Any business trying to maximize efficiency will need to quantify waste at some point.
Once you embark on your Lean journey, How do you know if you are doing well? Where are you in the process? How much data do you have?
All these questions are only answered if we are measuring what is going on in our business, but How do you know what to measure and why?
Let’s break it down in today’s post!
Measuring what matters
The idea of measuring everything directly linked to our Lean journey completely misses the point of why we are doing Lean in the first place.
Lean is about delivering value to our customers while trying to be as competitive as possible in the fierce marketplace.
If we are being asked to put a figure next to every one of our lean initiatives, we need to explain what we are trying to do in the first place again.
Don’t get me wrong, if it is a straightforward process, then do it.
But if you are trying to increase the efficiency of an office department and you start counting how many times they go for a coffee, how many times they chat about non-related work stuff, how many times they check their phones…
Chances are 2 things happen:
- Everybody in that department will be pissed off. Office workers are less efficient by nature, and fluctuations in workload or burnout can severely diminish your team’s efficiency, as it’s shown in this study.
- Once management sees your time tracking exercise, if they are from the old school, they will want to sack everybody in that department.
Either way, no bueno.
I will talk about change management and office efficiency in a different post, but just so you know, my approach would be to understand the inner beliefs of that team (if it’s underperforming) and look at their constraints.
I always ask myself this question, what can I do for them to improve things?
But back to the main topic.
Measuring what matters is all about dynamically and holistically approaching business constraints to create a more united workforce that delivers value to customers.
The overall business architecture has moved from vertical integration to dynamic and network-centric horizontal businesses.
What does that mean?
It means that companies are not a set of individual departments with specific tasks they need to deliver.
Instead, every department influences the value chain, and we are looking at a system of systems that connect suppliers, engineers, business leaders, and any other ramifications of the enterprise.
Once again, this doesn’t only apply to the product/manufacturing industry. It’s equally important in the service industry.
What gets measured gets done, and what gets done gets measured
One of my bosses used to say all the time, “what gets measured gets done, and what gets done gets measured”, and he was right.
That sentence should make us, at least, question whether we are measuring the right things.
The bare minimum should be to understand the implications of what we are measuring, the good, the bad, and the ugly.
There are multiple uses for performance metrics: they communicate, motivate, clarify and evaluate.
When the executive team writes down a company’s vision, mission, and strategy, they cascade down to each team what’s expected of them.
And it’s up to the managers to ensure their teams are working towards the same goal. If the goal is met, it might translate into higher employee bonuses or rewards.
But that’s one of the key problems of that system. Beware of setting goals or objectives solely by ticking a box.
Performance measures provide information and feedback to support the decision-making to meet the strategic objectives. Senior managers must police metrics to ensure they align with the bigger goals.
This is why policies are becoming so popular in Lean organizations.
For example, a manufacturing company I worked for measured the number of products going through the last production station daily.
The focus was on speed rather than quality, which meant production teams were rushing through the operations paying less attention to quality.
They were meeting the production targets daily but adding hundreds of rework hours to those products, giving a false sense of finished stock.
This culture rewarded speed and production managers were measured against products going through the end of the line.
In the meantime, the sales teams were screaming for finished products to fulfill contracts.
This is a clear example of the need for more basic principles like flow and pull and how a false sense of productivity can lead you down the wrong path.
In contrast, lean businesses aim to value-stream-map processes to guide their decisions and metrics. Always putting customers first and providing value in a timely fashion.
Types of measures
Below I highlight several different measures businesses can use to measure performance. Even though there are quite a few, the reality is that most of them work in conjunction with some others.
Diagnostic measures
Used to quantify the extent of a problem. Typically used when a process output is different from what was first expected.
They are often used in Kaizen events, process troubleshooting, or root cause analysis.
They aim to understand process deficiencies or establish a course of action to improve a situation.
Baseline measures
Used to define where you are in a process.
They establish the starting point of any lean efforts, allowing you to get the ball rolling in your transformation journey.
