It’s important to understand the difference between speed and velocity in business.

In physics, velocity and speed are different things. Speed refers to how fast an object is moving; the rate at which an object covers distance. Velocity refers to the rate and direction at which an object changes its position.

As an example, consider running around an oval track quickly. You might cover a large distance but you don’t really get anywhere. You’re traveling at a high speed but zero velocity. On the other hand, if you’re driving fast on a straight road, your velocity might be 60 mph westward.

In business we usually focus on speed when we should focus on velocity instead.

The Silicon Valley mantra of “fail fast, fail often” exhorts startups to take risks and pivot quickly when things don’t work out. However, fail fast encourages development teams to release features which may never get used or don’t have the highest value to customers. They’re doing things quickly (speed) but not making much progress (velocity).

Furthermore, traditional business advice preaches reducing time-to-market (the length of time from a product being conceived until it’s for sale) and extols the first mover advantage. However, as renewable subscriptions become the defacto business model, the initial transaction is typically less important than follow-on ones. It’s better to measure how long it takes customers to get value out of your product/service. The longer it takes to receive value from a product, the less likely a customer will renew. Time-to value is a measure of velocity, not speed.

Organizational KPIs are a visible way that businesses fall into the trap of focusing on speed vs velocity. Most organizations measure activities and outputs (things an organization gets done) rather than outcomes and impacts (results or benefits which happen as a consequence). As a result, the emphasis is on speeding up activities to produce outputs more quickly with little regard to whether these are the right activities. Doing the wrong work more quickly is not a recipe for success. With a focus on speed rather than velocity, businesses become more efficient but not necessarily more effective.

Most people only think in one dimension – speed. They lock into a target and try to accomplish it as quickly as possible. In my experience, these speed demons will be passed by people who consider velocity and think in multiple dimensions. This is the business version of the The Hare & the Tortoise.

One way to advance your career to recognize speed vs velocity in business.

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For many years, my routine was a Sunday hike followed by a Sunday blog. For a variety of reasons, both my hiking and blogging have become erratic. After skipping yet another Sunday hike, I was surprised to find that I still had exceeded 10,000 steps per day for the past week. 10,000 is the number the World Health Organization recommends, fitness apps urge us to reach, and that has become conventional wisdom.

Surprisingly, there’s little to no science behind 10,000 steps.

Instead, it appears to be the result of good marketing. To capitalize on the popularity of the 1964 Tokyo Olympic Games, a Japanese company called Yamasa Clock created a personal-fitness pedometer called the Manpo-kei. The name derives from the Japanese words “man” meaning 10,000, “po” meaning steps, and “kei” meaning system. (Native speakers, please correct me if I’ve gotten this wrong.)

However, another theory – and one that appeals to me – is that the number was chosen because the Japanese character for 10,000 looks like a person walking. The easy-to-remember number and the visual reinforcement worked. The pedometer was hugely successful and the 10,000 number is still in use more than 50 years later.

While 10,000 steps is a memorable target, it can be counter-productive. A Duke University study found that people who tracked their steps enjoyed it less, reporting that walking felt like work. A University of Texas at Austin study showed that one hour of exercise was much less beneficial if the rest of the day was spent sitting and sleeping; 10,000 steps would better split up over multiple periods in the day.

In short, one size doesn’t fit all. There is no magic answer as to how many steps you should take every day. The best answer is whatever personally motivates you – and that might be to not even track how many steps you’re taking.

The post Surprise! 10,000 steps was a marketing ploy appeared first on Manage By Walking Around.

I’m a big proponent of using scorecards to monitor progress to well-defined objectives. Earlier in my career, I ran a software company that used scorecards to help dozens of companies around the world ensure their execution was in line with their strategy. When using scorecards, I’ve cautioned that unless you compare yourself against an external benchmark you might not know whether you’re really making progress.

This quote from the HBO documentary Becoming Warren Buffett made me think about these long-held beliefs:

The big question about how people behave is whether they’ve got an inner scorecard or an outer scorecard. It helps if you can be satisfied with an inner scorecard.

