KPIs, culture and project governance

On many an occasion we, and others, have defined good governance as balancing the needs of stakeholders and the objectives of the organisation to achieve long-term, sustainable value for the majority, if not all, stakeholders.

From these considerations, Dr Lynda Bourne developed the six functions of governance:

1. Determining the objectives of the organisation
2. Determining the ethics of the organisation
3. Creating the culture of the organisation
4. Designing and implementing the governance framework for the organisation
5. Ensuring accountability by management
6. Ensuring compliance by the organisation

From the perspective of ‘good governance’ the order of importance is top to bottom: understand what the organisation is supposed to achieve, develop the right culture (so the objectives are achieved in the right way) and then ensure there are no lapses. Unfortunately most governing bodies (boards of directors, etc) seem to spend most of their time focused on the last item and progressively less time the further up the list you go.

Changing this focus will be hard. If you are spending most of your time fighting fires trying to prevent breaches of compliance by management, there is little time left to focus on getting the ethical standards and culture to the level where compliance is largely automatic. However, this is about to start changing and will have ramifications in the area of project, program and portfolio management.

One of the outcomes from the ongoing banking scandals has been an announcement from the Australia Securities and Investments Commission (ASIC) that it will start monitoring corporate culture. Which raises the question, what will be the starting point to determine whether or not corporate culture is good, bad, improving or otherwise?

This is a very difficult question to answer. Often senior leaders and board directors find it a real challenge to describe what their company culture is, or what they want it to be. We don’t really have a business language for ‘culture’—“we can’t describe it but we know it’s there”. The simple absence of discovered bad practices does not mean there is a ‘good culture’; the absence of evidence is not evidence of absence.

The effects of ‘bad culture’, greed and criminality are fairly easy to see after the event, the damage to people is obvious. But how do you measure good and improving culture? Certainly from my background in project controls over the last 40 years, three key elements have remained consistent:

1. You get what you measure.
2. What really matters is usually not easy to measure.
3. Independent verification is essential.

So how can these simple requirements be used to measure corporate culture? One aspect to consider would be to look at the KPIs for senior executives. This would require defining cultural and ethical targets that align with the organisations ‘values and mission statement’.

Setting the right KPIs is critical and while ‘culture’ itself is probably not measurable. there are likely to be some viable proxies such as:

• The level of and trend in customer complaints.
• The level of and trend in staff turnover (particularly junior staff).
• The ratio of favourable comments in social media compared to negative comments.
• The percentage of staff volunteering for CSR type extra curricula activities.
• If the organisation has happy clients and its staff enjoy working for the organisation, there is a fair chance its overall culture and ethics are good.

Another option is to identify conflicts between KPIs and the organisation’s cultural objectives; for example every bank has a mission statement that includes excellence customer service but many banks incentivise staff to sell inappropriate products to people (the big bonuses were for the ‘high risk’ products). They also incentivised their managers to ignore the problems being caused by the banks financial advisors by linking the managers bonuses to sales levels. The current ‘banking crisis’ is a direct result of people in the banks performing to achieve the bonuses offered by the banks to maximise short term profits, to the detriment of the objective of ‘excellent customer service’—it really is a case of ‘What you measure is what you get’.

With ASIC on the case, you can bet your governing body is starting to worry about measuring ethics and culture, so sooner or later the way you run your PMO, program or project will come under review. You can treat this as another compliance issue, or you can use it as an opportunity to increase productivity in your teams. The paradox is the very close alignment of motivational theory and the cultural aspects of good governance: people are intrinsically motivated to do a good job, and an effective leader displays high ethical standards. The one thing that is certain ‘measuring culture’ will be a very interesting space to watch as it evolves.