The importance of a strategy behind the performance management system has been previously stressed. The analysis stage is where this concept finally comes to the forefront. This is where all the groundwork of fact capturing transitions into actual decision-making tools. The battle plan is crafted.
While chief officers may analyze performance management metrics to make plans having to do with the long-term company vision, mid- management analysis is equally important. After all, effective use of resources, including head-count and fleet optimization, is dependent upon sound analysis of return on investment factors, as well as predicting the impact on productivity and customer satisfaction. Managers who use data as the basis for their decisions are respected and trusted.
How to best meet the needs of customers is the type of highly visible analysis that shop floor foremen tend to undertake on a day-to-day basis. In order to keep equipment running and meeting customer demand, plant maintenance technicians may analyze output trends to predict whether a unit should be repaired or replaced. Using data to make those fact-based recommendations helps the manufacturer adhere to critical production schedules.
Developing A Disciplined Approach
Analysis should not only be a “when the mood strikes” function of the CEO. Although brilliant break-though insights and moments of epiphany are often the hallmark of great pioneering minds, they are rare occurrences. Establishing a routine that includes time for analysis, planning, and priority-setting is much more conducive to an ongoing progress. It is also more likely to yield the discipline required to stick with a long-term performance management system—even if a frustrating stretch of data is encountered.
Establishing a comfortable, productive rhythm, therefore, is very important. Humans are creatures of habit, good or bad. There can be comfort in the familiar, which can increase efficiency, compliance and results. Continuous improvement becomes the norm.
Analysis goals, tactics and tools will vary according to role.
A CEO, removed from the day-to-day logistics, may see a KPI report far differently than a shop floor foreman who is fully immersed in the nuances of that critical number.
Each person is likely to be looking at the data for different reasons. The CEO may gain insights about cash flow. The plant manager may decide to make some changes to staffing schedules or training requirements from the same data. Both are valid applications.
Analysis should lead to action. Without action, the entire performance management system is a waste of resources. This is the defining point in the success of the system. Although there is a certain amount of strategic prowess that is contingent upon the talent of the individuals involved, there is also a degree of structure that can be applied to facilitate the entire analysis process.
The ability to monitor critical numbers in real-time gives managers the opportunity to take prompt corrective action if data indicates performance is not within the control points. Real-time data enables immediate action. Workbenches even allow graphic warnings to provide a continuous visual representation of the status of critical issues, such as the inventory level of raw materials.
These are the types of issues that demand immediate response and directly impact customer satisfaction. Resources need to be re-allocated when the backlog of service requests extends beyond pre-defined acceptable standards. On-reserve technicians can be enlisted to assist, or non-essential maintenance tasks can be reassigned.
When alerts are received concerning inventory control points, the purchasing department can be notified immediately. Parts have to be ordered to keep inventory levels within safety limits in case there is an emergency service call requiring that replacement part. Ordering more parts NOW will ensure they are in stock when they are needed and the guaranteed Service Level Agreement can be met.
Preemptive corrective measures tend to involve more factors, taking into account historic trends and applying predictive business rules. This type of analysis looks at underlying factors and attempts to identify reasons behind the data. The analysis also evaluates possible response options and makes recommendations based on predictive projections.
This type of analysis utilizes drivers, just as active response does, but this time the data is reviewed considering long-term ramifications and focusing on prevention. Are the spikes of critical numbers one-time blips or frequently occurring trends that indicate a larger problem that requires a more substantial response?
In order for corrective actions to take place, key driving factors must be analyzed. Business processes must be reviewed, working backwards.
Driving factors are much like gears in a watch. When the gears for the second-hand turn, the gears for the minute hand are engaged—which, in turn, engage the hour hand. Although not directly, the second hand does, indeed, influence the hour hand.
Manufacturers who install and service equipment tend to share some similar drivers. For example:
• Unit downtime/malfunctions drive service requests
• Service requests drive technician dispatches
• Technician dispatches drive volume of repairs
• Volume of repairs drives use of replacement parts
• Use of replacement parts drives inventory levels
• Parts availability drives resolution rates
• Resolution rates drive customer satisfaction
• Customer satisfaction drives maintenance renewal
• Maintenance renewal drives new product sales
• New product sales drive revenue
• Revenue drives profits
• Profits drive growth opportunity by enabling hiring, acquisition, new product lines, etc.
In order to determine reasons behind critical drivers, the manager needs to work backwards through the chain of events. Any step in the process can hold the cause, although it may not seem related on the surface. For example, availability of replacements parts influences sales of new equipment. At first, the two issues, parts inventory and sales of new units, may seem unrelated. But, looking at the chain of drivers will remind the manager that resolution rates impact customer satisfaction. Customer satisfaction leads to new purchases.
