Organizations often struggle to successfully implement annual goals that are both useful and meaningful to everyone. Frequently, a company might attempt to create a banner that says something like “2 Million Widgets 20XX” or “Zero Defects,” which employees walk by daily. If you inquire about whether or not an organization is approaching those goals, it is rare for an employee to provide an answer. Therefore, this article strives to develop a high-level framework that can provide a starting point for any organization to establish and implement goals that everyone will understand.
There are, at minimum, four activities that all businesses are accountable for:
- Cost- This includes both sales and manufacturing GP and net profit, although an organization may choose to define sales as a separate entity.
- Quality- Quality refers to an organization’s “conformance to customer requirements.” In other words, the total amount of returns, reworks, refunds, etc. that an organization received (‘customer’ can also be defined as an internal next process).
- Service- A company’s ‘service’ concerns whether or not an organization is meeting the customer’s expectation for delivering on time (‘customer’ can once again be defined as an internal next process as well as an external customer)
- Safety- Safety can be established as the number of recordables, close calls, etc.
An organization knows how these metrics performed based on the previous year’s measurements. This comparison provides an essential guide for improvement in the upcoming year, which can be broken down into six steps:
STEP 1: Begin the new year by starting at the end. What does the company hope to accomplish by the end of the year? Moreover, it is also crucial to consider the previous year’s achievements. For example, if a company’s revenue was $3.5MM in sales last year, and they want to have a 10% increase, then the company-wide goal is $3.85MM for the upcoming year. However, an organization should also take into consideration any potential sales or large accounts that may come to fruition and adjust accordingly.
STEP 2: Identify where the sales will come from internally. How many different departments/products make up the key metrics? What was the percent of revenue derived from the previous year?
STEP 3: Each department breaks down the critical metrics that will constitute their individual goals, but in compliance with the overall company goals. Ideally, an organization will understand their performance from last year and derive an improvement metric based on its historical performance.
STEP 4: Further organize these metrics into smaller, more manageable buckets to measure on a short-interval basis (hourly, daily, weekly, monthly, etc.).
STEP 5: Once management is in agreeance and has officially taken ownership, extend to the employees in a simple, logical, and easy to understand format. By doing so, employees can then measure based on an hourly/daily basis.
STEP 6: Develop a reporting process that allows management to see, both daily and weekly, whether or not a company is meeting their goals. This process should also allow management to identify, on a short-interval basis, any variances, and implement steps to prevent a recurrence.
Here’s an example using Acme manufacturing:
Acme manufacturing secured $3.5MM in sales for 2018. They have three different products/divisions that make up the sales. Here’s the breakdown by line:
The company-wide sales (cost) goal is $3.85MM. Additionally, in returns/rework they want a 25% decrease, a 30% decrease in late deliveries, and zero recordables. If we assume that the product mix will stay the same, here are the goals for 2019:
Unfortunately, just putting out an annual number isn’t useful, especially without a plan and more short-term goals to help keep a company on track. However, now that this information is available, and assuming the work remains steady (not seasonal like a lawn chair manufacturer- they would need to breakdown month by month), here would be the monthly goals:
Break it down even further to weekly goals, as seen below:
If a company measures these on a day to week basis, then they can ensure that they hit their annual goals. However, the sales are still a dollar value and, being so, could result in a non-tangible item that employees do not understand. If a company can break that down into individual widgets, then all the key metrics begin to make sense, as identified below (assume line one sells for an average of $250 a piece, line two for $200, and line three for $100):
Thus, a vast, incongruent goal has been broken down into smaller buckets in a way that all employees are capable of understanding. Now, everyone can take part in the process. Likewise, these can be further broken down into hourly expectations for each line. This breakdown identifies, on a short-interval basis, whether a company is on track and can adjust accordingly. By assigning hourly expectations to individual employees, a company has developed a workforce that understands their specific role and contribution to the organization. They fully understand whether they had a “good day” or “bad day” at work and should now be a part of the problem identification process.
The sales process is the same: the company has a history (hopefully) of the number of calls, visits, presentations, samples, etc. that equate into a sale. If a company understands how many cold calls it takes on average (or the number of calls turned into a deal), and they wish to increase by a specific amount, then they can determine the increase in calls required to obtain its result — the same for the number of mailings, brochures, sales visits, etc.
The next step would be for management to review the metrics on a short-interval basis, to measure previously recorded numbers against these goals (plan, actual, variance), act to prevent a recurrence, and to catch up.
Remember, this is a high-level approach and does not take into consideration any change in product mix, process improvements, capital equipment purchases, etc. These changes also require further consideration. Regardless, the process itself remains the same. Once a company has taken ownership over this approach, then it will allow for clarity throughout the organization.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: