It seems that almost any indicator is referred to as a KPI, so what are they really? As the name states, a KPI is an indicator of key performance, not just of performance. Find out which indicators to follow, and which to ignore. Recently, there has been an upsurge in the level of interest in management by objective, or in establishing performance measures to track progress towards asset maintenance goals. One of the terms that are regularly misused and poorly defined is that of the Key Performance Measure, or KPI. It seems that almost any indicator is referred to as a KPI, so what are they really? As the name states, a KPI is an indicator of key performance, not just of performance. In order to try to better explain this point we will look at an example of performance measurement as applied to a fleet of haulage trucks within a mine site. However, the same principles can be applied to fixed equipment within a process plant, manufacturing facility, or even to a distributed asset company such as utilities or rail. Within a mine site there are three or four different operations, exploration drilling and blasting, mining the ore, processing it or filtering it, and then loading it for sale or transport. While all of these are important processes the management of the fleet of haulage units or trucks is one of the key lynch pins in terms of operational cost control and meeting production targets. The fact that these items are all independent of each other, consume large quantities of energy, and cost a fortune for spare parts adds to the complexity of managing them, as does the fact that every eight or 12 hours they generally have a different person at the wheel. So how do we know they are working well? There are a few standard measures that can be applied to any form of fleet equipment, but it really depends on what it is that we want to know. For example; a truck can be working well from a energy consumption standpoint, but not from an operational standpoint; or it could be working well from the point of view of operations but not from the point of view of cost effectiveness. We could represent these by a range of metrics, each one of them important in their own right, but with no real indication of how each one relates to the other, or of how important they are with relation to other aspects of machine performance. This is at the heart of the problem; when we confuse metrics with KPIs we miss out on a range of additional useful information relating to overall balanced performance of the asset. Let’s look again at the fleet management issues in more detail. As we started to discuss earlier a haul truck has several areas where direct performance matters, these could be:
For the sake of this example we will leave out other aspects such as safety and the environment for now. If we take productivity there are a range of performance measures that could be applied within this area. These take on the standard sorts of direct performance measures that you regularly see, e.g. availability, reliability or failure rate (MTBF), cycle time for a specific run, tons during a specific period, average load rates etcetera. All of these are useful indicators of the performance of this asset, but not all of them are directly related to this asset alone. For example, tons during a specific period relates to how the truck is loaded as well as the speed with which it works, load rates are similar in that they rely on other assets to make up the measure. If we were really going to construct a scorecard these figures would be a must-use, but in this case we will work without them. One measure that most people readily understand is that of availability, or the amount of time that an asset is available for duty when it is required to be available. The definition is important because it is no good if an asset is available for work when nobody needs it, particularly if it is not available when they do need it. By itself it tells us a fair amount about the asset; it tells us that it was ready to work when we needed it to work. But the asset could still be performing poorly, even though the availability is high. Let’s take the example of a pump that is required for ten hours and is available for 9 hours. This would give us 90% availability; good for some industries but not so great for others. But what if the pump had actually broken down 20 times over the ten hour period, with each breakdown taking two minutes to correct? If this were the case, then the mean time between failure, or the MTBF would be: 10 hours required20 failures= 30 minutes. So on average the pump would be running for about 30 minutes prior to breaking down and needing attention again. So by itself the availability figure is not telling us the entire story, we need to look at other figures such as the MTBF in this case. Are we done? What other issues could there be regarding availability of the asset? What about quality of workmanship? Not so important if everything is going well, but pretty vital if things are not going well. So maybe there could be a good case for including a measure such as Mean