Business performance measurement builds a performance culture

As 2014 came to a close, the American Productivity & Quality Center (APQC) conducted a short survey to better understand the pressing priorities and challenges of business excellence practitioners for 2015. We found that process and performance management were the top two areas that business excellence staff planned to focus on in 2015 (see Figure 1).

Although process and performance management are separate focus areas, process management is often a starting point for organizational performance improvements. For an organization to improve its performance, it first must understand how to get work done effectively. This can include using business performance measurement to assess how the organization performs work and identify the performance and value of each process, as well as pinpointing which areas are underperforming, valueless, redundant or inconsistent with definitions and execution. Hence, all these process concerns link back to performance improvement opportunities.

Practitioners are prioritizing a wide array of challenges tied to performance management, from overcoming governance hurdles (e.g., identifying ownership) to including lagging, in-process and leading measures. These challenges have two main concepts in common: engagement and measurement.

If done correctly, business performance measurement can be the lynchpin of effective engagement. Organizations often will start measurement by assessing the performance and value of its processes, engaging employees in process activities and providing clarity on who does what.

In other words, assessing an organization's current state helps provide a baseline for determining and prioritizing process improvement opportunities, identifying measures for performance management, and engaging employees to think in process terms. An organization can baseline its current state in several ways: benchmarking, surveys, workgroups and value stream assessments. The method applied depends on the amount of performance data available, business process maturity and the amount of employee engagement that is necessary.

Overall, when organizations ignore the effect of change initiatives on people, roadblocks arise and intended results fall short of expectations. Many organizations conduct limited workforce engagement for process and performance management. Limited engagement results in employees who do not understand, care about or even agree with the process. Employee engagement creates buy-in with employees and overcomes organizational resistance. Outlining the value of process management in terms meaningful to leadership results in the sponsorship and resources necessary to make process efforts effective.

The greatest challenge for business process management is making it part of the culture and getting employees passionate about it as well. Many organizations face resistance during process rollouts because they don't involve employees in the process. If organizations involve their employees in the current state assessment, they increase engagement because employees feel a sense of ownership in identifying what the key issues are and what measures matter. Including these measures as the value drivers in process and performance improvement business cases establishes the measurement efforts in terms that leadership can get behind.

For example, Elevations Credit Union established a strategic initiative to improve its organizational performance. Its first objective was to address its ad hoc, patchwork processes. Elevations' approach combined current state assessments, employee workshops, process management and tool training, and mapping contests to engage employees in process management and establish a performance culture.

However, Elevations' real breakthrough with leadership came when it started using a performance dashboard to track and monitor its process performance. As the organization's processes and measures grew in complexity and the leadership's need for data to support its decision making expanded, Elevations implemented an enterprise dashboard system that provided access to the organization's key performance indicators (KPIs -- actual, target and variance). A corresponding "drill down" dashboard for each category of the enterprise process map allows leadership to root cause any variations in performance.

According to Elevations, the ability to get real in-process metrics was a fundamental change in how it operated. From that moment on, Elevations' senior leaders bought in on process management and began managing via enterprise dashboards. All of its metrics link back to processes, so it can now figure out what's broken and why by tracing back to the source of the problem.

Elevations' success using performance dashboards comes as no surprise. When discussing performance measurement, most practitioners refer to the type of measurement that helps companies monitor its current and past states. Thresholds, both low and high, for KPIs are set and managed by exception. When data begins to move outside the threshold limits, the performance measurement system can alert management, who then attempt to diagnose the problem and address its causes. Practitioners refer to this type of measurement as diagnostic control systems. Although this type of measurement provides management with "auto-pilot" capability that can keep the organization on target with its goals, it is frequently insufficient for success.

The performance management challenge -- designing and using process measures in the business -- is one reason this approach is not always successful. Most dashboards look at in-process and lagging indicators while overlooking leading indicators that help organizations proactively react to changes in the business environment.

Figure 1. 2015 business excellence priorities and challenges.

