Chapter 3

Creating a Culture of Fact-Based Decision-Making

In This Chapter

Initiating the right culture

Getting senior management buy-in

Introducing the right meetings

Implementing useful KPIs that improve decision making and performance requires cultural change. Problem is, no-one likes change. And culture change is considered especially gnarly!

If designed properly and used intelligently, however, KPIs can transform performance and drive you towards greater and greater success. KPIs can push the culture of your business toward evidence-based action and decision making. Over time this evidence will replace opinion, guesswork, finger-crossing and command-and-control decision making. You know the sort of thing ‘Just do it – I’m the boss so get on with it’! Implementing KPIs means that it will no longer be acceptable for anyone in your business to make decisions purely on their experience or assumptions without having evidence to back up their hypotheses or choices.

Unfortunately many people’s understanding and personal experience of KPIs in the workplace is fairly negative – backward-looking only measurements that are collected, reported on and then used to whip employees into meeting ever-increasing targets. Apart from anything else that type of KPI is counter-productive and pointless. We need to move away from this interpretation. Instead we need to use them properly – as vital navigation tools that can act as the catalyst for learning, growth and constant improvement.

KPIs are just the tools. The only way to extract real value from the tools is through human interaction. And people won’t use KPIs if they feel threatened by them, confused as to why they have been introduced or scared that they will be used against them. Getting the mindset and culture right is therefore an essential part of the effective use of KPIs.

But don’t panic – I’m not suggesting you need to launch some lavish culture change programme. Instead, just employ a few simple techniques and approaches that will support a subtle culture shift. Essentially your culture represents the shared beliefs, norms, values, assumptions and expectations of your business. Often the component parts of culture are unconscious and unspoken but they still influence behaviour, attitudes and performance. That said, creating a fact-based culture is actually easier than you might imagine. After all, every business has a culture, but no one person created it. In most businesses the culture just emerged by accident, evolving over time. No-one ever designed it. If, however you know how to design a culture, and what building blocks to put in place to shift perception and defuse tension, then change is possible and it can often be seen in a very positive light.

Implementing the Key Components of Fact-Based Management

There are a number of building blocks that are especially useful when it comes to implementing a culture of fact-based management. Like with so many other initiatives, it is vital that fact-based management is lead from the top in order to create wide-spread buy-in across the business.

In order to foster a culture of fact-based management businesses need to focus on the right behaviours and processes. It is vital that KPIs are used for the right reasons, that they don’t become targets in their own right, and that the right meetings take place to discuss the insights generated from KPIs.

Establishing senior management buy-in

Senior executives and the leader of the business always set the tone for everything that happens in that business. Your business will never be able to implement and use KPIs effectively if the people at the top don’t take them seriously or don’t buy into the need for fact-based management.

It’s unrealistic to assume that people further down the business will take KPIs seriously and use them to inform decision making if the people at the top don’t. You must lead by example if you want to shift the culture of the business. Employees engage in ‘boss-watching’ to see what the boss does in the same way children watch their parents to see what they do. If you have children you will know that they copy what you do, not what you say. Regardless of how irritating it is.

If you want to create senior management buy-in to the value of KPIs then involve senior managers in the design of the KPI framework. The key elements they need to be closely connected to are:

Developing the strategy map or strategic performance framework. This will be discussed in more detail in Chapter 4 but essentially the strategy map describes the key business objectives on a single page.
Developing the key performance questions (KPQs). In my experience senior executives are frequently left out of this process, which is a big mistake. They can become very engaged in identifying KPQs because it is so closely linked to strategy and often requires ‘big picture’, thinking which they tend to enjoy.
Reviewing and commenting on the KPIs

You need to foster the idea of senior leaders as change agents who must embrace their responsibility to communicate the importance of fact-based decision-making throughout the organisation. Senior leaders and key influencers in the business must also set the right tone – with a focus on KPIs as improvement tools rather than command-and-control or simply external reporting tools.

The right management behaviour to foster cultural change toward fact-based decision making

If you are a senior figure in your organisation you need to behave in the following ways, and you need to encourage all the other senior employees and influential individuals to do the same:

Show visible commitment to KPIs: Senior executives must show that they value KPIs as a way of keeping score and improving performance. When KPIs are discussed and written about at a senior level it sends important signals to the rest of the workforce.
Explain the role of performance management: Leaders at every level need to explain why the KPIs are important to the business. Help the people around you to understand the key benefits KPIs bring to them and the business. You will probably need to explain the relevance and benefits of KPIs repeatedly so you keep beating the KPI drum – especially in the initial weeks and months.
Get actively involved in the KPI process: Senior executives across the business need to be actively involved in the creation, implementation and on-going use of the KPIs.
Move from inspector to supporter: Leaders throughout the organisation need to embody the fact-driven culture and lead by example. One of the best shifts you can make to facilitate cultural change is move from a ‘performance inspector’ to a ‘performance improvement supporter’. You need to commit to personal improvement for yourself and help others to improve too. That means helping them with guidance, coaching and advice where necessary.

