SVENSON &WALLACE, INC. ~.1'iD

YOU GET WHAT YOUMEASUREMark G. Brown

In spite of how unpredictable humanbehavior can seem at times, as a general

f----~-rule, organizations get what they - -measure from their people. What thismeans is that employees usually performwell on those aspects of their perfor-mance that are being measured. Youdon't get what you expect, you get whatyou inspect. In fact, in our experience,we've found that the measurementsystem in an organization is one of thebiggest determinants of good or poorperformance. Measuring the wrongindices has gotten many companies introuble:

• Measuring sales revenue may leadto high sales figures, but lowmargins and profits.

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Volume 3, No.2 SUMMER 1989

LETTER FROM THE VICE PRESIDENT

Dear Clients and Friends:

This edition of our newsletter addresses two issues we have been working on with ourclients over the last couple of years. The first article discusses how to design mea-surement systems for organizations. The old saying, "You get what you measure,"holds true in most cases. Measuring the wrong things is more often than not one ofthe major causes of performance problems in companies. We've found that it ispossible to obtain fantastic improvements in performance by doing nothing more thanusing proper measurement and feedback.

The second article in this issue discusses the job and function of Product Management.Most large organizations we've worked with in the last few years have a positioncalled "Product Manager." Although everyone is often not in agreement about whatthese Product Managers should be doing, their responsibility is usually to oversee agiven product from initial conception through final release and sale to customers. TheProduct Manager stays involved with the product until it is discontinued or replacedwith another version. In this article we'll present some suggestions for improvingProduct Management's efficiency through performance-based training.

PRODUCT MANAGEMENT SUCCESS FACTORSDee A. Kane

"Product Management training has made my subordinates34% more effective on the job and enabled them to learn theProduct Management function six months sooner than theywould have without training."

Gerry Kaufhold, Product Management Curriculum Manager, reports these resultsfrom the supervisors of participants who attended AT&T Network Systems ProductManagement Process Training. Three years ago, Svenson & Wallace, Inc. designedthe AT&T Network Systems Product Management Curriculum. Since then, we havedeveloped several Product Management courses for them, including the one coursereferred to above.

Whether the Product Manager is working for AT&T, or other companies, we havefound several key areas that increase their success. But, before these keys to successare discussed, a broad perspective of the Product Management function will bepresented.

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YOU GET WHAT YOU MEASURE[continued from page 1 column 1)

• Measuring quality may lead to lowproductivity.

• Measuring staying within budgetmay prevent people from achiev-ing really important goals.

Deciding What to Measure

When it comes time to decide what tomeasure in an organization, it's temptingto measure everything. In a manufactur-ing plant, we want to measure quality,but we also want to measure productivity,cost of goods sold, production deadlinesmet, and possibly other factors as well,such as in-process measures. In allbusiness organizations there are eightprimary types of measures or indices:

• Quality• Profitability• Productivity• Market Standing• Quality of Life• Financial Resources• Innovation/Technology• Public Responsibility

In a given organization you may onlyhave four or five of these measures, andthe relative importance of these measuresmay change as the business and outsideenvironment change. Measures such asQuality of Life and Public Responsibilityare difficult to measure objectively, butnonetheless important. Quality of Lifehas to do with how well the companytreats its employees and how the employ-ees feel about working for the organiza-tion. Public Responsibility relates toissues such.as safety and concern for theenvironment. If a company chooses toignore some of these softer measures,they often find that their financial(business) measures suffer in the longrun.

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PRODUCT MANAGEMENT SUCCESS FACTORS(continued from page 1 column 2)

Product Management Responsibilities

Product Managers are responsible for escorting a product and/or service through itslife cycle. Although that may sound like a simple task, it is actually very complex. Itrequires a person to have high level strategic and analytical skills. Plus, they must beable to make decisions and implement the details of a very specific plan.

Another factor that increases the complexity of the Product Manager's job is that theymust rely on information from a wide variety of sources. They need to coordinate therecommended strategies and financial information from a dozen or more departmentsthat include members of the "Product Team." The information is then assembled in acohesive document called a Product Plan.

