E99 - What KPIs should CEOs have?

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What KPIs should CEOs have? Should they have KPIs at all? Performance measurement specialist and business consultant Mark Hocknell says they shouldn’t. At least not in the way we currently understand KPIs - ones developed by gut feel instead of a thorough and rigorous process. We also talk about the perils of performance bonuses and why legal and accounting firms should stop measuring staff performance based on billings alone.

  • How giving people targets to meet is a surefire way for people to manipulate numbers or jimmy the system

  • How a CEO increased a company’s bottom line by multiple BILLIONS by focusing on safety, not revenue

  • The best way to develop comprehensive measurement plan that generates teamwork instead of divides it.

#boundlessleadership

Shownotes:
EDGE OF LEADERSHIP UNCONFERENCE, 21-22 March 2019:  details here

About Mark Hocknell

Mark had a 14 year career with Suncorp, starting in sales and then into management. He completed an MBA while at Suncorp and was then asked by QUT to develop two courses for the MBA program, Sales Management and, Customer Relationship Management. Mark designed these courses and then delivered them for eight years. He has been delivering PuMP workshops and consulting services for ten years.

*Mark will be facilitating an Evidence Based Leadership workshop with the Leader’s Edge Mastermind in Canberra, October 29th, 2019. You can come along as an individual or register with your leadership team. Email hello@innercompass.com.au for details.

References and books mentioned

Transcript

Zoë Routh: Hi, it's Zoe, and I have a very special friend and guest on the podcast today, Mark Hocknell. And Mark is the chief licensee and facilitator of Australasia for Stacey Barr's methodology called Pump. And I have Mark come along to the leaders' edge mastermind for each group, and he does a one day masterclass with them on evidence-based leadership, teaching CEOs and their senior executives how to craft KPIs and measure what matters most.

And it's a whole sequence of activities that we do during the day. But Mark's facilitation and the Pump methodology in particular and evidence-based leadership from the book Prove It that Stacey Barr wrote has been fundamentally business-changing and life-changing and leadership-changing in all the work that I do with my clients. It's something that I can't stop and won't ever stop recommending. And I'm super excited to have Mark on the call.

And we were talking about one of these bug bears that's been driving me nuts for years, and it's the question that I get a lot from boards and from CEOs, as in what makes good KPIs for CEOs? And should CEOs have KPIs? Well they don't ask me that. They believe they should. The conversation I'm gonna have with Mark is going to rattle the cage on that one, so I'm pretty excited to have him here. So welcome Mark.

Mark Hocknell: Hi Zoe, and thanks for inviting me along. I'm keen to chat with you about these things and I'm keen to share all these ideas with your audience. Thank you.

Zoë Routh: Yeah, me too, because last time I picked you up from your accommodation to drive you out to the venue for the mastermind, and we just have a bit of a rant and a rave around some of these topics, so I thought we need to get this on the podcast and out there in the public domain. Because these are really important issues that haven't had a lot of great answers out there in the public with how do we measure performance of CEOs?

And given the royal commission, there's so much going on that is terrible when it comes to KPIs and results and measures and governance, and its effect on culture and its effect on servicing clients. But before we get into all that, people love to know a little bit of background about the people that I bring to the podcast. Can you give us a little bit of overview of how you got to where you are right now? What's your life and leadership journey to date?

Mark Hocknell: Okay. I guess my official career when I started working at Suncorp. And I worked there for 14 years. So in financial services, I think Suncorp's one of the banks that's dodged a few of those things in the royal commission. But I was there for 14 years and started off in team leader roles, in sales and service, and eventually ended up in senior management roles. Managed the call center for three years. And in the last three and a half years I was there implemented massive change around customer strategy.

So did a lot of technology projects, change. But it was always on the customer side of the business. And KPIs everywhere. We had data, we had reports, we had everything going on. And I did an MBA towards the time that I finished at Suncorp. So completed an MBA and then came out into the big wide world, outside Suncorp. And I was there for 14 years. But I started then teaching at QUT at the graduate school of business, because when I did my MBA they invited me back to develop a couple of subjects, so I did that.