Introducing KPIs for the right reasons

Many different reasons exist for introducing KPIs into a business. But the only valid reasons are to develop learning, growth and empowerment which will, in turn, facilitate improved performance.

KPIs often meet with resistance from employees and management alike because those employees have past experience of KPIs which have been implemented as a tool to control, cajole and intimidate them. As a result there is often a residual hostility toward KPIs or any type of performance measurement system.

Employees panic because they immediately assume that KPIs are going to be used to monitor and control their behaviour and actions. After all, they’ve usually been told often enough that ‘what gets measured gets done’. They fear that KPIs will become targets, goals or rules that are then used to measure success or failure. In this context staff may quickly come to view KPIs as a management weapon for controlling behaviour, imposing conformity and dishing out reward and punishment. This approach is outdated and fuels a counter-productive ‘them and us’ mentality within the business.

Management panic because they immediately assume that they are going to have to spend their days creating bulky internal reports that no one ever reads! But it’s not just internal reporting – traditionally, KPIs have also been used for external reporting and compliance – especially in public limited companies that must report to shareholders and the market regularly. The fear for managers when KPIs are mentioned is that more and more will be added until they do nothing but measure and report. Whilst some reporting, especially for a public company, is compulsory and necessary it is still not the best reason to introduce KPIs.

Introducing KPIs for reporting and compliance purposes only can often get in the way of real performance improvements. Both actually encourage people to find creative ways to fix or fudge the KPI rather than focus on genuine improvement.

Introducing KPIs as a way to develop learning, growth and empowerment will revolutionise your corporate culture. The right KPIs used in the right way provide vital real time performance information that, if explained and introduced properly, can empower employees and management to make better decisions and improve performance. The vast majority of employees want to do a good job. They want to feel as though what they do matters and they want to be able to improve and feel more and more valued. That outcome is made possible by the right KPIs. If an employee can appreciate the connection between what they do on a daily basis and the corporate strategy, they are likely to be more engaged. If they have access to information about how well they are performing and whether they are on or off track then they can self-correct. In this context KPIs are no longer a management weapon, they are an evidence-based tool for continuous improvement and better decision making – at every level. Plus objective evidence via KPIs allow employees and management alike to legitimately challenge and potentially improve strategic assumptions and direction.

For example, one of my clients used to have KPIs to micro-manage their people by measuring how many sales calls they had made or meetings they attended. This approach led to a lot of ‘gaming’ where sales staff would make sales calls and set up meetings with people that are not likely to buy – simply to boost their KPIs. Today, the same company has changed their culture and now focuses on high level KPIs like revenue growth and leaves it up to the sales people to monitor the finer details of their job. Many of the sales staff still monitor meetings but not in a way that was done before, there is no longer the incentive to cheat. This way, people use KPIs to improve performance.

How many times has an employee spotted a flaw in a system or a process but seen their comments ignored by management? How many times has a manager or employee felt sure a strategic objective was faulty because they were in daily contact with customers or suppliers but couldn’t raise the issue because they thought they wouldn’t be taken seriously? The right KPIs give everyone in the business access to vital information that can help to direct and shape the company as a collective rather than ‘them and us’.

Measuring for learning and empowerment is the only really valid way of using KPIs and this approach will always lead to the biggest performance improvements.

Establishing the processes and culture

If you are committed to creating the right culture, in which KPIs are seen as non-threatening learning and empowerment tools, you can help that cultural shift along by implementing the following initiatives.

Appointing a team to facilitate performance management activities

The idea of appointing a team was formalised by Dr Robert Kaplan and Dr David Norton, the creators of the Balanced Scorecard (more on that in Chapter 4) -. Often referred to as the Office of Strategy Management or OSM this performance management team integrates and coordinates activities across functions and business units to align strategy with operations.

By doing so the performance management team help to keep the strategy alive and kicking inside the business. Often, strategy is decided on high, disseminated to mid management and then promptly forgotten about for at least a year. This doesn’t happen deliberately or with malicious intent, but it’s just that the day-to-day operational challenges of the business take priority, and often the strategy becomes divorced from those activities. Appointing a performance management team to facilitate performance management activities helps to stop that disconnect from happening.

