Archive for the ‘Performance targets’ Category

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Measuring Productivity

In Performance targets,UK productivity on December 20, 2010 by Tim Aikens

Do companies actually measure productivity.  In the manufacturing industry I am sure most if not all do.  In service related businesses – maybe.  I’ve just had a look at three Annual Reports – BA, BT and Rolls Royce.  The first two are essentially service businesses.  In their report summaries they talk about the need to increase efficiency and in BT’s case the need to reduce headcount as their core business declines and they wait for new revenues to take up the slack.  But nowhere did I see any real focus on productivity.  I wonder why.  Is it because it is too hard to measure, too many different metrics or simply that they are not very good at it? Perhaps another reason is that they don’t want the competition to know how good (or bad) they are!

By contrast Rolls Royce which is primarily a manufacturing business, uses the average revenue per employee (averaged over three years and adjusted for price and exchange rate variations) as their key measure of productivity .  I suspect RR are more on top of the productivity issue than either BT or BA.  Why is this?  Is it because service productivity is harder to measure, does productivity count for less (versus service levels) or does senior management neither understand nor care?  I really doubt if it is the latter somehow, yet I still wonder if they make enough effort to put the metrics in place and use them to drive their strategy for increased efficiency.

In my quick look at the Annual Reports, I also noticed the amount of space given to remuneration bonus schemes and reward generally.  Yet no real place for productivity per se.  I am glad to see an open and transparent approach to compensating senior executives. But if I was a shareholder in any of these companies (I don’t think I am!), then I would be keen to see what measures are in place to back up the easily made statements about improving efficiency.  Usually Annual Reports focus on the financial results with some key operational statistics. Rarely do they get into the meat of the operation that says how well they are doing say, in terms of quality or productivity.  Even if there is concern about competitive exposure it would at least give investors some idea of the extent to which executives had a focus on productivity.

Isn’t it time that large businesses – especially in the service sector were more transparent about how good or bad their productivity is, what their measures are and what their strategy is?

Merry Christmas and a prosperous New Year to all.  I will be back in 2010.

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Articles

Productivity as Strategy

In Performance targets,Technology,UK productivity,Uncategorized on October 9, 2010 by Tim Aikens

To what extent does your organisation build productivity into its strategy?  For that matter, to what extent does the public sector overtly plan productivity into its longer term plans?  The NHS has productivity targets, but this is not quite the same as building productivity into your strategy.

Look at some of the high-tech companies.  They build a new device – the prototype is expensive.  A key part of their strategy is to lower the manufacturing cost dramatically over as short a period of time as they can.  This will be a combination of people, technology and almost certainly supply chain. Every aspect of the manufacturing process is subjected to  a review of how can something be done, purchased, delivered most cost effectively!

Then there is the other side of the coin – organisations that suddenly realize that they are no longer competitive and need to reduce cost.  The result is a flurry of activity aimed at improving their price competitiveness and increase productivity.  This process is nearly always reactive.  By definition, intervening in a process to do something that has not been planned will take longer and be less effective in the short-term.  For those who have a significant export market, the quick fix is a cry to the Chancellor to let the pound slip thereby reducing cost in foreign currencies.  Sadly, this always makes things worse in the long-term, because the root cause of low productivity is not addressed.  Fortunately, many UK companies are highly productive.  They are usually the successful ones and are not difficult to spot.

What are the ingredients of a productivity strategy?  Put simply, they are really no different from any other part of a strategy.  You need a set of targets along the time of the strategy and specific plans to turn them into reality.  It is the latter element that is most often missing.  Raise productivity by 7% year on year is a good idea, but only likely to happen if there are clear plans and specific accountability to make them happen.  These should be built into the strategy at the start, not left to operational managers to try to work out (although they should probably be involved in the strategy process).  One of the hardest parts of establishing a productivity strategy will be to get the board to treat productivity as a strategic issue.

One way out of the issue is to make and sell products and services with a high margin. The higher the margin, the less important productivity becomes.  However, in this increasingly international and competitive world there will always be new entrants to a high margin business, so sooner rather than later, productivity will become an issue.  Can you afford not to have productivity as part of your strategic plan? Better to have a strategy for productivity up front before you have to deal with the monster at the gates!

