This first appeared as a PATImes column in August 2007.

 More Similar Than You Might Think
by John M. Kamensky

In my years in government, I thought there were distinct differences between the public and private sectors.  They have different goals, different incentives, different motivations for action, different forms of accountability, and different standards for behavior.  But after six years in the private sector, in a large company, I’m repeatedly struck more by the similarities than the differences, especially in the mechanics of how workplaces, people, and organizations facing similar problems react in much the same way.

A new book, “Transforming Performance Measurement,” by Dean Spitzer, certainly reinforces this observation.  Spitzer’s book is about the need to change the way performance measures are used in the private sector, and is built on lessons from corporate America.  He says “Measurement is potentially one of the highest leverage activities any organization can perform,” yet he finds that most companies treat it as peripheral or superfluous.  He says that only 35 percent of companies rate their performance measurement system as effective or very effective.  Interestingly, this is about the same as in the public sector, according to surveys reported in academic journals and by the Government Accountability Office’s 2004 review of the implementation of the Government Performance and Results Act.

Spitzer notes the “paradox of measurement” is such that while employees wince at being measured at work, they would be “horrified at the prospect” of golfing, bowling, tennis -- or any other sport – “that would not keep score.”  He sees bridging this “dissonance gap” as the biggest challenge in most organizations.

He says that “when measurement is used for the purpose of improvement rather than to make judgments or place blame, and when it is focused on the right measures, its true power is revealed.”  Spitzer’s observations are virtually identical to those of public administration performance measurement expert, Shelley Metzenbaum, who wrote a report on performance management about the same time as Spitzer wrote his book on private sector measurement (and reported on in this column in June 2006).  Like Metzenbaum’s report, Spitzer does not write about how to do measurement, but rather how to create the right environment for the effective use of measures.  He says most measurement systems focus on “looking good” rather than “being good.”

Spitzer offers five observations to corporate executives that have special relevance to the public sector:

Create a measurement framework.  Spitzer notes that companies collect and report measures for a variety of purposes.  He says that many use the Balanced Scorecard approach and categorize existing measures into the Scorecard’s four quadrants – financial, customer, process, and learning and growth – without thinking through how the various sets of measures interrelate and create value for the company.  He says that companies need to create measurement frameworks that “communicate the logic of the business, or a segment of the business.”  He says this can be done using strategy maps, logic models, causal chains, etc.  But that it is important to put your measures into a broader context.  An example in government would be linking outcome measures (such as the reduction in childhood diseases) with output measures (such as the percent of infants immunized).

Interactivity among measures highlights value creation (or not).  Understanding the relationships among measures is essential:  “Without integration of measures, the organization will inevitably be operating at cross-purposes, often imperceptibly, wasting resources that could be focused on mutually creating real value,” Spitzer notes.  Efforts to integrate measures often highlight potential tradeoffs and difficult decisions.  This often occurs when you set out to integrate measures either vertically in a “value chain” or horizontally across common processes.  Vertical integration attempts to connect employees to organizational outcomes.  Horizontal integration connects across organizational functions and processes.  In the government, an example of vertical integration would be ensuring IRS employees collect the right amount from the right person at the right time.  Horizontal integration would be how procurement, personnel, and travel systems support an IRS employee in getting his or her job done.  Unfortunately, in both the private sector and government, most measures create and reinforce silos unless they are cross-functional -- which creates incentives to work together rather than separately.  Unfortunately, cross-functional measures tend to be seen as reducing individual accountability -- which can be a tradeoff when designing your measurement framework.

Dialogue about performance is important.  “The purpose of measurement is not to collect data,” says Spitzer, “but to create knowledge and wisdom.”  Spitzer, like Metzenbaum, says that the goal of measurement is to learn how to best improve performance.   And the best way to do that is to encourage discussions around the “line of sight” measures between what an employee is doing and measuring, and organizational results.  According to Spitzer, “Nothing is a more powerful stimulus to learning than conversations around measurement frameworks.” Measurement framework questions, he says, can revolve around questions such as “What does the evidence say,” “Is this logic correct?,” and “What is most important to customers?”   In government, these dialogues are occurring at the state and local levels via forums such as CompStat, CitiStat, and StateStat meetings (all described in my columns this past year!).

Intangibles can be measured. In the private sector, as much as 80 percent of some companies’ market value is accounted for by intangible assets such as trust, innovation, intellectual capital, customer equity, and leadership.  Rarely do intangible assets appear in a company’s financial statements, but they are accounted for in stock value.  Interestingly, much like the public sector, existing corporate measurement systems tend to track less than half of their organization’s value.  Yet there are measures for intangibles.  For “trust,” there are behavioral audits; for “innovation,” there are climate surveys; for “intellectual capital,” there are inventories and use patterns; etc.  The important action is to measure the intangibles if they are of value.  In the public sector, this is especially true since many service results it delivers are seen as intangible:  safe neighborhoods, economic security, competitive job markets.

You need a Chief Measurement Officer.   Spitzer says that a lack of concentrated measurement leadership in most companies can cause disparate measurement systems, measurement silos, dis-integrated data, and a lack of vertical and horizontal alignment that leads to sub-optimizing behaviors.  These symptoms often plague public sector agencies as well.  Spitzer calls for a “Chief Measurement Officer” because only in rare instances does the Chief Executive Officer of a company take responsibility for its performance measurement framework.  When the CEO does not take ownership, then it typically falls to the chief financial officer, or the chief information officer, or someone else, and they tend to apply the lens of their discipline, not the corporate-wide view.  This reinforces “silo” behaviors.  Again, this tendency is mirrored in public sector organizations.   It is not clear that a separate office is needed so much as the CEO (or agency head) to take ownership.  Spitzer highlights well-known and successful CEOs who took this approach, such as the heads of General Electric, Motorola, and Federal Express.

In addition to his insights, Spitzer offers a comprehensive list of 34 different potential “Measurement Action Plans” executives can apply, ranging from “customer engagement” measures, to “economic value added” measures, to “knowledge flow” measures. By arraying this “state of the art” in measurement approaches, executives can get a sense of both the variety of measurement approaches as well as which approaches fit best in their own organizational environments – in both the private and public sectors!