Focused Improvement System (FIS)
(How to turn the mission statement on a plaque
in the foyer into an action plan to drive competitive performance and continuous
improvement)
The aim of this document is to outline how a Focused
Improvement System should be implemented at all levels of an
organisation, to support the mission and objectives of the
organisation. In particular this method is a radical and
effective development of generalised improvement systems such as
Total Quality Management (TQM) and Kaizen, which provide the
improvement tools but not the improvement direction and
motivation. As such they
are wasteful. (The thing they were designed to avoid).
This guide can be used in any organisation.
Links to
related training and further reading on left
Contents
- Introduction
- Objectives of a Focused Improvement System
- Implementation of a Focused Improvement System at company
level / process level
- Performance measures check lists
- What should be measured?
- Choosing measures of performance
- Conclusion
- Setting strategic objectives
- Setting measures (at company / business unit level)
- Context / hierarchy of performance measures
- Data collection
- Communicating goals
- Rewards and punishment
- Reporting and action
- Empowerment
- System review
- Identification of opportunities and target setting
- An example of measure of performance design
It is proposed that a cross-functional team be set
up to implement the Focused Improvement System and as such this paper's aim is to guide them through the implementation
process. The team has the responsibility to ensure that the whole
system is implemented and working. The process then needs to become
institutionalised as a routine part of strategy deployment.
This chapter guides the user through the implementation
of an entire Focused Improvement System. It also highlights how to
set measures and as such can be used at all levels of an
organisation.
If you want to improve performance you must measure it.
The aim of measuring performance is to assess how well the
organisation is implementing strategies and action plans. The
setting of performance measures should complement the setting of
new strategies and objectives and the implementation of action
plans. These activities should be carried out together as
highlighted in this guide. All companies use financial measures
of performance. However, they suffer from a number of problems.
Traditional financial measures of performance:
- do not support strategies and priorities to beat the
competition;
- do not reflect customer requirements;
- identify problems not their causes;
- do not support problem solving and improvement;
- reflect traditional functional structures not business
processes,
- are inflexible;
- often inhibit innovation;
- encourage activity (not useful activity).
It is therefore necessary to implement a new Focused
Improvement system to counter these problems. A new Focused
Improvement System, as outlined here, will have greater relevance
to all levels of personnel, whilst ensuring strategic relevance, thus
providing a significant tool to assist improvement towards
organisational objectives and overall prosperity.
In order to control any activity there must be a control
system. The elements of control include:
- Have a plan or target.
- Allow a tolerance deviation from the plan or target.
- Measure the actual.
- Compare actual to plan, identifying areas and opportunities
for improvement.
- Feedback significant deviations from the plan.
- Take corrective actions.
This process of control should underpin all Focused
Improvement activities. Without each of these, a process can not
be said to be fully in control.
NB Performance measurement is worthless without
taking action
2. OBJECTIVES OF A PERFORMANCE MEASUREMENT
SYSTEM
The main objective of a Focused Improvement System is to:
- Assess performance against targets, identifying corrective
action in order to improve.
If implemented properly a Focused Improvement system should
help to:
- Achieve goals
- beat the competition;
- reflect customer requirements;
- reflect critical success factors (measure what is desired).
- Communicate
- communicate goals;
- ensure that strategies are kept up to date and that tactical
decisions meet objectives.
- Improve
- stimulate improvement & innovation (identify opportunities and
motivate employees);
- locate problem areas.
- Report and feedback
- allow comparison with world best practices;
- record achievements and enable goal setting;
- supply feedback after decisions are implemented and actions made
allowing direct cause and effect feedback;
- allow control to be pushed down the organisation (empower employees).
3. IMPLEMENTATION OF A PERFORMANCE MEASUREMENT
SYSTEM
At company level
- Set up an implementation team
- Set up a multi-functional team which will be responsible for the
implementation of the new Focused Improvement System.
- Commitment
- Commit to improving performance.
- Sell the system to senior and middle management.
- Set Strategic Objectives (See note A)
- Translate the mission statement into a local context.
- Undertake competitive comparison surveys.
- Undertake customer requirements surveys.
- Define critical success factors.
- Define strategy to improve performance.
