Most of us who follow the economics scene are familiar with the term “leading economic indicators”. These are indicators that are likely (with reasonably high probability) to correlate with future movements in the overall economy. Things like unemployment, durable goods orders, and housing starts can help economists predict future movements in GDP, for example.

The importance of leading indicators in performance management cannot be overstated. But they are only valuable if you are able to influence the outcome, or better manage risks by knowing things sooner rather than later. Perhaps a better analogy for the importance of leading indicators are the early warning signals relied upon by pilots in a modern aircraft. If an alert goes off, pilots are trained to react- first in a diagnostic manner, with further action initiated should the diagnostic validate the early indicators.

All to often businesses rely on outcome measures without much emphasis on these types of early earning signs. You can do a great job at measuring performance, but unless those measures can help you MANAGE performance, you’re on your way to wasting a lot of valuable time.

Yesterday and today, I played 54 holes of golf with my 89 year old uncle, on the front end of a business trib out west. It was a rather humbling experience for me (not unlike every other time we’ve played), both because of his uncanny ability to make great shots, as well as my own incompetence with the golf club. Why I let this man torture me through 54 holes is probably a discussion for another day, but suffice it to say that good friendship and the game of golf, when combined, can make you do foolish things- like play 54 holes of golf when you’re shooting poorly. Anyway- I digress. Back to the point.

During the 1st round, I noticed that ,despite my good performance with my driver and irons, only 25% of my greenside chips were executed well. I also noticed that I missed 13 putts inside 7 feet during our first round. From there, I pretty much concluded I was on my way to a bad round- well into 3 figures if I didn’t do something different. But instead, I corrected and ended up with an embarrassing but somewhat respectable 99. But those two leading indicators gave me the foresight I needed to make big changes in my next two rounds… a focus, if you will that helped me immensely. By focusing on the leading indicators, I managed to squeak out a 92 and 86 in my subsequent 2 rounds. I still lost by 3 strokes overall, which is a subject for another day. But without the help of my leading indicators, I’m confident it would have been much worse.

So, the message for today is to not focus simply on outcomes. By the time you know the result, it may be too late!

In all my years of working with organizations on performance management, few things have frustrated me more than forces that dis-incent performance. One of the worst dis-incentives of performance is the regulatory environment that many businesses in today’s economy are subject to.

Don’t get me wrong…regulation is a necessary evil in today’s business environment, particularly in light of the Enron’s, AIG’s and Worldcom’s of the past few years. But it’s when regulators overstep their role and begin interfering with the day to day management of the business that I begin to take issue.

Case in point. I am currently in the process of working with several west coast utilities on a regional benchmarking initiative focused on comparing their performance vis a vis each other, and identifying the practices and strategies that are employed by leading performers. This is a common approach employed by innovative companies to enhance their corporate performance by leveraging the collective wisdom of their peers. It’s a simple “learning tactic” designed to help company’s push the envelope of performance by leveraging the competitive spirit of industry peer groups.

Well, today, I got a huge surprise when I was told that one of the members was hesitant to take part in the data collection phase because- get this- the regulators have declared that any benchmarking data must be turned over to them. I’m not sure what frustrates me more. On one hand- the regulators who have turned an innovative practice into something that is feared and despised…a way for the regulators to use benchmarks as another “gotcha” control tactic. On the other hand, companies that are so weak that they allow themselves to be manipulated by regulators so much that they stop doing the right thing. They avoid innovation because of the fear that the regulatory hammer may ultimately fall—one day. A pretty nasty place to live…giving up innovation just to avoid a future regulatory penalty that may or may not occur.

Come on guys—let’s break the cycle. This crazy merry-go round will not stop until one of the parties- preferably both- end this dance. Corporate leadership: so what if your innovation causes regulators to make their standards tougher? Dis you really think this was going to be a cake walk? If that’s where you’re living, you’re not the kind of person the performance management industry needs carrying the torch.

Regulators: stop using benchmarks as a hammer. Use benchmarks as a yardstick, …a stretch target that, when achieved, is met with big time reward, rather than simply avoiding a “slap on the hand”.

Fixing this problem will take work on both fronts…a different philosophy of regulation, if you will. But this will never happen unless one party breaks the cycle. Why not be the one who goes first?

So what really does happen when someone performs brilliantly? Or really poorly? How do they feel? What changes? What causes them to change? How much of it do you control or teach? How much of it is just “in their wiring” ?

