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RESEARCH AND DEVELOPMENT DIRECTIONS
METHODOLOGY OF RESEARCH AND DEVELOPMENT
Key performance indicators (KPIs) have been playing a key role in managing enterprises in various economic sectors for several decades. Over the course of time, the number of indicators as well as their significance have risen sharply. This report presents the study results about the development of KPIs for SMEs in producing industry in german speaking region. It happened a field analysis concerning key indicators and key indicator systems, especially in the sales and marketing of producing industry. Targeted and useful key indicators were sought which, on the one hand, fulfil the order content for the relevant customer and, on the other hand, support suppliers and sub-suppliers in their own business management. Concurrently, it included an analysis of the extent to which these key performance indicators also represent an internal business benefit for the supplier enterprises. The findings ascertained were then evaluated and critically examined in terms of the sustainable, internal applicability for suppliers and sub-suppliers in the manufacturing industry. A developed concept of streamlined, cost-effective and cross-sector key indicator management system for key sales and marketing indicators for the purpose of managing small and medium-sized enterprises of producing industry was prepared.
Key Indicator System, Performance Measuring System, Producing Industry, KPI models
Key performance indicators have been playing an important role in managing enterprises in various economic sectors for several decades. Over the course of time, the number of indicators as well as their significance have risen sharply. The pioneers and driving force for this development came especially from the financial sector and manufacturing industry. This tremendous acceleration in the use of key indicators in all specific business processes also meant that the use of key indicators became increasingly relevant for their suppliers and sub-suppliers. Multinational corporations often run dedicated departments or employ an array of staff in different business divisions for the purpose of generating and implementing their specific key indicator systems. This expense is typically unaffordable for their suppliers and sub-suppliers, or may only be implemented at considerable additional cost. Moreover, there are differences with respect to the key indicators represented between industrial customers. These key indicators, however, are only useful to a limited extent for the internal corporate management of suppliers and sub-suppliers.
Based on a literature review focused on the business processes involved in marketing and sales, as well as those processes specific to production, which significantly fulfil contractually agreed customer requirements, a field analysis concerning key indicators and key indicator systems in the sales and marketing of manufacturing industrial enterprises as well as their suppliers and sub-suppliers were concerned. The findings ascertained were then evaluated and critically examined in terms of the sustainable, internal applicability for suppliers and sub-suppliers in the manufacturing industry. Targeted and useful key indicators were sought which, on the one hand, fulfil the order content for the relevant customer and, on the other hand, support suppliers and sub-suppliers in their own business management. Particular focus also lied on the use of sales-relevant key indicators that were to be expediently carried over into technical production considerations and the corresponding use of key indicators.
By comparing customer-specific industry requirements and the current usage of key indicators in the enterprises, supplier and sub-supplier companies, potential areas were ascertained for clearing out unused or irrelevant key indicators. A further step involved a survey of absolutely necessary, internal controlling indicators for suppliers and sub-suppliers in manufacturing industry. The results of the empirical research were then presented with the findings and conclusions. Building on this, these relevant key sales indicators should be easily integrable in a given enterprise. Further details and information of the study can be found PhD Thesis Manageable Ratio Systems for SMEs in Producing Industry (Alfred Tieber, 2018).
