Jack Hoey & Associates

Part 2: Performance Measurement is Powerful – For Better or For Worse

To read Part 1, see below.

 

I showed the supervisor the capacity analysis I had brought with me.  I explained to him how crucial to the plant’s overall performance was every hour of production in his department.  I pointed out that if we assigned additional machinists to assure the machines didn’t stop during breaks, it would help the plant’s output significantly.

He looked at me like I was the dumbest thing he’d seen in a long time.  Then he showed me his numbers.  His performance as a supervisor was based on his department’s labor utilization.  This is calculated by dividing the number of hours that his machinists were actually making parts on machines divided by the number of hours that they were paid for.

I was absolutely right:  Every additional hour on those machines would have benefited the plant no matter how much they cost. 

But he was right too.  If he had done the far-sighted thing for the good of the company, his labor utilization would have dropped, and his manager would have been down on him like a literature professor on a vampire novel. 

This supervisor was being measured solely on his department’s efficiency.  In this case, his efforts to achieve maximum efficiency, as defined by the way his performance was measured, actually led to lower output for the plant as a whole. 

This highlights the key challenge with bottom-up measurement systems.  It is very difficult to assure that a series of grass-roots measures lead to the best overall result.  There are almost always unintended and unanticipated side-effects.  In some cases, they can actually motivate managers to work against the company’s overall mission.

Performance Measurement is Powerful – For Better or For Worse

Here’s a fact of managerial life I’ve learned from experience:  When managers measure results from an activity or process, the results almost always improve.

I realize that’s not an original insight.  In fact, it’s one of the oldest truisms in management theory.

 

But there’s a follow-on question that’s a little more difficult:  If measurement is such a powerful tool for improving results, why aren’t results always improving?

 

There are two basic approaches to measuring performance.  Some managers prefer a bottom-up approach, seeking to focus on processes at the lowest possible level.  When more information is provided to front-line employees on the shop floor or in the customer service team, those employees are able to make better decisions.

 

But it’s not uncommon to see uniformly good performance indicated by these process measures within a company that is not succeeding.  One reason this happens is that the measures are poorly designed.

 

Some years ago I was studying a large manufacturing plant that was struggling to keep up with demand.  It produced incredibly complex machine tools with many component parts.  Due to exacting specifications, many of these components were produced in-house.  The plant housed the largest machining operation I’d ever seen.

 

Working with the plant’s industrial engineers to understand where production bottlenecks were occurring, I saw that, by most indicators, production capacity was adequate.  Only a few machining centers seemed to be overloaded.

 

I went to visit the supervisor of one of the overloaded machining centers at lunchtime so I could gain his perspective.  When I got there, I was shocked to see the machines sitting idle.