Performance Improvement Projects: Four Key Questions for Success

How well does your firm carry out its performance improvement projects and initiatives? Is success the exception rather than the rule? To avoid getting bogged down with your performance improvement projects,  here is a checklist of key questions to ask when selecting and executing projects.

Question #1: Are we doing the right things? All activities and projects aimed at improving a firm’s performance should be done within the context of the organization’s overall competitive strategy. There is no point in spending time, effort and expense to improve those things that should not be done. Similarly, not all improvement opportunities have the same priority: given a firm’s overall strategy, it is likely that some improvement opportunities should take precedence over some others. Strategy is what gives performance improvement direction and focus.

Question #2: Are we doing things the right way? This question is often misunderstood. It does not refer to how well a firm’s performance improvement projects are being executed. Rather, it refers to a firm’s design and structure – the architecture that allows improvements to succeed. It is a firm`s overall architecture that provides the fabric which allows it to integrate its business processes across functions. When an organization`s architecture is either lacking or not understood at the top leadership level, it is likely that performance improvement projects that cut across business functions will flounder and not succeed.

Question #3: Are we getting things done well? This is the execution question. However, it transcends execution to ask first if the commitment and discipline needed to ensure success has been assured from top leadership. Commitment and discipline from top leadership ensures that the necessary resources are in place, that deliverables and actions to be taken are clearly understood and communicated, and that the authorities and responsibilities needed to ensure productive working relationships from all affected personnel have been established and delegated.

Many performance improvement projects fail, not because they were poorly executed at the tactical level, but because the project became dysfunctional. Dysfunction usually arises when the working relationships between personnel involved in a project have become polluted. This can only be avoided by securing top-level commitment and the outset and ensuring that everyone involved is clear about the rationale for the project, the delegated responsibilities and authorities, the actions to be taken, the methodology to be followed, and the metrics and process for monitoring and review in place as the project unfolds.

Question #4: Are we getting the right results? At every stage of the project life cycle, a project team must review and evaluate if the desired results, outcomes and benefits are being achieved. a surprising number of performance improvement projects are undertaken where there is a lack of clarity about desired outcomes and results. Since virtually every performance improvement project contemplated or undertaken by a firm involves a commitment of resources and time, the outcomes and results achieved must be regularly monitored and reviewed by top management.

Many improvement projects flounder because outcomes, results and measurables have not been defined at the outset, and/or because the management review timeframe for the project is too long. In the first case, it will be impossible for management to review the progress of any improvement project if desired outcomes and their metrics have not been defined; in the second case, if progress reviews are held after too much time has elapsed, it will be too late to implement corrective actions designed to get the project back on track. Having outcomes and measurable defined alone is not enough – progress reviews must be frequent enough to ensure that corrective actions can be taken in a timely manner to prevent project failure.

Pathways to Efficiency

A firm may have lower average costs than rivals because it has been able to realize production process efficiencies that these rivals have not yet attained. Thus, a firm may use less inputs than its competitors to produce a given level of output, or a firm’s production technology may use lower-priced inputs than those used by its competitors.

Realizing production process efficiencies is often a product of learning – this type of change is epitomized by the so-called learning curve, where a firm’s efficiency is a function of cumulative output and learning. Improving production processes through learning by doing is a powerful pathway to greater efficiency and lower average costs.

However, moving down a learning curve through learning by doing is not the only pathway to greater efficiency and lower costs. Other pathways involve adjusting a firm’s market scope, discretionary cost control, and superior coordination and execution of customer transactions.

A firm may lower its average costs by scoping or focusing its activities on selected segments in the market. By targeting only one or a few market segments, a firm can achieve lower costs by purposefully choosing to eliminate certain activities which add little or no value to the targeted customers. Thus, the wisely scoped firm is able to configure its value chain in such a way that it operates at a lower cost than that of rivals who choose to serve the broader market.

Discretionary cost control is another way for a firm to lower its average costs. A firm may choose to avoid incurring some costs that rivals are bearing by avoiding the activities that result in these costs. Thus, a firm may incur lower marketing costs than rivals by emphasizing online marketing and social media strategy rather than national advertising in more expensive media such as print and TV.

Interactions and transactions with customers and suppliers also drive a firm’s costs by consuming resources unnecessarily. Information asymmetries are often at the root of high transaction costs in customer and supplier-facing processes. Addressing the root cause of these asymmetries can often reduce transaction costs considerably. A firm that conducts a supplier exchange via the market may also have higher transaction costs than a firm in which the same exchange is vertically integrated. In this case, vertically integrating the supply function within the firm’s boundaries will result in lower costs.

Job Creation Myths

Another provincial election underway here in Ontario now and the promises of jobs, jobs, and more jobs re already spilling out of the politician’s mouths. Provincial Conservative party leader Tim Hudak is promoting his “Million Jobs Plan”, Liberal party leader Kathleen Wynne is promising a continuation of subsidies and grants to specific industries and firms to create jobs, and NDP leader Andrea Horwath has still to formulate her policy.

While we can argue about the merits of each party’s program, one thing is clear: politicians clearly believe that anything that creates jobs is good, and each leader believes his or her program will create jobs while their opponent’s will cost jobs.

The idea that anything that creates jobs must be good is so ingrained in our consciousness that many people have ceased to think rationally about the subject. Enhancing labour demand by creating jobs doesn’t necessarily mean that either economic growth or welfare is enhanced. There are only so many workers to go around and when one sector or industry gains jobs, others may lose. There is an adding-up constraint for labour in the economy as a whole.

In an economy with a slack labour market, it makes sense for politicians to put forward job creation initiatives. When the economy is healthy, these policies may exacerbate labour shortages by encouraging workers to move from one sector to another – moves that take time and which can cause labour shortages in the sectors from which workers have moved. This means that, in the long run, all that may happen is that workers will move from one sector another, but that overall there will be no net gain in the total number of employed workers.

Jobs are a cost, not a benefit. The next time you hear a politician talk about job creation, think about what they have in mind. Will they be putting people to work doing things that are beneficial to society as a whole, or are they rationalizing job creation through inefficient and costly initiatives that will yield little net benefit to our welfare?