Several methods are available for including leading indicators in an organization's performance management. The most widely known is the balanced score card. Normally (although not required), the balanced scorecard is broken down into four sections called perspectives:

1. Financial -- strategy for growth, profitability and risk (typically the shareholders perspective). The scorecard considers financial measures lagging indicators and includes looking at growth, profitability and shareholder value.
2. Customer -- strategy for creating value and differentiation (customers' perspective). The customer measures are often leading indicators and include customer satisfaction, net promoter score, brand awareness and market share.
3. Internal business (operations) -- is the strategic priorities for business processes. Operations measures are usually in-progress, performance-based measures used to indicate how well the business is running (e.g., cycle time, quality, employee skills and productivity).
4. Learning and growth (people) -- the priorities to create a climate for change, innovation and growth within the organizations. This includes, but is not limited to, employee training, corporate culture, as well as individual and organizational improvement. The measures are typically in-progress or lagging measures that vary but can include employee behaviors and adoption rates.

The important takeaways here are that measurement plays an important part in how organizations can engage employees -- both leadership and frontline -- in process and performance management. By including the right blend of measures an organization can improve its decision making capabilities for improvement opportunities, provide transparency and ultimately establish a performance culture.

SOURCE: TechTarget

The Complete Guide to Product Adoption: from Product Life Cycle to Customer Decision Journey

Product Adoption is a compelling and important topic.  It affects every single business.

There are numerous whitepapers, frameworks, and discussions focused on Product Adoption.  They discuss various elements, from market conditions to product attributes to tactical engagement.  The purpose of this article isn’t to present anything new.  Rather, it’s an attempt to synthesize various established frameworks from reputable strategists and businesses to present a comprehensive, holistic look at Product Adoption.

Let’s start at the highest level–the market.

1. Select the Right Market Segment

At the macro level, we have market forces at play.  This concept is captured best by the Product Life Cycle.  The essence of this framework is that a product will go through 4 stages of development from creation to obsolescence.

The Product Life Cycle is often mapped against the Consumer Adoption Curve (one of the best known marketing frameworks).  By doing this, we can determine the ideal market segment to go after at each stage of the product’s lifecycle.

To use this framework, we need to determine two things:

1. What stage in the Product Life Cycle we are in.
2. What segment on the Consumer Adoption Curve to go after.

Each stage of the Product Life Cycle is typified with a unique set of characteristics.  Likewise, different strategies are best suited for the different stages.  They are as follows:

• Introduction.  In the initial stage, pricing is critical.  We need to address the key question that drives Pricing Strategy: do we want to penetrate or to skim the market?  Penetrating the market implies stronger consumer adoption, but at the trade off of higher margins and possibly profits.

• Growth. In this stage, the focus shifts to Customer Satisfaction, so that we can build customer loyalty and drive repeat purchases.  As portrayed in the diagram above,  we are now at the brink of breaching the Early Majority market.

• Maturity.  Depending on the competitive dynamics in the industry, companies will elect to employ one of three strategies: Maintain, Defend, or Innovate.

• Decline. In the final stage of the product’s lifecycle, we need to make the decision to focus on innovation or make a calculated exit.

By knowing what phase of the lifecycle we are in, we have identified the general corporate strategy.  We can now also identify the prevailing customer group, as defined by the Consumer Adoption Curve.  There are five distinct customer groups, each characterized by a set of beliefs, motivations, and behaviors:

• Innovators.  Innovators are the first to adopt a new product.  They are willing to take risks, youngest in age, have the highest social class, have great financial liquidity, are very social and have closest contact to influential sources and interaction with other innovators.

• Early Adopters. This is the second fastest category of individuals who adopt an innovation. Early Adopters have the highest degree of opinion leadership among the other adopter categories. They are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters.

• Early Majority. Individuals in this category adopt our product after a varying degree of time. This time of adoption is significantly longer than the Innovators and Early Adopters. Early Majority tend to be slower in the adoption process, have above average social status, have contact with Early Adopters, and seldom hold positions of opinion leadership or influence.

• Late Majority. Late Majority folks will adopt an innovation after the average member of society. They approach a new product with a high degree of skepticism and only after the majority of society has adopted the product already. They are also typically skeptical about an innovation, have below average social status, very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.

• Laggards. These guys are the last to adopt. These individuals typically have an aversion to change and tend to be advanced in age. Laggards typically tend to be focused on “traditions,” likely to have lowest social status, lowest financial fluidity, be oldest of all other adopters, in contact with only family and close friends.

Please note the customer group percentages displayed in the image above (e.g. 2.5% for Innovators) are merely illustrative.  These percentages are only accurate in the case of a normal distribution and thus do not apply to all situations.

Thorough Product Life Cycle analysis provides us with the backbone to our overall product marketing strategy.

The drawback of Product Life Cycle is that it is only a market-focused framework.  It doesn’t address other critical drivers to adoption, such as the Product itself and Consumer Psychology.

