Just-In-Time Professionals Blog

How to begin the process of creating and using KPIs and the business communications process

jitpro — Wed, 28 Apr 2010 13:05:57 +0000

This is one approach that works. There are others. Feel free to use this if it works for you:
Background
Since a key performance indicator is used to measure your performance relative to a key performance area, you first must decide what are the areas of your business that are critical to your success.
I use process flow mapping to visualize every step(function) that must occur in the flow of your business from sales and marketing, through operations and into finance and administration.
Once this process flow map has been worked through with your key team members, group together functions that impact your customers satisfaction and be sure that each function has an owner. Once all critical functions have owners, this becomes their functional position description. These are the team members that will be accountable for the performance in each area. Visualize what things would be like if you had a team that exceeded all their customer’s needs and wants. You can ask about the quality, quantity, cost and timeliness involved with exceeding those expectations and you begin to form the key performance areas (KPA)and what the measurements for those performances would look like. These, stated in terms that are measurable, objective and contribute to the optimization of the overall process form the basis for the key performance indicators (KPI). During this process of developing KPIs for each team member’s function and the team overall, be sure to guard against local optimization at the cost of system optimization.
The most vital part of an effective use of KPIs is the communication and feedback component. The feedback should be specific and timely enough that mid course corrections can occur in the KPIs if they don’t seem to be measuring the performance that is indeed crucial to overall team success. When setting performance goals based on the KPIs, be sure to make them a stretch to meet. This will provide for an environment where each team member is running at full steam to meet and exceed expectations.
Going back to the work of Aubrey Daniels and others, be sure to provide the proper consequences to help shape behavior. Celebrate success and coach as needed.

Check out Sandy Graham’s comment on my post Calculating the true cost of your employees. It is excellent!

jitpro — Wed, 24 Mar 2010 17:54:56 +0000

The value of a KPI model in avoiding bad strategy decisions

jitpro — Tue, 16 Mar 2010 17:31:48 +0000

If you want to avoid bad strategy decisions a KPI model may be your solution

The fundamental problem.
There is no universal management theory able to guide a manager’s decision on a critical business issue. All business operators know that many theories can apply to the situation they confront. Their choice of theory will inevitably influence the decision they make. Even a decision that there is no relevant theory will inevitably influence their decision.

The problem gets worse. Where do you go for advice? Ask an accountant and you can be confident that you will get a financial solution. Ask a lawyer to get a legal solution. Ask a friend to get a solution that’s minimizes the risk to you? You need a way to make your own decision based on your intimate knowledge of your own business, but it has to be a way that you are confident gives you’re the best answer. Then you can check it with your advisers.

Let us examine a common situation. A downturn in sales is attributed to a downturn in demand. The revenue loss leads to a cash flow and liquidity problem. Without action, the business faces insolvency in a matter of months.

Financial theory offers two options; reduce fixed costs, variable costs, or reduce stocks by discounting. Redundancy programmes are but one way of reducing costs by matching capacity to demand to maintain gross profit %.
Marketing theories offer alternatives to increase sales, but usually require increases in expenditure and risk. Reductions in marketing spend are usually short-term expedients with long term consequences.
Employee relations theories offer alternative ways of cost reduction, with different implications for the long term future of the business. The net benefits are generally finely balanced.
I am sure you can think of many other theories that could apply to one aspect of this scenario.
I hope this illustration has demonstrated that your choice of theory will constrain your options. The interactions between the theories can be shown this way:

It is now clear that the optimal decision will be found in the small space where the three theories intersect. No single theory can produce the best answer, so how do you balance up the competing claims from theories that interact, each producing positive and negative outcomes.

The way a strategist approaches complex decisions may point the way.

A strategist will create a set of feasible scenarios. A feasible scenario for our simple illustration is one that optimizes that prospect of business survival, short and long term.
This is only possible if we consider the whole system, the business, its customers, suppliers, employees and competitors. To neglect the reactions of any group will put the business at risk.
Any decision will generate effects from different groups often at a point remote in time and place from the obvious and immediate effect. You do not want to be caught out by unintended consequences.

1. Create a short list of possible decisions.
2. Consider how each option is likely to effect the operational units of the business. For example, how will a price reduction affect

a. Sales volume?
b. Advertising costs?
c. Selling costs?
d. Market position?
e. Market share?

Start by assessing whether the effect is positive or negative. You can estimate the most likely relationship later when you plug it into your KPI model. At this stage you are assessing the interactions between the different theories.