All of us have very really sophisticated and effective measurement frameworks, right?. Our KPI’s hang together like those beautiful little Ukrainian eggs that fit nicely inside of one another. Management knows what’s important. Workgroups know what drives the corporate KPI’s. Even the individual worker has his nifty little set of indicators that ultimately link his performance to the corporation’s. Right up that neat little hierarchy we call the performance management architecture or framework. Yeah right !!!.. Dream over.

For a moment though, I want you to assume you have all the basics all down pat. KPI’s are developed and aligned throughout the organization just like I described in my above dream state. Now ask yourself what would happen if someone (an individual, a workgroup, or the organization as a whole) really hit the ball out of the park. Or what if they put the organization in the tank? Would people really “own” their success or failure? Is the organization and its culture really accountable?

While much has been written on the subject of performance measures and reporting, the culture of management accountability gets very little press. We confuse it with everything from compensation and reward systems, to job retention strategies. But even the best of all of these is no substitute for the old fashioned characteristic of accountability.

In its most basic form, accountability means “owning” the results of your actions. It is entrepreneurial in many respects. People with accountability have an “inner voice” that resonates when performance targets are met or come up short. They know their part, and own it. It’s rarely a blame game. They look at what went wrong, what their part in it was, and work diligently to fix it. I see it as an innate human characteristic, and while I believe just about anything can be learned, I just not sure about this one. What I do know is that when its there, it looks like all of the above. And you don’t have to wait for performance breakdowns to find out if it’s there or not. You’ll see it in everyday life. That is, if you’re looking.

So as you navigate your performance management activities, work hard to build the right frameworks, goals, measures, and reward systems. Teach your team how all of this fits together. But remember that there are always those unlearned, innate characteristics that are the seeds of your culture. Without those seeds, accountability will never grow and thrive. Look for those characteristics in the people you hire and grow your staff. With enough of those seeds in place, you’ll start seeing results before you know it…and in time that culture of accountability we all aspire to.

A man drives down the highway each day on his way to work. On Monday he gets a flat tire. Like anyone else, he takes his lumps, changes his tire, and moves on.

One month later, almost to the day, the same darn thing happens. Just his luck. Only this time, its raining and he is forced to return home after changing his tire because he had gotten his new suit filthy in the process.

Convinced that he’s hitting a string of rotten luck, the man buys a good raincoat, and develops a faster routine for changing his tire (not bolting his spare down in the trunk, keeping his tools out and available, and keeping the raincoat close at hand). Next month, almost as predicted, same thing happens. Only this time, he gets into a fender bender trying to get over to the right shoulder to repair the flat. Talk about the life of Job!

Nevertheless, it doesn’t take long for him to go back to the well for another creative solution. No more wrecks trying to change a flat tire- nope, not for this guy. He’s figured out that its always the right front tire. In response to this keen observation, he’s now decided to always ride in the left lane so that if (sorry, I mean when..) he gets another flat, he can more quickly glide over to the shoulder, avoiding risk of accident on his way to another speedy tire change. He also decides to keep his speed lower than normal so that if (when) another blowout occurs, he’s not endangering too many people. That is, until a highway patrol officer pulls him over for clogging up the left/ passing lane of the freeway. Back to the drawing board he goes.

One of these days, that poor guy is going to figure out that it might just be his wheel alignment that is causing the problem. But not this time. Instead, like many of us, this man is trained to react to symptoms rather than taking the time analyzing the root cause.

A big problem with our performance measurement systems is that they provide us too much information on symptoms, and not enough feedback on our core system breakdowns. Does your management system tell you when you tire has gone flat? Does it measure the speed with which you change the tire? Or does it alert you that your vehicle is pulling to the left, outside of its normal control limits? The former is clearly reactive, responding only to a plethora of symptoms. The latter is proactive, and will lead your more quickly into a mindset of real problem solving.

I’ve seen this play out all too often in the workplace. Take a call center, for example, whose performance management focus is on getting better at average speed of answer, abandon rate, cost per call, and the many other indicators that are all too common in that industry. But how many companies look at the volume of calls per customer served? Is it higher than it should be? What if we do something to reduce the VOLUME of calls in the first place. Ahhhh….now we’re getting somewhere. Would you rather reduce the cost per call by 10% (something that I guarantee you is envied by EVERY call center manager out there), or eliminate the call entirely by fixing the process (something that is valued by every SHAREHOLDER out there!).

Reactive or proactive? Symptom or problem oriented? Activity or process focused? What approach does your performance management process favor?