And I also started to work with a couple of small businesses in helping them bring about the change that they required, and then it dawned on me that I actually enjoyed this change aspect. So I ended up becoming a consultant. So I did management consulting for 10 years in a management consulting firm. And now I work for myself, which I've been doing that for three and a half years, focusing on Pump, performance measurement, evidence-based leadership and also helping people become more customer centric in their business and get the benefits from that.

But I was two years into management consulting before I met your friend and my friend, Stacey Barr. And two years into management consulting after being 14 years in a corporate, I thought I knew everything about managing performance and KPIs and all that sort of stuff, but when I learned the KPI Pump methodology, it just blew me away because there was nothing else out there that was like it. I went back to all my textbooks at uni and went, "How come we didn't talk about this?"

And at university we did talk about it, but we didn't have the framework of the Pump methodology to guide us, and it was quite profound. So I've been a convert of Pump for at least 10 years, and I've been working with the methodology with clients and with Stacey's clients for that period of time.

Zoë Routh: Fantastic. You read her work and you go, "What the? I've been doing strategy, I've been doing measurement wrong the whole time." How would you summarize the difference in terms of what you learned from doing your MBA and all the courses that you did, and the practice that you had, as a consultant ... How would you describe the key difference between the Pump methodology and everything else out there?

Mark Hocknell: Well it's the word that we're using. So Pump is the performance measurement process, so it's the process that Stacey's developed. And it's a methodology for measurement and for KPIs. So I think back to my early days at Suncorp when we used to run projects, but we never called them projects at that time, we just did stuff, and we didn't really have methodologies for projects. So then we learned project methodologies. We learned about the tools, the templates, the planning, the process, the language of what is a project, and how you take a project through its phases and get to the conclusion.

And we tend to accept project methodology now as you wouldn't think of running a project or an initiative without having a methodology behind it. And yet we all have used KPIs. I mean when I was at Suncorp and even in subsequent as a consultant, we all used KPIs and measures, but we're doing it from our own gut feel, what we've learnt in the past, rather than using a true methodology. I use the metaphor of that, like it's doing projects, or are you doing projects with a method?

And it's a completely different way of doing it, because you can get this consistent language, you got all the steps, the tools, the process about how to do it, the consistent approach. Whereas ... One of my very first consulting jobs was consulting to Rio Tinto, and they engaged me to help them with their KPIs in their contact center, because I'd had that experience back at Suncorp. And all I did in hindsight was a very good piece of work, but it was just me referencing my experience and then taking that experience and offering it to them and what they could be doing and the types of measures they could be using in their contact center.

But now knowing the Pump methodology, I would use a completely different approach. So I've gone from using my own gut feel to actually using a method now to get a better outcome for the business.

Zoë Routh: Yeah, I love that. Gut feeling versus actually using a rigorous process that ... The way that I look at Stacey's work is reverse engineering what you want. So you start with the end game, the result that you want, and you work backwards from there in determining how you're gonna actually measure the things that matter in order to get to that end outcome. And it just makes so much sense.

Mark Hocknell: It makes so much sense. However, the question that most of us start with is like you started off with, what's a KPI for the CEO? It's the wrong question, because we've immediately started saying, "What is the KPI or what is the measure?" Whereas we haven't yet figured out what it is we wanted to measure, which is the outcome.

And I find that because, like me, most people use their own experience or their gut feel or what they've learnt from other managers over the years about what to do with KPIs, you end up with six people in a room having a discussion about KPIs and everyone's got a completely different context, where they're coming from, about what they think measurement is, and what KPI should be and how you apply them. So when you use a methodology, it takes all that away. Everyone's on the same page, we've got a disciplined approach about how we get to the outcome.

Zoë Routh: I love that. I love the fact that you take the question what should the KPIs be for a CEO and go, "Wrong question!" So let's change the question a little bit. Should CEOs have KPIs?

