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Transforming Performance Management - Book Review

1 March 2010

Dr. Moria Levy

“Transforming Performance Management: Rethinking the Way We Measure and Drive Organizational Success”, authored by Dean Spitzer in 2007, is a remarkable book.


The book stands out because, unlike other works addressing measurement and performance, it delves into the culture of measurement. It explores why effective measurement is primarily a matter of organizational culture and the reasons to change, the how, and the where. The term "transforming" is frequently emphasized throughout the book, highlighting the significance of changing the paradigm rather than merely adding or adjusting elements. The core message conveyed to readers is the imperative need to fundamentally alter how performance is managed, challenging readers to shift their perceptions of measurement.


The concept presented by the author is intriguing and compelling, with the most persuasive aspect being the inclusion of a list of 34 unexpected and effective measurements after the book.


The book is organized around the following topics:

  • Why is measurement important?

  • Why does our measurement require change?

  • Positive context

  • How should I measure?

  • Focus

  • Integration

  • Interactivity

  • Leadership

  • Computing

  • Tips

  • Good measurements


Engaging with the book requires perseverance as it opens with high expectations, addressing the why and the necessity for change. Throughout its pages, various guiding principles of action are presented, gradually building the case. Only in the final chapter, dedicated to good measurements, does the comprehensive picture become clear, showcasing innovation in its full glory. The author introduces a new and fresh concept here, offering a promising avenue for success. Happy reading!


Why is measurement important?

Measurement is crucial for any organization, extending beyond the mere knowledge of past events. Its significance lies in various purposes, as outlined below:

  1. Behavior-oriented measurement: Individuals tend to focus on areas where they are being measured. Measuring it becomes imperative to enhance performance in a specific domain.

  2. Performance visibility: As organizational activities become less tangible, understanding their effectiveness becomes challenging. Performance component analysis and regular measurement act as the organization's eyes, providing insights into the correct level of performance.

  3. Attention focus: Measurement directs the attention of both employees and managers toward the tasks being measured.

  4. Clarification of expectations: Metrics chosen for measurement define and communicate expectations.

  5. Comparison against planning: Measurement enables comparing actual performance against planned benchmarks.

  6. Objective observation: Measurement enhances objective assessment.

  7. Foundation for setting new goals: The foundation laid through measurement facilitates goals essential for organizational success.

  8. Performance improvement: Measurement highlights areas worth improving, driving overall performance enhancement.

  9. Promotion of consistency: Uniform metrics, consistently applied to tasks, foster organizational consistency.

  10. Feedback on performance: Measurement provides valuable feedback on completed tasks.

  11. Compliance with corporate strategy: Measurement increases alignment with the overarching corporate strategy.

  12. Data-driven decision-making: Measurement enables informed decision-making based on data and information.

  13. Problem-solving improvement: Measurement directs attention to causes rather than symptoms, enhancing problem-solving capabilities.

  14. Early signals of problems: Measurement indicates potential issues before they escalate.

  15. Expanding understanding: Measurement contributes to a deeper understanding of organizational dynamics.

  16. Early prediction: Measurement facilitates early prediction of trends or outcomes.

  17. Motivation creation: Measurement fosters motivation by linking discussions to tangible outcomes. This aligns with the behavior-oriented measurement mentioned earlier.


Furthermore, each measurement unleashes positive forces for action and provides immense satisfaction when success is indicated.

Why does our measurement require change?

If everything appears positive, why consider a change? What challenges exist within measurement, and why do individuals and organizations struggle to measure and utilize existing metrics effectively?


Functional aspects of measurement can inadvertently promote the following:

  • Fear: The fear that measurement will reveal an employee's failure to meet expectations.

  • Incorrect activity: Measurement directed at inappropriate subjects or metrics may result in misguided actions.

  • Cheating: Individuals may manipulate measurements to portray a favorable image.


Two primary factors contribute to flawed measurement: opportunity and motivation. Acknowledging that measurement is inherently imperfect, the presence of opportunity creates circumstances for measurement failures. Motivation becomes a driving force for employees, particularly when they can manipulate measurements to their advantage, promoting a failure in measurement.


Several reasons may underlie potential issues with existing measurement practices in organizations:

  • Negative association: Negative perceptions linked to measurement and its utilization.

  • Isolation of measurement: Treating measurement as an independent task rather than integrating it into ongoing work.

