Design The Future: Craft The Measures of Merit

1. Design The Future: Craft The Measuresof Merit Design the Future Target for Success Campaign to Win Finish with Finesse Scope the Environment Paint the Future Picture Engrave the Precepts Craft the Measures of Merit

2. Measures Of Merit • Results Follow Measurement • The Most Important Results Are Those Which Affect The Organization’s Future • Strategy Is The Key To A Good Future • Thus, Good Measures Of Strategy Are Essential • Measures Of Merit Should Be DerivedFrom The Future • “Bottom-Up” (Tactical) Measures UnlikelyTo Be Strategic • If A Tactical Measure Does Not Correlate With A Strategic Future, It Is of Little Value

3. Tactical And Strategic Measures • Measurement Set 2: Seven Weeks Later • Attendance 50% Over Predictions • Guests Spending 30% Over Predictions Strategic Tactical • Measurement Set 1: Opening Day • Ran Out Of Food • Rides Broke Down • Boat Swamped • Unkind Newspaper Stories

4. Characteristics Of A Good Measurement Process • Characteristics of Good Measurement Plans • Start First With Overall Measures At The Strategic Level, And Then Measure Component Parts • Measure From Start To Finish And ConnectTactics To Strategy • Measure The Right Things In The Right Way • Characteristics Of Good Measures • Absolute • Not Comparative • Externally Derived Or Derivable • Carefully Conceived To Avoid Encouragement Of Non-Strategic Actions • Aligned With Strategy, Well-Crafted, And Clearly Understood

5. Corporation Measure First At The Global Strategic Level—Not The Local Tactical Level Measure The Right Things In The Right Way Individual Factories Optimizes To Ensure That Log Grinder Machines Have 100% Utilization Which Means Big Entering And Exiting Inventories Optimizes For Basic Research, Hires Top Lab Personnel, Wins Nobel Prize, But Develops No Commercially Successful Products. Optimizes For Environmental Correctness. Wins Award For Most Environmentally Correct Plant In The World But Its Cost Of Production Is Very High And It Never Meets Deadlines. • Few Commercially Viable New Products • Inventory Costs Exorbitant • Output Frequently Lags Customer Demand • Unit Cost Of Production Very High • Order Fulfillment Atrocious • Net: Overall Company Productivity And Profit Bad Even Though Each Unit Is Award Winning At Its Level Optimizes To Improve Worker Satisfaction. Surveys Show It Best In The Industry, But Cost Per Unit Of Production Is Highest In Industry Optimizes For Speed Of Package Handling And Sets World Records, But Its Error Rates Are Very High And Its Costs Industry Leading

6. Full Scale Measurement--War • Get The High Level Measures Right • Winning An Engagement, A Battle, Or A War Is Irrelevant Unless You Are Better Off After The War Than Before • Understand and Measure The Whole Process • Peace—War--Peace • Don’t Measure Means At The Expense of Ends • War Is A Means To An End, Not An End In Itself • Focus On The Ultimate Measure of Success • Value of The Peace Which Follows—On Which All Planning Should Center

7. Full Scale Measurement--Business • Get The High Level Measures Right • Winning A Presentation, An Account, Or A Market Is Irrelevant Unless You Are Better Off Afterward Than Before • Understand and Measure The Whole Process • Initial Market Condition—Campaign—Resultant Market Condition • Don’t Measure Means At The Expense of Ends • A Business Campaign Is A Means To An End, Not An End In Itself • Focus On The Ultimate Measure of Success • Condition of Company After The Campaign—On Which All Planning Should Center

8. Absolute Measurement From Quality Associates International

9. Six Sigma Japanese Automakers US Big Three Auto Makers Measure Against The Absolute Or The Best Anywhere Quality 1945 1955 1965 1975 1985 1995 2005 2015

10. Don’t Confuse Tactical and Strategic Measures of Merit • Strategic Measures of Merit Show ProgressToward The Future • Is The Painting Materializing As Intended? • Tactical Measures Show Details Of The Effort • How Long Does It Take To Move BrushFrom Palette To Canvas? • Confusing Tactical and Strategic MeasuresCan Be Disastrous • The WWII Merchantman Decision • American Measures In Vietnam • Strategic Measures Key To Success • The Dell Computer Company Measures • Growth • Growth, Liquidity, And Profitability • Right Measures Drive Alignment Of Tactics With Strategy

11. Beware Of Classic MeasuresCaptured Territory & Market Share • Territory Capture Is A Classic Military Measure • And Fraught With Danger • Generals and Nations Who Pursue Territory Capture Rather Than Strategic Centers of GravityNormally Lose

12. Rear View Mirror Quality? Power Delta? Future? Beware Of Classic MeasuresCaptured Territory & Market Share • Market Share Capture Is A Classic Business Measure—And Fraught With Danger • Businesses That Make Market Share A Primary Strategic Measure Set Themselves Up For Disaster • May Be Used Carefully As A Lagging Indicator • Model T Ford • Xerox Copiers • IBM: Mainframes • Word Perfect • Kodak • DEC: Mini-computers • K-Mart: Urban Discount • A&P • United Airlines • Intel (Memory Chips) • US Steel • General Motors • Boeing • Sears

