In Australia, as an outcome of the Borland report, most states have now legislated that psychosocial risks have the same status as physical risks with the associated enforcement and repercussions.  Psychosocial health is defined as a state of mental, emotional, social and spiritual well-being.  Psychosocial hazards are aspects of work that give rise to negative impacts on a worker’s psychosocial health. They can include, but are not limited to, things like job stress, interpersonal conflict, bullying, and violence.  In the fast-paced and demanding world of business, executives are often well-versed in identifying physical risks and occupational hazards. However, there is a less tangible, yet equally detrimental, threat lurking beneath the surface: psychosocial hazards.

How is this different from Psychological Safety?

Psychological safety refers to the culture in a group where individuals feel safe to take risks, voice their opinions, and be their authentic selves without fear of negative consequences. Psychological safety cultivates an atmosphere that encourages innovation, creativity, and open communication. It is the foundation that enables individuals to express ideas freely, collaborate effectively, and learn from mistakes without the fear of judgment or retribution.

In contrast psychosocial health refers specifically to the individual and their response to the work environment. Thus, psychosocial hazards, are the potential threats to an employee’s overall well-being and organizational health. These hazards encompass a range of factors, such as excessive workload, interpersonal conflicts, or inadequate support systems, that can negatively impact the psychological and social aspects of work.

Whilst creating a psychologically safe workplace will have a huge impact on improving the psychosocial health of employees, for many organisations, this could be “too little, too late”.  Mentally unhealthy workplaces are estimated to cost $39 billion dollars each year in lost participation and productivity according to a 2020 Productivity Commission report.  Is this the new Asbestos of the Australian workplace?

How can Human Resource Professionals Mitigate Psychosocial Hazards?

Human resource professionals may encounter several barriers when attempting to mitigate psychosocial hazards in the workplace. These barriers can vary depending on the organization, its culture, and the specific context. Here are five common challenges HR professionals may face:

1. Resistance from Management: One significant barrier can be resistance from top-level management or executives who may prioritize productivity and financial outcomes over employee well-being. In such cases, HR professionals may face challenges in gaining support and resources to implement changes that address psychosocial hazards effectively.

Example: HR professionals propose a flexible work arrangement policy to promote work-life balance, but management express concerns about potential disruptions to productivity and client expectations.

2. Lack of Awareness or Understanding: Some organizations may have limited awareness or understanding of psychosocial hazards and their impact on employee well-being and organizational performance. This lack of knowledge can make it challenging for HR professionals to gain buy-in and support for their initiatives.

Example: HR professionals aim to address workplace stress by implementing stress management programs, but there is limited understanding among leadership about the negative consequences of unmanaged stress on employee health and productivity.

3. Resistance to Change: Change, even when beneficial, can be met with resistance from employees who are comfortable with existing practices or fear the unknown. HR professionals may face resistance when trying to introduce new policies or programs aimed at mitigating psychosocial hazards.

Example: HR professionals propose a conflict resolution training program to address interpersonal conflicts in the workplace, but employees are resistant to participate, viewing it as unnecessary or intrusive.

4. Lack of Resources: Limited resources, including budgetary constraints and time constraints, can hinder the implementation of comprehensive initiatives to address psychosocial hazards. HR professionals may struggle to secure funding for necessary resources, such as training programs, mental health support services, or technology platforms.

Example: HR professionals recognize the need for mental health resources, but there is limited budget allocation for counselling services or employee assistance programs.

5. Organizational Culture and Resistance to Vulnerability: In organizations where there is a lack of psychological safety or a culture that discourages openness and vulnerability, employees may be reluctant to disclose their struggles or seek support. HR professionals may find it challenging to break down these cultural barriers and create an environment where employees feel safe to share their concerns.

Example: HR professionals aim to establish anonymous reporting channels for workplace bullying or harassment, but employees fear retaliation or being labelled as complainers if they come forward.

