Return to Organisations

Cardinal measures

  • If you want to manage productivity well, you first need to measure it well and let your team know how you’re measuring it

 

  • Every organisation, whatever its size, has plenty happening by the hour, week or year – customers seen, calls taken, transactions made, incidents attended, press releases written, widgets produced – so which are the most important areas to measure and how to measure them?

  • At present, many managers suffer ‘information overload’ –  they also have important ‘information gaps’ so a lot end up focussing too much on one area, say quality, and ignoring others like cost

  • After their recall of nearly 10 million vehicles, most due to ‘unintended acceleration’ troubles, Akio Toyoda, president of Toyota, commented “some executives just got too big headed and focussed too excessively on profit – what suffered was the reliability and quality of Toyota’s cars – a reputation that took years to build but only days to unravel”  

  • Managers at all levels thus need a set of productivity measures which covers all areas where it is most important that an organisation performs well – a set which prevents them ignoring any one 

  • These measures are the cardinal measures, equivalent to cardinal buoys for skippers when sailing a boat from A to B 

  • Cardinal measures are the messengers of good or bad news:

    • They ring alarm bells when major dangers, or opportunities, approach

    • They highlight where improvement is needed, albeit not how to improve

  • Once a cardinal measure has raised an alarm, the manager responsible must drill down to measures below it to find possible causes of why things have gone wrong, or unexpectedly right, and decide what action to take

  • Jack Welch, ex CEO of GE, said “managers need something that lets them move faster, communicate more clearly and involve everyone in a focussed effort to serve ever more demanding customers” 

  • Paul Rogers of Bains rightly said “good companies concentrate on the stuff that really matters – and, when they make decisions, they get it right more often than they get it wrong – less successful companies take too long to make up their minds, and decisions are made by the wrong people in the wrong part of the organisation or based on the wrong information”

  • A set of cardinal measures provides the answer for most managers 

Cardinal model

The cardinal model below covers the full set of cardinal measures needed by all managers at all levels – causes and effects are indicated by the connecting arrows but it’s impossible to be more precise Managers cannot just focus on one or two of the above cardinals and ignore the rest – they must always …

Financial outcomes

Of the many financial measures available, only three qualify as the top financial cardinals – the alarm bells that will prompt action in good time   They’re total revenue, total costs and profitability   All three are top-of-the-tree financial measures – the performance of each one is determined by many component measures below them – …

Customer outcomes

All organisations have two kinds of customer – external and internal: External customers – They decide whether or not to buy or use the products and services you offer them – whether you offer them value/ benefits Internal customers – Fellow-workers further ‘down the line’ who depend on you to supply them with information, services, semi-finished goods …

Physical inputs

Managers need to know how much more they might offer their customers, existing and potential, and how much less it might cost   Imagine if a manager found that a direct competitor sold ten times as much to a common market, or produced twice as much from the same input resources, or had unit costs …

Mental Inputs

There are two major mental inputs from any team – Employee motivation and corporate knowledge Motivation’s impact on productivity There’s no precise formula defining the relationship between productivity levels and the significant factors which determine them    Nevertheless, for any given system, the broad relationship is a mix of two factors:                                      Productivity = Ability …

Target setting

There are several target options available, including:  Reference periods – RPs – what you once did – a performance benchmark achieved in the past, equivalent to an athlete’s PB – average performance over a 4 week historical period say – it lets you assess if you’ve made any progress since    Budgets – what you are …