KPIs and KRAs - 2

It has just been confirmed that one of the KRA's is the reduction of street crime by 20% by 2011.

Let's see how we can define the KRA - "To reduce street crime by 20% by 2011".
(a) 2011 is very clear, it will mean either 1st Jan 2011 or 31st Dec 2011. Either way, it is fine.
(b) To reduce street crime - doesn't sound like it is related to solving cases. So it probably means to prevent cases (which is the right thing to do in the first place). So we'll take it that it means that we intend to "prevent cases of street crime" (in quotes for a good reason that we'll discuss later).
(c) 20% a good number, but what is based on? Current rates for 2008(since 2009 rates are not available yet) or 2009 rates (forecast)? Either way seems ok too. At least it is a quantifiable number.

While (a) and (c) may not be too clear, at least it can be definitely easily. So we need to clarify (b) "reduce street crime". This can be achieve in a few ways:
(i) More passive policing - more patrols and police kiosks (which will be difficult given the limited budget and personnel)
(ii) More aggressive policing - checks on people loitering around with motorcycles (are we punishing the innocent 98% in the effort to find the 2%)?
(iii) Reduce possible victims - discourage people from being possible victims (do not go out at night, stay indoors as much as possible.)
(iv) Reduce reports - discourage reports of crime (tell the victim that it takes 3 days to complete the report, and a series of appearances in the station or courts if a culprit is caught)

My guess is that (iv) is the easiest (and possibly the preferred) manner to meet the "reduction in street crime by 20%" KRA. Isn't is easier to reduce the reports by 20%, rather than to prevent 20% of the crimes? Slowly and surely, we'll have zero street crimes because none of it will be reported. And that is very bad. So how should it be done?

To have this KRA implemented effectively, the police must create a new department that is in charge of taking reports. This new department's KRA are the number of crimes reported and the feedback from the people reporting on their professionalism, knowledge, manners, and helpfulness in handling a report. This new department should report directly to the CEO equivalent of the police and behave like a proper support or customer-care department. Why you may ask?

If you buy something (goods or services) and it didn't work, you would call the support/complaints/customer-care department. Isn't it?

Well, the police is the suppliers we (as tax-payers) pay to provide something called "security". And if this security works well, no one will be robbed/etc.

And if it didn't work well, I'll want to report it so that it can be rectified (crime to be solved). So isn't the department that accepts reports from victims very similar to the support/customer-care department?

Let's call them the custcare team and their KRA is to be helpful and polite, and the more reports they take, the better they look. Cool.

Then there should be a preventive policing department - They are the engineering team in the commercial world. Their objective is to make sure their (security) services are delivered well and no failures(crime) are reported. This team is to try and prevent crime, so the more effective they are, the less custcare will be needed.

And there is already the investigative team (repair and maintenance), that fixes the faulty items (crimes). They are measured on number of cases solved.

And the last team, prosecution. This does not really exists in the commercial sector (unless you count the CFO or COO who is jumping and screaming when there are too many cases of "goods returned" or customer complaints). This again should be a separate department who is measured by number of cases given to them and number of cases successfully prosecuted

hmmm... maybe we can learn something from the appliance makers. They believe that if their design, engineering and manufacturing is done well, there is little need for customer-care and repairs.

If engineering (preventive policing) team works well, then there is less crime reported. So less people needed in both cust-care(reports), repair(investigative) teams and prosecution teams.

People behave according to how they are measured. Be careful what you measure.

KPIs and KRAs

Seems that there is a belief that KPIs (Key Performance Indices) and KRAs (Key Result Areas) are going to improve the government's effectiveness.

Just wanted to state my naive and simplistic views.

Measures are great, as long as we are measuring the right things in a timely manner. And that there are follow-up actions after the measuring.

My (simplistic) view is that there are at least 3 steps needed in order to be effective and (at least) the latter 2 steps will be very challenging for the government.

Step 1 - Measure. People behave according to how they are measured. Organisations cannot "behave". It is the cumulative effect of the individuals' behavior that shapes the organisation. So we measure the KPIs/KRAs. Why are we measuring?What do we do with the measures?

Step 2 - Adjust. The purpose of measures is primarily to provide feedback so that adjustments can be made. And feedback is only useful if received in a timely manner so that adjustments can be made. Imagine a child receiving his Standard One Grades only when he arrives in Form One. Or that your throttle (accelerator) in the car responds 10 seconds after you began stepping on it. (For that matter, annual staff reviews suffer from the same problems.) What then do we do with people who adjust correctly , wrongly, or does not adjust at all.

3. Reward, retrain or replace - If the feedback mechanism is good and timely, then the person can adjust. (An organisation cannot adjust itself. It is the individuals that have to adjust, and the effect of these adjustments is then reflected as the organisation effectiveness). If the person does not adjust (ignorance?), or makes it worse (incompetence?), then action must be taken to retrain, or replace the person responsible. And the higher ranking individual who appointed this incompetent or ignorant person should shoulder part of this responsibility. Again action must be taken to reward, retrain or replace.