Navigating these barriers requires persistence, effective communication, and strong advocacy skills on the part of HR professionals. Overcoming these challenges often involves building a compelling business case for change, fostering open dialogue, and engaging stakeholders at all levels of the organization to create a shared understanding of the importance of addressing psychosocial hazards in the workplace.

To help accelerate the identification and elimination of psychosocial hazards from the workplace we have partnered with Advantexe Learning Solutions to bring their award-winning Psychological Safety Simulation to the Australian and South East Asian Market.  To register for the upcoming webinar or to find out more please click here.

Written with the assistance of Chat GPT and Bard

In the fast-paced and demanding world of business, executives are often well-versed in identifying physical risks and occupational hazards. However, there is a less tangible, yet equally detrimental, threat lurking beneath the surface: psychosocial hazards. Psychosocial hazards are aspects of work that can have a negative impact on a worker’s mental and emotional health. They can include things like job stress, bullying, and violence.

How is this different from Psychological Safety?

This can be contrasted with psychological safety. While they may sound similar, they address different aspects of the employee experience. Think of psychological safety as the fertile soil where trust and collaboration can grow, while psychosocial hazards represent the hidden thorns that can prick and hinder the growth of a healthy work environment.

Psychological safety, akin to a supportive ecosystem, is the bedrock of a thriving workplace. It refers to an environment where individuals feel safe to take risks, voice their opinions, and be their authentic selves without fear of negative consequences. Psychological safety cultivates an atmosphere that encourages innovation, creativity, and open communication. It is the foundation that enables individuals to express ideas freely, collaborate effectively, and learn from mistakes without the fear of judgment or retribution.

On the other hand, psychosocial hazards, resembling invasive weeds, represent the potential threats to employee well-being and organizational health. These hazards encompass a range of factors, such as excessive workload, interpersonal conflicts, or inadequate support systems, that can negatively impact the psychological and social aspects of work. They can be seen as the thorns that obstruct growth and well-being.

A Profound Impact on Employee Well Being

These hazards, which encompass the psychological and social aspects of work, can have a profound impact on employee well-being and organizational performance. Let us delve into this often-overlooked realm, shedding light on the unseen perils that can undermine the health and productivity of individuals and companies alike.

To better understand the impact of psychosocial hazards, imagine a tranquil pond surrounded by lush greenery—a harmonious ecosystem in balance. Now, envision the same pond tainted by toxic substances seeping into its waters. The once-vibrant ecosystem begins to deteriorate, as the toxicity spreads, suffocating life. Similarly, in the workplace, psychosocial hazards act as the toxic substances, polluting the work environment and eroding employee morale and productivity. Psychosocial hazards come in various forms, and their impact can be insidious. Consider excessive workload and unrealistic deadlines. Just as an overloaded power circuit can cause a catastrophic breakdown, an overwhelming workload can lead to burnout, decreased concentration, and heightened stress levels. Similarly, interpersonal conflicts, akin to fissures in a foundation, can fracture team cohesion and breed a toxic work environment, affecting both mental well-being and overall productivity.

Psychosocial hazards can have a devastating impact on a worker’s health. They can lead to a range of mental and emotional problems, including anxiety, depression, post-traumatic stress disorder, and sleep disorders. They can also lead to physical problems, such as heart disease, stroke, and musculoskeletal disorders.

Organizational Culture as a Crucial Factor

Organizational culture serves as the fertile soil that nurtures or stunts the growth of psychosocial hazards. An organization that fosters a culture of fear, where individuals are reluctant to voice concerns or take risks, is akin to a stifling desert devoid of nourishment. On the other hand, a positive and supportive culture, where open communication and trust flourish, resembles a lush rainforest, teeming with creativity and collaboration.

The impact of psychosocial hazards extends beyond the individuals directly affected, much like the ripples caused by a stone tossed into a pond. When one employee experiences high levels of stress or burnout, the effects reverberate through the organization, impacting team dynamics, productivity, and ultimately, the bottom line.

