In the real world, a company’s measurement systems typically deliver a blizzard of nearly meaningless data that quantifies practically everything in sight, no matter how unimportant; that is devoid of any particular rhyme or reason; that is so voluminous as to be unusable; that is delivered so late as to be virtually useless; and that then languishes in printouts and briefing books without being put to any significant purpose.... In short, measurement is a mess.
We use two percent of what we measure. The rest is FYI/A. . . We are masters of the micro. We measure paper clip acquisition times . . . The appearance of precision substitutes for substance . . . We measure far too much and get far too little for what we measure because we never articulated what we need to get better at, and our measures aren’t tied together to support higher-level decision making.
I am wondering in this world of numbers and trying to figure out if there is a world outside of 6 sigma,Lean,Poka-Yoke,TQM etc that will make measurements more meaningful and thought provoking. which eventually will help laymen like you and me interpret and infer information to better the place we work in!!!
Friday 28 November 2008
Value---How to define it in an organisation
Performance Management is an effective way to understand value creation. Value is an ambiguous term. Does it refer to customer value or shareholder value? In the context of describing an organization’s assets, I am referring to shareholder value—the monetary view. Sustained value creation is another task of the senior executives. But here again executives are running into a problem. The sources of value have been shifting. Ideas are taking the place of land and property in establishing value. Organizations are now much more knowledge-based. Working smart seems to beat working hard.
A simple definition of long-term assets is things one purchases which depreciate as period expenses with time.
In 2001, for every U.S. dollar of market capitalization, only 15 cents represented tangible assets. This means that 85 cents of investor-valued worth came in the form of brands, relationships, and employees. Employees are intangible assets. The knowledge of workers who go home each night and return in the morning is what produces value in many organizations today. A simple definition of this type of intangible asset, in contrast to a tangible asset, is something with potential that grows with time, rather than depreciates.
The sources of value creation are in people’s know-how and their passion to perform. You don’t supervise a product development engineer or advertising editor to create a better product or ad copy. Rather, they do it, given the right environment. PM powers an organization as an economic engine by recognizing that social systems are the fuel. This is not to say that the organization’s mission is not fundamental—it is. It simply means that performance requires cooperation, teamwork, and people giving effort for the benefit of the whole. Value creation is central to the purpose of an organization.
Some publicly-traded corporations feel investor pressure to cut costs to meet earnings expectations, which usually translates into laying off employees. But right-sizing decisions based solely on head count and cost reductions can rob an organization of its key talent. Human resource systems need to acknowledge employees as valued intangible assets, each with unique skills and experiences. Inevitably management must come to grips with increasing bottom-line by getting more from its existing resources rather than removing them with layoffs. This imperative adds to the interest in performance management.
Despite this substantial shift toward valuing intangible assets, current accounting and performance measurement systems still reflect outdated industrial models. Recent accounting scandals, like Enron’s sudden collapse, have alerted the general public that accounting practices have failed as early warning signals. The trio of accounting watchdogs—external auditing firms, boards of directors, and stock analysts—are failing to detect or report impending disasters. The solution is not to meddle with more accounting regulations. Rather than tweak the status quo, where each party likely has vested interests in preservation, the accounting industry should take an investor’s perspective. It should provide disclosure and financial transparency of operating processes. The performance of processes does not suddenly improve or degrade—it changes gradually.
A simple definition of long-term assets is things one purchases which depreciate as period expenses with time.
In 2001, for every U.S. dollar of market capitalization, only 15 cents represented tangible assets. This means that 85 cents of investor-valued worth came in the form of brands, relationships, and employees. Employees are intangible assets. The knowledge of workers who go home each night and return in the morning is what produces value in many organizations today. A simple definition of this type of intangible asset, in contrast to a tangible asset, is something with potential that grows with time, rather than depreciates.
The sources of value creation are in people’s know-how and their passion to perform. You don’t supervise a product development engineer or advertising editor to create a better product or ad copy. Rather, they do it, given the right environment. PM powers an organization as an economic engine by recognizing that social systems are the fuel. This is not to say that the organization’s mission is not fundamental—it is. It simply means that performance requires cooperation, teamwork, and people giving effort for the benefit of the whole. Value creation is central to the purpose of an organization.
