Measuring effectiveness

Efficiency is quite easy to measure since outputs and outcomes are both quantifiable. Effectiveness on the other hand, relates relevance to outputs. This is a challenging task since relevance is mostly a perception, which is hard to quantify. We call the measure of effectiveness an outcome.

Two variables measure an outcome. One is a prediction of what "will be" and the other is the actual result. The deviation between your aim and your hit is thus your performance.

Therefore, to measure effectiveness one must have a target. Unlike outputs, outcome targets are hard to quantify. Outputs measure tangible results. Outcomes measure the effect of something. E.g., "to produce 10 000 cars" is an output. "To gain 24.8% of the market share" is an outcome. To achieve an output target means that we must be highly efficient, but to achieve an outcome target means that we must be relevant.

There is a stark difference between the two. Outputs are under your full control. You can manage them through process flow, rules, and procedures. Dissimilar to that, outcomes depend highly on the perception of stakeholders. One must negotiate a perception. Its not something that you can control. For that reason, we also call outcome targets, strategic targets. 

The basic assumption on measuring effectiveness

If our idea about the future crafts our strategy, then our strategy (or lack thereof) will craft our present reality. The aim of strategy is to make the future beneficial to Org. In so, it keeps Org relevant. Therefore, effectiveness is a measure of how able Org is to negotiate a favourable position within an environment.

To ensure that change happens, we must quantify a future state. In so, we must have a target, which will test the effect of our strategy. Deviation will show our strategic performance.

An output target holds no ambiguity in its quantification. Outcome targets do not have this luxury. They must predict how an environment will respond to the outputs that Org delivers.

Humans are unpredictable. In that lies the gamble of an outcome target. If one has absolute information, one can accurately predict the future. Yet our scope of both present and future is finite. We try to increase the accuracy of our predictions through quantifying them. In the case of an outcome target we quantify a future state. The better Org is at doing that, the more it will control its present.

The relation between uncertainty and effectiveness

A target aims to minimise uncertainty. Uncertainty is a gamble and thus also a risk. Outputs are the results that processes produce. An outcome is feedback on how relevant an output is.

A target is a prediction of either an output or an outcome. Exact repetition of the past will drive certain outputs. Insightful plans will influence effective outcomes. The future is less certain than the past, thus outputs are more certain than outcomes. This means that outcomes hold higher risk than outputs. For that reason, the need for change is mostly a good indicator of the strategic risk appetite of Org. Therefore, a strategy will imply much greater risk than e.g., a procedure.

Integrating outputs with outcomes

To make exact predictions of the future, Org needs both - human perception and systems intelligence. In Theory 2I of Orgtelligence, we distinct implied from tacit intelligence. Implied intelligence exists in the rules, dependencies, and outputs of a process. Tacit intellect relates to the abstract and innovative thinking of humans. Orgtelligence creates interdependence between process intelligence and human intellect. It is a neural network that links human minds with systems flow.

To achieve targets, we must overcome risks, exploit opportunities, negotiate relationships, and keep processes efficient. In other words, Org must be orgtelligent. Operational intelligence will increase efficiency in performance, whilst effectiveness in strategy will increase organisational relevance.

Efficiency drives outputs. The more one understands organisational processes, the more efficient they will become. Output targets assesses the efficiency of process flow. Contrariwise, effectiveness drive outcomes. It is difficult to measure the effect that an output has on its environment since an environment is not predictable. Outcome targets are thus difficult to define.

To create an outcome target, one must find and quantify a controllable assumption of the outcome. E.g., we can create outcome targets for profitability; quality; benefit; relationship strength; etc. The problem is that we cannot totally control any of these aspects. They are all subject to human perception, which is unpredictable. Yet, each of these items have a part which we can control. E.g., we can direct all our resources to achieve a certain level of profitability. In so, we can define a target of "have 30% of the market share by xxx". To achieve that target we must negotiate a beneficial value proposition with our customers.

The relationship between outputs and outcomes will show whether we are doing relevant things right.

Where to find an outcome target

In orgamatics we use project management method to work with the future. Projects help us to do things that we have not done before and which we will not repeat.

Vision creates strategy. To define a strategy, we create goals and objectives. To implement a strategy, we turn goals and objectives into a programs. A programme is a high-level project, which holds all its activity within sub-projects. One will execute a programme through projects. In so, each project will have its own purpose, which all links to the program outcome. In turn, the program outcomes all relate to the vision.

Targets define a future state. It thus makes sense to turn each objective and project definition into an outcome target, since this is the future state that we want to create.