You may have your overarching marking mix right, but if you fail at the tactical and execution level, your product will fail.

2. Architect the Right Product

What product attributes drive rapid market diffusion and consumer adoption?  Tough question.

But, good thing we have the Rogers’ Five Factors framework.  Credit goes to Everett Rogers, who also created the Consumer Adoption Curve.

Rogers’ Five Factors proposes there are 5 product-based factors that drive adoption.

• Relative Advantage.  This is the degree to which our new product is better than the incumbent.  This advantage can be non-economic (e.g. social status, prestige).  The greater the relative advantage, the faster the adoption.

• Compatibility.  This factor accounts for the degree to which our product is consistent with the customers’ existing values and experiences.  The greater the compatibility, the faster the adoption.

• Complexity.  This is the degree to which our product is difficult to understand and use.  The primary way to overcome complexity is education, but it is important to assess how willing the customer is to be educated.  The greater the complexity, the slower the adoption.

• Trialability.   This factor measures the degree to which our product can be experimented with on a limited basis. This factor is most important when our product is in the early stage of its lifecycle–when uncertainty about the product’s benefits are at its highest.  The greater the trialability, the faster the adoption.

• Observability.  This is the degree to which potential customers can see others using our product.  For instance, highly observable products include cars and cell phones.  Difficult to observe products include medicines and home appliances.  Many companies leverage social media marketing–and specifically target “influencers”–to increase their observability factor.  The greater the observability, the faster the adoption.

Let’s walk through an example of this analysis.  Look at the telephone.  Every home has a phone.  It’s something we take for granted, something that’s necessary part of our daily lives, something we can’t imagine living without.  One would assume it was adopted very quickly.  Yet, the reality proves otherwise…

The telephone was invented by Alexander Graham Bell in 1876.  By 1900, 25 years later, it would only be found in 10% of the households in the US.  By 1935, 60 years after its invention, it could only be found in 30% of households.  In fact, it wasn’t until the 1980s that the telephone reached 90% of US households.

Why was the adoption rate so exceedingly slow for this wonderful, useful invention?

A look at the Five Factors sheds some light.  The Relative Advantage for the phone was low when it was introduced.  It was expensive–both installation and ongoing fees were high–and you had few people you could call.  It was also highly incompatible with the norms of the time.  The idea of speaking into a metal box was foreign and frightening.  The technology used in the phone was incredibly Complex and difficult to understand.  People wondered, can it transmit diseases? Can I get electrocuted? Does it only speak English?  Trialability was low–only the very wealthy and businesses had telephones installed.  In fact, in its early years, the only factor the telephone had going for it was Observability, since people could the telephone wire running into a house.

3. Understand the Customer

If you are targeting the right market with the right marketing mix, have a compelling product that fosters adoption, the third essential element to analyze is the customer. What makes the customer tick?  Rogers’ Five Factors touched a bit on this already, but let us take a deeper look into Consumer Psychology.

In my last article (Why People Won’t Buy Your Product Even Though It’s Awesome), we discussed three key principles of behavioral economics that drive consumer adoption:

• Losses Loom Larger than Gains

• Reference Points Matter

• The Endowment Effect

You can read that discussion here.

4. Complete the Customer Journey

In most cases, the product you’re selling is not an impulse purchase.  The path to purchase is a long process–it’s a journey that can take from several days to several months.  This journey is captured in a framework developed by McKinsey & Co called the Customer Decision Journey.

The Customer Decision Journey proposes that the customer goes through four phases in a cyclical process.    Each phase represents a potential marketing battleground where companies compete for the customer’s purchase and loyalty.

These phases along the customer’s journey are:

• Initial Consideration.  When the customer first conceives the notion of buying a product, she will develop an initial set of brands to consider buying.   Brands in the initial-consideration set are three times more likely to be purchased than brands that aren’t in it.  This means that Brand Awareness is vital.  In this phase, we should focus on push marketing.

• Active Evaluation.  In the evaluation phase, the customer is seeking information and shopping around to make an informed purchase decision.  She will ask for recommendations from friends and family, read reviews online, go to the store to test out products, and so forth.  This phase empowers both the customer and the company.  How are companies empowered?  Companies have the opportunity to enter the consideration set–and even force out companies in the Initial Consideration Set.  Big brands can no longer take their position for granted.  With increased online and social presences, companies are  increasing the number of touch points with the customer–thus increasing their influence over the customer’s purchase decision in the Active Evaluation phase.

