This really is an extension of the previous blog, mainly because it is so important to understand how and what to measure as part of a business improvement journey. Many businesses get it wrong, very wrong and use measures, data, information as a big stick, if you don’t hit targets that it becomes a punitive exercise. Many businesses don’t even use key measures at all, well apart from the profit and loss statement.
Measures, data, information - I do get a bit worried when heading down this path. Why - because it has been done really badly. Hence this long overdue topic. Before I climb into the conversation I would like to share a couple of traps to avoid.
Don’t make it complicated. Too often there are too many measures to the point everything becomes white noise
Performance measures are used to manage the process and not the person
In the past, KPIs - Key Performance Indicators have been used by organisations to help keep everything in check. It has taken a while for me to warm up to KPIs. Why? Previously I had had a bad experience with previous managers who tended to focus on the numbers....... at all costs. It was a term that was used in performance management of the person. Which begs the question - what was being monitored and managed…. If you failed to hit targets, it was all blame and shame. There was little opportunity to objectively and bravely look at the causes, the issues. It was a pass or fail mentality.
It was a bad version of the Management By Objectives (MBO). This is where, in the ideal sense, management and teams set goals and objectives…… outcomes that everyone was accountable to achieve. A well documented weakness in this approach was that teams and individuals would look at finding ways to achieve the objectives……at all costs. Even if it meant bending a few rules, getting around processes that don’t suit them to achieve the desired outcomes. Quality and process were negatively affected. There would be total disregarded to the impact or affect actions had on other teams or departments. The big picture was all about achieving the numbers. This is where KPIs come into play.
To understand how, lates think about what does KPI actually mean?
Pause and consider it with your team or business in mind. Key Performance Indicators are the key measures that provide you with an indication that your business performance is on track or off track. The measures are quality and process focused. This enables teams to ‘see’ and discover issues. This supports a key fundamental approach to Lean Thinking - make problems visible so you can improve them.
Taking a step back and consider the term. Key is the critical word..... not ALL, but KEY indicators. Meaning the small handful that tell enough of a story to show how things are going. Just like the dashboard of a car - there are so many more metrics you can pull out of a modern car computer - when needed. But the key measures have remained the same - speed, temperature, fuel levels.
When supported by open conversations around causes, countermeasures and improvement activity, KPIs can be a powerful tool to create informed conversations within teams.
What does this mean for your business? To start, view the end to end process of your business and start well before clients actually reach you. It might be marketing, social media etc. Then how many potential customers contact you or visit your store / showroom who translate into a contract or sale. Do you deliver what you promise on time at the quality standards you promise? The acronym that can be used for this is DIFOTIS - Delivery in Full, On time, In Specification. This can be measured internally as well - do teams hit their DIFOTIS before sending it to the next team or stage of production. What were the number of errors or re-work per week or month? How many clients are return customers or their satisfaction levels? All of these are ideas that can help a business leader understand where issues are throughout the whole process.
What is important to stress is don’t just rely on outcome measures - it is near impossible to help identify any internal issues if you are 100% reliant on outcomes alone - this includes accounting measures like profit statements. This introduces the difference of Lead and Lag measures. A great lead measure for quality might be the number of improvements per person per month. Although this will never guarantee success, at least you know the team is proactive at fixing issues! Try and get a balance of these different types of indicators.
Now after that quick overview, consider what are the 4-5 key metrics for your business that tell you at a glance you are on the road to success. What are the KEY measures that will tell you how the process, quality, customer engagement is at a glance? Any more metrics than that, in my humble opinion, is too many. There is always additional information you can pull out when required to help develop a better understanding of a specific issue. Or even better, when something is wrong, put time aside to go and ‘see’. Go to the Gemba and get a full understanding of the issues by talking to the team involved.
Individual teams can have their own set of Key Indicators, but they do need to be aligned with the leadership metrics. This way we can have line of sight metrics that enable everyone to understand where the business is in terms of success, quality and improvement.
Then the final steps are to align conversations around these metrics. This is where stand up meetings and visual team boards come into play. There is no point having all of these amazing, well thought out measures if no-one sees them! Make them real, keep them alive by having a meeting structure around the data to facilitate discussion, identify opportunities for improvement and ultimately - positive engagement of the whole team!