Why have a business performance measurement system?

  • To align the entire organization with its objectives
  • To enable executive decision-making to be fact based
  • To facilitate organizational learning
  • To reward people and reinforce desired behavior

How do we evaluate the effectiveness of your business performance measurement system?  

performance_measurement_iowaBy considering the following:

1. Are the metrics aligned with company strategy?

2. Do they make sense to people?

    • Realistic targets
    • Trusted data
    • Easy to comprehend

3. Does leadership following up on them?

    • Identify root cause
    • Lead to data based corrective action
    • Reward right behavior, at the right level

4. Is the measurement system balanced?

    • Leading and lagging indicators
    • Focused on processes, not on people
    • Not excessive or redundant
    • Reasonable cost to administer

What business performance measurements should you be looking at?

quality_performance_In_The_Black_Ink_PellaFrom the owner’s perspective you want to have an accurate picture of your business’s financial health at any given point in time.  Shareholders will want to know Return on Sales and Return on Investment whereas your banker will want to know your Working Capital Ratios and Debt Service Coverage.

If you are also the leader of your business, then on a weekly basis you will want to see its cash flow in terms of receivables collected, cash disbursements, cash balances and debt balances.

Sales and market making activities are keys to future cash flow.  Keeping in mind your sales break-even needed to cover total fixed costs, you want to see your margin performance to ensure pricing and variable cost controls are working.

To measure the productivity of your people, you may want to look at sales per total headcount.  Overall productivity of assets can be measured by Total Asset Turnover (Sales per $1 of Total Assets).

When do I align compensation with Performance Measurements?

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Your employees want to excel for you, for themselves and for your customers.  It is primarily your company culture that will drive their behavior for good or for worse.  Within strong company cultures, it is also helpful to align compensation with results your employees can control and/or significantly influence.  Your employees need to know daily or weekly what they can do to drive results.

Instead of giving somewhat arbitrary year-end gifts of appreciation, consider bonuses (quarterly or annually) for safety achievements, labor efficiency results, customer very satisfied ratings and operating at near full capacity.  We can help you choose meaningful, visual metrics which will become the dashboard your employees use to operate the company.

Who should Performance Measurements be focused on?  On Processes!

In the best company cultures, performance measurements focus on processes and not on people.  Then incentivize people to follow your processes and to improve them.

We can facilitate for you brainstorming sessions, value stream mapping, and business process improvement (lean) events.  Scott began doing so for Pella Corporation in 1994 under the direction of TBM Consulting who used the Toyota Production System, week long, shop floor for weeklong kaizen events.

The following are various types of business process improvement efforts Scott has successfully directed:  final assembly line flow, model production cell, production scheduling process, cycle counting process improvement, financial accounting system redesign for comparable financial statements, sales force customer pricing process, new business startup (First 100 days) process, financial modeling and distribution strategy development.

We can help you with manufacturing process and distribution business process improvement efforts.  Whether it is a process improvement for order acquisition, order fulfillment or administrative, Scott has the experience and personality to draw the answers out of your own organization.  This is not about giving others the answer.  It is about facilitating the best thinking of your employees to help them improve their own company… for you.