[Matt Kraft]

Hi Gents.

Been awhile.

Wanted to start a thread about how you guys manage productivity and expectations for efficiency among the different parts of your company.

I am of the belief that our company needs to share more about how the company is doing throughout the organization.  Everyone needs to be on the same page in that we need to seek profitable work and produce profitable work, but others may not have the same set of carrots hanging in front of them.  Two reasons for that:  They don’t benefit the same way from the company making money, and/or they don’t understand how what they do each day affects the operation.  I’d like to change both.

So what numbers do you share with the shop?  The installers?  Job costing?  Production efficiences?  Gross Margins?  Labor costs?

This discussion could go a couple ways.

Anxious to hear your thoughts.

Matt

[Andy Graves]

I have always thought the same but it is a mixed bag. In the past we have shared numbers but only to find out later their perception was that we were making a ton of money so they all felt resentful and wanted a raise.

It is very difficult to explain in a simple way the working of a complicated business. Not to mention, some just don’t care or have any desire to know.

What we do see is that they want to know about job security and want to feel appreciated. With that in mind, we tell them the number of upcoming jobs and always let them know when they did a good job. On the flip side, we always let them know how much it cost the company when mistakes are made.

People don’t realize that one mistake cost the entire profit.

I am also curious how people manage this issue.

This book also may shed some light on this – http://www.amazon.com/Less-Chaos-More-Cash-Confusion/dp/1452891826
It was written by a guy in the countertop industry and everything he discusses relates directly to what you are talking about.

[Matt Kraft]

Andy, I am going to buy that book. I have read quite a few of his articles from Stone Businss Magazine.

I thought this topic might gain a little traction. We are going to start with some basic pie chart type information showing some of the guys where money gets spent, COGS, labor, overhead, etc. Try to make them understand which pieces they have some responsiblitly in.

[Len Smith]

I went to a management training program that is completely organized around getting alignment between different departments in the business, so that everyone is rowing in the same direction.

Key to the idea was the everything had to be measurable, but meaningful. In other words, what you measure isn’t profitability, it’s something that means something to that particular department. For example, if your average job size is X, and you normally make a profit of x per job, you need so many jobs per month to be profitable. In order to get so many jobs per month, you need to have quoted X*4 jobs (based on your ratio of jobs bid to jobs landed.) So with your sales department, you might measure the number of jobs quoted, and the hit ratio.

For production to be profitable, you would measure other things, like the average time spent per square foot, with a modifier for re-work.

For installers, you might measure something like their time spent vs. budgeted, with a modifier for a high score on a report card filled in by the owner (which would get them focused on efficency, but also keeping in mind that pleasing the customer is important.)

A focus on profit itself is meaningless to most employees. You need to measure the thing that they need to do well in order to produce profit.

Hope this makes sense.

[Len Smith]

One other aspect of the training was that measuring needed to produce results. If someone wasn’t meeting their goals, there was a monthly meeting to discuss why the goals aren’t being met, what needs to be done to improve or revise the process. The idea is to help them succeed at meeting their goals, and that’s the job of the manager. They need to benefit somehow if they meet the goals, but if continually failing to do what it takes to move the company in the right direction, at some point there would be a parting of the ways.

I tried it for a while, but now I’m back to business as usual.  It seemed to me that the theories and practices of the management training company were geared more toward raising their own revenues than to ours…continual brush up meetings, coaching, getting more people trained, $$$$.

[Andy Graves]

Here is what I noticed. Good employees are key. I am talking about the ones that accept the job and then actually do it.

There is stress in every job and I think most are willing to accept that without further explanation.

Another thing is that unless you are big enough to have enough data, the numbers and percentages are often misleading and don’t show accurate results. Not to mention, I would have to spend more time compiling all the data which would cost me more.

[Matt Kraft]

Good thoughts Len.

I’m with you on you can’t manage what you don’t measure. And also that different metrics would be best for different folks. Excellent point.

When I think about our largest chunk of payroll, our cultured marble shop, the only thing they know is more hours is good for them. They were used to 55 hour paychecks working pretty hard and for the last four years haven’t been waiting around for those hours to return. They’ve forgotten how to get things done. We’ve got to perform better if we want to grow the company because margins are a fraction of what they used to be. Historically, they’ve received no feedback as to the financial condition of the company or any real firm numbers about how much they need to be producing for things to be where we need them.

I think it will help us evaluate what work as a company we want to pursue. I want that process to be more of a company wide effort with buy in from all departments. Thats really my goal. Lets identify work that we can be efficient and make money with and go find some of it.

We are literally starting from zero on this effort in a 34 year old company. Kinda stinks to say that out loud, but those are the facts. Its going to be a process.

[Andy Graves]

I’m curious what you plan to say when jobs and money is scarce. I think employees will always read into it and think the worst. Not to mention, it I was in that position and the boss came to me and said things are going well, I would start looking for another job.

[Len Smith]

Andy,

Profit/loss isn’t what these kind of metrics are about….except for the owner or management team. Instead you are measuring what it takes for you to be profitable. For example, if you have fabricators who don’t install, what do they need to do in order to make you money? Those would be things like Avoiding Re-work, Proper preparation for delivery so that the materials arrive without scratches, Completing the project within a time budget of sf/hr. So you would keep track of the number of jobs that came back for re-work, and why. You’d keep track of the # of sf/hr fabricated, and when there are major differences, you find out why. You track the number of tops that arrived for the installers with damage. The key is not to get the employees to focus on your profit line, they really don’t care. You get them to focus on the things they do, and keep them on a score card, rewarding them for doing well. We sometimes cater a lunch for the guys after a particularly great effort. By keeping them focused on the operations they do in an excellent manner, you WILL be focusing them on their part of what makes you profitable.

Same thing goes for installers. What makes them make you money? Bringing ALL supplies and tools necessary for the project to the install. If they forget the matching silicone at the shop, you just lost some profit. So you identify the tasks in which each function adds to the profitability to the company, and measure those things. I’m oversimplifying it, but that’s it in a nutshell.

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