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July 19, 2005

Management Performance versus Performance Management

All businesses want a return on their investment, and ROI considerations nearly always begin with a valuation of the assets to be consumed.

However, one of the key themes amongst items posted here at Archestra is the idea that an "asset" is not the same as a "resource" -- and that it is the value of the resource that needs to be managed, not the value of an asset.

In this view, an asset becomes a resource when it is given and maintained for a certain assignment; in a performance perspective, the value of an asset without an assignment is "undetermined"... So to the extent that people, processes and technologies are dealt with as resources, the whole ROI situation rests on the competency of the managers who turn assets into resources, and the performance issue has to do with the results of management.

This always makes me sort things out by thinking in terms of "management performance" rather than "performance management" -- and it differently organizes the thinking about what kind of things really need to be measured for their "results" (outcomes).

The claim here is that management outcomes, not asset inputs, are the building blocks of what is referred to as "performance", and the value that is associated with assets can never be separated from the way they are managed -- except when the assets are simply being bought or sold "on the market".

Industry analysts characterise the practice of Performance Management as one in which alignment of people, processes and technology to common objectives is the lever for generating the desired value and effectiveness of those people, processes and technologies -- while the motivation for the alignment is to improve "business results". It is noteworthy, we think, that business results might be measured differently from its components' value and effectiveness, but perhaps annoyingly we have to be able to do so since we know from experience that both luck and "winning ugly" do happen and also that best practices don't always cause best results but rather merely allow them.

Parsing that within the perspective of assets versus resource management means seeing things as follows:
- execution is the utilization of the resource,
- alignment is the compliance of the execution to objectives,
- performance is the outcomes of the execution
- value is the significance of the performance

This ultimate focus on value (as defined here) replaces the typical narrowness of "financial impact" and allows "strategic impact" to come full force into the picture. Likewise, it broadens the concept of "returns" on the investment into a set of concerns that more accurately and comprehensively describe the realities of what allows a business to be successful -- not just arbitrarily in the moment such as at quarterly report time, but over the life of the business as represented by the sequence of positions in the market that it could (and did) hold. This is where "significant" things such as risk mitigation, change management, quality improvement and other critical business enablers and sustainers come into play as goals.

Also pushed aside is the narrow definition of "assets", since identifying resources is more important and we know that things such as time, relationships, knowledge, permission and position are all resources along with money and labor (skills and tools). This goes a long way towards explaining why a concern with performance management sprouts in so many different occasions and sectors of the enterprise.

The punchline, though, is that what really must be attended to is the effectiveness and value of management, and the logical target payoff of so-called performance management is not a return on assets but a return on management.

Posted by Malcolm Ryder at July 19, 2005 7:44 PM

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