This article is focused on creating a system of metrics and its application in a metallurgical firm. Its aim is to highlight the dangers associated with the creation and application of an effective system of metrics. Its objective is also to demonstrate the process (initial steps) in the development of this system in the real family metallurgical firm. In the experimental part an example of causal links among key metrics in the chosen metallurgical firm is presented. Risks associated with the selection of appropriate metrics are presented for discussion

A. Samolejová

K. Janovská

M. Mikušová

P. Horváthová

English

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728  METALURGIJA 53 (2014) 4, 728-730M. MIKUŠOVÁ, P. HORVÁTHOVÁ, K. JANOVSKÁ, A. SAMOLEJOVÁTHE APPLICATION OF WINNING KEY METRICS IN A METALLURGICAL FIRMReceived – Prispjelo: 2013-08-08Accepted – Prihvaćeno: 2013-12-30Review Paper – Pregledni radISSN 0543-5846METABK 53(4) 728-730 (2014)UDC – UDK 669.146:621.74.047:621.039.534=111M. Mikušová, P. Horváthová, Faculty of Economics, K. Janovská, A. Samolejová,  Faculty of Metallurgy and Materials Engineering, VŠB – Technical University of Ostrava, Czech RepublicThis article is focused on creating a system of metrics and its application in a metallurgical fi rm. Its aim is to highlight the dangers associated with the creation and application of an eff ective system of metrics. Its objective is also to demonstrate the process (initial steps) in the development of this system in the real family metallurgical fi rm. In the experimental part an example of causal links among key metrics in the chosen metallurgical fi rm is presented. Risks associated with the selection of appropriate metrics are presented for discussion.Key words: metallurgy, metric, performance, processINTRODUCTIONCompetition environment puts pressure on the reap-praisal of fi rm reporting nature and the implementation of changes in the performance measurement systems. Performance and its observing and maintaining have become not only an instrument of competitiveness but also a prerequisite for fi rm’s existence. It is obvious that the entities of performance measurement system, e.g. particular metrics, need to be defi ned exactly to stimu-late the desired behavior in order to attain expected re-sults. The authors of the article emphasize that develop-ing of a quality metrics is a prerequisite for the utiliza-tion of the system of measurement in management. This article presents some results of the research project aimed at evaluating the performance of small fi rms operating in the fi eld of metallurgy. This fi eld was chosen for its specifi c position. The task of the metallur-gist is to achieve balance between material properties such as cost, weight, strength, hardness, corrosion, tem-perature extremes etc. and in the same time the environ-ment must be carefully considered. The fi rst part dem-onstrates the process of creating the metrics system for a small family metallurgical fi rm. In the second part summarized results of the risk analysis are presented for discussion. These risks have to be taken into account when designing an effective system of metrics.Experimental partFor the performance system creation and implemen-tation small family fi rm was chosen. As there has not been established any central accounting and any princi-ples of process management have not been implemented in the fi rm, it was not possible to brake down costs as-signed to particular small business units (SBU) of the fi rm or to processes. To demonstrate the approach to key metrics implementation and observing the perform-ance a process of ‘metal working’ was chosen. By means of structured process analysis (SPA), processes at a lower level were identifi ed: forming, cutting, and, join-ing. Each of these categories contains various processes. Within those processes concrete activities take place. Storage of raw material, semi-fi nished products and fi n-ished products is an auxiliary process. Heat treatment, pla ng and thermal spraying where iden fi ed as asso-ciated processes which are not primary metalworking processes, they are often performed before or after them. Characteristics and continuity of the ‘metal work-ing’ process to the previous processes and to the follow-ing ones are depicted in the Figure 1. As the beginning of the process was determined the moment at which raw material is taken from the storing space to be formed. The end of the process is considered the moment at which the product is handed over to the external or internal customer after fi nishing the process of joining (a process of the second stage) and possible associated process and storing.In looking for metrics for this concrete process a rela-tive complexity of the process as well as demands for the PROCESSmetal workingPRODUCTmetalliccomponentsCUSTOMERInternal:joiner’sworkshopExternal:automotivefi rmswholesalesINPUTmetalworkforceenergyproductionfacilitiestechnologyOUTPUTmetalliccomponents (pcs)OUTCOMEoperationalprofi t (CZK)Figure 1 Characteristics of the ‘metal working’ process729METALURGIJA 53 (2014) 4, 728-730M. MIKUŠOVÁ et al.: THE APPLICATION OF WINNING KEY METRICS IN A METALLURGICAL FIRMproduct appeared to be a disadvantage. By applying brainstorming, the following areas of implementing the metrics for recording of desired and undesired