13. Getting It RightMeasurement Perspective • Half Full or Half Empty? • Answer Sets Expectations For Future • Are You Measuring Tactically or Strategically? • Iraqi Electrical System: Strategic Success Despite Minimal Tactical Effort • Fast Food Industry: Tactical Success In Reducing Drive-Thru Times With Adverse Strategic Consequences • Are You Measuring Strategic Opportunityor Tactical Failure? • Southwest Airlines: Tactical Problem Converted Into Strategic Opportunity And Success • Battle of The Bulge: Tactical Reaction Precludes Strategic Operations, Prolongs War • Is What You Are Measuring Tactical or Strategic? • Apple Newton: Tactical Failure, Strategic Victory • 1968 Tet Offensive: Tactical Victory, Strategic Disaster

14. Business Key Descriptor Measures Of Merit Hypothetical Disneyland Example • Timeframe: 1951-1960 • Financial Position: (Profit From Operations Within Two Years Of Opening, Growing Net Profit And No-Debt By 1960) • Established As A Profit Center At 1955 Opening Responsible For All Costs And Debts • PFO (Per Generally Accepted Accounting Principles) For CY 1957 • Net Profit In 1958 Growing =>15% per annum • 1960 Debt At Zero (Excepting Short Term Cash Management) • Market Position: (Disruptive Driver Of Redefined Theme Park Market) • Disneyland Unique • >25% Of Visitors Rarely Or Never Visited Old-Style Theme Parks (Non-Consumers) • Large Scale Attempts To Copy Announced; Old-Style Parks Restructuring • Business Areas: (Family Oriented Theme Parks And Complementary Products) • Visitor Logs, Surveys, And Observation Shows >50% Of Visitors Are Families • Income Statements Show Revenue From One Or More Theme Parks And From Associated Products (Cinderella Castle Model, Etc) • Innovation: (Disruptive Innovation Drawn Primarily From In-House Studio And Secondarily From Outside Sources) • Unique Rides And Services In Operation That Draw 10% Or More Of Visitors Who Say They Came Because Of The Unique Attraction Or Service • Over 50% Of These Unique Attractions And Services Developed In-House • Insider Perception: (A Company On The Cutting Edge Of Innovative Entertainment And Customer Service) • Customer Surveys And Media Stories Report Outsider Perception Of Cutting Edge Innovation • Exceptional Customer Service Regularly Observed; Backlog Of Valid Associate Proposals For Innovation • Surveys Of Associates Highlight Pride In Innovation And Customer Service • Outsider Perception: (The Place To Take Your Family (And Yourself) And A Superior Business Investment) • Surveys Of Visitors • Analyst Reports on The Walt Disney Company (WDC) Cite Disneyland Profits As Key Reason Stock Is A Strong Buy

15. Business Key Descriptor Measures Of Merit Hypothetical Disneyland Example 2 • Workforce Characteristics:(Creative, Empathetic, Hardworking, Self-starters) • Appropriate Tests Indicate Desired Mix • Observed Behavior: ideas, Anticipating Visitor Needs, Timely Job Completion, Projects Begun Before Supervisors And Managers Give Direction • Brand: (Yes: The Place For Enchanting Family Entertainment) • Formal Brand In Place • 50% Or Greater General Public Recognition Per J.D. Powers • Corporate Culture: (Open Planning; Participative; Semi-autocratic) • Projects Left Out For All To See And Annotate; Planning Sessions Open To All; All Management Participate Regularly In Decision-making; Non-Management Regularly Briefed And Opinions Solicited; WD Approves Proposals Quickly Or Rapidly Provides Alternative • Corporate Citizenship: (Contributions From Profits To Designated Charities) • 1% Of Operating Profits (1958) And 1% Net Profit (1960-) Contributed To California Institute Of The Arts • Ownership: (Everyone A Stockholder With Walt The Controlling Stockholder; Disneyland 100% Owned By Disney) • 90% Of Associates Own Disney Stock • Walt Disney Owns 20% Of WDC Stock • Disneyland A Wholly Owned Subsidiary Of WDC • Incentive Philosophy: (Salaries High Enough To Attract And Hold Right People; Bonuses To All When Profits Justify) • Highly Qualified Applicants Significantly Exceed Vacancies • <5% Voluntary Turnover Of Highly Qualified Associates • Bonuses Paid In Years With Net Profit

16. Fast Key Descriptor Progress Upper Metric Progress Toward Future Picture 12 Key Descriptors Progress Lower Metric Today 1 2 3 4 5 6 7 Time Measuring The Future Picture Theoretical Linear Progress

17. Financial Position Market Position Business Areas Innovation Insider Perception Outsider Perception Workforce Characteristics Brand Corporate Culture Corporate Citizenship Ownership Incentive Philosophy Progress Toward Future Picture Today 1 2 3 4 5 6 7 Time First Level Strategic Measurement

18. Injunction Measure and Reward the Future—Not the Past! (Gerstner)

19. Prometheus Process Craft TheMeasures of Merit Insights and Discussion