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SPOTLIGHT Spotlight

The challenges of performance

measurement
1017
Andy Neely in conversation with Sarah Powell
Keywords Performance measurement (quality), Business excellence
Abstract An interview with Professor Andy Neely who talks to editor Sarah Powell about the
challenges of performance measurement, the role of the Centre for Business Performance, aims of
the Performance Management Association and advantages of The Performance Prism.

Spotlight on Andy Neely

Andy Neely is Professor of Operations Strategy and Performance, and Director of the
Centre for Business Performance at Cranfield School of Management. He has been
researching and teaching in the field of business performance measurement since the
late 1980s.
Professor Neely chaired the first two international academic conferences on
performance measurement in 1998 and 2000, respectively, and will be chairing the
third, which will be held in Boston, MA this year. He also co-ordinates the PMA, an
international network of academics and practitioners with an interest in performance
measurement and management.
Prior to joining Cranfield School of Management, Professor Neely held a lecturing
position at Cambridge University where he was a Fellow of Churchill College. He has
completed numerous research and consulting projects and has authored over 100
books and articles, including Measuring Business Performance which was published
by The Economist Books and The Performance Prism, which will shortly be published
by The Financial Times/Prentice Hall. Andy Neely has consulted to and worked with a
wide variety of organizations including 3M, Accenture, Aventis, British Aerospace,
British Airways, British Telecom, CHL, Diageo, Hogg Robinson, KPMG, NatWest,
Pilkington, Posten, Reckitt and Colman, Rolls Royce Aerospace and Schering.

Spotlight
When was the Centre for Business Performance formed and what was the main driver
for this?

Andy Neely
The Centre was initially established in 1996 at Cambridge University as a joint
initiative between the Judge Institute of Management Studies and the Department of
Engineering and it was relocated to Cranfield School of Management in 2000 when a
number of colleagues and I moved there. The CBP aims to be an internationally
recognized centre of “thought-leadership”, engaging in academically rigorous and
practitioner-relevant research, education and consulting in the field of performance Management Decision
Vol. 42 No. 8, 2004
management. A key goal is to ensure that, as a group, we tackle subjects and material pp. 1017-1023
q Emerald Group Publishing Limited
of interest to the academic community that can be rigorously researched but, equally, 0025-1747
that are of relevance to the practitioner community. DOI 10.1108/00251740410555515
MD The Centre has established strong links between research, education and
42,8 consulting/practical application and much of the work that we do involves helping
organizations to develop and improve their performance measurement systems, which
gives us insight into some of the challenges arising from the design and
implementation of measurement systems. This insight is reflected in our research
work which, in turn, feeds into work and training with managers to help them
1018 overcome similar challenges within their own organizations.
Many organizations have still not sorted out their performance measurement
systems. There is still a tendency to measure things that are easy to measure and often
to measure too much. In addition there are problems of implementation giving rise to
what I call the “dark side of measurement”, i.e. a negative reaction to measurement
resulting from a sensitivity to or fear of measurement because it is perceived that it
might be critical of individuals.
This latter problem is a management issue. Disappointing performance data are
often used by management in a judgemental, intimidating way which encourages
defensive behaviour. That same information, presented as a basis for discussion to
throw up suggestions of where improvement might lie, is far more likely to lead to a
positive outcome. Supportive management is the key to success here. In far too many
cases, performance data are considered to be a source of power or a control device. But
measurement is all about understanding what is happening inside the organization and
working out, how to introduce improvement.
The challenge arising from this “human” dimension has been recognized in both the
academic and the practitioner community. My own interest in the subject was
stimulated by the very fact that performance management is not only science-based
but also people-based. This combination fascinates me.
The other rationale behind the creation of the Centre for Business Performance
was the recognition that no single individual could possibly keep up to date with
such a fast-growing field, simply because of the sheer number of books and articles
being published. It was clear that there needed to be some form of research group
or team to undertake this. In addition to research, our group also wanted to build
relationships with other organizations with complementary skills and we have
created partnerships with companies such as Accenture, the consulting business
and Gartner, the information systems research specialists. We also have strong
links with conference organizations and publishers, such as Business Intelligence
and IIR. The basis of these relationships is collaborative research and
dissemination.
A similar rationale underpins the founding of the performance measurement
association (PMA), which is an international network of academics and practitioners
with an interest in performance measurement and management. We launched this
Association in 1998 at a multi-disciplinary conference at Cambridge University, which
brought together academics from across the spectrum of business disciplines. The
PMA was primarily conceived to combat the frequent failure of communication
between people in different functional communities working on performance
measurement. The inaugural conference attracted some 200 delegates from 30
countries and was followed by a second conference in 2000. A third conference[1] is to
be held in Boston in July this year when speakers will include Bob Kaplan of Harvard
and Baruch Lev of the Stern School.
Spotlight Spotlight
What do you see as the main challenges in design and implementation of performance
measurement systems?