- Set Measures (See note B)
- Define performance measures and constraints for each key
business process as it relates to each operating unit. I.e. convert strategic
objectives into tactical and operational objectives
(devolved from "Critical Success Factors"). (See
note C)
- Identify middle managers' views of what the critical
processes are and what they perceive to be valid measures
of performance.
- Reconcile conflicts.
- Ownership
- Assign someone to be accountable for each key performance
factor.
- Define the boundaries and objectives of the process
especially where it crosses functional barriers.
At process level
- Sell
- Sell the Focused Improvement System to everyone emphasising
objectives and benefits.
- Understand
- Understand the critical processes.
- Understand drivers of performance and the context of the
performance measure (see note C).
- Understand the local constraints.
- Design the Focused Improvement System
- Set performance measures, through agreement, with workers
and management (Refer to "Performance measurement check list" and
"What should be measured" below).
- Design a data collection system (See note D).
- Specify measures in detail. (See note K)
- Resolve conflicts between measures.
- Decide reporting frequency for each measure.
- Implement the Focused Improvement System
- Assign responsibility.
- Communicate goals to everyone (see notes E and F).
- Check that everyone has a common understanding of the goals
and how they affect them. (To ensure understanding, ask them how they feel these
measures will influence behaviour in their area.)
- Reconcile any differences.
- Report performance on time to the right people / places (See
note G).
- Empower all employees to act on the information provided
(See note G).
- Take action.
- Institutionalise Focused Improvement (see notes F and
I).
- Get rid of the old system of measuring performance.
- Resist the implementation of other measures.
- Improve
- Benchmark and set targets (see note F and J).
4. PERFORMANCE MEASUREMENT CHECK LISTS
A CHECK LIST OF WHAT MEASURES OF PERFORMANCE
SHOULD BE:
- Appropriate
- consistent (giving a balanced view, relating to financial
performance, customer satisfaction, internal efficiency and
improvement);
- relevant to the activity they are trying to measure and to
those who can influence it,
- valid;
- operational, not necessarily of a financial nature;
- uncomplicated and understood by those being measured,
- easy to collect data and calculate;
- implemented at as low a level in the organisation as
possible;
- measured on an appropriate scale (e.g. parts per million for
component defect rates); -objective rather than subjective.
- Strategic (See World Class Change
Management)
- based on strategic objectives, making general goals more
specific;
- a reflection of short and long term objectives,
- oriented towards objectives or business processes (relate to
internal customers) not department or functionally oriented,
- restricted to a few strategically important things.
- Dynamic
- used to stimulate improvement;
- independent of the financial accounting system to free it
from tradition, the existing way of doing things and legislation
(consideration of the hierarchy of performance measures should
ensure the financial implications are taken into account (see
note C));
- dynamic i.e. revisited at least annually as a part of
business planning to ensure that they reflect business priorities
(See note I).
- Communicated (See Culture
Development Methods)
- integrated into the management process and reward/punishment
systems (see note F);
- a reflection of the interests of all the stakeholders
involved;
- agreed, not imposed by management;
- communicated (prominently displayed at the work place and
explained to the workforce, including the Rationale behind it)
(See notes E & G);
- owned by someone (ensuring that they concentrate efforts on
improvement).
Factors to be aware of
Defining measures of performance in relation to business
processes and objectives will lead to conflicts within
functionally organised companies. For example the purchasing
function will support all business processes and will therefore
have conflicts about which process to give priority to. This can
only be solved by the setting and communication of clear
objectives.
MEASURES OF PERFORMANCE SHOULD NOT:
- encourage local optimums (NB inappropriate measures cause
people to follow inconsistent objectives);
- be costly to collect or implement, i.e. if the
improvement needed is obvious and expensive it should not
be measured, e.g. a new piece of capital equipment;
- be trivial or viewed as trivial;
- conflict with other measures without prioritising;
- produce misleading information;
- be short term;
- be within a standard framework of performance measures. A
Focused Improvement System should be unique to the
organisation or business unit being measured, reflecting
Critical Success Factors and business processes.
MEASURE OF PERFORMANCE DESIGN
For each measure of performance the following information
should he compiled and communicated to everyone who is affected
by the measure. (An example is given in note K):
- What is the measure?
- What is the objective of the measure?
- What is the required output from the measure?
