Make Measurement An Ongoing Component Of Operational Performance Management, Because What Is Measured Gets Attention.
Formalizing operational performance management pays dividends. A business that I referred to earlier had made a considerable investment in the most sophisticated equipment in its industry. Yet it had instituted no formalized process. In fact, it didn't even have an informal one. The only clue to what was happening was that the gross profit margin had not increased.
There were many separate activities where measurement could have been done. Allowing for meaningful comparisons, rudimentary trend analysis, and remedial action to be suggested. The person directly in charge of production couldn't grasp the concept.
The world famous management consultant, the late Peter Drucker observed that over 60% of all internal investments in productivity improvement failed. One reason would be that they were ill conceived. Another would be the lack of a formal system to monitor performance and make necessary adjustments.
By the time the poor performance shows up on an annual statement as a shrinking or stagnant gross profit margin, the momentum has been lost. Operational performance management depends on monitoring, measuring, and adjusting. You need to observe, collect accurate relevant information, and then take remedial action.
Consider the margin improvement opportunities in your business. How many different activities do you have that can be observed, measured, and the results compared with expected performance? Or with standard performance in your industry? These comparisons can provide the basis for remedial action.
The same is true for month by month comparisons. Variances can be calculated, causes found, and adjustments made. But only if you manage the process by providing for measurement and accumulation and analysis of results. Small incremental improvements in several individual activities can be very meaningful. Particularly when they recur frequently.
You won't be surprised that I remind you of the role your reward system and your business information system have in effective operational performance management. Much of the the information provided for your use ties together at several levels.
Pay particular attention to your reward system and how it interrelates with operational performance. Being able to show prospective buyers that you have formalized your management process to that extent will increase their confidence in your business.
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