The Garrison Report #2010-9

Successful Construction 3.0™ Contractors Measure Performance -- Part 2

Listen to the audio version of this report here

Last month's report focused on the first two of the critical perspectives of business measurement: financial and customer perspectives. (If you haven't read part 1, it is suggested you go back and read it at www.tedgarrison.com/resources/garrison-report/2010-Reports/successful-construction-3-0-contractors-measure-performance-part-1.)

Both of those perspectives are important, but mostly they measure past performance. Obviously reviewing cost reports on a weekly or monthly basis allows for mid-course corrections on large projects, but on smaller projects, the information is often available only after the task is completed. If a company wants to differentiate itself and maximize the value it delivers, then it needs to measure current and future performance. While it's impossible to measure the future, there are things that can be measured that indicate where the company is headed. Therefore, the two remaining perspectives to measure are the internal business or operational perspective and the innovation or learning perspective.

Internal business (operational) perspective

Internal business measurements must focus on the processes that directly impact the company's ability to deliver the client's expectations. If the company is producing the right scores, then it will deliver what the client wants. If you aren't getting the right scores and want different results, you need to ask three questions: (1) How do we change our processes? (2) What decisions should we change? And (3) What actions must we change?

These measures are different because they are performed in real time instead of waiting for the project's completion. This approach parallels lean construction, which also encourages constant measurement of internal performance. While every company's approach to business is usually different, a common trait of successful companies is they all deliver what the client wants. However, it's critical to measure impacts on results the client values or you will waste time and money as discussed in part 1 of this report.

Internal business measurements focus on the critical actions necessary for your company to produce the desired results. If speed is something your company offers, then you should track the factors impacting speed. However, it is important to remember the purpose of measuring items is to improve, not punish, people, or you will get distorted figures. For example, measure the number of tasks that are finished on time each week not to punish, but to learn what must be changed. After discovering where delays occur, you can adapt your processes to eliminate them. Clemson Professor Roger Liska found that 20 percent of productivity is lost due to workers waiting on material, equipment or information. Your job is to eliminate the reasons for the delays.

If you are a service contractor, you could track callbacks or service calls where you didn't have the supplies you needed to perform the work. Track only items that impact the desired deliverables. In other words, if you promise faster service, then you must identify everything that causes delays in your operation and remove or at least minimize them.

Contractors must identify which processes and competences are necessary to produce performance excellence, but they must also specify the measurements in terms that reflect the performance of the process. Finally, the items measured should be ones that are influenced by employees' actions, or it's a waste of time.

Innovation or learning perspective

Peter Drucker wrote in The Essential Drucker, "Every organization--not just businesses--needs one core competence: innovation. And every organization needs a way to record and appraise its innovation performance." In reality, innovation is about an organization's ability to adapt to change--both changes in its clients' needs and in the way the industry conducts its business.

But what is innovation? It's not just new products. It includes new services, better business processes, better marketing efforts and better management techniques. We talked about better business processes and management techniques. However, improving any of these items is innovation.

The challenge with innovation is how to measure it. The financial perspective is pure numbers and easy to evaluate. However, innovation measurement is a little harder and can often lead to subjective decision making, which should be avoided. Therefore, a slightly different approach is needed. Oregon State University Associate Professor John Gambatese in an NCS Radio interview ("Bring More Innovation to Construction" www.Jackstreet.com/Jackstreet/WCON.Gambatese3.cfm) suggested that you measure the amount of change you have in your products, processes and systems. He continued that this means measuring the frequency of that change, which consists of how many feasible new ideas were generated, tested and implemented. This record will indicate whether you are pushing new ideas through the organization.

Arizona State University Professor Dean Kashiwagi warns that if we are not careful, the process can lead to subjective decision making, which often leads to nothing more than a guess. The process can point toward a series of questions. What are new systems? How many new systems? What was their value? What did they do? How did they impact performance? These types of question are certainly difficult at best and may be impossible to answer. Therefore, I would suggest a different approach.

3M is a company noted for innovation, and they measure it by what percentage of sales come from new products. They don't try to answer all the detailed questions; they just look at the big picture. In other words, if they are creating new sales from new ideas, they must be going in the right direction. Contractors could simply ask the following question: How many new ideas did we implement on this project that produced greater results than the expectations? This is a straightforward question that reveals if you implemented new ideas that improved performance and if so, how many. It's important to measure innovation in some manner because if you don't encourage people to innovate, they will typically take the safe path and do what they have always done. The construction industry hasn't been known for innovation compared to other industries, which may explain why it hasn't increased productivity in almost 50 years, according to the American Institute of Architects.

Gambatese offers another measurement for contractors on the learning side. He suggests contractors measure the amount of new training that is required. He argued if contractors are continually training people on new systems and products, it indicates they are implementing change.

e also suggested that contractors measure how many ideas developed on one project are diffused throughout the entire organization. If a new idea is used on only a single project, you don't have innovation; you merely solved a problem.

And finally Gambatese advised if you aren't seeing positive impacts to costs, productivity, quality and safety within the organization, your innovations might not be working. Kashiwagi would probably add increased customer satisfaction as another indication. While none of these measurements are exact, they can indicate if there is a positive trend of change or innovation. Without innovation, it will difficult to survive in today's hypercompetitive marketplace.

In the end, by measuring all four perspectives identified in this and the last report, your organization will begin to better gauge its true performance. More important, you will begin to identify areas requiring improvement and where your company has a competitive advantage that should be exploited.

If you aren't sure what to measure, don't worry. Simply start and keep adapting the process until you get it right. Just like innovation, it's often a little bit of trial and error.

 

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