Exploring Organisational Effectiveness: Measuring What Matter

November-December 2007 | Source: Chemical World
0 0 0.0/5

Fundamental to the success of any organisation is self awareness. In other words, a firm needs to know its degree of effectiveness, and whether it has achieved the desired results. Building the capability to do so includes several elements, namely, the careful selection of universally accepted performance measures; setting metrics; and scoring on those metrics through continuous optimisation of organisational capabilities. This article offers an insight into how organisations can measure their effectiveness. Read on...

It is often said that in business, that which can be measured can be managed. And correctly identifying performance indicators and managing operations to obtain desired results (vis-a-vis these indicators) equals an effective organisation.

This might sound simple, perhaps even trite, but determining the effectiveness of an organisation is a daunting task. With an avalanche of ‘key’ performance indicators and increasingly diverse stakeholders, the task of defining, measuring and improving the organisational results or outcomes is complicated to say the least. Moreover, with the extra dynamic nature of business today, there needs to be a continuous adaptation and even reinvention of these measures and metrics.

Organisations, therefore, have to be agile in the measurement and management of effectiveness. This can be done only if they have a system in place that is real time and practical to ensure that the benefits it offers are maximised.

Four steps to an effective organisation
Here is a four-step cyclical approach to building an effectiveness measurement and evaluation system:

  • Select appropriate key performance indicators (KPls) and metrics
  • Identify existing performance gaps
  • Implement changes to minimise or completely fill gaps
  • Measure new outcome against KPls and recalibrate KPls if required

Step 1 - Select appropriate KPls:

Selecting appropriate indicators are the most crucial aspect of the process, as this is the very basis for determining organisational effectiveness. An observation is that traditional measures linked to production are not as relevant today, where every business is essentially a knowledge business.

Management teams could draw on popular frameworks such as the balanced scorecard (BSC) as a starting point. For example, the BSC would immediately provide a basic measurement structure with its four views, viz, financial, customer, operations and ‘innovation & learning’. They could then add to these views keeping in mind all stakeholders (including employees, customers, investors, regulators, suppliers and business partners) and the strategies of the business. An extra view, for example, could be organisational ethics that fosters an environment of trust both within an entity and with its environment.

Once KPls are in place, determining metrics is much easier. A combination of external and internal metrics could be selected. Industry standard metrics, where available (like in the financial view), would be an excellent benchmarking tool while internally set metrics are more appropriate for areas in the organisational learning view.

A sample of how an organisation can identify KPls and metrics is shown in Table 1.

Table 1: Method of identifying KPIs and metrics in an organisation

 View KPIs Metrics
 Financial Revenue growth% increase in profits
% share of business from new geographies
 Customer Customer IntimacyCustomer retention ratio
Number of interaction points per customer
 Operations Operational EfficiencyAverage time taken to provide a service year on year productivity improvement due to outsourcing
 Innovation and Learning Training% of earning spent on training
Number of training days par employee per day
 Ethic Feedback, TrainingFeedback from employees and teams % of earning spent on training to help employees deal with difficult situations

Step 2 - Identify existing performance gaps
This involves conducting an ‘as-is’ assessment of the organisation’s health using the defined KPI measures and the corresponding metrics. This due diligence stage is an excellent means of obtaining a thorough look at the organisation across silos, as a large network of inputs, processes and outputs.

It may be a good idea to identify a core performance appraisal team that makes its observations and documents existing outcomes for the entire organisation. The value addition at this stage would also come from obtaining feedback from teams and departments on what practical performance issues they face and whether there are any plans underway in solving the same. Often, innovative solutions are hidden within units and identifying these and extending the concept across the organisation delivers instant returns.

Another important outcome in this ‘as is’ stage is the possibility of identifying new KPls specific to the organisation. Adding these KPls to the existing framework will help further fine tune effectiveness measurement and outcomes.

Finally, something easily overlooked in the performance appraisal stage is rewarding performance that meets desired standards. If, for instance, the training team meets the ‘15 days of training per person per year’ metric, this feat should be recognised and rewarded.

Step 3 - Implement changes
Implementing change is never easy. A participative methodology that focusses on the core of the organisation, viz, its people, processes and systems, would however, ensure a high possibility of success. Elements for successful implementation include:

  • Establishing strong leadership and creating an implementation plan that clearly defines goals and expectations. It should include possible impact from external factors as well as ‘top-down’ strategy and ‘bottom-up’ employee feedback. The plan should clearly document tasks, roles, responsibilities, effort and ramifications
  • Beginning with ‘quick wins’ that can show immediate benefits, it can boost morale and encourage a spirit of urgency in accomplishment
  • Creating a transparent process, with accessible .and available information, regular review sessions and the flexibility to make revisions, if necessary
  • Creating an environment for change by organising training & workshops, having a reward system, and fostering trust & teamwork among employees. This stage can be the most time consuming in the process, where it actually puts the identified KPls to test. It is also usually the most challenging, since it involves the maximum number of people within the organisation, often with competing interests. The good news though is that after the initial few successful implementations, the organisation as a whole becomes increasingly ‘change – ready’ and eventually reduces its cycle time for achieving greater effectiveness

Step 4 - Measure new outcomes
This step deals with finding answers to the moot question - have the changes to the organisation’s people, processes and systems produced the desired outcomes? The answer lies in re-measuring performance against the previously determined KPls and metrics. This exercise of comparing performance against the ‘pre-change’ state is essentially an assessment of the success of the change programme.

