When I consider the labour components (direct, indirect, and SG&A) of our financial statement, I am always reminded how important it is to surround yourself with the best and most talented people. It is not unreasonable to establish goals and objectives for each employee where measurable results require the same high degree of accountability and integrity as any other metric.

Perhaps a topic for another post.

btw- the financial connection is also the reason why HR always seems disconnected from the more integrated performance management/ measurement process (even though they are responsible for what may be the cornerstone of it all in the appraisal cycle.)

Lots of fodder to work with here. Look forward to the continued dialogue.
b

I recall working with a manufacturing company where a handful of metrics were used that touched all major facets of the business. All were tied to clearly established and defined financial performance measures on the balance sheet.

Monthly reviews were rigorous and intense. Variances were reviewed and explanations were required for both positive and negative trends. Accountability and integrity were at the core of the review process.

It was clear, at least for this particular organization, that successes must be understood as well as the failures – we can learn from both. How can we repeat our successes and show others in another division? What failed and how can we prevent it from occuring in another division?

Sustainability, also a major topic of discussion in today’s times, was the second component of the monthly review. In short, trend analysis was performed where the goal was to achieve month over month improvements and, at a minimum, sustainable performance over time was expected.

So, this brings me to what I find is one of the greatest disconnects – a failure to link operations metrics to financial metrics. Theoretical savings and improvements that have zero impact on the bottom line are sure signs of concern. We save “X” hours of set up and reduce cycle times by “Y”, yet we haven’t sold the open capacity and continue to work as many hours.

Business plans and department budgets are based on specific operational performance expectations. Unfortunately, these expectations are often poorly defined or lack the level of detail that permits effective management in the form of metrics at the process level.

We measure various product characteristics and attributes in production to ensure that parts will fit or function as intended by the customer. If only we could make similar links between performance measurements and financial expections of our stakeholders.

An excellent topic that is sure to spawn much more discussion in the boardroom.