Initiating the right rewards and incentives

Another way to stimulate a culture of learning and fact-based decision making is through the right rewards and incentives. The key word in that sentence however is right.

Financial compensation is clearly a powerful motivator but it’s not nearly as powerful as we have been led to believe. The fact that money does not improve results and can actually cause a drop in performance is actually one of the most robustly proven findings in social science.

Thirty years of research assessing 128 experiments on motivation concluded that, ‘tangible rewards tend to have a substantially negative effect on intrinsic motivation.’ In a separate study the Federal Reserve Bank in the US commissioned four economists from MIT, Carnegie Mellon and the University of Chicago to study the effectiveness of rewards on performance. In 2005 they reported, ‘In eight of the nine tasks we examined across three experiments, higher incentives led to worse performance.’ In a separate study again, the London School of Economics analyzed fifty-one studies of corporate reward schemes and confirmed, “We find that financial incentives … can result in negative impact on overall performance.’

Individual KPIs should never be directly hard-wired to someone’s pay or bonus schedule. KPIs are not a target to hit, they are a navigation tool and performance should always be looked at across a number of financial and non financial factors. Plus linking KPIs to incentives invites cheating!

Look to initiate non-financial rewards and incentives. Apart from being cheaper for the business they are also much more motivational. I’ve seen many powerful examples such as:

A senior executive who regularly sent handwritten notes to employees who deserved recognition.
A CEO who gave everyone an extra day’s holiday as a thank you for significant performance improvements.
A CEO who sent flowers to high performing employees.
A government agency who regularly holds ‘performance parties’ with free coffee and doughnuts to the team who performed well.

The list is endless and you should choose to say thank you in a way that is meaningful to the individual or group involved. That said, one of the most under used and undervalued ways to say thank you is to just say ‘Thank you’!

Don’t ever underestimate the power of a sincere ‘Thank you.’

Incentive and reward suggestions

Below are a few incentive and reward ideas for promoting a fact-based performance culture:

Celebrate wins: Most organisations – whether for-profit or otherwise – are not very good at celebrating success. Often they are so focused on the future and the next thing that they forget to take a moment to enjoy the achievements they do make. Make a point of celebrating your wins – even if it’s just bringing a tray of cupcakes into the office one morning as a thank you.
Reward effort, not just results: It’s really important to recognise and acknowledge effort as well as outcome. This is especially relevant when major outcomes may take several months or even years to come to fruition. When people feel that their contribution is noted and appreciated then they are far more likely to remain engaged over the term of the project.
Reward immediately: Studies show that if someone does a good job or achieves a significant milestone the quicker they are rewarded or acknowledged the better they will feel. Don’t think, ‘Oh I really need to say something to Sheila’ or, ‘Oh that reminds me I need to thank Roger next time I see him.’ Stop what you are doing and go and see the person or pick up the phone and tell them what a good job they have done.
Don’t create habits or expectations: Social science has shown that once something becomes common it becomes expected and loses all its incentivising power, so don’t become predictable. Avoid using the same rewards and reward for different things to keep your people guessing!
Don’t ‘hard-wire’ KPIs to compensation: This turns a navigation tool into a target and invites dysfunctional behaviours.
Balance rewards for individual and corporate performance: A business is more than the sum of its parts, and yet constantly rewarding individual performance encourages internal competition and reduces teamwork, which is essential for success. You need to balance individual performance with the performance of the team, groups, department and business as a whole. Individual performance, departmental or group performance, and corporate performance should all contribute equally to the success of the business.
Be creative with rewards and recognitions: Many ways exist to show appreciation that don’t cost the earth but which end up having a far better and longer-term impact than financial incentive. Remember to just say thank you and for extra oomph - match the reward to the recipient(s) so that it is especially meaningful to them. For example if you know one of your teams happen to love musicals you could get them all tickets to the Lion King. Not only would it be an excellent incentive, but it demonstrates that you know more about them than they might imagine. And that you care.

Eliminating the fear of measurement

In order for you to create a fact-based culture you need to eliminate the fear of measurement. The performance information that flows from KPIs should never be used negatively to punish, blame or in extreme cases force people out of the business.

If you use performance information in this way then people become scared of KPIs and either cheat, blame others or find novel ways to hide poor results. Accountability should not be synonymous with reward-and-punish or name-and-shame. You need to encourage a different mindset.

If, for example, you use a traffic light system of red, amber, green to indicate progress against objectives you need to help people to reposition their instinctive reactions that red is bad and green is good. Red may not be what you are aiming for but the information that things are off track is incredibly useful and simply allows everyone to re-engage, re-focus and nudge performance in a different direction. Your people need to know that red against real stretch targets, or targets that are going to be hard to achieve but represent real progress, is always preferable to green against easy targets that don’t represent improvement.

