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Performance Measures: The Use Of Limits To Focus Attention

Chapter 2 outlined the various measurement systems developed to monitor the performance of an organization's ICM efforts, including the Balanced Scorecard, the Intangible Assets Monitor, and the Skandia Navigator. The common theme that runs through the IC measurement systems in varying degrees is that they are to be used as navigation tools or guiding principles rather than strict measures. In contrast, measures under the Navy's model play the role of "setting limits" by defining a set of objectives that should be met. The theme of "setting limits" is one that runs throughout the Navy's KM model, including its measurement system. As Bennet16 explains, "Despite the negative connotation of 'limits' in American culture, they have an incredible power because they focus attention on something generating new thoughts and ideas." Though the measuring unit is given the liberty to choose any of the above mentioned measurement systems it has to do so within the limits, or guiding principles, set by the CIO.

It Is Not How You Measure But What—Of Limits and Guiding Principles

The enactment of the Government Performance and Results Act in 1993 in the United States conditioned approval for funding on the proven performance of the federal government agency in question. Though government agencies do not have to produce a profit, they still have a bottom line—to achieve their mission.17 Achieving the respective mission is the yardstick by which the performance of an agency will be judged. This made performance measures of particular impor­tance in the management of public agencies as they have to show "non-financial" results. To respond to this challenge, a number of government agencies developed a set of guidelines on how to design performance measures, to prove that they are using their financial and human resources effectively in attaining strategic objectives.

The Navy's model accepts measurement systems, outlined in Chapter 2, without limiting their use, as long as the guiding principles are kept in mind. Still, the Navy's Metrics Guide for Knowl­edge Management Initiatives provides guidance on how the different measurement systems can be adapted to address the Navy's KM needs. The four perspectives under the Balanced Scorecard system, for example, are modified for the Navy's purposes as follows:

1.     Business value replaces financial perspective—"How do we look at           management?"

2.       User orientation replaces customer perspective—"Are we satisfying our user           needs?"

3.        Internal perspective is focused on "Are we working efficiently?"

4.      Future readiness replaces renewal and growth perspective—"What                       technologies and opportunities/challenges are emerging?"18

Interestingly, the Navy's model also encourages the use of what have come to be known as "soft measures." These are success stories or "lessons learned" that communicate financial or other returns (e.g., success of an operation) that have been realized from a KM program.

The differentiating characteristic of the Navy's performance measurement system is its focus on what should be measured rather than how. This is clarified through a number of guiding prin­ciples that determine the variables that should measured, the types of KM initiatives, and the var­ious types of measures that can be used.

The First Guiding Principle: What to Measure. The Navy's CIO clarified from the outset that it is not how you measure, but what you measure that is important. The Toolkit explains that when it comes to knowledge assets or IC, there is a lot of confusion as to whether performance meas­ures should calculate the value of the asset/capital or the effectiveness of the initiatives designed to leverage them.20 Without delving into theoretical discourse, the Navy's model stresses the lat­ter, that is, effectiveness of the KM initiatives is what should be measured.

But the question remains, what type of KM initiatives should be measured? The Navy clas­sifies initiatives into three groups. The first is program and process initiatives that relate to organization-wide activities. These are usually designed to streamline business practices and transfer the best practices across the organization.21 The goal of these initiatives is to prevent "reinvention of the wheel" and duplication of error. An example of such initiatives is the man­agement of customer relationships.

The second type of initiatives are those related to program execution and operation, including transferring expertise and getting the right knowledge to support the effective execution of oper­ations. These initiatives should aim at facilitating collaboration and knowledge sharing to increase productivity, effectiveness, and quality. They apply to operations like R&D, manufac­turing, and computer and software systems.

The third type of initiatives deals with personnel and training, or the development of the orga­nization's human capital. The goal of this initiative is to foster employee satisfaction through improving the quality of life and enhancing employees' learning experience (e.g., fringe benefits management and distance education). The Navy's model proceeds to identify the measures that can be used.

