A key facet of successful performance measurement – and therefore commercial success – is that progress and performance be based on principles of measurable activity instead of just financial data. A desire to peg progress against accounting-based performance measures tends to be misleading since financial data lack the range of context that is required for companies to fully understand how they are doing and what it means to the ecosystem in which they operate. Specifically, it is not designed to deliver decision-relevant information. Atkinson et al, in their paper, A Stakeholder Approach to Strategic Performance Measurement, describe the problem quite succinctly:
“Improving organizational performance by monitoring financial performance is as useless as trying to improve a sports team’s performance by only reporting the scores of its games.”
This is a great analogy since it at once diminishes the relevance value of accounting-based analysis, and as well preemptively defeats the argument that a score is all that matters. This is a significant point, since a sports score might be seen as some as on par with shareholder value or even market capitalization, the ultimate markers of success in a for-profit economy.
In fact, a sports score model would actually correlate directly with an organization’s primary objective, which is clearly laid out in Atkinson’s article as being maximized shareholder value, but for one difference. A sports team might win a game or a season based on external factors unrelated to its talent or training. Inefficient officiating, fouls committed by the opposing team, or even winning by default if the opposition fails to show up, are all significant victories on paper, but do nothing to assess the ability of the team itself. A company that assesses itself purely by the numbers is working blind to the realities of the marketplace around it.
Atkinson et al similarly declare the longstanding performance measurement tool, the Balanced Scorecard to be less successful than originally conceived since it fails to account for the contributions from stakeholders such as employees, suppliers, and community. Its singular, one-way approach is neither robust nor comprehensive.
It appears, from this article, as well as many others, that a broader plane of performance measurement is required, one that supports a company’s primary objective by better understanding and coordinating the secondary objectives which focus on two sets of stakeholders:
- environmental stakeholders (customers, owners and the community)
- process stakeholders (employees and suppliers)
For all of these stakeholder groups, their actions, activities and attitudes must support the primary objective, but this can only be done by ensuring metrics and measurements that will adequately categorize and assess people’s actions. All of the people in these stakeholder groups are subject matter specialists in their own right, and in many cases have been delegated a certain measure of autonomy and decision-making leeway. As democratic and empowering as this may be, it still requires a set of standards and measures that will connect their actions to the primary objective, and that’s where Lean Six Sigma comes in.
The fundamental tenets of Lean Six Sigma, specifically in identifying and removing wasteful habits and systematically pursuing and achieving greater levels of excellence, fit well within the democratic allocation of decision-making among stakeholders while still providing useful guidance. In short, it’s about establishing measurable standards.
In a customer service department, for example, an employee needs to be trained on effective customer service procedures, while also being empowered to some degree to ensure a personalized level of satisfaction for each customer and each interaction. In the age of the “audience of one” in which each customer (in both B2C and B2B) expects a heightened and more personalized level of service, the goal of supporting a primary objective hinges on consistency and customization simultaneously.
This can be a recipe for disaster if not proactively managed and measured. Individualized levels of customer service delivered by different individuals with different temperaments can spiral quickly out of control in terms of a competitive and accountable customer management strategy.
The use of Lean Six Sigma can help by delivering objective standards into a largely subjective activity. Data is available in almost infinite amounts in 21st century commerce, and much of it goes uncaptured and unprocessed. Yet data that captures, for example, time and duration of customer support calls, structured survey feedback, unstructured comments on social media, online browsing habits, and every other physical, verbal and financial transaction, are all available for quantification and segmentation in ways that can then fall under a Six Sigma improvement matrix.
In the not-too-distant future, this will be a key activity for artificial intelligence and learning technologies, as they read and absorb visual and text-based data and review it in myriad ways. But even before this day arrives, organizations of any type and in any industry owe it to themselves to immediately adopt a performance measurement approach that embraces the entire stakeholder community whose secondary objective activities together support the primary objective.
Peter Drucker said it decades ago: “If you can’t measure it, you can’t improve it.” Establishing metrics on even the most human and subjective of activities allows for consistency and excellence to be built in, and waste and irrelevance to be built out. This may be common sense, but the difference now is that the computing power and bandwidth required to conceptualize and process such data is now eminently available, which makes this old wisdom new again.
 Atkinson, Anthony A., Waterhouse, John H., and Wells, Robert B. 1997. “A Stakeholder Approach to Strategic Management.” Sloan Mt Review, Massachusetts Institute of Technology, Volume 38., No. 3, p. 35