- What is the required input?
- How is the measure calculated?
- Who owns the measure?
- Data collection information
- When
- How
- From where / Who
- Reporting information
- To whom
- Where
- How
- When
- Records
The measurement of performance within organisations should be
based on the priorities indicated below:
- The Financial Perspective
- Profitability and long term prosperity
- Customer Perspective
Based only on strategic, competitive needs
(Critical Success Factors) and the gap between these and the current status quo
(development needs) (See SQAIRPAD in Previous Best
Practice B013: Management)
Focused on the drivers of performance as
they relate to individuals in the organisation (See SCOPER / CARAP analysis in
Previous Techniques T007: CARAP
(Process effectiveness measurement) (Or why OEE / OME is for the birds) and will
certainly include:
- Development
- Operations
- Performance innovation and development of human resources
- Supplier performance and development
(For example see "World Class Manufacturing")
- A definition
World Class Manufacturers are those that demonstrate industry
best practice. To achieve this companies should attempt to be
best in the field at each of their competitive priorities (e.g. quality,
price, delivery speed, delivery reliability and flexibility etc.).
Organisations should therefore aim to maximise performance in
these areas in order to maximise competitiveness. However, as
resources are unlikely to allow improvement in all areas,
organisations should concentrate on maintaining performance in
'qualifying' factors and improving 'competitive edge' factors (as
defined in note A). The priorities will change over time and must
therefore be strategically and periodically reviewed.
Factors to be aware of
Though costs will still be monitored and controlled it must be
ensured that cost reduction does not remain the overriding
priority, as is often currently the case. Organisations should
give attention to all of the priorities as stated in the
definition of World Class Manufacturing.
The following considerations should be taken into account when
identifying measures of performance:
- Analysis to ensure that priority is given to measures
that are important to the organisation and in which
performance is poor. Pareto analysis should be used to
rank measures in terms of their effect (See 'Process
Quality Management' in 'A Guide to Benchmarking');
- Assessment of the benefits to be gained from improvement
of a variable against the cost of collecting data and
reporting its performance;
- If measures are too costly to collect, alternatives or
substitute measures should be sought;
- Assessment of the practical problems and implications of
collecting the required data;
- If a person has ownership of more than one measure their
priority should be made clear.
Factors to be aware of
A Focused Improvement system does not have to produce a
multitude of measures of performance. Too many measures:
- cause confusion;
- are costly and time consuming to collect;
- Assessment of the number of measures should be made in
terms of the number reported to each person. If a variety
of measures are used, management must reconcile any
conflicts between measures that might exist. Management
should summarise the effects of measures ensuring that
they support strategy in terms of quality, cost delivery
(speed and reliability) and flexibility. A top down
approach to the communication of objectives and hence the
setting of performance measures should assist this
process (see note C).
Measures should be categorised into 'active' and 'passive'
measures.
- Active measures will be those that relate to the Critical
Success Factors that require improvement. These will be
the relatively few key active measures of performance for
which targets are set and improvement efforts should be
concentrated.
- Passive measures of performance relate to areas where
improvement is not the highest priority, taking into
account all areas of activity. For these measures control
limits, within which performance is acceptable, should be
applied. If performance falls outside these control
limits these passive measures should become active and
improvement action plans implemented.
- Where active and passive measures are used everyone must
be aware that all improvement effort should be
concentrated on the active measures.
This guide clearly identifies how to implement a Focused
Improvement System. The resultant system moves organisations away
from traditional financial measures of performance towards
measures that relate more closely to the organisation's
operations and objectives. The resulting measures should provide
the information required to improve individual processes in line
with organisational objectives. The Focused Improvement system
will be a major stimulus for improvement provided that
challenging but realistic targets are set, action is taken on the
information provided and employees are motivated to improve.
NOTES / Appendices
Note A - Setting Strategic Objectives
Understand and interpret the mission statement
- Take the mission set at executive level, defining goals in
terms of market share and profitability (if none exists one must
be set).
- Interpret and translate the mission into the context of the
process or business unit.
- Define target markets and customers given the core
competencies of the process.
Define Critical Success Factors
Set a strategy to improve performance so that the critical
success factors are optimised.