Keys to Success

Our research on the Product Manager function in organizations reveals that there arethree key factors, or strategies employed by exemplary Product Managers:

1. Teamwork During Product Life Cycle Planning2. Sales Channel Planning3. Product Support Planning.

Beginning below is a discussion of each of these success factors.

Success Factor #1: Teamwork During Product Life Cycle Planning

All products progress through a series of stages called the Product Life Cycle.Product Managers should be aware of where their product is in its Life Cycle, andhow to work with their team to plan for the next phase.

Organizations may have slightly different names for these phases, however, theygenerally include:

• Product Concept/DevelopmentProduct Introduction

• Market Growth/Maturity• Market Decline.

Product Managers are faced with different issues during each Life Cycle phase. Ifthey are aware of what the issues are, they will be better able to prepare their team forthem.

It is important to involve the entire team in discussions of the issues and plan devel-opment for each phase. Although an issue may be under one team member's jurisdic-tion, the decisions and plans may impact several others.

For example, in planning requirements to support the Market Growth phase, a keyissue may be to increase the number of distribution channels. If the Product Manageronly discussed this issue with the Distribution Manager, several critical questionsmay be left unanswered:

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YOU GET WHAT YOU MEASURE(continued from page 2 column 1)

Building the Hierarchy of Measurement Indices

Once you've decided what the overall measures are for your organization, you need tobuild a measurement hierarchy from the top down. This involves taking the overallmeasure such as sales revenue or gross margin and breaking it down into its compo-nents or submeasures, then tying those submeasures to functions, positions, andindividual employees. (See diagram below.) By defining the measurement system inthis way, you assure that all of the activity being driven by the measurement systemleads to the overall results for the organization. It all sounds like common sense,right? It is, but it is rare to fmd any organization that has built its measurementsystem in such a logical fashion. Measurement systems appear to be built over timeby a variety of departments, and without any clear overall plan. Many times we seeseveral departments or divisions being evaluated on the same primary measures.When something goes wrong, it's always the other group that is at fault.

PRODUCT MANAGEMENTSUCCESS FACTORS(continued from page 2 column 2)

• Market Research may ask aboutadditional features that might beneeded by the potential new cus-tomers.

• Product Design may be concernedabout the impact of longer traveltime on product quality.

• Manufacturing may want to knowabout the increase in productionrequired to meet the demand.

--- ----~-~------

• Sales may be interested in com-1 petitiv~product~ ~urrently in the

area.

Hierarchy of Measurement Indices for Gross Margin

Keeping the Measurement System Simple

All of us seem to enjoy keeping track of how we are doing, measuring our ownperformance against others, or against some standard. All sports and games includemeasurement systems for evaluating teams and individual players. What's differentabout the measurement systems in most sports is that they are very simple. In teamsports, the overall measure is number of wins and losses. Other measures such aspasses completed, runs batted in, etc., are used to evaluate both individual perfor-mance, and the entire team .

..----- - --------- --------In most organizations a given individual is measured on ten or more factors. Manymanagers have 12-16 annual objectives that they are measured on, along withmeasures of their ongoing responsibilities, and measures of their behavior. No onewould argue that all of the factors being measured are important, it's just too muchinformation for an individual to keep track of on a regular basis. Imagine playinggolf, and not only keeping track of the number of strokes per hole, but also keepingtrack of the force, distance, direction, velocity, and accuracy each time the ball is hit.We could also measure behavioral dimensions like the use of the proper club, theswing, etc. All of these factors are important to playing a good game of golf, but weonly have one bottom line measure: how many strokes are you above or below parfor the course.

The best measurement systems in organizations are based upon no more than fourprimary measures for anyone individual. Rather than develop a series of submea-sures, it is more beneficial to state a series of qualifiers that must be observed. These

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• Sales SupPOrt may inquire aboutadditional funding for saleswareand trade shows to support newchannel members.

• Product SupPOrt may ask aboutrequirements for additional servicecenters.

If these questions were not answered byProduct Management during the planningprocess, they could become serious prob-lems later on.

So, not only do Product Managers need tobe aware of the key issues in each phase,they must get their team involved in thediscussion. The team's participation willcontribute to the product's success andminimize fire fighting.

