Post on 15-Dec-2015
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Questions of disclosure:What to measure and why?
Professor Andy NeelyCranfield School of Management
Cranfield Corporate Responsibility NetworkApril 2008
Questions of disclosure:What to measure and why?
Professor Andy NeelyCranfield School of Management
Cranfield Corporate Responsibility NetworkApril 2008
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Why measure – the desire to quantify?
“When you can measure what you are speaking about, and
express it in numbers, you know something about it; but
when you cannot measure it, when you cannot express it
in numbers, your knowledge is of a meagre and
unsatisfactory kind”.
Lord Kelvin, 1824-1907
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But quantify for what purpose?
In the UK the most common reasons for measuring - assessing performance, improving operational efficiency and aligning employee behaviours.
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10
20
30
40
50
60
% o
f re
spo
nd
ents
Primary reason for measurement
Assessing Performance Operational Efficiency
Aligning Employees Behaviours Financial Control
Strategic Decision Making External Reporting
Strategic Planning Compensation/Rewarding
Validating Strategy
Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The UK State of the Art”, Oracle and Cranfield School of Management.
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Are there country differences?Australia China Japan UK USA
Performance Assessment (64.37%)
Performance Assessment (77.55%)
Aligning Employee Behaviours (53.40%)
Performance Assessment (58.82%)
Aligning Employee Behaviours (36.59%)
Aligning Employee Behaviours (59.77%)
Aligning Employee Behaviours (35.71%)
Performance Assessment (44.66%)
Improve Operational Efficiency (52.94%)
Improve Operational Efficiency (34.96%)
Improve Operational Efficiency (56.32%)
Improve Operational Efficiency (35.71%)
Improve Strategic Decision Making (43.69%)
Aligning Employee Behaviours (43.44%)
Performance Assessment (34.15%)
Compensation and Reward (35.63%)
Improve Strategic Decision Making (31.63%)
Validating Strategy (40.78%)
Financial Control (39.82%)
Compensation and Reward (22.76%)
Improve Strategic Decision Making (33.33%)
Compensation and Reward (29.59%)
Strategic Planning (37.86%)
Improve Strategic Decision Making (35.91%)
Improve Strategic Decision Making (21.14%)
Financial Control (32.18%)
Strategic Planning (28.57%)
Financial Control (29.13%)
External Reporting (32.87%)
Financial Control (19.51%)
Strategic Planning (26.44%)
Financial Control (20.41%)
Improve Operational Efficiency (25.24%)
Strategic Planning (30.77%)
External Reporting (14.63%)
External Reporting (20.69%)
Validating Strategy (17.35%)
External Reporting (22.33%)
Compensation and Reward (24.20%)
Validating Strategy (13.82%)
Validating Strategy (18.39%)
External Reporting (16.33%)
Compensation and Reward (22.33%)
Validating Strategy (19.00%)
Strategic Planning (13.01%)
Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.
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Why measure – business returns?
“While doing good doesn’t appear to destroy shareholder value, we found only a very small correlation between corporate behaviour and good financial results (the exception being public misdeeds, which had a discernible negative impact)”.
• Corporate misdeeds are costly to companies – if people find out!
• Doing good is unlikely to cost Shareholders directly.
• Profitability should not be the primary rationale for corporate social responsibility.
Joshua D. Margolis, J.D. and Elfenbein, H.A. (2008) “Doing Well By Doing Good”, Harvard Business Review, January, 19-20.
Meta review of 167 conducted over 35 years - Is there a link between corporate social performance and corporate financial performance?
“An alternative, and perhaps more cynical, way to interpret the mild correlation is to suggest that it pays to be good, but not too good. It could be that companies that are demonstrating a payoff are doing enough not to run afoul of regulators and activists, but not so much that they offend analysts and investors”.
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Why measure – the need to comply
Key area Sub-area TotalWeight
Water supplyHose pipe bans
Leakage and resource position
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2
Water pressure
Unplanned interruptions
Water distribution
Incidents due to sewer capacity
Incident due to blockages
Risk of flooding
Sewerage service
Customer contact
Assessed serviceCustomer service
Sewage treatment works in breach of consent
Unsatisfactory combined sewer overflows
Major and serious pollution incidents
Environmental impact
1.5
1.53
1
1.5
0.5
3
1
23
1
1
1
3
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The water utilities
Output
measure
Source Description Performance
range
Scoring
criteria
Water pressure
Company data
Company assessment of properties at risk of receiving low pressure
From 5.5% properties at risk (worst) to zero at risk
Percentage at risk figure scored from 5 (poorest performance) to 50 (best)
Unplanned interruptions to water supply
Company data
Properties affected by unplanned interruption to supply greater than six hours
Performance scores (combination of 6,12 and 24 hour interruptions) from 2.77 (worst) to 0.14 (best)
Interruption scores scored from 5 (poorest performance) to 50 (best)
Sewer flooding incidents due to overloaded sewers
Company data
Properties flooded internally by sewage as a result of an overloaded company sewer
Percentage of connected properties flooded from 0.01 (worst) to 0.001 (best)
Percentage figure scored from 5 (poorest performance) to 50 (best)
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The water utilities
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50
100
150
200
250
300
350
A C E G I K M O Q S U W Y AA
Pe
rfo
rma
nc
e s
core
Companies
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The need to comply
Aim of performance review
OU
TP
UT
S
COMPLY
What outputs are being sought?
