How to actually measure performance

Allen Dorsey: Today, I am excited to welcome Greg Joffe, who is a Principal in our Nous Sydney office, and he's one of our longest serving leaders having been with Nous since 2003. Greg works with CEOs, boards, government agencies, and private sector organisations to develop strategy and improve organisational performance, helping to turn ambition into results. But outside of all this, Greg is a keen cyclist, soccer player, a devoted fan of ancient history podcasts. He's the busiest man in Australia. Welcome, Greg. How you doing?

Greg Joffe: I'm well, thanks, Allen. Thanks for having me.

Allen Dorsey: Of course. And now of course I kind of teased it a little bit, but I've got to know your favourite kind of historical fact.

Greg Joffe: I always think it's interesting that the Roman Empire implodes on itself after a while, particularly the Western Empire. And the Goths come in and there's a whole decision, do we let the Goths come in and become Romans or not? And they kind of stuff up that immigration. And in that process is probably part of the reason for the decline of the Roman Empire, although many others point to other causes as well.

Allen Dorsey: Oh, wow. Yeah, definitely something to think about. The Roman Empire, big, big things, big things to think about, I imagine. But we are not here today to talk about the Roman Empire. We're of course here to talk about performance measurement. And I wonder, everyone says that they want to be data-driven, but you've spent a lot of time helping many organisations measure performance and many still struggle with it. Why do you think that is?

Greg Joffe: I think people have two different problems. One is they're trying to measure things that don't really tie to their strategy, so they haven't really got the link working well with their strategy. And the second is sometimes they actually don't have a clear strategy. And so trying to measure stuff when you're not quite clear whether you have a good strategy or not is a real problem. I can elucidate if you'd like.

Allen Dorsey: What do you think, Holly? What do you think? Is that good? Yeah, I think give us a little bit more. Give us a little bit more, I think, because that first answer was just a little bit longer. I think just set up the scene a little bit.

Greg Joffe: Okay. I might just redo the whole thing then. Two key reasons that organisations struggle to get KPIs that work is one, they don't actually have a clear strategy. And if you don't have a clear strategy, then whatever you measure is not going to be that helpful. And what's a good strategy? A good strategy is one that answers the questions that Lafley and Martin put out in their book Playing to Win. And it basically talks about, are we clear what market we're in? Are we clear what product we're offering? And most importantly, are we clear why we are going to win? What is it that we're going to do that our competitors can't do? If you can't answer those questions, you don't really have a strategy and then you can have as many measures as you like, but it's not going to help you to actually implement the strategy because what the measure should be doing is telling you how are we going and implementing our strategies.

Are we doing what we said, but also is it achieving what we were hoping it would achieve? So the first item is actually make sure you've got a decent strategy. I think the best writer on that is Rumelt, R-U-M-E-L-T, who speaks about good strategy, bad strategy. The second item then is people don't have a good understanding of measures. Often people measure activities, whereas what really matters is outcomes. So what is the outcome we're actually trying to achieve and the activities are means to the end. In private sector, if your end is I want to make more profit, what you're looking for is that a revenue uplift? Is that a cost reduction? How are we actually making that extra profit and what will tell us if we're on track to do that? And if it's not for profit or government, you need to start with what's the outcome for society that we're trying to change or the outcome for the population we're trying to get, and then what outputs or activities are we doing to make that happen?

And again, in each of those cases, you need to be clear first on the what, and then you can talk about, so how do we measure it?

Allen Dorsey: Do you think that we're seeing more organisations that are measuring the wrong things or is it more about measuring the right things badly?

Greg Joffe: I think that people often measure too much and they don't think hard enough about what are we trying to measure. There are a few different frameworks on how to do this well that are actually quite good at guiding you what to do. There is a SMART framework that a lot of people use, but I don't think it helps you choose the right measures. If you're thinking about what are the right measures for my organisation, there are I think two really good frameworks for doing it. One is the balanced scorecard as developed by Kaplan and Norton in the 1980s.

It's useful because it says, well, what are the outcomes we want for our customers? If we got those outcomes, what financial outcomes would we get to get those outcomes? What processes or business processes do we need to get right and what do we need to be doing to keep developing ourselves as an organisation? And so it sort of forces you to think about how those four things fit together as part of your strategy and also how you would measure it. Equally, if you're working in a not-for-profit or government agency, there's what's called program logic. And program logic I think has the right starting point where it says, what is the outcome you're trying to achieve for society or what is the outcome you're trying to achieve for the population group that you're trying to help? And then you work backwards from that outcome to say, okay, well what are the outputs or the things we as the government agency or the not-for-profit are going to do that will actually help deliver that outcome and what dollars do we need, what effort do we need to get there?