The Road to Salvation

Recognizing and addressing psychosocial hazards is crucial for business leaders. Implementing effective strategies, much like constructing flood barriers, can protect against the harmful consequences. Initiatives such as promoting work-life balance, fostering a culture of psychological safety, and providing mental health resources are essential steps towards mitigating psychosocial hazards.

Leaders Need to Take Responsibility

In the bustling world of business, it is imperative for leaders to broaden their focus beyond tangible risks and consider the intangible dangers that silently undermine organizational success. By cultivating psychological safety and proactively mitigating psychosocial hazards, organizations can create an ecosystem where individuals can flourish, bringing out the best in themselves and their teams. We as leaders need to take responsibility of safeguarding the psychosocial landscape, ensuring a sustainable future for both individuals and businesses alike.

If you would like to explore more on Psychosocial health and psychological safety, please join us for our upcoming workshop by registering here.

Written with the assistance of Chat GPT and Bard

A Universal Business Measurement Tool

Have you ever wondered why incentive schemes fail? Tieing key performance indicators (KPI’s) to strategy has evolved as accepted best practice over the past few decades.  Since 1992, the Balanced Scorecard (Kaplan & Norton)[i] approach has been a universal model used to create and classify those KPI’s and other performance metrics.  However, there is an insidious side to the Balanced Scorecard.  It is prone to what is known as surrogation bias in the hands of inexperienced and naïve business managers.

During the 21^st century most corporate learning & development initiatives have focused on building better leaders. Very few have seen the value in training better business thinkers and strategist who have a profound understanding of cause and effect of business decisions designed to create long term sustainable value.  The lack of big picture thinkers who understand the importance of aligning & cascading strategy through the business is a skill that has been underdeveloped.  These business thinking skills are essential if a surrogation bias is to be mitigated.

A trap for the Inexperienced

The trap for inexperienced managers is that whilst the concept of a Balanced Scorecard is relatively easy to understand, it is much more difficult to implement without running into significant issue caused by this so-called concept of surrogation bias.

So, what is surrogation bias? Surrogation bias[ii]  is a psychological phenomenon in which the measure of a strategy evolves to replace the strategy itself.  What happens all too frequently is managers lose sight of the strategy the KPI is intended to represent, and subsequently confuse achieving the metric with achieving the strategy.

As an example, many companies have a Net Promoter Score (NPS) metric to measure the level of customer satisfaction.   Very few have a Net Promoter Score strategy.   There are many ways of getting a good NPS that are disconnected to fundamental improvement for example in the quality of service delivery.  I’m sure I am not the only one who has been rung up by a service department asking for a 9 or 10 (out of 10 rating) if I was happy with their performance.  NPS has been gamed by most organisations seeking to implement it as a measure.  The banks are a great example of this!

If you would like a complimentary 14 page diagnostic assessment on your organisations susceptibility to surrogation bias and other strategic misalignment issues please click here.

So who are the Villains ?

Surrogation bias is further exacerbated if it is linked to an incentive or bonus scheme.  This is one of the root causes of the epic failures uncovered by the Banking Royal Commission.  Whether it be depositing money into kids banks accounts in order to activate them or selling credit card insurance to people who were ineligible, all can be linked back to surrogation bias.

So are Kaplan & Norton the unwitting villains in this plot.  I think not.  During the 1980’s Roberts S Kaplan was a noted Management Accounting academic & theorist.  He explored ways of understanding and measuring intangible value creation.  He thought existing performance management approaches, primarily relying on financial accounting measures, were becoming obsolete.  The belief was that reliance on summary financial performance measures were hindering an organisations ability to create future economic value.  He got together with David P Norton and came up with an emerging concept of how to help firms overcome these issues.  This resulted in the publication of their seminal 1992 HBR article “The Balanced Scorecard – Measures that Drive Performance”.  It’s worth pointing out that the primary focus was to support long term value creation rather than short term profit maximisation.  Exactly what the Financial services industry has been accused off during the Royal Commission.