Mark Hocknell: I don't think they should in the context of how we currently think about KPIs. So I imagine most people ... So when I talk to people about KPIs, most people say, "Yeah, a KPI is ... I've gotta get 90 percent of something, or I've gotta get 100 percent of my quota, or I've gotta get 75 percent of this, or get this work done within five days," or something like that. We tend to think of KPIs as targets. What is a target? So a target has to be then a performance measure that we've added a target onto it. So let's take an example then.

When I was, as I mentioned, at the contact center ... Most contact centers have some sort of target around the grade of service. A lot of them might be 90 percent of calls are answered within 60 seconds. So that's a standard sort of KPI type thing. So that is a performance measure, which is what the percentage of calls ... What is the average time that they're answered? And then we've added two targets onto that measure, so one is we want 90 percent of them answered inside 60 seconds. So we've added two targets onto one measure. So that's a KPI.

So it's complex, and yet we all tend to think we understand exactly what it means. But I think that, if we're talking about KPIs for CEOs, which we are, I think we've gotta try and change that whole conversation and say, "What is the role of the CEO? What do we really want to achieve over time?"

Zoë Routh: How would you answer that question, what is the role of the CEO?

Mark Hocknell: I think it's about bringing about change and bringing about a new strategic position to the organisation. So a lot of the stuff that I have read that's been in the royal commission is conduct in banking and financial services. When they've talked about their scorecards, and they've talked about their KPIs, they've all been short-term, get these financial targets within this three month period or each quarter, with hopefully then reporting back to analysts and getting an impact on share price. And if share prices go up then people get bonuses. I would've thought though with a CEO, when you said, "It's all about developing strategy."

Their role if it is about developing strategy is setting in place change that's going to occur. The difference between what the organisation is doing today, and what it might be doing in three years' time or two years' time at least. Maybe in five years. So then why are we measuring them on the short-term things? All that is going to do is give them a focus that narrows them in on the operational stuff, rather than getting the new strategic position in place for the organisation. And I think that's one of the fundamental things.

The challenge is we've got so many CEOs and leadership teams inorganisation that are focusing on the operational component of the work, to get the short-term outcomes that the law has put in in terms of KPIs, rather than thinking about what is the strategy? Where do we need to get to? And then they can be measured on the progress of realizing that strategy over time with that changes in place.

Zoë Routh: That makes a lot of sense. And the challenge with it is that we have this performance bonus schemes that are often linked to short-termism. And that is often linked to achieving targets as you've mentioned, short-term targets in order to see if after 12 months the CEO could then get a performance bonus as included in their plan. So what do you have to say about that? Should we, can we, could we link performance measurement to incentive plans?

Mark Hocknell: There's a whole lot of research that says you shouldn't do that. So there's even articles just recently. So Daniel Daniel Kahneman, who wrote Thinking Fast and Slow, he got the Nobel Peace Prize for behavioral economics, he's come out with a couple of psychologists now and they're saying that even in schools we shouldn't be giving children grades, but we should be rewarding effort.

Zoë Routh: How do you measure effort?

Mark Hocknell: You can measure it and you can see it in people, and we can talk more about that in a minute. But let's come back those CEOs. So what we said, if we can define a new strategic position that this company needs to get to, and the CEO maps out with his team or her team this journey about where they're going to go, they can still achieve that. Now if we change our context of measurement, and use something like Pump's methodology to say how then could we measure that progress towards that new strategic position? Then we could measure it.

But we often say is we go, "Yep, sure. The CEOs about the strategy, two to five years out. We don't know how to measure that because we're not using a methodology. So what we need to do then is come up with some KPIs or some targets that can hold them accountable to now." So it's our approach to performance measurement and to understanding what performance is and how to measure it that's actually driving us into have these shorter-term KPIs and targets, because that gives us and the boards and even within organisation, with all these incentive programs that we have in place, it tends to give people, leaders, board members, CEOs, managers or whatever, a sense of control. And it's a bit of a myth. Most times when we give people targets to achieve, most times they achieve them.

Zoë Routh: That's true, because there's a lot hanging on the outcome.

Mark Hocknell: There's a lot hanging on the outcome. But we've also learned that what we need to do is negotiate those targets and make sure that we get people to agree to them. Well, when we get into those negotiations, as a target I typically am committing to what I know I can deliver. So therefore there's no real stretch.

Zoë Routh: Okay. So if I am to paraphrase what you just said, setting targets, especially as they relate to performance bonuses, actually shrinks people's performance because they just work towards achieving the target as opposed to exceeding it?

Mark Hocknell: Yes. That's my experience of it. But there's two other problems that occur, and Donald Wheeler in the book, Understanding Variation, he said that when we give targets to people, or set a goal on someone, there's three things that the individual can do. One is that they can strive to improve performance to get that stretch target. The second one is that they can manipulate the measure. And the third one is that they can manipulate the system.

So what I find where I've worked ... So I've worked with probably about 80 different organisation over the last 10 or 13 years. And what I find consistently is that people in organisation find it easier to manipulate the measures and manipulate the systems to get the outcome that the managers want, the KPI, rather than actually improve, because the time frames are short, everyone's got a day job to do, and to get this changed, it's often easier to fiddle with the numbers, and that's what we tend to do.

So then there's a problem with that for managers, and I think this has happened to come out through the banking royal commission that you've mentioned, is that people then start to believe the numbers that they're being fed, and they may not be accurate.

Zoë Routh: Yeah, because they've been jimmied, or the system's been jimmied.

Mark Hocknell: Yep. So therefore managers then are looking at a measurement system to understand what's going on inside their organisation, but what they're seeing is the data and the numbers that they want to see, which are the targets that they've set. But what's really happening is the underlying performance isn't really at that level. And it's not through any mischievousness on people's parts. It's more that they don't know how else to do it.

I'll provide an example. So I've worked with probably about three or four different organisation that are into superannuation. And as we know, people have typically on average, they say people have the three super funds that they've got. And the whole idea is if you roll your superannuation into one fund, that's the best thing for the individual and for their pension plan and all that sort of stuff. So in one particular organisation, the executive team said, "We want customers to roll their funds into us." So if you've got three, just consolidate them into one. And they had an admin team that responded to all these forms, complicated forms that we had to fill out with superannuation, to roll your funds into one.

So they put a target on that team that we wanted to have 90 percent of the letters that came in from customers that were requesting consolidation of funds to be responded to inside three days. Classic KPI that comes out of an executive team. That's really important to us, so we better make sure that that team does it. So when the team was given that KPI, they knew they had no chance of achieving it, because all the letters that they were getting, they were incomplete, they had missed ticking boxes on forms, there was all sorts of problems with them.

So they knew they had to get the 90 percent done inside three days, so they created something that they called a not a good letter, which is what they called them. So these letters that weren't actionable were just put into a pile and sent back to the customer for competition, but they weren't then counted in the 90 percent of the ones that came in, because they were not good letters in the first place, they couldn't be actioned, so they were sent off.

So they were getting their KPI, and the executive team thought they were achieving this 90 percent inside three days, which in theory they were by the way they chose to measure it. Now the goal about trying to work with their customers to get them to consolidate their funds into that organisation then was just lost. It became about meeting the KPI. So if they had said to the team, "What we'd like you to do is help as many of our customers as you can to consolidate their funds in together. You guys figure out how to measure that, and you know what? Let's just see how we go. Let's just learn how it works."

What we would have discovered is there is a heck of a lot of letters that come in that we can't action because the customers have completed them incorrectly. But they want to roll their funds in with us, which is what we want them to do. So we would've solved that problem very differently than what they did when they had to get the 90 percent done inside three days.

Zoë Routh:  actually worked on solving the problem, as opposed to hiding it.

Mark Hocknell: Right. Because what the leaders did in that context then with just common practice, I'm not singling them out at all, they had the idea of yes, we need to support our customers in rolling their funds in, but instead of setting that as a piece of direction and then allowing the team to work on it, they solved it by saying, "No, we'll give them a target," which is 90 percent in three days have to be completed, thinking they were going to control the situation.

And all they did was they actually stifled innovation, they stifled problems-solving. They actually created a different type of problem-solving, which is the problem of how you get the KPI when it's too hard, and they actually worked against achieving their goal, which is facilitating their customers rolling all their funds into one.

Zoë Routh: Yeah. So hence the danger of setting KPIs with targets, without negotiation, without discussing what are we really trying to achieve, the result, the goal, and then working out how to measure it from that.

Mark Hocknell: So the difference there then, if we applied the Pump methodology there, we would come up with an outcome, which would be all our customers roll their funds in with us, or all our customers have just one fund, which is the one that we want. That would be the goal, that would be the result that we've set out. And then we would design performance measures for that result. And if we wanted to see a change in those measures, then we would set targets on the measures themselves.

And this is one of the beautiful things that I love about the Pump methodology, and how Stacey applies it in evidence-based leadership as well, we just completely flipped how KPIs were being used. So when we say that the goal is the result, let's say all our customers have one fund and it's with us, then we get measures to give us feedback about that, the performance measures only give us feedback about the result. What happens with KPIs and other types of performance measures is they get what I call a life of their own, and that 90 percent in three days is a classic example of where a performance measure that's got a target attached to it gets a life of its own. It goes off and it exists for itself, whereas performance measures and KPIs just give us feedback about results, and that's the only job that they have. So they give us feedback-

Zoë Routh: You can still develop targets, right? Like targets have a role, but not necessarily if you're measuring something you haven't measured before.

Mark Hocknell: Yeah. So if we were measuring all our customers roll their funds into us, we would measure then the number of letters that we get from customers, and then we might measure the number of letters that were not good letters. And then we'll say of the 100 percent of letters that we get, 40 percent of them are not good. Let's solve that problem, because we want that to be virtually zero. And we would work on that. And we could take that then from the 40 percent number to a target of say five percent. And we would work on solving the problem of the not good letters.

And then we would say okay, well maybe on average it takes us five days to respond to these numbers, we really want it to be three days, so then what do we need to do to make sure that we can resolve these problems and get back to these customers within three days with a consolidation of their funds? And that is a completely different way of solving the same problems, but we're using a different approach by saying, "That's the outcome we want, we're all clear on it." We then design measures for it, rather than what most leaders do, is we tend to go that shortcut is a KPI, and that KPI will then ... It's translated what we're trying to achieve in consolidation of those funds for example.

Zoë Routh: Okay, cool. I got that. So I'm curious about your opinion on one of the perennial challenges I have in working with accounting funds and legal firms that are run as a partnership, and at the end of a period of time, let's say it's 90 days, they divvy up the profits. And they often link those divvying up equations to individual performance, i.e number of hours built. So they link billings to a financial reward, which we've just talked about, can be fraught with peril because people can jimmy the numbers and jimmy the system. What would you suggest to a law firm or an accounting firm that is in that kind of arrangement, where it's a partnership, they generate profits and they wanna divvy up the pie? How might you go about doing that without creating a rod for your own back with these skewed KPI problems?

Mark Hocknell: Okay, so a couple of things. I'm gonna answer that question in a couple of ways. One of the things we talked about before then with CEOs was that getting this change and this new strategic position, for example, they still have to achieve their financial plans, which they have to agree to. So that's like a given. But the financial plans and the budgets shouldn't become KPIs. The financial plan is really a constraint that goes into what the CEO is trying to achieve, and it's also an output of how it was implemented. So that's how I see more how see clients.

Zoë Routh: Say that again. Can you just repeat that?

Mark Hocknell: So if you think about, as a CEO, I'm trying to achieve cultural change or put in a new program or work or get to a new strategic position in the next two years. A constraint I have is the financial resources that I've got to achieve it. So rather than budgets being something that I must meet, I think we're better off seeing the financial budget, expenditures, as a constraint. It's a constraint into what I can achieve over that period of time.

And how best I use that resource then has an impact on it. So what then comes out of how I implement that stuff is then the result of the financial plan. And it's the decisions that the people in the organisation have made over that period of time that have produced a financial outcome, either the revenue costs or the other side. So I like to think of the financial plan as really a constraint, as an input, and it's an outcome of how you outplay all of the work that you're doing, all the implementation, all the change, all the interactions with customers, all the other stuff. So you've still got those things.

