You only get what you measure

If you truly do get what you measure it is interesting to note that many traditional organisations rely on metrics that are focused on operational features like cost of labour, raw materials and production output vs. sales projection or forecasts. Making decisions in the current business climate on such narrowly defined operation factors, see examples in Table 1, could prove disastrous.

Table 1. Typical Operational Metrics

Over the last ten years remarkable changes in technology and communication have dramatically changed customer expectations. Customers demand higher and higher quality products delivered in shorter timeframes and at constantly reduced prices. Faced with these changes management strategies have spawned many movements like Total Quality Management. These strategies have shifted the organisations focus and the subsequent results to a more process-based approach. This requires metrics that focus more on what the objectives of the organisation are rather than how the workforce is to achieve them. Process driven approaches review efficiencies, cycle times and the quality of a series of activities. This will highlight how activities perform rather than how a workforce performs. The process view also provides the organisation with information about the cause of work and how well that work is completed. A typical list of these core processes is shown in Table 2.

Table 2.

Striking a balance between results and causal drivers is now the underlying philosophy that drives performance metrics in support of business strategy and critical success factors. Some traditional results-based metrics are valuable and play a vital role in a meaningful performance metrics approach. Measurements must support business strategy, while metrics packages should be diverse and cross-functional and used to managed the “what’s” of organizational behavior, rather than the “how’s”. The structure that supports and keeps a balanced approach is characterised by the following:– Senior management commitment– Cross-functional buy-in– Management commitment to critical success factors. Critical success factorsare usually identified in terms: Customer Service driven (Quality and Service), Asset Management (Inventory and Production), Operations (Safety, Throughput), Human Resources (Training), Engineering (Development Cost, Time to Market), Leadership (Credo), Financial (Growth, Profits).– Spin-offs to cross-functional sub-groups in order to:

• Document reports/metrics,
• Define specific measures,
• Establish data collection process,
• Provide training.

As a management tool organisations need to breakdown processes at their lowest levels. The performance measurements must include a focus on customer satisfaction, short and long-term goals, an internal/external scope, be linked tobenchmarks, and can be used for training and shaping behavior. While these characteristics are important, the elimination of non-value added activity is one of the more prominent factors in the concept of “Lean Thinking”

Adhering to the “Value Chain Principle” requires a Lean metrics package thatincludes the following characteristics, where metrics are typified by being:

– directly related to the manufacturing strategy
– primarily used as non-financial measures
– location specific– continuously changing
– feedback focused
– simple and easy to use
– focused on results and monitoring

Similar to most critical success factors, there are several basic measurements that are predominant in support of a Lean Metric System - 1. Quality, 2. Cost, 3. Delivery Reliability, 4. Lead-time, 5. Flexibility, 6. Employee relationships and 7. Safety. The Lean Approach considers 3-4 metrics as key. At the tier one level(dashboard), operations metrics include customer satisfaction index, cost of quality, new product development cost, and shareholder measurements like ROI. These performance measurements set in motion the foundation for tier two and tier three level metrics (Figure 1), and are structured in a hierarchy that has a consistent reporting format, measurement definitions, is visible across all functions, graphically displayed and is used for training.

At the plant or tier two levels, when creating Lean performance measurements, an organisation must keep in mind the difference between a traditional and process focus approach as outlined in Table 3, below,

Table 3. Traditional vs Process based metrics

Conversely, defining Lean performance measurement from a process point of view can take the form as depicted in Figure 1. The distribution between outcome and diagnostic metrics, cross-functionality, results and outputs, internal/external scope, and balance are more pronounced and are shown in Table 4.
Table 4.

Table 5.

As we move from Tier-One metrics through to Tier-Three (Shop-Floor) Level, performance measures are prominently displayed in the work areas in the form of boards, charts, or graphs. Common display formats are: – Statistical process control charts– Inventory levels– Reject rates– Production rates/adherence to schedules– Customer service levels– Absenteeism– Safety– Setup time Consider that those being measured should be the ones who produce the measurements. For example, if you are measuring customer service on cycle-time per order entered then one of your customer service representatives should produce the daily measurements. If another department generates these metrics, it is guaranteed that the metrics will mean nothing to those being measured.   A successful development of performance metrics meets the needs of finance, customer requirements, business strategy, and innovation and learning factors, at all levels. Metrics address the questions, “where are we going?”, “how will we change to meet our business needs?”, “what are our critical success factors?”, “what is our target performance?”, and “where is performance improvement required?” Remember, “If you don’t measure it, you can’t improve it” and “if you measure the wrong thing, you will get the wrong result….behaviour.”