Vadim Kotelnikov    

Measuring Performance

and The Executive's Diagnostic Toolkit


Business e-Coach     

"Anytime things appear to be going better, you have overlooked something." ~ Chisholm's Second Law 

Issues that Need to Be Measured and Managed

Market share  >>>



Competitiveness  >>>

Customer satisfaction

Employee morale

Cost of waste  >>>

Use of capital


Write beside each issue indicators that would measure their effectiveness. Ensure that all members of a team are involved in measuring performance to keep anyone focused on raising standards across the board.

If bad results occur, review your own motivation as well as employees'.

Four Sets of Executive's Diagnostic Tools

Key Resources of the Organization


Six Questions for Measuring the Potential Investment

  • How long will it take for profits to pay back the investment?

  • When will the cash stop flowing out and start returning?

  • Do we really have to make this investment?

  • What is the return on investment?

  • Is that return comfortably above the true cost of the capital invested?

  • Looking ahead, and allowing for interest rates, what is the future pay-off worth in today's values?

Measuring the Future for Developing Business Strategy

  • Organize business intelligence to collect and analyze information about actual and potential competitors worldwide

  • Research information about markets, customers, and non-customers

  • Research information on technology, finance and the changing world outside. "Inside organization there are only cost centers. The only profit centre is a customer whose cheque has not bounced."


360 Degree Employee Evaluation

Getting feedback and appraisals from:

  1. Supervisors

  2. Peers

  3. Subordinates

  4. Customers... More

The Four Sets of Diagnostic Tools

To manage the current business, executives require a four sets of diagnostic tools: foundation information; productivity information; competence information; and resource-allocation information. Measurements must be quantitative, systematic and proactive in order to support the corporate culture and decision-making process.

Once managers know what information they need for their work and what information they owe to others, they can develop methods to turn "the chaos of data into organized and focused information".3

Foundation Information

It refers to basic business documents such as cashflows, balance sheets, profit-loss statements, sales, and other various conventional business ratios. Any abnormality in these documents indicates a problem that need to be identified and treated.

Productivity Information

It looks at the productivity of key resources, including labor. You would also need measures like "economic value-added analysis" to demonstrate that your business is earning more than it capital costs, together with benchmarking to show that its performance is as good as or better than the best competition.

Competence Information

Though it's not a easy task, try to define measurements, or if this is not possible assessments, for your core competences as well as your performance in the area of innovation management. "Every organization, not only businesses, need one core competence: innovation," asserts Peter Drucker.

Ask yourself questions such as: "How many of the truly important innovation opportunities did we miss? Why? Because we didn't see them? Or because we saw them but dismissed them?"

Resource-Allocation Information

In addition to traditional measures of capital employment return on investment, payback period, cashflow, or discounted present value, to understand  a proposed investment, ask the two key questions:

  • What will happen if the investment fails to produce the promised results? Would it seriously hurt the company?

  • If the investment is successful, especially more so than we expect, what will it commit us to?

"The is no better way to improve an organization's performance than to measure the results of capital spending against the promises and expectations that led to its authorizations".

Capital, however, is only one key resource of the organization. "The scarcest resources are performing people." Place people, as purposefully and thoughtfully as capital, with specific expectations as to what the appointee should achieve and with systematic appraisal of the outcome.

Total Quality Control (TQC): Japanese Approach

Japanese TQC practice is based on the Kaizen strategy,  that deals with quality of people rather than products. TQC is everybody's responsibility, a company-wide continuous activity involving all employees, systems, software and hardware. TQC is also process oriented and aimed at improving the total performance of the organization.

The seven main features of TQC movement in Japan are:

  1. Company-wide TQC

  2. Emphasis on education and training

  3. Quality control (QC) circles involving small groups of volunteers

  4. TQC audits

  5. Use of statistical methods

  6. Continuous upgrading of standards, and

  7. Nation-wide TQC movement

Balanced Scorecard

The Balanced Scorecard is a framework for designing a set of measures for activities chosen by you as being the key drivers of your business. By having four distinct perspectives (financial, customer, internal process and innovation and learning) it promotes a more holistic view of the business... More

Control Systems for Strategic Management

In strategic management, control systems deal with the fundamental question of whether or not resources (people, capital, hardware, and software) are being used to move the organization towards its goals and what should be done if this is not the case. Different approaches used in strategic management include controls based on inputs; controls based on outcomes; and controls based on understanding inputs and outcomes.




  1. "The Practice of Management", by Peter Drucker

  2. "Management: Tasks, Responsibilities, Practices", by Peter Drucker

  3. "The Frontiers of Management", by Peter Drucker

  4. "Managing in Time of Great Change", by Peter Drucker

  5. "Kaizen - The Key to Japanese Competitive Success", by Masaaki Imai

  6. "Strategic Management", Alex Miller

  7. "Extreme Management". Mark Stevens