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Measuring Performance and The Executive's Diagnostic Toolkit |
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By Vadim Kotelnikov, Inventor, Author, and Founder, Ten3 BUSINESS e-COACH – Innovation Unlimited, 1000ventures.com
"Anytime things appear to be going better, you have overlooked something" – Chisholm's Second Law
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The Four Sets of Diagnostic Tools To manage the current business, executives require a four sets of diagnostic tools: foundation information; productivity information; competence information; and resource-allocation information. Measurements must be quantitative, systematic and proactive in order to support the corporate culture and decision-making process. Once managers know what information they need for their work and what information they owe to others, they can develop methods to turn "the chaos of data into organized and focused information".3 Foundation Information It refers to basic business documents such as cashflows, balance sheets, profit-loss statements, sales, and other various conventional business ratios. Any abnormality in these documents indicates a problem that need to be identified and treated. Productivity Information It looks at the productivity of key resources, including labor. You would also need measures like "economic value-added analysis" to demonstrate that your business is earning more than it capital costs, together with benchmarking to show that its performance is as good as or better than the best competition. Competence Information Though it's not a easy task, try to define measurements, or if this is not possible - assessments, for your core competences as well as your performance in the area of innovation management. "Every organization, not only businesses, need one core competence: innovation," asserts Peter Drucker. Ask yourself questions such as: "How many of the truly important innovation opportunities did we miss? Why? Because we didn't see them? Or because we saw them but dismissed them?" Resource-Allocation Information In addition to traditional measures of capital employment – return on investment, payback period, cashflow, or discounted present value, to understand a proposed investment, ask the two key questions:
"The is no better way to improve an organization's performance than to measure the results of capital spending against the promises and expectations that led to its authorizations". Capital, however, is only one key resource of the organization. "The scarcest resources are performing people." Place people, as purposefully and thoughtfully as capital, with specific expectations as to what the appointee should achieve and with systematic appraisal of the outcome. Balanced Scorecard The Balanced Scorecard is a framework for designing a set of measures for activities chosen by you as being the key drivers of your business. By having four distinct perspectives (financial, customer, internal process and innovation and learning) it promotes a more holistic view of the business... More Control Systems for Strategic Management In strategic management, control systems deal with the fundamental question of whether or not resources (people, capital, hardware, and software) are being used to move the organization towards its goals and what should be done if this is not the case. Different approaches used in strategic management include controls based on inputs; controls based on outcomes; and controls based on understanding inputs and outcomes.
Total Quality Control (TQC): Japanese Approach Japanese TQC practice is based on the Kaizen strategy, that deals with quality of people rather than products. TQC is everybody's responsibility, a company-wide continuous activity involving all employees, systems, software and hardware. TQC is also process oriented and aimed at improving the total performance of the organization. The seven main features of TQC movement in Japan are:
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