Time To Repair, (MTTR) a proxy for quality or for speed of work. We could also include a measure of rework if anybody could agree on what the definition of rework is. So now we have three metrics that make up our view of the trucks productivity. Although we ruled out load rates and other indicators earlier there is probably another indicator that we could also include; that of Unit Costs. Unit Cost is a great measure in any industry as long as it is defined as the costs of maintenance, operations or both; against the unit of production. Unit Costs are sometimes defined differently in utilities and infrastructure organizations and this can be misleading. In this case the unit costs shows us how much our availability is costing us, availability by itself is great and allows us to have an asset that is contributing to the production targets, but how much is this costing? For example; a truck that is working but cannot take heavy loads due to developing issues with the wheel suspension system, is lowering productivity rates and raising unit costs of production. So now we have four, for ease of understanding these four indicators could be ar-ranged like the graphic below. Here we see that Availability remains the key indicator we use to tell us how we are going in terms of productivity, but it is not the only indicator of productivity. Other indicators are also included in various other perspectives, E.g. unit cost in the cost ef-fectiveness perspective and MTBF in the quality of performance perspective. So we can star to see that a KPI is not just a performance indicator, it is the indicator that tells us the key information we need to know in relation so a specific strategic theme or area, in this case productivity. However, unit cost may end up being the KPI for cost effectiveness. Sound like semantics? It has been my experience that the correct use and definition of KPI’s, as opposed to indicators or general metrics, allows people to go directly to the agreed “most important” indicator of a specific area of performance. And if this is also tied in with a scorecard type approach, as it is in the graphic above, then they will get a picture of how the asset is performing as well as a good indication as to why. There has also been a recent trend away from several indicators and towards one or two significant indicators. If you correctly use a KPI approach, then you can use all of the indicators that your data will support. Every time you look at the scorecard your eye is taken to the KPI, and then it is an easy task to look only at those indicators that are leading you towards why the asset is performing poorly. This sort of graphical dashboard is useful tool for managing large scale asset perform-ance in any situation, particularly given the ease of use of today’s technologies.- (PlantReliability, 21 Sep 07)
The above lecture on leadership is based partly on the book "Leadership from an Islamic Perspective" by Professor Rafik Beekun and Professor Jamal Badawi, and is a very short excerpt from the Islamic Management Series lectures which have been designed to help leaders of Muslim organizations become effective.
In my youth, CEOs hung around till they retired. Today, the tenure of CEOs continues to drop to a point where their longevity is less than an NFL coach. Show me a company or even a country in trouble, and I'll show you a CEO who is about to be fired. Strategy, vision and mission statements are dependent on the simple premise that you must know where you're going. No one can follow you if you don't know where you’re headed. Many years ago, in a book called The Peter Principle, authors Lawrence Peter and Raymond Hull made this observation: "Most hierarchies are nowadays so cumbered with rules and traditions, and so bound in by public laws, that even high employees do not have to lead anyone anywhere, in the sense of pointing out the direction and setting the pace. They simply follow precedents, obey regulations and move at the head of the crowd. Such employees lead only in the sense that the carved wooden figurehead leads the ship." Perhaps this pessimistic view of leadership skills has led to the explosion of hundreds of books dealing with leadership, most of them being downright silly. There's advice on whom to emulate (Attila the Hun), what to achieve (inner peace), what to study (failure), what to strive for (charisma), whether to delegate (sometimes), whether to collaborate (maybe), Americas secret leaders (women), the personal qualities of leadership (having integrity), how to achieve credibility (be credible), how to be an authentic leader (find the leader within) and the nine natural laws of leadership (don't even ask). In fact, there are 3,098 books in print with the word "leader" in the title. To me, how to be an effective leader isn't worth a whole book. Peter Drucker gets it into a few sentences. "The foundation of effective leadership is thinking through the organization's mission, defining it and establishing it, clearly and visibly. The leader sets the goals, sets the priorities, and sets and maintains the standards."
