Performance Management:Views from Industry

MGT 2206-001-Business AnalyticsVillanova School of Business

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What is Performance Management? Performance Management is the use of

metrics and indicators, both financial and non-financial, to measure, monitor, and improve organizational performance.

Performance management relates to having various metrics that firm’s can track and use to take action as needed.  These metrics might be part of a balanced scorecard, and might be presented in a dashboard.  You might be able to drill down and look at these metrics at lower levels in the organization.  Also, six sigma and lean management are often related to performance management.  

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Famous Quotes

“If you can’t measure it, you can’t manage it”

“What gets measured and rewarded gets done”

“Measurement and scorecards at the performing level were the single biggest management tool for success”

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Comcast: problem resolutionon-time performance increased from 45% to 98%, costs down 30%

Apple: product developmentcycle time down 75%, costs down 45%, customer satisfaction up 25%

Amazon: order fulfillmentcycle time down 60%, accuracy up 60%, operating expense down 40%, customer satisfaction up 100%

Wawa: new product introduction inventory down 25%, cycle time down 50%, unavailabilitydown 50%

Performance Management Successes

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PERFORMANCE MANAGEMENT STEPSPERFORMANCE MANAGEMENT STEPS

Performance Planning

Performance Execution

Feedback

Consequences

Development

Cascading of Goals• Performance measures provide “line of sight” from

strategy to individual job performance

• Everyone knows how performance is measured and evaluated

• Everyone knows what they are supposed to do -- and how to do it!• Everyone knows upstream and downstream dependencies

• Measurement is fact-based, relevant, actionable• Information is standardized, visible, consistent, and timely

• Significant component of all individuals’ pay linked to measurement

• Individual and manager identify performance gaps and develop plans to close the gaps

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Performance ManagementMethods

– Map/Define/Describe the work that needs improvement

– Better execution of the “plan” via Leadership/Communications, i.e. “just do it”

– Find and Share a “Best Practice”– Apply Lean or Six Sigma or other tools to

solve problems more efficiently and effectively

– Redesign the process-redesign patterns– Automate process with IT applications

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PHI Power Delivery Process Model

Field

Operations &Gas Div

Revenue Management/ Revenue Accounting

AccountManagers

Engineering Groups

Customers

CallCenters

RegionalOperating

Centers (Dispatch)

Manage Revenue

Manage Customer Relationships

Manage System Maintenance

Support from: HR, Strategic Support Services, Business Planning & Finance, IT,Accounting & Finance, Safety & Environmental, Regulatory Affairs. and

Corporate Services

Manage Emergency Preparedness

Manage Customer System Construction

Supply Customers’ Energy

Operate the System

Manage Transmission System Construction

Plan the Business

PD Chief Operating Officer Core ProcessManaging Process

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The Manage Revenue Process By the Numbers

1,921,000

$5,118,780,000

$161,163,000

3,695,510

About 1,000

Number of Customers

Actual Billed Revenues

Actual Expenses

Actual Calls Received

Number of Employees that work in the process

18,981,460 Actual Number of Payments Received

Actual Number of Bills Generated22,487,931

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Manage Revenue – The Work Flow

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Improving Process Performance

Understand nature of performance gap Develop intervention plan

Improve execution(training, tools, attitudes, etc.)

Improve design

Modify design

Replace design

Perform process

Create process and measures

Understand customer needs and benchmark competitors

Measure process performance

Set performancetarget

Hammer and Company

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The Dimensions of Process Design

Who does the work

When the work is done

Where the work is done

Whether the work is done

What inputs the work is given

What interconnections are made between the work

What intensity the work is performed with

Redesign rearranges the value-adding tasks

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Principles of Superior Process Design-Partial List Organize around outcomes, not tasks (case

worker example) Look for ways that those who use the results

of the process can perform some of the process (self-serve grocery checkout)

Treat geographically dispersed resources as though they were centralized (call center)

Shift from serial to parallel work steps by sharing information sooner (new customer account set-up)

Make decisions at the place where the work is done

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Which situation suggests an execution versus redesign project?

