Greg Flay Building a Goal-Aligned Enterprise
Building A Goal Aligned Enterprise Public
Dec 21, 2014
As the size of your firm grows, it becomes easy for your staff to lose focus on the key objectives of the firm as they go about their daily activities. Staff members, especially corporate support function staff such as IT, begin to lose the connection between what they do and how the company makes money. Luckily, there is a cure that is both simple in structure as well as cheap to implement.
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Greg Flay
Building a Goal-Aligned Enterprise
Magic?
In 2009, the IT department of an energy wholesaler and retailer launched an incremental value delivery program that:
Had a $12.3M cash impact in 2009 Has had a $13.1M cash impact in 2010 as of 11/11 Required no heavy top-down push Had a viral, grassroots appeal, with over 450
individual contributions to overall impact to date Has cost almost nothing to implement
How did the magic happen?
Performance AssessmentCorporate Style
Narrative assessment of activities
Subjective rating scale
Employees are incented to “do stuff”, not impact the company bottom line
Performance AssessmentElementary School Style
Narrative assessment of activities
Subjective rating scale
Look familiar?
Project Performance Assessment
•Automate Time-Consuming Manual Steps•Create User Friendly Invoice Approval Workflow•Simplify Invoice Researching and Find Invoice Every Time•Enhance the Capacity and Reliability of IT Components
Assessment based on completing activities within budget and on time
•Cost Estimate: $200,000
•Schedule Estimate: 5 Months
Departmental Performance Assessment
Goal Description
Disaster Recovery
Provide redundant systems and process to provide minimal interruptions to normal operations of business critical systems where a ‘Disaster’ occurs.
Instant Messaging
Establish a company-wide unified instant messaging program.
Network and Security Compliance
Maintain infrastructure security and ensure all systems in security compliance.
Server Virtualization
Virtualize Citrix, application, and other capable servers and reduce overall server footprint.
Assessment based on completion of defined activities
Thus, Our Typical Starting Point…
50,000 Foot ViewCorporate Goals• Metrics-Based• Mostly aligned to corporate vision
30,000 Foot ViewDepartmental Goals• Narratives, based on broad best practices• Activity-based, unevenly executed across enterprise
5,000 Foot ViewProject Goals• Narratives, based on completion of scope• Activity-based, justification built after system selection
Ground LevelEmployee Goals• Narrative• Activity-based, yearly exercise
At the Corporate Level – The Real Metrics
2009 Actuals 2010 Targets
Income statement
Operating revenues 1787 1916
Operating income 454 499
Net income 199 188
Cash flow
Cash flow from operations 131 485
Capital expenditures 71 154
Cash & cash equivalents 249 362
Capitalization
Total debt 2792 2676
Common equity 2145 2075
Preferred equity 626 626
Total capital 5563 5377
Key ratios
Debt to capital 50% 50%
Earnings per share 7.51 7.51
Where do the metrics get lost in translation? How can we find them again?
The Goal-Aligned Department
Three Simple Steps – One BIG Change
Break down top-level corporate KPI’s into sub-goals
Identify sub-goals that individual departments can directly affect
Generate a set of measurement-based, department-specific goals
Do your departments know what needles they could move?
Break Down High-Level Goals
Corporate Goals
Increase Earnings Reduce Overhead Costs
Reduce Corporate G&A Reduce Plant O&M
Increase Gross Margin Increase Sales Revenues Reduce Production Costs
Reduce Raw Material Costs Reduce Energy Costs Improve Production Efficiency
Identify Department-Specific Goals
Example: Plant Operations
Increase Earnings Reduce Overhead Costs
Reduce Corporate G&A Reduce Plant O&M
Increase Gross Margin Increase Sales Revenues Reduce Production Costs
Reduce Raw Material Costs Reduce Energy Costs Improve Production Efficiency
Identify corporate goals that the department can directly affect
Generate Department-Specific Goals
Reduce Plant O&M spend from $15.5M in 2009 to $14.5M in 2010
Increase production efficiency from 32.7 widgets per ton of steel to 33.2 widgets per ton
Less is more – don’t create confusion through too many goals
The Goal-Aligned Project
No further work needed to define goals – don’t create “new goals” to justify projects
Reuse the set of departmental goals already generated
Fabrication Process Improvement Project Increase production efficiency from 32.7
widgets per ton of steel to 33.2 widgets per ton by decreasing the amount of scrap produced during fabrication
Do your project teams know what needles they are trying to move?
The Goal-Aligned Employee
Another BIG Change
Break down departmental goals into sub-goals Identify sub-goals that individual employees can
directly affect Generate a set of measurement-based,
employee-specific goals
Thoroughly explain the rule set to staff Turn employees loose – they will amaze you!
Do your employees know which needles they can personally move?
Break Down Departmental Goals
Plant Operations Goals
Reduce Plant O&M Reduce unit cost of spares Reduce likelihood of equipment failure Reduce duration of scheduled maintenance Reduce utility costs Reduce repeated production line breakdowns Reduce unscheduled down time
Improve Production Efficiency Reduce time required for equipment changeovers Reduce production line startup costs Increase production line output per $ of inputs
Identify Employee-Specific Goals
Example: Production Line Operator
Reduce Plant O&M Reduce unit cost of spares Reduce likelihood of equipment failure Reduce duration of scheduled maintenance Reduce utility costs Reduce repeated production line breakdowns Reduce unscheduled down time
Improve Production Efficiency Reduce time required for equipment changeovers Reduce production line startup costs Increase production line output per $ of inputs
Generate Employee-Specific Goals
Reduce shift-specific repeated production line breakdowns from 14 per year to 10 or less per year
Reduce shift-specific time required for equipment changeovers from an average of 78 minutes to an average of 70 minutes or less
Reduce shift-specific production line startup costs from $1253 per startup to $1200 or less per startup
Increase shift-specific production efficiency from 31.2 widgets per ton of steel to 32.0 widgets or more per ton
The Goal-Aligned Enterprise
50,000 Foot ViewCorporate Goals• Metrics-based• Aligned to corporate mission
30,000 Foot ViewDepartmental Goals• Metrics-based• Aligned to corporate goals
5,000 Foot ViewProject Goals• Metrics-based, post-project benefit analysis• Aligned to departmental goals
Ground LevelEmployee Goals• Metrics-based• Aligned to departmental goals
Making the “Magic” Happen
Determine the financial impact of work in each department, of each project, of each staff position
Communicate the “rule set” for what counts, and set financially-oriented goals
Unleash employee creativity
Track financial impact transparently
Reward financial impact at performance review time
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