Some publicly-traded corporations feel investor pressure to cut costs to meet earnings expectations, which usually translates into laying off employees. But right-sizing decisions based solely on head count and cost reductions can rob an organization of its key talent. Human resource systems need to acknowledge employees as valued intangible assets, each with unique skills and experiences. Inevitably management must come to grips with increasing bottom-line by getting more from its existing resources rather than removing them with layoffs. This imperative adds to the interest in performance management.
Despite this substantial shift toward valuing intangible assets, current accounting and performance measurement systems still reflect outdated industrial models. Recent accounting scandals, like Enron’s sudden collapse, have alerted the general public that accounting practices have failed as early warning signals. The trio of accounting watchdogs—external auditing firms, boards of directors, and stock analysts—are failing to detect or report impending disasters. The solution is not to meddle with more accounting regulations. Rather than tweak the status quo, where each party likely has vested interests in preservation, the accounting industry should take an investor’s perspective. It should provide disclosure and financial transparency of operating processes. The performance of processes does not suddenly improve or degrade—it changes gradually.
Thursday 27 November 2008
Troublesome times
Amid today's impressive technological innovations, business leaders sometimes forget that work is—at its core—a fundamental human endeavor.During the days of uncertainity the only factor that keeps organisations active and competetive in the markets is 'employees'. As Maslow once said 'A musician must make music, an artist must paint, a poet must write, if he is to be ultimately at peace with himself. What a man can be, he must be. This need we call self-actualization. … It refers to man's desire for self-fulfillment, namely to the tendency for him to become actually in what he is potentially: to become everything one is capable of becoming'.The same holds good fr organisations, afterall these institutions are made up by people like you and me.
While i am writting this blog i just get to hear that the terrorists in India have burned down 3 more floors of a high profile restaurant.Why do the terrorists do this? Is there a way we could link this back to maslow? where in the hierarchy of needs will the need to create destruction fall?
Lets get back to the topic 'troublesometimes'.During these days of financial uncertainity,job loses, redundency, off shoring companies seem to be only concentrating on the need to survive this downturn.The need for being successfull has diminished or holds little or no value. The junkbond crisis, Dot com bubble burst and then Lehman brothers have got Newton to act on all of us and the gravitational force is keeping all of us on the ground (9.8 also seems to be quite a hand full now).The start of off shoring brought in a lot of opportunities that were first unheard of to the sub continent.Youngsters were given more than they could chew and liquid cash could be seen everywhere.The goverment also went on to change the basic education system to suit the needs of the industry. BPO/IT...ITeS. Half baked or semi literate individuals were out in the market vying for roles in MNCs doing graveyard shifts, speaking the language of the West, smoking cigrattes and drinking beer.The west culture was slowley creeping in.
Individuals out of college now never had a thought or intention of studying any further. They could make a fast buck anywhere.call centers which existed in window less offices was the talk of the town.everyone wanted to be a part of it. Selling bra's, airline tickets,printers, comps, financial data was the so called domain expertise. Major players in the software industry also joined the bandwagon.
This inturn created a lot of jobs and easy money. the Number of Pubs in bangalore tripled. The average beer consumption also went up. The number of divorces also went up. the number of abortions went up. The number of people in the rehab centers also went up.The number of car sales also went up. The number of personal loans taken also went up. the number of housing loans also went up.The number of flats and builders in bangalore also went up. Loans were given upto 100% of the house value. everything was fine, a 24 year old was capapble of owning a house for 24L INR. paying a monthly EMI of 20K, the rest of his money on cig and pubs.The loans kept increasing. I will not get into explaining the sub prime crisis, but definetly a prime crisis has hit us...all of us in some way or the other.
The relationships no longer exists. For me the growth of any organization is simply the accumulated growth of the individual relationships that constitute it. And relationships largely are influenced by a lot of external factors.
Relationships are all there is. Everything in the universe only exists because it is in relationship to everything else. Nothing exists in isolation. We have to stop pretending we are individuals that can go it alone especially during these troubled times.Spider webs are both the strongest and the most fragile structures in the world. Pound for pound, spider webs are stronger than steel, yet they can stretch to nearly 40 percent of their length. They can also break with just the touch of a finger.The construction of spider webs is an apt metaphor for relationships long before the World Wide Web became our new medium for meeting and greeting. Relationships can be resilient or tenuous. They can stretch when tested, or they can break at the first sign of heavy winds.