Andy Neely
I tend to think in terms of the four fundamental processes of performance
measurement: measurement system design, implementation, managing through 1019
measurement, and “refreshing” the measurement system. They all pose different
challenges.
In design, the challenge lies in choosing the right measures. In the late 1980s and
early 1990s the problem in many organizations was that they measured the wrong
things, notably things that were easy to measure, many of which were financial and
historical in orientation. Today the nature of this measurement crisis has changed and
in many businesses now the problem is excessive measurement. There is a desire to
quantify absolutely everything. If the focus is on the customers, there will be proposals
to measure customer complaints, satisfaction, loyalty and profitability, returns, rejects
and warranty claims – and the list goes on and on. So the current challenge is not
necessarily identifying what you could measure, it is identifying what you need to
measure so as to concentrate on what is absolutely vital.
Where implementation is concerned, the challenges are two-fold. There is the data
access issue, i.e. the need to get access to the right data, and the political and cultural
issues, notably people’s fear of measurement and the games they consequently play to
try to manipulate target-setting to ensure targets are achievable and no blame can be
attributed. To combat this people inside organizations need to be educated to
understand the purpose and use of the measurement system.
The challenge in managing through measures requires a cultural shift in many
organizations. The focus needs to be firmly on targets. The problem is that, in many
organizations, managers are presented with raw performance data and left to draw
their own conclusions. They can lead to time-consuming and largely unnecessary
debate to justify individual figures while the focus should be on the current situation,
what can be learned from it and, more importantly, how targets can be achieved.
Education is required in how to present data to encourage such discussion.
The real challenge arises when it comes to what we call “refreshing” the
measurement system. Inside the organization, individual managers can, if they wish,
introduce performance reports in response to a specific problem. However, this leads to
constant introduction of new performance reports while those that have become
obsolete, because problems have been solved, are rarely deleted. To ensure that as the
organization changes the measurement system keeps pace, there needs to be a named
performance manager whose role is to manage the measurement system.

Spotlight
How can the impact and contribution to ROI of performance measurement systems be
measured?

