Where to start transforming management style in a company of any size.

This material is only for those who have studied the theory presented on this site and are truly ready for change.

Material prepared by: Scientific Director of the AQT Center Sergey P. Grigoryev

Free access to articles does not in any way diminish the value of the materials contained in them.

How will goal setting and monitoring of ongoing changes be carried out in the new conditions if there are no KPIs.

1. Inform the management team (managers at the highest level of operational management) about the opportunity to become familiar with new management methods on the site ADVANCED-QUALITY-TOOLS.RU and prepare questions related to the tasks and conditions in which their company operates. Then direct these leaders to four-day training. A sufficient result of the training will be an understanding of the planned changes in the company “What to do? Why do it this way? How to do it?”

   Increase your chances of success by using our expert support in the field of transformation.
2. Re-formulate all the company's goals as a system as a whole, against which all the company's metrics will have to be checked for consistency at all levels of management. For each goal, appropriate resources, tools must be identified and methods for achieving them must be developed “How? By what method?”
3. Replace all numerical metrics goals (KPIs, key performance indicators) with an indication of the direction in which the metrics should improve. All metrics must be well consistent with the goals of the company as a system as a whole.

   See evidence of the pointlessness of numerical goals in the article on the nature of variability. Read.
4. All metrics, without exception, that were previously used to set numerical goals, move to a higher management level.

   For example, metrics at the level of a company's sales director are transferred to the level of management of the company as a system as a whole. Do the same with the metrics of production directors, purchasing directors, etc. Continue this operation with the metrics of the former KPIs of lower management levels, for example, KPIs of individual sales department employees, transfer them as metrics to the level of the sales director.

   Responsibility for these metrics should now lie with the level of management to which they are transferred. Metrics transferred to a higher management level should not be replaced by any other KPIs at the management level from which they were transferred.



Figure 1. New principle of goal setting and metrics analysis.

5. Analyze all metrics only in the temporal (statistical) sequence of metric values ​​for the corresponding periods defined by its context (for example, hour, day, week, month or year), and not by comparing point metric values ​​with each other.

   The best tool for such analysis is Shewhart control charts, which give an objective idea of ​​statistically significant movement both in the direction of the goal of each metric, and of the absence of changes determined by the control chart or of movement in the opposite direction from the goal. Moreover, for such an assessment you will not need to wait until the end of the reporting period, but you can track the behavior of metrics with a minimum period of time, increasing the efficiency of assessing the state of processes. For example, if previously the performance assessment was carried out based on the results of a month, now, depending on the context, an analysis can be carried out based on the results of a weekly or two-week period.

   An additional way to increase the efficiency of tracking changes in the behavior of metrics using Shewhart control charts is the function fixation of control limits according to a series of subgroups of the previous period, which are in a statistically controlled state.
6. At meetings of the relevant levels of management in the company, use Shewhart control charts for the metrics of these management levels, which can be decomposed into Shewhart control charts for the metrics of lower management levels.

   For example, a sales director, a production director, a purchasing director, and a chief engineer of an enterprise will have to be given responsibility for all the metrics of their management level, in this example, the level of the entire company, as a system as a whole, and not in terms of what were just their own metrics. That is, the sales director is now responsible not only for sales volume, but also for production problems that may arise due to the qualitative and quantitative composition of orders that the sales department transfers to production. Such production problems can be insufficient utilization of equipment and people in production, which lead to many disastrous consequences for the company. At the same time, the production director must take into account the needs of the sales department and be willing to make changes in production.

   In the new type of metrics management, there should be no fears among managers about the deterioration of metrics that were only their own, due to helping other divisions of the company in order to optimize the activities of the entire company as one system. Just like a sales employee who helps other employees of his department (training new methods, transferring his clients, etc.) or employees of other departments of the company, should not fear for the results of his former metrics alone.

7. Give up metrics that do not make sense to better optimize the company’s activities as a system as a whole and that do not fit well with the company’s newly formalized goals. Develop new metrics, if necessary, that will provide a better understanding of what is happening in a changing company in order to make more effective management decisions. Pay attention to bottleneck metrics, develop corrective actions and new methods to eliminate such bottlenecks.
8. To describe the interaction of various functions of a company as a system with flows of products and information, resources and control actions (requirements, proposals, standards), use the IDEF0* functional process modeling methodology, which best demonstrates the dependence of the company’s performance on the quality of interaction of various functional departments.

   * Documentation on the IDEF0 methodology is presented in the section bibliography, paragraph [16].

How will wages be paid under the new conditions if there are no KPIs.

"If a company pays commission, the emphasis is on sales. When it pays a fixed salary, the focus is on the customer.

... now customers are willing to cooperate, although previously they did not want to do anything with this company."

[3] W. Edwards Deming, "The New Economics"

1. Collect statistical data on all fixed and bonus payments for all groups of employees for the relevant staff positions, for example, for the last 6 (six) months. Analyze the performance of employees in the relevant groups relative to the capabilities (limits) of the system using XbarR-charts of averages and ranges of subgroups and determine for all employees, working within the system , equal to a fixed monthly salary, as the average monthly value of such payments.
2. Pay special attention to the people working outside the system, both the best and the worst performers, and examine the conditions in which these people work and their work practices. For detailed recommendations, see the materials on our website.
3. Eliminate piecework wages, defective penalties, and the like for all production workers. Now these metrics, transferred higher to the management level of the production unit and further up the hierarchy, should be the responsibility of the corresponding management levels in the company.
4. If the Shewhart control charts of all key metrics transferred to the company management level demonstrate statistically significant changes in the direction of the metrics goals, be prepared to increase wages for all company employees.