First, how do you find the proper direction? To become a great strategist, you have to put your mind in the mud of the marketplace. You have to find your inspiration down at the front, in the ebb and flow of the great marketing battles taking place in the mind of the prospect. It's no secret that most of the world’s greatest military strategists started at the bottom. And they maintained their edge by never losing touch with the realities of war. Karl von Clausewitz did not attend the best military schools, did not serve in the field under the best military minds and did not learn his profession from his superiors. Clausewitz learned his military strategy the best way and the hardest way--by serving in the front line at some of the bloodiest and most famous battles of military history. The unpretentious Sam Walton traveled to the front lines of every one of his Wal-Mart stores throughout his life. He even spent time in the middle of the night on the loading docks, talking with the crews. Unlike "Mister Sam," many chief executives tend to lose touch. The bigger the company, the more likely the chief executive has lost touch with the front lines. This might be the single most important factor limiting the growth of a corporation. All other factors favor size. Marketing is war, and the first principle of warfare is the principle of force. The larger army, the larger company, has the advantage. But the larger company gives up some of that advantage if it cannot keep itself focused on the marketing battle that takes place in the mind of the customer. If you're a busy CEO, how do you gather objective information on what is really happening? How do you get around the propensity of middle management to tell you what they think you want to hear? How do you get the bad news as well as the good? If you don’t get the bad news directly, bad ideas can flourish instead of being killed. One possibility of finding out what's really going on is "going in disguise" or poking around announced. This would be especially useful at the distributor or retailer level. In many ways this is analogous to the king who dresses up as a commoner and mingles with his subjects. The reason: to get honest opinions of what's happening. Like kings, chief executives rarely get honest opinions from their ministers. There's just too much intrigue going on at the court. The members of the sales force, if you have one, are a critical element in the equation. The trick is how to get a good, honest evaluation of the competition out of them. The best thing you can do is to praise honest information. Once the word gets around that a CEO prizes honesty and reality, a lot of good information will be forthcoming. Another aspect of the problem is the allocation of your time. Quite often it is taken up with too many activities that keep you from visiting the front. Too many boards, too many committees, too many testimonial dinners. According to one survey, the average CEO spends 30% of his or her time on outside activities--and spends 17 hours a week preparing for meetings. Since the typical top executive works 61 hours a week, that leaves only 20 hours for everything else, including managing the operation and going down to the front. No wonder chief executives delegate the marketing function. But that's a mistake. Marketing is too important to be turned over to an underling. If you delegate anything, you should delegate the chairmanship of the next fund raising drive. David Packard of HP fame once said, "Marketing is too important to be left to the marketing people." Long ago, Drucker advised that since the purpose of a business is to generate customers, only two functions do this: marketing and innovation. All other functions are an expense. He was absolutely correct. If you're a CEO, keeping your job will depend on how good you are at marketing and innovation. - (Branding Strategy, 19 Sep 07)
Kaizen approaches productivity improvement. In Japanese, Kaizen means “small, incremental, continuous improvement,” and the English translation is “continuous or continual improvement.” It is a process that, when done correctly, humanizes the workplace, eliminates unnecessarily hard work (both mental and physical), teaches people how to do rapid experiments using the scientific method, and how to see and eliminate waste in business processes.
The objectives of Kaizen include eliminating waste, or activities that add cost but not value, just-in-time delivery, production load leveling of amount and types, standardized work, paced moving lines and right-sized equipment,. Basically, Kaizen takes processes, systems, products, and services apart then rebuilds them in a better way. Kaizen goes hand-in-hand with that of quality control circles, although it is not limited to quality assurance.
Outside experts can help get Kaizen started. They work in your facility to identify problems that those close to the work may not see. After instigation, employees can then continue implementing Kaizen works and experiencing its benefits.
Structured approach – A formal schedule including kick-off and a final presentation to management in addition to Kaizen Team Leader updates
Aggressive objectives –Encouraging the team to stretch beyond its comfort zone to achieve goals
Short time-period – A Kaizen Event typically lasts two to five days, plus time to follow up
Full-time team membership – Team members are full-time for the duration of the Kaizen Event, but they are not expected to perform their normal duties during the process
Employee training and communication, combined with direct involvement by the management, is critical to Kaizen’s success. For example, a manager spending a week on the shop floor working with employees and encouraging them to develop suggestions will expedite the arrival of benefits as opposed to distant leadership. A manager should also ensure that employees see their suggestions addressed immediately instead of allowing their input to disappear into a management "black hole."
Kaizen does not view problems as negative but rather sees them as positive opportunities for improvement. To implement change, Kaizen finds, reports, and fixes problems. This program encourages rewarding employees who expose inefficiencies and other issues. Kaizen is about taking action to generate suggestions then implementing productive ideas as soon as possible.
Kaizen results in improved productivity and quality, better safety, faster delivery, lower costs and greater customer satisfaction. Furthermore, employees find work to be easier and more enjoyable—resulting in higher employee morale and lower turn-over.
Reduction in waste in areas such as inventory, waiting times, transportation, worker motion, employee skills, over production, excess quality, and in-processes
Improvement in space utilization, product quality, use of capital, communications, production capacity, and employee retention
Immediate results. Instead of focusing on large, capital-intensive improvements, Kaizen focuses on creative investments that continually solve large numbers of small problems. The real power of Kaizen is in the on-going process of continually making small improvements that improve overall processes and reduce waste
... a system of continuous improvement in quality, technology, processes, company culture, productivity, safety and leadership.
