Our Operational Excellence Model
Our Operational Excellence model inspires and financially motivates employees to positively change their workplace behaviors and practices. This change produces extraordinary improvements in operating performance and profitability.
Our Operational Excellence model integrates the following 4 systems:
- A Performance Measurement System
- An Incentive Pay System
- A Performance Communication System
- A Performance Improvement Team System
Linking the Four Systems
Although each Operational Excellence system yields improved results, the real game changer is linking the systems together. This is where most companies get it wrong. We design each system to be linked to a common thread, the Key Performance Indicators (KPIs).
Performance Measurement System:
The Performance Measurement System is the hub of our Operational Excellence Model. The other three systems are linked directly to the Performance Measurement System (KPIs).
Incentive Pay System:
Employees participate in a monthly Incentive Pay System. The Incentive Pay System is linked to the Performance Measurement System by financially incentivizing employees to improve the KPIs.
Performance Communication System:
Employees are frequently provided with information about KPI results and incentive pay earned through a variety of innovative tools and platforms. The Performance Communication System is linked to the Performance Measurement System by communicating KPI and incentive pay results to employees.
Performance Improvement Team System:
Strategically positioned and trained Improvement Teams capture and implement ideas to improve the KPIs. The Performance Improvement Team System is linked to the Performance Measurement System by focusing teams to capture and implement ideas to improve the KPIs.
Performance Measurement System
“The Most solid principle of improvement is … What Gets Measured Gets Done!”
The Performance Measurement System is comprised of two tiers of measures. The first tier of measures are the business-unit level Key Performance Indicators (KPIs). The second tier of measures are team or department level Line-of-Sight Targets (LSTs).
Key Performance Indicators (KPIs)
- Measure the performance of the overall business-unit (plant, mill, mine, distribution centers etc)
- Measure results and outcomes, not processes, efforts and activities
- Are macro measures that drive business results/success
- Are monthly measures
- Must be designed and formatted around the needs of the business
- Often number from 4 to 7 per business-unit
- Are measures that drive the Incentive Pay System
Some of the more common KPIs are:
Cost Productivity: Measures Controllable, non-labor cost per unit (or equivalent unit) of output.
Employee Productivity: Measures units of output (or equivalent unit) per paid hour worked.
Raw Material Utilization: Measures may include recovery, yield, usage, scrap rates, etc.
Product Quality: Measures may include PPM, reject rate, failure rate, product return rate, purity rate, material grade, etc.
On-Time Performance: Measures may include on-time shipping/delivery, average days late, order-to-delivery cycle time, etc.
Operating Margin: Measures may include Operating Margin dollars or percent.
Customer Satisfaction: Measures multiple factors on a client specific scorecard.
Product/Package Appearance: Measures multiple factors on a client specific scorecard.
Inventory Performance: Measures may include inventory accuracy (location and count) or inventory (actual vs target or turns).
Environmental Performance: Measures multiple factors on a client specific scorecard.
Safety Performance: Measures OSHA frequency and severity rate. We implement approaches that discourage under-reporting of incidents.
Long-Term Projects: Measures percent completion, time cost and quality.
Work Practices: Measures may include multiple factors on a client specific scorecard. Examples: equipment/product damage, equipment availability, preventative maintenance check completed on schedule, safety audit results, housekeeping audit results, a potpourri of measures.
Line-of-Sight Performance Targets (LSTs)
- Are “mini” performance measures specific to a department or team
- Measure processes, acitvities, results and outcomes
- Provide employees with visual performance goals and visual performance feedback on a daily or weekly basis
- Typically range in number from 2 to 5 per team or department
- Are leading indicators of month-end KPI performance
- Are designed to support the achievement of the Key Performance Indicators (KPIs)
- Allow employees to see and understand how they have a direct and immediate impact on the big picture
- Are not directly incentivized
Click the image below for an example of a Line-of-Site Target for Production Line Operations.
Incentive Pay System
“The first law of economics is not supply and demand. The first law of economics is INCENTIVES MATTER!”
The Gainsharing Incentive Pay System is the financial force that energizes employeees to achieve new levels of operating performance. It provides employees with the opportunity to earn incentive pay for improving the KPIs.
The Gainsharing Model is simple. Employees individually and collectively improve the operating performance of the 4 to 7 KPIs. The company then shares approximately 35% of the value of the improvement with employees on a monthly basis. This is a win-win situation. The Gainsharing Incentive Pay System encourages and aligns all employees to improve operating performance.
1. Performance Measures
The 4-7 Key Performance Indicators (KPIs).
2. Incentive Pay Models
The statistical model used to collect data, analyze data, develop performance baselines and build and validate the Incentive Pay System.
3. Incentive Pay Charts
The Incentive Pay chart for each KPI visually presents the Incentive Fund for various performance levels.
4. Building the Total Incentive Fund
The amount of money that is collectively earned by all employees for exceeding the performance baselines of one or more of the KPIs.
5. Distributing the Incentive Fund
A method of distributing the Incentive Fund to employees that is equitable, legal, and motivational.