  • Confusion between measurement and evaluation: When measurement becomes a judgmental tool.

  • Intent concerns: Overuse of measurement as a grading tool for employees.

  • Trust issues: Measurement often erodes employee trust in the system, requiring a distancing of the formal measurement process to rebuild trust.

  • Lack of knowledge: Inability to measure "soft" subjects leads to avoidance or incorrect measurement, posing the risk of business or organizational damage. Over time, the significance of "soft" components increases concerning activity and success.


As emphasized in the preceding chapter, measurement is behavior-oriented, and flawed measurement manifests as incorrect behavior.


Positive context

The initial and crucial stage for effecting change, known as perceptual conversion, involves establishing a positive context. A positive connotation regarding the subject of measurement is imperative. Failure to achieve this will hinder the ability to advance to and stabilize subsequent stages.


Factors influencing a positive relationship include:

  • Cultivating a positive and supportive organizational atmosphere, focusing on the future rather than the past, embracing informality, fostering trust, promoting change, encouraging open communication, and embracing risk-taking, among other elements.

  • Setting expectations for measurement based on organizational history, experiences, and policies.

  • Adopting an approach and reference to measurement.

  • Ensuring basic abilities in measurement, as a lack thereof, instills fear, making it essential to address competence for the sake of a positive context.

  • Associating measurement with learning rather than judgment.


Methods for enhancing the context include:

  1. Communicating the relevance of numbers to employees.

  2. Involving individuals in the measurement process.

  3. Emphasizing the use of measurement for learning and improvement rather than control.

  4. Enhancing confidence in measurement in general and specific indices.

  5. Maintaining openness about measurement and its outcomes.

  6. Establishing learning opportunities based on measurement.

  7. Providing resources to support employees using measurement.

  8. Having a leader guide the measurement process (detailed below in the Leadership Infrastructure).


How should I measure?

Here are four factors contributing to effective measurement. These factors are interconnected, with each layer building upon the one preceding it:


Focus

Often overlooked by organizations, excessive measurement poses a significant threat to effective measurement practices. The lack of awareness regarding the importance of focus creates a twofold danger:

  1. Measurement Overload: Excessive measurement leads to fear, confusion, and deception within the organization.

  2. Tendency to Measure Everything: Organizations may measure everything possible, but only sometimes what is essential. The proliferation of measurements creates a false sense of quality, discouraging the search for meaningful measurements.


The essence of focus lies primarily in helpfulness rather than efficiency. Dean Spitzer quotes Peter Drucker, emphasizing the futility of doing the wrong things efficiently. The value of measurements depends on their contribution to the stakeholders they serve. Values are created when the right actions are executed with the appropriate investment. Therefore, strategy, the guide to the right actions, must be measured, and actual execution must be assessed.


How to achieve focus:

  • Identify Critical Success Parameters: Focus on what matters most to the organization's success, often following the 80/20 principle. For instance, Dell emphasizes the remaining experience lifespan, while Southwest Airlines considers the number of people on board.

  • Measure Intangible Assets: Do not hesitate to measure intangible assets, recognizing their increasing importance. Even imperfect measurements are valuable; it is better to measure an imperfect parameter correctly than a perfect but less relevant one. Evaluation is not to be feared in areas lacking precise measurement.

  • Gradual Development of Measurement: Analyze and understand the components of business success while progressively developing measurement practices.

  • Constantly Remember the Goal: Remember the organizational goal as a guiding

    principle.


Methods to enhance focus:

  1. Constantly Seek Critical Parameters: Regularly search for the most crucial success indicators.

  2. Align with Business Model and Strategy: Ensure that measurements align with the business model and strategy.

  3. Evolve Measurement Experience: Continuously improve measurement practices based on evolving experience.

  4. Encourage Innovation in Measurement: Foster innovation in measurement as a tool for achieving the proper focus.

  5. Continuous Review and Correction: Regularly review and, if necessary, replace existing measurements rather than solely adding new ones.


Integration

In essence, organizations are recommended to implement two dimensions of integration in measurement:

  1. Vertical Integration: This involves integrating measurements related to finance, customers, internal organizational processes, and employees.

  2. Lateral Integration: This pertains to the integration of measurements related to supporting areas such as procurement, marketing, sales, and customer service, as well as logistics, production, and accounting.


