2040’s Ideas and Innovations Newsletter, Issue 48: Do You Measure Outputs or Outcomes?
Do You Measure by Outputs or Outcomes?
Issue 48: March 24, 2022
How do you and your organization measure accomplishments and achievements?
In an Industrial Age mindset, output was believed to be the only measure as maximizing production efficiency became something close to a religious mantra. In today’s Knowledge Age era, outcome, actually accomplishing a strategy or goal is the real measure that determines outcome not output. In a marketplace that values what an organization stands for and its effect on all real and perceived stakeholders — and the planet — it’s surprising that outcome and impact are not embedded more strongly into a balance sheet. We propose that strategic results should have higher standing to operational results, with associated measures. And above all, organizations need to measure what matters, which is outcomes and impact, not metrics defined by an industry, competitor or measurements found on the internet.
In a recent meeting with Bob Willig, CEO of the Society for Manufacturing Engineers (SME), shared “if you never have a destination, you are never lost.” The quote resonated with us as a simple statement that encompasses the challenges we find where organizations are measuring their output without seemingly having a destination that represents the goal, strategy, outcome or impact.
How many times has Friday arrived, and you share with family, friends and co-workers the week you had and how intense and perhaps exhausting it was?
Perhaps it was filled with meetings and endless emails, texts and messages. As you navigated each meeting and communication, compiled briefs, reports or project plans, your energy slowly depleted. You hang on during the week knowing that Friday will arrive and that you will get a chance to recharge.
In the end, you feel a sense of accomplishment that you managed to muster enough energy to get through the week and have survived another roller coaster ride. You then take stock of your output, recognizing the energy you expended, but you lack the clarity to determine what impact you had and what outcomes were achieved. Was the ball moved forward to the goal? Or was the ball simply moved somewhere around the goal post? What exactly have you been measuring? Or were you just ticking off the boxes? We’re talking about the big picture here.
Remember, humans are evolutionarily programmed to conserve energy and maintain that energy for actions and activities that are necessary for day-to-day survival, whether that be finding sustenance, procreating or maintaining safely and security.
Organizations are comprised of humans who default to conserve energy and emulate the same focus to majorly measure energy expenditure, applaud its expenditure and measure accomplishment and achievement by the amount of energy expended. Therefore, we inherently concentrate on measuring outputs. Although the mantra of the Industrial Age in measuring efficiency and production may seem of a different time and place, the Industrial Age efficiently matched our inherent energy default behaviors. It was easy to acclimate ourselves to the structure with a pre-understood value of the levels of energy expenditure.
The Knowledge Age, in many ways, remains new territory as we navigate an environment where we talk to machines and oversee computers who mine and assimilate data. Our daily focus is on the acquisition, dissemination, and use of knowledge. The activities in our new Knowledge Age, just like those in the Industrial Age, require energy. We find ourselves once again focused more on measuring the output of energy and effort opposed to measuring what really matters: outcomes and impact.
Output Versus Outcome
Basically speaking, output is operational, outcome is strategic. Output is quantitative, measured by data and understood by analytics. Output is easy to trace and validate. How many widgets did we produce? How many meetings did I attend? How many reports did I review?
Output is one aspect of outcome, which is more qualitative. Strategic goals inform an outcome; however, any outcome is often colored by individual or group perception. Outputs are the actions or items that relate to the expenditure of energy and effort. So, output, as we are so focused on our own expenditure of energy, becomes something that is measured without recognition of a goal or contribution to a larger strategy (outcome). But neither can be viewed in a vacuum. The two results have an uneasy relationship: you can overdeliver on output and fail as an organization, which is the worst outcome possible.
In a manufacturing organization, output is the key indicator of success. However, a knowledge-based organization requires new processes and goals; intellectual output is more ephemeral and less convenient to measure. And there are legacy output measures that have become antiquated but remain because they are comfortable to individuals across professional and personal lives. For example, some organizations believe that exceeding last year’s attendance at the annual conference is a successful outcome. However, the event could be an absolute failure, if the increase in attendance did not generate an increase in revenue above expenses required to serve the increase in attendees. And typically, since most organizations operate in silos, correlating the increase in attendance to the associated expenses to the overall financial goals and results is often overlooked. An ingrained year-to-year focus at a high level is to beat last year’s financial metrics rather than attention to the ultimate outcome. That is, determining if a goal to increase attendance results in a financial gain to an organization, beyond the profit and loss calculation in the event silo. It then becomes an endless loop of a race to the bottom that measures outputs versus a strategic outcome.
Key Performance Indicators (KPIs)
So, output can be considered short-term, immediate and majorly represented by energy expended. Outcome is long-term and iterative represented, yes by energy expended, but also viewed in context of how the expenditure of energy contributed to achievement of a goal and strategy. Did the football cross the goal post or did the goal posts seem to move even further away?
How then do we recognize the differences between outputs and outcomes and determine the appropriate and relevant measures for each? There is no one set formula however the following description provides a broad guideline.
- Organizations set their own measurement standards and tools for output. Macro KPIs for output are straightforward and simple.
- Number of individuals in the workforce required to get the “job” done
- Utilization of the workforce in an 8-hour workday and the actual time spent on work
- Volume, number of units produced
- Profitability, cost per unit
- Efficiency, time expended per unit
- Delivery, final costs
- Number of customers acquired
- Many organizations have strategic goals but not any measurement system in place to monitor outcomes.
