Discuss the main strengths and weaknesses of the performance management system used by Omnetric Smart Markets (described below), identify the main incentives it creates and suggest ways to improve it.

What is Omnetric and Smart Markets

Omnetric is a company owned by Siemens founded a bit more than 5 years ago with an aim to form an agile, effective and highly responsive unit of hand-picked experts operating in the Energy & Utilities Market. With the emerging importance of the IOT (Internet Of Things) concept Omnetric is officially exploring the new opportunities in this field closely to the traditional energy and utilities.

Omnetric is formed of different units called verticals and focusing on different areas of business. Smart Markets unit is one of these verticals concentrating on delivering services for the end customers. Next to Smart Markets we would also have other verticals like Custom Software Development, Security and Integration and PMO (Project Management Office).

Smart Market is a profit centre which delivers various IT solutions to large energy providers and is intended to produce profit through its operations. Basically, the only form of its operation is a service delivery project during which the personnel carries out solution implementation services and the customer pays for it. So, the only article that Smart Markets sells, is the time and expertise of its employees. The unit doesnt hold any IP (Intellectual Property) nor sell any pre-developed products. The unit is fully responsible for its resources, its expenses, the sales strategy and profit.

In order to measure the performance of the unit, several Key Performance Indicators have been put in place. Not all of these indicators are measuring the performance from the financial perspective. There are other aspects taken into account like the organizational health, meeting corporate strategy and the happiness of all parties. The list of main KPIs is described in the following paragraphs.

Chargeability and utilization of workforce - unallocated COGS

It is clear that in a business unit like Smart Markets the main sales article is an hour of someones time and the value created during that time the chargeability and workforce utilizations can be considered as one of the main management KPIs. It is naturally in the business units interest that all employees are utilized to the maximum and would always have a project to book their time against in order for the business unit to charge customers for their services. Every hour an employee is not being utilized on a project costs company money and will lead to the unallocated COGS (Cost of Goods Sold) the cost of an employee not being utilized for the business unit to handle internally.

From one hand this comes with the nature of the business - making sure that the number of employees and the amount of work is in balance. However, there can be different approaches to this business model: One could concentrate on hiring hand-picked experts from the market and then care for their utilization via winning the business for them. On the other hand one could concentrate on winning the business first and then ramp up the team quickly in order to get the project running.

In our case it is clearly the first strategy get the best people from the market and work with them to win more very specific business. This is how we intend to deliver good quality. However, this approach is constantly challenged by financial management arguing the hiring of people on the bench rather than getting the business in first. Naturally, for an optimal strategy these two approaches need to challenge each other constantly and the optimum lies somewhere in between.

Margin and profit

Margin and Profit are the KPIs measured at project level inside the Smart Markets unit and are treated further in statistical calculations like average over projects for showing different perspectives across the unit.

It has to be said that there are as well minimal corporate thresholds for margin and profit specified per type of service. However, the final figures are for the Smart Markets unit to manage individually.

There is also a differentiation per margin type. For example the margin percentages on top of the personnel cost, pass-through third party service, travel expenses and hardware pass-through are all different. The difference mainly origins from the cost of the overhead related to the delivery of a particular item. It is clear that allocating personnel has considerably more overhead than re-selling a piece of third party equipment ordered form a catalogue online.

Revenue

The change in revenue is a clear indicator of the change in the volume of business the company or a business unit is processing. The growth of the revenue is amongst other things targeted in Companys strategy and roadmap. In correlation with other growth-oriented indicators like the number of staff the change in revenue will contribute into the overview of the business units expansion of operations.

New business and sales

In the IT solutions business the existing customers will always continue to produce some revenue via maintenance and support activities of the already delivered solutions and the follow-up projects nurtured by changing business needs and requirements resulting in constant changes to the existing systems. However, the main revenue still comes from the delivery of new projects hence winning new business deals is also an important indicator for measuring companys performance.

As the verticals are formed by the types of projects they deliver and the domains they operate in, every vertical is responsible for bringing in their new business. Hence the sales performance of a business unit has a crucial value and is therefore also being used as a KPI. The detailed numbers measured periodically are for example the number of sales leads, number of leads turned into an opportunity and number of opportunities awarded as a project. The analysis of these numbers is also performed across different delivery regions (customer locations), salespersons and technologies used.

Number of staff

The use of number of staff as a KPI origins from the corporate strategy. The growth of staff empowering the growth in the market share is part of Omnetrics official strategy. Smart Markets business unit has an envisaged growth target in time indicated by Companys long term roadmap. The ability to grow and meet that target is being used to measure how the business unit is performing.

Employee Engagement & Satisfaction

As mentioned earlier, all KPIs are not only concentrating on financial numbers but some of them are rather aiming to measure the organizational health. The employee engagement and satisfaction is one of them. It is mainly measured via regular Employee Satisfaction surveys taking place twice a year. The first indicator measured is the engagement percentage itself, reflecting in the number of employees actually participating in the survey. In a relatively small unit with a familiar atmosphere this is usually quite high anyway. As a second step the employee satisfaction is measured in terms of different areas like the support from the management, nature of the work, stress and challenges etc. The pattern analysis is performed on the answers to reflect the overall trend and locate the main problem areas. The results are thoroughly discussed with the whole unit alongside the plan for addressing the issues by the management.

Project health

In the unit like Smart Markets with the main operating mode being a service delivery project, the Project Health is measured at project level and then statistically aggregated to the unit level. This is a valuable KPI in order to monitor the quality of service delivery at granular level and draw conclusions about the overall quality of service at unit level and also observe the tendency of change in time.

The project health is measured via a number of lower level indicators like meeting the project timeline and milestones, meeting the overall budget, utilization of project tools, meeting the payment plan etc.

After having collected the detailed health data at project level there are many possibilities to aggregate it based on the necessity and focus point. The most usual way is to score each health indicator in a 3-grade system (green, yellow, red) and look at which area across projects tends to be most problematic.

Customer Satisfaction

As every company, the customer satisfaction plays a key part in growing and even maintaining the business. This is even more important for a company selling personalized services instead of consumer goods.

Customer satisfaction is measured in two ways. For each project the project manager keeps track of the items having a direct impact on the customer satisfaction like the number of escalations, the number of severe incidents per time frame (usually per month) with the system being not usable, the number of times the SLAs (Service Level Agreements) have been breached etc. These numbers are collected periodically and are published internally to show the global overview of customer satisfaction across projects.

Secondly, the customer feedback is collected empirically via customer satisfaction calls and Lessons Learned sessions conducted at the end of major milestones and naturally also at the end of the project. Treating the data collected via these sessions combined with measured customer satisfaction indicators gives an overview of the change of customer satisfaction in time.