Was it all Based on a Fallacy

Kaplan & Norton quickly recognised that the foundational premise of the Balanced Score Card was a fallacy.  That is “measures that drive performance”.  They recognised quite early after the publication of the initial 1992 article that measures don’t drive performance strategies do! Kaplan himself has been at pains to point this out ever since.  They were learning as they were going and by the time of the publication of the book “The Balanced Scorecard”  in 1996[iii] all  reference to “Measures that Drive Performance” as a tag line had been replaced by “Translating Strategy into Action” and the Strategy Map introduced as the fundamental building block.  The Strategy Map concept is used to explicitly connect the cause and effect of strategies in each of the four domains (Financial, Customer, Internal Process, Learning & Growth).  You need to do this first before attributing measurements.  However, it was too late, the genie was out of the bottle.

To this day many academics, consultants, and managers, continue to think erroneously of the scorecard as a performance measurement system only rather than a holistic performance management system.  Their knowledge and acquaintance with the scorecard is probably based only on reading the original 1992 HBR article or the first half of the initial Balanced Scorecard book (1996)[iv].

All is not Lost

However, all is not lost.  We have at our disposal means to identify conditions that propagate surrogation biases and means to mitigate their effects.  Nobel laureate Daniel Kahneman and Yale professor Shane Fredricks have identified through research three conditions that can led to a surrogation bias being present.

• The objective or strategy is fairly abstract (in the minds of the people responsible for implementation)
• The metrics of the strategy are concrete (as communicated by head office)
• The employee accepts, at least subconsciously, the substitution of the metric for the strategy

If you think your organisation might be at risk after applying the above tests,  Michael Harris & Bill Tayler in their recent HBR article “Don’t Let Metrics Undermine Your Business” (HBR Sept-Oct 2019) have identified three ways to help mitigate the risk of surrogation bias.

• Get the people responsible for implementing the strategy to help formulate it. This sounds very simple but all too often most employees are receivers of strategic propaganda and rhetoric from senior managers further fostered by measures they need to achieve being dictated to them in their annual Personal Performance Plan.  This further exacerbates the surrogation bias.  Team-Based Strategic thinking is a process that helps enable the alignment and cascading of strategies through an organisation.
• Loosen the link between metrics and incentives. If you are not going to implement the first option above, you have to decouple metrics from incentives, or you will have a royal commission on your hands.  It is that simple.
• Use multiple metrics for a strategy or objective. The research shows that having multiple metrics rather than just one causes people to surrogate less as they can’t just focus on the one metric.  g. NPS

Be Warned!

So, managers be warned if you organisation is using financial incentives based on performance measures linked to a Balance Scorecard you can nearly be rest assured that you have some form of surrogation bias happening.  As the immortal Peter Drucker once said, “the only strategy that is important is the one that is in your people’s head when they make a decision”. What strategy do your people have in their heads?

Bibliography

[i] Robert S. Kaplan, David P. Norton, “The Balanced Scorecard – Measures that Drive Performance”, Harvard Business Review, (January – February 1992); 71-74.

[ii] Michael Harris, Bill Tayler, “Don’t Let Metrics Undermine Your Business”, Harvard Business Review, (September – October 2019); 63-69.

[iii] Robert S. Kaplan, David P. Norton, The Balanced Scorecard – Translating Strategy into Action, Harvard Business School Press, Boston Massachusetts, 1996.

[iv] Robert S. Kaplan, Conceptual Framework of the Balanced Scorecard, Working Paper 10-074, Harvard Business School, Harvard University, 2010.

“Your organisation is perfectly designed for the results that you achieve” – W.Edwards Demming

Good, Better, Best………

We are more familiar in observing this “fire” in our athletes which taps into their basic human instinct for survival. Top performers are described as having the “killer instinct”, that “eye of the tiger”. However, does the physical challenge of competing in the sports arena translate into the cognitive challenge of our business simulation workshops?  If we want to run faster or jump higher, we know that we need to train ourselves physically for that endeavour.  When the challenge is cognitive, we need to train ourselves to think better.  It’s this concept of training the brain to think better (about business) that really got me intrigued. The world has so much at stake at the moment.

