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November 26, 2005

The Value of Performance

A key threat to an organization's effective capability stems from missing the distinction between managing performance and managing value.

Naturally managers are expected to manage both, and the methods used are expected to generate information on which decisions are made about how to structure and drive the organization. If the wrong information is used, the organization may needlessly change or may change unsuccessfully. Becoming misaligned with the business, or becoming disfunctional through structural flaws, will reduce the effective capability of the organization.

To avoid the misalignment or dysfunction, decisions that provoke change must cause change for the right reasons.

The significance of information taken as an indicator of a need for change derives from a model of progress or a model of success. The model is both a theory and a plan that logically accounts for how progress or success is generated.

In practice, Progress and Success are defined in certain terms for the record, and operational achievement towards meeting those definitions is considered valuable. To be relevant to the model, information must help to account for the generation of valuable achievements.

This viewpoint allows us to understand why value and performance seem synonymous, but the distinction that needs to be made and preserved is a critical one for the relationship of the organization to its clients and hosts.

The target beneficiary of an operation has a need, and the need generates demand. But needs get prioritized without necessarily going away, and demand is generated from the priority. This illustrates that demand is actually not the same thing as need.
Meanwhile, organizational operation is meaningful because it addresses demand, and the way it addresses demand is to satisfy requirements. But different demands can "call for" the same requirement, which illustrates that requirements are not the same thing as demand.

Seeing those facts, we can understand the essential difference that management decisions and their suporting information must recognize and relate:

- Value pertains to the generation of a difference versus needs.

- Performance pertains to the generation of value versus demand.

This establishes the basis for management decisioning: managers are charged with driving and protecting progress and success, and now we know the essential terms by which they recognize and communicate the effectiveness of the management effort.

This view on the general relationship of value to performance clarifies the proper meaning and charter of "performance management". This view emphasizes that the concept of "performance" doesn't really materialize meaningfully until reference points (a model) are provided that both precede any actual execution and that afterwards evaluate the execution. The main goal of performance management must be to synchronize the actual outputs of operations with demand.

In contrast, the concept of "value" doesn't really materialize meaningfully until need is defined and confirmed. This puts planning into proper perspective: since plans by definition commit the organization to one scenario by excluding others, the importance of the commitment must be in its relevance to needs. The main goal of value management must therefore be to synchronize the actual outcomes of operations with needs.

Overall, the challenge presented to management is clearly visible. Since the "operations" effort is built around requirements, it can faithfully address them while actually becoming largely irrelevant to emergent needs. The translations of need into demand and then into requirements must be continuous and as real-time and seamless as possible if the organization is to maximize the effectiveness of its capability.

Information management techniques are developed to provide the visibility necessary for doing, tracking and using the translations. But technical support is not effective if the information is used to solve the wrong problem. For example, confusing value and performance leads management to attempt to address needs with outputs, or to address demand with outcomes -- mismatches that (worst case) leave organizations and stakeholders with false impressions of control and ROI, and with unproductive management agendas that are dedicated to changing things for the wrong reasons.

Such errors might be attributed in a general way to failures in knowing how things actually work. To avoid this very problem, management is saturated with initiatives in "intelligence" and "analysis" but there is then the complication of figuring out whether the intelligence and analysis are of the right type and the right amount.

Management typically puts a lot of attention on monitoring the "components" of a plan. But there are two ways to conceive of components.

In one approach, the plan's assumption is that there are mechanical "parts" -- such as the steps in a procedure or the quality of a particular resource being used -- and that their use is specially necessary to the intended progress and success. It's safe to say that this level of thinking is mainly operational.

But a more critical aspect for management attention concerns the actual reasons why the usage of those components is necessary, and concerns the requirements for their usage in the planned way. These are the success "factors", as opposed to parts, and the attention primarily takes the perspective of demand, not of supply.

Together, the reasons and requirements would determine that the mechanical components are "appropriate" for the organization's attempts to execute its strategy. But the components still do not drive the intended progress or success.

As seen below, the reasons and requirements cross-reference to form a framework for understanding how the organization can operate for performance. In this example application of the framework, a new product is to be reliably supplied to a target customer group. Basic assumptions emerge in the framework, representing a set of defined operational parameters or conditions that are to be managed. These are the success factors.

Now, information management steps in for decision support.
Where intelligence is concerned, if current findings indicate that the framework's success factors are not being met or validated, then adjustments would be justified -- to protect the execution of the plan from any significant divergence from the operational goal of providing relevant outputs towards demand. This would mean that the right changes are being made for the right reasons.

As for determining the right success factors in the first place, analysis is usally the weapon of choice. The framework's dimensions direct analysis at conditions that have categorical relevance to implementing for demand and thus will be about performance.

Posted by Malcolm Ryder at November 26, 2005 7:32 AM

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