installing performance management systems to ...

Performance plumbing: installing performance management systems to deliver lasting value Alan Meekings, Simon Povey and Andy Neely

Alan Meekings is Managing Director and Simon Povey is Director, both at Landmark Consulting, London, UK. Andy Neely is based at University of Cambridge, Cambridge, UK.

Summary Purpose – The purpose of this paper is to explore the concept of performance plumbing, arguing that too often performance management systems in organisations are not correctly installed. Without the appropriate plumbing, performance management systems do not drive organisational change and improvement. Design/methodology/approach – The paper draws on the consultancy experiences of two of the authors, as well as the research of the third. Specific case examples are provided throughout the paper to illustrate the points being made. Findings – The paper argues that the key elements of a plumbed-in performance management system are: performance architecture; performance insights; performance focus; and performance action. Taken together, these four elements provide the necessary plumbing to enable performance management systems to deliver real value. Research limitations/implications – The paper draws on the experience of the authors, rather than a formally designed piece of research. The ideas presented in the paper would therefore benefit from further investigation and testing. Originality/value – The paper will be valuable to scholars and practitioners interested in ensuring that performance management systems deliver lasting value. Keywords Performance measures, Performance management, Balanced scorecard Paper type Case study

Introducing performance plumbing Past research in the field of performance measurement and management has tended to focus on what to measure and how to measure it. The reality, though, is that most of the value in performance measurement lies not in the measures selected, nor even in how the data is presented, but in the decisions and actions that flow from the insights provided (Neely et al., 1995). Deriving maximum value from performance measurement requires linking powerful insights from data to appropriate decision-making, action and feedback. This paper describes and explores the concept of ‘‘performance plumbing’’, arguing that to connect performance insights to decisions and actions, performance management systems have to be ‘‘plumbed-in’’. Imagine purchasing a new, state-of-the-art washing machine when previously you had no option but to wash everything by hand. The potential for this new machine to change your life is significant. Unfortunately, there is no washing machine in the world that can deliver useful washes until it has been properly plumbed-in, connected-up and switched-on. And therein lies the rub. The same applies to any new performance measurement framework you may choose to adopt. Even if optimal performance measures are selected, and the very best format for their

DOI 10.1108/13683040910984284

VOL. 13 NO. 3 2009, pp. 13-19, Q Emerald Group Publishing Limited, ISSN 1368-3047

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visual presentation is put in place, nothing useful is going to result unless action is taken on the basis of the information and insights thereby made available. Performance measurement frameworks, like new washing machines, need to be found suitable locations in the workplace, their inlet and outlet pipes need to be properly plumbed-in, and their power supply needs to be connected-up and switched-on before the equivalent of useful washes can be delivered day-after-day, week-in, week-out. So how does this simple analogy work for performance management systems? Consider location first. Just as we have to consider the location of any new washing machine in a house, so we need to consider where any new performance management system will be located in an organisation – notably in terms of who is going to be involved in the performance management process and why? Hence a useful way of viewing location in performance management terms is to think about a performance architecture that enables the right people to come together, in the right place, with the right information, at the right time, in order to make the right decisions. Clearly, to enable people to make the right decisions they need access to appropriate performance information. Using our performance plumbing analogy, this is equivalent to connecting the inlet pipe. The inlet pipe provides a fundamental input to the washing process. In performance management systems, the fundamental input is performance insight. Note the emphasis on performance insight, rather than performance data. What plumbed-in performance management systems utilise as the input to the decision-making process is performance insight. The outlet pipe in a washing machine takes away dirty water. In plumbed-in performance management systems, the outlet pipe does a similar thing: it takes away redundant and distracting performance data. In plumbed-in performance management systems, performance focus is a key theme. It is all too common to find managers debating performance metrics that are essentially ‘‘in control’’ in a statistical sense. We have known for decades that the outputs of all processes exhibit variation. Sometimes processes perform better. Sometimes they perform worse. What matters in assessing performance is whether changes or trends are significant and hence worthy of attention. Often changes are simply an expression of predictable daily variation, weekly cyclicality and annual seasonality, and therefore have no real significance. The outlet pipe in plumbed-in performance management systems removes non-essential data, leaving only statistically significant insights for attention and action. Moreover, washing machines need to be connected to a power supply and to be switched-on in order to be useful. So it is with plumbed-in performance management systems. People participating in the process need to be empowered to take action based on the performance insights they are seeing and the decision-making process to which they are contributing. This often requires positive encouragement, and sometimes clear guidelines, from senior management re-affirming that performance improvement is an organisational expectation. This final theme – performance action – completes the picture.