It seems for many there is a stigma to the word competition.  Somewhere in the recent timeline of human endeavour the noble pursuit of excellence and humility in victory was replaced with a notion of win at all costs, showing mercy to your competition was an act of weakness.  As Vince Lombardi the famous Green Bay Packers coach famously coined “winning isn’t everything it’s was the only thing”.  Many then lived their lives by this motto and now when someone is described as being “overly competitive”, this is a euphemism for calling them aggressive and self-centred.

The 15th September 2020 marked the 20th anniversary of the Sydney Olympics opening ceremony. For those who lived in Sydney at the time, I don’t have to describe what a special time that was.  We wanted to put on the best Olympics ever and we did!

Why do I bring up the Olympics?  It would seem that the ideals of competition as espoused by the ancient Greeks in the first Olympics has somehow been lost in current generations.  No one seems to talk about the virtues of competition.  That is the idea that the only way one can push themselves to achieve their best is to compete.  More specifically it is the process of competing and what that teaches us about ourselves, rather than the act of winning that is important.  The ancient Greeks even had a term for this, Aretas.

In its basic sense aretas, means excellence of any kind. The term also implies a “moral virtue”. Aretas, this notion of excellence is ultimately bound up with the notion of the fulfillment of purpose: the act of living up to one’s full potential.

In fact the ancient Greeks did not fear that competition bred immoral behaviour. They believed that competition taught moral behaviour. Only by competing could people come to attain the full nobility of the human spirit. In simplest terms, they learned to fight fair, with honour and mutual respect for opponents. Aretas meant that competing had shaped you into a better person: competition challenged you to become the best you could be.

So, have I somehow rediscovered this by accident in the process of running a business simulation workshops?

Being a student of cognitive neuroscience I wondered if it could help me unlock the secrets. Why does this work? How does this work?  What can I harness for future business simulation workshops that can make them even bigger and better?

What I discovered was that the modern study of cognitive neuroscience can help us unpack how the magic happens. That is we can take the research from physical competition and use it to better understand cognitive competitions and how they supercharge the rate of applied learning (for the advancement of humankind).

If you would like to find out more about the neuroscience of learning and the implications for business simulation design please feel free to contact me. click here

Links to PART I & PART II

PART I: THE ART & SCIENCE OF COMPETITION (click here)

PART II: LEARN TO WIN (click here)

“Good, better, best, never let it rest, until your good is better and your better best!” – St Jerome

Learn to Win

What is funny is that “learners” in a business simulation workshop would not necessarily describe what they are doing as “learning”.  Try asking them “what they are learning” at any point of the workshop, and they will find it difficult to articulate.  However, they would describe what they are doing as participating, participating in an experience. If you press them further and ask “why” they are participating, universally the answer comes back “to win”.

What participants quickly realise is if they want to win there is a lot to comprehend and understand, fast. They will be very open to listen and learn from you anything that helps them with their “prime objective” of winning.  They want to “learn to win”.

Know|Do|Reflect|Apply

The process methodology of the simulation workshop of “know, do, reflect, apply” becomes a powerful flywheel for rapid adoption of new mental models and thinking skills required to be a successful strategic leader.  It totally collapses the notion of the 70|20|10 of learning as the workshop is in fact a simulation of the 70% “on the job training” and more importantly is connected with direct reflection (and adjustment) in a risk free environment. Something that is often left to chance in the real world. It’s only at the end of the workshop that participants can articulate what they have learnt and more importantly how they can apply these skills back on the job.

Accelerating the Strategic Agenda

So, what are the organisational implications of all of this.  As a consequence of striving for excellence, participants have significantly improved their strategic thinking and business acumen as well as practiced other key leadership competencies.  This in turn will enable them to contribute to the strategic leadership agenda in their business which in turn will allow their business to do such things as navigate through issues like the economic implication of the COVID 19 pandemic.