Dealing with poor performance

So if you are not to link incentives and bonuses to KPIs and you are to eliminate fear of measurement so that people are not afraid of failure, does that mean you should allow poor performance? No, absolutely not.

Creating the right culture demands that you deal with poor performers, because if you don’t they can become very demoralising for those who are seeking to improve.

Traditionally, this has been especially true in public sector organisations where underperformance rarely has any real consequences. Such organisation end up carrying dead wood, people who have no commitment to their job or their organisation or any interest in performing. This sort of problem does however also occur in commercial businesses. I have seen the incredible lengths people will go to to avoid dealing with poor performers, including creating new jobs with no responsibility or purpose just so they can put that person somewhere ‘out the way’.

Look, let’s stop beating around the bush … If you have poor performers, and I mean repeat or consistent poor performers not those that are having an off day or week, you have two choices – help them to improve or fire them.

If you are seeking to change the culture of your business you must understand that there is nothing more demoralising than seeing incompetent and blatantly lazy colleagues get away with doing nothing! Getting rid of the dead wood lifts morale, sends a very clear and powerful message and helps to rejuvenate a business around a shared vision.

Ideally, find ways to help the individual to improve, whether that is through training, mentoring or changing roles. But if they don’t come to the party then show them the door.

Creating Improvement and Performance Preview Meetings

Cultural change doesn’t happen overnight and it won’t happen if you leave it to chance. You need to create improvement or performance preview meetings that look into the future, rather than the past. They should allow you to monitor progress and speed up the shift toward a culture of fact-based decision making.

To do this, consider creating four different and distinct types of meetings to discuss performance in an organisation:

Strategic revision meetings
Strategic performance preview meetings
Operational performance improvement meetings
Personal performance improvement meetings

The content and outputs of these meetings influence each other and are therefore interdependent. However, each has its own clear purpose with different time horizons, frequencies, outputs, focus and supporting performance information, as explained in the following sections.

Introducing strategy revision meetings

A strategy describes the high level objectives an organization needs to achieve in order to be successful.

As the name would suggest, strategy revision meetings are used to revise and renew the strategy! They provide a specific platform to question and challenge the strategy in light of new information that may emerge from the KPIs. This is also the forum in which to challenge any assumptions that underpin the strategy. For example, a strategic objective may be to increase brand awareness. The assumption underpinning that objective may be that greater brand awareness will increase sales. If you have run various brand campaigns, but sales have remained constant then the information is suggesting that the initial assumption that drove the strategic objective is incorrect, or at least needs further analysis.

For most organisations (government, not-for-profit or commercial) one strategy revision meeting per year is enough. If your market is particularly volatile or is experiencing rapid change, then you may want to schedule two per year.

Strategy revision meetings provide a much needed opportunity for you to get together with your executive team and directors to only discuss strategy and nothing else. The objective of these meetings is to agree on, or create a new strategy map (more on this in Chapter 4). This time horizon encourages everyone involved to consider whether the current strategy is still valid and will remain valid one to three years from the meeting date. Obviously, these discussions would be shaped and influenced by the KPIs and resulting analysis to ensure that any choices made are grounded in evidence, not speculation.

Make sure that the leader of your corporate performance management team and relevant performance management analysts are also in the meeting. These individuals can provide answers to any data or analysis queries.

It is always better to hold the strategy revision meetings off-site to avoid interruption. Getting away from the work environment can also open up thinking and invigorate the discussion. These meetings are focused on decision making and reaching strategic agreement, and usually last one or two days.

Establishing strategic performance preview meetings

Having a strategy is one thing, knowing whether or not it’s working is another. Strategic performance preview meetings ensure that you know whether the agreed strategy is being executed or not.

The purpose of this meeting is not to question the overall strategic assumptions but to fine-tune elements of the strategy and to revise plans for its successful execution. Strategic performance preview meetings are essential for revising operational activities, including re-allocating resources and re-focusing on various projects. The strategy map and key performance questions (more on them in Chapter 5) set the agenda and KPIs are used to guide the decision making.

The time horizon of these meetings is medium term – looking between one and six months ahead. Your strategic performance preview meetings should happen once a month and be attended by the executive team, directors and all the heads of department. It is also wise to include members of your corporate performance management team and relevant performance management analysts to provide answers to any data or analysis queries.

Strategic performance preview meetings are great for modelling and testing assumed causal relationships between different strategic objectives.

From my experience, strategic performance preview meetings are the rarest type of meeting in most organisations. They are however essential in creating a fact-based culture and delivering on strategy, so don’t ignore them!