Performance plumbing in practice So how does performance plumbing work in practice? How do these four elements – performance architecture, performance insights, performance focus and performance action – come together? Continual improvement and rapid adaptation do not happen spontaneously in organisations. On the contrary, fundamental, sustainable change, whether resulting from incremental improvement or radical re-design, depends on deliberate decision-making and action. This creates a central role for effective performance measurement and management, not only in the optimisation of day-to-day performance and the delivery of fundamental improvement, but also in the engagement of front-line staff, supervisors and managers in experimentation, adaptation and learning. This is especially important in situations where there is an abundance of fast-moving operational data, such as hospitals, ambulance services, supermarkets, call centres and web sites serving thousands of people daily.

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In the past, it has been difficult to put meaningful data and useful analytical tools in the hands of staff at each and every level in an organisation in a way that delivers compelling and focused performance insights and encourages action. Interestingly, a new genre of performance improvement software, based on statistical process control (SPC) techniques, has recently emerged that meets this need head-on[1]. This software effectively ‘‘commoditises’’, on a web-enabled, enterprise-wide basis, the widespread availability of time-series performance data in SPC chart format, highlighting variation, cyclicality and seasonality. Charting data in this way can radically change how people see performance. The interactive analytical capabilities inbuilt in this software offer powerful insights to inform and underpin decision-making and action at all levels. In particular, front-line staff and line managers are able to explore the drivers and root causes of performance outcomes simply by ‘‘pointing and clicking’’ on screen, instead of having to rely on trained analysts to interpret the underlying data. Such software can help create the necessary performance insights and performance focus to support: B

An appropriate performance planning and review process that specifies who needs to come together to review what, when, why and how; and how differing levels of review can be made to integrate and inter-relate (Meekings, 2004) – the performance architecture.

B

A constructive ‘‘updraught of management attention’’, in other words the involvement of senior managers in ensuring that the performance planning and review process is fully implemented and exploited, including setting the expectation that insights from operational data will be translated into sensible decision-making, action and follow-through. This typically requires the executive team to reinforce the message that delivering statistically significant improvements against a systemic set of performance indicators is a primary task of managers throughout the organisation – the performance action.

Effective performance planning and review, whether conducted individually or collectively, is vital to identifying critical performance issues and opportunities, informing downstream decisions, and monitoring the impact of consequent actions. It is also hugely helpful in differentiating how various operational levels in organisations add value appropriately and inter-connect to best effect. Interestingly, our experience shows that: B

Structuring and implementing an effective performance planning and review process in organisations, and capturing the resulting benefits, can be achieved surprisingly quickly, inexpensively and sustainably.

B

Creating the necessary updraught of management attention depends critically on the determination of the person at the top of the organisation to making performance planning and review matter. It is rare for effective performance planning and review to percolate from the bottom up. However, it flows readily from the top down.

An illustrative case study Performance plumbing brings together a body of knowledge, encompassing expertise in the visual presentation of data (including the application of SPC to management information), and experience in implementing a performance planning and review processes in organisations. This is usefully illustrated by a case study from the health sector in the UK, namely Mersey Regional Ambulance Service (MRAS). MRAS provided ambulance services for Cheshire and Merseyside. Although it had a justifiably proud heritage, by 2005 it had become labelled as the worst performing ambulance service in England. Operational performance was way below national standards and on a declining trend. In contrast, within a matter of weeks rather than months, operational performance had been transformed and operating costs reduced. For example: B

£1.2m in cost benefit was liberated and reinvested in fundamental, qualitative improvement.

B

Up to £5.3m in funding was retained, when otherwise it would have been lost.

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B

Operational response to potentially life threatening emergencies was lifted consistently above the national standard.

B

Performance on ‘‘urgent hospital admissions’’ (providing doctors with a service to transport their sick patients to hospital) was raised from 51 per cent to over 92 per cent, on a par with the best ambulance services in the country. General Practitioners (GPs) had lost confidence in the urgent admissions service and were increasingly using the emergency ‘‘999’’ system instead to ensure their patients received timely attention. As operational performance on urgent admissions improved, so there was a rapid, corresponding reduction in the rate of growth of emergency calls.

