CEO Metrics

The first field trips my elementary school took were to a commercial bakery, a dairy, and a candy manufact­urer. Later, I visited and then worked in the manufacturing and lumber facilities my dad managed. Now, I am privileged to visit and work in scores of manufacturing plants every year, and they still feel like field trips. It has been my lifelong habit to ask the same simple question of the fascinating people I meet in these plants: How do you know how you are doing?

The answers vary from broad to specific, and from negative to constructive indicators. The most disappointing and negative answer I get is, “Well, my boss is not yelling today, so we must be doing OK.” In the healthiest of cultures, the employee is able to show me their dashboard tracking productivity, quality, and safety. It seems that the farther we get from the machines, the more subjective and intermittent the measurement becomes. Consider the CEO whose barometer is the amount of WIP in the plant. Other leaders suffer a heart-rate synchronicity with the speed of a key machine. The slower the machine goes, the higher the heart rate. Broad measures hold meaning for these leaders, but are they accurate? A general manager I respect called me the week after his plant had made a major step toward just-in-time production. His excitement was a mix of joy and panic as he explained his physical reaction to seeing so little work on the line. He was happy because he had moved to a system where shipping controlled the production schedule on a pull system; he had panicked because the line was sparsely populated. “We are delivering what they need when they need it, so the customers are happy,” he said. “But it may take me a few weeks to get used to this.”

In the healthiest of cultures, the employee is able to show me their dashboard tracking productivity, quality, and safety.

How do you know how you are doing? When I ask CEOs this question, I learn a great deal about how they measure their company’s overall progress, how they see the productivity of their people and processes, and how they rate their own efficacy. CPA and industry adviser Mitch Klingher has been facilitating AICC CEO Advisory Groups since their inception, and I began serving new groups a few years ago. We count it a privilege to be trusted supporters of their leadership and improvement endeavors. With respect to that trust, I will share a bit about what we have learned about best practices for CEO metrics, from personal to plantwide applications.

Not every CEO will benefit from an industry-based advisory group. There are those who have simple ownership structures, with equal and nonfamily partnerships. In situations such as this, the leader does not feel the isolation experienced by so many. This sense of aloneness comes from having all your advisers biased by their relationship as employee or shareholder, or even as family member. So, for many CEOs, it is the camaraderie and perspective of joining like-experienced people and learning from their stories that brings value. On the personal level, many of these leaders use the group as their personal sounding board to bounce ideas, gain perspective, and invite accountability. This permission to check in on progress toward goals has a similar effect to enlisting a workout partner. I am more likely to keep a promise I have made to myself if I know someone is going to check up on me. The measurables in this personal area tend to be around follow-through on necessary and unpleasant tasks that must be done consistently in order to produce results. Another is whether a critical conversation with an owner, an employee, or a customer has occurred.

One subjective metric I have found to be useful to family business owners and/or operators involves self-rating effectiveness of communication, decision-making, and conflict resolution in three spheres of family business. In Working With the Ones You Love, Dennis Jaffee drew a picture similar to the one shown here. My exercise involves rating your effectiveness (1–10) in each of the relational overlaps. If you are a family business owner who is active in the business, then you occupy all three spheres, and your relationships are impacted by the overlaps. If this seems esoteric to you, then let’s talk the day after Thanksgiving.

Some have taken the next step to measure and report a scorecard for each department facing their internal customers.

The CEO metrics for the health of their enterprise are also varied. Within the advisory groups, they range in formality, but include benchmarking of both operational productivity and financial health. These groups are constructed with noncompeting operators of similar-sized businesses. Most have built a trust level that allows them to share a financial scorecard that reports MSF shipped against cost of labor and materials. It also includes tracking of waste, turns of inventory, and machine utilization (uptime, average setup, and speed). The data is more thorough and examined at a deeper level than I can describe here. Once the initial reticence about sharing the numbers is overcome, the members report that it is one of the most challenging, comforting, and educational group components.

Operational benchmarking is another enterprise-level metric. Formality of observation ranges across groups as they tour the member host facility. The most disciplined observation is achieved by using a criterion of questions to compare local practices to those of excellent manufacturers. One assessment utilized was adapted to the job shop and is based on Professor R. Eugene Goodson’s “Rapid Plant Assessment.” Eleven categories of operational excellence receive ratings, and the participants use the data gathered to develop a suggested action plan. Their comments are scripted to begin with this phrase: “Based on the data we have gathered, here’s what we would do if we owned

this business. …”

CEOs are also improving the way they measure and communicate the effectiveness of processes within their businesses. Most measure production (uptime, speed, quality, safety) and on-time delivery very well. Fewer communicate this information to the people in a way that gives clear direction about how to remove the obstacles to the desired improvement. Members have success stories from numerous methods, including throughput-based incentives and overall equipment effectiveness reporting. Some have taken the next step to measure and report a scorecard for each department facing their internal customers. For example, a customer service department reports monthly accuracy of data provided to production, and information turnaround time to goal. A maintenance department posts maintenance downtime as a percentage of overall plant downtime as well as open vs. closed work orders.

At Valley Container, General Manager Robert Niedermeier has found the numbers that tell the business story he needs every day. His key performance indicators are:

• Daily booking: to see trends long-term/anticipate cash needs/keep in touch with labor needs.
• Monthly sales report dashboard: to see trends/track budget/coach—praise results.
• Cash balances (this creates favorable or challenges sleep patterns): really to know when I can or can’t spend. I get a larger view on financial health and direction.
• Sales index: shows margin gain/loss.
• $PM: cost of quality—quality system that reports monthly cost of quality (remake/complaint/internally or externally). $ is compared to sales YTD with a goal of under $Xk/million sales currently.
• QC audit %: shows how each major area is doing for their quality check.
• IQR (internal quality report): measures frequency/month—dollar-associated—area of quality issue.

Robert says, “I know it seems like I am tracking a lot, but it helps me keep a finger on the pulse. You can also see a snapshot version of this on the TV monitors we have installed in the office and in the factory break rooms. They show not only Valley’s win/loss, but

also numbers from our other companies for comparison.”

CEOs are improving the way they measure and communicate the effectiveness of processes within their businesses.

There is a move to simplify productivity reporting at Arrow Box in St Louis.

Brad Kramper reports that they have historically reported all the normal production metrics by shift. In a move to simplify and communicate more clearly, they have been experimenting with one metric this year. “We decided to track and report one productivity measure; MSF per hour. … If the number goes up from the prior week, we include a bright green arrow. If the number goes down from the previous week, we include a bright red arrow.”

Combining shift data has eliminated the artificial division of team performance. Brad goes on to say, “We believe this one-number metric shifts the focus of accountability to the team level, incentivizing our employees to work together to achieve goals. … The refreshed approach has definitely heightened the level of employee engagement. Since posting, we have received multiple process improvement suggestions from employees of all skill levels. We have been working hard to implement the best suggestions and keep the momentum going.”

Who was it that told you to start a business so you could be captain of your own destiny? That person never understood the burden of responsibility that CEOs bear. The measurements discussed here help to reduce subjective observations to math problems. The perspective gained by sharing resources, other perspectives, and lessons learned have helped many CEOs complete those math problems with a balance of head and heart. Learn more about CEO Advisory Groups at www.aiccbox.org/CEO.

Scott Ellis, Ed.D., is a partner in P-Squared (P ²), focused on leadership and process improvement. He co-authored AICC’s Welcome on Board. He can be reached at 425-985-8508 or scottellis@psquaredusa.com.