A business simulation workshop is so much more than just learning for the sake of development or an esoteric notion of some accomplishment against a leadership competency framework or learning objectives.  It is learning to win.  This seems to trigger a basic human survival instinct.

The ancient Greeks may have been onto something! Be sure to read Part III where I deep dive into insights gained form the ancient Greeks and the founding ethos of the original Olympics.

If you would like to find out more about our approach to leadership development please feel free to contact me. click here

Links to PART I & PART III

PART I: THE ART & SCIENCE OF COMPETITION (click here)

PART III: THE ANCIENT GREEEK CONCEPT OF ARETAS (click here)

“I cannot teach anybody anything. I can only make them think.” – Socrates

Good v Evil?

Business Simulation competition. Since ancient time man has been in a competition for survival.  It is a basic human instinct hardwired into the amygdala. Competition in its purest form is encapsulated in the Darwinian notion of “survival of the fittest”.  This is a naturalistic view of competition that has an amorality about it. Neither good nor evil, just survival.

Competition has become a dirty word!

Over the eons this competition has driven improvement, significant achievement, and excellence for humanity.  The quality of life and standard of living for the majority of the earth’s population is unrecognisable from 100 years ago.  Competition, for all living things, is as natural as breathing.  However, over recent times, the concept of competition has become a dirty word and blamed for many of the ills facing society.  Humanity has lost the connections with the naturalistic traits of competition and replaced them with evil connotations of greed and power that for many has seen the concept of competition as a corruption to the human spirit.  This is especially true in business.

Nourishment for the human condition

During a business simulation workshop something magical happens. Through the act of participation in the workshop participants rediscovered the notion of virtuous competition.  The one that spurns excellence, that drives innovation, creativity and collaboration.  One that nurtures and nourishes the human condition in a period of human civilisation on earth like no other.

Building thinking muscles

I’ve been running business simulation workshops for over 15 years to help participants improve their strategic thinking and business acumen to become better strategic leaders. This helps them, for instance, navigate the economic maelstrom caused by the COVID-19 pandemic. Over the years I have continually been amazed at how motivated and engaged some participants are when they finish a workshop.  This is particularly evident during our recent business simulation tournament series.

A powerful learning experience

I was overwhelmed by the response.  It really made me think long and hard about why this particular format is so powerful and motivating.  It’s rekindled my love of business simulations and made me remember some of the very basic design principles that make them such an effective way to learn.  It’s really like all I have to do is provide a small spark which lights a mighty fire of learning, rapid learning, real learning, applied learning. I believe it is all tied up in this notion of virtuous competition.

If you would like to find out more about our approach to leadership development please feel free to contact me. click here

Click the links below to the other 2 parts to this article

PART II: LEARNING TO WIN

PART III: THE ANCIENT GREEK CONCEPT OF ARETAS 

“I cannot teach anybody anything. I can only make them think.” – Socrates

For a free comprehensive 14 page strategic leadership assessment report please click on this link now: Strategic Leadership Assessment Report

The post COVID-19 world will act as a catalyst for business transformation like no event in our economic history. The above video contains excerpts of Richard Kelly facilitating the kick-off meeting for the Business Simulation Tournament 2020.  Richard speaks firstly about his strategic leadership model and then about what the tournament is designed to achieve particularly about how leaders will need to challenge their current orthodoxies if they are going to thrive in a post COVID world. Have you really got the ability to transform?

For a free comprehensive 14 page strategic leadership assessment report please click on this link now: Strategic Leadership Assessment Report

A Universal Business Measurement Tool

Have you ever wondered why incentive schemes fail? Tieing key performance indicators (KPI’s) to strategy has evolved as accepted best practice over the past few decades.  Since 1992, the Balanced Scorecard (Kaplan & Norton)[i] approach has been a universal model used to create and classify those KPI’s and other performance metrics.  However, there is an insidious side to the Balanced Scorecard.  It is prone to what is known as surrogation bias in the hands of inexperienced and naïve business managers.

