Here’s another quick story that reinforces the importance of performance consistency in you’re your core processes.

On my plane ride out west this week, I had the opportunity to speak with someone who trades (equities) for a living. And I mean “for a living” – not dabbling with a few trades here and there, but this is someone who uses his trading income to put food on the table. Needless to say, when he began talking his approach, my ears perked up more than a little.

One of his “golden rules” of trading is to perform consistently, within clearly established guidelines. As I talked with him, I realized how different this guy was from what most of us think of when we think of traders. The image most of us have is one of a quasi- gambler who operates amidst high pressure and continuous uncertainty. I can tell you though, this guy couldn’t have been further from that stereotype.

What I saw was an individual who had a clear process. He had rules he followed regarding when to enter a position. If certain signals were not present, he didn’t enter the position- period. Unlike most of us, he knew when he would exit BEFORE he entered the position. Say what? I’m not talking about just a stop/ loss should the price reverse against him. I’m talking about also having gain targets. If those targets were hit, he was out. No questions asked. If the position kept going up, it didn’t bother him. He judged success not by the amount of money he made each day, but rather how well he followed his method or process.

Of course, his process was based on years of back-testing in many different types of markets, so there was a clear linkage between his process and his expected results- a linkage that I suspect had played out many times over given his level of apparent success.

But when it came to managing his trades, all that mattered was that he followed his process. He had winning trades and losing trades. Losing trades were just part of the process. He knew how to accept those and move on. His process didn’t require him to be “right” 100% of the time. It just required him to stay within his trading parameters.

I couldn’t help but seeing some big connections, and implications for the discipline of performance management that all of us would be wise to consider. Look at how much focus he placed on having a clear process, with indicators that told him whether or not he was following it. Look at how he judged success, not by any one day’s outcome, but by whether he was within his guidelines. Look at how he handled losing trades. Unless he deviated from plan, they were an expected part of the journey (kind of like an airliner on autopilot – the aircraft does not hold a precise altitude, but rather an altitude that is +/- some programmed variance to deal with normal movement and turbulence).

No doubt results are important, and you’d be foolish to follow a process too rigidly, particularly if you don’t have good linkages between the process and results. But if you’ve taken the time and built your measurement framework well, this “process control” element can be a useful enhancement to your performance management program.

We’ve all been trained to think more is always better- that exceeding expectations should be our ultimate performance goal. Tom Peters, and others like him, have made careers out of spewing anecdotes from companies who blew the lid off of their customers’ expectations. Our inclination is to “oooh and ahh” at these types of stories. We’re trained to think ‘ the more ridiculous the story’, the better the company. Well hang on there, Tom- not so fast…

I’ll admit that exceeding customer expectations is a nice thing for a company to do. And sometimes, it can pay big dividends. I’d be lying if I said that I didn’t enjoy that occasional airline or room upgrade. And when I get one, it usually makes me feel good about the company and reinforces the “buy decision”. Hell, I may even buy more from them if I feel really good about it. At the same time, however, those little upgrades can become expected, and when you don’t get them…well, let’s just say I’d rather not be the agent that has to tell you “NO”.

More often than not, management would be a far better served by placing most of their emphasis on consistency rather than “beating” the expectation or target. After all, isn’t a target something you shoot for ? If you’re firing a gun, don’t you try to hit the target ?… or do you try to shoot beyond it ? OK, maybe that’s a bad metaphor, but then again doesn’t it ring true?

Companies like McDonald’s, Southwest Airlines, and Target, among others place far more emphasis on good old fashioned performance consistency. Utopia for them is to meet expectations 100% of the time. I suspect that far less attention is given to those who exceed expectations, unless they consistently do so. And for most of these organizations, cost is part of those expectations, so you don’t see a lot of dollars going into those fancy frills or wild heroics. (Remember the FedEx employee that rented the helicopter to get a package delivered on time when the scheduled plane had been diverted due to weather?) Case in point- Jet Blue has a commercial out that talks about how excited customers get when the employee says “hello” to them, or serves them a soft drink. The theme in their ads is that they (Jet Blue) have managed to do those “little things” consistently well…you know, those things that most other airlines have forgotten about in lieu of all the other frills they’ve been focusing on during Jet Blue’s rise to stardom. Frills that Jet Blue, through this campaign has quietly but successfully labeled as useless distractions.

