. Spitzer & Associates, Inc.

Quick Assessment: Context of Measurement

20 2009 Dean R. Spitzer & Associates, Inc.

change our perspective, we must change our measures.

21 2009 Dean R. Spitzer & Associates, Inc.

Most organizations are full of routine measures that have

Deciding what not to measure is almost as important as deciding what

Transformational measures can help organizations focus

Measures need to provide a more forward-looking

Customer Customer Sat Survey Customer Value Index

Service Problems/Complaints Customer Experience

Marketing Leads Generated Return on Marketing

Process Sub-process Lead Time End-to-end Cycle Time

Innovation # of Patents Innovation Climate

Decision Making Effects of Decisions Made Information Proficiency

Employees Employee Attitudes Employee Experience

24 2009 Dean R. Spitzer & Associates, Inc.

Southwest Airlines transformed its business by focusing on

25 2009 Dean R. Spitzer & Associates, Inc.

Dell transformed its business by focusing on two

26 2009 Dean R. Spitzer & Associates, Inc.

Dell transformed its business by focusing on two

Cash Conversion Cost of

27 2009 Dean R. Spitzer & Associates, Inc.

Emergent and Transformational Measures

28 2009 Dean R. Spitzer & Associates, Inc.

Organizations must not be afraid to experiment with

Emergent test Transformational

One off the

29 2009 Dean R. Spitzer & Associates, Inc.

Dont be intimidated by the measurement police

and, whatever you do, dont

30 2009 Dean R. Spitzer & Associates, Inc.

How much opportunity do you think there is

Spitzer Spitzer & Associates

Spitzer Spitzer & Associates