There is a lot of truth in the old adage “what you measure is what you get”. This is certainly true for industrial companies and most other organizations. As you progress with your lean journey you will soon find that the measures you have been using for years are not only unhelpful, but actively harmful to what you are trying to achieve through lean thinking and methods. Shown below there are five keys to the design of a great lean performance measurements in your company.
This is the 7th article of our series showing how to develop a truly Lean Management System.
Key #1. Our measurements must be developed to support your company’s unique strategies.
There is no one-size-fits-all set of lean performance measurements. Each company must develop their own measurements to support their strategy, their market, their products, and their customer needs.
If you develop the measurements yourselves the measurement system will work better in your company. If you have the teams develop their own measurements then your people will understand them and know how to use them for improving their results.
Key #2. Our measurements be must designed for your company’s specific operations.
The starting point for designing lean performance measurements across your company is to clearly define your company’s strategy. This strategy may be a formal strategic plan, or it might be a less formal explanation of what the leaders of the company value in order to achieve success in their business.
The best way to develop measurements is to use a “lean performance measurements linkage chart”. Starting with the company strategy, we develop measurements that show the achievement of the company’s strategic goals. These measurements are usually easy to define if the company’s strategic objectives are clear and concise.
The next step is to link these strategic measurements with measurements at (for example) a plant level. Within the plant we link measures to value stream performance, and finally to measurements in production cells, other operational processes, and administrative processes.
As you can see in the picture (above) the linkages look at the goals at each level and the critical success factors at the lowest level. This enables the company leaders and their value stream teams to think through what is critically important and should be measured. It is this process that enables us to bring the number of measurements down to “the vital few”.
Key #3. We must work hard to use the smallest number of measurements.
The fewer measurements the better, providing you have selected the right ones based on strategy, markets, products, and customer needs. Companies that have “dashboards” containing many complex measurements created by computer system each month have a poor understanding of the business. Companies with five or six well chossen value stream measurements, for example, have their business under control because the local people in each value stream, process, and support department can understand and use these measurements.
If your people clearly understand the handful of measurements they can take responsibility to use the measurements to control their own processes, improve the processes, and increase customer value.
Lean measurements are designed to foster continuous lean improvement, not to monitor past performance. They must NOT be used – in the traditional way – to punish those who fall short. Rather they are used to motivate and empower people.
Key #4. We need different measurements at different levels of the organization.
Most companies need at least three levels of measurements; strategic, value streams, and cells/processes. You can see this on the Performance Measurements Linkage Chart example above.
The strategic level shows the company leaders the overall performance of the business each month, typically. The purpose of the strategic measurements is for the senior managers to see if they are achieving their strategic goals; operationally and financially. (See Lean Accounting in a Nutshell for more information of financial reports.)
The value stream managers and their team need to know the performance of the value stream each week so that they can use this information for the continuous improvement of the value streams. The results show the problems, the problems can be immediately investigated, the root causes understood, and changes made to create improvement.
The people working in the cells, processes, and support areas need 2 or 3 much more frequent measurements that enable them to constantly monitor and control their work so as to serve the customers well and consistently conform to standardize work.
Key #5. Our measurements must be visual and (ideally) updated by hand.
This bring us to the human side of the measurements. If you want your people to use the measurement and take appropriate action at all levels, the measurements must be displayed visually. People better understand visual measurements. Visual measurements enable groups of people to discuss issues and improvements. Visual measurements enable the teams to see the “big picture”. Visual measurements are combined with visual explanations of causes and the impact of improvements. Companies with fat reports coming from the computer system – usually monthly or later – are missing the point and purpose of the measurements. It all about the people; not the numbers.
Many companies find that they get better understanding, commitment, and results if the people using the measurements also have the task of gathering the data and updating the visual measurement boards. This is NOT a requirement, and if the work of data gathering is burdensome, then it is good to have the computers create the reports. But the more the people at all levels are actively involved in the creating their own measurements, the more likely they are to take responsibility and create improvement.
WHY IS THIS IMPORTANT?
For lean companies, operational performance measurements are just as important as the financial results. Financial results do not happen on their own. They are the results of continuous improvement of the company’s primary operational processes; sales & marketing, product design & development, operational processes, purchasing, improved quality and capacity usage, etc..
Truly lean companies integrate their operational and financial control systems so that the value stream managers have a full picture of what is needed to create customer value, grow the business, and make tons of money. The ideal measurements and financial reports are on single pages, focused, and meaningful. That is the way to create empowerment, control, and improvement. (see information about the “Box Score”)
You can not run a lean company with the traditional measurements – operational and financial. If you do, you will not be able to sustain lean manufacturing, lean product development, lean sales and marketing, etc. because your traditional measurements will “push back” against your lean hard work. Moreover, you can not have two sets of measurements; one for financial control and another for operational control.
WHAT MUST BE DONE:
- Replace the traditional measurements with performance measurements that are designed to motivate and monitor lean behaviors and improvement.
- Develop a set of measurements throughout the organization that thoroughly reflect the company’s strategy and goals.
- Post the measurements (at all levels) visually so everybody can easily see and understand the results and the causes of the results.
- Make sure that as the people work to improve their measurement results they will be actively working to achieve the company’s strategic goals.
- Make this an integral part of the lean culture you are developing within your value stream and indeed the whole enterprise.