Leadership, collaboration and trust are soft measures that translate into 'hard' results
The phrase “What gets measured gets managed” has been attributed, in various forms, to Tom Peters, Peter Drucker, and even Lord Kelvin. While the phrase’s origin may be murky, the underlying idea has tremendous power for leaders. Without measures, leaders and their organizations face a nearly impossible task in coordinating efforts or assessing progress. So, the question we face is not whether to measure, but rather what to measure and how to measure.
Most current measurement approaches are far too narrow to provide useful guidance. Relentless pressure from shareholders and analysts has contributed to a management fixation on near-term financial performance. Unfortunately, this is just one output measure, and not a particularly useful or actionable indicator, because it’s a ‘trailing indicator’—a measure of what happened that doesn’t always help you understand how to affect the outcome. Even when businesses focus on share price, the measure is the stock market’s projection of future financial returns, which rarely incorporates a detailed understanding of the organization’s ability to sustain those returns.
The Balanced Scorecard approach developed by Kaplan and Norton encouraged managers to consider operational and organizational dimensions beyond the purely financial. Their subsequent work on strategy maps pushed for a relational understanding of how the interactions among the chosen measures reflected elements of the value creation system in a business. As much as their work was a profound step forward, it still clung to a quantitative bias that limits the view we get of the business and our ability to affect outcomes and change.
What we need to do is to move beyond a multi-faceted approach to measurement and take an integrative approach—one that balances multiple dimensions of the business, includes both input and output measures, and most importantly, values qualitative information on a par with quantitative data.
Qualitative measures can include a wide range of information, such as customer comments, focus group findings, performance review narratives, open responses on employee surveys, or after-action review summaries. Three attributes make such information a ‘measure’:
It must be relevant. Performance changes in the measure must be linked to business outcomes that matter. This attribute is sometimes called ‘validity’, and the linkage can be self-evident or statistical. For qualitative measures, statistical linkages can be more challenging to demonstrate unless you use scales such as a five-point Likert to capture a qualitative assessment. Self-evident relevance, or ‘face validity’, comes from the logical or intuitive connection of the measure to a desired result.
It must be replicable. Useful measures rely on data gathering methods that are sustainable over time and are worth the effort. If collecting the information requires adding a large infrastructure and increasing workloads across the organization, the value of the measurement will need to justify the investment.
It must be reliable. Changes in the measure need to be strongly linked to changes in outcomes. If the measure is directly of an outcome, the linkage is simple; if the measure is of an input that contributes to the outcome, the linkage can be logical or a correlation. Thanks to undergraduate statistics courses, we can expect choruses of, “correlation does not mean causation.” This is true, of course, so the logic of the linkage becomes very important; and a simple cause-effect relationship may be less likely than a causal loop systems relationship.
In research conducted over the past five years, our firm [Interaction Associates] has tracked a strong and persistent relationship between leadership, collaborative operational practices and financial results. Comparing companies that were able to grow their profits by more than five per cent last year with those that could not, we found that the high profit growth companies out-performed the lower profit growth companies across every survey question that assessed three things: leadership, collaboration, and trust behaviours. In short, these ‘soft’ measures translate into ‘hard’ results.
[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]