There are many known and used measures of performance of workers and employees at low to mid-levels, sometimes expressed as an Index. While performance of senior level managers is critical, perhaps we can attempt developing an appropriate index.
There are indexes for everything and if you didn’t have, you can develop one. There is CPI (consumer price index), trade-weighted exchange rate index, and so on. The foremost aspect of any Index is that it is a pure number (because it doesn’t have any units) which renders it useful as a tool of comparison. However, it is important to remember that you can only compare indexes with a common reference base.
In business, especially in manufacturing, index is vital because it becomes a measure of productivity and is a basis for quoting for any job or tender. Students of Cost & Management Accounting would have studied the measurable concept of learning curve, which captures the time taken by workers to complete a ‘job’ as a progress in learning.
The formula
Originally, it was expressed via this formula: Y = aX^b, where Y is the total average time taken per unit or batch, ‘a’ is the initial time taken to perform, X is the total units of production or times task completed and ‘b’ is the slope of the learning curve. In sum, the time taken decreases as workers learn, usually reducible to one number (expressed as a percentage) but there is nothing stopping anyone from varying it. Based on this, you can estimate how people can learn to do a task and what to quote for an order or tender.
In 1936, the famous TP Wright “developed the basis for the modern learning curve formula, which he termed the “Cumulative Average Model” (also known as “Wright’s Model”) in his paper Factors Affecting the Cost of Airplanes”, showing that “the cost of building airplanes decreased as production performance and efficiency increased” (https://whatfix.com/blog/learning-curve/).
Since there is learning, there is both ease and difficulty in learning. It is common to describe some learning situations (and environments) as challenging, which led to the concept of “steep learning curve”, where “steep” “implies that a significant effort and time frame are needed to make real progress”. As we see the graph “features a much steeper curve because of the complex subject matter”.
(https://omniplexguide.com/blog/training/learning-curve/)
Admittedly, this is a simplified model and is restricted to one task or job. Importantly, it assumes that progress is linear and like an arrow – moves forward. However, in life, progress is a non-linear phenomenon, which means that there will be regress, owing to loss of interest, complacency and so on. This non-linearity is a significant factor while we shift our attention to senior level managers and CEOs.
What about managers?
In the case of CEOs, of at least listed companies, invariably, the addition to market cap is the measure used to evaluate his or her performance, not necessarily always fair. You might recall that around 20 years ago, it became a rage to evaluate managers and CEOs based on EVA (economic value added), an interesting concept (borrowed from Economics but not acknowledged) but fizzled out after a brief period of attention. In these days of widely fluctuating valuations, it might be interesting to take another look at it.
Before we proceed further, let us recall the rankings of cricket batsmen and bowlers developed many years ago, which recognised that a Sachin Tendulkar century against a weaker team could not be assigned the same score as in the case of a century against a strong team. In a similar fashion, different tasks and responsibilities should receive different weightages to be fair and just in measuring managerial performance. This differential weighting is core to measuring managers’ performance, the more so as we move higher in the managerial chain, which will assist in the appropriate allotment of tasks to different managers of different calibre.
In fact, even when two managers receive the same ‘total score’ (built up out of unit scores assigned to different factors), they may be assigned different roles and responsibilities because of the dominant scores in some factors rather than others. Some may be good at people management, some at grasping numbers and what they indicate, some excelling at operations, and others at strategic thinking. Thus, some people may not make it beyond the COO level. There is just ‘one level’ difference between COO and CEO but it is pretty steep and deep.
The world of managers is dynamic and so should an index be, the dynamism being captured in new parameters or an entirely new type of index altogether. Consider Nasdaq, which gained popularity as the pre-eminent stock exchange for tech companies. Once an index has been developed, you can modify it but the reference base will be the ‘new’ modified index. Else, comparisons will be flawed.
Expanding horizons
Arguably, the most arresting aspect of India’s corporate sector in the last decade and a half is the horizontal expansion often accompanied by vertical depth among all major business groups, some family managed and some professionally managed. The horizontal dimension has been just staggering as we see a chemical & petroleum group foraying into fashion and entertainment, while an essentially steel company venturing into batteries and EVs.
The differences in the complexity and technological maturity of all these businesses domiciled within one group are truly worlds apart, thus making the choice of senior managers a matter of life and death. If you thought this was dramatic, hark back to the time when a new group CEO, intent on fundamentally transforming the group’s businesses and future, brought in CEOs and COOs from diverse businesses to assist in the transition only to be disappointed.
Today, the ability to move and lead completely new and emerging business whose future is difficult to fathom is probably the most challenging task, which makes a new measurement index not just timely but absolutely critical.
Many of you are in positions of responsibility and can empathize with what I have argued here. I am sure you can take the idea and develop it further. Incidentally, you might like to also read an article on Group Executive Information System at https://www.challengingintelligence.com/tech-info-data-analysis/geis-the-helicopter-and-the-trench-view/.