During the 21^st century most corporate learning & development initiatives have focused on building better leaders. Very few have seen the value in training better business thinkers and strategist who have a profound understanding of cause and effect of business decisions designed to create long term sustainable value.  The lack of big picture thinkers who understand the importance of aligning & cascading strategy through the business is a skill that has been underdeveloped.  These business thinking skills are essential if a surrogation bias is to be mitigated.

A trap for the Inexperienced

The trap for inexperienced managers is that whilst the concept of a Balanced Scorecard is relatively easy to understand, it is much more difficult to implement without running into significant issue caused by this so-called concept of surrogation bias.

So, what is surrogation bias? Surrogation bias[ii]  is a psychological phenomenon in which the measure of a strategy evolves to replace the strategy itself.  What happens all too frequently is managers lose sight of the strategy the KPI is intended to represent, and subsequently confuse achieving the metric with achieving the strategy.

As an example, many companies have a Net Promoter Score (NPS) metric to measure the level of customer satisfaction.   Very few have a Net Promoter Score strategy.   There are many ways of getting a good NPS that are disconnected to fundamental improvement for example in the quality of service delivery.  I’m sure I am not the only one who has been rung up by a service department asking for a 9 or 10 (out of 10 rating) if I was happy with their performance.  NPS has been gamed by most organisations seeking to implement it as a measure.  The banks are a great example of this!

If you would like a complimentary 14 page diagnostic assessment on your organisations susceptibility to surrogation bias and other strategic misalignment issues please click here.

So who are the Villains ?

Surrogation bias is further exacerbated if it is linked to an incentive or bonus scheme.  This is one of the root causes of the epic failures uncovered by the Banking Royal Commission.  Whether it be depositing money into kids banks accounts in order to activate them or selling credit card insurance to people who were ineligible, all can be linked back to surrogation bias.

So are Kaplan & Norton the unwitting villains in this plot.  I think not.  During the 1980’s Roberts S Kaplan was a noted Management Accounting academic & theorist.  He explored ways of understanding and measuring intangible value creation.  He thought existing performance management approaches, primarily relying on financial accounting measures, were becoming obsolete.  The belief was that reliance on summary financial performance measures were hindering an organisations ability to create future economic value.  He got together with David P Norton and came up with an emerging concept of how to help firms overcome these issues.  This resulted in the publication of their seminal 1992 HBR article “The Balanced Scorecard – Measures that Drive Performance”.  It’s worth pointing out that the primary focus was to support long term value creation rather than short term profit maximisation.  Exactly what the Financial services industry has been accused off during the Royal Commission.

Was it all Based on a Fallacy

Kaplan & Norton quickly recognised that the foundational premise of the Balanced Score Card was a fallacy.  That is “measures that drive performance”.  They recognised quite early after the publication of the initial 1992 article that measures don’t drive performance strategies do! Kaplan himself has been at pains to point this out ever since.  They were learning as they were going and by the time of the publication of the book “The Balanced Scorecard”  in 1996[iii] all  reference to “Measures that Drive Performance” as a tag line had been replaced by “Translating Strategy into Action” and the Strategy Map introduced as the fundamental building block.  The Strategy Map concept is used to explicitly connect the cause and effect of strategies in each of the four domains (Financial, Customer, Internal Process, Learning & Growth).  You need to do this first before attributing measurements.  However, it was too late, the genie was out of the bottle.

To this day many academics, consultants, and managers, continue to think erroneously of the scorecard as a performance measurement system only rather than a holistic performance management system.  Their knowledge and acquaintance with the scorecard is probably based only on reading the original 1992 HBR article or the first half of the initial Balanced Scorecard book (1996)[iv].

All is not Lost

However, all is not lost.  We have at our disposal means to identify conditions that propagate surrogation biases and means to mitigate their effects.  Nobel laureate Daniel Kahneman and Yale professor Shane Fredricks have identified through research three conditions that can led to a surrogation bias being present.

