Wednesday, January 11, 2006

Measering Organizational Learning (Kaplan&Norton Research)

Kaplan and Norton have done extensive research as to which variables effectively measure the BSC construct called Organizational Learning. This is described in their book The Balanced Scorecard - Translating Strategy into Action. They report that three organizational learning factors are present across a wide variety of service and manufacturing organizations. These include:
Employee capabilities, Information system capabilities, Motivation, empowerment, and alignment Employee Capabilities Employee capabilities has three dimensions: employee satisfaction, employee retention, and employee productivity.
Employee satisfaction Employee satisfaction is a composite of many things. Most frequently these are measured in an employee satisfaction survey. Employee satisfaction surveys are developed using a process similar to that used with a customer satisfaction survey.
Most common factors include:
Whether the organization recognizes the employees for a good job performance
Whether the employee believes he/she has access to sufficient information to do the job well
Whether the employee feels active encouragement to be creative and use initiative
Whether the employee believes that he/she has an adequate level of staff support
Whether the employee overall is satisfied with the company Employee satisfaction should be carefully tracked throughout the organization frequently (at least annually) to determine if and where problems exist.
Employee retention. Employee retention is a key indicator of employee satisfaction. The lagging measure, frequently named key staff turnover is frequently tracked in some BSC systems to determine whether key employees are remaining with the organization. A quickly increasing turnover rate could well be an indicator of some unresolved problem in the organization and should be dealt with quickly.
Employee productivity Revenue per employee is a frequently used BSC measure. It is obtained by taking the organization's revenue, or some other measure of productivity and dividing it by the number of employees. Revenue per employee is also frequently used in evaluating the progress of a business process reengineering attempt. In general, when revenue per employee is increasing, employee productivity is increasing. One should be very careful when using this measure so too much emphasis is not placed on reducing the denominator compared to increasing the numerator. Many companies have fallen into the trap of reducing the denominator (eliminating employees) to the point that customers are no longer able to be satisfied. This is one reason the word BALANCED in Balanced Scorecard measures is so important.
Drivers of learning and growth. Kaplan and Norton's research have discovered that there are four key driver variables in organizational learning and growth. These include:
Staff competencies
Technology infrastructure
Organizational climate
Strategic job coverage ratio Staff competencies are a key driver variable because without well trained staff who are capable of problem solving, the company will simply not be competitive in the future because change will simply be too difficult. World class companies, with educated, well-trained personnel are not threatened by change and are able to change direction without the massive displacement of personnel in companies with poorly educated, untrained personnel who resist any and all change because it threatens them and their jobs.
Staff competency is typically measured on must be measured on two levels: general competence and specific job competence. Both can be measured with a variety of inventory systems and testing procedures including the DACUM process.
Technology infrastructure is an enabler that facilitates work. Taking advantage of the technology infrastructure requires both the infrastructure itself and workers who are capable of utilizing it.
Information Systems Capabilities
Information systems exist to support employees in serving customers, to monitoring the many internal processes in the organization and to assist in making effective decisions. All three reasons for the existence of information systems are valuable reasons, but clearly the most important reason is to better serve the customer.
Frequently benchmarking is used to compare the information systems of a company with those of recognized high-quality competitors. If your business is the first with a new information system that has a large positive effect on customers, you have a strategic advantage.
Some companies use a ratio called the information coverage ratio which measures, for example, the percentage of processes with real-time quality, cycle time, and cost feedback available, or, the percentage of customer-facing employees that have on-line access to information about customers and products.
Motivation, Empowerment & Alignment
Effective companies have employees who are empowered to act whose individual and unit goals are parallel to those of the company. Effective companies listen to their employees. Some potential BSC measures include:
Measures of suggestions made and implemented Tracking the number of employee suggestions made and the percentage implemented has for some firms been an effective measure of employee involvement.
Measures of improvement The half-life concept is based on the idea that it is easier to get large amounts of improvement early in the improvement cycle. The half-life concept assumes that the rate of improvement is constant [e.g. if you plot constant-rate improvement on a semilog paper, you will find that the data reduce to approximately a straight line]:

Month / Missed Delivery %

0 / 30 %

9 / 15 %

18 / 7.5%

27 / 3.8%

36 / 1.9%

45 / 1.0

In this case, it was desired to reduce the missed delivery percentage from 30% to 1% over a 48 month period. Every 9 months, the missed delivery percentage should fall by half.
Creating a BSC measure to track the percentage of improvement projects that are on schedule is an attractive measure when continuous improvement goals are of major importance.
Measures of organizational alignment If each unit and sub-unit of an organization has goals that are aligned with the organization's goals, tracking the percentage of units that are meeting their goals can be an effective BSC measure. This could well be a method for measuring the effectiveness of a BSC implementation.
Employees seldom work alone in today's businesses. Most frequently they are members of teams. Measuring team performance can also be a valid BSC scorecard measure. This is frequently done with measures such as:
Internal surveys on teaming - survey of employees to determine if business units are supporting and creating opportunities for one another
Gain-Sharing Level - tracks the degree to which the organization is entering team-based relationships with other business units, organizations, or customers.
Number of integrated engagements - the number of projects on which more than one business unit participated
Percentage of business plans developed by teams - the proportion of business units that develop their plan with the assistance of centralized support resources
Percentage of teams with shared incentives - the number of teams where team members share common objectives and incentives The ability of an organization to meet targets for financial, customer, and internal-process objectives depends on the organizational capabilities for learning and growth. This growth is enabled by three primary sources: employees, systems and organizational alignment. Thus, good BSC systems should contain measures of these enablers.
Employee satisfaction, productivity, and retention are outcome measures from investments in employees, systems, and personal and unit alignment to organizational goals.
Of all of the BSC measures, these certainly are the most nebulous and probably the most important. Excellent companies find ways to track this important area, because it is probably the most likely area to cause failure in implementing organizational goals.