I often ask this question of new clients. I get answers such as “if my boss does not complain…”
When you dig deeper for an answer you find there is usually an objective or a goal. Many companies have not specified or documented their objectives. Intuitively they know what they want to achieve. The only good thing about not defining your objectives is that you can adjust your goal later and say you have achieved it.
This column is about measurements. I have written about it before. The importance cannot be emphasized enough. It is one of the fundamental basics in running a business.
We live in a world of measurements. What would sports be without measurements? If you play golf or baseball, there is a scoreboard and you know at any time how the players stand in an overall ranking and if they are winning. Imagine a hockey game with no scoreboard. After a tough game the players and the fans leave the stadium with no indication of who won. Imagine if, at the end of the month, or on a quarterly basis, the scorekeeper writes a report to the owners telling them how their team did. Ridiculous! And yet, that is what a lot of companies do with their business.
By not providing a regular score, companies are missing out on a motivational tool. By being in a position with no beginning, no end and no objective, the employees are on a hamster wheel. Having a scorecard allows them to participate.
A performance improvement of one or two per cent per month is difficult to detect without measurement. For example doing 101 or 102 units per day instead of the usual 100 is less than the statistical noise. A one to two percent improvement per month however, could add up to 12-24 per cent improvement per year, which would be huge. Only when you measure/keep score will you see small but statistically significant changes. The trend is more important than the actual numbers.
An additional factor is that as soon as we set a goal and set a method of measurement, we give the team an opportunity to drive towards this goal. As an old poet said: Only he who knows his destination finds the way!
Setting goals and setting up how you monitor the performance will influence the direction of the company. There are many performance criteria, you can measure. There are so many that you can actually go overboard and do too many. You have to find your own ‘sweet spot.’ My suggestion is to start small and expand as required. You should select only what is important for the customer and for the company. If, for example, you always ship your orders on time and your customers are not particularly interested in on-time performance, on time is not really important. If being on time, on the other hand, is rather weak and your customers pressure you for more on-time shipments, the on-time performance is the right thing to measure.
What you measure gets attention ... what gets attention will improve
Look at your organization and establish a few things that are not quite right in your organization. What keeps you awake at night?
These can be company-wide issues if you are the owner or key manager, or a departmental issue in the area you supervise. You do not have to wait for management to establish a score. A supervisor can start to keep score in her/his department. Of course an overall system would be better, but if a local score card is possible, do it.
Quantify the current situation and the ideal situation (target) and you have established the measurement. You can measure different things with almost unrestricted units of measure:
• Volume per time (cabinets, pieces, linear feet.... per day, shift, hour...)
• Productivity (output vs. input) (volume per worker, volume per labour hour,)
• Quality (reject rate, cost of quality- %,)
• Safety (number of incidents, near misses, cost...)
• On-time performance (i.e. % of orders shipped complete on the original promise date?)
How much measuring
Keep it to a minimum, is the short answer. Any measurement costs something to collect, to tabulate, to analyze and to archive. If you do nothing with the data it is a waste of resources. If you already have sufficient control, and a deep understanding of your business/operation, you might not need many or even any additional measures.
If you collect data on a daily basis, you still need to process and display it in a larger time frame. Weekly, bi-weekly or monthly measures are usually the best practical reporting cycles. More important than the actual measurement is the trend over a period of time. With whom do you share this data? Good measures, good performance indicators should be shared with a bigger group. Everyone in a group should understand what the goals are and how their group is performing. For this reason you might want to create different levels of reporting:
• This can be volume, quality, on-time measurements and safety supervisor/department managers:
• Productivity, overtime per week, material yields
• Financial performance, labour cost productivity
• This reporting should become a part of the daily/weekly and monthly work routines. The measures and the terminology have to go hand in hand.
The company strategy and the goals for Continuous Improvement projects need to reflect in the measurements, and more importantly, they need to show up as measurable improvements. If you think you are improving something and it does not show up in the results - you have a problem. Either the improvement action is not working or the measuring is wrong. Both these results would be a critical problem.
Starting a project of implementing Key Performance Measures (KPM) is not a short-term project. It should be considered a long-term project. Too many attempts at starting a program get cancelled and/or run out of steam at the first economic challenge. Therefore, start small, with few measures and build on the successes of those. It is easy to go bigger later.
By implementing these KPM systems, productivity gains of 10-15 per cent can be made within the first year of implementation. This gain is not due to the measurement or because the progress is being charted. The difference is that focus is being put on what is declared as critical. This focus allows the organization to align itself to the company objectives. This alignment and focus takes the slack out of the system. Once the slack is out of the system it becomes very clear where there is a bottleneck. The measurements provide the communication tool for management and employees alike. And by having a common language and objective, it is much easier to address the next critical steps.
It takes management commitment; however, this system may well become the best management tool you ever implemented.