For individuals, an outer scorecard could turn into an unhealthy comparison to what others have. This might be based on unrealistic expectations (“I wish I was as tall as he is”) or material comparisons (“she has more money than I have”). While comparing yourself to others can be motivational, too often it becomes destructive and, in the extreme, can allow others to drive your behavior. To make matters worse, you often compare their best features against your average ones.

On the other hand, an inner scorecard relies on internal comparisons. You ask yourself whether you are improving your performance, making progress towards goals, or focusing on things important to you. Relying on self-motivation can be difficult for many people but, when done well, forces you to focus on your values and beliefs.

While I understand Buffet’s caution, I believe a blend of internal and external comparisons can work for both individuals and corporations. The key is to focus and to understand you can’t be the best in everything. For example, if you want to compare yourself on ten different dimensions, pick one or two you want to excel in (best in class or nearly so). For these one or two focus dimensions, use an outer scorecard to compare yourself to everyone else.

For the rest of the dimensions, an outer scorecard should show that you are above average. Instead, an inner scorecard is usually preferable for these dimensions, as its more important to show you are making continuous improvements rather than external comparisons.

In other words, for most things you should compare yourself to yourself. Except for those things you want to be best at.

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For much of my career, I’ve argued that people design key performance indicators (KPIs) incorrectly. One of my own favorite blogs made the case that, unless you compare yourself against some external benchmark, you might be making progress towards achieving your KPIs but actually losing ground. Simplistically, if you’re growing by 20% and the market is growing by 30%, you’re losing market share.

I was explaining my performance management approach to a class on digital disruption when a student pointed out I was referring to the Red Queen Effect. For those who aren’t familiar with the concept, it comes from Lewis Carroll’s classic book “Through the Looking Glass.” At the Red Queen’s urging, the heroine Alice runs faster and faster but never seems to get anywhere. Here’s a short passage:

The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything.

[…] Alice looked round her in great surprise. ‘Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!’

‘Of course, it is,’ said the Queen, ‘what would you have it?’

‘Well, in our country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else — if you ran very fast for a long time, as we’ve been doing.’

‘A slow sort of country!’ said the Queen. ‘Now, here, you see, it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’

It’s not enough to run faster or perform better than you have in the past – you must be faster/better than those around you. But it’s unlikely you can continually exceed everyone else. Strong over-performance is usually followed by average or even under-performance. This is reversion to the mean.

You can see the Red Queen effect with Darwin’s survival of the fittest. In evolutionary theory, those that leverage their ‘strengths’ by adapting to their surroundings are more likely to prosper. This puts them ahead of their competition and therefore more likely to ‘survive.’ In many cases, however, these advantages are often temporary.

Physicist John Gribbons entertaining book ‘Get a Grip on Physics’ provides a vivid example of the Red Queen effect with frogs and flies:

Suppose there are frogs that eat a certain kind of fly, which they catch by flicking out their tongues. If the frogs evolve a particularly sticky tongue, they will be adept at catching flies. The frogs will do well, and the flies badly, in the evolutionary stakes.

But if the flies evolve a particularly slippery body surface, they will be able to escape from the sticky tongue more easily – and the original balance will be restored. […] Overall, nothing has changed. There are still the same number of frogs, each other eating the same number of flies.

I see many similar examples in business. Companies continually try to out-innovate each other or run continuous promotions to compete on price. One company might gain a temporary advantage but eventually others catch up.

Today’s Silicon Valley seems to be suffering from the Red Queen effect. Every venture capitalist seems to be funding variants of the same business plan. Every company seems to provide similar benefits like free lunches. Everyone is working crazy hours.

Is anyone really getting ahead?

The post The Red Queen Effect Explains Why You Aren’t Getting Ahead appeared first on Manage By Walking Around.

No, this isn’t some new comic from Scott Adams about Dilbert interacting with Donald Trump – although I’m laughing about the possibilities.

