Live from NCOF: The 12 Commandments of Performance Management

Orlando, FL—There’s nary a “thou shalt” among the 12 commandments of performance management put forth by Kate Vitasek, managing partner of Supply Chain Visions. But her Monday morning session on the topic did provide attendees with a number of actionable tips.

Commandment no. 1, according to Vitasek, is “focus: know your goals and priorities.” She cited former GE honcho Jack Welch as a master of clearly identifying and articulating corporate goals. In the case of GE, it was to ensure that the company held the number one or two position in every business and market it was involved in–or else it would get out of that particular business.

Commandment no. 2: “Balance–check the overall health of your organization.” Too many businesses, Vitasek said, emphasize the financial measures while overlooking key performance indicators and “employee health,” or satisfaction. She recommended use of the Balanced Scorecard Framework created by Robert Kaplan and David Norton, which looks at finances (“what level of performance or return is required?”), operational excellence, people (“to achieve our vision, how will we sustain our ability to change or improve?”), and customers (“to achieve our vision, how should we appeal to our customers?”).

“Beware: Know the point of your measures” is commandment no. 3. This involves differentiating between the two types of metrics. Process metrics measure what and where to fix; results metrics gauge “why the fix matters and what benefit the customer will obtain.” You want to sell with results metrics but drive change through process metrics. For instance, a 99% fill rate is all well and good—but that doesn’t mean that those filled orders were filled correctly or received on time. To adapt that metric to a more meaningful process metric requires incorporating the benchmark into a measurement of the order fulfillment process overall and all the elements within the perfect order metric.

Vitasek even supplied an equation for what she called the Perfect Order Index (POI): % on-time delivery x % complete orders x % damage-free order x % accurate invoicing = POI

Commandment no. 4 is self-explanatory: “Involve: Get employees engaged.”

Commandment no. 5: “Apply–Be ‘believers’ not just ‘collectors’ or ‘posters’ of metrics.” Vitasek said this is where Valuating the Value Add (VVA) comes in: establishing department metrics that support the corporate objectives; link accountability to achieve goals to where the work gets done; and create an environment where employees use their metrics to improve the business.

Commandment no. 6: “Anticipate–use your metrics as headlights.” This requires knowing what are leading indicators (such as performance drivers) vs. lagging indicators (outcomes, such as financial results and employee turnover).

Commandment no. 7 is “integrate: layer your metrics like an onion.” The POI is an example of layering and integrating metrics.

“Listen to the customer” is commandment no. 8. “Often there is a perception gap between what you measure and what your customer measures,” Vitasek said. For instance, your distribution center may measure on-time performance by how quickly items shipped once the order was received. But your customers are more likely to measure it by how quickly the order landed on their doorstep after they placed the order. The DC may have shipped the order with 24 hours, but a delay due to the parcel carrier could have resulted in what the customer considered a “late” delivery.

Commandment no. 9 is “benchmark. But again, be certain that what you benchmark is relevant and actionable. “The data is interesting,” Vitasek said. “It’s nice to know how high the pole vaulter jumped. But if I want to beat him I need to know how the vaulter can jump so high. Is it because he has a new pole? A new trainer?”

Commandment no. 10: “Be flexible. There’s no holy grail of metrics.”

Commandment no. 11: “Practice. Crawl before you walk.”

And the final commandment: “Lead.”