These achievements need to be viewed in the context of underlying, year-on-year increases in demand, amounting to 4.3 per cent for emergencies, 10 per cent for urgent admissions and 15.4 per cent for sub-acute transfers, all of which were accommodated at no additional cost. Moreover, such dramatic improvements in operational performance were complemented by equally significant improvements in patient outcomes. For instance, local performance on the measure of Return of Spontaneous Circulation (ROSC) following cardiac arrest was increased from 16 per cent to 26 per cent, against a national average of 13 per cent. This translates in human terms, against this single operational measure, as over 200 additional patients per annum being given the chance of survival when otherwise they would have died. It also illustrates that the time taken to respond to emergency incidents can make a huge difference to patient outcomes and life expectancy. Indeed, the motto at MRAS was ‘‘time to make a difference’’. The turnaround at MRAS was extraordinary. As Ken Hoskisson, the Chairman of MRAS, said: We were convinced that the strategy we set out for the Trust, with its focus on performance management, was the right one, but we never thought that our turnaround strategy would achieve such impressive results so quickly.

Moreover, the results of this turnaround were felt not only within the ambulance service itself but also across the wider health community in Cheshire and Merseyside. So what happened at MRAS, and how was this turnaround achieved? The answer lies in a combination of factors: B

The sheer speed of implementation – in this case, four weeks from project authorisation to the first wave of new performance planning and review meetings actually taking place.

B

Having the personal involvement of both the CEO and COO as knowledgeable and active champions throughout.

B

The concurrent implementation of three essential components, specifically: implementing performance improvement software to deliver performance insights and performance focus; creating the performance architecture – the new performance planning and review process; and developing a culture of performance action by creating the necessary updraught of management attention.

Let us examine each of these three components in turn.

Software to support performance insights and performance focus MRAS used the new genre of SPC-based performance software represented by ‘‘signalsfromnoise’’ (sfn). sfn is not a traditional statistical or SPC charting package (such as Minitab or WinChart), Nor is it a data warehouse or business intelligence (BI) tool (such as IBM Cognos or SAP’s Business Objects). Nor is it a ‘‘balanced scorecard’’ package (such as Panorama Business Views or CorVu). It offers many of these useful functions but does so fundamentally differently. sfn was designed to sit across one or more operational databases, presenting data in a consistent way – underpinned by SPC and other embedded analytical tools – to enable new performance insights to be derived and to inform new ways of managing performance. It

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flourishes in situations of fast-moving operational data, notably where performance is changing hourly, daily or weekly, rather than monthly, quarterly or annually. Using the plumbing analogy, sfn effectively shifted the challenge from designing an expensive washing machine yourself to buying a commoditised, high quality, inexpensive model from a convenient retail outlet. Because this software does things differently ‘‘under the bonnet’’, so to speak, it is able to offer many novel features: B

The ease with which data from multiple operational systems can be integrated, for instance where common identifiers (such as individual patient record numbers) can be linked. There is no need to build new data warehouses to link multiple data sources, although sfn can integrate with existing data warehouses.

B

Allowing front-line staff, supervisors and managers to investigate for themselves the underlying drivers of performance. BI tools are also able to answer dynamic queries, but they do not offer the full suite of intuitive, SPC-based analytical tools embedded within sfn. With software other than sfn, separating signals from noise in large volumes of operational data typically requires a specialist analytical capability. In contrast, sfn puts powerful analytical tools directly in the hands of front-line staff and decision-makers across whole organisations. This is a genuinely new, software-enabled capability.

B

The remarkably short time needed to configure and install the software on an enterprise-wide basis (typically no more than six weeks from a standing start).

B

Low costs of ownership. In addition to avoiding data warehouse development costs, sfn significantly reduces the ongoing overhead costs of what could be termed ‘‘the management report construction industry’’. For instance, it eradicates the endless hours that people spend trying to provide plausible explanations for incidents actually lost in the noise of predictable variation. It also cuts the effort and expense of using BI and other tools for data analysis, and avoids the prevalent risk of spreadsheet errors.

Structuring and enabling the performance planning and review process Our contention is that everyone in an organisation should add value to performance improvement but in differing ways. This implies that: B

Front-line staff and supervisors should focus on: doing the best job possible from a customer and organisational perspective; and generating ideas for continual improvement, based on a keen understanding of customer value.

B

Middle managers should focus on: ensuring that the right staff with the right skills are available at the right time and are enabled to do the best job possible from a customer and organisational perspective; and working on issues that front-line staff and supervisors cannot influence on their own.

B

Senior managers should focus on: coaching middle managers to play their important role to best effect; and working on how the organisation collectively can best add value, both internally and externally.

What did this conceptual framework mean in practice at MRAS? B

Front-line staff and supervisors were enabled to focus on the things they could best influence, such as turnround times at hospital.

B

Middle managers were enabled to focus on things they too could best influence, such as recruitment, training, demand forecasting and staff rostering, informed by predictable patterns of demand (by patient condition, by time of day, by geographic location, and so on, as informed by sfn).