Instead it’s a central tenet of Adams’ most recent book titled How to Fail at Almost Everything and Still Win Big. Adams relies on his trademark humor to describe “the strategies he has used to invite failure in, embrace it, then pick its pocket.” Here’s a sample: Goals are for losers while Systems are for winners.

How can that be? The conventional wisdom is nothing gets accomplished without goals. People need motivation; something to strive for.

Adams argues goals are something you achieve in the future but don’t provide any incentive or guidance once they are reached. On the other hand, systems describe activities you do on a regular basis without a specific deadline. In the WSJ, Adams provides some simple examples from everyday life:

In the world of dieting, losing twenty pounds is a goal, but eating right is a system. In the exercise realm, running a marathon in under four hours is a goal, but exercising daily is a system. In business, making a million dollars is a goal, but being a serial entrepreneur is a system.

In other words, systems are more sustainable.

According to Adams, goal-oriented people are usually not successful. If your goal is to lose 20 pounds, you are likely to be discouraged every time you get on the scale and haven’t reached your target weight. Performance management practitioners have long recognized this issue and recommend setting multiple targets. It’s more effective to try to lose 2 pounds per month for 10 months.

A different approach is to focus on a system of eating right, rather than losing weight. People who adopt systems feel good every time they use their system. This means they can succeed every day; even multiple times per day. This reinforces their own behavior, increasing the likelihood they stick with the system. Adams finds that people who use systems are more successful and more innovative than those who set goals.

There are plenty of conclusions for businesses. Rather than just relying on traditional management by objectives, organizations should create boundary conditions and interactive controls. We should focus more on the process of how decisions are made than the details of the analysis itself. And we want to build an organization that is more resilient than the people in it; it should be antifragile.

With all due respect to The Donald, Dilbert makes the case that systems trump goals.

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It’s March Madness, Baby!

Most readers will recognize this catch-phrase celebrating the annual NCAA men’s college basketball tournament whose opening rounds just concluded. The tournament includes 64 teams organized into four separate regions which play over three long weekends until deciding a champion. Some – including me – believe it’s the most exciting tournament in all of sports, due to its history of close games and dramatic finishes.

While the term ‘March Madness’ is often used to describe the entire tournament, the opening four days which reduce the field from 64 teams to the so-called Sweet Sixteen usually produce the most drama. Over the 30 years with this tournament format, the four #1 seeds have never lost in the first round to their #16 seed opponent but the remaining seeds have not been nearly as stable. The #5 vs. #12 matchup has been particularly volatile with the 5-seed only winning 63.3% of the time. By comparison, the 6-seed has beaten the 11-seed more often, 65.8% of the time. The #8 vs. #9 is essentially a toss-up; in fact, the lower seeded team has won slightly more often.

With so many upsets, it’s tough to pick one that stands out but I’m partial to the 1991 semifinal game between UNLV and Duke. UNLV had won 45 games in a row and had beaten Duke by 30 points in the 1990 finals. But the Dukies — led by Christian Laettner — won 79-77. That game, and the infamous buzzer-beater against Kentucky the following year, sparked a generation of Duke and Laettner haters.

Speaking of Kentucky: they are on a 36-game win streak and are looking to avoid UNLV’s fate. They have decent odds. 18 teams have entered the NCAA tournament undefeated and 7 of them have won the national championship. Intriguingly Kentucky might meet Duke in the title game.

Some other tournament factoids:

• This year, many people had all of the 1-seeds going to Final Four in their brackets but it’s only happened once before, in 2008. Villanova’s loss to NC State ensures it won’t happen in 2015 and marks the 14^th time the top seed has lost in the second round.
• How surprising is it that two 3-seeds lost in the opening round? Before this year, they were 102-18 (85%) and only two 3-seeds had lost in the first round over the last decade. However, it has happened before; two 3-seeds also lost in the opening round back in 1986.
• There have been some amazing performances over the years. Austin Carr of Notre Dame scored a tournament record 61 points vs. Ohio on Mar 7, 1970. Loyola Marymount scored a record 149 vs Michigan twenty years later on Mar 18, 1990. The largest winning margin in the tournament is 69 points: Loyola Chicago defeated Tennessee Tech 111 to 42 in 1963.