Success Factor #2: Sales ChannelPlanning

Besides being able to work with theirinternal team, effective Product Managerswork well with their external resources.A primary group of external team playersis the sales channel entities. Saleschannels are the organizations that sell orresell the product to either anotherchannel entity or to the end user. (Not tobe confused with the physical distributionchannel which tracks the product's actualphysical movement.)

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YOU GET WHAT YOU MEASURE(continued from page 3 column 1)

are like the rules in a game. An exampleof a rule in an organization is notexceeding your budget. As in sports, it ispossible to have many rules in organiza-tions. People can remember these if theyare consistent.

The Two Measurement Techniques:Counting and Judging

All measurement systems in both sportsand work are based upon systems ofcounting or judging. Counting is themore Qbjective of the two, and is themost widely used. Number of defectsper million, strikeouts, projects com-pleted, sales made, and strokes per holeare all things we can count. Some sportsand some jobs cannot be adequatelymeasured by counting. A rating orranking system must be used to evaluatecertain performances. Diving andgymnastics, for example are bothmeasured using a judgement system.Similarly, most aspects of quality inorganizations cannot be measured bycounting; judgement must be used.When using a judgement type measure-ment system it is always preferable touse a scale where ratings are based uponabsolute criteria, rather than one inwhich the performance of variousindividuals is ranked against one another.

Deciding Who Should Do theMeasuring

The best measurement systems are basedupon both internal and external mea-sures. It's important to know what yourcustomers think of the quality of yourproducts, for example, as well as whatyour own QC people have to say aboutthem. Some manufacturers provide verydetailed quality data to their suppliers,but in most cases, it is difficult to get anyamount of detailed feedback from clientsor customers. Self measurement is oftenthe easiest way of gathering data, but it isalso the least credible data. If it ispossible to remove human judgement or

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PRODUCT MANAGEMENT SUCCESS FACTORS(continued from page 3 column 2)

Sales channels include the company's sales force, distributors, other manufacturers,value added resellers, and wholesalers. One tool for getting an overall perspective ofthe sales channel is what we have labeled a "Sales Channel Map."

MANUFACTURER

Sales Channel MapCHANNEL END USER

J End User I/ -.Wholesaler

~~ Other I End User IManufacturer IIIManufacturer ~H ""Sa •••x:/

I~ l End User

I Distributor ValueAdded LIReseller I l End User

This "Sales Channel Map" is useful for:

• Initially planning the multiple points of sale (POS) required to reach thefinal customer or user

• Determining what salesware or promotional activities are needed perchannel entity

• Estimating the appropriate budget per channel based on the potential revenuethey generate

• Identifying channels with (or without) growth potential

• Determining the appropriate amount of channel overlap, conflict, or competi-tion in the channel.

Effective Product Managers work with their internal resources to analyze saleschannels and determine the most profitable or logical components for their product ineach phase of the Life Cycle.

Success Factor #3: Product Support Planning

Although getting the product to the end user is important, once it is there, it is criticalto provide the appropriate product support. Product support includes several elementsthat could be used to increase customer satisfaction. Examples of product support .elements include:

• Product/user documentation• Customer training• Product warranty• Repair service locations or representatives• Customer feedback/problem solving system.

Product Managers and their team should plan the overall requirements for the productsupport elements at the conceptualization phase of the product's Life Cycle. Therequirements and their associated benefits and costs may impact the financial viabilityof the "concept" being forecasted, as well as the actual returns. Product support plansshould be periodically revisited to ensure they are cost effective and achieve thedesired results.

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Scientists and engineers probably havethe most difficult jobs to measure. How- For more information about Product Manager training or curriculum design, contactever, by-being-creative, it is possible to--...,....,u--y-WaIlace. --' - ---

come up with objective ways of measur-ing the performance of these individuals.Dr. Randy Rooker, a Research Managerat NASA's Langley Research Center,came up with an index for measuring hisanalysts that gave them a score for eachanalysis project they completed. Eachproject was given a different value baseduQ9nJts difficulty and the amount of time

\~ . ...-.1 to compete it. The completed

analysis was then evaluated based uponits accuracy, timeliness, completeness,and originality. Each of these factors wasworth a fixed percentage. Dr. Rooker'smeasurement was simple, easy to admin-ister, and measured all of the majoraspects of the analysts' performance thathe considered important.