- based on competitors' survey and customer requirements survey;
- in terms of quality, cost (price), delivery (speed and reliability) and flexibility;
- in terms of 'qualifying' and 'competitive edge' factors for the target market.
- For each target market there may be factors at which
organisations must excel in order to exist in the market, these
are 'qualifying' factors. For example in some industries
compliance to safety standards is a prerequisite.
- 'Competitive edge' factors are the dimensions of performance
that, if improved will improve customer satisfaction and sales.
These are the factors upon which improvement should be
concentrated.
Factors to he aware of
The mission and objectives should be set by senior management
and communicated throughout the organisation. This will ensure
that everyone in the organisation is working towards the same
organisational objectives.
Note B - Setting Measures (at company /
business unit level)
Performance measures constraints and performance factors
should be defined in terms of the strategy that the organisation
is trying to achieve and the key processes required to achieve
them.
It is also necessary to establish proactively and
independently the view of middle management. This should identify
what middle managers' view as being the key processes and what
they view as the important measures by which their performance
should be measured.
Any differences that occur must be reconciled through debate
between top and middle management. Differences may occur because
top management may not fully appreciate the complexities of the
process being measured whilst middle managers may not fully
appreciate the strategic objectives that are being followed.
Note C - The Context / Hierarchy of
Performance Measures
All measures of performance should fit within a framework that
identifies the context in which they are to be found. Thought
should he given to:
- The effects of manipulating variables on high level
performance;
- The significance of this effect;
- The positive or negative nature of the impact;
- Long or short term nature of the impact;
- Impact on other performance indicators;
- The drivers of performance for a given measure.
This facilitates:
- Reporting through a hierarchy;
- Allocation of ownership and accountability;
- Company wide common understanding of goals;
- Manipulation of variables;
- Identification of areas requiring improvement;
- Prioritisation of measures;
- Resolution of conflicts between measures;
- Understanding of the impact of measures on overall
performance and profitability;
- Strategic relevance of measures.
Factors to be aware of
Consideration should be given to conflicts and trade-offs between objectives
and measures of performance. Where trade-offs occur, reference to objectives
should provide the solution.
Note D - Data Collection
(Also see Previous Technique T004: Rules for
Data Collection)
- Data collection should be as simple as possible.
- Data collection and methods of calculating the
performance criterion must be clearly defined and
understood by those being measured.
- Data must be collected and reported quickly to ensure
relevance of the information.
- Check what information is currently being collected
within the organisation, ensuring use is made of relevant
information and that information that is not used is no
longer collected.
- Ensure that everyone understands what information is
available.
- Data accuracy should be checked. It must be accurate
otherwise it is pointless making measurements.
- Where possible, performance data should be collected by
those whose performance is being evaluated. This will
facilitate greater trust in the accuracy of the data.
Factors to be aware of
Data collection is expensive. The system should be reviewed
regularly to ensure that all the data being collected is being
used.
The old data collection system should be completely closed
down with measurement transferred to the new system to ensure
that all measurement is integrated. Current channels of
information and measures of performance should be accommodated
within the new Focused Improvement system where appropriate. Time
should be taken to pick the existing performance measures that
remain relevant. The scrapping of old Focused Improvement systems
can only he done when there is confidence in the new system. To
gain this there may be the need to run the new system in parallel
with the old one.
Note E - Communicating Goals
Communication and goal congruence will be one of the key
factors determining the success of the implementation of a
Focused Improvement System. This note provides a check list for
communicating goals. The managers of the process or business unit
should do the communication of goals not the team implementing
the Focused Improvement System.
Everyone in the organisation must know and understand:
- The mission statement;
- The company's strategic objectives;
- The key competitive priorities and critical success
factors;
- Tactical objectives;
- The operational objectives of the activity they undertake
or are responsible for;
- How all of these objectives and priorities relate to
their job;
- What they are being measured on and why;
- What makes good and poor performance.
To ensure goal congruence the organisation should survey
workers' perceptions of the objectives highlighted and take
action to close any gaps between actual and perceived objectives.
Common understanding of priorities throughout the organisation
will reduce the occurrence of trade-offs caused by:
- Conflicting competitive priorities;
- Incompatible performance measures;
- Conflicting functional objectives.