3. Another example assesses the costs and benefits of a redundancy programme.

a. Cost of redundancy payout. Include accrued leave, redundancy pay entitlements, pay in lieu of notice.
b. Lost time during consultation process.
c. Lost productivity due to morale effects.
d. Cost of replacing staff when business picks up again.
e. Costs of contractors and temporary staff if you get the number wrong.
offset by
f. Monthly savings on wages costs.

4. You will usually find that a likely scenario needs you to consider more than one perspective or theory. You cannot simply add up the positives and negatives associated with each theory perspective to get the net result. Complex systems simply do not behave like that.

Using your KPI Model

Now you can use your KPI model to explore the interactions between the decisions and their effects on the different parts of your system.

1. Enter the new numbers into the input cells in your model. Sometimes you will need to add an input box to your model to accommodate a cost or revenue factor that is not a normal part of your working model.
2. Do not change the algorithms (except to accommodate a new input); there is no change in the relationships between the KPIs.
3. Assess the effect on the key financial ratios your model generates. Changes in Return on funds, Gross Profit % and Asset Turns are obvious points of measurement.
4. Assess the changes on other KPIs that may be important. I suggest you look for changes in:

a. Product segment contribution
b. Customer segment contribution
c. Customer numbers
d. Service level KPIs
e. Marketing spend
f. Overhead ratios
g. Stock turns

By now you are starting to get a good picture of the overall effect on your business system and prospects.

If you try one scenario at a time you will soon have a reasonable understanding of the combination of decisions that will work best for you; that is one that maximizes the benefits and minimizes the harm.

Look for a strategy

The optimal strategy will almost certainly require a number of business decisions.
Your business is a complex system, and there is no certainty that a decision about a single variable in the system will produce the expected result.

Let me offer an example.

After 4 months of a 12 month contract the new customer recruitment rate has declined by 10%, due to adverse consumer reaction to the change. Gross profit has declined by $500,000, and market share has dropped by 1.5%.
The Mumbai call centre is losing $10,000 per month to penalties, and is unhappy; its staff are dispirited and productivity is declining. The in-house call centre has been disbanded with significant redundancy costs. addition to the bottom line.an netA business uses an internal call centre to recruit new customers in New Zealand. A cost cutting review has found that a net saving of $250,000 pa. is available by shifting the call centre to a Mumbai based contractor. The proposal is presented to the board as a simple yes/no decision, without any supporting analysis of customer reaction. The contract specifies the success rate, and the contractor has agreed to penalties for failure to meet the performance indicators. The board accepts this one-dimensional proposal as

What next?

How does this sort of disaster occur? It has happened too often around the world in recent years for it to be an accident.
What theory, or combination of theories ruled in the board meeting?

Your instincts are right. The combination of a single financial theory about cost cutting, combined with a one dimensional Employment Relations theory about the financial costs of redundancy is the cause.

How can this type of disaster be avoided?

If the business had examined three scenarios, the usual best/most likely/worst case scenarios from a marketing perspective there is a fair chance that the risk would have been exposed.

If the business had invested effort in developing a robust KPI model it would have been able to test the complex set of flow-on decisions needed to assess the proposal. properly.

The analysis could have quantified the level of reduction in customer recruitment performance that would negate the expected savings from the cost reduction programme. The board could then have made a decision in full knowledge of the risk they were taking..

This example has demonstrated that failure to view the business as a complex system in a complex marketplace leads to errors that can be avoided by a business model that treats the whole business as a system involving interactions of theories and processes. A robust KPI model does exactly that.

The theory works; the practice works and strategies can be rigorously tested.

I recommend that you do not bet the business on a single management theory. There is no need to take that level of risk.

This post is from Michael Taplin’s Website Bizlearn. He has graciously allowed me to post it. I think you will agree that it is an excellent post on decision making!

Calculating the true cost of your employees

jitpro — Tue, 15 Dec 2009 15:33:30 +0000

Calculating the true cost of your employees!

by: Jed Black

I remember a couple of years ago, I was chilling out at a construction site in southwest Georgia with a crew of commercial plumbers at the end of a long hot day. I was on site working with the owner to help him return to maximum profitability. This company was a successful commercial contracting company that helped build new hotels and multi-family dwellings. While the rest of the country was deep in the midst of the summer recession of 2007, this company was growing by 45% annually. The owner was a natural entreprenuer. A hard working plumber that could do it all and suddenly had 70 employees, more sales than ever and less hitting the bottom line. He knew that something was broken and was smart enough to be willing to ask for help.