60

70

80

90

100

110

120

130

Germany France UK US Canada Asia

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70

80

90

100

110

120

130

Germany France UK US Canada Asia

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Lean and Six Sigma

Lean = Attack on Waste– Focuses on maximizing process velocity– Centers on separating value added activities from non- value

added activities (waste) in work processes.– Provides a robust set of tools to determine the root cause and

elimination of that waste.

Six Sigma = Attack on Variation– Emphasizes the need to recognize opportunities and eliminate

defects from the customer perspective– Data driven– Recognizes that variation hinders our ability to reliably deliver

high-quality products and services– Provides a prescriptive cultural infrastructure effective in

obtaining sustainable results (DMAIC)

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What is Lean? Purpose:

– Create competitive advantage for a business by eliminating waste and adding value to everything it does.

Principles:– Specify VALUE from the Customers

perspective– Identify the Value Stream and find the

WASTE– Make the Value Steps FLOW– Produce what the Customer requires: PULL– Continue to Improve towards PERFECTION

Techniques:– E.g. Value Stream Mapping, Kaizen, Flow, 6S

Powered by the People – stresses engagement at all levels of the

organization

• Motion• Waiting• Interruptions• Searching• Inspection• Defects and

variation• Setup• Inventory• Unnecessary

processing

Waste

Value

Forms of Waste

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A Process Design Success Story – National Price Increase Process

Customer

Product Management

Customer Warehouse

Marketing Specialists

Sales Reps

Contract Admin

Contract Admin Database

CSO

SPOC System

Word Processing

Revenue Accounting

Retriever

85 STEPS / HANDOFFS over12 DIFFERENT ENTITIES

We do this…?

We do this…?

Work Process Approach Can Remove Waste, Improve Cycle Time, and Reduce Stress

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Do Process Observations

Before Photos

Do Workplace Layout

Do Spaghetti Charting

Summarize Findings

Generate Improvement Ideas

Select Improvement Ideas

Implement improvement ideas

Measure results

Post-Observations

Communicate Activities and Results

Post-Kaizen Event Milestones

1. Institutionalize Improvements

2. Replicate results at other sites

Pre-Kaizen Event Milestones

1. Document and Verify the Scope2. Analyze whether the Kaizen event is appropriate3. Prepare for the Kaizen event

Air Products Kaizen Events

Waste

Value

Work Process

Build a description of the work process

Do a walk through

Develop a Mission statement

Set goals

Define Do’s and Don’ts

Day 1 - Focus the Kaizen Event

Day 2 - Evaluate the Target Work Process

Day 3 - Solve the Performance Issue

Day 4 - Improve the Target Work Process

”Seeing” and eliminating non value added…in any process, any business

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Goal: Improve process capability and eliminate variation or defects

the current process capability against CCR’s

Define

MeasureControl

AnalyzeImprove

the problem in the business

to determine the root cause(s)of defects in the process

the process withTargeted solutions

the improved processto “hold the gain”

Six Sigma

Six Sigma Key Elements

Links process outputs to Critical Customer Requirements

Utilizes quantitative data to understand performance

Incrementally eliminates/reduces the causes that are preventing process excellence

DMAIC Project Length: 2 to 6 months

Approach: Multiple problem solving approaches embedded into the DMAIC methodology

Critical Customer Requirement

Average

6 = 3.4 defects per million opportunities

6 = 99.9997% Yield

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Work Process Example

Place Order

TakeDelivery

PayBill

Sales

CustomerService

Production

Logistics / Distribution

Customer

Win Business

SendInvoice

Set UpAccount

CommitInventory

ScheduleDelivery

DeliverProduct

DefineReqts

InputOrder

ApplyCash

Load Product

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Goal: Improve process capability and eliminate variation or defects

the current process capability against CCR’s

Define

MeasureControl

AnalyzeImprove

the problem in the business

to determine the root cause(s)of defects in the process

the process withTargeted solutions

the improved processto “hold the gain”

What is Six Sigma??