Based on the data and conclusions drawn from the present state of the art, the following research and development directions are assessed as being currently relevant in relation to performance measurement systems in producing industry:
- analysis of representative KPIs in producing industry;
- continuous analysis of the utilisation level of KPIs in producing industry in the German-speaking region, especially of sales and marketing KPIs;
- review of practices and technologies, that have a positive influence on KPIs usage;
- development models for SMEs which could facilitate the usage of KPIs;
Main Objective of Research and Development Activity
Taking into account the present state of the art and the above research and development directions, it is assumed as main objective of the present foremost research and development doctoral activity: development of useful KPIs for SMEs in producing industry. The main objective requires developments on:
- survey of the utilization level of KPIs in producing industry;
- advantages and risks associated with KPIs implementation in SMEs;
- evaluation of the use of sales and marketing KPIs in producing industry;
- modeling the integration of sales and marketing KPIs in SMEs;
Companies in the producing industry in the DACH region were defined as the target group for the study. Over the course of collecting the data, 350 companies in the producing industry in German-speaking Europe were contacted directly and invited to take part in the study. More than a thousand companies were contacted indirectly by email and newsletter dispatches. Data from 102 companies in total could be used for the study. The study questioned companies from the following sectors: the mining and steel industry, chemical industry, construction industry, electrical and electronic industry, automotive industry, timber and wood industry, industrial manufacturer of paper and cardboard products, metal technology industry, non-ferrous metals industry, paper industry and stone/ceramic industry. 37.9 percent of participating companies referred to themselves as OEMs. In each case, 17.2 percent claimed to either be a tier-one supplier or purely a service provider for OEMs or OEM supplier. Around 14 percent stated that they are either tier-two suppliers or industry-oriented institutions. Moreover, the annual turnover of participating companies based on the last business year (2015, 2016), as well as the number of employees in the companies were collected in order to verify the data quantity. 44.5 percent of companies generated an annual turnover of more than EUR 100 million. 10.3 percent achieved an annual turnover between EUR 50 million and EUR 100 million. 6.9 percent had turnovers between EUR 25 million and EUR 50 million, and 13.8 percent reported annual turnovers between EUR 10 million and EUR 25 million. The majority of survey participants (> 59 percent) were decision makers in general management. The remaining departments are represented relatively evenly.
Schedule and duration time for the study
From January to March 2017, a test was carried out to check the questions and survey processes developed with regard to objectivity, reliability and validity. Styria was chosen as the test area with the destinations Graz, Graz surroundings and Eastern Styria. Based on the feedback and findings from the test phase, the questions were revised and the survey process was optimised. The official questioning was conducted in the period from July to December 2017. From January to March 2018, the analysis and evaluation of the data took place. From April to June 2018, the results were processed and recommendations for action drawn up.
Selecting the method
The methods should be selected such that enables an objective, valid and sufficiently reliable conclusion. The corresponding objectivity of data acquisition and the measurements of the people involved should be achieved using suitable framework conditions and techniques. In this case personal interviews, written and online questionnaires were used.
Use of KPIs in Producing Industry
All surveyed companies answered ‘yes’ to the question of whether they consider the use of KPIs generally useful. Several reasons were cited for the usefulness of key performance indicators [Fig. 1]. Use as a transparent controlling tool (20.2 percent), help in decision-making (17.7 percent) and the initiation of changes and adjustments to company processes (16.1 percent) were the most frequently named reasons. This result tallies with findings from a key indicator study in automotive logistics – with the exception of a negligible deviation of two percent (cf. Günther, 2017).
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Fig. 1 Application of KPIs, (Tieber, 2018)
22 percent indicated that KPIs are particularly well suited for company controlling in order to attain targets. The identification of improvement potential and use as a benchmark tool for internal and external comparisons received 20 percent of responses, while the use of key indicator results for implementing performance-based remuneration (4 percent) played a relatively minor role. These findings are supported by a study by the Technical University of Munich (cf. Günther, 2017). For instance, this study also cites the high relevance of key indicators for company targets and their support for facilitating continuous change processes. Almost 90 percent of surveyed companies answered that they currently use KPIs/KPI systems. Numerous international studies confirm the high degree to which key indicators are used as a supporting controlling and decision-making tool in the manufacturing industry. An example is referenced in a study by Dr. Daniel Wothe (cf. Wothe, 2016), where 75 percent of study participants reported that they have specific key performance indicators that are verified in regular reporting intervals. In the current study, 48.3 percent of companies responded with a clear ‘yes’ to the question of whether KPIs/KPI systems provide greater benefits than costs. Only 13.7 percent disagreed. The greatest hurdles in introducing KPIs/KPI systems were identified as organisational challenges (26 percent) and IT/technical hurdles (25 percent), as well as the general fear of the total cost to the company (21 percent). In a study conducted by Horváth & Partners [G08], the reduction of general costs and the improvement of IT support in generating key indicators were named as far-reaching potentials for future optimisation. Similar trends could also be seen in studies by Günthner and Dörnhöfer (cf. Günther, 2017).