We'll look at Kaizen by answering three questions: What is Kaizen? What are the benefits of Kaizen? What do you need to do to get started using Kaizen principles?
What is Kaizen?
Kaizen was created in Japan following World War II. The word Kaizen means "continuous improvement". It comes from the Japanese words "Kai" meaning school and "Zen" meaning wisdom.
Kaizen is a system that involves every employee - from upper management to the cleaning crew. Everyone is encouraged to come up with small improvement suggestions on a regular basis. This is not a once a month or once a year activity. It is continuous. Japanese companies, such as Toyota and Canon, a total of 60 to 70 suggestions per employee per year are written down, shared and implemented.
In most cases these are not ideas for major changes. Kaizen is based on making little changes on a regular basis: always improving productivity, safety and effectiveness while reducing waste.
Suggestions are not limited to a specific area such as production or marketing. Kaizen is based on making changes anywhere that improvements can be made. Western philosophy may be summarized as, "if it ain't broke, don't fix it." The Kaizen philosophy is to "do it better, make it better, improve it even if it isn't broken, because if we don't, we can't compete with those who do."
Kaizen in Japan is a system of improvement that includes both home and business life. Kaizen even includes social activities. It is a concept that is applied in every aspect of a person's life.
In business Kaizen encompasses many of the components of Japanese businesses that have been seen as a part of their success. Quality circles, automation, suggestion systems, just-in-time delivery, Kanban and 5S are all included within the Kaizen system of running a business.
Kaizen involves setting standards and then continually improving those standards. To support the higher standards Kaizen also involves providing the training, materials and supervision that is needed for employees to achieve the higher standards and maintain their ability to meet those standards on an on-going basis.
March 12, 2009 — Facing the most destructive economic climate in decades, America's C-level executives are using a variety of standard-issue business strategies to steer their companies through the recession. Some have immediately turned to layoffs to reduce costs, some are trying to restructure debt, and others are utilizing pay cuts and hiring freezes to keep their businesses afloat.
Many, however, are unable to take decisive action, hampered by panicked shareholders and board members. One CEO was recently heard to say, "We're all looking at this huge tsunami heading straight for us, and it's so big and moving so fast that their attitude is 'There's no point even putting on waders.'"
Yet in the midst of all these actions and reactions, there is one management tool that many CEOs have overlooked during this financial crisis: operational improvement.
In essence, operational improvement (or process reengineering) is an activity that intensively focuses on the processes and systems of a business (production, supply chain, sales, cost control and capital expenditures) to examine opportunities for removing those elements that do not add value, or ones that create unnecessary cost. It isn't about strategy, capital expenditure or IT; it's about the human element of business processes and their improvement.
The benefits of such reengineering efforts are immediately apparent: wasted activity is reduced, productivity is increased, employee performance is enhanced. But, most importantly, the process releases working capital and can drastically improve a company's EBITDA figures.
The Need for Speed
This concept is well established in the Total Quality Movement from the 1990s and in current methodologies such as Lean, Kaizen and Six Sigma. CEOs usually hire firms of management consultants to help them develop such a program. More ambitious chief executives form internal "operational excellence" teams in an attempt to drive operational improvements using their own people.
So why is such a proven business improvement methodology being overlooked now?
According to Doug Wano, U.S. president of Proudfoot Consulting, the conventional forms of process improvement programs all lack one crucial element for being able to help a business survive the recession — speed of installation. "The problem is," says Wano, "CEOs can't afford to wait around for two years until the company's operational excellence program delivers the tangible cost savings it promised. They need operational improvements to deliver P&L results now!"
So how does a CEO add speed to process improvement programs? What's the missing ingredient? Wano continues: "The secret is in the execution. CEOs need to hire consultants who have a proven track record of frontline implementation of the process improvements they recommend. It isn't enough to write a big report recommending a list of business improvements, then walking away. Successful and accelerated process improvement only happens when the consultant sticks around to work side-by-side with the workers to embed the new behaviors. That's a pretty rare skills set. Not many consultancy firms can deliver on that requirement."
Wano adds that companies can release working capital and enhance their EBITDA within three to four months using this intensely focused approach to process improvement.
