It’s easy to understand the impact incorrectly measuring a job can have on production—as wasted materials, time and labor speak directly to the bottom line. The same is true when you incorrectly measure (or do not measure at all) the job performance, skill capacity and productivity of your production employees.
Metrics, which are quantitative goals assigned to individuals and company departments, give you the information to make job performance evaluations that are effective and consistent across the board.
Metrics are all about tying performance to a standard that can be documented and measured. Some contractors who take this approach use sophisticated software and technology to calculate the data, while others rely on handwritten logs and verbal reports. Despite these differences, the stumbling blocks—and benefits—remain constant.
Leads per month – determines how good business will be in three months
Gross profit per month – shows how much is actually being produced and how productive each project manager is
Customer satisfaction – company must have high customer satisfaction scores for employees to receive their bonuses
Attitude – in addition to peer interaction, this is measured via a telephone interview conducted by office staff with the client after each project
Gross margin – set your margin for each aspect of your business and make sure it is met
Job delivery – On budget and on time, 100% of the time
Customer satisfaction – the company must survey and review feedback to determine if your target has been met
Job profitability – you must meet your target gross profits for each division
School rules – timeliness, appearance, honesty and values, as measured through observation by co-workers, notes in daily logs and the customer sign-off at the end of the job
You might experience turnover in the beginning, perhaps losing some of your most senior, dedicated staff who aren’t used to this way of life.
You will have to share at least some financial information.
You will have to pull out of the day-to-day operations and move away from micromanagement.
Your employees will take on more responsibility as all of you start analyzing data. Managers will have to work hard to reward people for what they do correctly rather than just telling employees what they do wrong.
But getting past the stumbling blocks will lead to great benefits:
- Introducing job performance metrics will weed out the under-performing employees and leave you with only the cream of the crop
- You will see company morale boosted
- You will see your efficiency level increase dramatically
- In some cases you will be able to do the same revenue—with half the overhead
Measuring Performance by Department
First and foremost, you cannot begin to define the measures until you have figured out what will affect the performance of the business as a whole, such as:
- Sales volume
- Gross margin
- Net profit
- Customer satisfaction
Then you have to determine what performance benchmark each department has to meet to achieve the goal. These departmental benchmarks then are drilled down to reflect each individual’s role. Employ no more than three or four metrics per department because anything beyond this can be unmanageable. It may take a couple months of scrutinizing your recent production and financial history to determine your benchmarks, and keep in mind that a consultant can be a big help.
Operations managers must input their weekly performance numbers on scorecards stored on the company’s computer. The scorecards can be formatted Excel forms, so employees get real-time calculations with ratios that show where they stand based on monthly, quarterly and annual goals set forth during planning sessions. The overall company numbers are presented at a weekly staff meeting.
The scorecards can be accessed by anyone in the company, a crucial facet of a complete open-book management style. Although open-book management is not necessary for job performance measures to be fully effective, the data must come directly from the field. Opening the books can ensure that the supplied data is valid because employees can spot check one another. In addition, showing employees where the company stands gives them a stake in the outcome and helps them understand how their individual actions shape the entire unit.
It may take up to one year for the metrics to transition fully into the company. It’s crucial for you to look at this as an ongoing process. Measures can change, become irrelevant or simply fail to give the information sought, especially in the face of growth or a shift in goals.
Measuring Performance by Employee
Owners and managers need to analyze weekly job performance on all levels—and then make relevant notes in each individual’s performance file. The fallout will almost be immediate.
Some employees will not do well with the changes; especially those who’ve been with the company for a long time. But the rest of the crew that embraces the new system will prove to be very valuable and productive. They feel like you’re investing time in them. They will step up.
Investing in employees is imperative to helping them adjust to the job performance microscope. It is sometimes necessary to hold bimonthly half-day workshops led by an outside consultant, covering topics such as embracing change, synergy team building and conflict resolution in order to put your staff at ease.
You need to focus more on non-monetary perks, such as giving MVP awards and recognizing each employee’s important life events. This can be done at your weekly or monthly staff meeting. Coupled with these things, the increased frequency of performance reviews has taken away the trepidation associated with the process, making them ideal times to talk about the work rather than just raises.
In addition, good-natured peer pressure has helped reinforce the team atmosphere. Mentoring, which is pairing a high performer with someone who might be lagging, is a great way to increase productivity.
Act on the Results
You should review departmental metric summary reports, provided to you by each department manager, on a weekly basis. Then, about every three months, you should re-evaluate each of the metrics and potentially redefine some of them based on the data you’re analyzing. Be sure to set aside time to do this.
Likewise, be sure to share the information with your crews. Many business owners struggle with the notion of giving financial information to employees. Would they understand it? Would they believe the information or think that no matter what the boss says, he’s really getting more money than he’s admitting? Regardless, if you don’t give employees information to understand what the metrics mean, it’s hard to hold them accountable. Plus, it’s detrimental to job performance. So you may need to remove yourself from daily functions of the business, open your books and close your mouth.
If you trust your employees to walk onto someone’s home or business property unsupervised, you should be able to show them basic mathematics and tell them this is how their job performance is rated. The fear of doing so could hold your company back for years. To your surprise, you will find that there are people who actually want to meet those goals, and the workers will start sharing helpful information with management.
You cannot hold employees to a higher level of accountability and then fail to follow through on honoring their needs or negate their influence when they expect changes to be made. On the other hand, be ready to act when an employee fails to meet goals. There has to be a system in place to deal with underperformers. In companies I have been involved with, employees were given two warnings, one written and one verbal, and an offer to undergo training to help them improve their scores. Termination is not the immediate option, but the workers understand that if they don’t continually meet the goals, they will be looking for another job.
Good employees will give this system a shot, but if you are not consistent and don’t follow up the information with action, you’ll lose them. Sometimes it’s just a matter of people not being trained well.
Metrics Should Inspire, not Dishearten
Employees have three options: exceed, meet or fail to reach expectations. If you’re not careful, such strict conditions can breed a culture of negativity and fear within your company.
It is necessary to maintain a human element if you switch your company to metrics. Even though metrics aim to remove subjectivity from the evaluation process, they can turn evaluations into tough, sometimes disheartening conversations. Managers must find a way to lighten up the workplace.
Sometimes it’s as easy as playing a simple game. Quarterly goals are highlighted in elaborate display cases within each department. A payout is assigned to each metric. If workers meet or exceed those numbers, the entire company gets a bonus—and every employee gets the same bonus. If the company meets the top end of its goals each quarter, each employee can earn a designated dollar sum in bonuses annually.
With the bonus game in place, you do not have to tie the results of job performance evaluations to an employee’s salary. Your company can plan parties and events at the end of each quarter to celebrate successes and get revved up for the next quarter. Before metrics, when you were not looking at numbers regularly, these successes (and failures) might have gone unnoticed, and issues would not be addressed as promptly.
The numbers serve as a tool for promoting ethical and equal treatment of employees. No high-performance team functions without respect for its members and confidence in its ability to succeed, both within the group and from managers. In an increasingly competitive job market, giving employees the tools to see unequivocally how they’re faring in their positions just might be the right thing to do.