The NCAA tournament has had a proud tradition since Villanova defeated Brown 42-30 in the very first game on March 17, 1939. Regardless of which team you root for, with so many upsets already this year, the tournament makes for an entertaining – an unpredictable – experience.

That’s the madness of March.

The post March Madness Metrics: 2015 Edition appeared first on Manage By Walking Around.

After many years as a performance management enthusiast, I sometimes forget how much confusion there still is around the topic. Since I’m a big believer that standardized language helps reduce confusion, I’ve decided to summarize some of my deeply held beliefs on performance management:

An objective describes what you want to accomplish. For example, ‘win the race’. A key performance indicator (KPI) monitors progress towards a specific objective. For example, ‘position among the runners’. A target is the value of a KPI at a defined moment in time. For example, in order to win the race, the target value for the KPI needs to be 1 at the end of the race (but not necessarily throughout the race).

Obviously the actual value of the position KPI can change over time, as various runners speed up and slow down (or even leave the race). In a similar manner, you should apriori set target values for different moments of time. That way, you can compare your actual value to the target value at specific intervals to know if you are on track.

(This 2008 post describes more about objectives, KPIs, and targets using the analogy of a race.)

I’ve noticed that many people forget that targets can – and should – have multiple values and instead focus on the ultimate result: zero defects, $100M in revenue, or a 4.5 score in customer satisfaction. If the result is far enough away in time, comparing the current actual value to the eventual target value may lead to the mistaken conclusion that we’re not going to reach the objective. This is especially critical when results don’t happen uniformly. For example, in high tech sales, a disproportionate amount of deals happen in the last month of a quarter and in the last quarter of a year. A single target value would not capture this nuance.

(This 2007 post provides an example of multiple targets in a call center.)

A grading system compares actual and target values to determine a performance score. The closer the actual value is to the target value, the better the score. One of the most common systems is based on letter grades (A/B/C/D/F) in which 90% and above is an “A”, 80-90% is an “B”, etc. Unfortunately, this common scheme doesn’t work in many situations such as rewarding over-performance , grading on a curve, and dealing with defect rates.

In my experience most performance management practitioners don’t spend enough time creating the appropriate grading system that will help them understand (and explain) the size of the gap between actual and target. Unfortunately, this oversight means many of their performance conclusions are faulty.

Finally, organizations may use measures to track the resources that they consume and the product/services they produce but should focus KPIs on the results that they are trying to achieve. This distinction is codified in the Logic Model which describes the relationship between inputs, outputs, and outcomes.

The distinction between output and outcome also gives rise to some of my favorite performance management stories: the dirty KPIs in a city public works department, circumventing the CRM system in a call center, and keeping my own lawn green.

Do you have your own story of outcomes vs outputs that you’d like to share?

The post Quick Guide to Performance Management appeared first on Manage By Walking Around.

Two of my most popular posts (as measured by WordPress stats) are quotes about performance management (Feb 2009, Sept 2009).  Given that popularity, I’ve listed even more performance management quotes:

“An obstacle is what you see when you are no longer focused on the goal.”
Anonymous (Anyone know who said this?)

“Some people achieve the top of the ladder and only then realize it was standing against the wrong wall.”
Stephen Covey, 1932-2012, Author of The Seven Habits of Highly Effective People

“For progressive people the present is the beginning of the future. For conservative people the present is the end of the past.”
Karl Mannheim, 1893-1947, One of the founding fathers of classical sociology

“Seek not to know all the answers but to understand the questions.”
Kwai Chang Caine, 1972-1975, fictional television character played by David Carradine

“Distance is not a problem. It’s taking the first step that is difficult.”
Marquise du Deffand, 1697-1780, French hostess and patron of the arts

“You never know where your actions will lead to. But if you don’t do anything they will lead you nowhere.”
Mohandas Gandhi, 1869-1948, Spiritual leader of India during independence movement

“Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.”
Peter F. Drucker 1909-2005, American management guru

And my current favorite…

“Do what you believe in and believe in what you do. The rest is a waste of time and energy.”
Nisargadatta Maharaj, 1897-1981, Indian spiritual teacher and philosopher of Advaita

The post Even More Performance Management Quotes appeared first on Manage By Walking Around.