Bovino Consulting Group has developed 23 fundamental principles to effectively design and implement motivational Incentive Pay Systems. These principles are a product of our experience.
Below are 8 of our Incentive Pay System principles.
- Incentive pay must be driven by outcomes and results, not processes, activities or effort.
- Incentive pay must be the result of quantifiable improvements compared to an established baseline … the baselines for each Key Performance Indicator (KPI) must be achievable.
- Incentive Pay Systems must be uncapped. Uncapped incentives produce uncapped performance.
- Reasonable improvement levels must produce a reward that is considered “motivational” to plan participants.
- Incentivize sustained, long-term excellent performance.
- The opportunity for incentive pay must be frequent (i.e. monthly).
- The Incentive Fund Chart for each KPI must be visual and show the earned Incentive Fund contribution and the performance that generated the Fund.
- The total incentive Fund is distributed to employees in proportion to their pay. Use the percentage of pay distribution method.
Performance Communication System
“An uninformed workforce is an underperforming workforce!”
The Performance Communication System effectively communicates the information that employees need to make the Operational Excellence Plan a thundering success. The Performance Communication System is comprised of 8 communication events.
Communication Event #1 – Announcement of intent to design and implement an Operational Excellence Plan.
The first communication event is an announcement to employees that an Operational Excellence Plan will be designed and implemented. This communication occurs prior to starting the design activity.
Communication Event #2 – Contest to name the Plan and design the Plan logo
This communication event is a contest for employees to name the Plan and to design the Plan logo. This contest helps build employee ownership of the Plan and understanding of the four Operational Excellence Systems.
Communication Event #3 – Communicate approved Plan to employees
The approved Plan is presented in Announcement Meetings to small groups of employees using a clear PowerPoint presentation. The presentation is supported by providing each employee with a comprehensive Operational Excellence Employee Booklet. The Booklet is graphics filled and explains the Plan from A to Z.
Communication Event #4 – New employee onboarding communications to introduce key aspects of the Plan
New employee onboarding communications are on-going as new employees are hired. For new employees, the comprehensive Operational Excellence Employee Booklet that fully explains all aspects of the Plan is overwhelming … too much, too soon.
To ensure new employees have a basic grasp of the Plan, they are required to read a Mini-Employee Booklet (describing key aspects of the Plan) as part of the company’s onboarding process. New employees will listen to and watch a New Employee Orientation SMART TALK. The New Employee SMART TALK is an online, on-demand, narrated, animated 20 to 30 minute audio-visual introduction to Operational Excellence.
Communication Event #5 – Performance Communication Meetings
Performance Communication (PC) Meetings are on-going monthly communication meetings that last 30-40 minutes. PC Meetings are conducted in small employee groups. Attendance by all employees is required … not optional.
The PC Meetings are conducted by selected employees trained to effectively present the KPI and LST performance results. The recent KPI Report and LST Charts (once the LST Charts go live) are tools used in the meetings.
Communication Event #6 – Continuing Education SMART TALKS
SMART TALKS are on-going communication tools that employees can access to learn more about specific aspects of the Plan.
SMART TALKS are online, on-demand, animated, narrated explanations of the Operational Excellence Plan. Each Operational Excellence Plan is supported by 12-15 SMART TALKS.
SMART TALKS are presented in monthly performance communication meetings as a form of continuous education of the Plan. SMART TALKS are available to all employees seeking more information about the Operational Excellence Plan.
Communication Event #7 – Line-of-Sight Targets (LSTs)
Line-of-Sight Target (LST) Charts are on-going communication tools displaying “micro” performance targets and short-term performance results for specific teams or departments. LST performance is not directly incentivized; however, excellent LST performance supports KPI results.
Communication Event #8 – Performance Communication Boards and Electronic Continuous Read-out Signs
Performance Communication Boards are updated in the operation on an on-going basis. Employees will only view Communication Boards if the information is meaningful to them and current.
Performance Improvement Team System
“The real genius within leaders, is harvesting the wisdom of their employees.”
The Performance Improvement Team System is the heartbeat of Operational Excellence. It is comprised of two major components: Performance Improvement Teams and the Performance Improvement Pipeline.
Performance Improvement Teams are cross-functional teams comprised of approximately 10-20% of the workforce. They are tasked to capture and implement ideas to improve the KPIs and business performance. Each team ranges in size from 8-12 employees with a Coach, two Co-Leaders and Members. Performance Improvement Teams meet on an on-going basis, twice a month (recommended) for 2-3 hours.
Employees who are not currently on a Performance Improvement Team can submit their improvement ideas to the Teams through a variety of channels including:
- Submitting ideas via text or email (each PI Team has an email address)
- Presenting ideas to PI Team during a brown bag lunch hosted by the PI Team
- Submitting an “Idea for Betterment” form online or in hard copy
- Presenting ideas in person at a PI Team meeting
- Talking informally with PI Team Coaches, Co-Leaders or Team members about ideas