Integration is achieved by establishing an integrated measurement framework, preventing the existence of independent measurement islands. This framework outlines all measurement topics and the set of relationships between them.


An example of a well-known integrated framework that facilitates integration on both dimensions is the Balanced Scorecard. This organized collection of organizational metrics is balanced through observation, planning, and analysis of measurements and indices along different axes. For instance, along the longitudinal axis:

  • Financial: Focuses on income growth and profit growth.

  • Customers: Aim to increase satisfaction, enhance the branding image, and elevate the customer's perception of value.

  • Internal Organizational Processes: Aims at improving customer relationship management and enhancing service quality.

  • Learning and Growth: Targets improvement in employee skills and innovation.


Beyond connections within each level, there are inter-level connections, such as the link between profit and the enhancement of branding image and customer perception of value. The key to integration lies in understanding the relationships between measurement subjects. It involves examining, from top to bottom, what needs to be done to realize the strategy and identifying connections that will support its realization.


Methods to enhance measurement integration include:

  1. Holistic Perspective: Adopting a comprehensive view.

  2. Developing and Using Integrated Measurement Frameworks: Establishing and utilizing frameworks that integrate measurements.

  3. Defining Cross-Organizational Measurement Topics: For instance, assessing the level of employee sharing.

  4. Analysis of Factors and Influences: Utilizing this as a tool to understand and improve measurement in general and integration in particular.

  5. Relying on More Integrative Data: Emphasizing data that contributes to integration.

  6. Persistent Strategy Compliance: Consistently aligning with the organizational strategy.


Interactivity

Creating a well-designed measurement at the technical level contributes to initial usefulness only. The transformation of media into a good measurement over time can only occur through the social interaction of employees, fostering continuous improvement. At the heart of this interaction lies dialogue, expressed at all stages of measurement:


The essence of dialogue is a mutual search for ordinary meaning or understanding. It demands openness, honesty, sincerity, and a multitude of perspectives. In conversation, diversity becomes an advantage.


Methods to enhance interactivity include:

  1. High Frequency for Interactivity: Encouraging frequent interactions among employees.

  2. Effective Dialogue: Emphasizing the importance of asking the right questions during interactions.

  3. Examination and Improvement of Measurement Frameworks: Regularly assessing and enhancing measurement frameworks.

  4. First- and Second-Order Learning: Leveraging measurement results for primary learning and learning about the learning process.

  5. Appropriate Use of Technology: Using technology judiciously facilitates and enhances interactive processes.


Leadership

In every discourse, it has been consistently emphasized that leadership is pivotal to success, which also holds for measurement. Despite being a somewhat clichéd and well-worn statement, the significance of leadership in measurement might be challenging to grasp due to two common misconceptions:

  1. Perception of Measurement as a Technological Thing:

  2. Thought that No One is Solely Responsible for Measurement:


In practical terms, without leadership, an organization will encounter difficulties in establishing effective measurement and, more importantly, optimizing its utility. The leader's objective is to guide the change management process and transform the organization into one that measures its performance accurately. The change management process involves:

  • Creating a leading coalition.

  • Recognizing difficulties.

  • Avoid focusing solely on "projects" and instead foster a broader perception of life within the organization.

  • Demonstrating the visibility of commitment to measurement, such as by incorporating measurement tasks into job definitions.

  • Providing support and tangible resources.

  • Being attuned to existing measurement experiences and strategies to address them.

  • Emphasizing the purpose of measurement as a performance enhancement tool.

  • Insisting on truthfulness.

  • Separating measurement from judgment and reward systems.

  • Highlighting the importance of learning about and from measurement.


Dean Spitzer lists a series of well-known leaders who have underscored the importance of correct measurement, including Jack Welch (GE), Bob Galvin (Motorola), Rudolph Giuliani (City of New York), and more. He advocates for creating a senior position in the organization dedicated to promoting measurement and taking responsibility for its implementation.


Computing

The most significant error concerning computing is the tendency to overestimate its value. While computing is an essential element for measurement, it is just a part of the overall process and should not be led by computing professionals. Instead, computing should serve as support for performance measurement rather than being considered the measurement system itself.


Examining the measurement stages outlined in the interactive section above, computing plays a role in only three stages:

  • During the selection of indicators (partially).

  • At the data collection stage.

