Nothing is more important for transforming performance measurement than learning. Organizations are always defining performance measures and reporting actuals against targets. For many, the process of performance measurement ends here. There is no further probing on why variances exist and how the organization can actually learn and improve from this. Learning is about acquiring knowledge, establishing why certain things happened and determining how to do things better.
With regards to organizational learning, there are two types: single-loop and double-loop. The former involves identifying variances in performance and continuously correcting the errors until an acceptable level of knowledge or action is achieved. With single-loop learning, the idea is increasing competence in an already-acquired skill, until a satisfactory level of competence is attained. The later involves employees and the senior management team questioning current beliefs that have previously been taken for granted, and challenge the expectations, values and assumptions that led them to adapt the knowledge in the first place. It also involves question existing measures and adopting new transformational and emergent measures.
This distinction between single-loop and double-loop learning is significantly important for transforming organizational performance measurement and management. Increasing proficiency of current performance measurement and management methods is single-loop learning. Questioning and challenging existing methods is double-loop learning. No matter how well the organization’s KPIs are measured, constantly using the same KPIs repeatedly leads to achieving the same results over-and-over again.
Today’s competitive pressures require not only more skilled players, but also better strategies for winning the game. At its best, performance measurement and management should be a continual interplay of double-loop and single-loop learning. As explained above, double-loop learning is essential for questioning existing measures and measurement frameworks and experimenting with new ones, followed by single-loop learning to fine-tune new strategies.
For learning to be transformational, the environment within the environment should be able to provide such support. The organization must be focused on measures that are critical for creating value, the measurement approach must foster organizational integration and alignment and measurement must be done socially and interactively. If all these factors are present, the organization is bound to experience a positive increase in organizational learning. In order to achieve transformational learning, the organizational environment should facilitate:
- Inquiry instead of advocacy: People should have the ability to inquire, not just dictate or advocate. Inquiry is the ability to ask questions that have never been asked before and come up with informed solutions.
- Freedom to question: A perfect learning environment allows people to willingly and openly share and test their perceptions, intentions and theories with reality and learn from mistakes. People are not scared to question the numbers or the theories and assumptions that gave rise to the numbers.
- Freedom to experiment: Enormous learning occurs through the use of subjective assessments and self-assessments. Challenging conventional wisdom through bringing forth new ideas can be a transformational learning opportunity. For example, there is need for someone to simply step forward and start discussion on new approaches of measuring performance without being afraid to suggest that a qualitative or subjective approach be implemented.
- Measurement conversations: If people are used to constantly being told what to do, they will lack ownership of current measures. This is because they are not interactively involved or given the opportunity to converse about and question the current approach.
- Conversations around measurement frameworks: Measurement frameworks assist people see and understand the “big picture” view of the organization and make connections between elements that are not apparent in everyday work. Management must create an environment that fosters discussion on existing measurement frameworks and how they can be improved.
- Greater understanding of value creation and destruction: Performance measurement should give visibility of the organization’s critical success factors. Most managers and employees don’t really know if their actions are really creating or destroying value. As a result, it is important to actively involve people in discussions about how more value can be created, and less value can be destroyed.
- Scenario analysis and management: Managers should be able to interactively perform cause-and-effect analysis of actions and evaluate how these planned actions can lead to certain outcomes. In other words, they should be able to perform improvement experiments, test the logic of their management systems and learn from mistakes. Without good evidence-based predictive measurement and learning, it becomes difficult for managers to determine what is working, or not working, and why and this normally leads to wastage of resources.
Concluding Thoughts: It is critical that organizations empower people to transform the work they do, not just learn how to do the same work better. By combining single-loop learning and double-loop learning capabilities, the organization is best positioned to transform its performance measurement, improve its competitive advantage and drive performance improvements