Sandy Pentland’s book “Honest Signals” ( http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=11532 ) makes it clear how much our evolved internal psycho-dynamics are still functioning as if we were living in tribal and other “survival” situations.
I personally think that management has to “consciously” work with and “against” our evolved interpersonal judgment mechanisms. I believe that this has deep application in recruiting and in performance management.
Our evolved psycho-dynamics precondition us to “rapid judgment of others” and to “action”. That made sense in a tribal, hunter-gatherer world, where meeting a new person required “instant” assessments and “flight / fight” reactions. It does not in modern society, and certainly not in modern management.
Performance management in organization must move us beyond the inappropriate use of our evolved human “natural” abilities. Our performance management processes must meet the requirement of managing complex organizations and technologies that populate our world. (The subject of my last blog.)
But we can move even further down this path. I once worked for a CEO who said three things.
“1. I need to get the folks who work for me thinking about the same things that I am. I need a way to convey that to them without having to tell them in talk all the time.
2. What counts is not the past. Explanations about the past don’t help me any. What counts is commitment on the part of the folks working for me to doing something which changes non-positive trends – trends starting in the past that will continue to happen if my people don’t do something to keep these trends from continuing to happen.
3. The numbers which are important to me today are not the numbers which may be important to me 6 months from now. Sure, some numbers are perpetually important, but I need others as I and my folks do things to manage and to change the business and make it better.”
He said these things to an innovative systems chap who happened to be a physicist working for his organization as a lead business application designer. That chap said:
“I don’t understand management. It is like a big cloud bubble chamber experiment in particle physics to me. You get all kinds of data and the best that you can do is look for patterns which you think explains some things.”
This systems chap worked with the CEO to implement a “measurement system” that was based on the following ideas and principles.
1. Each person can only get as many numbers from the “system” as will fit on one 8/2 by 11 inch page.
2. You can only get numbers that already exist in one of the transaction processing business systems that are already used to run the business. If you want new numbers, you can only get them through the process of improving the functioning of these systems.
3. All the numbers that are available are listed in a data catalog which the system made available to each individual executive. (Getting this data catalog up and maintaining was a real “roll up your shelves and catalog” effort in meta-data management.
4. Librarians and public relations people provided input on how to “structure” the presentation of this data catalog to executives so that they would find it “user friendly”, and could navigate through it in ways that made sense to them, not systems analysts.
5. Each executive could pick the numbers they wanted to see. They would get a personalized report of their numbers every day, even though not all the numbers changed every day. Changed numbers were highlighted. Individuals could request supporting graphs showing the historical patterns of any of the numbers on their personalized report. These “supporting” graphs also showed the trend lines that were being used to predict the “at year end” projections of these numbers. (See point 8 below.)
6. An individual’s immediate reports would get a copy of that executive’s personalized report at the same time that the individual got the report. Usually, they were delivered to all of these folks in-boxes at the same time. That meant that people in the top three or four ranks of this company got the following each day.
• A copy of their boss’s personalized report.
• Their own personalized report.
• Any support “graphs” of any numbers on their personalized report they had requested. Everything was always printed out on 8½ by 11 inch paper.
7. Executives did not have to explain their choice of numbers to their bosses.
The physicist-systems chap trained in physics believed that management was a process that depended a great deal on individual intuition and experience. He did not understand management. He believed that many executives did not either. He thought that executives often acted on “intuitions” that were beyond rational explanation before the fact. He did feel that he should in any way interfere with their personalized approaches to the “bubble chamber” experiment called management.
The CEO thought his job was to get his folks to produce results, not do this in ways that reflected his own approach to problems.
This combination of beliefs was extremely important in setting up this system. I believe that it was also key to its success.
8. Once an executive asked for a number in the data catalog, that person would get the following versions of that number:
• Actual to date
• Budgeted ( if available),
and
• Projected to year end.
These projections were based on estimating systems that the physicist developed for each of the entries in the data catalogue. The physicist and his system team developed statistical processes which they used to project these numbers. These process were based on “curve fitting” technologies, as well as dialogue with folks responsible for operating the source transaction processing systems about the nature of each of these numbers.
This team regularly reviewed the success of their projection routine by comparing their projections against actual numbers as they became available. As they learned to from these regular comparisons, they updated these prediction- to-year-end mechanisms.
Regular updates to the data catalog communicated the results of this assessment and updating process. This also quelled the inevitable debate about “how to predict” among the executives.
9. Each number in the data catalog was classified as either an output number the result of effort put in) or an input number (some kind of effort put in to produce some output). The data catalog preparation team based this on dialogue with the individuals responsible for the source transaction processing business applications.
Although there was a little bit of flurry among the executives about this classification in the beginning, it rapidly settled down, once the daily reports started going out.
It took the best part of a year for this “measure what we manage” system or application to settle in. The CEO’s sponsorship of it was extremely important in its initial “acceptance”, even if this acceptance was less than enthusiastic on the part of some of the executive team.