results of the process and properties of the process and of product from the position of the owner of the metal working proc-ess (a person responsible for its results) and from the po-sition of the internal and external customer of the metal working process were identifi ed (Table 1). Table 1  Potential areas of ‘metal working’ process metrics implementingOwnerof metal working processCustomerof metal working processDesired outcomesA growing profi t volume of components salesComponents in the required quality, quantity and timeUndesired outcomesLoss of customers Non-compliance the terms of sup-ply (quality, time, quantity, price)Properties of product - outcomeLow purchase price of com-ponentsRequired qualityProperties of processHigh total productivity utiliza-tion on production facilitiesEnsuring the delivery in timeThe result of brainstorming aimed at the identifi ed areas made the determination of metrics such as opera-tional profi t, the utilization of production capacity and productivity of labor possible.  For a key metric of this process is considered opera-tional profi t (NOPAT). The rate of profi t is infl uenced by the volume of product sales depending on customers and their willingness to buy, which is infl uenced by custom-ers’ satisfaction (ensuring desired outcomes, desired properties, and elimination of undesired outcomes as it is depicted in Table 1). Selling price as a result of negotia-tion between a product provider and a subject interested in the product is included among factors infl uencing cus-tomer’s satisfaction. It is also the rate of operational prof-it infl uenced by the rate of variable and fi xed costs. Met-rics cover the basic criteria: costs, price and quantity. By control of casual links at all-fi rm level (because of the scope of the article the link is not presented), connections between metrics of the chosen process and metrics at the all-fi rm level (liquidity and cash-fl ow) are obvious: with-in the process the evaluation of performance at all-fi rm level is aimed at the utilization of production capacity and productivity of labor increasing.CASUAL LINKS AMONG KEY PERFORMANCE METRICSQuality metric makes it possible to get to the very roots of the problem, to the basic causes, and to integrate the established facts into the information system so that the managers could use the information to the improve-ment of the process. If metrics’ resulting values in the system of management are to be used usefully, it is neces-sary to determine their mutual links. Ensuring mutual interconnection so that improving (or worsening) the re-sult of one metric will not be evaluated in isolation but as a cause or consequence of follow-up metrics’ results is a precondition of their usefulness. The choice of key met-rics and ensuring their mutual links will depend not only on the fi eld of business of the fi rm but also in which phase of its development it occurs.In the previous part mentioned small family fi rm op-erating in metal-working industry determined ‘cash fl ow’ and ‘liquidity’ as the basic top metrics of the suc-cess. The reason of the choice was the fact that it is a family fi rm in which the owner is at the same time its manager, the fi rm is at the beginning of its activities and it is relatively indebted. Part of the key metrics of the mentioned fi rm has been chosen for the following fi gure (Figure 2) to demonstrate causal links. The fi rm has a vision ‘to build up a family fi rm with a good image’. A cash fl ow and liquidity were identifi ed as top met-rics. Development of liquidity is infl uenced by indebt-edness and profi tability. These are infl uenced by the share of profi table loyal customers (sales volume). Sales volume is in the fi rst place infl uenced by selling price (price policy) and the volume of production (stable loy-al employee with a high productivity of labor) that is infl uenced by employee’s productivity of labor with the utilization of production capacity. In looking for the way of maintaining the position on the market (an actual goal in the current economic situation) the manager (the owner) decided on cutting the selling prices in average by 10 % (Table 2). The re-sult was gratifying - the sales increased almost by 20 %. By the increased sales the indebtedness was decreased (by 24 %) and profi tability (return on assets-ROA) was increased. Thanks to the decrease in indebtedness and the increase in ROA an available liquidity was enhanced (by 14 %). Decrease in indebtedness infl uenced not only the increase in liquidity but also the increase in a cash fl ow even by 26 %.For comparison a case of increase in sales price by 10 % in average was simulated. It was intended that the in-crease in a sales price would result in sales drop by 10 % in average. Results of ‘telling story’ were interested. Sales price increased by 10 % led to further indebtedness (by 7 %). Increase in indebtedness together with the aris-Figure 2  Example of causal links among key metrics of the successOWNERPROVIDERSOF FINANCECUSTOMERSEMPLOVEEliquidity cash-fl owindebtednesssales pricestabile loyal employeeFAMILY METAL-WORKING FIRM WITH A GOOD IMAGEprofi tability730  METALURGIJA 53 (2014) 4, 728-730M. MIKUŠOVÁ et al.: THE APPLICATION OF WINNING KEY METRICS IN A METALLURGICAL FIRMand customers’ priorities, they are appropriately chosen for company’s operation