Takeaway: Measurement is at the heart of all improvement and sustainment.
Imagine you’re hiking in a vast forest. A thick canopy of trees blocks much of the sun as you search out trails leading to a campsite where you plan on spending the night. You know the campsite is two miles North of where you parked your car. You proceed with a compass in your hand, confident you’re heading the right direction.
There have been many experiments conducted involving placing individuals or groups in environments where they had no point of reference and no compass. They were told to walk in a particular direction towards a set destination. This experiment ALWAYS produces the same results. People end up walking in circles.
The compass provides information to guide us. We base our decision for which way to go from directions given by the compass. That is the power of having measurements to work with; to guide us. Take away our ability to measure, and you take away our ability to move forward.
“What gets measured gets done.” Is a quote made famous by W. Edwards Deming.
When Mr. Deming gave business advice, people listened. During World War 2, Mr. Deming was instrumental in keeping manufacturing going to support the war effort. After World War 2 Mr. Deming was sent to war-torn Japan to help rebuild.
The U.S. Department of the Census and the Bureau of Labor Statistics still use sampling techniques devised by Mr. Deming. In 1951 the first Deming Prize was awarded; it is used to recognize business for their efforts in quality management. Let’s look at why Mr. Deming’s quote still rings out as true today.
Key Performance Indicators
Key Performance Indicators, often referred to simply as KPI’s, refer to the main areas your business is monitoring. We deal with limited resources. Understanding what needs to be monitored for sound decision making is a critical component of any business strategy.
KPIs become our compass. They guide our direction and keep us on the path to success. Each step taken when viewed with the compass in hand should have us moving closer to our desired destination. We can proceed with confidence.
If we were a ship at sea, even a few degrees off of course could lead to days of extra travel time. Before the days of modern navigational instruments, sailing ships had a real challenge in maintaining a steady course.
Sailors would check location often and course correct in small increments. Small adjustments were desirable to large ones. We call this short interval control. We use short interval control when we have clear KPIs and check them at predetermined increments.
Tell employees what you’re measuring, and they will tell you what’s important.
Managers and employees must be able to see the connection to the bigger picture and how the measured metrics support the company goals.
KPI examples for manufacturing may include measuring:
- Scrap or shrinkage levels
- Process variation
- Process time reductions
- Production volume
- Sales volume
- Scheduling accuracy
- Number of customer complaints
- Inventory accuracy
- Delivery accuracy
- Changeover time accuracy or reduction
- Levels of customer satisfaction
- Anything measurable that drives the desired efforts…
Your goals will determine your KPIs. What is needed to support your primary targets? What does each department control? What can they influence?
Hospitals may set the following for KPIs:
- Number of available beds & turnover
- Average length of stay
- Inpatient raw mortality rate
- Average cost per discharge
- Patient satisfaction
- Medical Records Update
- Readmission rates
A restaurant KPIs could include:
- Customer satisfaction
- Prep time
- Order accuracy
- Customer wait time for available table
- Customers wait time for service, meal, check…
- Number of meals returned
- Cash register accuracy
Web businesses may measure:
- Website Traffic
- Rate of conversions
- Dollar amount of sales per customer
If you have a clear understanding of your current condition, primary goals, and your day to day operations, you should be able to see the main KPIs on which to focus. We need employees focused on these. Your goal is to be able to walk up to any employee and ask them about their most critical KPI’s. (This is their compass)
For any activity employees engage in, metrics should be in place. (Metric; refers to a standard for measuring.) Clear measurements and goals can increase engagement. It provides a way to measure how effective efforts are. We all need to know what we are accountable for.
Remember everything is temporary. If key performance indicators need to change based on new insights or some change in the business, change the KPIs.
Trained employees + controlled processes = success!
An underlying assumption – People want to succeed at what they do! Most workers have little motivation to fail on purpose. Bad performance appraisals and disciplinary actions make for a bad day. We want to arm employees for success. Managers need to provide clear, measurable goals and the resources necessary to achieve those goals.
Make sure your goals are S.M.A.R.T.
The popular S.M.A.R.T. acronym has been around since being published in a 1981 issue of Management Review by George T. Doran.
The letters stand for:
Specific – Set clear, specific targets. We need clear goals that show clear benefits. We must see the desired goal as better than the current condition.
Measurable – We need measurable objectives. We can’t improve what we can’t measure. Remember our compass; we need confidence we are making progress.
Attainable – We must chunk our goals into manageable, attainable pieces. We need some quick wins. The more, the better. Many small wins’ lead to big victory!
Relevant – Set result focused goals based on outcomes and not activities. We put little effort behind activates that we don’t see as relevant to our primary goal.
Time-bound – We want to create tension and a sense of urgency. Remember Parkinson’s Law: Work expands to fill available time. All work needs to be time-bound.
S.M.A.R.T. is still a popular structure often followed for project development. Without the ability to measure, the framework falls apart. Capacity to measure lies at the heart of any project or management system.
Do You Have a Compass?
Mr. Deming had it right. We will have a difficult time improving anything we can’t measure. Take the time to review your KPIs. Is anything missing? Are they acting as health markers for your business? Do they drive the right behavior? Are they taking you in the right direction?
Make sure your management team and employees have a compass to follow. We need to know we are heading in the right direction. Progress breeds confidence and focuses efforts. It’s hard to see progress without the ability to measure.