1. Understand the importance of measuring performance
We believe that measuring something is the best way to make it improve. In order to be able to make improvements you must be able to measure what you do and be able to compare it to other people who do the same thing. Quite simply, if you don't measure, you don't really know what's going on. You need to be able to measure things so that you can understand the issues around improvement and what your options are. Psychologically, most people believe they're performing in the upper 25% of performers until a measurement teaches them that this belief is not true. If you measure something, you have credibility that there's reason to make the change.Long distance runners take measurements all the time. They measure their performance in terms of the amount of time it takes to run a certain distance and constantly try to improve their times. Measurements jolt us out of our complacency and make us realize that we need to change. We need to understand the advantage of change. However, this is often difficult for humans to perceive.
Benchmarking is one form of measurement. You measure what people do, find out who does it best and then extract the lessons from that. However, less than 1/1,000,000 of 1 % is being measured this way, even though it is usually easy to develop these measurements. We need to understand more about measurement as a means to improve performance by looking at the next steps.
2. Focus on a particularly important process within a company or group of companies and determine what it is about this that we want to measure to make more rapid progress.
There are many activities, or practices that a company conducts in its day to day operations that affect its economic performance. We must first determine what it is about this that we want to measure and why. Part of making rapid economic progress is choosing the right measurements that will be the most beneficial to a company's overall economic performance. We do not want to waste time measuring an area that is less potentially promising than another. One of the goals of this project is to identify the most important kinds of measurements and prioritize them. For example, one measurement that is very important to a company is the number of portfolio managers who could buy a company's stock that actually have sufficient knowledge about the company to buy it.3. Identify the best practice and measure it.
Let's look at a common issue facing many public companies. Which company does the best job at educating investment managers such that they have sufficient knowledge about investing in it? To illustrate this, let's say that for the typical two billion dollar market capitalization company about 10% of all investment managers have effective decision-making knowledge. With the average of 10%, the best practice may be about 30% of all investment managers.
4. Find ways to bring everybody else up to the best practice
If the best practice is about 30%, and the average is 10%, then we need to find ways to narrow this large gap between best and average performer. One of the first things we need to do is identify what the best performer does that makes it the best. We then need to teach these processes to the average or below average performers. Simply telling the companies how to be more effective does not really work. We teach by letting the person experience the best practice in a way that allows the average performer to really understand how to make effective changes for themselves.
Experience helps people learn how to effectively modify their behavior in order to achieve their goals. For example, if you wanted to teach someone how to ride a bike so that they could compete in a race, you probably would not simply explain to them what to do. You would want to find ways that they could best learn what it is you are trying to teach them. Everyone has different ways that they like to learn new things. Some people like to read about it first, others like to hear about it, and still others like to feel and experience it first.
In the case of biking, you might determine that it would be most useful to get on a bike yourself and show them what riding looks like. You would then want them to get on a bike themselves and try to ride. In any case, you would not want to leave the person completely by themselves, but be there to support and direct them as well as answer their questions. The goal would be to increase their independence and confidence at performing this particular task.
When the new biker has gained enough confidence and ability to ride by themselves, they may still need you to help them improve their skills. You might decide that one important goal would be for them to speed up the time it takes to travel a certain distance. Therefore, you might want to teach them better biking techniques and help them train to reach their goal. If the fastest time was 2 minutes to bike 1 mile on a particular course, you would want to teach them ways to reach this level of performance without excess danger.
This process is similar to teaching a best practice to a company. You have to effectively teach the average or below average performer how to perform like the best. Experiencing is an important part of teaching. These steps are important because we believe that following them will cause increased economic performance for companies that are able to perform like the best.
5. Identify the theoretical best practice
Once we have begun to narrow the gap between the best and average performer, there is still a lot more we need to do. In the example above, we see that the best company is still only effectively reaching 30% of possible investment managers. In theory, a company could potentially reach 100% of all investment managers who should want to buy that stock. This is known as the theoretical best practice. Most importantly, this leaves a gap of roughly 70% of investment managers that even the best practice currently fails to effectively reach.
6. Try to bring the best practice much closer to the theoretical best practice
We need to try to focus on narrowing the large gap between the theoretical best practice and where the best practice actually is because in most cases the gap is far larger there than between the current best practice and the average or below average. In this case, we would want the company that reaches 30% of all possible investment managers to increase this to as close to 100% as possible. If someone were doing a study on what is missing, perhaps they would find that most companies do not focus enough on investor relations communications activities to effectively reach all investment managers.
7. Keep repeating this process
Once we can get the best practice closer to the theoretical best practice, we can then work to narrow the gap again between the best and the average. The new best may now be at 60%. We now need to teach the average to move up to this new higher level. This process needs to continue. Thus, everyone is in a process of moving up and increasing performance.
Let's use this example to understand how companies can improve their economic performance. The most important thing we must think about is that the entire notion of progress is not widely thought of in the way we discussed above. We feel that this is causing many mental blocks, or stalls, to companies making faster economic progress. Changing the way people think about progress is a way we can speed up economic progress. Sometimes there are things that prevent the best practice from coming closer to the theoretical best practice. It may be in the way that progress itself is understood.
Dick Fosbury and the Flop That Didn't
Dick Fosbury's high jump method is a good example of changing the way we think about progress and became a means for improving performance. Companies can learn key lessons about making faster progress from this example.
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