The Pulse of a Company
Every organization’s scoreboard should include at least these six items to help evaluate performance.
Executive Director, Center for Manufacturing Systems, New Jersey Institute of Technology
In previous columns, I have advocated the use of scoreboards to track and evaluate
a company’s performance. A scoreboard shows, at a glance, what is going on within the company and effectively conveys its pulse at a particular point in time. What should be contained in a scoreboard will vary from company to company and depends on the things deemed to be most critical to an individual company’s operation. However, there are certain things that should probably appear on every company’s scoreboard, and a section should be dedicated to each of these:
Section 1 – Financial numbers. Everyone knows that “the numbers” really do count and serve as key performance indicators for any organization. This section of the scoreboard should reflect revenue, some representation of earnings (profit; earnings before interest, taxes, depreciation, amortization; etc.), accounts receivable (in both dollars and days outstanding), inventory (in both value and days of demand) and possibly revenue per employee (if this is meaningful to the organization). Each of these numbers should have a goal (or budget) which is compared with results for a given period.
These financial numbers present the clearest picture of how the company is performing, and they are critical inputs to decisions made by leadership.
Section 2 – Commitments we make to our customers. Every company must satisfy customers if it expects to stay in business. Customer satisfaction is based largely on the commitments we make and keep. These commitments should appear in a section on the scoreboard, therefore, as they directly reflect the company’s core values, beliefs and purpose. Ultimately, these commitments will establish ground rules for dealing with our customers.
Section 3 – How we measure our performance on these commitments. A company needs key performance indicators (KPIs) for each of its commitments. The KPIs are developed specifically for the type of commitments made, such as timeliness of deliveries, promised lead times versus requested lead times, quote turnaround time, quote acceptance rate, and percent of repeat orders. The chosen KPIs should appear on the scoreboard and period-to-period trends should be closely monitored. Positive trends should be rewarded when possible, while negative trends should generate corrective actions that strive to build (or rebuild) credibility with customers.
Section 4 – Company plans and priorities. Overall company plans need to be established with two things in mind – they must be important to customers and they must make the company better. Plans need to be prioritized, because no company has the time nor the resources to do everything it would like to do. Prioritizing is essential to assuring that the most important things get done first.
Once they are prioritized, plans should be assigned annual, quarterly and possibly even monthly targets. For example, if the annual priority is to reduce lead time by 20 percent, the first quarter target should be a reduction of 5 percent, with a further 5 percent reduction in each subsequent quarter. Likewise, if the annual plan is to add 10 new customers, it would be reasonable to make quarterly targets of two to three new customers. Quarterly targets help break complex plans into manageable bites.
Section 5 – Management plans and priorities. Once company plans and priorities are established, area managers must develop individual plans and priorities that align with those overall company plans. This top-down method of planning provides clarity to the entire company and assures that area managers are on the same page in terms of developing plans and setting priorities for their departments.
Section 6 – Means of tracking progress on plans. Plans are great, but it is the execution of those plans that really matters. A plan that is not reviewed is one that is likely to fail, so the scoreboard must be used to track the progress of both company and departmental plans.
A simple, visual mechanism should be used for this purpose. For example, a green marking of some kind is generally recognized as a positive (successful, completed, on-track), while a red marking is almost universally recognized as a negative (not successful, behind schedule, problems encountered). A third color, perhaps yellow, can be used to indicate an “in-between” status that has the possibility of advancing to a positive green or falling to a negative red. Symbols can also serve as visual indicators, such as arrows facing up to indicate positive results or down to indicate negative results.
Regardless of the indicators chosen, the important thing is to utilize the scoreboard to track the status of plans on a regular basis.
Think of some other things that should appear on your company’s scoreboard. Combined with the sections outlined above, they will prove most valuable in helping to keep everyone’s finger on the pulse of the company.