Utilizing process improvements as a tool to release working capital and improve productivity is a concept echoed by Jerry Jasinowski, former CEO of the National Association of Manufacturers. Jasinowski says: "Protection of the balance sheet by focusing on cash requires firms to reduce working capital and cut back on excess inventories quickly and dramatically. It's kind of a bridge to the process improvement points. Difficult economic times provide an opportunity for accelerating process improvement activities."
Bottom Line for CEOs?
Get back to basics by taking a deep dive through every aspect of your business operations: sales, marketing, customer service, supply chain, manufacturing, transportation and energy usage. Bring in a specialist, either internal or through the services of an operational consulting firm. Listen to what they say and take a long, hard look at the potential financial and productivity benefits they present.
But don't "green-light" the project until the consultants can prove that they are going to put "boots on the ground" and work alongside your frontline supervisors and employees day after day to embed the behavioral change necessary to deliver sustainable process improvement. And they need to show that their implementation will accelerate the delivery of real financial benefits in months, not years.
Concludes Wano: "That accelerated pace of delivery is now more crucial than ever. The recession is here, it's real, and its true scale is only now being realized. CEOs must choose to act, and choose a course of action that brings real cash benefits in the shortest possible time. Accelerated operational improvement offers CEOs a way to fight back and not only survive this recession, but better position their companies for the economic upturn."
(By Farzad Keshvargar) Farzad Keshvargar is an executive vice president for Proudfoot consulting, an Atlanta provider of operational management consulting.
In a recent article, corporate trainer Zig Ziglar wrote, “Every sale has five basic obstacles: no need, no money, no hurry, no desire, no trust.”
He goes on to explain that as business owners, while you can’t control the lack of need, money, urgency or desire, the one thing you can control is trust.
We can all agree that in recent months there has been a loss of trust in business – all you have to do is skim the newspaper headlines to see that.
In fact Edelman, the world’s largest independent public relations firm just released its 10th annual Trust Barometer for 2009. Not surprisingly, trust in U.S. business is the lowest it has ever been in Edelman’s tracking history - at 38 percent compared to 58 percent a year ago. It’s lower now that it was in the wake of Enron and the dot-com bust.
The study, which can be accessed at www.edelman.com/trust/2009, only confirms the wisdom that Ziglar imparts - trust affects consumer spending. Here’s a quick glimpse at some of the findings:
• “In the past year, 91 percent of 25-to-64-year-olds around the world indicated they bought a product or service from a company they trusted, and 77 percent refused to buy a product or service from a company they didn’t trust.
• Trust is one of the most important factors in determining a company’s reputation. It ranks just below quality of products and treatment of employees.
Likewise, in the first ever BBB/Gallup Trust in Business Index survey commissioned recently by Better Business Bureau, nearly one in five respondents said their trust in the businesses they regularly deal with has decreased in the last 12 months. Our national statistics support this trend. For the past five years the number of consumers both inquiring and complaining to BBB has steadily risen.
So if customer trust is something companies can control, why is it declining? And more importantly as a business owner, what can you do about it?
Define trust as it relates to your company. What does trust mean to you and how does it relate to your mission? What does it mean to your customers? Employees? Once you have a definition, live by it. It doesn’t work if you say your business is trustworthy. You have to act on it.
Below are the Standards for Trust that all BBB supporting businesses agree to uphold as a condition of their membership. If you’re not a member, consider pulling from them to develop your own internal standards. If you are accredited by BBB, now would be the time to let the world — or at least your potential customers — know these are the standards you uphold.
BBB Standards for Trust
• Build Trust: Establish and maintain a positive track record in the marketplace.
• Advertise Honestly: Adhere to established standards of advertising and selling.
• Tell the Truth: Honestly represent products and services, including clear and adequate disclosures of all material terms.
• Be Transparent: Openly identify the nature, location, and ownership of the business, and clearly disclose all policies, guarantees and procedures that bear on a customer’s decision to buy.
• Honor Promises: Abide by all written agreements and verbal presentations.
• Be Responsive: Address marketplace disputes quickly, professionally, and in good faith.
• Safeguard Privacy: Protect any data collected against mishandling and fraud, collect personal information only as needed, and respect the preferences of consumers regarding the use of their information.
• Embody Integrity: Approach all business dealings, marketplace transactions and commitments with integrity.
“Trust affects the quality of every relationship, every communication, every effort in which we are engaged … by behaving in ways that build trust with one, you build trust with many.” - Stephen M.R. Covey.