• Moment of Purchase.  This is the point in the time when the customer goes to the retailer and makes the purchase.  Even at stage of the journey, companies can still influence the purchase.  This is done through in-store marketing and influence of store salesmen.

• Post-purchase Experience.  After the purchase, the customer builds expectations based on her experience that will impact her next purchase journey.  This creates the circular nature of the journey.  In this phase, our goal is to foster customer loyalty, which will drive repeat purchases and word-of-mouth marketing.  Likewise, if the customer is dissatisfied with the purchase, she will become a negative influence on the purchase decisions of others.  This is not limited to her immediate circle of friends and family either.  For instance, she can post a negative review on a prominent website, which will be read by countless potential customers in the Active Evaluation stage.

If our goal is to reach an emerging market, there are certain nuances that should be highlighted and understood.   Though the overarching process is the same, the emphasis in marketing is different when comparing a customer in an emerging market versus a customer in an established market.  For instance, in an established market, customers often rely on online reviews when making purchase decisions.  In emerging markets, online sites are not yet trusted by the customer.  Learn more about this topic in this article: Craft a Successful Strategy for Emerging Markets.

5. Maximize the Online Experience

The Internet is becoming more and more crucial in the Customer’s Decision Journey.  Because of the Internet, the number of customer touch points has increased significantly.

In the online experience, there are 5 categories of customer touch points.  They have varying levels of importance along the path to purchase:

• Paid.  This category includes paid display and search advertising.

• Social.  This category refers to interactions with the customer though social media (namely, Facebook, Twitter, LinkedIn, and Youtube).

• Email.  Email marketing typically takes the form of recurring newsletters.  Newsletters are essentially the online form of offline store circular.

• Referral.  This category refers to external websites that “refer” customers to your website.

• Direct. This refers to your own website.  It encompasses the customers who go directly to your website.

Here is the typical flow of online interaction with the customer through her journey.  At the start, the goal is to create Brand Awareness.  This is typically achieved through investments in paid advertisements.  As the customer begins to actively evaluate her various product choices, Social and Email begin to play a more important role.  Through social media, companies can directly engage and influence customers.  Email marketing is an effective method of building rapport with a customer.  Once a customer has subscribed to our newsletter, we can send regular newsletters to constantly remind her of our company and products.  The customers that are most likely to make a purchase are Referral and Direct visitors.  Afterwards, in the post-purchase phase, Social and Email continue to play important roles in nurturing that customer bond.

Of course, the relationship between the touch point and decision journey varies by industry and varies by geography.  Google created a useful tool that captures these differences: Customer Journey to Online Purchase.

In summary, Product Adoption is driven by a number of factors.   We need to…

1. Select the Right Market Segment;
2. Architect the Right Product;
3. Understand the Customer;
4. Complete the Customer Journey; and
5. Maximize the Online Experience.

Proper analysis involves both strategic and tactical planning–and ties all efforts and thinking together.  As Sun Tzu proclaimed:

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

Interested in business strategy?  Check out Flevy’s collection of business frameworks and end-to-end business toolkits, most created by former consultants of top tier consulting firms.

This article only presents high level takeaways from the business frameworks referenced.  For a more in-depth discussion, I recommend checking out the following:

• Product Life Cycle (PowerPoint presentation)
• Rogers’ Five Factors (PowerPoint presentation)
• Psychology of Product Adoption (PowerPoint presentation)
• Pricing Strategy (PowerPoint presentation with Excel model)
• Value-based Pricing Strategy (PowerPoint presentation)
• Consumer Decision Journey (McKinsey article)

SOURCE: FLevy

IF YOU COULD ONLY MEASURE 8 ASPECTS OF YOUR BUSINESS

Recently someone who I was discussing metrics with posed a thought provoking question, “If you could only have a few metrics to manage and monitor your business, which ones would you choose?" After thinking long and hard, here are my must-have key performance indicators.   

1. Financial Standing:  EBITDA

Earnings before Interest, Taxes, Depreciation and Amortization provides an approximate measure of the company’s cash-flow based on the income statement. This is a standard financial measure that is tracked by most companies and investors.  

2. Customer Satisfaction Index

Customers are at the heart of every business (or they should be). Therefore, it is essential to continually check that customers are satisfied with products and services and that they are happy with the experience of dealing with us. The scope of Customer Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).  

