7Monitoring and
control

‘Ah now’, said our accountant. ‘This chapter is where I should really come into my own. Monitoring – that's all to do with checking up on people. And nobody does that better than we do. Accounting techniques offer an ideal way of measuring performance – they reduce everything to standard money values, so it's easy to make comparisons. Budgets and budgetary control are essential to any monitoring system.’

‘Well, I'm sorry to disagree with you yet again’, replied our personnel officer. ‘But for a lot of the time financial performance is too far removed from what people do on a day-to-day basis. Of course, There are exceptional cases. A salesperson, for example, spends his time winning orders, so it would be reasonable to judge his performance on the basis of their monetary value. But even that wouldn't show the whole picture. Order value doesn't tell you much about how well he manages his time, or the quality of his visit reports, or even whether his customers like him. And how could you use financial information to monitor the effectiveness of a nurse's work, or a teacher's, or a road-sweeper's? I suppose you might measure the cost of the swabs a nurse uses, or how much chalk the teacher gets through – but those would hardly reflect the essential nature of the work they do.’

It should come as no surprise that, as in previous chapters, some of these comments are helpful and accurate, whilst others are definitely misleading. But, in order to be able to separate the two, it will be helpful if we start by defining what is meant by the monitoring and control process.

THE MANAGER'S ROLE

Since Henri Fayol published the first book on management the ory (Administration Industrielle et Générale, 1916), management authors have made repeated attempts to define what a manager does. There are, naturally, differences in their views and emphases. However, There is general agreement amongst most authors of the so-called ‘classical’ school of management that a manager is responsible for:

planning

organizing

directing or motivating

controlling.

Managers plan by setting objectives, forecasting, analysing problems and making decisions. They organize by deciding on what activities are necessary to achieve the objectives, classifying the work and allocating it to groups and individuals. They direct or motivate (different authors use both these words to mean the same thing) by communicating to and inspiring their staff. And, finally, they control by checking performance against plans.

These four functions or activities of management are fundamental to the monitoring and control process. They emphasize that a manager controls by measuring or comparing performance against predetermined objectives or plans. The final stage is then to identify differences between planned and actual performance, and to take remedial action to correct them.

We can therefore say that:

monitoring involves measuring performance against expectations

control involves taking action to correct discrepancies.

How then should we respond to our accountant's comments? From the preceding definitions, it is obviously correct to say that monitoring performance involves measurement and comparison. It is also true that it is a checking process. But monitoring should not be seen simply as checking up on people. All aspects of operations are susceptible to monitoring – systems, procedures, processes, as well as the performance of people. It is also a mistake to attempt to base monitoring exclusively on financial indicators and comparisons. In some cases these are relevant, but in others, as our personnel officer points out, There are more helpful and meaningful indicators against which to measure performance.

OBJECTIVES AND PERFORMANCE MEASURES

In Chapter 2 of this book, we described a ‘top-down, bottom-up’ approach to strategic planning which started with senior management defining an organization's mission and goals, then involving staff lower down the organization in formulating their own objectives and plans in order to contribute to them.

Consequently, it is essential that individual objectives and performance standards should all be couched in such a way as to contribute to the success of the overall organization. As Peter Drucker remarks (in his book The Practice of Management, Butterworth-Heinemann, 1968):

The technique known as ‘ management by objectives’ (MbO) was developed in the 1960s and is central to the way many organizations continue to manage both their operations and their people. It follows a simple and logical sequence of steps:

1Formulate strategic plans.

2Develop tactical plans.

3Develop unit plans.

4Set key result areas and targets for individual managers.

5Establish performance monitoring and control systems.

In fact, the process can be better understood as a control loop (see Figure 7.1).

Seen in this way, the performance of every individual manager is regularly compared with the contribution expected to the achievement of the organization's strategic plans.

Figure 7.1 Management by objectives

First introduced over thirty years ago, MbO has been refined and updated over time. The first refinement has been a move away from the traditional cascade system of imposing objectives from the top to the more empowering approach of involving staff in the setting up of their own objectives, within the wider context of the organization's mission and goals. The second refinement has been to recognize that this approach is not limited to setting objectives for managers, but can be applied to everyone in the workforce.

Management by objectives techniques are often used to support performance appraisal (alternatively called the annual appraisal or the staff review system). At each level in the organization, managers discuss with their subordinates the ‘key result’ areas which the managers have already agreed with their own supervisors. Managers and subordinates then agree what the subordinates’ key tasks are which will contribute to the achievement of those key results. The key tasks are then considered in terms of the performance standards to be achieved and the controls by which performance will be monitored.