The system really took off when the CEO insisted that his report consist entirely of ratios – of outputs over inputs. He explained his reasoning for his choice for this in his personalized report. The first part of it simply reflected long term ratios that he considered important to his understanding of the up and the downs of the business They were stable.
The second part of his personal report he regarded as “experimental”. He chose ratios for it that reflected his current attempt to delve deeper into the dynamics in the business that he thought could be improved or were changing. They were his way of gaining insight into some of the dynamics of the business about which he had preliminary, unconfirmed hunches.
Others in the executive group started to experiment with similar approaches on their personalized reports. Again, they never had to explain their choices to anyone other than their direct reports. Before long, the personalized reports of the top 1 or 2 ranks of the executive group consisted almost entirely or ratios.
Again and again, the CEO in this organization emphasized what he wanted to hear from folks when things were considered less than positive. He asked them to tell him what they were going to do to attempt to change that, not provide explanations about the past. He considered simple focus on understanding the past as a form of “analysis paralysis”. He wanted such “insight” linked to actions they were taking to change the projected trends in raw numbers being taken from the transaction processing systems used to run the business.
As the CEO changed the some of the ratios that made up his personalized report, this reports able to follow the things he was concerned about in the business. Often, these changes were based on intuitions or hunches or curiosities he had. They did not always make sense. They did not always provide “useful” information after a couple of days or weeks. He simply dropped them when he die not find them helpful to him, and replaced them with other things which intrigued him. As his direct reports followed these changes, they “started to read his mind more accurately’, based on following the patterns of his changes in his personalized report.
The projections-to-year end focused people lower down in the executive ranks, who often did not interact with the CEO on a day-to-day, basis on doing things rather than explaining things. The culture became less concerned about blame and more focused on doing. Over time, the executive ranks “got” that not doing something about a “downward productivity” trend was the real thing for which they got into trouble with their bosses.
In some cases, an individual executive’s dis-satisfaction with the quality of some of the ratios on a personalized reports led to that executive taking an interest in the source transaction processing business application and requesting upgrades to it. Over a number of years, there was a commonly noticed improvement in the quality of both operational and customer facing transaction processing applications.
This system became known as the “management daily”. The CEO attributed a year-over-year annual 10% increase in the operational productivity and profitability of his organization for the period that he was CEO directly to the “management daily”. He claimed that it created an “cascading alignment of thinking and concern” in the executive ranks of the organization – a pulling towards constant productive improvement that he had never experienced before.
To me, this is a “you can’t manage what you don’t measure” system which makes sense for an organization.
1. It respects the fact that individual executives have different insights and intuitions about what is important in management.
2. It encourages dialogue between an executive and his or her immediate reports. At the same time, it allows these immediate reports to shape a different kind of dialogue with their own immediate reports.
3. It insists that the numbers – the measures – come from the transaction processing systems used operate the organization.
4. It builds feedback loops from the management team back to these transaction processing systems.
No additional measurement effort, other than the collation and reporting system itself, is required to generate numbers. The transaction processing systems can be used to handle internal operational activities or be used to manage customer centric ones.
5. It follows change over time, as the management team makes change to improve the organization.
6. It focuses management dialogue on the future, and on acting to change the future, not explaining the past.
7. It focuses management dialogue on productivity, on outputs over input, where it should be, and on trends in productivity, not point in time measures.
This point in time focus is one of the weaknesses of many external investment analysts who focus on quarter by quarter results. Their time frame is simply too limited to truly “get” what is happening inside an organization.
Some of the features of this “management daily system” have found their way the balance scorecard systems. Unfortunately, I believe that in many cases balance scorecard implementations have lost two of the great strengths of this management daily system.
• First, balanced scorecards are often static – reflecting one individual’s point of view about what counts, or a consensus of individuals ‘view about what’s important at a certain point in time. Balanced scorecards may include ratios, but they often lack the “experimental component” of the management daily. They are not “personalized” to each executive like the management daily
• Second, balanced scorecard systems seldom implement the projection element of the management daily system. The lack the “learning element” – comparing projections against actuals – which the physicist-systems chap implemented in the management daily. As a result, balanced scorecards often become systems which focus executives on explaining the past rather than achieving value results in the future.
Link such a “management daily “measure what you manage” system to appropriate performance management incentive schemes. Let the incentives consist of a thoughtful mixture of individual, business area team and organization wide incentives. Get this linkage right, and you create the environment needed to focus people on creating extraordinary organizational excellence.
I have implemented “management daily or weekly” approaches in each organization unit that I have managed since my exposure to this organization. It has been relatively straight forward to set up the necessary data extract and numbers processing systems, given the advances in business intelligence and business analytic software.
In each case, I have been deeply impressed by the change in thinking that resulted in my direct reports. They became future action oriented, rather than past explanation bound. We achieved significantly enhanced performance results as a team, and as individuals. This is a form of “measure what you manage” that works.
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