Infographic - Operational Management Survivor Guide

1. Title Slide - Its Important

1.1. 64% of CEOs see innovation AND operational effectiveness as being the key to achieving results.

2. 1 What is it?

2.1. Operational management, is when companies focus on operational KPI’s (key performance indicators), metrics and targets to monitor and manage business performance. When you get it right there are a number of advantages

2.1.1. Companies grow 3 times faster than competitors when they focus on operational management.

3. 2 Clarifies

3.1. First, it clarifies your strategy. When the numbers you are using to measure performance are in line with the strategic goals of the company then you won’t go off track. For example, if your strategy is to be the low cost leader in your market, and you are measuring defect rates, the focus on lowering defects will lower your costs, which is aligning you with your strategy.

4. 3 Drives Results

4.1. Second, operational management will drive results. The transparent and consistent examination of performance metrics allows people to “know the score”. Knowing the score or result of their actions allows them to determine if their actions have improved company performance. Knowing this allows them to continue or stop certain actions and create new ideas and actions to improve the business.

5. 4 Just the Facts

5.1. Third when you talk in numbers you take the personality out of arguments. When you don’t have metrics to work with you fall into “I think” arguments. For example, the statements “I think we are performing just fine” versus “I think we we are underperforming” are subjective and not based on any solid metric. No one can win these arguments because there is no evidence to back up the “I think” argument. You both think you are right. This can create tensions. If instead your base your arguments on metrics it takes the personality out of it. “We suck because defects have risen 4%” is clear and factual. The questions then moves rapidly to “what are we going to do about it.

6. 5 Progress

6.1. Fourth, business metrics allow you and your team to see your progress over time. How you have improved over the last number of months. This does two things. First, when things are going well, it is a historical reminder of the good things you have done. Second, by looking at trends, rather than slices in time (monthly number) you get rid of the “luck” in your performance and can see your true performance. Anyone can have a lucky good month or an unlucky bad month due to factors beyond their control. Its the continuous improvement over a number of months that helps you determine your real performance.

7. 6 Metric ABC’s

7.1. Before we get started a little knowledge of metrics and kpi’s is required. A metric is any measurement and there can be many of them. The weather is a metric, so is your defect rate. KPI is the acronym for “Key Performance Indicator”. KPI’s are metrics, but not all metrics are KPI’s. KPI’s are your most important metrics, the two or three that are critical for you to master for your company to compete in the marketplace. In the above example defect rate is probably a KPI and weather is not.

8. 7 Accurate

8.1. To become operationally excellent you first need to obtain accurate metrics. The metrics should be easy to obtain, (low cost) and be gathered by a central independent source, like accounting, to provide accuracy and consistency. You don’t want people arguing over whose metric is correct. Rather you want people discussing what actions to take as a result of their performance.

9. 8 Train

9.1. Second, train people on how the metrics are derived and how a change in the metric affects the business. For example a 1% reduction in defects results in a 5% cost savings.

10. 9 Dollars not Percentages

10.1. Third, turn percentages into dollars. A $20 million reduction in costs, is a more powerful motivator than hearing that you have reduced costs by 5%.

11. 10 Regular

11.1. Fourth, metrics should be produced at a regular frequency, at least monthly, and be timely.

12. 11 Pick 2 or 3

12.1. Fifth, don’t look at all the metrics you are able to produce. Get your team involved and pick out 2 or 3 “key” metrics. These are metrics that your team feel are most important in running the business. Again, these are called KPI or Key Performance Indicators. You don’t need to look at 100’s of metrics, only two or three key performance indicators.

13. 12 Let Employees Choose

13.1. Sixth, don’t fall into the trap of you, as a senior leader, picking the metrics. If you do that they become your metrics not your employees metrics. Your employees will not have the same level of involvement. Instead as mentioned above, get your team to learn and pick what the key performance indicators are.

14. 13 Set Targets

14.1. Seventh, once you have picked your two KPI’s the next thing you need to do is get your team to decide on targets. Again, have the front line folks pick this number. Forget about you setting stretch targets or any other supposedly intelligent management technique you might think of. If you pick the target it is yours, not your employees. Let your employees own the target. If it is the first year of using kpi’s and you don’t have historical data then you may want to forgo picking targets altogether. Just implement the plan and worry about targets later. At the end of the year you can look at your performance and then you have some basis for next year's target.

14.2. When it comes to setting new targets at the end of the year, again, let your team do this. The only boundary you should set is that targets have to be at least better than the previous year. You will be surprised. Often your front line folks will pick metrics that are harder than you would have chosen.

15. 14 Trends

15.1. Eighth, you want to look at trends in performance, not a point in time. Anyone can have a good or bad month due to factors they can’t control. Luck. So you want to look at trends and manage to that. Ask questions that get people looking at trends. Are they trending towards or away from target? Why? What can you do next month to turn that around? (Record these ideas in action item lists and follow up).

16. 15 Baseline

16.1. Nine. The final thing to put on a performance trend graph is a horizontal base line. This represents the average performance for that metric from last year. Your goal should, at minimum, be better than that baseline. If you are negatively trending away from the baseline then again you can ask the question “Why?”.

17. 16 Knowledge not Punishment

17.1. Finally, tenth, Remember to never use key performance indicators to punish people. Use them as additional knowledge of the score and let your entire team determine actions to improve the numbers