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Continuous Improvement -- Don't Fool Yourself With Metrics

When it comes to performance indicators, be mindful of what you measure.

When traveling from the U.S. to a country that uses Celsius and the metric system, the first few days are glorious. You can drive faster (a blistering 110 kph vs. a grandmotherly 68 mph). You can eat whatever you want because the pounds no longer add up. (I weigh a waif-like 91 kilograms vs. a lumbering 200 pounds) And despite the humidity, 38 C just doesn't feel as hot as 100 F.

Such is the arbitrary nature of measurement standards. Your mind eventually adjusts, laboring through the conversions at first, then establishing new internal benchmarks for speed, weight, temperature and the like. Still, those first few days are a useful reminder of how such measures, regardless of the underlying reality, impact our perception of the status quo.

Operational performance measures are no different. Depending upon what they measure and how they're calculated, performance measures can bring problems to the surface or they can give managers a false sense of security. The fact that they're often written into employment contracts, annual objectives and gain-sharing plans, only makes it more important that you get your metrics right.

Here are several points to consider when establishing or recalibrating process metrics:

Link them together. Operational performance metrics should roll up through the organization. The key performance indicators that are posted in work cells need to tie into site measures and goals, which should support business unit objectives and the corporate vision. The operational coherence spawned by measures that link business functions and activities together distinguishes those organizations that make progress from those that don't.

Measure what customers care about. Too many performance metrics look inward, reflecting what managers think is important. Many businesses today are conducting exercises to help managers and staff hear "the voice of the customer." What if that voice appeared on your operational dashboard? As a general rule, the more closely your numbers reflect what your customers value most, the better off you will be. Of course you have to know what that is.

Output isn't everything. The message still hasn't sunk in for many production managers. As soon as you buy that fancy piece of equipment, throw away the capital investment calculations that were used to justify the expense. Just because the finance systems say that it's better when the equipment is running non-stop because you're fully amortizing the investment, don't do it. There's no point in churning out stuff nobody wants.

Effectiveness trumps efficiency. Many customer service representatives are rewarded based on how many calls they handle per day. What this translates into, as we've all experienced, is how quickly they can hang up the phone. If you are paying people for performance, you better make doubly sure that the way their performance is measured aligns with business objectives. The better call-center operations today are incorporating problem-resolution rates into their incentive-pay systems.

More is better. Just because everything seems OK at your measurement point doesn't mean everything is running smoothly. An end-of-the-line quality yield measure may not reflect how much rework is required to turn out acceptable products. An on-time delivery measure may not reveal the Herculean effort required to get orders out the door, the premium freight required to get them to the customer on time, or customer acceptance once they arrive. The more activities that you measure, the less likely that problems will remain hidden. Whether it's on-time shipments, cost per ton, or units per person per day, the bottom line is still the bottom line. All internal performance measurements are only surrogate indicators of business success.

David Drickhamer is IndustryWeek's Editorial Research Director. He also coordinates the IW Best Plants award program.

TAGS: Leadership
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