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Performance Measurements, Continuous Improvement and BenchmarkingDigital HR & HR TechDr. TAREQ FAYEQ OBAID
Why? Generally, what was satisfactory a few years ago barely passes today, and quite certainly will soon be below expectations. In addition, the difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems. Ultimately, what separates a winner from a loser at the grandmaster level is the desire to do the unthinkable.
Con. The form of work is changing around us. The larger the gap grows the greater the chance becomes that these organizations will not survive. However, organizations shouldn’t just want to survive they must thrive and be competitive in a new rapidly changing world. The future workforce is bringing new attitudes and ways of work to which managers and organizations must adapt.
The Changing Business Environment • Marketplaces are becoming strongly competitive as unique technologies, unique physical assets and historic brands are challenged by new competitors, new consumers demands and changing distribution channels. • Many company such as Sainsbury’s & Spencer have had to radically change their approach to survive and thrive. • With flexible labour markets and open capital markets, the company has fewer constraints on growth than many other countries. Globalization.
Consumer Demands and the Need for Flexibility • The global economy is driving different styles of consumer behaviour and affect it. • The 24-hour shopping and service culture has taken place , with changing in working style as well. • Organizations are therefore becoming increasingly based on different types of flexible worker, whether or not these workers are directly employed by them or outsourced . “less secure forms of employment”. • These
The Impact of Technology • Technology is facilitating the rise of the virtual world. Selling or buying via the Internet has become the ‘ normal ’ way to do business. • Technology is opening up ready access to market information. • Technology then is making possible choice, personalization, free and constant access to information, networking, collaboration as well as competition.
The Workforce • Knowledge work requires higher-level skills – and ongoing development, especially updating in new technologies. • Employee career prospects will vary according to Local or specialized knowledge makes workers more attractive to (many) employers . • The challenges then to attract, motivate and retain talent are significant, especially since the Future of Work Programme (2002) report decrease in worker satisfaction.
The Knowledge Economy We are now on the verge of the Knowledge Economy, with corresponding freedoms of choice. Information and knowledge have become key trade able assets for companies and individuals. The Implications Of This Are Significant:- • Governance of society is transforming. • Nature of the firm, of the workplace, is changing. • Work itself, and the nature of the employment contract, are undergoing major changes.
Mobility • Today with the advances in technology around the way we work, employees can work from anywhere, anytime, and on any device. • This Allows employees to stay connected and working even when they are on the go. This helps make employee location independent. • These trend dramatically impacting and changing what it means to work, to be a manager, to be an employee, or to work at a company.
Globalization • Globalization continues to drive growth and wealth creation. Much manufacturing capability has migrated from the developed to parts of the developing world. • This ability for organizations to operate anywhere is dramatically changing how people work. • The growth of customer demands, availability of new products and service, increasing competition and the need for innovative solutions and cost reduction are leading to change .
HR Professional Must • Part I : Understand and manage people. We have to think about employees and how to develop them. • Part II : Invest in the next generation of HR professionalism. HR professionals must continue to learn and grow, within the profession and firms. • Part III : Learn to master and play new roles. There are emerging roles that HR professionals must master given the world we work in. • Part IV : Create, and adapt culture to business conditions. Culture is like a firm brand, or identity.
Con. • Part V : Rethink the organization as capabilities, not structures. Organization is not a structure, but a set of capabilities and resources. • Part VI : Respond to social expectations and public policy. • Part VII : In general HR Professional Must Measure effectively, Live Globally, act Strategically..
Measuring the Impact of Strategic HRMWhat To Measure? • For example, some have suggested measures for assessing the strategic importance of HRM, such as whether there is an HR specialist in the top management team or not. • The role of the line in HR responsibilities and the contribution of HR to the development of business strategy. • Other studies have focused much more on specific aspects of human resource management and development.
Measuring the Impact of Strategic HRMLevel of Impact? Professionals suggests a three-tier model of different levels of metrics which provides a useful framework for understanding the value and application of workforce and Human Capital Management measures:- • Basic measures – quantitative data and employee profile statistics. • Standard comparable analytic measures – comparable quantitative data indicating contribution to performance • Strategic measures of workforce capability –reflecting alignment of workforce capability to business strategy.
Human Capital Indicators and their Underlying Factors Professionals highlights five key areas of HCM which directors, stakeholders and investors agree are most likely to affect the future performance of organizations:- ● Leadership. ● Employee motivation. ● Training and development. ● Performance improvement.
Con. Bassi and McMurrer (2005) recommend a set of human capital indicators which they consider to be central to the management of a knowledge based workforce:- Leadership practices ● Communication – managers and executives ● Inclusiveness – managers and executives ● Supervisory skills ● Executive leadership ●Systems – for identifying and developing the next generation of leaders
Con. Employee engagement • Job design. • Commitment to employees. • Time – does the workload allow employees to do their jobs right; make thoughtful decisions; and achieve an appropriate balance between work and home? • Systems – and processes to retain good performers by continually evaluating trends in employee engagement towards productivity and customer satisfaction.