And the other thing that we should've mentioned too, another role of the CEO is really about making sure that there's good governance within the organisation, and that good governance still comes to me, all those things really center on the culture of the organisation. So in many respects, the CEO's role in my view is to build that culture. And I'll share a story with you that I read just on the weekend. So with the accounting firm or the legal firm that you mentioned, so I worked in a management consulting firm for 10 years so yeah, we worked the same way. It's billable hours.

And whilst we were a very conscientious management consulting firm, people still add billable hours to clients' jobs when they're large jobs, because they see that as covering overheads and those types of things as well. So I actually see the way that we do that as counter productive. What I'd be saying to those accountants is say, "Okay, so what's the definition of success for your business?" Most likely, straight up they'll go, "Well, it's the number of billable hours, so that can bill, so we get revenue, so that our revenue is higher than our costs."

So that's a classic accountant's response. But what is the definition of success for their business? I would imagine it would have to be that money comes from a whole group of clients. So clients are paying money, so therefore what is the outcome with the client? Because you actually want those clients to be there the next year to continue paying those fees, and to continue growing and even being potentially advocates of what you do.

So they have to, I think, focus more on what is the definition of success for them as an organisation? Because it's not cashflow. Yeah, businesses need cashflow to survive, but the cashflow comes from how they implement strategy, how they engage with their customers, and they're the bigger picture things that I feel that CEOs and leaders should be focusing on as much as or more than the dollars themselves.

Zoë Routh: So one thing about my husband's firm, he's a family lawyer, they aren't necessarily looking like accountants to have their customers back every year, because you're thinking two divorces and you're done, at least for a few years hopefully! So I guess, how do you apply what you've just said for accountants to that kind of professional service firm?

Mark Hocknell: Okay, so let's assume that everyone only gets divorced once, so your husband then says, "Well okay, all of my clients are one-off clients, I don't see them again." Okay, fine. So where do all the new clients come from?

Zoë Routh: Referrals.

Mark Hocknell: Okay. So it is far more than about billable, it is far more about the outcome that the client gets. But as we all know, it's far more about the experience that the client has on the journey through to get to that outcome. And how your husband's firm manages that will absolutely fuel or not referrals to their practice. If they give a fantastic experience ... You can't have a fantastic experience I imagine going through a divorce, but if you can make it as painless as possible, you keep all the information going ... Whatever it is that is valuable for the customers, so that as a client as they go through that process it's the best possible experience they can have. And they can say that, then they will refer people.

And then the marketing budget for that firm would be virtually zero because there'd be enough customers coming in that have been referred. So that then reduces costs, which means, coming back to ... That's really what it's about. And yes, we operationalize that by doing billings, but it's not the main game. And the thing is those guys would know that. And a lot of times, professionals, accountants, lawyers, consultants, tend to think that the customer stuff is the soft stuff, it's not really what it's about, it's about the billable hours, it's about getting the dollars, it's about crunching the deals. And it's actually not, because like you just said, the lifeblood of the business going forward is referrals.

And in this age that we're in now, customers aren't sold anymore. So go back 20 years, we used to sell things to customers because they didn't have enough information. And salespeople used to share information with customers and get them to buy something. Today, customers are far more informed than they've ever been in history, not only about the information about making the decisions about what to buy, but also from their social networks. Everything completely changes.

You do a trip overseas and you can decide on a hotel to stay at or a day trip to do or something to do when you're over there by going onto TripAdvisor. You're not sold anything, you're taking the opinions of other human beings like you. So customers buy these days, they aren't sold to, and it's completely changed. So those things are far more important than what we operationally think about, which is the billings, or the billable hours.

Zoë Routh: So how do you deal with these conversation then, where you have five lawyers in a room, and they're disgruntled ... Well they're all partners. They're disgruntled, there's tension in the room, because lawyer A billed 500,000 for the year, lawyer B billed 300,000 for the year, lawyer three billed 200. And they're arguing then as to how they should divide up the pie, because the one who billed 500,000 feels like they worked a lot harder than their colleagues. And this is the source of the conflict that comes out of these conversations when you just look at billings, because they have hard evidence that half a million versus 200,000, obviously I'm working harder.

