A thought about Annual Performance Reviews

My doubts about APRs began when someone I had not seen for two years, who lived and worked on a different continent than I did, wrote my APR. He wasn't my supervisor, nor was I told that he would write the thing.

I suspect that one thing the APRs achieve is to train people over the years to improve the appearance of their APRs.

I hated writing the things, and disagree with the practice on principle. I can not imagine that there has ever been a valid study that indicated that they improved organizational performance.

Why Health Planning Didn't Work -- and When It Did

Plans are nothing; planning is everything.
Dwight D. Eisenhower

In a previous post I mentioned my participation in a health planning research project in the early 1970s. Prior to that project, for a decade or more, the PAHO CENDES health planning method had been disseminated throughout Latin America; more than 2000 health officials had been trained in the method. While that had a beneficial  impact of alerting many officials and health organizations of the need to do more, it seemed to yield few useful plans.

In all, I spent something like eight years thinking about health planning in developing countries as an occupation. I worked in a number of countries, visited others, and had colleagues who worked in still others and told me what they found. I noticed some interesting things:

• Critical decisions were often about the construction of hospitals and health centers. Once built, these required staffing and budgets. The decisions seemed often to be political. In the Dominican Republic, for example, the dictator Trujillo had all the health centers built during his presidency built in the form of a "T" so that each would support his reign. Even when it was determined that a growing city needed a new public hospital, the decision of exactly where in the city would result in economic benefits for those who owned the land on which it would be built and indeed for those who developed surrounding areas and those who built the facility. I think the choice of location would then become political. So too, a newly elected legislator might try to get a health center approved and built in his district to bolster his chances of future election. A formal plan might not have much influence over such decisions.
• Manpower allocations were less formal than one might think. Of course a new hospital or health center would have a table of organization with so many doctors, so many nurses, nursing aids, and other workers. But then there would come a need for a doctor in a hospital, and someone would tell a doctor on the nominal staff of another hospital to go work where he was more needed; no formal changes would be made in the staffing pattern. Then there was corruption. For example, a senior official would issue instructions that someone be added to the staff roll of a regional hospital even though he was living in the capitol city or in another country, with no medical responsibility at all. The formal written plans simply didn't catch up or didn't count.
• I found a major, apparently modern hospital that did not have a modern cost accounting system. The heads of departments knew the direct budgets of their departments, and the senior staff knew all the direct costs. However, there was no accounting of indirect costs. For example, the internal medicine department knew the number of patients it treated and the costs of the salaries of its staff, but did not know how much the drugs it prescribed, nor the lab tests it ordered, nor the x-rays it ordered cost the hospital. Thus there was no way that total costs per service could be monitored, much less controlled.
• Students I taught did a study of Ministry of Health pharmacies in our region. They discovered that a significant portion of the prescriptions sent to those pharmacies could not be filled because the required drugs were not in stock; on the other had, a significant portion of the stock languished on the pharmacy shelves for very long periods since it was not in demand. There was no adequate system for managing the inventory and ordering of drugs. In another country, having lunch across the street from a hospital, I watched as a shipment of pharmaceuticals was delivered, and then as another truck pulled up and reloaded the pharmaceuticals; I was told that they would be delivered to a private drug store to be sold on the open market. In still a third country,  a consultant we had hired to look at pharmaceuticals quit informing us that he had had threats against his life, and that apparently the organized illicit drug industry also controlled the local pharmaceutical wholesalers.

You can see that in systems with such gross malfunctions, health plans based on a theory of efficiently meeting health needs had little chance of being implemented. If a system is not well managed, it is not likely to be well planned.

A Counter Example

The USAID mission in the Dominican Republic was interested in the possibility of a health sector loan to that country. I was working in the Office of International Health at the time, and we were asked to help them look into that possibility. We had in process a desk study of the DR health sector which avoided going in cold.

We agreed with the mission to help conduct an assessment. A senior academic in the DR was selected to head the assessment team, which he recruited. We provided (Spanish speaking) consultants from the United States. The assessment looked at the health conditions, the health services and the things that had worked and had not worked in the DR health sector reform in the past.

The assessment identified a major unmet health need. There was very high infant and child mortality in the rural areas. It seemed that a rural health service focusing on immunizations, health education, and identification and referral of health emergencies in the target population of young children could do some real good and be affordable. The service could be based on community health promoters and delegated medical functions to auxiliary health workers.  Political and administrative constraints likely to be encountered were identified, and alternative measures considered to resolve them.

In preparing the USAID project documents, in cooperation with assessment team members, we developed a preliminary design for a rural health service, a preliminary plan of action, and a basic budget to cover the projected costs. The project was approved by the DR government and USAID.