Andy Neely
This really, is one of the great unanswered questions and it is one of the issues that we
are working on within the Centre for Business Performance. How indeed do you
answer the question: “Is this worth it?” There is very little research completed on this
MD topic to date, partly because there are so many other factors that influence the overall
42,8 performance of the business. This makes it incredibly difficult to isolate the role of the
measurement system and to identify its contribution, particularly in any kind of ROI
calculation. I see this as an area for academic research.
While I cannot give an exact answer on ROI, I do think that there are a number of
things that are valuable about performance measurement. A major value lies in the
1020 pure power of measurement. First of all, the act of deciding what to measure forces
people to clarify what is important in their organizations. If, for example, a key goal is
happy customers, the management team will need to determine what it means by
happy customers and how to measure whether or not customers are happy. This forces
the management team to be far more articulate about their goals. In terms of happy
customers – are they talking about people who recommend the business to others, or
repeat purchasers, or perhaps people who score the organization well on their customer
satisfaction surveys. . . etc.? This sort of questioning forces senior management teams
to be clear about real objectives, to air differing opinions, and to use precise language to
define how they want to assess performance towards these goals.
Second, when appropriate measures are in place the organization will have an
invaluable means of communicating to their people a clear framework for working
towards the organization’s targets. This provides a means of influencing behaviour,
ensuring the right things are being done.
Third, when the appropriate measures are in place and the management team has
established the right targets, it can check whether or not objectives are being achieved.
The measures act like a “route map”; the organization knows where it wants to go and
has the data to tell it whether it is moving in the right direction.
Finally, measures or rather measurement data can be used to challenge the
organization’s strategy. When you design a measurement system, you need to view it
as a system rather than focus on individual measures. What is important is to
understand the links between the different measures, seeing the whole as a “strategy
map”. This map outlines your theory about how the business works. If, for example, in
a manufacturing company you want to increase the profitability of your business, you
will aim to increase your market share and improve operating efficiency. To do the
latter, you need to reduce inventory levels. To do this you need to move products
through the factory more rapidly, which entails reducing lead times. To achieve this
you must reduce batch sizes, which requires reducing the time needed to set up a
machine, etc.
If you have measurement data that can tell you whether you are achieving all of
this, you can see where the effects of the measures have been successful and where
there are still hold-ups. This in turn enables you to identify where problems lie and to
see if this is as expected or elsewhere. What you are doing is using the measurement
data both to show you what is happening inside your organization and to confirm your
theory about how your business is running. That is an incredibly powerful role for
measurement.
So, when I talk about any ROI from measurement, I tend to talk about five notable
contributions: clarifying objectives, communicating them to people, influencing
behaviour to be consistent with them, checking whether or not objectives are being
delivered, and challenging theories about how the business works. There is tangible
value in all of these.
Spotlight Spotlight
What impact do national or organization cultures have on the take-up of performance
measurement or the design of performance measurement systems?

Andy Neely
Both exert an impact. The evolution of the balanced scorecard, which is currently the
most popular measurement framework, gives some indication of the impact of 1021
the former. The balanced scorecard concept took off in the late 1980s/early 1990s in
the USA, becoming popular in the UK and then throughout Europe in the
mid-1990s/early 2000. It was slower to catch on in Asia, however, only really
becoming popular within the past 18 months or 2 years. While it is difficult to say
whether this comparatively slow take-up reflects particular measurement issues, we
know that many traditional Japanese companies would question the need to measure
customer satisfaction, for example, pointing out that if you are close enough to your
customers, you will know whether they are satisfied, obviating the need for formal
measurement systems.
Organizational issues are of particular interest to me and, notably, public/private
sector differences. In the private sector, interest in measurement tends to be driven by
sensible management practices. However, in the public sector I perceive a real
challenge because it is not clear what role measurement plays for many public sector
organizations. Many of these have measures imposed on them by the government.
Take the police force in the UK. Thames Valley Police, for example, has in the region of
200 key performance indicators, i.e. 200 things that they are told by the government to
measure. You could argue that they should use these to compile information to
demonstrate to the public how they perform against them, which makes the force
accountable. Certainly, if all the police forces in the country had similar sets of
measures they could then share best practice, comparing their strengths and
weaknesses and learning from one another.
However, my concern is that the real driving force in many such public sector
initiatives is simply justification of existence. When there are spending or funding
reviews, the public sector organization, in this case the police force, selects from its 200
performance measures the ones in which it is performing well. This enables it to make
a strong case to the treasury for a decent budget. I consider that performance
measurement in the public sector has become more of a political “gaming process” than
a genuine management process.
That said, the same thing also occurs in private sector organizations. I have received
many requests from central service-type functions such as IT, personnel and
marketing to design measures to help them to demonstrate to the rest of the business
how they add value, i.e. to help them to justify their existence. Again this is purely
defensive. So if we talk about cultural impacts, these are not solely national, nor is there
a straight public/private sector split. There is also the question of micro-cultures within
organizations.

