July 24, 2014

Metrics are Scary and Should be Avoided at All Costs (Not)

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Measure Performance | Copyright © Kaufman Global

A guest post from , President and Principal at Kaufman Global.

Metrics are such an important element of continuous improvement. Wait…Metrics might be the most important element of continuous improvement. Why? Because continuous improvement by definition is the measurement of improvement — and if you aren’t measuring, how will the organization know how far it has come or where it needs to go?

Most organizations struggle mightily with the topic of metrics and sometimes it’s surprising just how much. I think it happens for a number of reasons:

  1. Difficulty Connecting the Top to the Bottom: The metrics that executives are familiar with such as return on net assets, profitability, cost, etc. are at such a high level that the people actually doing the work often don’t know how to make the connection between what they do day-to-day and how that can impact the bottom line.
  2. We Might get our Budgets Cut: If an improvement is stated at a departmental level, such as productivity or yield or throughput, then it might actually result in a budget reduction – and no one (at least no one in the department), wants this.
  3. Uncertainty About Where to Start: Sometimes the fear of measuring the wrong thing will keep people from starting at all. After all, we already measure so much, what more can possibly be piled on?

These three could just be the tip of the iceberg for an organization that’s conflicted about this topic, but let’s address the ones at hand. The fact is, these issues can and must be overcome.

First, we should recognize that it is often difficult to connect the top and bottom. Just as the organization evolves and matures in its CI journey, so will its metrics. It takes time for improvements to show up at the headquarter level. Results will ultimately show up, but many organizations don’t have the 4 or more quarterly accounting cycles worth of patience to wait this long. That’s exactly why we plan for and achieve short term wins and measure them in ways that are closer to the operation – like cycle time productivity), yield (quality) and inventory.

It is important to relate some (but not all) of the improvements to actual budgets – this keeps our priorities aligned. That’s exactly why the finance community needs to be attached to any CI work in some way. Productivity, yield and throughput improvements can have near-term immediate budget impact. In order for this to happen, Finance needs to be involved and the organization must not be too aggressive in its estimates. Finance involvement and budget impacts are one sure way of keeping the organization honest about the level of improvement – it’s better to be conservative and have a real impact than to alienate the organization by overstating results that don’t translate to the bottom (or top) line.

Finally, let’s face it – too many things are measured. People often realize this along with the fact that the wrong things are being measured. Metrics, especially as you get closer to the operation, are not static and are expected to evolve over time. Introduce new and better metrics and then throw out the ones that are obsolete or not working for you. If you’re in doubt about what to measure, go for a good solid time-based metric. After all, time is the common denominator of all continuous improvement. If we can cycle through a process faster (and keep service quality and product integrity the same or better), then we have eliminated some form of waste! Most importantly, at the workgroup level pick metrics that can be controlled by that group. Metrics that don’t follow this rule are ineffective at best.

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