It is also possible that new KPls have been identified along the way and metrics require recalibration based on changes in the competitive and/or internal landscape. This step, therefore, necessarily includes course correction.

The outcomes and any changes in measures need to be communicated to all stakeholders involved in the effectiveness improvement process. A concerted effort should be made in analysing areas for improvement, identifying next steps and determining the road ahead. The loop would fold back to Step 2, that of identifying performance gaps, setting the wheels of change in motion again. This cyclical approach would assist an organisation in methodically assessing its performance and then improving its effectiveness on a continuous basis.

Popular methodologies for measuring effectiveness

The balanced scorecard (BSC): Selecting appropriate indicators forms the basis for determining organisational effectiveness. Traditional measures  usually output-related - need to be linked to contemporary ones like adoption of technology, rate of innovation, ability to recycle waste and so on, in order to arrive at appropriate effectiveness measures. In their book, “The Balanced Scorecard; Dr Kaplan and Dr Norton state, The Balanced Scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investments in customers, suppliers, processes, technology and evaluation.”

The BSC provides a basic measurement structure with its four views: financial, customer, operations and ‘innovation and learning’. Metrics identified in these broad categories allow companies to determine if they are aligned with their strategic goals. World leading companies that have adopted the BSC approach acknowledge its role in their success.

Six Sigma: Six Sigma is a fact-based quality improvement approach, which focusses on minimising defects in products and processes. As a metric, Six Sigma means 3.4 defects per million, and was first identified by Motorola as a quality goal in the 1980s. Today, it is more a methodology than a metric, helping companies that have adopted the approach to save millions of dollars.

The two sub-methodologies under Six Sigma include DMAIC and DMAV. DMAIC (define, measure, analyse, improve, control) is applicable to existing processes/products that fall below the Six Sigma specification and require incremental improvement.

The DMADV (define, measure, analyse, design, verify) methodology on the other hand, applies to the development of new processes/products at Six Sigma quality levels. DMADV may also be used if drastic improvements are required to existing processes/products.

Total quality management (TQM): This is a quality management tool that focusses on continuous improvement. It was commonly used in manufacturing until the 1970s and has since then gained recognition as a generic management tool. TQM essentially views an organisation as a collection of processes that need to be continuously improved to meet and exceed customer expectations. It does not propose any single methodology but requires the organisation to use a variety of tools (flow charts, Pareto analysis, statistical process controls and the like) in improving processes and eliminating a waste of time and effort. Another key emphasis of the TQM principle is teamwork and employee empowerment, rather than a ‘top-down’ approach to decision making.

ISO 9000: This is an international standard that provides a framework for an effective quality management system. This has been developed by the leading certification body, British Standards Institute, and was revised in December 2000. A quality management system in accordance with ISO will provide an organisation with a set of processes that ensure a common sense approach. The system should ensure consistency and improvement of working practices, which in turn should provide products and services that meet customers’ requirements.

Implementing changes for increasing effectiveness
Setting in motion the wheels of change for greater effectiveness is never easy. Regardless of the methodology that an organisation chooses, a participative technique (that focusses on people, processes and systems) usually works best.

Elements for successful implementation include:

  • Establishing strong leadership and creating an implementation plan that clearly defines goals and expectations. It should include possible impact from external factors as well as ‘top-down’ strategy and ‘bottom-up’ employee feedback. The plan should clearly document tasks, roles, responsibilities, effort and ramifications
  • Beginning with ‘quick wins’ that can show immediate benefits, thereby boosting morale and encouraging a spirit of urgency in accomplishment
  • Creating a transparent process, with information easily available, regular review sessions and the flexibility to make revisions if necessary
  • Creating an environment for change by organising training & workshops, having a reward system, and fostering trust and teamwork between employees

Implementing changes is time consuming and challenging, since it involves the maximum number of people within the organisation, often with competing interests. However, after the initial few successful implementations, an organisation becomes increasingly ‘change-ready, and eventually reduces its cycle time for achieving greater effectiveness.

Industry best practices
Several organisations around the world prove that it is possible for any firm to be effective and achieve desired results through continuous measurement and benchmarking of performance. The good news is that this is possible regardless of size or industry.

Here are some of the companies that excelled at being effective:

  • Exxon Mobil (formerly Mobil Oil), which moved from the lowest profitability levels in its industry in 1993 to the highest in 1995, adopted the BSC approach. Exxon continues to focus on the BSC as a tool to ensure its new methods are grounded in business priorities. For instance, in 2005, Exxon introduced a new fast drill process that would reduce drilling time of wells. Metrics for assessment included improving drilling rates by 35 per cent and reducing refinery operation costs by 10 per cent.
  • Tata Chemicals has received accolades for its ecological commitment. Its focus on safety, health and environment issues include conservation of natural resources, waste management and community development. Its Barbala plant is the lowest consumer of energy and water, as well as the lowest ejector of effluents per unit of product, in the Indian fertiliser industry. A foolproof disposal system has been established for hazardous and other solid wastes generated by the facility. As part of the waste management system, the process plants in Babrala have been provided with source-treatment facilities for liquid effluent, with 70-80 per cent of treated effluents being recycled and the remaining used for the irrigation of the dense green belt around Babrala. Various parameters relating to environmental impact and legal requirements have also been established.

Conclusion
Today, any organisation needs to constantly realign itself with an ever changing marketplace. Being an effective organisation is essential to survival, and measuring performance or outcomes is essential to be effective.

CREDITS: Suresh Lulla, Founder & Mentor, Qimpro Consultants Pvt. Ltd.
Rate this Article:

Comments

Post your comment