Where conflicts or trade-offs arise, the objectives should be
consulted to confirm priorities.
Communication should be honest and quick. Uncertainty is a
de-motivator
Care must be taken when communicating bad news. To accept the
bad news, employees must understand:
- the problem;
- the actions being taken;
- the benefits to the organisation;
- the effect on the individual.
Employees will only buy into the Focused Improvement System
if:
- they understand the purpose of Focused Improvement;
- they see the data being used for that purpose;
- they see some benefit from doing it;
- they do not see it as a threat;
- it is relatively easy to do.
Factors to be aware of
Employees at all levels of the organisation respond to their
perceived measures of performance regardless of what they are
actually measured on. When looking at the Focused Improvement
system, it is important to consider informal and unspoken
measures and measurement systems. (See "Culture Development
Methods")
Note F - Rewards and Punishment
The aim of a Focused Improvement System is to promote
improvement, therefore good performance should be recognised and
poor performance penalised. However reporting accuracy is
absolutely essential. If penalties for poor performance or
rewards for good performance are too great, it will encourage
inaccurate measurement, which will mean that there is no point
measuring at all. Monitoring of the accuracy of reporting and
data accuracy is required with severe penalties for abuse of the
measurement system. People will always be able to cheat. You must
try to stop them from doing it. To avoid cheating it is necessary
to communicate properly the objective of the measure as well as
the measure itself, whilst ensuring that measures are balanced.
For example people do not consider it to be in their best
interests to report scrap, as they will often be heavily punished
for the poor work that caused it. However not recording scrap
will result in inaccurate inventory records which will lead to
poor parts availability. This highlights the need to explain why
a measure is important and why data accuracy must be ensured.
Organisations should try to create a culture in which personal
incentives and fear for their job are not the only reasons why
individuals want to improve performance. If accurate data is to
be collected by those being measured, it is important to gain
their trust and convince them that the system is not going to be
a stick with which to beat them.
Factor to be aware of
- Cheating will be encouraged if rewards and punishments are too
excessive.
- Different people are motivated in different ways so reward and
punishment should be as geared to the individual as possible.
This may include such things as recognition and peer pressure not
just rewards and punishment.
Note G - Reporting and Action
- Data should be displayed in a clear and easily readable
manner.
- Graphs should be used as they quickly and easily identify
improving and deteriorating performance.
- Displaying performance measures 'publicly' can often
motivate people to improve out of shame and peer
pressure.
- Information should be available for constant review when
required.
- In general, measures of performance should be averaged
out to give overall trends. Random abnormal measures
should be disregarded.
- Reporting should include information on the occurrences
of problems and their effects, as well as hard 'cause and
effect information', showing the actual causes of
problems, to facilitate action.
- Performance measures should complement regular
performance review meetings, focusing attention on areas
of improving and deteriorating performance i.e. a control
system.
- Reporting should be monitored to ensure that it is timely
and directed to the right place.
Factors to be aware of
- If you measure something, it implies that it is important
and should be improved, so reporting of measures should
be limited to the key 'active' measures. This will also
reduce the time and cost of calculation. However
periodically critical success factors and hence the
active measures will change. In this instance it will be
desirable to have historical data for comparison.
- The reporting of new measures, even passive ones, will
highlight to workers where improvement can be made and
can lead to improvements with little effort.
- Measures of performance must influence people's behaviour
or there is no point measuring.
Note H - Empowerment
Empowerment moves decision-making down the organisation:
- improving flexibility and responsiveness,
- freeing management to consider more strategic issues;
- allowing more performance measures to be used without
giving managers 'indigestion' and "paralysis through analysis" (This
will be the subject of a future article);
- motivating employees, as they will often feel they are making a greater
contribution.
To empower employees you must:
- give them the tools to make decisions (education and
training);
- define what they are going to be accountable for;
- give workers the authority to act on the measures;
- take action to motivate for improvement;
- encourage managers to delegate responsibility;
- encourage workers to question all variances and look for
solutions;
- encourage workers to identify their own measures that
reflect changing activities and environment.
Factors to be aware of
Employees must understand what they are empowered to do.
Authority and responsibility for improvement will he given in
relation to the processes they are responsible for. Empowerment
must be controlled to prevent interfering with other processes.
