Learning How to Keep Score

Article excerpt

EXECUTIVE SUMMARY

Traditional methods of measurement are no longer adequate for collecting information on strategic goals. ln many cases, companies measure the wrong things. Consider measuring non-traditional elements to help everyone understand the organization's processes and improve the management of outcomes.

It's an old adage: Those things that get measured get managed. But if you are collecting and measuring the wrong data, don't expect performance improvement. In fact, measuring the wrong thing can be worse than measuring nothing.

The story of the Dead Sea scrolls is an excellent illustration of how basing rewards on inappropriate measures can produce inappropriate behavior. When the first of the Dead Sea scrolls were discovered, archaeologists wanted more scraps of the scrolls to be found and turned in by wandering Arab shepherds. The misguided scholars offered a fixed reward per scrap, thereby making it likely that found fragments would be broken into tiny pieces before being delivered.

Measuring the right things

The Swedish ABB Corp. provides a good example of how to design an effective measurement system. The management of ABB felt that for the company to be competitive, it was necessary to reduce cycle times by 50 percent. They created what they called the T-50 program, which reduced order and other cycle times by an average of 40 percent.

One of the keys to achieving these improvements was changing from measuring activities such as the number of company seminars or projects that had been authorized to more result-oriented outcomes such as on-time delivery and reduction in the RED cycle time. This new focus got people thinking about how to increase speed. Measuring overall results (cycle times) rather than individual measures focused people on the big picture.

General Electric provides illustrations of both what to do and what not to do. GE is well known for its use of the best practices technique. This concept is similar to benchmarking in that users identify the best practices of well-run companies. The difference is that the best practices technique requires you to examine best practices from companies outside your industry. Benchmarking tends to look at nutsand-bolts methods (What can our shipping department learn from XYZ Inc.?), while best practices is concerned with broader management practices, issues, and attitudes.

Former GE director James Baughman said the key question they wanted answered by firms they tracked was, What is the secret of your success?

GE discovered that the best practices of many successful companies were remarkably similar. As with ABB, almost every company emphasized adaptive characteristics such as managing the process, not the function. These companies also concentrated less on measuring the performance of individual departments and more on strategic outcomes such as how departments worked together as products moved from one area to another. It was during this process that GE realized they were setting goals and tracking performance but they were measuring the wrong things.

As a result of this recognition, GE began re-engineering efforts at its Evendale, Ohio, plant. A team at the plant constructed a process map that tracked the making of turbine shafts for jet engines. The mapping took a month to complete, but for the first time, GE had a coherent understanding of what was involved in the process from start to finish.

John Chesson, the general manager of component manufacturing at the plant, said the mapping also changed opinions throughout the facility about what should be measured. Before they had been able to "see" the entire process, GE had concentrated on measuring and managing worker and machine efficiency. After the mapping exercise, they could concentrate on what gets done to manage outcomes - what GE calls its total asset. For instance, at one time GE's goal was 100 percent machine utilization; therefore, management decided that all rotating parts would be sent to a central steam-cleaning facility. …