Six Sigma “quality” vs. Lean “speed”

Links process outputs directly to Critical Customer Requirements

Utilizes quantitative data to analyze upstream variables and establish relationships with performance

Identifies and incrementally eliminates causes that are preventing process excellence

6 Sigma = Fewer than 3.4 defects per million opportunities

6 Sigma = 99.9997% of the Process Output is within Customer Specifications

6 Sigma = Flawless Execution

Project Length: 2 to 6 months

Approach: Multiple problem solving approaches embedded

into the DMAIC method

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Define the problem in the

business

Improve the process withTargeted solutions

Control the improved process to

“hold the gain”

Measure the current process

capability against CCR’s

Analyze to determine the root cause(s) of defects in the process

DMAIC: is a systematic, data driven improvement

methodology that combines statistical and process analysis

to reduce or eliminate variation/defects.

DMAIC - Incremental Improvement to an Existing Process

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Lean Six Sigma

Hypothesis Testing

Design of Experiments

Pull Scheduling

Set-up Reduction

Continuous Flow

Scientific Method

Process Mapping

Pareto Charts Fishbone Diagrams

TPM Run Charts SPC Charts

Brainstorming Error Proofing

Project Management

QFD

Regression Analysis

Six Sigma Lean Methods

Source: www.moresteam.com

Six Sigma: Reduce Process Variation by Eliminating DefectsSix Sigma: Reduce Process Variation by Eliminating Defects

Lean Methods: Increase Process Velocity by Eliminating WasteLean Methods: Increase Process Velocity by Eliminating Waste

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Level 3 Process “Find and Win Customers”

Identify Opportunities

1

leads / sales target list

Develop Relationship

2

prioritized list of qualified leads

Review Requirements and Engage Organization

3

decision to offer or not

Develop and Submit

Proposal

4

proposal in hands of customer

Obtain Commitment

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agreement to do business

Establish or Modify

Customer Account

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approved customer account

Process Contract

Information

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contract data input to ERP

Process Steps

Outputs to Next Process Step

OutputsValid and viable customers

OutputsValid and viable customers

relationshipconfirmed customer requirements

configured offering

Inputs Market modelOfferingsBusiness objectives

Inputs Market modelOfferingsBusiness objectives

Leads QualifyNeedsAssess PProposal Neg. Close

Move Data to ERP

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Leading Metrics in Sales and Marketing

% Leads Becoming Prospects

Revenue Potential from Prospects

Revenue potential in pipeline

– A) By Salesperson– B) By Segment

Number of Customer Touches

– A) By Segment B) by Time Period

Sales Cycle Time on New Opportunities

Won/loss % on new opportunities

% Contract renewals

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Sample Dashboard

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“Visibility” of Metric Performance

Scorecard(cross-business comparisons)

Metrics Report(trends and commentary)

Key Measures Link(BW or Excel details)

Human Performance Model

Measure Business

Challenges,Goals, andStrategies

PerformanceNeeds

Causes• Skills

• Knowledge

• Teamwork

• Goals/KPI’s

• Environment

• Motivation

•Tools

Solutions• Training

• Leadership/Communications

• Performance Management

• Compensation

• Tools

• Processes

Evaluation andMeasurement

ChangeManagement

Optimal orDesired

Performance

ActualPerformance

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PERFORMANCE MANAGEMENT STEPSPERFORMANCE MANAGEMENT STEPS

Performance Planning

Performance Execution

Feedback

Consequences

Development

Cascading of Goals• Performance measures provide “line of sight” from

strategy to individual job performance

• Everyone knows how performance is measured and evaluated

• Everyone knows what they are supposed to do -- and how to do it!• Everyone knows upstream and downstream dependencies

• Measurement is fact-based, relevant, actionable• Information is standardized, visible, consistent, and timely

• Significant component of all individuals’ pay linked to measurement

• Individual and manager identify performance gaps and develop plans to close the gaps

29

Performance ManagementMethods

– Map/Define the work that needs improvement

– Better execution of the “plan” via Leadership/Communications, i.e. “just do it”

– Find and Share a “Best Practice”– Apply Lean or Six Sigma or other tools to

solve problems more efficiently and effectively

– Redesign the process-redesign patterns– Automate process with IT applications

Thank You &Good Luck ManagingYour Performance inMGT 2206-001-Business AnalyticsVillanova School of Business