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Page 1 Questions of disclosure: What to measure and why? Professor Andy Neely Cranfield School of Management Cranfield Corporate Responsibility Network.

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Presentation on theme: "Page 1 Questions of disclosure: What to measure and why? Professor Andy Neely Cranfield School of Management Cranfield Corporate Responsibility Network."— Presentation transcript:

1 Page 1 Questions of disclosure: What to measure and why? Professor Andy Neely Cranfield School of Management Cranfield Corporate Responsibility Network April 2008 Questions of disclosure: What to measure and why? Professor Andy Neely Cranfield School of Management Cranfield Corporate Responsibility Network April 2008

2 Page 2 Why measure – the desire to quantify? “When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind”. Lord Kelvin,

3 Page 3 But quantify for what purpose? In the UK the most common reasons for measuring - assessing performance, improving operational efficiency and aligning employee behaviours. Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The UK State of the Art”, Oracle and Cranfield School of Management.

4 Page 4 Are there country differences? AustraliaChinaJapanUKUSA Performance Assessment (64.37%) Performance Assessment (77.55%) Aligning Employee Behaviours (53.40%) Performance Assessment (58.82%) Aligning Employee Behaviours (36.59%) Aligning Employee Behaviours (59.77%) Aligning Employee Behaviours (35.71%) Performance Assessment (44.66%) Improve Operational Efficiency (52.94%) Improve Operational Efficiency (34.96%) Improve Operational Efficiency (56.32%) Improve Operational Efficiency (35.71%) Improve Strategic Decision Making (43.69%) Aligning Employee Behaviours (43.44%) Performance Assessment (34.15%) Compensation and Reward (35.63%) Improve Strategic Decision Making (31.63%) Validating Strategy (40.78%) Financial Control (39.82%) Compensation and Reward (22.76%) Improve Strategic Decision Making (33.33%) Compensation and Reward (29.59%) Strategic Planning (37.86%) Improve Strategic Decision Making (35.91%) Improve Strategic Decision Making (21.14%) Financial Control (32.18%) Strategic Planning (28.57%) Financial Control (29.13%) External Reporting (32.87%) Financial Control (19.51%) Strategic Planning (26.44%) Financial Control (20.41%) Improve Operational Efficiency (25.24%) Strategic Planning (30.77%) External Reporting (14.63%) External Reporting (20.69%) Validating Strategy (17.35%) External Reporting (22.33%) Compensation and Reward (24.20%) Validating Strategy (13.82%) Validating Strategy (18.39%) External Reporting (16.33%) Compensation and Reward (22.33%) Validating Strategy (19.00%) Strategic Planning (13.01%) Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.

5 Page 5 Why measure – business returns? “While doing good doesn’t appear to destroy shareholder value, we found only a very small correlation between corporate behaviour and good financial results (the exception being public misdeeds, which had a discernible negative impact)”. Corporate misdeeds are costly to companies – if people find out! Doing good is unlikely to cost Shareholders directly. Profitability should not be the primary rationale for corporate social responsibility. Joshua D. Margolis, J.D. and Elfenbein, H.A. (2008) “Doing Well By Doing Good”, Harvard Business Review, January, Meta review of 167 conducted over 35 years - Is there a link between corporate social performance and corporate financial performance? “An alternative, and perhaps more cynical, way to interpret the mild correlation is to suggest that it pays to be good, but not too good. It could be that companies that are demonstrating a payoff are doing enough not to run afoul of regulators and activists, but not so much that they offend analysts and investors”.

6 Page 6 Why measure – the need to comply Key areaSub-areaTotalWeight Water supply Hose pipe bans Leakage and resource position Water pressure Unplanned interruptions Water distribution Incidents due to sewer capacity Incident due to blockages Risk of flooding Sewerage service Customer contact Assessed service Customer service Sewage treatment works in breach of consent Unsatisfactory combined sewer overflows Major and serious pollution incidents Environmental impact