As you would expect, standards should be quantitative and therefore measurable wherever possible, although the nature of some work may make it necessary to include judged or qualitative standards, where their achievement can be observed, though not measured.

The objectives used in this kind of standards-based performance appraisal are often said to need to be SMART:

Specific

Measurable

Agreed

Realistic

Time-based.

In other words, the outputs expected from the individual should be clearly defined such that performance can be quantified, agreed with the individual, achievable within the constraints of time and resources and with a target date for achievement to be measured and compared.

At first sight, standards-based performance appraisal using SMART objectives provides an attractive way of linking individual performance to the achievement of corporate goals. Unfortunately, in many cases this approach proves less satisfactory in practice than it promises to be in theory. There are several reasons for this:

No effective mechanism exists for cascading corporate goals down the organization.

Insufficient attention is paid to ensuring that tactical and unit plans support corporate objectives.

Managers have difficulty in translating expectations of individual performance into specific, measurable and time-based form.

Managers are keener to maintain friendly relations with subordinates than they are to set challenging objectives. As a result, objectives reflect standards of performance which can be achieved with little or no effort.

There is an extensive range of performance standards which can be applied to staff members. Here are some examples:

Sales force

gross revenue per member

profit per member

weekly sales visits

travel time v. contact time v. desk time

product and market knowledge

interview skills

planning skills

orders per member

order size

sales volume per call

profit per call.

Production staff

output per member

materials waste

machine downtime

days off sick

reject rates

labour cost as percentage of output value

improvements suggested.

Administration staff

output per member

error rate

training undertaken

computer literacy

time taken to process enquiries

days off sick.

Some of these are subject to quantitative measurement (sales, output, reject rates, error rates). Some can only be judged qualitatively (product knowledge, training undertaken). Nevertheless, all these performance indicators offer a firm basis on which to set objectives, provided the manager concerned has the courage both to make them challenging and to give an honest and accurate review of their achievement.

But, as we pointed out earlier, performance standards do not apply solely to people. Effective control of operations demands that every aspect of operations be monitored against relevant and, wherever possible, measurable standards.

In Chapter 5, we emphasized the need to carry out a careful analysis of the flow of inputs and outputs, the effectiveness of the transformation process at each stage of the operation and the quality of the resources, systems and procedures supporting it. At that point, we suggested the analysis as a starting point for quality improvement. However, the use of flow charts and process reviews will also highlight the critical points in the operation where particular performance standards must be achieved. Take the process flow chart in Figure 7.2 as an example.

Figure 7.2 Simplified restaurant process flow chart

The success of each stage of the process is dependent on the quality and availability of the necessary inputs, whether they are raw materials or reusable resources. So, in order to set process performance standards, we need to ask some probing questions:

Prepare ingredients

How regular and reliable are ingredient deliveries?

Are sufficient kitchen staff available?

Do they have the necessary skills?

How often are the knives sharpened?

How long does the preparation take?

Cook meal

How often are stocks of seasoning, cooking oils, etc. checked?

How effective is the system for reordering them?

Does the chef have the necessary skills?

Are There enough cooking pots?

Is the cooker big enough, fast enough?

How long does the cooking take?

Serve meal

Are There enough plates and cutlery?

Does the waiter have the necessary skills?

How are the wine stocks controlled?

How satisfactory is the replenishment system?

How long does it take to serve?

The answers to these and other related questions will help identify the critical success factors for our restaurant process and provide the basis for the development of performance standards and control mechanisms. For example, if our restaurant has decided that one of its strategic aims is to enable customers to arrive, order, eat and leave within an hour, it will be necessary to set standards for preparation, cooking and serving times which make this possible. If the process is currently failing to meet those standards, then further action will be required to identify why not and to decide how to resolve the issue. But how, in this case, would performance be compared with the standards?

Performance monitoring can be applied to all cases, or to a sample. For example, a salesperson will submit details of all orders taken as part of the process of getting the orders fulfilled. As a result, the data necessary to monitor average order value or total weekly sales is already available. Consequently, it is relatively straightforward to monitor the total population – all sales by all salespeople.