Our traditional organizations are designed to provide for the first three levels of Maslow's Hierarchy of Needs: food, shelter, and belonging. Since these are now widely available to members of industrial society, our organizations do not provide significantly unique opportunities to command the loyalty and commitment of our people. The ferment in management will continue until organizations begin to address the higher order needs: self-respect and self-actualization.
Most economists think of employees as "units of production," customers as "units of consumption," and investors as "units of investment." I came to realize that there is no one unit of production because employees are influenced by their motivation, capacity, and the tools we've made available to them, and their results are a function of these influencers. Similarly, not all customers or investors approach their relationship with a company in the same way. In sum, many business observers view these "units" as fixed commodities (like steel) when in fact they truly are flexible (like a web), depending on how these relationships have been nurtured or "spun."
Human capital, unlike other assets, does not depreciate over time. Like good wine, it actually improves with age.
While i am writting this blog i just get to hear that the terrorists in India have burned down 3 more floors of a high profile restaurant.Why do the terrorists do this? Is there a way we could link this back to maslow? where in the hierarchy of needs will the need to create destruction fall?
Lets get back to the topic 'troublesometimes'.During these days of financial uncertainity,job loses, redundency, off shoring companies seem to be only concentrating on the need to survive this downturn.The need for being successfull has diminished or holds little or no value. The junkbond crisis, Dot com bubble burst and then Lehman brothers have got Newton to act on all of us and the gravitational force is keeping all of us on the ground (9.8 also seems to be quite a hand full now).The start of off shoring brought in a lot of opportunities that were first unheard of to the sub continent.Youngsters were given more than they could chew and liquid cash could be seen everywhere.The goverment also went on to change the basic education system to suit the needs of the industry. BPO/IT...ITeS. Half baked or semi literate individuals were out in the market vying for roles in MNCs doing graveyard shifts, speaking the language of the West, smoking cigrattes and drinking beer.The west culture was slowley creeping in.
Individuals out of college now never had a thought or intention of studying any further. They could make a fast buck anywhere.call centers which existed in window less offices was the talk of the town.everyone wanted to be a part of it. Selling bra's, airline tickets,printers, comps, financial data was the so called domain expertise. Major players in the software industry also joined the bandwagon.
This inturn created a lot of jobs and easy money. the Number of Pubs in bangalore tripled. The average beer consumption also went up. The number of divorces also went up. the number of abortions went up. The number of people in the rehab centers also went up.The number of car sales also went up. The number of personal loans taken also went up. the number of housing loans also went up.The number of flats and builders in bangalore also went up. Loans were given upto 100% of the house value. everything was fine, a 24 year old was capapble of owning a house for 24L INR. paying a monthly EMI of 20K, the rest of his money on cig and pubs.The loans kept increasing. I will not get into explaining the sub prime crisis, but definetly a prime crisis has hit us...all of us in some way or the other.
The relationships no longer exists. For me the growth of any organization is simply the accumulated growth of the individual relationships that constitute it. And relationships largely are influenced by a lot of external factors.
Relationships are all there is. Everything in the universe only exists because it is in relationship to everything else. Nothing exists in isolation. We have to stop pretending we are individuals that can go it alone especially during these troubled times.Spider webs are both the strongest and the most fragile structures in the world. Pound for pound, spider webs are stronger than steel, yet they can stretch to nearly 40 percent of their length. They can also break with just the touch of a finger.The construction of spider webs is an apt metaphor for relationships long before the World Wide Web became our new medium for meeting and greeting. Relationships can be resilient or tenuous. They can stretch when tested, or they can break at the first sign of heavy winds.
Our traditional organizations are designed to provide for the first three levels of Maslow's Hierarchy of Needs: food, shelter, and belonging. Since these are now widely available to members of industrial society, our organizations do not provide significantly unique opportunities to command the loyalty and commitment of our people. The ferment in management will continue until organizations begin to address the higher order needs: self-respect and self-actualization.
Most economists think of employees as "units of production," customers as "units of consumption," and investors as "units of investment." I came to realize that there is no one unit of production because employees are influenced by their motivation, capacity, and the tools we've made available to them, and their results are a function of these influencers. Similarly, not all customers or investors approach their relationship with a company in the same way. In sum, many business observers view these "units" as fixed commodities (like steel) when in fact they truly are flexible (like a web), depending on how these relationships have been nurtured or "spun."
Human capital, unlike other assets, does not depreciate over time. Like good wine, it actually improves with age.
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