Unless the second and third steps are taken, we will merely have a nice feeling that we have measured.

Of course, the effectiveness of these steps are based on the assumption that the measures are proper in the first place. e.g. If a KPI for the police is crimes reported, measuring it may induce policemen to discourage victims from reporting a crime.

[Digress: To make this KPI work, another department under a different boss (not related to investigations and crime solving) should take the report.]

What I would also like to see is how the KPI/KRAs at the Ministers' level translate into the the KPI/KRA at the lowest ranking persons' levels. For often, it is these supposedly "lower ranking" people that make or break the organisation's effectiveness.

If a Fast Food Chain wants to measure (and increase) Revenue, it has to measure sales per store (KPI for store manager?), which has to be translated into a measurement of the number of completed transactions per hour at the counter well as time taken to complete an order for each staff (KPI for counter staff?).

And then, of course, is the challenging whether there is enough political will to change, where necessary, the people involved.

Cheers,

Growth Measurements Management (Part 2)

When there is an economic recession, corporations often react by retrenching staff. This is done because of the common sense that says that:

* we must remain profitable ALL the time.

* when times are bad (because growth is negative) we must cut the costs in order to remain profitable

* a big portion of the running costs of a business are the people

* therefore cutting the people will make the business profitable again.

Brilliant logic? Perhaps.

In Part 1 we discussed - Is it reasonable to grow all the time? How do some do it? Why do others (most) fail?

Welcome to Part 2 - What do companies do to injure themselves further when growth slows? When is cutting costs bad?

1. Let's first clearly define the how management is often measured primarily. Financials. Firstly, that means 2 things, the top line (revenue) and the bottom line (profit). And profit is a result of revenues minus costs. Nothing you can do that can directly affect profit. You can only act on Revenues or Costs. Ok. Cleared. Secondly, if we cannot grow profits, we must at least grow revenues, or vice versa. Directors may accept stagnant profits with growing revenues, and may also accept growing profits with stagnant revenues. Directors will jump if you have decreasing revenues and decreasing profits (which seems to be a logical cause-and-effect, but it is not acceptable by the directors). So managers must now grow both if possible, or at least either profits or revenues.

2. Now another factor comes into play, when times are good, the sales team calls all shots, because revenue generators are king. Because if you can have 30% growth in revenues, many, many other things can be ignored. But when times are bad, sales (both the numbers and the team) are down and everyone looks at the other factor. When revenue growth is slow (or negative), managers want to maintain profit growth and the other factor that affects profit is now under the microscope - Costs.

So when growth (sales or profits) slows, we look at cutting costs to remain profitable. It seems so logical. If sales is growing less, the profits growth will drop. Therefore, to maintain profits growth, we must reduce costs because Revenues minus Costs = Profits. Yes and No. Depends. Let's proceed and see how we typically cut costs.

3. What are the expenses that we can cut? There are expenses directly related to production (raw materials, electricity, machine maintenance, production workers, etc), indirectly related to production (personnel from purchasing, warehouse, delivery, billing, etc) and overheads (rental, office personnel, management, executive benefits such as cars, directors fees, etc). To make costs cutting effective, why is it that corporations do not cut the same percentage from each of the 3 groups? Change the grouping as you see fit, but doesn't it make sense to cut fairly across? Doesnt matter whether it is in terms of percentage, absolute dollars and/or headcount, just cut across in equal terms. But no. We don't. We almost always start with production.

4. Why do we normally start with production workers? Cutting costs, of course, has a direct impact on the profits immediately. Often the production workers are the first being cut. Why? Well, if we are going to produce less (because of reduced demand), then we need less production workers. So cut them first. Question is, are we cutting in the right places? This is perhaps a very important question that is unfortunately answered by the office people, the managers and the accountants. And guess who are the ones seldom affected by a reduction in personnel. These people who are deciding where to cut, will NEVER (at least I have never heard of it) propose to cut their own jobs, cut jobs that will threaten their own, or cut jobs which after cutting will make theirs more difficult. Wonder why? Now we should also look at the personnel expenses of managment, office workers, production workers are see how the money is distributed (40:30:30 respectively perhaps?). Perhaps we could save more by cutting off some of the management?

5. Let's talk a logical walk. If we are not growing (which means we are merely producing what we were producing and therefore have already proven the capability to produce and deliver), or if we are, in fact, shrinking, then we have extra capacity (which means we can be a bit less efficient and less effective), then we dont really need most of the managers involved in "development" related work and half of all managers in other areas. Supervisors are sufficient. No need for most managers. But they are not cut?