Very fortunately, Dr. Amiro Perez, the very man who had led the health sector assessment and participated in the planning of the loan, was named Minister of Health as the project began. He made the development of the rural health service a priority of his administration, having fully mastered all aspects of the assessment on which it was based and its planning. He recruited his deputy on the assessment to help manage the development and administration of the rural health service.

Five years later, Dr. Perez was able to report that the mortality rate in children under the age of five years in the rural area of the Dominican Republic had been cut in half as a result of the action of the new rural health service.

Why are manufacturing companies in the USA doing well these days.

I recently posted on the continuing growth in U.S. manufacturing GDP which is increasingly accompanied by a decrease in manufacturing jobs and the switch in employment from manufacturing to services.

Tonight I saw an episode of Need to Know on how Ohio workers are dealing with the loss of manufacturing jobs and the loss of a middle class standard of living for the manufacturing factory workers who are able to keep working.

The program pointed out that U.S. manufacturing companies have been doing quite well for several years. Interest rates are essentially negative (lower than the rate of inflation), so that companies can borrow and invest in automation. The United States has also developed new technology (fracking) to produce natural gas and has a good pipeline infrastructure to distribute the gas, resulting in much lower energy costs for factories than are available in other countries. (It is costly to export U.S. natural gas to China, so we continue to enjoy the low resource cost.) U.S. factory wages and benefits have been deteriorating, but they remain much higher than those in developing nations.

The United States continues to have a huge market for manufactured goods, and of course the transportation costs of getting U.S. manufactured products to U.S. consumers are lower than those of foreign countries selling into the U.S. market.

A few thousand U.S. companies own 80 percent of manufacturing capacity in this country. All are multinational, and they have learned to shield profits from taxation. For example, they transfer ownership of intellectual property to countries with low tax rates on industry, and then charge U,S, factories for use of the patents, transferring funds that would be U.S. profits taxed at high rates to the foreign subsidiaries. Many hundreds of millions of dollars are being held in these foreign subsidiaries.

U.S. companies are therefore competing for U.S. market share in part by using cheap money to automate and replace labor, by using cheap energy, and by paying low taxes. They are also benefiting from the increase in labor costs in China as that country becomes more affluent (and begins to see increase in worker income as necessary to create domestic demand, which in turn is needed to maintain China's high rate of economic growth).

Check out this article on the Obama plan to continue growth in U.S. manufacturing. And this article on the reduction of international financial flows (which suggests to me that there is less credit available in developing nations for them to invest in capital improvements for their factories than there was before the 2008 financial crisis.)

Measurement is important if joined with good management

This is a plog post commenting on Bill Gates support for measurement in international development programs and projects. It supports the general point that change is the cummulative effect of many innovations. Proper measurements enable managers to select for useful innovations and against destructive ones. However, it is the management that counts. Indeed, measurement without managerial use is waisted effort, and will soon provide bad information.

In his 2013 letter, Bill Gates emphasizes the importance of measurement in international development -- that the success of the development process depends on being able to detect which changes improve results and which do not. Measurements are key to that recognition.

Let me underline that point. Think of evolution. Most mutations are harmful, only a few are beneficial. It is natural selection that weeds out the deleterious changes and promotes the beneficial. Managers need measures to allow them to do the weeding and replication in development programs.

Here are some thoughts on reading his letter:

A physician once told me that a fundamental rule of medicine is not to order tests if the doctor will not use the results. Tests cost money and almost always involve risks. If they are not likely to benefit the patient, they ought to be avoided. So too, measurements that will not be used in managing development efforts should be avoided. Measurements always cost money, can mislead the manager, and should be justified by potential benefits.

I am reminded of Henry Wallace's recognition that the competition for the best corn crop in American county fairs led American farmers astray. For generations, prizes were awarded to the most beautiful ears of corn. Farmers grew more and more beautiful ears of corn as the winners provided seed for the next year and as the practices of the winning farmers were copied by their peers. Unfortunately, pigs and cows don't much care for the human aesthetics of the appearance of an ear of corn, but simply want to eat a lot of the stuff. Farmers who can produce more and more nutritious feed for their animals make more money. Measuring the visual appeal of the ears was the wrong metric. Measuring animals fed adequately per acre devoted to corn was better.

We have seen recently that in the financial services industry industry, managers made huge mistakes by focusing on the measurement of profits while failing to measure risk (accurately). Many firms got bitten badly by running high risks while maximizing short term profitability, and some of their managers lost their jobs. The point is that depending on a single indicator to measure success can be very dysfunctional. (Of course, many of them cried all the way to the bank as they had received huge salaries and bonuses for years based on those short term profits, consequent increases in stock prices, and remuneration based on both.)

