IT is the well-known abbreviation for information technology and typically the name of the corporate department responsible for same. In our experience the department is heavy on technology, peopled by young computer and network experts, but light on information. The necessary partnership between the owners/users of business information and the skilled technologists who create and maintain information infrastructure is often poorly developed.
We had the opportunity to help redesign an IT department when they sought to unify the efforts of data centers in two different countries. As usual we began by defining the work of the department: capturing data so that quality data was available; processing data into useful information; using information to support decision making and gain experience; and learning from that experience to develop business wisdom. The optimal value created by the work of the department was business wisdom, i.e. some confidence in the ability to anticipate the future and, therefore, make wiser business decisions in the present. When we considered "who does what?", it was obvious that the department by itself could not accomplish its work. It was mandatory for the business users of information to participate equally in the process of managing information.
Cognizant organizations know what is going on inside and outside of their "walls". Business performance is much more than financial accounting, as was eloquently stated in The Balanced Scorecard by Kaplan and Norton. Our version of the balanced scorecard has four categories: work climate/culture (internal social), process performance (internal technical), customer satisfaction (external social), and financial performance (external technical). We view financial performance as external to emphasize the source of revenue over internal control of cost. We also view financial performance as a lagging indicator; monitoring the work climate and process performance will generally offer leading indicators that management can more readily address.
Performance measurement has been one of the most difficult technical capabilities to implement in our experience. Measurement itself is simple and straightforward. There are four things that can be measured: quantity, quality, cost, and time. There are two methods of measuring: counting and judging (judging may be relative through ranking or absolute through rating). Since counting is viewed as objective and judging as subjective, there has been a long-standing bias toward counting, e.g. accounting, and measurement has tended to focus on those things that can be easily counted. Measures that matter, on the other hand, tend to be more difficult and require judging, e.g. quality measures. Nevertheless, we have such ample experience with subjective measures, e.g. J. D. Power's quality ratings of automobiles, that there is no technical impediment to assessing measures that matter.
The primary challenge to performance measurement in organizations is psychological: the fear that those measures will be used to punish performers. Since the commonly presumed purpose of management is to catch people doing wrong, their fears of performance measures are not irrational. Successful implementation of useful performance measures requires an organizational readiness based on a shared commitment to use measures for learning and performance improvement and to reward, not punish, participants.
Awareness of the external environment and understanding of the company's strategic responses to that environment are an important attribute of the cognizant organization. As noted in our discussion about the structural system, this responsibility resides at the strategic level of the organization. We have heard from thought leaders at some of the top companies in the world that keeping up with the complexity and rapid change in the external environment is their single greatest challenge.
One approach we admired came from the Public Affairs department at a client organization. Their leader described that department's purpose as being " a window into the organization and a window out to the business environment". We often think of public relations as putting a positive spin on an ugly situation so a company can minimize the damage, but this position was an anathema for our client. In his opinion the only way to have credibility in the public eye was to promote transparency. That meant monitoring the external environment, facilitating the strategic response, and making that response known inside and outside of the organization.
Hi Jon, enjoying the entries and thought I'd say hello!
Posted by: Bruce Lewin | August 25, 2008 at 11:58 PM