The man who beats the machine

1. This was the headline in one of the newsletters published by the multinational Bata Shoe company some 30 years ago.
2. It wrote about a Malaysian worker whose performance is better than the machine and hence he would not be replaced by the machine.  
3. The Bata group of companies had introduced a machine to replace one set of manual function in all their shoe factories world wide.
4. However, the management surprisingly found that one worker in Malaysia would not be replaced by the machine because his output performance has been recorded to be more efficient than the machine.
5. What was the significant of this report?  It shows that performance measurement was already in place in all Bata companies throughout the world. 
6. This also went to prove that Bata would not mechanize a job until and unless it was proven that the new technology was better than the old manual.
7. Without performance measurement, there should not be any news of this sort.  The introduction of technology would simply be based on guess work or follow the Jones or the crowd.
8. It is no wonder that Bata has maintained its long global record to be among the best managed company in the world.

Performance measurement should exists prior to or before any decision on the change of new technology could take place.

Copyright:  arriffin@gmail.com 012-2786282

Output input ratios - to evaluate business and it's key activities.

Use the efficiency and performance ratios to evaluate and measure the true performance of a business activity.

Analyzing  performance in 7 step approach

1. The Du Pont chart with the ROE/ROA at the end would be a good start to evaluate and identify the critical performance gaps.
• Return on Sales
• Asset Turnover
• Asset Equity multiplier 
2. Compare the business profit model with that of the industry standards.
• variable costs and fixed costs
• Price
• Volume
• Profits
3. Subsequently, the departmental KPI metrics could be a good measure of performance on each department.
• Marketing KPIs
• Warehouse
• Shops
• Distribution
• Advertising and promotion
• Salesmen
• Operations/Production KPIs
• Production costs
• Throughputs
• Material efficiency
• Labour efficiency
• Overhead efficiency
• Wastage
• HR KPIs
• Payroll
• Training
• Recruitment
• Staff Turnover
• Finance KPIs
4. The five set of financial ratios 
• Overall CEO performance
• Efficiency ratios based on working capital and fixed capital
• Financial Leverage
• Potential Trend
• Liquidity Management
5. Output / input dynamic ratios are the final evaluation where the impact on volume is neutralized.  This could be illustrated by a graph.  By this approach the opportunity costs or gains would be computed as well.
6. Supervisors Performance could be measured
7. Individual worker performance

For the purpose of remedial actions or turnaround, only the critical performance needs or gaps to be rectified or addressed.   Choose the key result areas at which with little effort and focus would have great impact on the bottom line.

performance indicators for key functional departments

Below are some Key performance indicators for some key departments.

The first two pages has formulae.  However the last page are KPIs without formula.  I believe you can guess the formula.

1. CEO performance is ROE/ROA
• ROS
• Asset turnover
• Asset Equity Multiplier
2. Departmental KPI are as above.
• Marketing
• Operations
• HR
• Finance
3. The Du Pont chart measures the efficiency of working and fixed capital.
4. The financial indicators measures efficiency, leverage, liquidity and trends.
5. Depth analysis through 
• Variance
• Component ratios
• Output input dynamics
• Dimensional graph
6. Individual performance
• variance against industry standards
• competency
• Performance Improvement Strategies