Your focus – metrics or observation.

As a business gets larger, the challenge for managers is whether to only believe the performance measures (metrics) presented or to also take notice of the views from staff and customers. If only metrics are considered, managers are entering dangerous territory.

I have been reading about a major retailer in Australia that relied on metrics to drive the business. The measures reported that: prices were competitive; on-shelf availability was the best of all food retailers and same store sales were increasing. Yet increases in total sales and profitability were not happening – why?

So, senior management had a research firm ask consumers for their views; they said: prices are higher than competitors; empty shelves; old stock; no staff, so customer service is poor. If your customers are saying one thing and your metrics are saying another, what do you believe? The managers in this business believed the metrics, but why? Could it be that management bonuses were based on the metrics and if they were positive the bonus was higher; remember the old saying ‘we behave how we are measured’. In this business, the bonus driver for senior management was earnings per share and for operating managers it was gross margin.  So – surprise, surprise – management’s effort went into reduced labour, less stock and fewer store refurbishments – a questionable recipe for long term business success.

A subsequent investigation identified that the metrics had been wrong for at least the past four years and possibly much longer. For example, why would the metrics show that on-shelf availability was the best of all food retailers, yet consumers complained of empty shelves? The review identified that on-shelf availability in each store was manually measured in the middle of the week and the majority of shelves were full. However, by Sunday, the busiest shopping day of the week, many shelves were empty and there were no staff employed to refill them; why – because penalty rates must be paid for work on Sunday. So the measure and the actual differed. And the measure that all was OK caused sales to be reduced, due to the focus on cost reduction.

What to do? Numbers are important, whether you are in retailing, distribution, manufacturing or whatever. However, I have learnt that the best way of understanding how your business is really functioning is through Management by Walking Around (MBWA). Its a tough call, but it requires you to get up from your desk, leave your computer and emails and walk around the facilities, be they shops, warehouses , factories or offices. Talk to the humans who work there, not just about the business and the challenges they have in effectively doing their job, but their values and attitudes. I had people employed as warehouse operators and factory staff who ran their own businesses at night and the weekend and others who were directors of sporting clubs and active in voluntary associations. Their knowledge and management capabilities provided good input about how to improve operations and the business; but first you have to ask the questions. As a former chairman of Toyota said “Go see, ask why, show respect”.

How to do MBWA

MBWA came to prominence in the early 1980’s, but I saw it practised before then. Even with today’s access to mobile communications and real-time reports, getting to the coal-face of your business and talking with people continues to be  important. But where do you start MBWA? – as close to the customer as possible. If your business starts with consumers (i.e. retailing) then that is where you start. You then MBWA back through the business to inbound logistics and suppliers.

For the professional logistician, the objective is to provide availability of goods and services for the customer. So, in retail it is not sufficient to deliver onto the loading bay at the shop; you need to know whether the consumer is able to buy – the final storage area is the shelf. Likewise, if your business sells products to other businesses, delivery to the loading dock at the customers warehouse is not sufficient. You need to know if there are delays in the products being used; such as: hold-ups for QA testing, repacking into usable pack sizes, delays in the transfer of documents etc.  So your MBWA starts with the customer.

When doing your MBWA, be clear about the the purpose of the business. What is the business trying to achieve for customers and staff? Profit is not the purpose – it is an outcome of achieving the purpose and anyway, the profit figure is what the finance director wants it to be.

Knowing and understanding the purpose of the business allows you to have a framework for the problem questions. When you ask these, focus on process: what do you want to achieve; followed by why can’t you – if it were not for what, stops you from achieving. After the problem questions ask the solution questions (for you and your staff) – ‘what if’ and ‘why not’.

Showing respect for others is the right thing to do and it must be good for your business. When talking with staff, respect also means that in valuing their input, you can challenge them to do their best in meeting the purpose of the business.

There are websites and publications that expand on MBWA, but the essence is that it is not a ‘walk around’. It is an opportunity for you to find out what actually happens behind the numbers and to set challenging expectations which you can follow-up. Do not get into the situation of the retailer and believe the numbers without verifying the real state of your business through observation and questioning.