Get The Fundamentals Right- All The Rest Is "ICING"...

Get the fundamentals right, all the rest is “icing"- by the time you're finished reading this, you'll realize what a hokey pun this really is!

They say that some of the best business is done in hotel bars. And isn’t that the truth. I can’t tell you the number of times a friendly chat over “a Guinness” has led to a provocative new insight, business model, partnership, or just a different way of looking at the world of business.

This week was no different.

Earlier this week, while in Preston England on business, I ran into a chap who was struggling to connect to a wireless router in the hotel lounge. Having shared a similar experience the day before- to the same level of dissatisfaction- I introduced myself and began commiserating. Within 10 minutes, our laptops were closed, and the conversation ensued.

After concluding we had been bitten by the technology bug, and that our connection likelihood was approaching nill, we turned the conversation to travel, family, politics (wouldn’t recommend this, but if it comes up, you’ve gotta play), and ultimately business.

As it turns out, the guy on the other side of the table was quite the entrepreneur. 10 years ago, he had invented a technology called “multi ice” that had a significantly better cooling action on fishing boats. Suffice it to say that in the fishing industry, just a few additional hours of cooling, coupled with a natural additive in the “ice mixture” had a dramatic impact (as high as 10%) on what the fishing industry calls “yield”- the difference between “the catch” and the amount of “waste” generated as a result of inadequate cooling and its rapid impact on cell degradation (a fancy way of saying BAD FISH). Any improvements in yield impact the profits of fishermen, distributors, and stores, and restaurants- nearly every part of the food supply chain. Moreover, his “new” ice was not something he sold as an alternative to taking ice onboard boats, but rather it was an “ice making” machine that converted saltwater into the ice solution, eliminating the need to take large quantities of ice on board in the first place.

The conversation pressed on into some very interesting areas…how he applied the technology to other meats (nearly any you can imagine), his approach to customer satisfaction, marketing, partnering, governance, capital acquisition, and his “no risk value proposition” to his customers. So what’s this all got to do with performance management?

EVERY PART of his business involved some sort of measurement and tracking. From R&D (determining the size and performance of his machines) to manufacturing, product testing to marketing, sales to cash- he had applied measurement to nearly every stage of his process. His entire explanation of his product and market came down to something that was frequently and deliberately measured and managed.

In explaining his product, he didn’t go straight into a typical marketing or sales pitch…but instead gave measure by measure proof that his product was the best, if not only, product that could produce these results. His opening slide was not the typical “here’s how great we are”, but rather an “infrared” picture of two fish of the same weight- one frozen in his solution/ icing process, the other frozen in a more conventional manner. The weight differences (up to fourteen days later) were dramatic, as were the differences in cell degradation which was also evident from the photos. No explanation needed…the pictures spoke volumes about the product’s effectiveness. It’s hard to imagine a customer saying anything but “you had me at hello”. The measures told the story, everything else was just peripheral packaging.

I said earlier that the measures permeated all aspect of the food supply chain, up until and including the cash generation part of his business and customer satisfaction. Taking his quality measurement to the next level, one could calculate his average improvement in yield. For example a small (relatively speaking) fishing boat that generates 1 ton of catch daily would save roughly $150 per day. Extrapolating, then the annual savings would be upwards of $20k, just under the cost of the equipment, generating a payback of just over 10 months- virtually unheard of in that industry. And those numbers don’t even include the cost and storage of ice, which is also offset by the on-demand nature of his ice production equipment.

But he took the data even further. Because of his confidence in the data, and the degree to which he was able to harness and leverage it, he began instituting a “guaranteed savings” program, in which the customer absorbed little to no risk. If the customer didn’t realize the improvements in yield in the early phases of implementation, the customer didn’t pay.

To date, the value of the data has proven out. He has yet to have a dissatisfied customer, nor has he paid one penny against his guarantees. And with those kind of attractive economics, he was able to arrange financing for many of his customers, in which, (because of the rapid payback, low cost of the equipment, and attractive interest rates) generated an initial positive cash flow right out of the gate.

And there was so much more,…too much to go into here. It’s not everyday that these conversations are so rich in mutual “takeaways”- this one was one of those real “jackpots”, with many of the ideas discussed having direct implications in both of our disciplines. In the performance management business, you see a lot of ideas and no shortage of fancy dashboards, analytic models, statistical tools and techniques. And I’ve met a lot of companies who have invested millions in the latest and greatest- six sigma, ISO, LEAN, …the list goes on. But without the fundamentals in place, most will fail. This meeting was ALL about the fundamentals, and a real reminder for me of where it all has to start.