• The objective or strategy is fairly abstract (in the minds of the people responsible for implementation)
• The metrics of the strategy are concrete (as communicated by head office)
• The employee accepts, at least subconsciously, the substitution of the metric for the strategy

If you think your organisation might be at risk after applying the above tests,  Michael Harris & Bill Tayler in their recent HBR article “Don’t Let Metrics Undermine Your Business” (HBR Sept-Oct 2019) have identified three ways to help mitigate the risk of surrogation bias.

• Get the people responsible for implementing the strategy to help formulate it. This sounds very simple but all too often most employees are receivers of strategic propaganda and rhetoric from senior managers further fostered by measures they need to achieve being dictated to them in their annual Personal Performance Plan.  This further exacerbates the surrogation bias.  Team-Based Strategic thinking is a process that helps enable the alignment and cascading of strategies through an organisation.
• Loosen the link between metrics and incentives. If you are not going to implement the first option above, you have to decouple metrics from incentives, or you will have a royal commission on your hands.  It is that simple.
• Use multiple metrics for a strategy or objective. The research shows that having multiple metrics rather than just one causes people to surrogate less as they can’t just focus on the one metric.  g. NPS

Be Warned!

So, managers be warned if you organisation is using financial incentives based on performance measures linked to a Balance Scorecard you can nearly be rest assured that you have some form of surrogation bias happening.  As the immortal Peter Drucker once said, “the only strategy that is important is the one that is in your people’s head when they make a decision”. What strategy do your people have in their heads?

Bibliography

[i] Robert S. Kaplan, David P. Norton, “The Balanced Scorecard – Measures that Drive Performance”, Harvard Business Review, (January – February 1992); 71-74.

[ii] Michael Harris, Bill Tayler, “Don’t Let Metrics Undermine Your Business”, Harvard Business Review, (September – October 2019); 63-69.

[iii] Robert S. Kaplan, David P. Norton, The Balanced Scorecard – Translating Strategy into Action, Harvard Business School Press, Boston Massachusetts, 1996.

[iv] Robert S. Kaplan, Conceptual Framework of the Balanced Scorecard, Working Paper 10-074, Harvard Business School, Harvard University, 2010.

“Your organisation is perfectly designed for the results that you achieve” – W.Edwards Demming

Utopia?

“Mom, can you print me up a hamburger!”,  such were the prophetic word of George Jetson’s boy Elroy, to his mom Jane in the famous 1960’s eponymous cartoon series “The Jetsons”. 

Well is looks like this day is getting closer and closer to reality based on the current view of RethinkX  founder Tony Seba.  Seba is predicting that the number of cattle in the US will decrease 50% by the year 2030 based on Silicon Valley’s “food-as-a-software” technology for manufacturing protein.  This clearly has a huge impact on the Australian Beef & Diary Industries.

A Disrupted Business Model

A perfect storm of fast-improving technology, new business models, and fast-falling costs is set to create the deepest, most consequential disruption of food and agriculture in ten thousand years. Australia faces the end of the beef & diary industry as we know it, and the exponential market growth of inexpensive, high-quality, tasty modern food designed using technology based on precise consumer specifications. At least this is the prediction coming out of the Tony Seba’s US based RethinkX Think Tank who are devoted to predicting and analysing the future economic consequences of technology disruption.

Food-as-a-Software

What is scary is that this potential disruption is following a very predictable path. Originally very expensive to produce, technology advances have accelerated to a position where Silicon Valley now uses the term “food as a software” technology to describe this industry disrupter. Technology created protein is predicted to be 10 time cheaper than animal produced protein by 2035. Whilst many could not ever see themselves eating anything else than a big juicy T-Bone Steak, there was a time where I could never see myself reading a newspaper online and who would ever think that KFC would offer meatless chicken.

“Your organisation is perfectly designed for the results that you achieve” – W.Edwards Demming