Truckers around the county have reduced staff, cut costs and eliminated all but the most necessary of capital expenditures as they prepare for a prolonged and painful recession marked by tight credit, reduced freight and excess industry capacity.
Profitability as the primary operating goal has been replaced by survival as many – too many - of our industry’s once financially sound Truckers lament: “I’ve cut all I can cut – What Next?”
For most, the answer to that question can be found in an opportunity few Truckers have yet to capitalize on – improved employee, fleet and cost performance through development of an effective Performance Management Program.
Before outlining the four steps required to develop a Performance Management Program, let’s understand the targeted benefits of such a program. Imagine the positive impact on your operations if everyone in the organization improved individual performance by an average of just ½ - 1 percent. What would happen to your bottom line if key performance areas such as Laden Mile, Driver Productivity, MPG and Maintenance Cost per Mile all improved by just ½ - 1 percent? That’s the mission of Performance Management, to elevate the performance of your employees in those key areas that most impact profitability.
A Performance Management Program is a program that uses performance goals, defined activities, performance monitoring and mentoring, and financial incentives to improve the baseline performance of employees and thereby improve bottom line results. Put another way – you provide employees the goals, tools, direction and reward necessary to elevate their performance.
There are four basic steps required to develop an effective Performance Management program.
STEP 1 is identifying Key Performance Indicators (KPIs) and establishing individual performance goals for each. KPIs are the areas of your operations that most impact profitability such as those listed above (Laden Mile, Driver Productivity, etc…).
STEP 2 in developing a Performance Management Program is to Define the Activities employees should incorporate into their daily routines that will ensure they make their goals. It is critical to the success of your program that the most effective activities are identified and standardized across the organization.
STEP 3 is Monitoring and Mentoring. Companies managing elevated employee performance need the ability to quickly identify who in the organization is having problems making goals so that they can provide support and coaching.
STEP 4 is providing Financial Incentives. Unquestionably, employees are motivated by money and providing a reward for goal obtainment is the most effective motivational tool in a Performance Management Program. Keep in mind, employees that make their assigned goals have improved individual performance over prior period and thereby improved bottom line results. Financial incentives are funded from a portion of the savings goal obtainment generates.
Performance Management is not a new concept nor is it just for lower-level employees. CEOs of large companies, regardless of industry, often have employment contracts that provide significant bonus opportunities for meeting specific goals. The success of linking financial reward to goal obtainment to increase profitability has long been recognized and embraced by the business community.
These same companies often integrate their Performance Management Program into their Business Plan by defining employee KPIs and making assumptions about what percentages of those goals will be met.
Surprisingly, most trucking companies have not established a Performance Management Program. I say surprisingly because as an industry we are quick to embrace technology and provide driver training to increase performance and cut trucking costs but somehow have failed to recognize the huge bottom line potential of providing field management employees pay for performance opportunities.
Trucking in a recession is difficult yet after all of the cost cutting is done, we can’t lose sight of the fundamental fact that our day-to-day operations are run by Terminal Managers and Driver Managers. Each one of them makes literally hundreds of decisions every week that impact the cost and profitability of our organization.
Doesn’t it make sense to provide the employees that actually manage our business the goals, direction, resource support and financial incentive to help and encourage them to excel?
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If you would like to learn more about how Performance Management can improve the financial results of your trucking company, visit our web library and view CostDown Consulting's PowerPoint training presentation: Bottom Line Improvements through Performance Management.
--Joe White - -TruckExec Publisher/ CEO CostDown Consulting
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