Performance Management: Views from Industry

1. Performance Management:Views from Industry MGT 2206-001-Business Analytics Villanova School of Business

2. 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.  

3. 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”

4. 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 introductioninventory down 25%, cycle time down 50%, unavailabilitydown 50% Performance Management Successes

5. Cascading of Goals Performance Planning Performance Execution Feedback Consequences Development PERFORMANCE MANAGEMENT STEPS • 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

6. 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

7. Plan the Business Manage Emergency Preparedness Manage Revenue Manage Customer Relationships Supply Customers’ Energy Operate the System Manage Customer System Construction Manage Transmission System Construction Manage System Maintenance PHI Power Delivery Process Model PD Chief Operating Officer Core Process Managing Process Customers Regional Operating Centers (Dispatch) Engineering Groups Account Managers Call Centers Revenue Management/ Revenue Accounting Field Operations & Gas Div Support from:HR, Strategic Support Services, Business Planning & Finance, IT, Accounting & Finance, Safety & Environmental, Regulatory Affairs. and Corporate Services

8. The Manage Revenue Process By the Numbers Number of Customers 1,921,000 Actual Billed Revenues $5,118,780,000 $161,163,000 Actual Expenses Actual Calls Received 3,695,510 Actual Number of Bills Generated 22,487,931 Actual Number of Payments Received 18,981,460 Number of Employees that work in the process About 1,000

9. Manage Revenue – The Work Flow

10. Understand nature of performance gap Develop intervention plan Set performancetarget Improve execution(training, tools, attitudes, etc.) Improve design Measure process performance Understand customer needs and benchmark competitors Modify design Replace design Perform process Create process and measures Improving Process Performance Hammer and Company

11. 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

12. 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

13. Which situation suggests an execution versus redesign project?

14. 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)

15. Value • Waste Forms of Waste • Motion • Waiting • Interruptions • Searching • Inspection • Defects and variation • Setup • Inventory • Unnecessary processing 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

16. 85 STEPS / HANDOFFS over 12 DIFFERENT ENTITIES Customer Product Management Customer Warehouse Marketing Specialists Sales Reps Contract Admin Contract Admin Database CSO SPOC System Word Processing Revenue Accounting Retriever We do this…? Work Process Approach Can Remove Waste, Improve Cycle Time, and Reduce Stress A Process Design Success Story – National Price Increase Process

17. Air Products Kaizen Events Value Work Process Waste • Pre-Kaizen Event Milestones • Document and Verify the Scope • Analyze whether the Kaizen event is appropriate • Prepare for the Kaizen event • Build a description of the work process • Do a walk through • Develop a Mission statement • Set goals • Define Do’s and Don’ts • 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 ”Seeing” and eliminating non value added…in any process, any business Post-Kaizen Event Milestones 1. Institutionalize Improvements 2. Replicate results at other sites

18. Six Sigma Critical Customer Requirement Control Define the improved process to “hold the gain” the problem in the business Average Measure the current process capability against CCR’s Analyze Improve the process with Targeted solutions to determine the root cause(s) of defects in the process Goal: Improve process capability and eliminate variation or defects 6s = 3.4 defects per million opportunities 6s = 99.9997% Yield Approach: Multiple problem solving approaches embedded into the DMAIC methodology DMAIC Project Length: 2 to 6 months 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 6s

19. Work Process Example Customer Place Order TakeDelivery PayBill Sales DefineReqts Win Business Customer Service Set UpAccount InputOrder SendInvoice ApplyCash CommitInventory Load Product Production ScheduleDelivery DeliverProduct Logistics / Distribution

20. 6s Control Define the improved process to “hold the gain” the problem in the business Measure the current process capability against CCR’s Analyze Improve the process with Targeted solutions to determine the root cause(s) of defects in the process What is Six Sigma?? • 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 Goal: Improve process capability and eliminate variation or defects Approach: Multiple problem solving approaches embedded into the DMAIC method Project Length: 2 to 6 months 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

21. DMAIC - Incremental Improvement to an Existing Process

22. Lean Six Sigma Six Sigma Lean Methods Scientific Method QFD Pull Scheduling Process Mapping Hypothesis Testing Pareto Charts Fishbone Diagrams Set-up Reduction TPM Run Charts SPC Charts Regression Analysis Brainstorming Error Proofing Continuous Flow Design of Experiments Project Management Source: www.moresteam.com Six Sigma: Reduce Process Variation by Eliminating Defects Lean Methods: Increase Process Velocity by Eliminating Waste

23. Level 3 Process“Find and Win Customers” Inputs Market model Offerings Business objectives Outputs Valid and viable customers Process Steps 1 2 3 4 5 6 7 Identify Opportunities Develop Relationship Review Requirements and Engage Organization Develop and Submit Proposal Obtain Commitment Establish or Modify Customer Account Process Contract Information Outputs to Next Process Step leads / sales target list prioritized list of qualified leads decision to offer or not proposal in hands of customer agreement to do business approved customer account contract data input to ERP relationship confirmed customer requirements configured offering Move Data to ERP Needs Assess Leads Qualify Proposal Close P Neg.

24. % 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 Leading Metrics in Sales and Marketing

25. Sample Dashboard

26. Scorecard(cross-business comparisons) Metrics Report(trends and commentary) Key Measures Link(BW or Excel details) “Visibility” of Metric Performance

27. Optimal or Desired Performance Human Performance Model • Causes • Skills • Knowledge • Teamwork • Goals/KPI’s • Environment • Motivation • Tools • Solutions • Training • Leadership/ • Communications • Performance Management • Compensation • Tools • Processes Evaluation and Measurement Change Management Measure Business Challenges, Goals, and Strategies Performance Needs Actual Performance

28. Cascading of Goals Performance Planning Performance Execution Feedback Consequences Development PERFORMANCE MANAGEMENT STEPS • 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

30. Thank You &Good Luck ManagingYour Performance in MGT 2206-001-Business Analytics Villanova School of Business