3. Cultural Satisfaction Index

This measure is subtle and culture can be difficult to measure. Its purpose is to measure stakeholder1 satisfaction with the company culture. 

Traditionally, this type of survey was limited to Employees. Today,  in an environment where outsourcing is extensive and companies are nearly as dependent on or sometimes even more dependent on external parties as employees, extending satisfaction surveys beyond customers and employees makes good business sense.  

What does Cultural Satisfaction mean? 
1. Cultural Satisfaction checks adherence to the organisation’s stated values e.g. integrity, easy to do business with, fair, equal opportunity employer, inclusive, invests in its people, etc. as perceived by the stakeholder (See Q.26 on our FAQs) and is often  measured by the use of survey tools  and facilitated workshops. 

2. The state of an organisation’s culture is intrinsically linked to leadership within the organisation and measuring it provides independent data to show whether Management and Employees “talk the talk” or “walk the walk”.     

Again, Cultural Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).  

4. Competitiveness: Market Share   

Market Share is the percentage of an industry or market's total sales, earned by a particular company over a specified time period. Market shares can be measured based on value or volume. Value market share is based on the total share of a company out of total segment sales. Volumes refer to the actual numbers of units that a company sells out of total units sold in the market. I would want to track both share and volume. 

5. The Learning Organisation: Number of Implemented suggestions and innovations

Whilst success and longevity is not guaranteed to any business, an organisation that is learning is better prepared for change as it continually invests in its future: by implementing improvements to products, services and internal efficiencies, and by designing and introducing new products and services.  

Suggestions may arrive through many different channels: via employee suggestion programmes, via voice of the customer initiatives, social-media monitoring, supplier introduced improvements, or by soliciting contributions from a large group of people through structured initiatives such as Crowdsourcing.   

A good indicator of whether the organisation is learning, or not, is to track the number of suggestions, which indicates the level of engagement, and the number of implemented suggestions which indicates quality of suggestions.  

6. Internal Efficiency and Effectiveness: Business Process Maturity, Cost of Quality, Customer Satisfaction

Together, these measures provide an indicator of the efficiency and effectiveness of the organisation's operations. Including Customer satisfaction in this set of measures may seem unusual but it provides a useful independent cross-check of internal results. Clearly, if we think we are great and the customer doesn’t agree, further investigation is needed. 

Business Process Capability Maturity provides a benchmark as to the organisation's current business process maturity on a scale of 1 to 5, with level 1 having few, if any, standardised business processes and level 5 being standardised and optimised to achieve world-class performance. 

Cost of Quality is composed of the costs of Poor Quality and the costs of Good Quality. 
 
Cost of Poor Quality (CoPQ) measures the cost of internal failure costs and external failure costs (IF+EF). This arises from a failure to meet requirements e.g. rework, re-design, re-servicing, product recalls etc.   

Cost of Good Quality measures the cost of Appraisal cost and Preventive Cost (AC+PC). Essentially both of these costs are associated with avoiding internal and external failures and include activities such as training, calibrating, prototyping, pre-inspection etc. 

Whilst challenging to track and place a value on some of these costs, the benefits of doing so are very worthwhile. Tracking Cost of Quality  provides a focus on the bottom line and also helps to shift responsibility for quality to where it rightly belongs i.e. operational managers.      

7. Environmental P & L

Invented by PUMA, the Environmental P & L measures the true costs of a business’s impacts on nature by placing a monetary value on them along the entire value chain.  (See Q.25 on our FAQs for an explanation of Environmental Profit and Loss)

8. Enterprise Risk and Opportunity Profile 

Business is inherently risky and risks need to be identified and managed so they don’t become issues that impact on the successful operation of the business. On the other hand, new business opportunities are emerging all the time. Therefore, one of the activities of senior management is to continually scan the environment – internally and externally, to identify existing and emerging risks and opportunities. Once identified, they are assigned a score based on Probability x Impact, prioritised, and managed.       

This list puts the “Key” back into Key Performance Indicators and the “Balance” back into Balanced Scorecard. If the reported results were within pre-agreed targets, I think I’d sleep well at night.  

SOURCE: Torque Management

STANDARDISATION PROGRAMMES: IT IS FIENDISHLY DIFFICULT TO ACHIEVE AND MAINTAIN A STANDARD

It is fiendishly difficult to achieve and maintain a standard. Dee provides five recommended actions to greatly improve the probability of success.