7 Page 7 The water utilities Output measure SourceDescriptionPerformance range Scoring criteria Water pressure Company data Company assessment of properties at risk of receiving low pressure From 5.5% properties at risk (worst) to zero at risk Percentage at risk figure scored from 5 (poorest performance) to 50 (best) Unplanned interruptions to water supply Company data Properties affected by unplanned interruption to supply greater than six hours Performance scores (combination of 6,12 and 24 hour interruptions) from 2.77 (worst) to 0.14 (best) Interruption scores scored from 5 (poorest performance) to 50 (best) Sewer flooding incidents due to overloaded sewers Company data Properties flooded internally by sewage as a result of an overloaded company sewer Percentage of connected properties flooded from 0.01 (worst) to (best) Percentage figure scored from 5 (poorest performance) to 50 (best)

8 Page 8 The water utilities Performance score Companies

9 Page 9 The need to comply Aim of performance review OUTPUTS COMPLY What outputs are being sought? Warning non-negotiable parameter is in danger of being infringed. To establish whether any of the non- negotiable performance parameters are in danger of being infringed.

10 Page 10 The maturity of measurement Comply Ad hoc Non- negotiable performance parameters not identified. Basic Non- negotiable performance parameters identified, but few relevant measures available. Emerging Non- negotiable performance parameters identified. Relevant measures available, but generally they are backward looking. Managed Non- negotiable performance parameters identified. Predictive measures available for most of them. Excellence Current and potential non- negotiable performance parameters identified. Predictive measures available for all of them.

11 Page 11 And to mitigate risk Risk and compliance are significant reasons to measure. Especially as any of the organisation’s stakeholders can revoke the firm’s license to operate. Life in the goldfish bowl…

12 Page 12 Enduring challenges of measurement The desire to quantify: “There is a strong tendency to state numerically as many as possible of the variables with which management must deal” - Dysfunctional Consequences of Performance Measurements, V.F. Ridgway, Unanticipated consequences: “We feed the machines all the easy orders at the end of the month to meet our quota” - The Impact of Budgets on People, Chris Argyris, New York, The need for balance: “Market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility as appropriate performance criteria” The Practice of Management, Peter Drucker, New York, 1954.

13 Page 13 What do we measure? Over 50% of respondents report that over 50% of their measures are financial Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.

14 Page 14 Strong focus on the traditional non-financial measures What do we measure? Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.

15 Page 15 Think about a range of stakeholders Fast, Right, Cheap & Easy Purpose, Care, Skills & Pay Trust, Loyalty, Profit & Growth Legal, Fair, Safe & True Return, Reward, Figures & Faith Stakeholder Satisfaction (Stakeholder Wants & Needs) Stakeholder Contribution (Organization Wants & Needs) Trust, Loyalty, Profit & Growth Hands, Hearts, Minds & Voices Fast, Right, Cheap & Easy Rules, Reason, Clarity & Advice Capital, Credit, Risk & Support Stakeholders Customers & Intermediaries Employees Regulators & Communities Suppliers Investors Remember stakeholder contribution  satisfaction

16 Page 16 The Performance Prism SWANs What do our various stakeholders want and need? Strategies What strategies are we pursuing to satisfy these wants and needs? Processes What processes do we need to put in place to enable us to achieve these strategies? Capabilities What capabilities do we require if we are to operate these processes? OWANs What do we want and need from our stakeholders to enable all of this to happen? Neely, A.D., Adams, C. and Kennerley, M. (2002) “The Performance Prism: The Scorecard for Measuring and Managing Stakeholder Relationships”, Financial Times/Prentice Hall, London.

17 Page 17 Reflections on CSR and disclosure 1.Don’t start with what should we measure. 2.Instead start with what questions do we want to be able to answer. 3.The questions that matter for different organisations are context dependent. 4.So do not look for standardised sets of measures that can be used for CSR. 5.We can, however, look for standardised frameworks – such as the Performance Prism – to help structure our thinking. 6.Finally… remember Einstein…

18 Page 18 Starting with Kelvin, finishing with Einstein “Not everything that counts can be measured. Not everything that can be measured counts”. Albert Einstein,

19 Page 19 For Further Information Professor Andy Neely Cranfield School of Management Cranfield Bedfordshire England MK43 0AL Tel.+44 (0) Mobile+44 (0) Cranfield web site: PMA Home Page:


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