  • In the data analysis stage.


Additionally, computing contributes to an extra stage:

  • Storage (for data).


It's crucial to note that these are three out of nine stages, and its contribution is partial even in these. Computing does not execute them alone and, in some states, doesn't lead them.


Challenges to address in computing aspects include:

  • Avoiding excess automation.

  • Managing data integration.

  • Ensuring the appropriate use of existing tools, especially scorecards and dashboards.

  • Prioritizing investments correctly.

  • Considering organizational maturity.


Best practices include:

Recognizing the importance of human resources.


Tips for making a suitable investment:

  1. Understanding the essence and challenges of acquired tools beyond relying on success stories.

  2. Starting with small-scale implementations.

  3. Avoiding unrealistic expectations from any tool.

  4. Choosing a tool that is easily adjustable and adaptable to interactive measures.

  5. Not expecting an immediate return on investment; aligning expectations.

  6. Defining the boundaries of technology in the entire measurement process.

  7. Establishing support levels and securing additional required resources.

  8. Integrating "soft" complementary information with calculated indicators.

  9. Evaluating cultural issues and adapting the proposed technology accordingly.


Tips

  • First, comprehend, then measure.

  • Prioritize measuring what is right over what is easy.

  • Encourage questioning; seeking answers is not always the immediate solution.

  • Foster discussions surrounding measurement.

  • Educate individuals on how to measure and predict based on measurements.

  • Recognize the importance of qualitative measurement and actively utilize it.

  • Evaluate each factor promoting positive context, focus, integration, and interactivity in the organization, and assess the distance from "optimal" conduct. Tailor the promotion strategy for each aspect based on the organization's maturity level in the field, focusing on one level at a time in each aspect.

  • Employ "soft" metrics, such as questionnaires, surveys, tests, self-assessments, and status tests, to explore intangible measurement topics.

  • Acknowledge that subjective evaluation and measurement can sometimes be more valuable than measuring the wrong things.

  • Supplement numerical measures with verbal illustrative assessments (e.g., "strongly agree; partially agree; disagree; strongly disagree"). An even number of choices is preferable, forcing respondents to adopt a non-neutral position.

  • Embrace predictive measurement, even when unable to predict the future, to better prepare for what lies ahead.


Good measurements

This chapter, focusing on effective measurements, is, in my opinion, the most significant chapter (M.L.). However, it comes with its challenges. The book outlines 34 pertinent measurement topics and proposes potential assessment methods. As this is just a summary, the measurement topics are presented without detailing the possible techniques, making it necessary to read the book for a comprehensive understanding.


Here is a list of topics worth considering for measurement, depending on strategy and organizational needs:

  1. Customer experience – What the customer received from us (potentially different from what was provided).

  2. Depth of the customer's connection with us – Trust, perception of decency, pride in being our customer, etc.

  3. Customer enthusiasm to work with us – Enthusiastic customers often correspond to "very satisfied" customers.

  4. Customer loyalty.

  5. Relationship with the customer – Income, profit, contact time, ongoing communication, commitment, and readiness for client initiatives.

  6. Customer 360 feedback.

  7. Customer profitability (considering all cost components).

  8. Future value potential from the customer.

  9. Quality of service.

  10. Brand strength – Differentiation, quality (image), value (brand preference), loyalty.

  11. Intellectual assets.

  12. Support for the intangible assets strategy.

  13. The atmosphere of innovation among employees – Employee commitment, decision-making freedom, idea encouragement, positive connections, dynamism, joy, stress, risk-taking, etc.

  14. Reputation.

  15. Trust in the organization.

  16. Partner relationships.

  17. Collaboration.

  18. Throughput.

  19. Organizational agility and adaptability to changes.

  20. Waste.

  21. Inventory.

  22. Total cost of activities in the organization and total cost of products and services to customers (TCO).

  23. Activity-based costs.

  24. Economic value added from various activities.

  25. Value of intangible assets.

  26. Planning and timeliness in project execution.

  27. Employee commitment to the organization.

  28. Emotional intelligence.

  29. Employee security.

  30. Decreased productivity due to presenteeism – A new measurement concept has been evolving recently.

  31. Learning effectiveness.

  32. Information orientation – The extent to which the organization utilizes available information.

  33. Skill in creating and using information within the organization.

  34. Knowledge flow within the organization.


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