Con. Learning Capacity • Innovation. • Training and development. • Value and support –the behaviour of leaders which consistently demonstrates that learning is valued and managers make learning a priority. • Systems –a learning management system that automates the administration of all aspects of training/learning events, provides reports to management and includes features such as content management or competency management.
Con. Workforce Optimization • Processes – well-defined and that help get work done; where employees are well trained on these processes and efforts made continually to improve processes. • Conditions– where employees have the materials and technologies they need to be effective. • Accountability – where employees are held accountable for producing quality work; promotion is based on competence. • Hiring decisions – selection is based on skills requirements; new hires receive adequate induction.
Company Management and Performance Measurement If we want to manage performance, we have to be able to measure it. We could therefore use the motto: manage only what you can measure! That is, if you can’t measure it, you can’t manage it! Intervention drivers can be classified into (1) Technological Drivers (production and support technologies, such as IT systems); (2) Organizational Drivers (regarding human resources, the organisational structure,); (3) Management Drivers (such as Just-In Time, Total Quality Management, Project Management, etc.).
Con. Non-cost performances are strategic importance and their impact on profit and profitability. It is in fact common practice to distinguish performance indicators according to the level of corporate organisation: • Economic-financial indicators (with synthesis and strategic importance) at a global level (“corporate”). • Indicators relating to critical success factors, for products/lines/customers (with tactical decision-making utility) at a “business unit” level. • Operating indicators, typically non-cost measures (for daily management), at a department/office level.
Customer Satisfaction Measurement • Performances regarding the product: (including packaging), cutting-edge content, design and image, conformity with required specifications or catalogue indications, model number, versions options/configurable aspects (range levels) eco-compatibility, product life and level of reliability, etc • Performances regarding services: speed, punctuality and overall completeness of deliveries, free pre and post sales assistance, wide catalogue choice (extensive range of products), customisation services (extra catalogue), order flexibility (changes to volumes and mixes of orders in process).
Con. • “ServQual dimension of services. • 1. The tangible aspects (i.e. physical structures, equipment, appearance of personnel) • 2. Reliability (i.e. the ability to provide the service as promised or described) • 3. Response capacity (in terms of availability and promptness of the service) • 4. The ability to provide reassurance. • 5. Empathy, described as a caring and customised service to customers
Con. • Moreover, “times and methods” can also be defined • Determining a so-called “suitable time” (statistically average) • By separating standard operations from operations with an uncertain lifespan (for which a minimum and maximum time can be estimated) • Distinguishing between individual times (“active”) and collective times (“passive”) of the customer, where the same is waiting for or in visiting/self retrieval of information
Cost and Productivity Performances Innovation in the Accounting Systems • Current performance measurement systems tend however to consist of, on one hand reviewed and updated accounting systems, and on the other by a section concerning customer satisfaction and non-cost performances (for a long time limited to times & methods and quality control only). • The latest innovations that were recently adopted by accounting systems include: company evaluation, capital budgeting and cost accounting, and the introduction of a hybrid accounting techniques,
Con. Balance Sheet Indicators and Corporate Value 1. Return On Equity (ROE), ratio between profit and equity 2. Return On Assets (ROA), ratio of operating income including financial management (EBT) and total assets 3. Return On Investments (ROI), ratio of operating income on core business operations (EBIT) and assets net of financial entries 4. Return On Sales (ROS), ratio of operating income on core business operations (EBIT) and sales revenue
Con. 5. Rotation of invested capital, the ratio between revenue and assets minus the financial entries 6. Rotation of receivables, the ratio between revenues and trade accounts receivable (the inverse determines the collection time of receivables) 7. Rotation of payables, the ratio between purchases and trade accounts payable (the inverse determines the accounts payable time; the difference, which is hopefully positive, between the payments time of accounts payable and the collection time of accounts receivable determines the so-called Cash Conversion cycle)
Con. ROE, which mainly interests shareholders can be broken down into three different elements factors, as a product of ROA, the debt ratio (the ratio between total assets and equity) and impact (return on operating income including financial management). ROI is used to evaluate operating managers and can be broken down into two elements: ROS and the rotation rate of invested capital. Turnover, EBIT, ROE and ROI are the primary indicators of a company’s performance and consequently, over time, the value of the company itself (in addition to shareholders’ equity).