Exceeding an outcome target

Org achieves and maintains output targets whilst it executes outcome targets. Achievement is a sign that one has reached a pinnacle in performance. It does not end the performance. Rather, it sets the bar. Execution is final. It marks a clear end. Targets of outputs and outcomes are not the same. They do not measure the same thing and they do not have the same purpose. Outputs shows the performance of a process. Outcomes are a test for relevance. Therefore, we cannot measure and construct them in the same way.

Outcomes direct Org towards an unknown future. The longer Org's aim, the more unknown the territory. Therefore, one will always measure an outcome target against time. Projects have critical paths because they begin and end. Processes cycle, thus, they have no critical path.

To set an outcome target one must set a future date in which a changed state will exist. E.g., "Rank number 5 in the industry by 2022." Exceeding this target will show strategic success beyond what we predicted.

The problem with outcome targets is that they must ensure relevance. What "puts bread on the table" are outputs. Mostly, outcomes will increase the relevance of outputs. It is important that Org executes outcome targets as fast as possible. Time and cost will always be in mind when executing project-based work.

In orgtology, we discourage the gross exceeding of output targets. That is because uncertainty creates risk. We must repeatedly deliver outputs; thus, we want certainty in our ability to do so. Outcomes are different. They achieve something that we have not done before. This is something we want to exceed. Therefore, in orgtology we encourage the exceeding of outcome targets.

This is not a contradiction. It shows that the parts of Org do not follow the same rules. Processes have exact cycles. E.g., one will not exceed a target when being pregnant for 4-months. There is a reason that pregnancy is 9-months. With projects its about getting things done. Projects influence outcomes. They do not mean anything until done. Therefore, Org should always aim to exceed its outcome targets - especially in terms of time and cost.

Constructing and quantifying outcome targets

To create an outcome target, one must quantify a purpose. This is quite difficult. E.g., Purpose: "This project will secure food supply to a village of 1000 people." It is likely that its target will read: "Secure food supply to 1000 people in the XYZ Village". Problem with this target is that it is only partly under the control of Org. Even the best technology must face politics, social constructs, and legal constrains. This target will never be under the full control of Org.

To control an outcome target, one must define it in such a way that it creates an internal locus of control. "Create and run a project over the next three years, which will enable 1000 people of the XYZ Village to access a consistent food supply process." Of course, mere definition will not execute a target. There must be a project plan and approval from all the stakeholders. This requires negotiation. There will always be factors beyond your control. The future is mostly an estimated guess. Therefore, an outcome target will by no means ensure a favorable outcome. Villagers must be happy with the food and government must continue its sponsorship. To achieve this will always prove easier said than done.

What then is the difference between output and outcome targets? It lies in the difference between purpose and intent. Purpose ensures performance. It produces outputs. Output targets show the strength of a process at a specific point in time. Intent, on the other hand, secures relevance. It negotiates outcomes. In that their difference.

The list below shows the components that we must define to create an outcome target.

1. Outcome:

An outcome describes the purpose of the project or strategy. It drives all the action and justifies the resource expense of a project. In strategy one will call it a strategic objective.

2. Outcome Target:

It predicts an exact status quo at the end of a project or strategy. It thus quantifies the result of a plan.

3. Baseline:

It defines the starting point of our target. It is rare for an outcome target to have a zero baseline. In the example above, 400 out of 1000 people already have access to consistent food supply.

4. Periodic quantification's:

It shows the predictions of periodic progress for the duration of a project or strategy. They are "target milestones". Good practice is to break an ultimate target into smaller parts. That will help us to fix problems before they become monsters. There are no rules on how to quantify. It could be a number or a percentage. I prefer a percentage since it puts any project result into perspective. Numbers are always relative to other numbers. E.g., 1 million is a lot if your turnover is 1.8 million, but not if you turn 200 million. A percentage will give consistent measure against a fixed point of 100 units.

The table below shows an example of how to define an outcome target. It comes down to writing a quantifiable goal.

Conclusion

An irrelevant output is a wasted effort. Org must be effective and efficient, which means that it must do relevant things right. Outputs secure performance whilst outcomes show their relevance.

An outcome is an environmental and stakeholder judgement. Org will never have full control over its outcomes. To influence them, Org uses strategy, programs, and projects. Through outcome targets, Org ensures that its outputs are meaningful.

Organisations that can negotiate a favorable future position will have immense competitive advantage. Those that cannot do this will become prey to those who can.

Clear outcome targets show that an organisation has a strategy. Achieving them shows good leadership skills. If outcome targets drive a more favorable position for Org, then they are effective.