Wednesday, March 18, 2015

Digital Master Tuning #60: Performance Management vs. Change Management

The “space" between the functions/boxes are actually defined by trade-offs.

The speed of change is accelerating, organizations are shifting from industrial speed to digital speed; from inside out - operation driven to the outside in - customer centric. When quality and values in your market changes constantly, your measures of P (Performance) have to move with it, better than that, anticipate it and rearrange around coming tastes and preference changes. So performance management vs. change management, how to tone them accordingly for a seamless digital transformation?

Measure is a good starting point to change: Change Management is necessary and challenging when you diagnose the following symptoms, and perhaps measures are good starting point to change:
  1. Change becomes necessary when an organization fails to meet its performance goals, probably as a result of behavior following a path of self-interest.
  2. "Tell me how you will measure me and I'll tell you how I will behave."People's behavior usually responds to how they are measured. Does this mean that you are applying the wrong measures at a personal and group level? Therefore, in order to detect that is not congruent with group goals. When starting the change process, perhaps measures are a good place to start change.
  3. The problem is actually more complex. Information systems have been built in the firm around those measures. Its systems are more rigid and slower to adapt.
  4. Workflows and business processes base on old measures and well aligned with them, are even more resistant to change. This picture puts the practice of change management in a gloomy context.

To make change sustain, the important thing is "end-to-end" performance: If at some intermediate stage, one measures something that is not congruent with the final outcome, then dysfunctional behavior arises, potentially diminishing the end-to-end performance. People will always follow a path of self-interest. That is human nature. In an organization where employees feel disengaged no matter what measurements are in place, real change will never occur, there may be shifts in how processes or work practices are conducted but this is not an impetus for real organizational change. Usually, disengaged employees passively resist change, that is on the surface they implement the new measurements / change, however, there is an underlying resistance to the change that may eventually lead to the change program being abandoned.

Measures or KPI is a strong tool, that can be both rewarding but also cause damage to an organization: It's not the use of KPIs per se, but the applications of those that lead to behavior that conflicts with group goals. The appropriate KPIs correctly applied can lead to significant benefits. The problem with many KPIs is that they are created and applied at a subordinate level without taking into consideration the possible implications on the organization as a whole. This way too often leads to sub-optimal decisions which are detrimental to overall performance. Hence, when the need for change becomes apparent, the management should turn the spotlight on measures and incentives as drivers of behavior, creators of sub-optimal decisions and the eventual poor outcomes.

The “space" between the functions/boxes are actually defined by trade-offs. KPIs and measures, inter-department economics, and other factors are the root cause of the silo thinkings. PIs are very often functional KPI's, when what is most important is the "end to end" performance ( from order to delivery ) of the organization as a whole. Functional KPIs actually encourage dysfunctional "silo" behaviors, since they reinforce the boundaries between the "territories." Further, driving functional KPIs excessively can actually degrade the performance of the entire organization. Many KPIs represent trade-offs anyway, that you can increase cost in the area by driving down cost in another, and vice versa. The performance of the total “system” ( in its traditional sense, not an IT sense), is independent of the performance of any one of the functions and depends on more on how the functions relate to each other, the “space” between the boxes if you will. The “space" between the functions/boxes are actually defined by trade-offs, which are often unrecognized, unexplored, un-articulated, and offer far more potential for improving the performance of the entire organization than trying to optimize or improve the performance of any one function. Further, a meta-process can monitor measures of performance validity. But for this, you need first to know your valid updated value offering combination. Actually, you need a new paradigm that integrates this meta-process with everyday work into a flexible anticipating customer preference change.

At digital dynamic, performance management and change management need to go hand-in-hand, not only measure things right, more importantly, to measure the right things for encouraging positive behaviors, break down silo thinking, leveraging trade-offs, to ensure business as a whole achieving the optimal business result.

Digitalization is like a flywheel, and Digital Masters are the one riding above it. Surf more Information about Digital Master:


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