As we sat in that south Georgia heat that afternoon and watched the owner roll out in a cloud of dust, the conversation good heartedly got back to all the money the owner was making. The men in the field thought he was rolling in dough, because after all, they got $22 an hour and the estimating team charged $35 for every hour they worked. Heck he is making $13 on each of us every hour we work! We laughed about it but the conversation gave me a keen insight to one of the things that was broken. No one really understood what the real cost of the crews was and therefore crew productivity was never thought to be an issue. I worked with the owner to identify his true fully loaded labor costs and how to utilize the proper pricing formula to bid his jobs. We also had a series of meetings with the field supers, crews and estimating teams to spell it out. Once everyone understood the true cost of labor, they understood that even a 10% increase in productivity could mean hundreds of thousands of dollars to the bottom line. I have placed the calculations for pricing and if you would like a handy dandy calculator that you can use to identify your fully loaded labor cost and what small adjustnments to productivity can have on the bottom line, email me and I will send it to you! Please use this to be sure your pricing is correct and as a tool for ongoing communication with your teams. Thanks.

Http://www.stewartassoc.com

http://www.jitpro.wordpress.com

The role of assessment in building a winning team.

jitpro — Tue, 15 Dec 2009 13:40:46 +0000

There are a number of factors that contribute to building a winning team. A winning team is one which is able to create a motivational environment in which each member of the team is free to utilize all their skills and experience to contribute to the goals and objectives of the team. For those of us lucky enough to have been members of a winning team at some time in our careers, you can feel it when it happens.

All winning teams have a coach that provides the overall strategy and selects from the team members those specific skills and behavior traits that are needed at each point through the project to meet the goals of the team.

To take the sports example one more step, a wining team also has team members that have been recruited and selected to be part of the team that have the skills and behavioral traits that can be combined to meet the needs of a winning team. The success of any team in the long run is due in great part to the success of their recruiting program.

So what role does assessment play in building a winning team? Very simply, the role of assessment is to assist the team leader to identify the right player for each functional position on the team. Having spent the time up front to build a functional position description by identifying and listing all the skills and behavioral traits that would contribute to the success of whatever individual fills that position, the rest is easy. The team leader just needs to assess each applicant for their fit to the FPD. One of the reasons that Stewart and Associates has been successful helping our clients to obtain, develop and retain employees is because we take that extra step of evaluating and assessing each candidate we submit using this model.

We utilize a model based on the DiSC system called the PPS which is available through our website.

Working with our partners in operations and human resources at our client companies, we help make the fit as snug as possible. We have all seen the cost for trying to build a position around a person. We wind up with a dysfunctional company that does not maximize profitability. A recent study states that the average cost to a company to replace a salaried worker is $7,000 exclusive of recruiting costs.

One of the steps on the path to building a functional organization is to identify the skills and behavioral traits that an individual given ownership of a function in a company should have to maximize their results in that function. Selecting that individual on that basis and plugging them in to the team is what recruiting is all about.

Assessment can also be used for ongoing team building, communication and employee development.

Dave Quick, the Director of Business Development for the “Who We Are Counts”TM Institute in Kingsport, TN uses just such behavioral based training to help companies maximize their ability to work together as teams.

What is Organizational Development?

jitpro — Tue, 15 Dec 2009 13:17:15 +0000

What is Organizational Development?

The definition of OD from Wikipedia is as follows. Organization development (OD) is a planned, organization-wide effort to increase an organization’s effectiveness a nd viability. Warren Bennis, has referred to OD as a complex strategy intended to change the beliefs, attitudes, values, and structure of organizations so that it can better adapt to new technologies, markets, and challenges. OD is neither “anything done to better an organization” nor is it “the training function of the organization”; it is a particular kind of change process designed to bring about a particular kind of end result. OD can involve interventions in the organization’s “processes,” using behavioral science knowledge as well as organizational reflection, system improvement, planning, and self-analysis.