The question regarding the use of key indicators in business units/departments provided interesting insights; KPIs/KPI systems are used in a targeted manner in two thirds of all company departments included in the survey. Leading this trend is general management (12.7 percent), followed by sales/marketing (11.6 percent), manufacturing/manufacturing engineering (11.4 percent) and controlling at 11.1 percent. Purchasing, quality assurance and human resource management also exhibited usage rates above 8 percent. However, a closer look at the situation reveals that this mostly concerns quantity in data availability rather than data quality. The significance and usefulness of key indicators for future company controlling is certainly considered to be in a critical state.
Indeed, the constant addition of data to existing KPI pools without the simultaneous removal of unnecessary key indicators from the system clouds the overall picture. As often described in the specialist literature, the key indicators that are applied intensively typically concern economic and production-related key performance indicators as well as process, logistics and quality key indicators. This study likewise corroborates the significant presence of key indicators in these areas [Fig. 2]. However, other areas are also gaining in importance, such as customer/supplier key indicators including customer satisfaction (14 percent) and environmental key indicators (10.8 percent). There is a significant desire for change in the use of key indicators. Conventional, financial-based key indicators no longer suffice to describe a company in its entirety. A substantial increase is needed in the use of non-financial key indicators (cf. Gräf, 2017).
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Fig. 2 Categories of KPI use in companies, (Tieber, 2018)
Besides the actual use of key performance indicators, the logical interrelationship between the departments and divisions of a company represents an additional benefit and efficiency increase. Around 65 percent of respondents stated that a degree of interface coordination and hence also interdepartmental use of KPIs takes place either partly or fully. The key indicator findings are communicated via several channels. Interesting is, that 83 percent of respondents agree completely or largely, that KPIs are an efficient means of assessing the enterprise. More than 68 percent agree that KPIs offer clear information and two of three respondents use knowledge of KPIs for everyday work. Publication by means of conventional short reports and postal or email dispatches accounts for the leading communication channel (38.3 percent). The use of online reports is also progressing (25.5 percent). Here, the results are distributed using the company intranet or similar internal online platforms.
The distribution of information through direct verbal communication (meetings/discussions) still, however, plays an important role (34.1 percent). In this regard, the findings differ from the study results of the Technical University of Munich (cf. Günther, 2017). As part of that study, the verbal communication of key indicator results was not separately listed. Yet, based on the documentation of results, it can be assumed that this communication channel was included under the ‘miscellaneous’ option. Accordingly, no more than 10 percent of respondents preferred this means of reporting. This is undoubtedly also due to the enormous rise in the use of technological systems at the communications level, as well as the rapid pace of the underlying availability of information and their urgency of distribution. This result was essentially confirmed by a study by Günthner and Dörnhöfer (cf. Günther, 2017). All companies that use key indicators stated [Fig. 5.8] that the KPI results led to a direct benefit. The factor of cost savings (22.7 percent) received the top rating in this regard. It was followed by findings on improving the company/departmental result (21.6 percent). Third place was shared by process optimization (for improving processes and communication) and increasing quality (higher than 20 percent). Soft skills such as increasing employee satisfaction or improving the company image were named significantly less frequently (below 3 percent). Interestingly, increasing customer/supplier satisfaction also only received 14 percent. This is surprising, particularly as there is often the desire/requirement in industry to further prioritise the field of soft KPIs (cf. Gräf, 2017).
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