Achieving A Balanced Diet - Foundations
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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SECTION: Foundations

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Achieving A Balanced Diet

Written By: Matt Di Iorio

Article Date: 11-01-2006
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

It can be challenging to balance a rewards systems with processes that make achievement possible.

The holidays are right around the corner and I'm already dreading the lasagna, chicken cacciatore, friend calamari, etc. my mother serves on Thanksgiving. Well, not really. I love Italian food and I love my mother. However, I know that if I eat too much of one dish, I am very likely to experience the unintended consequences of a stomach ache. The purpose of this column is not to describe the consequences of eating too much pasta, but to describe the costs associated with over-indulging in your favorite managerial benchmark: financial results.

Focusing on financial results isn't a problem in and of itself. However, if you're not measuring and analyzing customer satisfaction, operational excellence, and, ultimately, the capacity of your people to drive the financial results of your company, it may be time to move past the antipasti (financial results) and get on to the main course (performance management).

The dietetic metaphor to which I'm referring was developed in the late 1980s by Harvard's Kaplan and Norton, and is commonly known as "The Balanced Scorecard." If you haven't heard of it or decided it doesn't fit the dealer business model, I hope this column prompts you to reconsider.

The Balanced Scorecard is a simple framework business leaders use to effectively translate strategy into meaningful and actionable processes that proactively create the financial outcomes they desire.

I visit with more than 100 AED dealers each year and when dealer performance inevitably comes up in conversation, one metric and one benchmark always surface. How much have we sold? Did we sell more or less than last year?

While I'm not naïve enough to believe revenue is the only thing that matters to managers. I do believe that we either measure so many metrics that managers cannot have a material impact or so few that behavior and resources are skewed toward tasks that produce short-term results that are often unsustainable.

For example, back in the 1990s business conditions were so good it would have been hard to slow down the growth of my dealership's service department. However, as the saying goes, where there is a will, there is a way, and I found it. Although shop revenues had tripled in as many years, profitability lagged.

Therefore, a system that measured and rewarded shop efficiency was implemented. Every technician's individual recovery rate, i.e. hours available vs. hours billed, was posted in the service manager's office each Monday morning. Team goals were set and significant bonuses were attached to achievement.

The program worked exactly as designed, and technician recovery and efficiency skyrocketed. However, the unintended consequences of too much antipasti resulted in stagnant sales. While technician recovery improved a great deal, hiring stopped dead.

Why would service employees add new, inexperienced technicians? Sure, they might be able to improve revenue, customer response time and bay turnover, but those weren't the goals anymore. Service employees were recognized for billing a high percentage of available hours. If an apprentice technician were only able to bill 50 percent of available hours, it would have a negative impact on that team. As Deming, Drucker, peters and many other management gurus have suggested, "What gets measure, gets done."

It can be difficult to eat a balanced diet in an Italian household, and it can be challenging to balance the recognition and rewards systems that surround our financial benchmarks with the customer, operational and training processes that make their achievement possible. The Balanced Scorecard is a management system that can help communicate strategic goals with unprecedented clarity, and continually improve performance producing the financial results you're after.

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