When I go into an organization to do an analysis, I look at 6 systems and evaluate the status and effectiveness of each systems. It has been my experience that truly effective and profitable organizations use these 6 systems and the interplay among them to create and manage the chain of events that go on in a company to create profit. These 6 systems are:

Accountability
Data
Feedback
Communication
Coaching
Recognition

I utilize a combination of customer and employee satisfaction surveys, personal interviews, systems audits, financial statement review and observation to evaluate the effectiveness of these systems. To be a true learning organization, a firm must be sure that every member of their team knows what they are accountable for and what the expectations and Key Performance Factors and Indicators associated with that function are. They must be given performance data relevant to their areas of accountability in an easy to use format and on a timely enough basis for them to react. This is the feedback system. There must be a company wide communication system that includes a method for the team leader and each team member to review their performance and for the team leader to provide coaching to help each team member meet their own level of maximum productivity. The communication system must also function to provide information within and between functional areas to help maximize system optimization. The last system and probably the most important is the recognition system. This system is responsible for tying the level of each team members individual contribution to the success of the company to recognition provided to them. This recognition includes everything from salary and benefits, incentives, chances for advancement and whatever else each team member wants. Just as we have learned through our discussion on the use of assessments, each person is an individual and has their own needs. The job of the coach or team leader is to meet those needs in recognition of their contributions.

According to a recent survey, an Organizational Development Professional in this area with an MBA would receive a salary and bonus of approximately $130K plus full benefits.

Ok, so that’s great we don’t have that kind of money but we definitely could use an OD intervention, how can we do it? The answer is to use the Variable Staffing process we have discussed before. Our firm has a division called Just-In-Time Professionals. This team can place highly qualified professionals into your firm on a contract basis to begin to implement some of the OD systems we just discussed. By Using the Theory of Constraints and other analytical tools, our consulting division can help you identify the most important OD interventions you can make that will impact your bottom line. Our JIT Professionals can implement them. Its like the old saying, How do you eat an elephant? One bite at a time.

For more information on how you can make this happen in your organization visit our website or call us.

JITPRO/Stewart and Associates .

This is an interesting poll conducted by LinkedIn

jitpro — Wed, 25 Nov 2009 14:00:09 +0000

Check this poll!

http://polls.linkedin.com/poll-results/60613/wozgl

It looks at what different business people feel is their greatest challenge at this point.

Creating a functional organization Part 4

jitpro — Fri, 13 Nov 2009 16:52:29 +0000

OK, so now you have reviewed your process flow map, identified functions, designated function owners and created Key Performance Factors and the Key Performance indicators for each function, what’s next. Now you need to assess the behavior based attributes that any person that owns a particular function should have. There are any number of personality assessment tests that will identify a person’s style. This is important because each person has a way of dealing with situations and other people who can contribute to or hinder their effectiveness at owning a particular function. These tests are usually some derivative of Blake and Mouton’s work or the DiSC system. For example, the DiSC system identifies four personality factors that combine to provide an assessment of how a person would be expected to react when faced with certain scenarios. A high D high I style would be most productive in a creative, results oriented position with a large degree of autonomy and few detailed reporting requirements. This person might be better suited to a CEO or sales/marketing function than to an accounting function etc. There are tons of websites where you can study this or even take an assessment such as Http://www.stewartassoc.com. Once you have identified the most effective style and skill set needed by anyone that would be placed in a function, you can write Functional Position Descriptions. These would list the functional areas of accountability, each with its own KPF and KPI. Most Functional Position Descriptions (FPDs) would have at the most 4 to 6 of these. Once you have written these FPDs you can either re-arrange your current talent pool so that each person that owns a functional area has the skill set and personality type that will contribute to the highest productivity and thus job satisfaction, or bring in new talent. Remember that using interim professionals can be a great way to assess the true needs and rewards of a position. These KPAs and KPIs form the basis for the performance evaluation and feedback system that is a crucial part of any successful company. More on this next time!

State / Territory Summaries

jitpro — Fri, 06 Nov 2009 16:19:16 +0000

State / Territory Summaries.

You can see where all the stimulus money is going here.

Creating a functional organization Part 3

jitpro — Fri, 16 Oct 2009 17:55:16 +0000

I left off last time with reviewing your process flow to assure that you do not have local optimization at the expense of system optimization. Let’s look at this for a moment. Consider the functions of an order fulfillment area and production area. If you set up a function that is accountable for shipping orders as quickly as possible with a minimum of back orders and you measure the performance of that functional area with order processing time and % of shipped orders with no back ordered items you can achieve local optimization for that function. If you also have a production team that is held accountable for the number of widgets produced per hour and are measured that way, the production team will avoid set-up time etc. at the expense of not building the parts necessary to complete orders. This will also lead to local optimization for the production area. But if the overall goal is to satisfy the customer by shipping complete orders on a timely basis, then you are not meeting the requirement for system optimization. What would you recommend to this company if you were the consultant or just -in-time professional brought in on an interim basis to fix the problem?