Good business starts with good data and good measurement…not the other way around. Without good data, I seriously doubt my new friend would have been nearly as successful as he has been to date. And I suspect he will find new data and new ways to harness and leverage it into the future.
Right now, I am at the airport, and soon my new friend will be back on his way home too. By the time we both arrive at our destinations, I suspect we’ll both have a new portfolio of insights from new introductions that we make in the airport, on the plane, and in the car ride home. Just another insight-rich travel day.

So go ahead mate, next time you find yourself with a little downtime- go have yourself a Pint and some good company.

-b

Author: Bob Champagne is a Vice President of Performance Management Solutions with UMS Group, Inc., a privately held management international consulting organization specializing in Performance Management tools, systems, and solutions. Included in UMS Group's product portfolio are a wide variety of performance tracking, reporting, and benchmarking solutions, as well as customized performance assessments and diagnostic services . UMS Group clients have consulted with hundreds of companies across numerous industries and geographies. Visit ePGI at http://www.umsgroup.com/ or contact us directly at 908-656-1179.

Don’t Go Overboard on KPI’s

While much has been written in the past about performance management, most of it has dealt with things like the design of measures, development of targets, benchmarking, reporting methods, and IT solutions. Precious little has been written on the quantity of measures…essentially the question of “how many” measures an organization should have as you begin to cascade past the first few levels.

As most of you know from my past writings, I am a big fan in the “fewer is better” principle, the reason being that focus becomes distorted once you get past a certain number. Quite frankly, I don’t know psychologically why that is, nor do I really care. The less people need to remember, recall, and process, the more likely it is to stick. Ever wonder why things like social security numbers and phone numbers are broken up into three to four digit “clusters of numbers”? It’s been scientifically proven that people recall numbers less than seven digits at far greater levels than they do larger ones, and the recall is further enhanced by breaking it up into three and four digit “chunks”.

The number of measures shouldn’t be any different. In fact the word KEY in key performance indicators (KPI’s) suggests the need for that very level of focus. But for some reason, the design principle steering today’s KPI development seems to be favoring the “more is better” principle over more focused measurement design. In the last three weeks, I either spoke with or visited five companies that have an executive KPI “dashboard” in place. Four of the five organizations (and they were NOT alike in any way- different industries, geographies, and cultures - most had more than 15 KPI’s with one of those organizations nearing 40!

So here are some things to check for to ensure you have the right number and type of KPI’s

1. Don’t confuse “balance” with volume:

While organizations are encouraged to have a “bananced” set of KPI’s (e.g. a “balanced scorecard”), it does not mean that every business unit and functional workgroup in the organization’s structure needs to have the same degree of balance. Some functions exist for the sole purpose on moving one or two key indicators, and may legitimately have nothing to do with others. You’re better off with that group being responsible for 3-4 relevant indicators instead of a “balanced” suite of 25.

2. Don’t let the complexity of your metrics portfolio dilute the vision and compelling narrative of the business:

Some of the best companies out there have developed a short and compelling narrative or “elevator pitch” that encapsulates essence of the companies vision, mission, and strategic plan (our history, current vision, purpose, main points about strategy, and how we will measure success. What’s important here is the ability of the drive the “recall” of vision by the employees who are responsible for internalizing it and carrying it out. Better to have a few indicators they can relate to, internalize and influence than a multitude of indicators that go largely unnoticed.

3. Make the numbers mean something:

Often, that will mean avoiding the “index” or “roll up” type of indicators. The types of indicators often have meaning only to the person who built the underlying algorithm behind it. While it is ok to use these kind of indicators sparingly (perhaps at the high levels where they can be easily interpreted, I’d be inclined to get these indexes quickly translated into units that represent results. For example a CSI (customer sat index ) of 45 versus metrics like % of customers dissatisfied with service call, % rework, and first call resolution %. If you can create meaningful #’s, the need to measure a large number of “component” metrics typically goes down, freeing up attention to focus on the drivers and causal factors that will end up having much more impact on maximizing your PM dollar.

So there you have it, a simple list of three tips (not 5, 8 or 10, but 3)….hopefully simple enough to recall as you continue to improve your PM process.

-b

Author: Bob Champagne is a Vice President of Performance Management Solutions with UMS Group, Inc., a privately held management international consulting organization specializing in Performance Management tools, systems, and solutions. Included in UMS Group's product portfolio are a wide variety of performance tracking, reporting, and benchmarking solutions, as well as customized performance assessments and diagnostic services . UMS Group clients have consulted with hundreds of companies across numerous industries and geographies. Visit ePGI at http://www.umsgroup.com/ or contact us directly at 908-656-1179.