Volume 130, February 2014: Financial Management

Keyzine: An E-zine for Leaders about the People Side of Business

This is a monthly electronic magazine for anyone who wants to be a better leader, coach, facilitator, or simply, to tune up their people skills. It is a complimentary publication, devoted to the next evolution of Quality Thinking.

Publisher: © Key Associates, 2013 ISSN # 1545-8873

“No money, no mission.” – Head Sister Rosie, Wheaton Franciscan Health System

In my professional career, I have had great difficulty farming back people’s belief that numbers are the real thing (and mind you, psychologists believe their own “measurements”). Numbers are not the real thing – they are a proxy or a symbol, hinting at truth. It struck me that the over-believers in numbers typically did not understand what they were assessing and governing. As Deming aptly put it, if you do not understand a process, you will attempt to manage it by the numbers alone. Deming was well known for saying, “There is no such thing as a fact.” He was trying to get people to realize that all measurement is fraught with error.

Still there is value to having indicators of process behavior and these can include “money measures.” You will find additional metrics for a scorecard below. The measures you choose to track in each area are sometimes referred to as “the Big Dots.” Every project should connect to the Big Dots. The emphasis in work becomes on moving the Big Dots, not adding more projects. (Godfrey & Plsek, 2006)

Here is another stuck issue: people will react to a single data point as if it represents the entire process, and then knee-jerk a fix-it response for the whole system. This is characterized as treating a Special Cause (something unusual) as a Common Cause. Knowledge of variation is more important than having the number. When variation (which always exists) can be defined over time, within predictable Control Limits, you have a stable process. Only looking at data over time will allow prediction, which is the essence of management.

Practice Point

Know the pulse points of your organization, note them, and make changes when the trend is clear (i.e., not based on one data point.) Plot a dot yourself, then another and create your trend lines. The act of penning a point helps you understand a process and better predict the future.

Create a Scorecard of Metrics. Name a measure in each category that links business results to customer needs and expectations. (Tie this to all your business units.) These metrics should extend beyond financials or maximizing shareholder wealth to create a “balanced assessment to ensure a long-term, sustainable organization.”

Suggested Metrics for a Scorecard
Customer Experience. How are we delighting our customers?
Measure turn-around times, quality, performance and service, customer satisfaction, and value.
Core Competencies. In what areas must our company excel?
Determine the processes and competencies that are most critical, then specify measures, such as cycle time, quality, safety, employee skills, project management and productivity, to track them. Monitor learning and growth activities.
Value Creation. How can our company continue to learn, improve, innovate, and create value?
Track your ability to launch new products, create more value for customers, and improve operating efficiencies. Notice number of employee suggestions,  employee satisfaction/retention, % revenue from new services.
Financial Performance. How has our company served its shareholders?
Measure cash flow, project profitability, revenue per employee, operating income by division, increased market share by segment, reliability of performance, and return-on-capital-employed.

 

Buy MK’s latest book!