Why KPIs are not the answer for complex systems (part 3)
Stephen Bounds — Fri, 22/11/2013 - 11:18
What defines a successful organisation?
The answer, of course, is "it depends". But it does amaze me that so many people assume that their answer is normatively better than others.
Let's wind back. Organisations are complex systems, but they are quite different from other social systems for two reasons:
(1) they are intentional, and
(2) they are created for a stated purpose.
Some organisational purposes are noble, others are selfish. There are also multiple and diverse reasons why a person will choose to participate in an organisation, whether they relate to pay, hours or work, learning of skills, power, civic duty, improved social status, self-fulfillment, and so on. So it's inevitable that organisations will always be operating in support of multiple overlapping and sometimes contradictory definitions of "success".
For most corporations it's assumed that there is only one KPI that truly counts at the end of the day: profit. And in fact, as a company director you are obliged to act in a way that ensures the company can pay its debts.
But even then, there are multiple ways of being profitable. If you just want to cash in on something at the peak in the hype cycle, then the prospect of winding up the business in 3 years' time won't be of concern. On the other hand, lower rates of sustainable profits are much more attractive if the intent is to keep the business operating indefinitely.
So clearly, performance isn't the only thing that matters. Survival can matter too.
But what about purpose? At the end of the day an organisation is just a collection of people, processes, and systems. There's nothing stopping those resources being used in an entirely different way over time. There are many famous cases where this is exactly what happens: for example, to start with Nokia wasn't a mobile phone company, but a paper mill and rubber boot maker.
However, an evolution into something entirely different isn't open to many organisations. If you work for a non-profit or government organisation, "performing well" at something that doesn't achieve your stated purpose is a failure. Not to mention that some organisations simply don't have the capability of evolving into a new form.
Is it legitimate to organisations sacrifice performance, and possibly longevity, if it means a greater focus on achieving their purpose?
I don't believe there is a single right answer. However, we can express these trade-offs as a triangle of constraints: performance, robustness, and resilience.
The trade-offs are defined as follows:
- Performance - maximising outputs of a system in the current environment
- Robustness - maximising the ability of a system to continue its current configuration
- Resilience - maximising the speed with which a system can transform to a new, optimum configuration
In much the same way as the well-known iron triangle of project management, the fitness triangle is a two-out-of-three proposition:
- If you focus purely on performance and survival, you will inevitably sacrifice your adherence to purpose in search of that environmental "sweet spot"
- Optimising for a static position in the environment where you can deliver high-performance outcomes is not a good strategy for long-term survival
- To be influential and stable enough to preserve your positioning until you can adapt to the future on your own terms, your organisation will be a behemoth and not a high-performing one
David Griffiths feels that the turbulence of the current global environment favours resilience over robustness. I agree that for many organisations this is true; however there are some pockets, particularly for organisations with entrenched marked positions, where optimising for robustness remains a viable position (for now).
In short: To decide if your organisation is successful, it's not enough to evaluate how your organisation is doing now. You also have to decide what the future of your organisation looks like, and how your strategic and operational positioning will help achieve that.
So far, we've looked primarily at organisations and systems which are capable of delivering the results that people want. In Part 4, we'll examine the consequences of working within a system that is over-capacity.
This is Part 3 of a series on performance management for complex systems.
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