For those of you who remember the series of posts two years ago defining objectives for this blog, you’ll recall that I decided that average number of comments per post and number of unique visitors per month were better measures of my success than number of page views or frequency of posts.  Regardless, I was more than a little disappointed when I realized that I’ve gotten out of my weekly rhythm this summer.  As I haven’t had any time to work on my personal writing in almost two years,  I’ve missed more than 5 posts this summer; I’ve missed a creative outlet.

Given that thought process, I wonder if frequency of posts might be a reasonable metric for me. Curious what others might think, I did a little informal research.  Not surprisingly, there are dozens of posts about how to measure the success of the blogs.  Most of the insightful ones seem to focus on the number of inbound links (essentially citations) or the average number of comments per post (essentially conversations).

However, my favorite summary came from a post entitled Blog Metrics: Six Recommendations For Measuring Your Success.  Avinash recommends six categories of metrics:

1. Raw Author Contribution 
2. Holistic Audience Growth
3. Conversation Rate 
4. Citations/ Ripple Index
5. Cost
6. Benefit / ROI

While Avinash’s measures of raw author contribution don’t include frequency, he does include this note: 

The important thing is to measure: consistency. I find it builds traffic.

I agree, so frequency of posts is back as a measure to watch. And since Sunday posts seem to drive the most traffic, I know how I’ll be closing out my weekends.

The post Blog Metrics: Frequency of Posts appeared first on Manage By Walking Around.

In a McKinsey Quarterly article entitled “Management lessons from the financial crisis,” UCLA business professor Richard Rumelt coins the term smooth-sailing fallacy:

This smooth-sailing fallacy arises when we mistake a measure for reality. Competent management always looks deeper than the numbers, deeper than the current measures. Incompetent management just focuses on the metrics, on the body count, on quarterly earnings – or on GDP growth or the consumer price index. And that’s how we get into these troubles. We really have to think about the redesign of a lot of institutions and doctrines around measurement. This lesson is fundamental: you cannot manage by just looking at the results meter.

Although he doesn’t use the same language, Rumelt seemingly shares my concerns with the preponderance of metrics, especially ones that measure activities rather than outcomes. Our obsessions with red/yellow/green dashboards have caused us to lose sight of the business outcomes we are trying to achieve.

Rumelt uses the classic story of the Hindenburg to provide a memorable analogy. In terms of their length and volume, the Hindenburg Zeppelins were the largest aircraft ever to fly; longer than three Boeing 747s placed end-to-end and almost the same length as the Titanic. With more than 600 successful flights, they were also considered safe and the future of air travel.

No matter what metrics you used, it would have been nearly impossible to quantify the risk the passengers took or to predict the fire that caused the Hindenburg to burn to the ground in May 1937. In Rumelt’s words:

The fallacy is the idea that you can predict disaster risk by looking at the bumps and wiggles in current results. […] To see the disaster coming, you had to have looked beyond the data about flight bumpiness— beyond the professionalism of the staff—and really think, “Does it make any sense to have people riding in a gondola, strapped to a giant sack of flammable hydrogen gas?” […] What happened to the Hindenburg that night was not a surprisingly large bump. It was a design flaw.

The so-called global financial crisis was nearly as spectacular as the Hindenburg disaster. The outcome couldn’t have been predicted by looking at balance sheets, by tracking the consumer price index (CPI), or any individual measure. The problem was a design flaw. We were putting money into a variety of credit and asset structures that were nearly impossible for anyone to explain and that the rating agencies didn’t really understand. In essence, we had the entire economy riding in a gondola, strapped to a giant sack of flammable hydrogen gas.

We suffered from the smooth-sailing fallacy. It’s a wonder the explosion wasn’t even bigger.

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