Capital Budgeting: Investment Analysis and Evaluation The investment analysis phase consists in:- • The quantification of incoming and outgoing cash flows pursuant to an investment, that is, respectively the estimated costs and expected returns • The distribution of such cash flow over time • The monetary value of such time, expressed by an interest-rate • The risk level, that is the uncertainty of all three points above
Con. The next investment assessment phase consists in:- • The identification, selection and application of one or more assessment criteria for the investment profile in view of the results of the previous phases • The defining of acceptance criteria, which are consistent with corporate strategies, short, medium and long-term objectives, technical feasibility, risk exposure, compatibility with other current and future investments etc
Con. The most common methods used to evaluate financial performance are:- 1. The Net Present Value (NPV) for the evaluation of income 2. The Actual Rate of Return (ARR) for the evaluation of profitability 3. The Pay-back method to contain risks when calculating cash flow estimates 4. Internal Rate of Return (IRR) for the evaluation of the risk level when estimating discount rates
Cost Accounting • Costs are classified using a variety of methods: by nature or kind, by variability of volumes, by direct allocation – without objective criteria – by product and cost centre on a timeframe basis. • One of the main problems in this respect is to achieve a calculation of any product cost which is as realistic as possible: in fact, the only objectively measurable costs are those defined as being original “by nature”, related to the consumption of productive factors and quantified by invoices payable, that is purchase invoices.
Activity-Based Costing • the most important innovative techniques used in Cost Accounting and was developed to meet the need to provide full costing of a product based on the allocation of indirect costs using a single or multiple criteria (direct labour, cost of materials, total machine hours per product). • In fact, the present variable direct costs decrease (especially the portion of labour costs) in relation to the increase in indirect production costs (due, for instance, to the depreciation of automated plant systems), design costs, sales and administrative costs; fundamental for many strategic corporate decisions.
Traditional allocation of indirect costs through cost centres
Activity-Based Costing • ABC is a technique that aims to calculate the full cost of a product, starting from the cost of consumed resources. This means that there are actually two stages: • l Stage one, where the cost of resources are allocated to activities (by means of • “first-stage drivers”, also called “cost drivers” or “resource drivers”) • And Stage two, where the activities are related to the products (by means of “second-stage drivers” or “activity drivers”)
Relationship Between Cost Performance andEconomic-Financial Results The cost performances include:- • The costs of resources used in the production processes or to provide services. • The level of working capital, making particular reference to the physical aspects, i.e. inventory. • The saturation level of plant, machinery and equipment, that is all resources subject to amortization. • The employee absenteeism rate. • The productivity of resources, human and otherwise.
Con. • cost performances are characterized by their direct and explicit impact, using mathematical expressions, on the company’s final result (profit ¼ revenue – costs, and profitability ¼ profit/investment). • In the case of costs, the relationship is clear, as profit is the difference between revenue and costs. As far as inventory levels are concerned, it can be assumed that the impact on final performance is the cost of tied-up capital which is equal to the value of inventory multiplied by the average periodic costs of finance capital (interest payable).
Cost PerformanceMeasurement 1. Materials, referring generally to all raw materials, semi-finished and assembled materials which form an end product, further to other consumables (such as lubricating oils of stationary). These costs are measured by adding the value of purchases to the changes in inventory within a specified period. 2. Human resources (costs related to direct salaries or wages, and deferred remuneration such as severance pay).
Cost PerformanceMeasurement 3. Machinery, plants and equipment, i.e. depreciable assets. This term refers to all assets that are used over a number of years and are subject to technical and economic depreciation; for these assets, the purchase value is distributed over time, using a depreciation plan: a cost referred to as “depreciation expense” is therefore charged to a specific period. The cost of these production factors is hence given by depreciation expense plus the cost of consumables directly allocated to the machines themselves, such as lubricating oils and spare parts.
Efficiency and Productivity Performance Measurement To start with, it is best to clarify what the terms productivity and efficiency actually productivity is a ratio between output and input, while efficiency is the ratio between productivity and a standard: Productivity = actual output /actual input ; Efficiency = actual output / actual input =standard output /standard input. =actual output / standard output /actual input / standard input .
Efficiency and Productivity Performance Measurement • Productivity is therefore expressed by a ratio between quantity (or value) of a realised product and the quantity (or value) of used resources, while efficiency is expressed by a number, usually less than one unit (if the set goals or standards are ambitious, rigorous). • Efficiency should not be confused with efficacy; efficacy is the ratio between actual output (or performance) and the desired output (or performance). Therefore efficacy measures the ability to achieve goals, regardless of the input (resources) used
Con. • Productivity can be measured by quantity or value, if we refer respectively to output ratios and physical or monetary input; this choice is related to the homogeneity of the numerator products and/or denominator resources. • Productivity can be measured as:- • Organisational performance as a whole (total productivity) • Performance in relation to the use of a specific resource (partial or “single-factor productivity”) • Performance obtained as a synthesis of partial results (weighted productivity).