Our restaurant is a different case. It would be unrealistic to expect the operations manager here – probably the owner, or the chef and head waiter taking responsibility for different stages of the process – to spend all their time with a stopwatch measuring preparation, cooking or serving time. Instead, it would give equally valid data to measure a sample, but only if the sample is statistically reliable. In other words, it must be representative of the total population. To achieve that, it would be advisable to measure performance

at busy and quiet times of the day

on different days of the week

at different times of the year

if the restaurant is subject to seasonal variations in trade.

It would be equally necessary to measure the performance against the standard of the process when different staff are on duty, again to make sure the measures are truly representative.

However, all performance monitoring tells you is whether the performance is up to standard. If it is not, more work is needed to find out why not and to put it right. These are the subjects of our next two sections.

EVALUATING SHORTFALLS

In Chapter 9 we shall examine in detail two alternative approaches to problem-solving. For the moment, and as an introduction to that examination, we shall consider two simple techniques which are often used in business process re-engineering: the critical examination matrix and the fishbone diagram.

Figure 7.3 Critical examination matrix

Critical examination matrix

The objective of this matrix is to provide a structured way of challenging every activity on the process flow chart. It asks the questions shown in Figure 7.3.

The great benefit of the matrix is that it makes no assumption and takes nothing for granted. Of course, it is time-consuming to use. Nevertheless, the thoroughness it brings to process analysis ensures that it highlights every possible cause of inefficiency:

poor output specifications

inadequate systems or procedures

delays and waiting time

excess transportation

staff quality, skill, excess workload.

It does not, of course, indicate what answers you should expect. However, it is a valuable way of challenging those activities and approaches which somehow seem to creep into processes without anyone asking why – or, if someone does ask, can only be justified on historical grounds: ‘but that's the way we've always done it’.

Fishbone diagram

Known alternatively as a cause-and-effect diagram, this technique is a useful way of identifying the root cause of a problem – or, in the context of performance monitoring, the root cause of a discrepancy between performance and standard.

The technique is primarily a visual prompt for brainstorming. It involves drawing a fish skeleton with the problem or performance shortfall at the head and a framework of potential causes as the main bones leading from the backbone. You may choose simply to brainstorm and categorize those causes or, alternatively, to use the standard PEM/PEM prompts (People, Environment, Methods; Plant, Equipment, Materials) or else the 4M prompts: Men, Materials, Methods, Machinery. A fishbone diagram using PEM/PEM prompts is shown in Figure 7.4.

From here on, the technique simply keeps repeating the question ‘why?’ so, for example, you might start by asking: ‘why might people be contributing to this performance shortfall?’

There could be several answers:

Because There aren't enough of them.

Because they don't have the necessary skills.

Because no one has told them what standard is expected.

Figure 7.4

Because they don't know what standard they are achieving.

Each of these answers now forms a smaller bone to the main bone, headed ‘People’. But the technique does not stop there. It takes the ‘why?’ question further:

Why aren't There enough people? Because we have a lot of unfilled vacancies.

Why do we have a lot of unfilled vacancies? Because we can't attract suitable people.

Why can't we attract suitable people? Because we don't pay as much as our competitors.

And so on. Ultimately this repeated questioning will lead you to the fundamental cause of the shortfall, at which point you can develop an action plan or solution to address the root cause, rather than just the symptoms you started with.

Figure 7.5 is a hypothetical fishbone diagram for a secondary school which has failed to achieve its performance target of GCSE passes at Grades A-C.

We would not suggest that the simple fact of identifying these causes makes them easy to solve. However, it does now make it possible for the school to:

separate causes which it can address ( the internal factors) from those which are outside its control (high unemployment in the area, for example)

avoid unsuitable remedial action (for example, introducing more severe punishment for misbehaviour will be less effective in addressing lack of discipline than arranging for staff to be trained in more suitable teaching methods)

differentiate between tactical solutions (raise funds to buy new textbooks) and those which require a more strategic approach (improving the school's reputation to attract more experienced staff).

Figure 7.5 Completed fishbone diagram

This distinction between tactical and strategic solutions is the subject of the next section.

REMEDIAL ACTION: TACTICAL AND STRATEGIC

Even in the days of delegated responsibility and decision-making, it is not uncommon to come across operations managers who, having recognized shortfalls in performance and identified the causes, are still prevented either by their limits of authority or by lack of access to budget or for other reasons from taking remedial action. If this is your situation, then the best we can suggest is that you treat this as an environmental constraint imposed on you by the culture of your organization and take whatever action you can to influence the situation by working through your own line manager. Ways of doing this were suggested in Chapter 2 and I will return to this theme in Chapter 10.