So it sort of works backward from the outcome. And I just think a lot of people, it's easy to come up with measures. A lot of people brainstorm measures, put in a whole ton of measures and then measure them, but it doesn't tell them the story. Whereas the balanced scorecard or the program logic approach help you think about what are you actually trying to achieve here and then how did you get there?

Allen Dorsey: It's interesting, you talk about capturing that data that tells the story and I wonder, it could be, I think we've spoken about this, but sometimes we can maybe think about activity or just doing things as maybe the thing that we're measuring, but maybe that's not actually the right thing and maybe those aren't actually the right outcomes. So maybe how do we make that distinction between activity and what we actually need to measure?

Greg Joffe: Well, you do sometimes want to measure activity, but I can talk about why. But the most important thing is outcomes. So when I lecture in KPIs, I always say to people activities are important, but outcomes are more important. So the outcome is what is the societal change you expect to see, particularly again for not-for-profits or government. Generally in private sector, it's what's going to deliver the most profit. But often, particularly in that government and not-for-profit space, it's much easier to measure activity. So that's what people measure. So for instance, when I worked at Austrade as head of strategy many, many years ago, often people would measure how many meetings did I have with Australian exporters because Austrade helps Australian exporters, which is an interesting and easy to track activity measure. But of course what you want to know is how many of those exporters went on and got a sale, how much was that sale worth and how satisfied were they with the support that Austrade provided them?

So those are all more outcome-focused measures that are much more useful than just did you meet with someone?

Allen Dorsey: Yeah, I think it would be probably really alluring to be able to just say, "Well, I had all these meetings, look at this." But actually the reality of what we need to do is what came after that, what's actually helping us deliver within the business? Yeah, that's a really good kind of thing to think about. And we talked about working backwards and it feels obvious that we should be thinking our performance measures should be connected to our strategy.

Greg Joffe: Why

Allen Dorsey: Is that actually so difficult sometimes to put into practice?

Greg Joffe: Again, two reasons. One is many strategies are not really strategies. They're just like a bunch of wishful statements put on a page. So step one is you actually have to have a strategy which answers the questions that Lafley and Martin talk about in their book, which is what is the market we play in? Who are the customers we're targeting? Which geographies? And then what is it that we are actually going to offer? So what is our product or service? And then why are we going to win? And this is the question you have to be able to answer. If you can't answer why are we going to win, then you don't actually have a strategy. So even within Nous, when we talk to people about strategy, I'm like, it has to be able to tell us why is Nous going to win in management consulting when there's lots of management consulting firms?

Is it because we have different expertise? Is it because we have better relationships with our customers? Is it because we work better with our customers? You have to be able to isolate that. Only once you have a clear strategy are you then able to say, so what are the right measures to tell us if we're achieving that? The second is what we talked about before, which is you have to think really hard about what are the outcome measures that'll tell me if I'm achieving what my strategy's trying to achieve. So in a private sector situation, you're usually mainly solving for will this increase profit? So your strategy should be, well, how are we going to increase profit? Are we going to increase our revenue by finding more customers or charging our current customers more or getting a new product that new customers want to buy or that old customers want to buy more of?

So is it a revenue driver or is it a cost driver? Are we going to be reducing costs, et cetera? And which of revenue and costs is actually going to drive up our profit? And then your measures should tie in directly to that strategy in terms of, okay, so if it's all about revenue, I'm not trying to cost cut, is my revenue coming from new product or an existing product? Well, it's a new product. Then a lot of your measures have got to be, well, how am I going on getting that new product out there? How am I going on marketing that new product and are people actually buying it? And those are the sorts of measures you'd want to be tracking if your strategy is around, I want to put a new product into the market that adds to our profitability.

Allen Dorsey: And so then if I'm in a position where I'm thinking about these things and I feel like I've ticked the first box, I've got my strategy, I feel like I really understand why we're going to win, I feel like I've got my measures in place that I want to be thinking about, what are maybe the kind of telltale signs that actually perhaps they're disconnected?

Greg Joffe: Well, more on the positive, the way to tell if they are connected is to do what's called mapping your strategy. So again, Kaplan and Norton, my particular heroes in this KPI space, the most famous accountant and engineer in the world in the world of business administration, Kaplan and Norton have a whole process which they talk about mapping your strategy where they show how different parts of your strategy feed into other parts of your strategy and then how to develop measures to do that. It is partly, as we've talked about, about getting the strategy right, but it's also about going from really vague measures to really specific and useful measures. So one of the things I find quite useful is to put the measures into a grid or into a table where you basically say, what's the measure? And that should be describing something that can actually be measured.