Spotlight
What is the advantage of The Performance Prism developed by the Centre for
Business Performance compared with “traditional” performance measurement
frameworks?
MD Andy Neely
42,8 Undoubtedly the most popular of the measurement frameworks, which include the
Business Excellence Model, the Baldrige Award, the Deming Prize and many others, is
the balanced scorecard developed by Bob Kaplan and David Norton. This adopts four
perspectives: financial, customer, internal, and innovation. When I reviewed this and
the other frameworks I was concerned to note that none is broadly focused on
1022 stakeholders. The balanced scorecard, for example, with its four perspectives,
completely omits the employees inside the organization – despite the fact that most
organizations talk of their people being their most important asset. Suppliers are
similarly ignored even though they and alliance partners are increasingly important
now that organizations are outsourcing more and more of their non-core activities and
relationships are crucial. There is also no mention of regulators despite the fact that
they are extremely influential in many industries.
Our Performance Prism deliberately adopted a much broader stakeholder view. Its
opening question is not: what is the organization’s strategy and therefore what should
it be measuring? It is: who are the stakeholders to whom this organization must deliver
value? And then: how important are they? Who takes priority and what does the
organization need to do to satisfy the competing needs of different stakeholders?
The Performance Prism deliberately separates what we call stakeholder satisfaction
from stakeholder contribution. I see this as a very important distinction. The two sides
of the relationship have completely different requirements. In terms of the
customer/organization relationship for example, the customer requires satisfaction
from the organization while the organization seeks loyalty and profitability from the
customer. Hence the customer’s contribution is loyalty and profitability but what gives
him or her satisfaction is the quality of service received.
The concern I had when I looked at many of the existing frameworks is that they
fail to make explicit this stakeholder relationship notion of contribution and
requirement. The same is true for employees, suppliers and regulators. It is also true
vis-à-vis the owners of the business if we consider their position from an investor
perspective. All stakeholder relationships hinge on a combination of stakeholder
satisfaction and stakeholder contribution. The Performance Prism is the only
framework that makes this explicit.

Spotlight
How can the Performance Prism specifically boost M&A success?

Andy Neely
It comes back to the question of relationships. These are absolutely crucial in mergers
and acquisitions. This is because an acquisition or a merger is very disturbing for the
people inside the organizations concerned, and particularly so in the company that has
been acquired, i.e. the junior partner. The acquirer needs to consider both what is
needed from the company acquired and what that company needs from the acquirer.
Reflection on the requirements of both parties must be included in the design of the
measurement system. The question to ask at that time is not about what needs to be
measured but about what the organization wants to achieve. The goal is to establish a
framework for thinking about what needs to be done and whether or not targets are
being met.
Spotlight Spotlight
Do more independent ways of working, e.g. outsourcing, homeworking, etc. and
growing globalization pose a challenge to performance measurement design,
implementation and effectiveness?

Andy Neely
They do and it makes measurement even more important. Once you have used the 1023
measures to clarify what you are trying to achieve, you will have an excellent way of
communicating that to people, which is really vital when people work at a distance
from the organization.
Whether people are working remotely or within the organization, the challenge is
about establishing the right measures and then communicating them in the right way,
so that people do not feel threatened, but actually see the data as a way of
understanding what is working, what is not and what they need to do differently in the
future. If a measurement system is used as a way of getting people who are working at
a distance to engage with the organization and what it is trying to achieve, then it can
be a very powerful communication medium.

Spotlight
We have just talked about two of the challenges facing organizations today – mergers
and acquisitions and independent ways of working. Looking forward, what other
challenges do you see for organizations in general and for performance measurement
specifically?

Andy Neely
That is a very interesting question. I think one of the most significant challenges facing
managers today is the availability of data. Note the use of the word data rather than
information or insight. The information systems that exist in organizations today give
managers access to vast quantities of data. Data overload is a real issue. The problem
facing them is that they have to convert these data into information and insight that
inform them about what to do next. We need to give people better ways of doing this –
of managing this “data to information to insight conversion cycle”. Many of the tools
and techniques exist. The problem is that they have not been brought together into a
coherent and accessible set for the practitioner community. One of the projects that we
are running in the Centre for Business Performance – our Best Practice Business
Performance Roundtable – is seeking to do exactly this. The roundtable is a
collaborative venture with some of the world’s leading organizations. Members include
people like Astra Zeneca, Belron, DHL, ICI, Nestle, Shell and Six Continents Hotels. We
are working with these organizations to develop something we are calling The
Performance Planning Value Chain, which essentially seeks to provide a structure for
converting data into insights.
The full version of this interview appears in Emerald Now at www.emeraldinsight.
com/now

Note
1. For details of PMA 2002 – Performance Measurement and Management: Research and
Action Conference, visit the PMA Web site on www.performanceportal.org/