B

Senior managers were enabled to focus on: creating the necessary updraught of management attention and leading radical developments in staff skills and fleet composition.

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To bring this conceptual framework to life, it was necessary first to define who needed to come together to review what, when, why and how. Essentially, this involved examining the groupings of responsibilities within the organisation, bottom-to-top and cross-functionally, in order to design an optimal architecture for operational performance planning and review. This new performance architecture, initially focused on the senior management team, was progressively rolled-out throughout the organisation, complete with essential training and coaching to get the process working properly from the outset. Two key principles, highlighted in this training and coaching, particularly resonated at MRAS, and their acronyms swiftly entered the local jargon: (1) Issue-decision-action (IDA) – this principle reminds people that: the purpose of providing performance information is to identify key issues meriting attention and to enable quality decisions to be made; and the only point in making quality decisions is to act on them, then follow-through rigorously to achieve worthwhile results that sustain. (2) Authority-beneficial-compliant (ABC) – this implies that if someone is in a position to make a decision that is: within their authority; beneficial to the organisation or its customers; and compliant with external legislation and internal policies, then they are expected to press-ahead and take that action, and will be supported to the hilt by their senior managers. This is a key component of an effective updraught of management attention. With this approach to performance planning and review, enabled by visual performance information, the principles of effective performance measurement and management are more likely to enter the mainstream consciousness of an organisation, not least because: B

Everyone present at performance planning and review meetings sees the same charts. Hence a shared picture of performance is formed. This avoids the all-too-common phenomenon of individuals holding markedly differing opinions about performance. Nor do people argue over issues of data quality. Errors in the data are highlighted by the software and get fixed at source, because the charts are seen to be useful.

B

Investigative ‘‘drill down’’, at any level in an organisation, leads to charts and insights, rather than to tables of numbers which do not tell a story.

B

The speed to identify and take action on priority issues is significantly faster.

B

The pace of controlled experimentation rises dramatically. As someone remarked in the early days at MRAS, ‘‘This decision doesn’t need a three-month trial. We’ll be able to see if there’s a worthwhile impact in two weeks or less’’.

B

Supervisors and managers are enabled to ask more powerful questions and add value differently at their respective levels. This depends critically on structuring the performance planning and review process appropriately.

Creating the necessary updraught of management attention Success in creating the necessary updraught of management attention at MRAS stemmed from several factors, notably the sheer speed of implementation and the fact that both the CEO and COO acted as knowledgeable and active champions throughout. There is no escaping the fact that ‘‘the person at the ‘top’ (at any level in the organisation) must lead and role-model the review process’’ (Meekings, 2004). An effective updraught of management attention creates a climate in which front-line staff, supervisors and managers are encouraged to take action and to experiment in doing things differently, in measured ways, on issues within their control, while also engaging appropriately with other levels of performance planning and review. This process of action on issues relevant to one specific level, coupled with engagement up, down and across the organisation, ultimately creates genuine linkage and differentiation between various levels in the performance architecture.

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Conclusions Performance measurement and management frameworks are analogous to new washing machines in the sense that they need to be properly plumbed-in, connected-up and switched-on before they can deliver value. As one client said recently, ‘‘This is the single best thing you can do to get more out of a finite system without injecting more resources.’’ Especially in situations of fast-moving, operational data, it is possible to improve rates of innovation, adaptation and learning in organisations dramatically through a combination of: implementing performance improvement software that encourages performance focus by highlighting performance insights that are statistically significant; creating a performance architecture by structuring and enabling the performance planning and review process; and delivering performance action by creating the necessary updraught of management attention. Given that achieving faster rates of innovation, adaptation and learning is now widely recognised as a key challenge for the coming decade, our message is that plumbed-in performance improvement offers huge potential benefits for those organisations who spot the opportunity.

Note 1. Currently, the only web-enabled, enterprise-wide, SPC-based performance improvement software of this ilk is ‘‘signalsfromnoise’’ (sfn) developed by Lightfoot Solutions in the UK.

References Meekings, A. (2004), ‘‘Getting the most out of performance measurement’’, in Neely, A., Kennerley, M. and Walters, A. (Eds), Performance Measurement and Management: Public and Private, Papers from the Fourth International Conference on Performance Measurement and Management, July 2004, Centre for Business Performance, Cranfield, pp. 1141-8. Neely, A.D., Gregory, M.J. and Platts, K.W. (1995), ‘‘Performance measurement system design: a literature review and research agenda’’, International Journal of Operations & Production Management, Vol. 15 No. 4, pp. 80-116.

Corresponding author Andy Neely can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

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