Principle 5: Improved Decisions (Item 1)
Effective use of facts, data and knowledge leads to improved decisions.
Principle 5 is the powerhouse that drives all the other Principles.
It provides that data on which the decisions about all the other Principles
are based. It is the third part of the essential combination:
- make plans to do things
- implement those plans
- find out if those plans worked.
It is difficult to single out one of the Principles as being of special
importance. However, because of its huge influence in all the other
Principles, we consider Principle 5 as the most important. Principle
5:
- is the life blood that lets you align your company's operations
with its strategic directions
- focuses on the information you need to manage the company, measure
effectiveness of performance, drive improvement of performance and
increase competitiveness
- requires use of non-financial and financial information and data.
Information and analysis can themselves be sources of competitive advantage
and productivity growth.
Research indicates that this Principle is important for both improving
your company's KPI performance and for increasing your Business Improvement
score.
Unfortunately, most companies do not do it well. Of the ten Principles,
Principle 5 ranks an equal last (along with Principle 6 `Variability')
in terms of how well companies that have applied for a Business Excellence
Award have been rated by evaluating teams. This means that there is
considerable room for improvement.
Most companies do not use facts and data at all in their decision making.
Preferring instead to make their decisions based on hunches and unproven
assumptions.
Measuring progress towards your goals and implementation of your strategies
can be the single most important step you can make in getting better
results. Until you take this step, your company assumes that it is making
progress and that things are happening. After it begins to measure,
the company finds that all is not as it would hope.
The old thinking is that by some magic, not only do bosses know everything,
but they know everything without looking at any data. If any data is
consulted, it will be the budget – and usually only the expenses
part of the budget.
Although we are in an `information age', decisions are still largely
being made through gut feel, past experience, best guess or habit. In
most companies, the right hand still does not know what the left
is doing – or even if there is a left hand. We may have
the technology, but do we have the competency or the will to
base our decisions on information and knowledge?
The new thinking is that of management-by-fact. Acknowledgment that
measurement and analysis of performance is important. Such measurements
provide crucial information about results, key processes and outputs.
As we saw in Principle 2 (`Focus on Achieving Results'), this
provides an important focus on achieving results — meeting your
goals and objectives. In this new thinking, many different types of
data and information are needed for performance measurement, including
information on customers, products and services, operations, markets,
competitors, suppliers, employees, costs and processes.
Data and information are needed for planning, improving your operations,
reviewing your overall performance and comparing your performance with
competitors or with best practices benchmarks.
In Principle 5, we look at how we gather, analyze and make decisions
based on that data, information and knowledge. [In Principle 6 (`Variability'),
we will look at how to use data to improve at our processes.]
Principle 5 requires that you have a process for converting data into
meaningful information. And that you use this information in a preventative,
proactive way to assist with decisions to continually improve processes,
outputs and results at all levels of the company.
Principle 5 requires that
- you have an effective performance measurement system
- you carefully select and use measurements and indicators to track
daily operations and overall company performance
- your measurements are aligned and integrated so all measurements
work together to the same ends
- your measurements allow company-wide measurements and comparisons
- performance measurements allow you to track work-group and department
contribution towards key company targets
- data and information are accurate, reliable and valid. If it is
not, all attempts at interpretation will be scorned
You should collect and use data and information:
- to inform your decisions about the needs of your important stakeholders
- to meet the needs of your important stakeholders
- to inform your decisions about your core activities.
You should have processes to deal with the uncertainty contained in
missing information when making strategic decisions. You seldom have
information about all phpects of your decision before the event. How
do you cope with making informed strategic decisions when you do not
have all the information?
You should keep your performance measurement system up-to-date to meet
your current business needs. This is an extremely difficult ask. Information
technology is usually a significant expense for most companies. Most
companies become locked into a technology they purchased at a point
in time. Unfortunately, technology moves forward very quickly. Yesterday's
technology could not do what is easy today.
Alliance partners can also be users of your data and information. Being
able to supply such performance information can be a competitive advantage
when building your business networks, alliances and supply chains.
Although graphs and charts can assist in transmitting information,
the graphs and charts are not in themselves the purpose of collecting
the data – although many companies appear to think so.
The purpose of collecting data and sharing information is many-fold.
What has the greatest long-term impact is its use for decision-making.
How do you analyze the decision-making process itself over time? Has
your decision-making been effective? Were data, information and knowledge
used in an appropriate way? Were decisions made at the appropriate level?
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