6. When production people are cut, we lower production ability. We also reduced some expenses and yet kept many other expenses running at the same rate. How much does a manufacturing company save when production workers are cut? All other expense remain the same - rental, management, drivers, installment on machines, vehicles, other assets, aircon, phone-lines, etc. You get the idea. If we look at the costs factors of a manufacturer, it may look something like this, top mgmt 10%, mgmt 10%, office workers 10%, property, property mgmt and utilities 10%, machines 10%, sales, warehouse and transport 10%, raw materials 20%, supervisors 10% and production workers 10%. If production workers salaries represent 10% of a manufacturer's costs, they would have cut a total of 5% of the costs if they cut 50% of the production workers. But when 50% of the production workers are cut, half the machines cannot be used, half the supervisors have no one to supervise, half the sales people have nothing to sell, and half the delivery team is free, etc. Yet, we cut the production workers first. What if we cut half of management first? Ability to sell, produce and deliver remains the same.

Before you jump at me for proposing and supporting a cut to managers and workers, let me clearly state that I am against retrenchment. And it can be done if only managers were managing better and measured more effectively than the current practice.

7. Now that we know what not to do, what should the company do then? Pay the staff even when there is no work? The answer - Yes. So that they can experiment, learn and innovate. This is the time for training, for quality circles, for whatever new-management-fad to be tested. Did we mentioned that the only way for a company to continuously grow is by being innovative (See Part 1)? How can we be innovative when everyone is busy doing operations work? Implement a 4 day work week, offer the 1 of the working days for innovation experiments. Reward those that bring about improvements, and let the others continue doing their previous jobs. When the economy recovers, this improved team is better than your competitor (who retrenched his workers and is now busy hiring his ex-workers).You have not only an improved team that can outperform others, but a team that has higher morale, remembers that they were given a chance, and with loyalty to you who took care of them through bad times.

If we accept that innovation is a must for sustainable growth, and if we accept that a recession may be a good time to test out innovative ideas, isn't a great time now?

If this is so obvious, why are we not doing it? Why is it that some companies have a reputation for being innovative and not in others?

In Part 3, we attempt to look at this question.

Growth, measurements and management (Part 1)

Whenever there is an economic recession (technical or otherwise), corporations often react by retrenching staff. This is done because of the common sense that says that:* we must remain profitable ALL the time. * when times are bad (because growth is negative) we must cut the costs in order to remain profitable* a big portion of the running costs of a business are the people* therefore cutting the people will make the business profitable again.

Brilliant logic? Perhaps.

Part 1 - Is it reasonable to grow all the time? How do some do it? Why do others (most) fail?

We should perhaps ask a few questions:

1. Is it reasonable to be growing every quarter? Growing every quarter means we must produce and sell more each and every quarter. It also means that the consumers must be buying more in this quarter than in the previous quarter, and even more in the next quarter. Is this reasonable? I mean, how much more food can one take every quarter? and can you eat more in the next quarter? Can you buy another TV next quarter?

2. To expect growth must imply a prediction that MORE people will buy your products this quarter than last quarter. The reason is (single reason, not grammatical error) that there are many people who will buy the products because they dont have it yet (or is replacing a product that is neither car, or a property such as a house), AND they will choose your products over a competitors' offering. Logically, the two conditions must be true for growth to happen. Logically, we can see why it may be a little bit unreasonable to expect the conditions to remain true for an extended period of time.

3. If it is not reasonable to be growing in sales volume, is it reasonable to be growing in profits all the time? To grow in profits without increasing volume, means you must either increase the selling price or reduce the costs. There is no limit to increasing prices, except that after a point, people stop buying. On the other hand, there is a limit to how much costs you can cut. (Zero is the theorectical limit, but is not realistic in real life). So can we expect the same quantities to be sold while we continuously increase the prices quarter after quarter? Or is it reasonable to expect that we can cut costs every quarter and yet produce the same quantities at the same quality?

4. If it is unreasonable to expect growth for extended periods, how do some remarkable companies show continuous growth for the past 10 (or 20) years? New products, new markets and new innovations! Expect sales growth when there is a growing market demand. Expect it to slow when everyone and his dog already owns sufficient units of your product. Expect profits to grow as you learn how to better make the product, either by being better (and therefore cheaper) at it or by making a better product (and therefore charging more for the product). So it is possible only if we become innovative by either supplying to new markets, or creating new (including variant) products, or finding a better way to make the product.

5. To satisfy point 4, we must now depend not merely on quicker machines, or cheaper materials. Realistically, we depend on (I know this is often said, but I mean it here) people. Only humans (specifically the employees on the floor) can help in innovation. These are the companies that continuously report growth (in quantity, real profits or both) for extended periods.

6. So why do some of them (and many other non-innovative companies) stop growing? before we answer this, we have to look at what companies do when growth slows (still growing, but slower).

See next article.