I have suggested that the maximization of investor profits is bad management based on a poor measure. In our society, the corporation is a major institutional form. Corporations should be managed to provide good returns on investment. But there are many kinds of investments that go to making a corporation work, including the human capital of the employees that they devote to their work, the social capital in the markets for their inputs and outputs, the public capital in the infrastructure on which they depend. Managers of corporations maximizing return to a single source of capital, and ignoring other forms of capital as well as costs and benefits to consumers seems to have gotten us into many problems. (Not as many as that management practice did during the time of the robber barons, a time that lead to the Progressive movement and the rise of state regulation of corporations.)

Perhaps Gates might have focused more on management. Measurement in development programs is not enough, progress demands good management based on good measurement.

Perhaps the first challenge of management is to break the universe into bite size pieces. The health sector is itself a portion of the field of action of development programs. Within the health sector, there are traditional fields of action such as child survival, maternal health, and communicable disease control. Gates has chosen to focus on advancing child survival by promoting improved coverage of immunizations. This makes a lot of sense since it is probably the most cost effective approach to increasing life expectancy, since there is great support for saving the lives of children, and since experience has shown that increasing the chance that children will survive results in parents choosing to have fewer children, slower population growth, and eventually an improved rate of growth of per capita income. However, this is only one priority for national public health services, which in turn is only one management area in the health sector, which is only one of many management areas for government.

Gates mentions problems with the polio eradication program in northern Nigeria. The program was failing because maps were so bad that program managers didn't know where many villages were, and indeed did not even know of the existence of some villages that held children that should have been immunized against the disease. Clearly managers need to plan for where services need to be delivered and how providers and supplies are to get to where they are needed. As Gates implies, managers need to measure the distances involved, and I would add that they need to find the right metrics for those distances. The time needed for a health promoter to walk a jungle dirt path of several miles is quite different than the time necessary for a doctor to drive the same number of miles on a paved road in his car. The problem in the Nigerian program were reduced using satellite maps to locate villages and giving the people doing immunizations phones which GPS capability allowing supervisors to measure whether the workers actually arrived in the villages that they were supposed to visit.

Gates also describes efforts that led to increased success of a DPT immunization program in Ethiopia. Initially lots of kids were dying from these three preventable diseases. Measuring death rates (even roughly) indicated that there was a major problem. Measuring the percentage of the children who had actually received the necessary shots provided an indication of the magnitude of the problem. Note however, that if nothing was to be done to solve the problem, the quality of the data would quickly have deteriorated -- people quickly stop collecting data that will not be used.

Citing a comparable success in Mozambique, Gates notes that the success was due in part to assuring that health posts had adequate stocks of all the vaccines that they needed, and that the cold chains needed to maintain the utility of the vaccines actually worked. Again, it was necessary for managers to have access to accurate measurements of the stockout rates and the failures of cold chains, but not sufficient. Managers needed to take effective action based on the information that they received.

I do agree that it is important to make good measurements of the right things in order to make development programs work better. One of the important advances was the introduction by the World Health Organization of "Disability Adjusted Life Years" as an index for use by health services. That helped to change the focus from life expectancy to include illness and disability. That and many other improvements of indices and measurements can help managers improve the efficiency and effectiveness of development programs.

I recommend that you read the entire Bill Gates letter as it is short and informative.

We need quantitative indicators of fog and friction in organizations

Though a lengthy, difficult read, On War has nevertheless had a profound impact military thought. Perhaps most famous for introducing the notions of “fog” and “friction.” Fog refers to the uncertainty of war and the difficulty of gathering reliable information. Friction is more complex, and refers to how difficult it is to actually execute military plans—unforeseen problems inevitably pop up, and combine to thwart plans, delay movements, and turn the tide of battles.
Beyond the Border: Fog and Friction

Carl von Clausewitz introduced the concepts of fog of war and friction in a military context, but I would suggest that it can be generalized to any large organization. Top executives in a business and civilian government also face uncertainty in their work and difficulties in gathering good information. So too, every business and government finds unexpected problems popping up in the implementation of policies and plans.

However the amount of fog and the degree of friction probably changes from organization to organization and from time to time. For example, when Lehman Brothers crashed in 2008, top executives in the Federal Reserve and Treasury Department faced considerable fog in the financial sector; the outlook was considerably clearer during most of the long economic expansion from 1993 to 2001. I suppose that the Chicago Board of Trade Volatility Index (VIX) is an indicator of market fog.