The Second Guiding Principle: Not All Measures Are the Same. Like the Intangible Asset Monitor model, the Navy's model provides standards that point to the results that should be tar­geted in a KM initiative. These standards identify the final outcomes, outputs, and the effective­ness of the initiative as a whole. Again, to measure the effectiveness of any of the three types of KM initiatives (program/process, execution/operation, and personnel/training), a mix of the three types of measures should be used.

Outcome indicators measure the impact of a KM initiative on the effectiveness of the organi­zation as a whole. They attempt to measure things like increased productivity and the ability to meet strategic goals more effectively. Typical indicators include time, money, or personnel saved by implementing a practice, rates of change in operating costs, and improvement in quality.

Output indicators measure the direct process outputs for users, the lessons learned in captur­ing new business, and doing old business better. These measures attempt to monitor, in quantita­tive terms, how the initiative contributed to meeting the organization's objectives. Typical indicators include time to solve problems, usefulness survey, time to find experts, and user rat­ings of value added from the initiative.

System indicators measure whether the individual systems are fully operational and deliver the highest level of service to the users. They monitor the usefulness and responsiveness of identified practices and tools. Typical indicators for an IT system, for example, include number of hits, fre­quency of use, viability of the posted information, usability survey, and contribution rate over time.

The indicators mentioned are specific to the initiative introduced but mainly aim at monitor­ing the effectiveness of initiatives in achieving identified goals. What makes the Navy model's measures and indicators outstanding is the assertion that measurement is only a step in a contin­uous process of a number of steps. These steps include designing, building, and implementing a program; designing performance measures; assessing these measures; then returning to the design phase, as illustrated in Exhibit 6.4.23 Like the Navigator model, measures under the Navy's model are not seen as indicators that have to be monitored consistently and remain the same over time, but rather as "a valuable means to focus attention on desired behaviors and results."24 Dis­tinctive to the Navy's model is the use of the life cycle principle in designing the measures.

The Third Guiding Principle: The Life Cycle of an Initiative. One of the main challenges that the authors of IC measurement systems face is measuring the flow rather than the stock of IC. The Navy's model addressed the problem of flows by allowing for change in the measures depending on the life cycle of the initiative being measured. This practice, according to the Navy's Guide, is taken from the American Productivity and Quality Center's (APQC) benchmark study of the best practices in measuring KM initiatives. The APQC report25 states that a program goes through a number of stages in its life cycle, from preplanning, start-up, and pilot project to growth and expansion. Each stage determines the type of measures required. For example, the pilot project stage measures the success of the initiative to deliver real value to business objec­tives, such as efficiency rates through the transfer of best practices. By adopting this system as a guiding principle, the Navy model tries to overcome the static nature of measurement by accom­modating the dynamic nature of knowledge/value creation.

The Navy model does not attempt to take the measures out for external reporting purposes because one of the goals of measurement is to secure funding across the organization for the KM initiative and programs. As such, measures are used as transient communication tools that change according to the audience and the message intended to be delivered.

CONCLUSION

The Navy implemented KM by effecting a number of changes in the organizational structure, culture, and IT architecture. This chapter outlined the changes that the Navy implemented using the framework outlined in Chapter 5 as a guide. To effectively implement KM, the Navy intro­duced the CoP structure to loosen what is an otherwise rigid structure. One of the Navy's main means of doing this was to recognize knowledge sharing as one of its strategic objectives, high­lighting how liberal—rather than on a need-to-know basis—knowledge sharing will enable the Navy to achieve its mission of mastering the art of war. The emergence of KM champions at the commander level, coupled with the Navy's awards for successful operationalization of KM strategies, gradually transformed the Navy's secretive culture to one amenable to knowledge sharing. The Navy's IT infrastructure also underwent major changes to respond to the knowledge needs of decision makers at all levels, and led to the development of the knowledge base. One of the drivers of the Navy's success in KM is that it considers KM a developing effort, and hence involves academia, industry, and other government agencies to remain on the cutting edge. Equating its final goal as becoming a learning organization, there is no limit to the Navy's suc­cess with KM.

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