YOU GET WHAT YOU MEASURE»< (continued from page 4 column 1)

counting from the measurement system, itis much easier and more objective thansystems that depend upon employeesmaking the judgements or counting.Automated measurement equipment isextensively used in many modern manu-facturing facilities, but the technology isunavailable for measuring many serviceand professional jobs.

Measuring Scientists and Engineers

Building a Measurement System

Creating a measurement system isdifficult to do by selecting one function ordepartment and starting with it. A mea-surement system should be built from thetop down, to assure that all of the lowerlevel measures contribute to the overallmeasures of the organization. In otherwords, you start by identifying the keymeasures for the President and CEO, andwork down in a hierarchical fashion untilyou reach the level of the individualcontributors. Each measure should relateto those above it in a logical manner.

<;> Only by building the system in thisfashion can you assure that you aremeasuring the right things. Although this

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PRODUCT MANAGEMENT SUCCESS FACTORS(continued from page 4 column 2)

Conclusion

As a product progresses through its Life Cycle, there seems to be an endless numberof variables that a Product Manager must manage. The successful Product Managerrecognizes the most important issues and knows when to obtain input from his/herteam.

During the Product Manager training created for AT&T Network Systems, partici-pants manage a product as it progresses through the Life Cycle phases. They runseveral team meetings and are required to make financial and strategic decisionsfocusing on the three success factors we discussed here. This type of performance-based training can improve efficiency and get them "up to speed" faster.

COST-EFFECTIVE TRAINING CONFERENCE

Ray Svenson will be conducting workshops on Performance-Based CurriculumDesign and Strategic Planning for Training at this year's Cost-Effective TrainingConferences. The conferences are being held in the following cities this year:

• Toronto, July 17-19, 1989• Minneapolis, July 31 - August 2,1989• San Diego, August 21-23, 1989• Chicago, September 18-20, 1989

Please contact us if you would like more information on these conferences.

INTERNATIONAL CONFERENCE ON ENGINEERINGMANAGEMENT

Ray Svenson and John Burke of Alcoa will be making a presentation at the SecondInternational Conference on Engineering Management, to be held in Toronto,September 10-13, 1989. John Burke is the Engineering Manager for AlcoaTennessee Operations. The presentation is entitled: "Design of an EngineeringOrganization and Jobs to Optimize Performance of a High Tech Rolling Mill." Thepresentation relates to a project we worked on with John at Alcoa's TennesseeOperations where impressive results were achieved through an innovative approachto the design of an engineering function.

If you're unable to attend the conference and would like a copy of the paper that willappear in the Proceedings, please drop us a note.

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YOU GET WHA T YOU MEASURE(continued from page 5 column 1)

is conceptually the ideal way of buildingthe measurement system, it is sometimesdifficult to convince top management tostart with them. An alternative that wehave found workable is to develop andpilot test the system in one function that isparticularly difficult to measure, such asEngineering or R&D. Once top manage-ment sees that the measurement system isdriving the desired performance, it may bemore amenable to designing new meas-urement systems for the remainder of theorganization.

If you would like a copy of the expandedversion of this article or another articlewritten by Mark Brown and Ray Svensonon measuring R&D functions that waspublished in Research & TechnologyManagement Journal, please drop us aline.

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NEW STAFF MEMBERS

Terri Knicker

In April, Svenson & Wallace, Inc. hiredTerri Knicker as a new Associate. Terrihas an MBA in Finance from DePaulUniversity. Prior to joining us, she spentsix years with Unisys Corporationworking in a variety of marketing supportpositions. Terri is an excellent writer andhas an in-depth understanding of informa-tion systems, so she is proving to be a realasset in working with some of our "hightech" clients.

We would also like to welcome RobertPrater to our office staff. Rob has a BAin History and an MA in TheologicalStudies. He has a variety of workexperience and is adept at working withthe Macintosh PC.

Published by

SVENSON &WALLACE, INC.1733 Park Street, Suite 201

Naperville, IL 60563(312) 416-3323

This Management Update is prepared quarterly by the staff of Svenson & Wallace,Inc. Its purpose is to share specific applications of Performance Technology to - A....../

improve quality and productivity in organizations.©Copyright 1989. All rights reserved.