I like baseline measures as they are linked to the “Power of the big Mo” highlighted by John C. Maxwell in his book the 21 Irrefutable Laws of Leadership.
Trend measures
Simply put, these are any type of measures evaluated through a period.
These are extremely powerful when combined with baseline measures.
The simple idea is to define your baseline and start measuring period after period where you are within that process.
Control measures
These are used to correct the process to stay within acceptable limits.
This is the bread and butter of Statistical Process Control (SPC).
If you know a specific measure needs to be within X and Y, and the measured values are getting close to any of those, or they have passed them, you intervene to bring it back to the mean (ideally).
Output measures
The measures that monitor the value added of any given process.
They represent what any process creates for the value chain. Most of them are created by Senior Management.
An example is volume shipped, the total number of products dispatched in a period.
Input measures
The measures that monitor the internal value creation.
These look at things like raw materials, manpower, methods, etc.
A simple example is Right First Time (RFT) which is the number of products that leave the line without needing any added steps, i.e., rework, divided by the total amount of products.
How to ask the right questions to define the right measures?
We have seen several types of measures now, but which one should you use and why?
Well, it all depends on what you are trying to accomplish.
The infrastructure of a 50 million-dollar business is more advanced and refined than one that only makes 2 million a year. This is regardless of where each company is in its lean journey.
The work businesses need to do to embark on the lean journey truly is to leave all assumptions behind and start from first principles.
To help businesses define only what matters, I have collated below a list of 35 questions businesses can ask to quantify their efforts.
Remember, this is just a guide, and I hope it allows you to create more value in your business and unravel underperforming areas.
- What is the goal of your Lean efforts?
- What key business processes are most critical to your success?
- How do you define success for these key processes?
- What measures can you use to track the performance of these key processes?
- How will you collect data on these measures?
- How frequently will you collect data on these measures?
- Who will be responsible for tracking and measuring these KPIs?
- How will you use the data collected from these KPIs to drive improvement?
- What resources and infrastructure do you need to track and measure these KPIs effectively?
- What are the most important factors that contribute to the success of your business?
- How do your key business processes align with these success factors?
- What are the current performance levels of your key business processes?
- What target performance levels do you want to achieve for these key processes?
- What are the key drivers of performance for your key business processes?
- What are the key metrics you can use to measure the performance of these key processes?
- How will you prioritize your KPIs based on their impact on business performance?
- How will you ensure that your KPIs are aligned with your business goals and strategy?
- How will you communicate your KPIs to stakeholders and ensure buy-in from all levels of the organization?
- How will you track and measure the performance of your KPIs over time?
- What are the current challenges and opportunities facing your business?
- How do your key business processes contribute to addressing these challenges and opportunities?
- How will you use the data collected from your KPIs to drive improvement?
- How will you ensure the accuracy and reliability of your KPI data?
- How will you monitor and adjust your KPIs as your business goals and priorities evolve?
- How will you incorporate feedback from stakeholders into your KPI tracking and measurement efforts?
- How will you use your KPI data to communicate progress and results to stakeholders?
- How will you ensure that your KPIs are aligned with industry benchmarks and best practices?
- How will you use your KPI data to identify trends and patterns over time?
- How will you use your KPI data to identify areas for improvement and set targets for future performance?
- How will you use your KPI data to set goals and develop improvement plans?
- How will you use your KPI data to track progress and measure the impact of improvement efforts?
- How will you use your KPI data to identify and eliminate waste in your business processes?
- How will you use your KPI data to identify and reduce defects in your business processes?
- How will you use your KPI data to improve the overall quality of your products and services?
- How will you use your KPI data to drive continuous improvement and stay competitive in your industry?
Before you go…
The list of questions is only as good as the people using it. The more you leave your previous assumptions behind and focus on the task at hand and your goals, the better result you will get.
If strategy is a topic that interests you, you should check this post I wrote a few months ago, where I talk about developing performance cultures.
Or, if you want to explore other topics around lean waste and identification, you can check this post and this one.