Source: Understanding the Chicago Board Options Exchange VIX Market Volatility Index

The graph shows that VIX was quite low in the early 1990s, rising as the long term expansion was coming to an end; VIX peaked during the 2008 financial crisis. According to Wikipedia, VIX "represents one measure of the market's expectation of stock market volatility over the next 30 day period." If investors can clearly see the future values of stocks, that information should be incorporated in the current values and volatility should be low; if the are very uncertain as to future values, volatility should be high.

Of course there are many different kinds of fog that afflict organizations, including changes in markets, in external conditions, and technological change. Large organizations may face more complex choices than small ones, but they may have more resources with which to obtain information and to control or respond to events. Multinational organizations may face different levels of fog than national organizations, and national organizations in very volatile countries more fog than those in more mature and sedate countries.

Friction


All organizations experience friction in that unforeseen problems inevitably pop up, and combine to thwart plans, delay activities, and turn the tide of the organization's success or failure. However, the amount of friction seems likely to differ from organization to organization and from time to time in the same organization. Large business organizations may have more friction than small businesses. In times of labor unrest, the friction level in an organization may go up. Friction may be a function of whether schools are in or whether the children of staff are on vacation, or how many of the staff themselves are on vacation. An organization which has been functioning well with a long term staff may encounter more friction if many of the staff retire at the same time and new staff are recruited. Currently American local governments are facing grave financial cutbacks, and friction may be increasing as staff try to do the same amount of work with fewer resources.

So What

Clearly fog and friction can be changed. Information and communications technology has helped many organizations cut through fog. Franchise chains have created and diffused organizational approaches that lubricate organizational processes and reduce friction.

There are also ways to deal with the irreducible fog and friction. Top executives, if they realize that conditions are especially foggy, can moderate their decision making correspondingly. Thus they can develop plans with stages allowing plan modification with experience and as situations clarify themselves.

Armies that have well trained junior officers and non-commissioned officers, and that provide them with understanding of objectives and the freedom to adjust tactics to achieve strategic objectives, have less military friction than do old fashion armies that invest authority in senior officers and impose compliance with top down orders by strict discipline. Similar approaches can be used in business and government organizations.

If McDonalds reduces friction by breaking down tasks into simple elements, standardizing, and training fine restaurants reduce friction by hiring expert chefs, waiters and wine stewards.

I suggest. however. that it would be useful to have quantitative indicators that could be used to measure organizational fog and organizational friction. Such indicators would allow management to monitor fog and friction and adjust plans and strategies in accord with changing patterns of these conditions.

Insight: A Conversation with Gary Klein

Edge presents a nice video in which Psychologies Gary Klein explains some of his ideas about the way people chose their actions.

He recognizes that there are formal approaches to decision making that depend on quantification and mathematical (or at least arithmatic) analytic procedures. They simply are not used in the situations in which his research has taken place.

So too he recognizes the utility of formal procedures, such as the flight check procedures used by airline pilots. Neither he nor I would want to fly on a plane for which the ground crew and flight crew had not successfully completed their preflight checks. On the other hand, he finds that in too many firms there are efforts to limit all personnel to routinized and formalized procedures to the expense of the application of expertise to situations and at the expense of valuable insights from the experts.

Expertise by the line people in important functions like fire fighting is developed with on the job training and experience and includes a lot of tacit knowledge. Klein emphasizes that experts will confront a situation, (almost always) recognize its pattern as fitting in a known categories, and frame the search for actions in terms of those categories. His research suggests that they will then generate options sequentially and model each mentally until one is found that appears to successfully resolve the situation. The expertise based intuition is involved in recognition of the pattern fitting the situation and/or identifying ways in which the pattern is not fulfilled, and in the mental simulation of the options. I would suggest that it is also involved in the ordering in which options are reviewed, where options more likely to prove successful are likely to be first considered.

Insight is then invoked (especially by experts) in discarding some aspect of the expert routine and innovating with a new classification of the situation or a new solution to its problems and opportunities.

Klein seems to be one of those people who combine a lot of practical experience and deep thought to produce a deceptively simple synthesis. I like very much the implication of his talk that many organizations put too much emphasis on formal procedures and too little emphasis on the promotion of expertise and productive insight.

I think of the various efforts at "management by objectives" and "logical framework" planning, monitoring, management, and evaluation of projects. In the hands of experts these can be fruitfully combined with expert insight and intuition. Without the appropriate use of expertise the results may not be pretty. Moreover, a key management effort should be to develop experts in the organization with strong intuition and insights as well as mastery of formal procedures.

Of course, there is a problem as to when to use formal quantitative analysis, when to depend on expert opinion, and when to fall back on routine.

Thanks to my friend Julianne for pointing me to this talk!