A problem in the process is like a snowball that keeps growing as it rolls though the system. A gap in communication or error anywhere in the process can affect the final outcome, profitability. The challenge is to find the issue early enough so corrective action can be taken, when it is most cost effective and least disruptive to the business.
Setting Key Performance Indicators
How many KPIs should be tracked? At what interval? Should they be long-term in nature or largely dealing with the customer-centric daily tactical issues, such as on-time arrivals?
The answer is found in seeking a balance. Striving for a well-balanced approach is the underlying goal. The organization needs to track as many meaningful performance indicators as possible, without sending the company into data overload. Excessive, insignificant KPIs become noise the employees block out. Discipline to control the process, directed from top management and enforced throughout the organization, is critical to maintaining a healthy, balanced approach to effective performance management.
From developing an intimate understanding of each customer’s expectations to monitoring internal productivity and equipment through-put, the use of performance management analytics offers a wide range of benefits. The applications are so diverse, that caution must be exercised to maintain a perspective that captures a cross section of the business as a whole and is not overly weighted in one aspect of performance that is data-heavy from intense scrutiny or a short-term priority.
Grouping KPIs into categories is the first step. Profitability, customer satisfaction, and employee productivity are straight-forward classifications for most performance management initiatives. For maintenance and service divisions of manufacturing companies, equipment up-time and resolution rates are also important.
However, other harder-to-define indications of the company’s long-term wellness deserve monitoring as well, and may include areas such as product innovation, technology adoption, knowledge sharing, and competitive strength. These are categories that provide insights about the company’s staying power and preparedness to meet future demands—areas that cannot be overlooked in the pressure of meeting daily demands.
In addition to blending financial and non-financial KPIs, it is important to consider more than time-related criteria for success, such as response rates to service requests. Speed alone is never an adequate measurement of success. The shipment that was dispatched quickly will do little to satisfy the customer if it does not contain the correct items.
The well-rounded performance management system tracks and analyzes a variety of conditions, including accuracy. It helps managers see the company from multiple perspectives, and as a whole.
Stick With It!
Mustering up the discipline required to stick with a performance management program is another fundamental requirement, although one that is often the first to be sacrificed. Routine is boring. A regimen of data tracking can be monotonous and tedious. When the resulting conclusions fall short of expectations, the process can be especially painful. No one likes bad news. When it becomes obvious performance goals are not going to be met, prolonging the process can easily seem fruitless to personnel and tracking can be abruptly abandoned.
Rather than totally abandoning a performance management project because the results are disappointing or seem irrelevant, change the criteria. Adjust the program. Set new critical numbers to monitor or establish new goals. Be realistic in expectations. If the critical number alerts are set so that red flags are continually being waved and a general sense of gloom and doom is being spread throughout the company, the alerts start to lose their effectiveness and can be counter-productive. Like the boy who cried wolf, eventually they start to be ignored.
Effective KPI tracking takes the emotions out of the process, often forcing companies to face tough realities. The cold reality of statistics removes guesswork from evaluating results and makes performance management a topic that can be addressed with rational dialogue and definitive well-defined goals.
KPIs are blunt, straight-forward, and brutally honest.
With some concentrated efforts, KPI reports can be used to create important competitive distinctions. For example, pushing traditional customer relationships into high-gear is just one opportunity. Providing exceptional customer service can be a high-impact differentiating factor that is hard for the competition to match with a counter-attack.
Performance data can be tracked so that customer satisfaction levels and repeat purchases can be predicted, allowing the sales department to anticipate the needs of customers and stay ahead of their concerns, providing valuable advice and education to help generate true customer intimacy.
A comprehensive, strategic performance management approach takes into consideration multiple aspects of the company’s well-being, from financial profitability to customer satisfaction and internal stability of the workforce. It is long-term, as well as day-to-day. It involves benchmark comparisons of annual results to industry standards as well real-time progress on specific goals.
A high level of customer understanding, achieved through careful monitoring of performance management data, leads to many opportunities. One of the most important is the internal synergy which can be developed between Service and Sales.
With a strong infrastructure in place for accessing results data, analysis concerning cost savings to the customer can be used as a persuasive selling tool for extended contracts and contract renewals. Statistics on response time and resolution rates certainly need to be accessible in order to prove compliance with Service Level Agreements as defined in existing maintenance agreements.
Such performance results help the sales team be strategic in its communication with the customer, continuing to build relationships and leverage every selling opportunity.
In addition to tracking KPI data, which provides ROI analytics, service and sales representatives also benefit from tracking KPIs associated with key trigger points—events which have been determined, through the review of historical trends, to be common pivotal moments in the typical customer relationship.
Predictive analytics help the sales person decide when intervention is warranted and what type of intervention is appropriate. Using historical trends, patterns can be found that can help predict how the customer will respond. Such use of data helps build the case for customer intimacy, tying it to sales and revenue impact.