Standardisation Programmes are large, they are radical and they offer tantalisingly big rewards for those brave enough to take them on. Good examples of these programmes are:  Shared Services; Global systems; PMO; Common ways of working (processes) across large, dispersed teams.

But with big, radical programmes also come big risks and in standardisation programmes the overarching risks from three factors:standards are required in multiple geographies and/or multiple functions; standardisation displaces people and roles; and standardisation shifts power and authority from local autonomous authorities to a central governance model.  

It’s no wonder, then, that many standardisation programmes fail, they don’t fully achieve their ambitions, or they achieve initial success only to erode or fail at some point after implementation.  

It goes without saying that all usual methodologies and best practices for change programmes and project management apply to these programmes, but we’ recommend that programme managers pay special attention to five recommended actions to greatly improve the probability of success.     

1. Define and communicate the Scope of standardisation.

Scope is frequently under-described and misunderstood in standardisation programmes which can generate great friction and push-back from the business.  The most frequent cause of this is where current owner of a standard, a process or a role discovers their power and authority has been removed without their knowledge or consent, leaving them resentful and un-cooperative. This can spell disaster for the Programme Manager and the standardisation programme. Don’t fall into this trap.  Take the time to think the scope through (a level 1 and 2 process map is very helpful here); together with the implications for those currently executing the standard (a stakeholder analysis is very helpful here). Once the scope and implications of the change are clear, have the Steering Committee approve the scope. Once approved, communicate it to all parties affected. Actively invite feedback, listen to objectors and deal with their objections in a fair and respectful manner.   

2. Confirm that Management is willing to “Walk the Walk”. 

Often, a standardisation programme is the brainchild of an individual or a team working on strategy, but the reality is that standardisation programmes won’t deliver unless all managers “walk the walk” and in order to be successful, you (programme manager) must have their full and active support.  Confirm that this support is truly available by conducting a workshop with the key managers where you have an open discussion about the project, its goals and risks and your expectations of them.  As a group, have the managers identify the business drivers for the initiative, and then ask them to establish the priority of the standardisation programme vis-à-vis other projects that are vying for their attention.  If it emerges that the drivers are not strong, or that other projects have a higher priority, this probably means you won’t get management support when you need it and the programme is doomed before you start. Faced with this situation, be brave and recommend re-prioritisation, cancellation or a deferral. If management won’t take your advice, find another position as the project will fail and you don’t want to be part of a failure.

3. Create a strong Governance Model. 

Management resources are always scarce, so leverage them appropriately. Create a Steering Committee that has the authority to make decisions on strategy, policy, organisation and budget.  Keep this group away from operational issues such as timing, staff training and project management – they won’t have the detailed knowledge to contribute in a meaningful way. Create an Operational Committee to co-ordinate and lead the implementation across locations, departments and roles. Keep this group away from strategic issues – there are other routes available to them if they wish to influence strategy.

4. Accept legitimate variation(s).

Document the processes/standards and agree them with those who will have to rely on them.  Check for evidence of legitimate variation to the proposed standard. (Legitimate variation occurs where local legislation is different from the desired standard or a local condition will inhibit implementation e.g. systems cannot be changed in the given timeframe). Document the legitimate variations carefully and review them periodically in case they become amenable to standardisation at a future date. Reject all other forms of variation and, if necessary, leverage the authority of the Steering Committee in support of these decisions.

5. Maintain the Standard – Nurture and Improve.

Too often a standard is achieved but after a time the standard erodes and performance gains are lost. This is often the result of loss of knowledge between the implementation team and Line Management. This loss can be avoided by creating a Centre of Excellence (CoE) that retains knowledge about the standardisation and provides continuity as people and roles change within the organisation. The CoE activities will include: driving adoption of the standard, reviewing and sustaining performance; providing training for new users; managing change and driving continual improvement. To ensure continuing alignment between the standard and the business strategy, the CoE should be supported and advised by an Executive Sponsor (ideally a member of the previous Steering Committee but at least a Senior Key Stakeholder). 

SOURCE: TORQUE Management

IF YOU COULD ONLY MEASURE 8 ASPECTS OF YOUR BUSINESS

Recently someone who I was discussing metrics with posed a thought provoking question, “If you could only have a few metrics to manage and monitor your business, which ones would you choose?" After thinking long and hard, here are my must-have key performance indicators.   

1. Financial Standing:  EBITDA

Earnings before Interest, Taxes, Depreciation and Amortization provides an approximate measure of the company’s cash-flow based on the income statement. This is a standard financial measure that is tracked by most companies and investors.  