Mark Hocknell: Right. So there are lots of the cases in the banking royal commission where people have claimed exactly the same thing, but they have been destructive in how they've done it.

Zoë Routh: What do you mean they've been destructive in how they've done it?

Mark Hocknell: Destructive in culture, destructive towards other teams, they've got competitive towards others. So I've worked a lot with sales teams over the years, and I find that when you create those league ladders where you've got the top dog, second dog, third dog, that breaks down teamwork. Because when you create a league ladder between those things, and we tend to like this a lot in our culture, because we tend to like these sports metaphors, so then you get the top dog, $500,000 with the billings, and we create a ladder that actually differentiates people.

Now the top billing guy, let's assume that that individual is doing it 110 percent ethically, doing the right thing by their clients and just happens to be billing a lot more because he's getting a lot more referrals or something like that. That person then should be sharing that information with the rest of his team or her team. Now what typically happens is when I'm at the top of the league ladder, I don't wanna share that because that's my status. So when we create those sort of situations in teams, we actually break down teamwork so that it doesn't work.

We actually create powerful individuals that then are boxing for the top position, rather than working as a team. So one of the things that you mentioned there that there's an assumption because one person billed $500,000, the $200,000 person didn't work as hard or didn't contribute as much, and I think we need to understand that in teams of people and in organisation, sometimes you can have high achievers who can seem to do a lot more, but that doesn't mean that the contribution of other people in the team isn't as valuable. If you only measure it by the dollar, then you're only choosing one thing to measure it by, and that's where we need to get a better framework for how we think about teams and how they work together. So when I was ... For example back in the call center, we had teams and we had measures on teams about how they would ... They were in a sales call center.

And what we found was that we had to create a band. It wasn't like it was two sales per hour was the benchmark, it was a band, because what we found in these teams was that there were some people that could do three per hour and they just had that gift. But then when the team met, there would be someone that was doing one and a half per hour for example, but their contribution to the team was valued. Either they were the person that kept everybody calm or they kept everybody happy when things were tough, or they kept the spirit up in the team. They did other stuff. Their contribution to the team was accepted by the team. And the team was very happy then to carry a team target, knowing that that person may not contribute as much in terms of the number of sales per hour but they were contributing in different ways.

And that's he nature of the work that we're in when we work with people, it's in teamwork. So one of the things then with the lawyer and the accounting example that I would've liked to have had a conversation with them about, is using Stacey's approach where we build a results map, which we've used with your masterclass groups as well. So when you create a results map, what you're doing is you're moving away from the successes, the number of billable hours or the revenue that came in, to hang on, there's a few things that we need to get here, which will lead to success for our organisation, and we want all our clients to be advocates of what we do. There would be a stack of measures for that.

And we wanna be a profitable business. There would be other things. We wanna have a workplace culture that people are engaged in their work. There would be an number of things. So what we do then is we build those causal relationships between those results, and when we build those causal relationships, then we understand the framework that we're operating within. And it's not just about one measure, because one measure is only giving us feedback about one of those results.

Zoë Routh: I think this is so fundamental, and I think you got to the crux of it with explaining the results map, is I work with four legal firms, and they have this same conversation and same challenge. How do we reward and recognize people? And how do we deal with under performance when it's all about billable? So I think when we deconstruct it and we look at a whole organisation as an organism, a system, then we can see the interplay, which is what the results map does.

It shows well it's not just about this one aspect of the business, it's about all these other elements that come together. And it changes the way that you look at your colleagues, it changes the way that you look at the whole business in terms of how it performs. You actually care how the receptionist answers the phone, because it flows into the system. You actually care about how the office looks because that flows into the system. And it's not just about the invoices that you send out anymore. That's one component of it.

Mark Hocknell: I like what you just said. And a mantra that I often use, and it's very similar to what you just said, is that we call them organisation because they're full of organisms.

Zoë Routh: I love that, that's a good quote!