In this section, we shall assume that you have the power and authority both to identify performance shortfalls and to take remedial action. Table 7.1 shows the results of performance monitoring carried out over a period of six months in a neighbourhood corner supermarket.

Table 7.1 Performance monitoring results

	1997 sales forecast £	1997 actual sales £	1996 actual sales £
January	8, 100	7, 900	7, 900
February	8, 500	8, 300	8, 200
March	8, 500	8, 400	8, 200
April	9, 200	7, 200	9, 000
May	9, 200	7, 400	9, 000
June	8, 700	6, 300	8, 500

It is obvious from the figures in Table 7.1 that the business is failing to meet its performance targets. It is also reasonable to assume that this failure is likely to have a serious impact on the owner's ability to pay rent, rates, overheads and staff costs.

What the figures do not explain, however, is the reason for the failure. Even from the figures above, though, we can hazard some guesses.

The owner appears to have predicted year-on-year growth of roughly 3 per cent. This looks reasonable and could simply be calculated on the basis of an inflation factor. But it leaves some important questions unanswered:

What demographic changes have taken place in the neighbourhood? Has There been an increase in empty properties? Do local families have less money to spend this year? Or have some richer folk moved in, who travel by car to shops elsewhere?

Have neighbourhood tastes changed? Are local people avoiding the shop because it no longer stocks the merchandise they want?

Was the inflation factor accurate? Or does the owner buy from suppliers who are aggressively cutting retail prices?

None of these questions can be answered accurately from the performance data given. To do that will require further research and, possibly, the collection of some further data – population changes, perhaps, or a small-scale survey amongst customers to identify current preferences, or an examination of inflation rates.

Such approaches, together with the use of a brainstorming technique like the fishbone diagram, may highlight reasons why the original sales forecast was optimistic. It does not, however, change the fact that one form of remedial action, when faced with failure to meet a performance standard, may be to recognize that the standard was unachievable – and therefore devalues it!

Other forms of remedial action at a tactical level may include:

changing a supplier

improving the output specification

training the staff

improving the available resources

streamlining the process

upgrading the machinery

improving quality control

consulting the customer

consulting the supplier

recruiting more staff

improving maintenance

upgrading facilities

improving the input specification.

We deal with the practical details of carrying out these improvements in Chapters 8 and 9.

It is important to recognize, though, that not all performance shortfalls can be remedied by tactical action.

One of the key lessons of operations management is the horizontal nature of the process and the consequent interdependence of teams and functions. This means that a decision taken in a far-off department, or at a higher level, may have a totally unanticipated impact on you.

The critical examination matrix and fishbone technique we described earlier should highlight problems, causes and performance shortfalls which are not susceptible to remedial action at a tactical level.

Having identified the need for a strategic solution – or one which is outside your own span of control – you have three options:

sit tight and wait

make do and mend

find someone and shout.

Sit tight and wait

This option is only justifiable if you work in an organization where strategic plans and cross-team information flow easily and freely. In such an environment, you should know the strategic and other initiatives which are likely to have an impact on performance shortfalls you are currently facing. But, even the n, you need to be realistic. Ask yourself:

Will this initiative take effect early enough to solve my problem?

How confident am I that it will have the favourable effect I am hoping for?

I am not in control of it, so can I be sure it will really happen?

If your answers to those questions are positive, then it will be preferable to sit and wait, rather than taking local remedial action which will then be overtaken by events. On the other hand, if you cannot be so positive, then waiting for someone else to solve your problem for you is likely to prove risky.

If you cannot rely on a solution from elsewhere, it might be better to adopt a different option.

Make do and mend

You were earlier advised against dealing with symptoms rather than root causes. However, if the root cause concerning you can only be tackled by a strategic initiative – and you are uncertain about the timing or the efficacy of that initiative – then it is better to take local action to relieve some of the symptoms. The benefits will be:

respect from your staff for grasping the difficulty

a reduction, though probably not the elimination, of the problem

an improvement in performance, though perhaps not full achievement of the standard.

Find someone and shout

This advice is not intended to be taken literally! Another term for the same idea, though, is networking. Networking involves finding other people either inside or outside the organization who have the power, authority or influence to bring about the changes you need so that you can improve your operation's performance. Then it involves establishing a relationship with those people based on mutual respect and co-operation. As Robert Townsend recommends in his book Further Up the Organization (Coronet, 1970): ‘ The head of the mail room or the chief telephone operator may hold your destiny someday. Figure out who's important to your effectiveness and then treat him (or her) that way.’