(See "Culture Development Methods")
Note I - System Review
Every time the Critical Success Factors are reviewed, so should
the Focused Improvement System. This should consider:
- continuing relevance of measures;
- whether a measure continues to be a valid measure of the
performance of the group or individuals being measured;
- adoption of new measures that relate to changing
environment, processes and conditions;
- continued goal congruence throughout the organisation;
- compatibility of performance measures used in all
functional areas;
- accuracy of data collection;
- target achievement;
- how challenging and achievable targets are;
- whether too much data is being collected and reported;
- whether all the information collected is being used;
- review of the active and passive to ensure that they are
still in the same category;
- whether measures have been institutionalised into the
reward and punishment system;
- whether all performance measures are being used not just
ignored;
- whether action is being taken on the results.
Factors to be aware of
Flavours of the month must be avoided. Once set measures
should be allowed to settle and give useful information before
being changed.
Note J - Identification of Opportunities and
Target Setting
- Benchmarking. (Also see the Introduction
to benchmarking.)
- Current Tasks. Performance measurement and improvement
should always begin with a review of all current
operations and processes to establish the following:
- Is it necessary?
- How does it support the company's strategy?
- Is the specification of the output too high or low?
- Is the output what the customer (internal or external)
wants?
- Is there another way of accomplishing the same result?
This should include flow charting to ensure the process is
logical:
- Industry Standards
- Engineered Standards
- Work Simulation identifies the performance that is
possible from a process if ideal circumstances (such as
inputs and facilities) are employed.
- Time Usage Surveys identify how time is spent or wasted
allowing comparison with how it should be spent.
- Comparative Analysis (or Internal Benchmarking)
- Do It Yourself. A good way for managers or supervisors to
gain an understanding of what it takes to do a task is to
do it themselves.
- Historical Analysis.
- Waste Analysis.
- Operations Variance Analysis looks at faults within the
system that prevent a task from being completed as well
as was intended, looking at deviations from normal
conditions.
The "Half-Life" concept suggests that the rate of improvement of
many variables can be expressed in terms of the time it takes to
halve the problem. (This will be the subject of a
future article)
It is important that the targets set are challenging to
stimulate performance but are deemed as achievable. None of the
above techniques should be used exclusively as each may have a
greater benefit in a certain area of the organisation.
Targets should be constantly reviewed to ensure that they are:
- still challenging (but attainable) (Unattainable targets are
de-motivating. It is better to study the trend on a graph rather than impose
an impossible target.)
- and have not been achieved. (In which case focus on something else and
make this measure passive.)
Note K - An Example of Measure of
Performance Design
The following example highlights the information that should
be identified and displayed when implementing a performance
measure. The example given is for customer complaints
What is the measure?
"Complaint level"
What is the objective of the measure?
Improve quality of service
What is the required output from the measure'?
% complaints to in relation to total service requests
How is the measure calculated?
Number of complaints per week
divided by
Total service requests in the same period
(Bearing in mind that their may be a delay between request and complaint.)
What are the required inputs?
- Number of complaints from help desk log
- Total service requests from sales report by week
Who owns the measure'?
Operations team leader
Data collection
When Monday 8.00am
How
On to standard forms
From where:
- Help desk records (complaints)
- Service request report (service requests)
Reporting (Reported at 2 levels)
| |
Team level |
Executive (next) level |
|
To whom |
Operations team leader |
Operations manager |
|
Where |
Operations work area |
Monthly executive meeting |
|
How |
White board |
Monthly report |
|
When |
Monday 9.00 am update |
Monthly for executive meeting |
|
Records |
File data collection forms |
File monthly reports |
__________________________________________________
The above paper was produced as a part of the 4-year UK EPSRC
funded research project into Performance Measurement &
Benchmarking of manufacturing control systems in conjunction with
UMIST.
Adapted from original research work by:
- Amanda Davies - UMIST (Previously of Avro International Aerospace)
- Mike Kennerley - UMIST (now of Cambridge University England)
- Professor AK Kochhar - UMIST (now of Aston University England)
- Mike Thacker - SM Thacker & Associates
- Professor Keith Oldham - Previously of Lucas advanced Engineering Centre
& Coventry University England
- Steve Oliver - Avro International Aerospace
|
