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

Questions of disclosure:What to measure and why?

Professor Andy NeelyCranfield School of Management

Cranfield Corporate Responsibility NetworkApril 2008

Questions of disclosure:What to measure and why?

Professor Andy NeelyCranfield School of Management

Cranfield Corporate Responsibility NetworkApril 2008

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, 1824-1907

But quantify for what purpose?

In the UK the most common reasons for measuring - assessing performance, improving operational efficiency and aligning employee behaviours.

0

10

20

30

40

50

60

% o

f re

spo

nd

ents

Primary reason for measurement

Assessing Performance Operational Efficiency

Aligning Employees Behaviours Financial Control

Strategic Decision Making External Reporting

Strategic Planning Compensation/Rewarding

Validating Strategy

Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The UK State of the Art”, Oracle and Cranfield School of Management.

Are there country differences?Australia China Japan UK USA

Performance Assessment (64.37%)


Aligning Employee Behaviours (53.40%)






Improve Operational Efficiency (52.94%)




Improve Strategic Decision Making (43.69%)



Compensation and Reward (35.63%)


Validating Strategy (40.78%)

Financial Control (39.82%)




Strategic Planning (37.86%)






External Reporting (32.87%)

















Neely, A.D.; Yaghi, B. and Youell, N. (2008) “Enterprise Performance Management: The Global State of the Art”, Oracle and Cranfield School of Management.

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, 19-20.

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”.

Why measure – the need to comply

Key area Sub-area TotalWeight

Water supplyHose pipe bans

Leakage and resource position

13

2

Water pressure

Unplanned interruptions

Water distribution

Incidents due to sewer capacity

Incident due to blockages

Risk of flooding

Sewerage service

Customer contact

Assessed serviceCustomer service

Sewage treatment works in breach of consent

Unsatisfactory combined sewer overflows

Major and serious pollution incidents

Environmental impact

1.5

1.53

1

1.5

0.5

3

1

23

1

1

1

3

The water utilities

Output

measure

Source Description Performance

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 0.001 (best)

Percentage figure scored from 5 (poorest performance) to 50 (best)

The water utilities

0

50

100

150

200

250

300

350

A C E G I K M O Q S U W Y AA

Pe

rfo

rma

nc

e s

core

Companies

The need to comply

Aim of performance review

OU

TP

UT

S

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.

The maturity of measurementC

om

ply

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.

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…

www.untied.com

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, 1956.

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, 1952.

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.

What do we measure?

Over 50% of respondents report that

over 50% of their measures are financial

0

5

10

15

20

25

30

35

40

% o

f re

spo

nd

ents

None 1-24% 25-49% 50-74% 75-99% All

UK USA Australia Japan China


Strong focus on the traditional non-financial measures

What do we measure?


0102030405060708090

100

% o

f re

spo

nd

ents

Environment

Supplier

Growth

Regulatory

Internal Processes

Employees

Customer

Financial

Australia China Japan UK US

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

The Performance PrismSWANs 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.

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…

Starting with Kelvin, finishing with Einstein

“Not everything that

counts can be measured.

Not everything that can be

measured counts”.

Albert Einstein, 1879-1955

For Further Information

Professor Andy NeelyCranfield School of ManagementCranfieldBedfordshireEnglandMK43 0AL

Tel. +44 (0)1234 754511Mobile +44 (0)7711 140198E-mail [email protected]

Cranfield web site: www.som.cranfield.ac.uk/somPMA Home Page: www.performanceportal.org

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