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Try some technology – it helps

In Technology on June 10, 2010 by Tim Aikens

I have just spent a couple of days helping a friend put up a (very) large garden shed.  As you could imagine, this involved a lot of wood and a lot of screws.  To help us along we went out and bought an electric screw driver, very much the industrial model with a lot of torque and a good battery.  It cost £100.  The impact was really quite amazing. Instead of the old laborious wrist turning, this machine wound in the screws in seconds.  A great piece of productivity gain that was really noticeable.  But does it pay?

I thought I would look at the economics.
Price of kit £100.
Say a workman is paid £120 per day or £15/hr for an eight hour day.  That works out at 26 pence per  minute of his time.
Now assume a three inch screw takes two minutes by hand.  It costs  52 pence to put the screw in place.
The machine takes just 20 seconds and therefore costs 8.7 pence.
The saving is 43.3 pence per screw!

So to pay back the cost of the screw driver you need to install £100/43.3p = 231 screws.
Lets say the workman puts in 30 screws per day – because he does a lot of other things too.  Then the machine will pay for itself in 231/30 or 77 days.  After that the organisation is benefiting to the tune of about £14 per day, which in a full year of 250 working days is £3,360 (which does assume full occupation).

The example is real, the price is real, some of the numbers may need a little adjustment. However, the principle is clear, technology will usually pay for itself many times over.  Now for many this is really all to obvious – look at cars, largely made by robots, or shipbuilding where large panels are welded automatically.  But in too many areas a lot of folk are not applying technology as they might and are losing the productivity benefits that go with it.   This happens even in the professional world. I remember one boss who wanted his team (including me) to analyse some computer print out by hand in order to get a ‘feel’ for the structure.  After two days we revolted.  My colleague wrote a piece of software that did the jobs in minutes that would have taken us weeks by hand!

Technology is not a productivity panacea, but we need to be prepared to look for and apply technology whenever it looks like there could be a real payback!! Do you have technology in all the right places?

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Targets aren’t everything

In Performance targets,UK productivity on March 7, 2010 by Tim Aikens

A headline in today’s SUnday Times (UK).  “Labour hid ugly truth about NHS”.  In summary, a series of reports have been unearthed highlighting the drive for performance – meeting political and management targets at the expense of patients – customers.  The numbers may be debatable, but this has cost a lot of lives.  So despite lots of new money ‘rigorous targets’ and loads of new ‘managers’ the NHS has declined in productivity AND killed a lot of people seemingly unnecessarily!! As anyone will tell you, running any operation to a tight budget is tough and the NHS is probably tougher than most. However, there is a lot of variation. Some hospitals seem to do really well, whilst others are abysmal.

Where am I going with all this?  Not a rant against the NHS per se. It’s a great institution, I have recently been making great use of its services for my kids who insist on breaking bones. But there are several key messages that emerge.

Chasing productivity in a single dimension may lead to unwanted results! Packing too many kids into classes may get more per teacher, but worse GCSE results.  Faster production may lead to poorer quality etc.  The lesson here is that every effort to improve performance MUST consider the ultimate objectives on the organisation.  In the NHS it is to make people better.

Investment alone is not enough. Throwing money at an issue or problem is often necessary, but usually insufficient. A lot of businesses invest heavily in IT and then wonder why the desired productivity increases don’t happen.  A hospital buys new equipment, but has no budget to hire the professional staff to run it!

Targets can be counter productive. Simply setting targets is rarely enough. Are they the right targets, set at the right level, aimed at the right people?  How do the targets interact. Targets can often be in conflict.  A call centre target fo enquiries per person per day.  The more you try to cram in the more likely you will be to meet quality or satisfaction targets. Where is the balance.  Businesses and organisations are systemic.  So are targets and productivity. A change in one may well have an impact on others.  Targets for performance and productivity need to be considered in their entirety before being let loose on the business.

So how should we go about starting to consider productivity as an organisation. Firstly it has to be part of the job of senior management – not just an edict.  More on this tomorrow.