In a recent newsletter we noted that most organizations have so many metrics that it becomes difficult to know what is really important — the key priorities.  That discussion went on to describe the basics of how to identify the Key Performance Indicators (KPIs) that can be used to focus a business workforce on the most important aspects of their products, services, operating processes and working relationships.  So they can focus their energies on the improvement opportunities that will yield the best bang for the buck.

Continuing that discussion, it’s logical to extend the use of KPIs into the broad continual improvement (CI) processes used by many companies to accelerate their rate of performance improvement by making rapid CI a natural part of the business culture. 

That said, measurement (KPIs, etc.) has been both a foundation element of highly successful CI processes when the measurement system is done well, and also a leading cause of CI process failures when the measurement system is done poorly.

Fortunately, today there seems to be an increasing awareness in business of the synergies between performance measurement and the various improvement methods in use.  Indeed, methods like Lean / Flow Manufacturing and Six-Sigma Process Improvement include measurement as a foundation element.  From companies that have recently implemented one of those processes, we have been hearing comments like:  “Now that we have effective improvement tools and measures in place, can we establish an umbrella CI process to capture the broader range of issues?”  And, “Maybe measurement was a weak link in our previous CI process failure.  Let’s try again.”

In any case, effective measurement is a key to all flavors of CI, regardless of how broadly or narrowly defined.  Here are a few thoughts to help you use measurement, especially KPIs, to energize your CI initiatives.

Where Measurement Fits In CI

There are four main segments in CI processes that successfully achieve sustained continual improvement:

§         Education — Describing better, faster, cheaper business processes

§         Measurement — Defining the current state, desired future, and progress

§         Search For Opportunities — Energizing workforce creativity

§         Improvement Action — Organizing effective improvement projects

With just a little imagination, you can see that measurement is actually woven through all four process segments, and that none of them would be as effective without it.

Developing KPIs for CI

Measurement examples that could become Balanced Scorecard categories and sub-metrics are outlined below.  If you take the operations block by itself, there are probably a few indicators being watched for an organization overall.  If you plumb down to the next level operations you would have a host of more detailed metrics they are using to maintain focus on important process segments.  This is true for the next level of detail in any of those blocks.  Some of the more detailed metrics are drivers of the overall results the business is seeking to accomplish.  Businesses simply need to be wary about the extent of metrics they use, and the possibility of conflicts or tradeoffs between KPIs for related departments or functions.

Key performance indicators could include:

External Indicators

Customer Loyalty (repeat purchases, increasing cross-product line buys…)

Profitability per customer

New customers added or primary target customers captured

Revenue growth, etc.


Operational Processes

Operational Equipment Effectiveness (OEE)

Number of schedule changes

On time deliveries

Inventory turns (careful! this is a result of several other factors)

Material yield rates, etc.

Continuous Improvement Process

Cycle time, lead time reductions

Service improvements

Dollar savings, number of improvements implemented per employee, etc.

Implemented process improvement gains still sustained 6, 12, 24 months later

Financial Metrics

Customer profitability

Product profitability

Profit per customer visit or some other index

Overhead expenses vs. business volume, customer profitability or some other factor

Support Systems Effectiveness

Communications effectiveness or number of ways communicated…

Safety

Employee turnover

Employee survey results

Continual Improvement (CI) and innovation gains sustained could also go here

These metrics should then relate to the overall strategies for the business.  For example: Speed to market, Cost competitiveness, Customer Loyalty, Product or Service Quality, etc.  A YX matrix (similar to Six-Sigma methods) is a useful tool for sorting the list down to the few most important measures for use as KPIs.  Remember to place extra value on measures that indicate the effectiveness of upstream (causal) functions, where careful management will yield much better downstream business results. 

One final caution:  Typically there are several KPIs that naturally conflict with each other.  In other words, if you aggressively optimize one (e.g. minimum inventory safety stocks), then you may accidentally jeopardize another (e.g. customer order fill rates).  So be sure to reevaluate your relevant “balancing processes and policies” before establishing new KPIs. 

For additional information contact Rainmakers at 847/251-3327