This approach is dependent on your sensitivity to the politics of your organization. You will need to be aware of who exerts both formal (hierarchical) and informal influence. Your objective is to find ways of supporting them, so that they will support you.

If the change you are seeking is strategic, or if the only way to gain support in your organization from someone in another function is by working through the hierarchy, then your key contact will be your own manager. In that case:

Work out and present the operational and organizational benefits of the change.

Explain how your manager will benefit from the change.

Describe exactly what you want to happen.

Present an action plan for implementation.

Before leaving the topic of remedial action, it is worth pointing out that a failure to achieve performance standards can take the form of over performance as well as underperformance. The consequences of too much output can be as significant as not enough. For example:

excess usage of inputs or raw materials

exceeding customer demand

excess wear on equipment or machinery.

As far as remedial action is concerned, over performance can also have both tactical and strategic implications. At a strategic level, the first questions should be:

Does the customer want this much output?

Are they prepared to pay for it?

If the customer does not want the extra output, then remedial action may take the form of deciding how to use the surplus production capacity which is released by restricting output levels to those specified in the performance standard.

INVOLVING OTHERS

This section returns to a theme introduced earlier in this book – the importance of delegating decisions to those who will be affected by them.

As far as monitoring and control are concerned, this involves:

making a clear connection between the different activities or processes which make up your operation and the individuals or teams responsible for them

setting and agreeing individual or team performance targets

instituting methods of performance measurement

making performance data available to those responsible for achieving the targets

ensuring you have access to individual or composite data

agreeing responsibility and authority for remedial action

monitoring the initiation, implementation and success of such action.

The rest of this section develops each of those activities in more detail.

Connecting individuals or teams

The process analysis described earlier in this book should have identified members of staff as one of the inputs to each transformation process. Two alternative steps are then possible, depending on your organization's culture and attitude to team working.

One alternative is to break down each process into activities small enough to be the responsibility of a single individual. This is likely to be the favoured approach in organizations staffed largely by knowledge workers, where each contribution is clearly differentiated or where individual performance pay is part of the reward package.

The other alternative is to connect processes with teams rather than individuals. This is likely to be found in organizations which have adopted a team or task culture, or which have gone down the quality circle route.

Agreeing performance targets

A technique for agreeing individual targets was described earlier in this chapter. Agreeing team targets is similar, except that it is then up to the team to decide amongst themselves what each individual will contribute to the achievement of the target.

Instituting performance measurement

Measurement methods may be manual or automated, based on quantitative or qualitative measures. Most organizations will have methods and measures designed for their own operations, although smaller businesses may choose to install a generic system. Care is necessary in doing this, because There is a significant risk that either the monitoring methods or the measures, or both, will be a poor fit with the needs of the business.

Making data available

A central aspect of empowerment is giving people feedback on their performance. The provision of performance data direct to staff is an effective way of doing this. However, it is important to avoid the trap of presenting the data in a form which is difficult to digest, interpret or understand. Managers around in the 1970s will remember having to wade through several inches of computer-generated statistical information each month just to find the three lines on page 327 (or whatever) that were relevant to them!

Access to data

Delegating monitoring and control does not mean abdicating responsibility for it. The operations manager may want to access the same data that are available to staff or, alternatively, to arrange to receive summary information which amalgamates the discrete elements.

Agreeing remedial action

Monitoring means measurement. Control means action. Monitoring and control go together. So it makes no sense to delegate the responsibility and not the authority to take the remedial action. However, we all need to know the nature and scope of the decisions we are entitled to take. Delegating authority will therefore involve setting limits to that authority, expressed perhaps in terms of:

a budget

specific processes or activities

limits of impact on others.

Monitoring remedial action

The key to effective management has been described as ‘no surprises’. In other words, as a manager, you do not want to be caught out by anything that anyone else does. Instead, you should anticipate and be ready for it. In part, that means you need to know when remedial action is necessary, whether it has been taken and how well it worked. Of course, initiation, implementation and monitoring have all been passed to your staff. However, that does not remove the need for regular progress reviews – informal discussion, ‘walking the job’, asking the right questions. If you think that sounds a little like watching your own back, I wouldn't argue.