I know that seems obvious, but often people have these vague arm waving measures that you actually can't measure. But firstly, you've got to have a measure that can actually be measured. Secondly, it's useful to then say, well, what's the baseline or current status of that measure? And then thirdly, well, what's our target? So if I wanted to lift my revenue from 100 mil a year to 110 mil a year, that's a baseline and that's a target. The next item is then how often are we going to collect that measure and who's actually going to collect that measure and report it? And it just takes it from a vague concept like I want to increase revenue to, I want to increase my revenue from 100 to 110 mil. It's going to be coming through the financial reports on a daily basis or monthly basis, and it's going to be validated and collected by the CFO.

So it becomes much more real and you can look at it and go, yeah, that's a real measure that I'm actually using in that situation.

Allen Dorsey: And so then if I'm, again, someone who's listening who's really responsible for improving our performance measurements in the organisation, what do you think is the first conversation they should have after having this episode? And then maybe what are the three key things that they should absolutely do before they

Greg Joffe: Start? I think the first thing would be to go back to the board and have a conversation with the board on, are you seeing what you expect to see in the measures that we're reporting to you? It's always useful to talk to the board because usually what happens is over time, more and more reports and measures accrete. And it's like many things in business, it sort of requires someone to come in and say, actually, are you getting anything useful out of this or we're just creating tons of reports that aren't useful for you? So it is definitely worth having a discussion with the board that says, how is the current reporting on progress against the strategy actually helping you to assess how the business is going? The second would be with the CEO and the exec team to do the same thing, but much more cascaded.

So you're actually saying, okay, here are our overall measures and here's how we're reporting on them. A, can people see the link between the strategy and the measures? If not, let's talk about how to refine it. But B, can we also then cascade those measures from the overall organisation to each of the divisions? And does every division understand which ones they have primary carriage on? You almost never have sole carriage on a measure or rarely have sole carriage on a measure. Usually others have some impact on it, but that ability to say, look, at the end of the day, the growth team own these growth targets. Yes, other people have to do their jobs well for that to work, but it does come down to if we don't see any growth coming through the growth measures, it's really the growth team are not doing their job.

So where is the gap if this isn't being delivered? So those would be the conversations I'd have. The board, the executive team, and thinking about that alignment of strategy and the cascade of strategy in terms of measures.

Allen Dorsey: And what about three practical things? What's my first three things I should do other than those conversations?

Greg Joffe: One, read the Kaplan and Norton articles on the balanced scorecard and also on mapping your strategy. Two would be put all your measures into that grid that I described where you're actually saying, what's the measure, what's the baseline, what's the target, how often do we collect it, who's responsible for collecting it? And usually I have a third point, so let me think what my third point is on this front. What else would you do to know if it was working? I think the third is what we often talk about as the barbecue test or the mother test or father test. If you're explaining it to someone who wasn't in the business and you explained the strategy and then explain the measures and you said to them, "Can you see how those measures actually tell us if we're achieving our strategy or not?" People go either yes or no, that's entirely confusing.

It's always useful to talk to someone outside of the business to go, "Is this actually a coherent storyline and do the measures support the strategy?" So that would be the third.

Allen Dorsey: Absolutely. Yeah, I think that barbecue test certainly is a good reminder. You can kind of get in your own little world where you're seeing the story quite clearly, but yeah, explaining it to other people I would imagine makes that even more clear and helpful for you.

Greg Joffe: Well, my son, who's a computer programmer, sometimes talks to me about the rubber duck test, and the rubber duck test is when your computer program doesn't work. You explain the logic of the program to your rubber duck and the rubber duck looks back at you with its beady black eyes. And as you explain it to the rubber duck, you go, "Oh right, that's why it's not working."

Allen Dorsey: There it is. Yes. Too good, too good. And Greg, we also always, always get a book recommendation in each episode. And I have a sneaking suspicion, I know what book you're going to recommend, but I would love to hear it.

Greg Joffe: If we're talking about KPIs, you don't have to read the book, you should just read the Harvard Business Review articles from Kaplan and Norton over the years, but particularly on the balanced scorecard and on mapping your strategy.

Allen Dorsey: Amazing. Well, Greg, this has been a really wonderful conversation. Always a pleasure getting to talk to you. Thanks so much for joining us today.

Greg Joffe: Thanks, Allen. It's been great talking to you.