QUALITY GURU Philip Crosby once told a story about a football team that lost its first two games in the season, both by a score of 14-13. The coach reasoned that the problem was that other teams had blocked one extra point attempt, while his team had blocked none. He figured that if his team had blocked two attempts he would have won 13-12.
The coach set out to make this happen. All week members of the team focused on learning the art of blocking extra points. They worked very hard and at the very next game they were able to block six extra point attempts. They celebrated and kept working on their technique. The team went on to block dozens of their opponents’ extra point attempts through the remainder of the season.
This team may have achieved its goal but lost sight of the more important goal — the final score!
In this, the sixth and last article discussing the High-Performing Contractor Assessment Model developed by the Sheet Metal and Air Conditioning Contractors’ National Association, we’ll talk about how to measure results.
Keeping score is important for high-performing contractors. They don’t lose sight of the importance of focusing on the right measures (also called metrics in this column) as well as the equally important analysis of measures to get to the root cause and to take preventable action. Construction is too busy to measure things for the sake of measurement.
High-performing contractors keep score for what they call their Critical Success Factors. Some call them the Key Result Areas. These are the areas or factors that the company must do right to be successful. These tie to the strategic plans (covered in the second article of this series). Metrics are associated with each success factor.
Typically, contractors measure Critical Success Factors in four areas: customers, employees, operations and finance.
The high-performing contractor addresses each factor in the same basic way. That is:
- Identify a few key measures of success.
- Set up a data collection and measurement reporting system.
- Review and analyze the metrics regularly for root cause and trends.
- Set goals and take action to improve.
- Repeat steps 3-5.
High-performing contractors not only review the measures themselves, but they share these metrics with their employees. Everyone wants to know the score.
To be a high-performing contractor, you must not only establish measures, but the Critical Success Factors must show sustained improvement or maintain a high level of performance.
In my work with firms that are trying to become high-performing contractors, measurement is always a challenge. In contracting, we feel that we’re not like manufacturing and don’t have time to do measurements. While those in manufacturing may argue about who has more time, they’ve learned that what gets measured gets results.
The reality in construction is that we do measure. We measure all the time, but rarely do we have uniform or strategic measures. Everyone has favorite measures but few have set their Critical Success Factors.
Some mistake feelings or observations as measures. Just because we feel we are doing well with our customers does not make it a measurement. Almost every football team feels it is the best team, but the score tells the real story. In the same sense, you would not get far with your banker by saying you feel you are making a profit. Bankers all come from Missouri and say, “Show me.” High-performing contractors don’t make excuses for not having numbers — they show the score.
What to measure? While each company determines its Critical Success Factor metrics, the following are some typical ones used by contractors.
- For customers: customer satisfaction (by survey); repeat business; day’s sales (collections); and revenue per customer.
- For employees: employee satisfaction (by survey); employee turnover; absenteeism; and OSHA reportable rate.
- For operations: percent of planned tasks completed and rework.
- For finance: revenue per employee; percent return on investment; and EBITDA.
Once a company has measures and a system to report the metrics, the next questions to ask are, how are we doing? Are we winning? Compared to what?
Most contractors compare their measures to previous years’ data, current company targets or both. High-performing contractors also compare their metrics to industry benchmarks.
There are not many great sources for benchmarking in the construction industry but there are some. SMACNA and the Mechanical Contractors Association of America do some financial surveys and share their results with members. Consultant FMI gathers data to share. For world-class metrics you can turn to the winners of the Malcolm Baldrige National Quality Award. Some world-class numbers to consider are:
- The customer satisfaction survey would be above 9 on a scale of 1 to 10 with 10 being extremely satisfied. The “Top Box” rating would have 67% of customers rating their satisfaction in the top box of the scale. The percent of repeat business vs. total revenue would be 90%.
- Employee satisfaction would be 9 ranked on a scale of 1 to 10, with 10 being extremely satisfied. The OSHA Reportable Rate would be less than two incidents per 200,000 man-hours worked.
- Operations should come in with a percent of planned tasks completed of 80% or more, rework should be less than 1% of revenue, and revenue per employee should be $220,000 or more.
High-performing contractors know the score and use it to drive improvement. They do analysis to determine cause-and-effect relationships. One contractor I know has been able to validate that for each percent increase in customer satisfaction, it will earn an increase in net profit. This relationship is very specific and is something like a 1% increase in customer satisfaction equals $1 million increase in net profit. When you can validate such relationships, it is easier to focus efforts to improve satisfaction.
High-performing contractors see measurement as a tool to evaluate the performance of their processes and systems. They do not use or assume that any measures actually measure the performance of individuals. In today’s world, no one works completely alone and independently. Measures show how our systems are working, not how any one person is performing.
One final thought on measures. There are two kinds of measures: after the fact and in-process measures. The CSF metrics are usually after the fact, as we don’t typically see them until a few weeks after the month’s end. While these are good for knowing the score, they tell us history and by then we have either won or lost the game. They are useful for evaluating past performance and predicting the future, but by their very nature they are late.
In-processes measures, or “indicators,” are not so good for knowing the score but are most useful for making changes during the game to influence the outcome. They are much like the instruments in an airplane cockpit; indicating during the flight how things are going to help prevent accidents or landing at the wrong airport. The indicators don’t tell the score for the airlines but they help avoid having to tally the number of times we hit a mountain.
High-performing contractors understand the difference in the two types of measurements and use both. In the future high-performing contractors will need to turn to statistical thinking to reduce variation and avoid addressing “noise” in their processes.
What gets measured gets done. We all want to know the score. How do you measure performance? How do you know how your firm performs?
Dennis Sowards, now an industry consultant, led the development of the High-Performing Contractor Assessment model for SMACNA. His company is Quality Support Services and can be reached at[email protected] or at 602/740-7271.