2. Customer Satisfaction Index

Customers are at the heart of every business (or they should be). Therefore, it is essential to continually check that customers are satisfied with products and services and that they are happy with the experience of dealing with us. The scope of Customer Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).  

3. Cultural Satisfaction Index

This measure is subtle and culture can be difficult to measure. Its purpose is to measure stakeholder1 satisfaction with the company culture. 

Traditionally, this type of survey was limited to Employees. Today,  in an environment where outsourcing is extensive and companies are nearly as dependent on or sometimes even more dependent on external parties as employees, extending satisfaction surveys beyond customers and employees makes good business sense.  

What does Cultural Satisfaction mean? 
1. Cultural Satisfaction checks adherence to the organisation’s stated values e.g. integrity, easy to do business with, fair, equal opportunity employer, inclusive, invests in its people, etc. as perceived by the stakeholder (See Q.26 on our FAQs) and is often  measured by the use of survey tools  and facilitated workshops. 

2. The state of an organisation’s culture is intrinsically linked to leadership within the organisation and measuring it provides independent data to show whether Management and Employees “talk the talk” or “walk the walk”.     

Again, Cultural Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).  

4. Competitiveness: Market Share   

Market Share is the percentage of an industry or market's total sales, earned by a particular company over a specified time period. Market shares can be measured based on value or volume. Value market share is based on the total share of a company out of total segment sales. Volumes refer to the actual numbers of units that a company sells out of total units sold in the market. I would want to track both share and volume. 

5. The Learning Organisation: Number of Implemented suggestions and innovations

Whilst success and longevity is not guaranteed to any business, an organisation that is learning is better prepared for change as it continually invests in its future: by implementing improvements to products, services and internal efficiencies, and by designing and introducing new products and services.  

Suggestions may arrive through many different channels: via employee suggestion programmes, via voice of the customer initiatives, social-media monitoring, supplier introduced improvements, or by soliciting contributions from a large group of people through structured initiatives such as Crowdsourcing.   

A good indicator of whether the organisation is learning, or not, is to track the number of suggestions, which indicates the level of engagement, and the number of implemented suggestions which indicates quality of suggestions.  

6. Internal Efficiency and Effectiveness: Business Process Maturity, Cost of Quality, Customer Satisfaction

Together, these measures provide an indicator of the efficiency and effectiveness of the organisation's operations. Including Customer satisfaction in this set of measures may seem unusual but it provides a useful independent cross-check of internal results. Clearly, if we think we are great and the customer doesn’t agree, further investigation is needed. 

Business Process Capability Maturity provides a benchmark as to the organisation's current business process maturity on a scale of 1 to 5, with level 1 having few, if any, standardised business processes and level 5 being standardised and optimised to achieve world-class performance. 

Cost of Quality is composed of the costs of Poor Quality and the costs of Good Quality. 
 
Cost of Poor Quality (CoPQ) measures the cost of internal failure costs and external failure costs (IF+EF). This arises from a failure to meet requirements e.g. rework, re-design, re-servicing, product recalls etc.   

Cost of Good Quality measures the cost of Appraisal cost and Preventive Cost (AC+PC). Essentially both of these costs are associated with avoiding internal and external failures and include activities such as training, calibrating, prototyping, pre-inspection etc. 

Whilst challenging to track and place a value on some of these costs, the benefits of doing so are very worthwhile. Tracking Cost of Quality  provides a focus on the bottom line and also helps to shift responsibility for quality to where it rightly belongs i.e. operational managers.      

7. Environmental P & L

Invented by PUMA, the Environmental P & L measures the true costs of a business’s impacts on nature by placing a monetary value on them along the entire value chain.  (See Q.25 on our FAQs for an explanation of Environmental Profit and Loss)

8. Enterprise Risk and Opportunity Profile 

Business is inherently risky and risks need to be identified and managed so they don’t become issues that impact on the successful operation of the business. On the other hand, new business opportunities are emerging all the time. Therefore, one of the activities of senior management is to continually scan the environment – internally and externally, to identify existing and emerging risks and opportunities. Once identified, they are assigned a score based on Probability x Impact, prioritised, and managed.       

This list puts the “Key” back into Key Performance Indicators and the “Balance” back into Balanced Scorecard. If the reported results were within pre-agreed targets, I think I’d sleep well at night.  

 SOURCE: torquemanagement.com