Thinking about education and goal setting

Not everything that is measured is important.

Not everything that is important is measured.

In class last night, the success of the Education for All movement was discussed. Explicit goals were set at Jomtien in 1990 for 2000 and they were far from met. In Dakar in 2000 goals setting was revisited it is clear that the goals set for 2015 will not be met. Is this a failure?

This raises an interesting issue. I think everyone might agree that setting goals is not of value in itself, but is a tool to promote progress, in this case the expansion of educational services in developing nations. So one might ask whether the expansion of services would be greatest with goals:

• that could easily be met and surpassed
• goals that accurately reflected what could reasonably be achieved
• goals that were so ambitious that they would probably not be met

I don't know the answer, but I suspect that the most progress would not be achieved by the either of the first two options. Indeed, I am not sure that the goals had much effect at all. The importance of educating children is probably so clear that some international goal probably does not matter that much to policy makers at the national, regional nor local levels.

It is hard to manage

that which you can not measure.

The importance of the Education for All movement may well have been to change the mind set of national governments, donors, and NGOs, encouraging them to increase efforts and to regard education as filling many needs. I don't begin to understand how to measure the change in mind set, nor how to measure the impact of mind set on the energy and wisdom of people's efforts to improve education.

Does that mean that I can't manage efforts such as the Jomtien and Dakar conferences to maximize impact. Perhaps! So what? Perhaps management is over valued.

Peer Review Quality Must Be Improved

Read "Peer-review quality must be raised, says report" in Research Information. (26 April 2007).

"A number of options are available to raise the quality of peer review, according to a new report from the European Science Foundation (ESF). The report ‘Peer review: its present and future states’ draws on ideas from an international conference in Prague in October 2006.

:A central theme of the report is that the current peer-review system might not adequately assess the most pioneering research proposals, as they may be viewed as too risky. John O’Reilly, former chief executive of the UK’s Engineering and Physical Sciences Research Council (EPSRC), now vice-chancellor of Cranfield University, said that traditional peer review might be too risk averse. He suggested the need to encourage pioneering research that is high risk in the proposal, but high impact if successful."

Comment: Reviewing of proposals is difficult to manage well. The word "peer" in "peer review" is difficult to define, as it is in the term "jury of ones peers". What one wants to do in the peer review process is:

• recruit people who have the requisite expertise (as a group) to review a project well,
• organize them so that they can bring that expertise to bear on the proposal effectively, and
• provide them with incentives to do so.

Many projects require people in two or more disciplines to provide a good review. Projects involved in technology development require not only experts in the technology per se, but also people who can judge the market for the technology if developed. JAD

Business Schools are Changing Curricula

Source: The Economist

Read "Business schools: New graduation skills" in The Economist, May 10th 2007.

The article notes:

Instead of the well-worn method of teaching functional subjects, such as marketing, strategy, accounting and so forth, students who are now completing their first year at Yale are taught with eight courses that each address different themes, such as the customer, the employee, the investor, competitors, business and society, and innovation.....

Today the mood in business schools is a lot happier, and not just in America but also in other countries, which now boast more business schools and many more MBAs than ever before......

But a recent survey by Egon Zehnder, a recruitment firm, found that only one in five of the international corporate executives it polled thought that an MBA prepares people for real-life management. When Yale's Mr Podolny became dean in July 2005 he found “a growing disconnect between how business is taught and how careers are developing”......

Although (Harvard Business School) HBS, which invented the MBA, is continuing its familiar case-study method of teaching, it has introduced a popular new course in “leadership and accountability”. Post-Enron, most business schools have introduced or have beefed up their teaching of ethics, often under the banner of leadership. However, a lively debate now rages about whether this is best done separately or as a part of every subject......

Many schools are trying to increase the practical side by giving a greater role to business, including inviting business people to speak to students.

Comment: There is a lot to be said for changing curriculum -- especially that the novelty energizes faculty and involves students. JAD

I was especially interested in this comment:

As Rakesh Khurana of HBS points out, many schools saw their founding mission to professionalize the management of business, much as medical and law schools had institutionalized their disciplines. According to Mr Khurana, whose book on the history of HBS is about to be published to mark its centenary next year, professions have at least four elements: an accepted body of knowledge; a system for certifying mastery of that knowledge before it can be practiced; a commitment to the public good; and an enforceable code of ethics.

Comment: I think that one might expand that very useful comment from "a body of knowledge" to "a body of skills, knowledge and understanding" but I agree that professionals should have a certified mastery, a commitment to the public good, and a code of ethics. I also believe that we need professionals to administer government agencies, corporations, and civil society organizations. JAD