Automate Everything, Except Compensation

Submitted by Dmitri Davydov on Thu, 2014-11-06 20:12.


As the saying goes ‘what gets measured gets improved’. So why are so few companies (outside sales, perhaps) measuring performance?

Companies do measure many things. I often say that for some data hungry companies “If it moves, they measure it!” But what they are typically measuring daily operational processes and their outputs. That is fine to do, but your question is about “performance measures” often referred to as key performance indicators (KPIs). There is less measurement of KPIs especially when one defines the purpose of KPIs as “to monitor the progress of accomplishing the causally related strategic objectives of the executive team’s strategy. These are ideally displayed in a strategy map with its companion feedback mechanism, a balanced scorecard. Obstacles that slow the adoption of reporting these measures are the absence of creating a strategy map and its scorecard and managers’ fear of being held accountable and measured. You can read more about this from this chapter from one of my books at:

http://www.garycokins.com/images/pdfs/Cokins%20JCAF%20Promise%20Perils%20of%20Balanced%20Scorecard.pdf


What are the most common mistakes do you see when companies choose their KPIs?

One common mistake is to place excessive emphasis on the financial outcome measures. They are a consequence of customer-centric and end-to-end processes which require non-financial KPIs. Another common mistake is to not initially derive the KPIs from a strategy map. KPIs should be tailored to the executive team’s strategy. Another common mistake is to neglect project-based KPIs intended to measure a project’s percentage of completion or its milestones. Strategy is about changes and not simply about getting better with its processes. Projects and initiatives are the source for making changes.


Which business processes that people view as difficult/impossible to automate are, given your experience, actually absolutely doable with the right approach?

One business process that deserves to be automated is the annual budgeting process. It is typically produced in a bottom up way of consolidating manager’s cost center spreadsheets. A superior method is top down accomplished with modeling. It begins with forecasts of the independent variables such as unit level sales demand, purchased material prices, and labor rates. When the costs from past period expenses (e.g., salaries, supplies, energy) are calculated through modeling to report product, service-line, channel, and customer (typically using activity-based costing principles), then the unit level consumption rates are derived. This allows for resource capacity planning for headcount and spending which can be monetized. Since most budgets are often obsolete a few months after the fiscal year begins, then rolling financial forecasts take over. With top down modeling based on forecasts, then the automation facilitates calculating the rolling financial forecast. Another process which can be automated involves business decision rules to generate higher profits from existing customers. Examples are rules based on business analysts’ research for the optimal amounts related to deals, offers, and price discounts.


What business processes in your view should not be automated or standardized? I.e. when it makes more damage than good.

Almost all processes are candidates for automation, but if I had to sel ect one that should remain as manual it would be wage and salary compensation incentives. Although many managers prefer to have a Newtonian style (i.e., the world is a big machine so all I need are levers, pulleys, and dials) when it comes to motivational theory, they also need a Darwinian style. That is, human nature applies requiring a sense and respond judgment.


How does an organization create and instill ‘continuous improvement’ mindset among managers and employees? It’s fairly common for companies to introduce KPIs, start measuring, get a quick boost in performance the then stop improving (‘mission accomplished’).

Related to my prior answer “continuous improvement” involves motivational theory. Part of this comes from financial and non-financial incentives, rewards, and positive feedback recognition. Another factor comes from leadership that creates a culture for discovery, investigation, and tolerance for errors to learn from one’s mistakes. Today the best leaders are no longer the ones who succeeded by having the best answers based on their experience and intuition. There is too much volatility and complexity. The best leaders ask the best questions to seek answers from their workforce.


If someone wants to read about different methods and techniques for automating business processes, improving performance, standardizing operation and related subjects – which online resources do you recommend?


Of course it would be self-serving to point them to the last page of my website with free downloadable articles. It is at:


Since I serve as the part time Executive in Residence for the Institute of Management Accountants, I would point your readers to its website at www.imanet.org . Other sources are professional societies that I belong to such as The Institute of Operations Research and Management Science (www.informs.org) and the Association for Operations Management (www.apics.org) . A thought leader I follow on decision making is James Taylor whose website is at www.decisionmanagementsolutions.com .

About Gary Cokins, CPIM
([email protected]; phone 919 720 271)
http://www.garycokins.com

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com . He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). Fr om 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books arePerformance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

Linkedin.com contact:
http://www.linkedin.com/pub/gary-cokins/0/15a/949

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