Measuring What You Manage

Parsons says before designing and implementing a performance measurement system you must understand the nature of the phenomena being measured, why the processes are being measured, who will use the results and how they will use them. But you also need to view measurement in the context of the overall, perhaps extended, system under review.

You also need to foster a critical mass of measurement expertise to ensure the organization acquires profound knowledge and to craft a hierarchy of measures for the entire organizational system, accepting ambiguity, imprecision, ragged edges and imperfection. "You will need to blend the objective with subjective, qualitative with quantitative, rational with irrational, analog with digital, hard with soft and intuitive with explicit; and you must ensure that strategy, measurement and action are integrated," he says.

"Successful implementation of a measurement system is much more than simply getting a new tool, technique or software package. So many attempts have ratcheted through the process of acquiring the latest fad, 'selling' it to the organization and installing it without gaining the commitment and support of the users."

Meanwhile, some 500 years after Pacioli published his seminal work on accounting to meet the needs of a very different time, Standfield says nearly all of a company's profitability today depends on intangibles. Since you cannot manage what you cannot measure, he says organizations must develop the skills to identify, financially value and capture intangible benefits to boost leadership effectiveness, enhance productivity and minimize costs and risks.

Standfield's investigations into how intangible value from knowledge, collaboration, process engagement and time effectiveness affect financial performance, employee engagement, brand, reputation, cost effectiveness, leadership ability and productivity, led to the creation of more than 40 international intangible standards that provide a common and shared understanding of how soft, intangible value (non-contractual and non-ownable) can be scientifically managed.

By December 11, 2007, he is confident the Global Cost to Value Taskforce (see "Going Global", page 48) will provide an agreed and tested method to let managers and executives quickly and easily financially estimate intangible benefits and value to create new ways to increase productivity, reduce costs and risks, and boost service, engagement, retention, profitability and shareholder value.

"One of the very interesting things is that productivity today is caused, from the Standards Institute perspective, by intangibles, and when we look at intangibles we're looking at activities to do with knowledge, collaboration and leverage," Standfield says. "So if we look at an organization and just basically say: 'Well, this particular organization has a certain number of staff; they're doing certain activities throughout the day, all of which can be broken up into those three different categories', basically we get a time fingerprint of the organization. Now from there what we do through the more than 40 international intangibles standards is to assess that fingerprint."

Standfield says there are metrics, and then there are valuations, and it is important to distinguish between the two, with valuations being what senior executives are really looking for. For instance, in considering an activity — say improving employee engagement — one can talk about metrics or one can talk about the financial impact on the bottom line. "Now, in the past we've looked at the financial impact on the bottom line and seen cost savings, headcount reductions, all sorts of efficiency-oriented variables. But now we're looking at effectiveness as an issue and considering how this hits productivity," he says.

"If our staff are more engaged and they're more committed, what does that actually do to the bottom line of the business? How does it grow the business, how does it impact customer service, what is the financial value of that impact as well? To avoid the perverse consequences we need to look more broadly at the whole productivity equation."

Standfield says currently when an initiative is assessed for value, managers tend to use a very simple equation: cost reduction minus the initial investment. If the expected cost reduction is $500,000, and the investment $100,000, most managers will be keen to push forward, buoyed by the expectation of a $400,000 saving.

But consider the example cited above, where Yahoo! required its US workers to take holiday or unpaid time off the week between Christmas and New Year, in a move that could signal concern about hitting some financial goals for the year. As the Wall Street Journal tells it, on the heels of a warning on revenues that caused its stock to plummet about 10 percent, Yahoo! told its 10,500 employees to take off the week between Christmas and New Year. Offices would be closed, allowing workers "to enjoy guilt-free time off while helping Yahoo! reduce unused vacation time", according to Libby Sartain, head of Yahoo!'s human resources.

"Assuming average weekly wages of $2000, that would save the company only $21 million — or about the combined earnings of CEO Terry Semel, CFO Susan Decker and COO Dan Rosensweig last year," as the newspaper's Daniel Gross noted.

"So basically in the week that most people were home and probably going to hop on the Net to do all sorts of things, nobody was at Yahoo!," says Standfield. "So they looked at that cost reduction less investment — We can save $21 million, fantastic! — but they didn't look at the other side of the equation, which is time multiplied by productivity. So they're going to lose some 400,000 plus hours."