So as you manage performance at your company, make sure you are very clear on what the expectation should be, set your targets at those levels, and focus the majority of your efforts on consistently delivering against those expectations. Customer satisfaction and loyalty will follow.

Most of us who follow the economics scene are familiar with the term “leading economic indicators”. These are indicators that are likely (with reasonably high probability) to correlate with future movements in the overall economy. Things like unemployment, durable goods orders, and housing starts can help economists predict future movements in GDP, for example.

The importance of leading indicators in performance management cannot be overstated. But they are only valuable if you are able to influence the outcome, or better manage risks by knowing things sooner rather than later. Perhaps a better analogy for the importance of leading indicators are the early warning signals relied upon by pilots in a modern aircraft. If an alert goes off, pilots are trained to react- first in a diagnostic manner, with further action initiated should the diagnostic validate the early indicators.

All to often businesses rely on outcome measures without much emphasis on these types of early earning signs. You can do a great job at measuring performance, but unless those measures can help you MANAGE performance, you’re on your way to wasting a lot of valuable time.

Yesterday and today, I played 54 holes of golf with my 89 year old uncle, on the front end of a business trib out west. It was a rather humbling experience for me (not unlike every other time we’ve played), both because of his uncanny ability to make great shots, as well as my own incompetence with the golf club. Why I let this man torture me through 54 holes is probably a discussion for another day, but suffice it to say that good friendship and the game of golf, when combined, can make you do foolish things- like play 54 holes of golf when you’re shooting poorly. Anyway- I digress. Back to the point.

During the 1st round, I noticed that ,despite my good performance with my driver and irons, only 25% of my greenside chips were executed well. I also noticed that I missed 13 putts inside 7 feet during our first round. From there, I pretty much concluded I was on my way to a bad round- well into 3 figures if I didn’t do something different. But instead, I corrected and ended up with an embarrassing but somewhat respectable 99. But those two leading indicators gave me the foresight I needed to make big changes in my next two rounds… a focus, if you will that helped me immensely. By focusing on the leading indicators, I managed to squeak out a 92 and 86 in my subsequent 2 rounds. I still lost by 3 strokes overall, which is a subject for another day. But without the help of my leading indicators, I’m confident it would have been much worse.

So, the message for today is to not focus simply on outcomes. By the time you know the result, it may be too late!

In all my years of working with organizations on performance management, few things have frustrated me more than forces that dis-incent performance. One of the worst dis-incentives of performance is the regulatory environment that many businesses in today’s economy are subject to.

Don’t get me wrong…regulation is a necessary evil in today’s business environment, particularly in light of the Enron’s, AIG’s and Worldcom’s of the past few years. But it’s when regulators overstep their role and begin interfering with the day to day management of the business that I begin to take issue.

Case in point. I am currently in the process of working with several west coast utilities on a regional benchmarking initiative focused on comparing their performance vis a vis each other, and identifying the practices and strategies that are employed by leading performers. This is a common approach employed by innovative companies to enhance their corporate performance by leveraging the collective wisdom of their peers. It’s a simple “learning tactic” designed to help company’s push the envelope of performance by leveraging the competitive spirit of industry peer groups.

Well, today, I got a huge surprise when I was told that one of the members was hesitant to take part in the data collection phase because- get this- the regulators have declared that any benchmarking data must be turned over to them. I’m not sure what frustrates me more. On one hand- the regulators who have turned an innovative practice into something that is feared and despised…a way for the regulators to use benchmarks as another “gotcha” control tactic. On the other hand, companies that are so weak that they allow themselves to be manipulated by regulators so much that they stop doing the right thing. They avoid innovation because of the fear that the regulatory hammer may ultimately fall—one day. A pretty nasty place to live…giving up innovation just to avoid a future regulatory penalty that may or may not occur.

Come on guys—let’s break the cycle. This crazy merry-go round will not stop until one of the parties- preferably both- end this dance. Corporate leadership: so what if your innovation causes regulators to make their standards tougher? Dis you really think this was going to be a cake walk? If that’s where you’re living, you’re not the kind of person the performance management industry needs carrying the torch.

Regulators: stop using benchmarks as a hammer. Use benchmarks as a yardstick, …a stretch target that, when achieved, is met with big time reward, rather than simply avoiding a “slap on the hand”.

Fixing this problem will take work on both fronts…a different philosophy of regulation, if you will. But this will never happen unless one party breaks the cycle. Why not be the one who goes first?