as well as for work of individ-uals, it is easy to develop and adjust them, they can be quickly implemented, they are easily understandable, they lead to the improvement, they are not an inviolable thing, they are not left to exist forever [10].CONCLUSIONMetrics can be generally divided into two big groups. The fi rst act as external metrics visible also for the sur-rounding area, and they are a motivation for its behavior, the others act as internal and serve to internal control and improvement and they remain hidden for the surrounding area. Whatever fi eld is taken into consideration and choose a type of metric (combined, of the result, of effi -ciency, fi nancial etc.) it can be concluded that the ob-tained result is either meant or directly accessible for company’s subjects around and it infl uences their deci-sion-making or it is solely meant (or mostly) for internal decision-making, and for the subjects around is ‘kept in secret’ most probably from the strategic standpoint (then, of course, it would also infl uence their decision-making) or it is of no importance for these subjects.AcknowledgementThis article is fi nanced by ESF project no. CZ.1.07/2.3.00/20.0296. REFERENCES[1]  A. M. Schneiderman, Why Balanced Scorecards Fail, JSPM, spec. ed. (1999), 9-11.[2]  A. Miklošík, E. Hvizdová, Š. Žák, Znalostný manažment ako podstatný determinant udržatelnosti konkurenciescho-pnosti podniku. Ekonomický časopis, 60 (2012) 10, 1041-1058. [3]  A. Čopíková, P. Šnapka, Problems of the infl uence of basic input factors on company’s EVA analysis, WASET, 80 (2011), 453-457.[4]  B. Gajdzik, The road of Polish steelworks towards market success – changes after restructuring process, Metalurgija, 52 (2013) 3, 421-424.[5]  A. Čopíková, T. Bartusková, Performance Appraisal as one Part of Performance Management, WASET, 61 (2012), 1445-1451.[6]  B. Bazsová, Systémové myšlení a řešení problémů reál-ného světa, in Sborník Systémové přístupy ’09, VŠE,  Pra-ha, 2009, pp. 9-17.[7]  L. Borbás, Regional connections and export orientation of SMEs after EU accession, EU Working Papers, 1 (2008), 93-10. [8]  K. Fuchsová, G. Kravčáková, Manažment pracovnej moti-vácie, Iris, Bratislava, 2004, pp. 124 and 156.[9]  L. Matusíková, Analysis of Perception of Consumer‘s Rights by the Y Generation, E+M Ekonomie a manage-ment, (2011) 2, 107-122.[10]  M. Mikušová, Knowledge in Enterprise: The Role and Per-formance Measurement, Lex et Scientia, 2 (2008) XV, 283-291. Note:  The responsible translator for English language is K. Kashi, Ostrava (independent tutor).  en loss as a result of economy decreased a prompt liquid-ity. The drop was very small (by 3 %) so the liquidity still remained at a very good level as well as a higher volume of cash fl ow for the owner (by 4 %) thanks to the in-creased prices. Yet it would be desirable to carry out a detailed analysis to fi nd out whether a liquidity crisis is not starting, which might together with the alarming state in the area of profi tability seriously threaten the existence of the analyzed metal-working fi rm.Table 2 Example of causal linksprice  -10 %price + 10 %liquidity + 14 % - 3 %cash-fl ow + 26 % - 4 %indebtedness - 24 % + 7 %profi tability + 15 % - 8 %sales + 20 % - 10 %DISCUSSIONRisks associated with the formation of the metrics system (selected from the summary):Variety of defi nitions of the same metricsWhen the same or similar metrics are used, different results often occur. It is important for the defi nition of a particular metric to be the same for all involved, they should know it and consistently observe it [1]. This uni-formity of metrics’ defi nition should be ensured by pub-lishing written principles for metrics.AveragingTo decrease metrics’ variability the calculation of average value is often used. The longer the period is the more the resulting value of the metric will seem to be depreciated by the calculation of the average [1-3]. But the longer the period is the longer the time needed for fi nding out the trends will be.Using of too complicated metricsThere is always a danger that too complicated met-rics will be used with the aim to transform them into ‘better’ metrics of customers’ satisfaction.Control limits and variability of processesPart of metric’s working defi nition should be the de-termination of desired limits [4]. The need of interfer-ence should be signalized only when the change of met-ric’s value is statistically signifi cant, as a majority of processes cannot show a zero number of drawbacks (undesired results) because of their inherent variability. It is obvious that metrics are an indispensable instru-ment of effi ciency and performance, mainly with the focus on company’s goals, critical factors of success, processes and sources effi ciency [5-6]. Metric is a com-plicated phenomenon that can be searched from various angles. With changing conditions of the environment the metrics themselves will be developed so it is really not possible to give a detailed survey of metrics’ analy-sis standpoints and their classifi cation [7-9]. There are a number of views of a quality metrics. In a simplifi ed way it can be said that quality metrics are as follows: they are in harmony with company’s strategic priorities 

The application of winning key metrics in a metallurgical firm

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