Warning <-> non-negotiable parameter is in danger of being infringed.
To establish whether any of the non-negotiable performance parameters are in danger of being infringed.
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The maturity of measurementC
om
ply
Ad hoc
Non-negotiable performance parameters not identified.
Basic
Non-negotiable performance parameters identified, but few relevant measures available.
Emerging
Non-negotiable performance parameters identified. Relevant measures available, but generally they are backward looking.
Managed
Non-negotiable performance parameters identified. Predictive measures available for most of them.
Excellence
Current and potential non-negotiable performance parameters identified. Predictive measures available for all of them.
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And to mitigate risk
Risk and compliance are significant reasons to measure. Especially as any of the organisation’s stakeholders can
revoke the firm’s license to operate.
Life in the goldfish bowl…
www.untied.com
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Enduring challenges of measurement
The desire to quantify:• “There is a strong tendency to state numerically as many as possible of the
variables with which management must deal” - Dysfunctional Consequences of Performance Measurements, V.F. Ridgway, 1956.
Unanticipated consequences:• “We feed the machines all the easy orders at the end of the month to meet
our quota” - The Impact of Budgets on People, Chris Argyris, New York, 1952.
The need for balance:• “Market standing, innovation, productivity, physical and financial resources,
profitability, manager performance and development, worker performance and attitude, and public responsibility as appropriate performance criteria” The Practice of Management, Peter Drucker, New York, 1954.
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What do we measure?
Over 50% of respondents report that
over 50% of their measures are financial
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5
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25
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35
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% o
f re
spo
nd
ents
None 1-24% 25-49% 50-74% 75-99% All
UK USA Australia Japan China
Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.
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Strong focus on the traditional non-financial measures
What do we measure?
Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.
0102030405060708090
100
% o
f re
spo
nd
ents
Environment
Supplier
Growth
Regulatory
Internal Processes
Employees
Customer
Financial
Australia China Japan UK US
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Think about a range of stakeholders
• Fast, Right, Cheap & Easy
• Purpose, Care, Skills & Pay
• Trust, Loyalty, Profit & Growth
• Legal, Fair, Safe & True
• Return, Reward, Figures & Faith
Stakeholder Satisfaction(Stakeholder Wants & Needs)
Stakeholder Contribution(Organization Wants & Needs)
• Trust, Loyalty, Profit & Growth
• Hands, Hearts, Minds & Voices
• Fast, Right, Cheap & Easy
• Rules, Reason, Clarity & Advice
• Capital, Credit, Risk & Support
Stakeholders
Customers &Intermediaries
Employees
Regulators &Communities
Suppliers
Investors
Remember stakeholder contribution satisfaction
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The Performance PrismSWANs What do our various
stakeholders want and need?
Strategies What strategies are we pursuing to satisfy these wants and needs?
Processes What processes do we need to put in place to enable us to achieve these strategies?
Capabilities What capabilities do we require if we are to operate these processes?
OWANs What do we want and need from our stakeholders to enable all of this to happen?
Neely, A.D., Adams, C. and Kennerley, M. (2002) “The Performance Prism: The Scorecard for Measuring and Managing Stakeholder Relationships”, Financial Times/Prentice Hall, London.
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Reflections on CSR and disclosure
1. Don’t start with what should we measure.
2. Instead start with what questions do we want to be able to answer.
3. The questions that matter for different organisations are context dependent.
4. So do not look for standardised sets of measures that can be used for CSR.
5. We can, however, look for standardised frameworks – such as the Performance Prism – to help structure our thinking.
6. Finally… remember Einstein…
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Starting with Kelvin, finishing with Einstein
“Not everything that
counts can be measured.
Not everything that can be
measured counts”.
Albert Einstein, 1879-1955
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For Further Information
Professor Andy NeelyCranfield School of ManagementCranfieldBedfordshireEnglandMK43 0AL
Tel. +44 (0)1234 754511Mobile +44 (0)7711 140198E-mail a.neely@cranfield.ac.uk
Cranfield web site: www.som.cranfield.ac.uk/somPMA Home Page: www.performanceportal.org