Putting in place operational performance improvement meetings

Operational performance improvement meetings provide a regular opportunity for department heads, functional supervisors and personnel to discuss and respond to short-term operational concerns or ‘burning issues’.

These meetings usually take place on a daily, weekly or twice weekly basis depending on the nature of the business. The time horizon for discussion is short – looking at operational performance a week to a month ahead.

Operational performance improvement meetings either focus on specific operational performance issues or project performance. KPIs are an essential component of these meetings as they help to illuminate problems which can you can then discuss and resolve quickly.

Aligning personal performance discussions

Many of the annual chores that masquerade as personal performance and development reviews are actually administrative human resources (HR) tick-box exercises that change very little.

Real personal performance discussions should be one-to-one meetings where your employees and line managers can discuss their strategic priorities for the next year. Aligning personal performance to strategic objectives is the last missing element of a fact-based culture. This alignment is essential to help employees personalise the strategy to their daily tasks. When people understand how what they do matters, and how their cog fits into the machine, then they usually become more engaged with their work.

The time horizon for these meetings is between six and twelve months, and they usually take place on an annual basis. Once you have successfully aligned strategy to personal performance it is possible, and potentially beneficial, to hold these meetings every six months.

Personal performance discussions are a great opportunity to engage everybody in the business in a strategic discussion and ensure any personal objectives, performance plans and development plans are aligned with the overall priorities of the organisation. Plus these type of open discussions are more likely to yield innovation and ideas that can further help the business to achieve its objectives.

Guidelines for Productive Performance Meetings in a Fact-Based Culture

While each of the the four meeting types has its own purpose, some shared guidelines exist to help you to move away from dysfunctional behaviour towards a fact-based culture. Successful performance meetings will take time and effort but they are worth it. To smooth the transition:

Give the meeting an appropriate name: Be clear and unambiguous and ensure the name reflects the purpose of the meeting. Don’t use jargon and don’t ever call a meeting a ‘review’ – people just get nervous. The purpose of all four meetings is to improve performance in the future. It is therefore necessary to look at the past but it’s not the primary focus. You don’t drive a car looking in the rear view mirror all the time.
Ensure key people always attend: When used properly, these meetings are where critical decisions about future performance will be made, so it’s important that all the key decision makers attend. As long as you involve those same key decision makers in the design and development of the KPI framework and schedule the meetings at sensible times this shouldn’t be a problem
Foster discipline: People are busy and meetings are not always popular. But you need to make the distinction between disciplined and undisciplined meetings. Make sure the agenda for each of the meetings is circulated in advance, always start and finish on time, follow the agenda and only discuss what is on the agenda. Expect people to apologise if they can’t attend and make sure you reach agreement on action points and next steps so that you make progress. Finally, circulate minutes quickly so everyone involved knows they can rely on these meetings to do what they say on the tin.
Create an environment of trust, action and respect. If you foster discipline, trust and respect will flourish: If you don’t, they won’t. The meetings should be relaxed yet purposeful and action-orientated. Meeting regularly or semi-regularly also helps to strengthen bonds of mutual respect and increases personal commitment, joint decision-making and learning. Blame gives way to solution-focused dialogue and action steps.
Encourage open dialogue: Open communication, discussion, and even disagreement facilitate learning and improvement. But real dialogue does require everyone to suspend the notion of right and wrong, pull down their defences and listen. Seek to understand other perspectives, share your thoughts and reservations, and table complex issues. By doing so you are much more likely to uncover faulty logic and unconscious assumptions, and make real progress. This approach also allows everyone to get to know each other better, which will speed up the meetings.
Stay focused on strategy: All your performance meetings should link back to strategy. They each represent an opportunity to reiterate what the business is seeking to achieve and assess progress from a number of different perspectives. As such the strategy map provides the structure and agenda for the various meetings.
Use your KPIs: Identifying the right KPIs is obviously important, but creating an environment that constantly uses them is more important. KPIs provide much of the information in these meetings, and ultimately it is the constant and constructive use of KPIs that creates a fact-based decision making culture. Participants need to take responsibility for analysing the available data and KPIs before the meeting so they can get straight into tackling issues, answering questions and making decisions.
Aim for collaborative decision making and learning: People need to feel heard. When they do they are much more responsive, innovative and collaborative, so aim to capture everyone’s opinion and to openly discuss different points of view. This facilitates a better-informed debate, reduces conflict and enables collaborative decision-making and mutual agreement on next steps and actions. In these meetings it is absolutely necessary that people feel able to say, ‘I don’t know the answer’, instead of winging it and hoping they don’t get rumbled.