- Sustainability and growth in the market
- Wellbeing, a highly functioning workforce and positive workplace culture
- Shared Purpose, alignment of all stakeholders
- Trust, both the workforce and customer
- Customer Experience, retaining customers and healthy growth rate
- Achieving Strategic Goals, generating impact
- Brand Reputation, continuous, trustworthy and reliable delivery of products and services
Why Measure Outcomes?
Outputs are easy to measure and align with our human defaults; outcomes require a skillset of critical thinking, a holistic view of an organization’s products and services, agility and adaptability to pivot if necessary, understanding customers, accountability to all stakeholders; and serving the community. Measuring output, is easy and takes less energy; measuring outcome takes more.
Having a firm grip on what contributes to outcomes enables the ability to iterate and improve perceptions and assessments on all fronts. Outcomes become meaningful when the measurement encompasses a contextual viewpoint represented internally and externally. An outcome is the effect your products and services produce on the people you serve. In terms of customer engagement, outcome addresses the challenges they face, the issues, constraints, and priorities that are important to them and the lack of friction it takes to deliver your products and services to them. Most importantly, it is the connection between the customer and if what you are offering is a quality and relevant solution to their needs and wants. For the workforce, outcome is an empathetic workplace powered by a market orientation and shared purpose. For the community, a positive outcome is to be viewed as a responsible organization that is trustworthy. In any one of the above, each takes energy to achieve, but ultimately the measurement must focus on what was achieved, not the energy expended.
Managing Outcomes: The Business Proposition
Authors Jane Resiman and Judith Clegg have developed a matrix for optimal outcomes for nonprofits. These strategies have relevance for all organizations.
- Measuring effectiveness. How do you know if your products and services are effective? How can they be improved? Building capacity simply for the sake of building capacity may not achieve the desired results.
- Identifying effective practices. “With the information you collect, you can determine which actions to continue and build upon. Some practices might be modified and replicated for other programs or initiatives based on your results.”
- Identify practices that need improvement. Some actions may need to change in order to improve the effectiveness of your products and services.
- Clarity and consensus. “Everyone in your organization, from board members to service staff to volunteers, should understand what is going on and what you intend to achieve.”
Outcome measurement helps to clarify your effectiveness with processes to “accredit, adjudge, analyze, appraise, appreciate, assay, assess, audit, check, classify, consider, critique, determine, estimate, examine, evaluate, find, gauge, grade, inspect, investigate, judge, measure, monitor, rank, rate, referee, report, review, score, scrutinize, study, test, validate, weigh.”
Note that each of the terms referenced above correlates to critical thinking, smart use of data, and assessment of goal achievement and accomplishment. The energy expended may be measured by the expense required to achieve and accomplish the outcome. But the ultimate outcome is measured by its correlation to the strategy and goal.
Managing Outcomes: Leadership
Leadership typically operates on four levels: organization, team, department and individual.
Organizational is leading up and down the organization, including members of the board. In terms of output and outcome, leadership needs to motivate the workforce to align with the core mission, unique value proposition, market orientation, ethical principles and shared purpose. The great leaders can read the room tone and know when and how to spark innovation, participation and results.
Creating an organizational-level outcome strategy that represents actual impact and goals is important for organizations that have multiple lines of products and services. It should also direct all your downstream decision-making with collective understanding and alignment. For example, if group develops a product and another group sells that product, typically there are two separate business unit strategies. Unification under one single organizational-level strategy leads to a better outcome and a strong tie to the organization’s overarching strategy and its shared purpose.
Team leadership is identifying the right skills and structure for teams to operate effectively. Inclusive teams that are multi-disciplinary and multi-level, motivated by collaboration and collegiality often produce the best results. Teams need to align their outcome objectives with the organization with enough latitude to improve and innovate. Teams need discipline and structure to focus on productive work to prevent distraction from achieving desired outcomes. Otherwise, outputs will rule the day and substantive progress won’t be realized.
Having an outcome strategy at the business unit level weighs the costs and benefits of each business unit to decide where to spend resources. Departmental resource expenditure takes energy and effort and may limit the larger contributions to the organizational strategy. Jenna Weaver of Clearpoint adds, “The functional level of your strategy involves each department — and what those at the department level are doing day-to-day to support organizational outcome initiatives.”
Individual leadership is the power of an individual to inspire. The best leaders lead by example with empathy, courage and self-awareness. Continuous self-evaluation is key to staying fresh and on point with both output and outcome.
“Having a solid understanding of these levels of outcome strategy will help align your organization-wide goals from the top of your organization to the bottom (the department level),” adds Weaver. “If you approach your strategy using these four levels, leaders across the organization will have a better understanding of how their strategic activities impact the organization’s high-level outcome strategy.”
The final step in measuring outcome is measuring its impact. In other words, what effect took place because of your products and services. Impacts are the long, long-term or indirect effects of your outcomes. Put another way, impacts are what you hope to accomplish beyond products and services. Impact tells the narrative of how people or society are touched and influenced. Impact can be measured through the evaluation of outcomes in terms of the long-term effects of an individual, organization, or policy. Impact affects all stakeholders, including customers, the workforce, the industry and society at large. Impact is the ultimate goal of any organization that is driven to make a difference be competitive for all stakeholders in the large playing field in which it operates.
Measuring What Matters
At 2040 we advise clients on measuring what matters. Although measuring outcomes runs against our default behaviors, it remains critical in a dynamically changing market and society. Here’s a cautionary note about having output goals with blinders. As reported in HuffPost, Amazon was fined over productivity quotas. “Workplace safety officials in Washington state have hit Amazon with a $60,000 fine for knowingly putting workers at risk at its massive warehouse in Kent.” Output without considering outcome and the ultimate impact is a fool’s errand.