Mark Hocknell: Yeah. If you take the organisms out of anyone of those firms, nothing happens. They can have all the systems, they can have all the process, they can have results maps and measures everywhere, but if you take the organisms out of the business, there is no business. And you and I know that if we walk into a client's office and there are people everywhere, you instantly get a feel for what the workplace is like, and that feeling is part of those organisms. That's the thing. And it's a curious thing, I've been reading through Charles Duhigg's book on the weekend, and I'm about halfway through it.

It's the Power of Habit. And one of the stories that was covered off, I read it on Saturday I think it was, was about in the late 80s, and the aluminum business in the US, massive organisation, and they appointed a new CEO, and his name was Paul O'Neill, and he came in in the late 80s and he left in 2000. And the company, its market capitalization in that 13 years had risen $270 billion. Now when he started in the organisation as the new CEO, he said what he was gonna focus on was safety, and everybody went, "This guy's crazy. He's gotta focus on dollars, he's gotta focus on revenue, he's gotta focus on fixing sales, fixing customers. He's gotta get the money right." He said, "No. I'm gonna focus on fixing safety."

So then he got the whole organisation to agree that safety was the thing they needed to fix. Now that was one thing that they could commonly agree to, because apparently there was a lot of union issues, they'd been on strike and all that sort of stuff. And they all focused on fixing safety, making it a safe place for everyone to work. When they started to fix safety, they started to fix all their processes. They started to work together as a team. He changed the culture of the entire organisation and created a more profitable business that was improving its performance year on year on year for the whole 13 years that he was there.

And to me that's the essence of a CEO who really understands what it is they're trying to achieve. He knew the long-term goal was a new strategic position, but he knew how to get there. And he was focusing the people on a common thing that they could agree to, and then focusing them on their processes around the system, which flowed into their manufacturing processes. And when less people got hurt, and they took pride in their work, the whole culture changed.

And by building a positive culture that was focused on something that nobody could see the causal effects from those things ... But that's when you've got the causal relationships, and he understood those relationships, and I think that's what made him a wonderful outcome in getting those outcomes, was he understood those relationships. And I think that's what boards should require from CEOs. The board should require that the CEO understands what is going to drive performance and what is going to drive performance outcome in three to five years' time. And focus on those things, knowing that we'll get that outcome.

But we tend to not do that, because we focus on these short-term KPIs, we get these operational metrics that we look at. We focus on those things rather than recognizing a lot of times it's just culture, about how you change and influence culture to get yourself in a different strategic position than what you are now.

Zoë Routh: I love that. And I think that's a really wonderful way of looking at what a CEO should be doing and a board should be doing. And it was very savvy CEO that Charles Duhigg talks about, where he could look at the business and know that the lever to focus on was safety. Likely he mapped out all of the elements of the business and went, "If we fix this, the on-flow effect will be this."

And I think that's the value of looking at an organisation as an organism. It's like when you go to a medical practitioner and you've got a sore elbow and they go, "Well the problem's not your elbow, it's actually this twinged nerve down your left shoulder." You're like, "Really?" And they're like, "Yeah. See." Oh, fixed elbow. It's like that.

Mark Hocknell: Yeah, it is like that. And the body is am amazing thing. They talk about homeostasis, where everything's got to be in balance with all the chemicals and all the things that are happening within it. It's similar within the organisation that's in business.

Zoë Routh: Yeah. Well that's probably ... Sorry, go on.

Mark Hocknell: And all of those things have to be in fine balance. And I think that's one of the things I like a lot about results maps, is it helps you understand all those different things you've gotta get into play, rather than just focusing on one or two KPIs.

Zoë Routh: Yeah. Fantastic. That's probably a great place to finish. This has been wonderful. I wonder what kind of response we're gonna get to this, because it's edgy, it's controversial, and I'm really excited to bring this out to the world. And this is the last podcast interview of 2018, episode 99. So thanks for being my guest.

Mark Hocknell: Wow! Thank you so much.

Zoë Routh: Thanks very much.

Mark Hocknell: Thanks Zoe.

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