Four Systems to Significantly Improve Operating Performance

It does not matter if you are just getting started with an improvement initiative or you have been formally at the improvement game for many years, you must have a single-minded objective for the initiative. Every initiative must support the one stated objective.

While many organizations have improvement initiatives that sound good, they are not aligned to the core objective of that business. Organizations may spin up a series of stand-alone initiatives that are well intended, but do not support the reason for the business’s existence. Thus it is imperative that every initiative be in harmony with the company’s core values/philosophies (if they are well defined) and drive the primary reason for the business’s existence.

The objective of any business, no matter its stated mission, is to provide a return on invested capital for the owners/shareholders and the objective of all improvement initiatives must ultimately drive operating performance to new heights for the purpose of improving profitability.

If you have not created a well-defined culture of continuous and breakthrough improvements, it is definitely time to start. Start small or go big—but start now! One way to do that is to implement the four tenets of the high-performance organization.

Creating a Solid Foundation

The foundation of the high-performance organization is comprised of four systems or building blocks. When these four systems are firmly in place, you are well positioned to move forward with a variety of topic-based initiatives that are “bolted on” to the four core systems. These initiatives must support a return to owners/shareholders, and drive results as defined in your performance measurement system.

Some of the “bolt on” initiatives might include preventive maintenance, quality improvement, scrap reduction, work flow analysis, customer satisfaction, technological innovation, employee wellness, energy reduction, equipment upgrades, capital investment, material utilization, short interval scheduling, quick change over, cycle time reduction, leadership development, inventory accuracy … the list is endless.

If you have selected the correct measures of success, nearly every “bolt on” initiative must support and drive improvement to one or more of your measures.

The Four Powerhouse Systems

. It all starts with the correct measures and metrics. The first and most solid principle of improvement is: “What gets measured gets done.”

All improvement initiatives must begin with deep and well-anchored measures. The measures are the starting point for developing performance goals and without goals, optimum business success is impossible.

Measures also provide purpose, direction and the information necessary to achieve meaningful improvement.

The measures at the business unit level (plant, mine, refinery, mill, distribution center, etc.) are often called Key Performance Indicators (KPIs). They are the business drivers and the measures of success. KPIs measure business results and not a business process—a very important distinction. KPIs become the only factors upon which the Incentive Pay System is based, reflect the only performance information to be included in the performance communication system and become the single-minded focus of the performance improvement teams.

Incentive Pay. We would argue that the first law of economics is NOT “supply and demand.” We would argue that the first law of economics is: “incentives matter.” Business leaders who understand the power of incentives hold the keys to the kingdom. And, while it is true that what gets measured gets done, what gets measured and rewarded gets done to a greater degree.

Superbly designed and rigorously implemented incentive pay systems will quickly, significantly and on a sustained basis create a positive change in employee workplace thinking and behavior.

Performance Communication. Unfortunately, companies do a marginal job of effectively communicating operating performance to their employees in a visual, timely, easy to use, repetitive and understandable format.

An uninformed workforce is destined to achieve predictable levels of marginal performance. Thus, an excellent performance communication system is an absolute necessity. Effective communication systems present the most recent performance and performance trends, along with the incentive pay that was earned (or lost) as a result of the performance.

Team-Based Improvement. The performance improvement (PI) teams are the heartbeat of a high-performance organization and must be in constant motion to stay alive to produce the business results. Your employees are oozing with concerns, issues, solutions to problems and ideas to achieve new and heightened levels of excellence.

PI teams are strategically positioned, trained and charged with assaulting the inefficiency and waste that exists at all levels of most organizations. Every company is target rich with opportunities for improvement. PI teams are an excellent forum for systematically pursuing those opportunities.

Seamless Integration and Linkage of the Four Systems

This is the most important point of this system, and many companies miss this key point with their continuous improvement activities. Today, many companies have reasonably good operating performance measures—about 35% of companies have some form of incentive pay system—but very few companies do a good job at communicating performance results.

Even fewer companies have effective and long-lived continuous improvement or performance improvement teams or any other effective system to capture and implement employees’ ideas for betterment. Unfortunately, very few companies weld the measurement system to the incentive pay system, to the communication system, to the performance improvement team system. This is a huge missed opportunity.

The Four Steps to Implementation

Define your business goals and identify the business unit’s measures of success. These are the key performance indicators (KPIs) that are defined in your performance measurement system. When correctly designed, there is perfect linkage and alignment between the business goals and the performance measurement system defined by the KPIs. Measures must support, reinforce and drive your business goals.
Link and align the incentive pay system to the performance measurement system by only including the same KPIs defined in the incentive pay system. That which is measured is also rewarded.
To communicate performance, the primary document is the monthly KPI report (reviewed with employees in small group meetings). The only information in the monthly KPI report is the operating performance results of the KPIs defined in Step 1 and the incentive pay earned (or lost) from those KPIs. Those results must be communicated to employees.
To continually improve performance, PI teams continually focus on capturing, evaluating and implementing ideas for improvement. By cleansing the organizations of behavioral toxins, shedding stale approaches to operating performance, solving operating problems and enhancing efficiency, the PI teams improve the business as defined by the previously defined KPIs.

In summary, that which is measured is rewarded, is communicated to employees and is also the sole focus of the PI Teams. This model will produce heightened levels of operating excellence, meaningful levels of incentive pay for employees, a more informed workforce and improved profits.

Vince Bovino is the founder of Bovino Consulting Group. Reach him at 208.699.3004.