Many companies complain of “silo management”. That means each department working on its own to its own agenda. Often this is characterised by each department working to its own set of “Performance Measures”, which in turn often drive conflicting behaviour between departments.
Performance measures, after all, drive the behaviour of the people within an organisaton. Thus a Sales and Marketing success can be a planning disaster. Sales wins a new contract, and gets the praise for “a great achievement”, while Planning and Manufacturing get no visibility and therefore struggle to deliver and get the blame. The only way Sales gets the “pat on the back” is by not letting anyone know about the opportunity beforehand!
Manufacturing may get rewarded on the basis of “efficiency”, which they interpret as making as many units as possible per week or month. But they make what they want to make to optimise efficiency, rather than make what the customer needs.
This practical course provides a complete integrated structure of performance measures which will drive the company to work to a common goal (Return on Capital Employed), and deliver real benefits to the shareholders. It also details the definitions that should be used and enables a company to work out where to get the information from, work out Targets and Objectives, and assign responsibilities.
Developing an integrated set of performance measures requires a structure of how these relate to the Vision and the Strategy of the organisation, how they relate to the organisational structure (and tie into roles and responsibilities) and a clear definition of the measures so that everyone understands how they are measured. After all “If you measure me irrationally, I will behave irrationally. But if you do not explain to me how you will measure me, no-one will know how I will behave, not even me!”. So we also need to define the behaviour which we want to achieve in order to define the measures that we want.
Come to this course if you want help in creating this integrated structure.
The problems with today’s measures
We outline the issues that many companies face with the current meaurement framework. They measure “Actual versus Budget”. This causes everyone to chase the year end, understate the budget (sandbag) in the first place, and play with the profit figures to make sure they “beat the budget”. “How are we doing against the budget” is the cry. They measure manufacturing efficiency (makes the wrong things), Purchase Price Variance (purchasing buys what is cheap rather than fit for purpose), inventory level (it is always too high). They do not measure (properly) important aspects like forecast accuracy, plan achievement, customer delivery performance.
Alignment with the Vision and Strategy
A proper structure for integrated performance measurement requires alignment with the Vision, Mission, and Strategy, and from this the Strategic Business Objectives. We show how to cascade the Business Objectives into supporting Key Performance Measures which ensure alignment with the Vision and Strategy through a formal structure of Objective – Target – Milestone – Measure.
We also show how to align the measures with the goal of the business, by illustrating how performance measures like Forecast Accuracy, Customer Service (OTIF), Schedule Achievement and Right First Time contribute to the overall goal of Return on Capital Employed (ROCE).
Alignment with the Organisational Structure
Any perfromance measurement structure requires clear roles and responsibilities. Fundamental to the Delos Model of measurement is the idea that a business is made up of a number of core business processes – Forecasting, Planning, Manufacturing, Procurement, Delivering, Innovation, Cash Management, Talent Management, and Information Management. For each of these processes there shoud be a set of measures which define how well they are performing. But to ensure that they perform better, responsibilities for processes need to be defined, and aligned – often – with the functional organisational structure. In one client the HR Director became the process owner for manufacturing, which worked incredibly well! We show how to align the measures to the organisational structure and vice versa.
How to measure
There is no common definition for key performance measures. Hence we – based on our experience of 30 years of working with clients – set about helping you to define precisely how the measures should be defined, where to get the information from, and then help to assign responsibilities, and develop targets (based on benchmarking against best in class). So for each of the key measures we build on a template of Purpose, Definition, Source of Data, Horizon, Responsibility, Reporting, Targets/Milestones.
You end up with a comprehensive list of measures, a complete set of definitions, and targets/milstones designed to make your company best-in-class.
In order to cchange behaviour, you will have to address the current reward structure. Bonuses are established within organisations which will define individuals’ behaviour. The appraisal process is often built around achievement of individual objectives.
However, if you want to achieve accurate forecasts then you will need to create a structure in which the bonus system rewards accurate forecasts (rather than actual v budget). If you want people to behave so that they improve customer service, then the organisation needs to be rewarded on the levels of customer service achieved. Also, if you want to create a team-based structure, then appraisals whould be team-based and rewards need to recognise good team-based behaviour, and downplay a “hero” culture.
All of the above creates a framework. But this will be of no use unless the structure is rolled out effectively across the organisation. Often these issues are tackled through a business-wide “Transformation Programme”. We show how the change management issues are addressed through an effective formal company-wide Education programme. The original meaning of education is derived from “leadership”, and hence we emphasise the need for the Leadership team to show the structure behind the new performance measures structure, the detailed definitions, and how reward will be defined and given.
We show how this should be incorporated into the Delos Proven model of business transformation, driving simultaneous improvement in systems, processes, and people culture and behaviour. Changing performance measures is key to changing the company performance.
You end up with a business performing incredibly well, because it measures correctly.