Many organizations that deploy Lean and Six Sigma eventually hit what is referred to as the “performance measurement wall.” These organizations begin with the right intentions, however, the bottom-line results from their Lean and Six Sigma initiatives are often illusionary because they are focused on the wrong targets. One of the major reasons for this is a lack of a well-structured business improvement strategy on the front end of the deployment process.
The business improvement strategy includes formal selection criteria for focusing on the most important improvement initiatives, and deployment of the right resources, tools and methodologies to the highest impact opportunities. The right performance metrics also are a by-product of a well-structured and well-thought out process.
The sheer terminology of Lean and Six Sigma engulf many organizations, confusing them about where to begin or what to do next. Lean and Six Sigma are nothing more than enablers of strategic improvement success – the means, not the ends. There is no magic recipe in the tools – a random sprinkle of 5S, a dash of kanban, or a smidgen of DOEs (design of experiements) next quarter will not make a company successful. However, this is how many organizations deal with improvement programs. When in doubt about performance measurement, the best option is to return to the basics of what a company is trying to master as an organization.
Understand the Business Masteries
First of all, most organizations have no more than five to ten mission-critical elements to their strategic plan. These can be referred to as “business masteries” and a framework to address these strategic needs is called the Business Masteries Model™. Since everyone is in the same basic brawl for global competitiveness and survival, it is not surprising how similar these initiatives are across industries:
- Leadership Mastery: Organizations need creative leadership that is willing to step up and reinvent the fundamental rules and practices of their industry and the total supply chain. This must include the vision, the detailed strategy, awareness and recognition of the need, communication and reinforcement, regular progress and feedback, recognition and rewards, and countermeasures for unacceptable performance/behaviors.
- Innovation Mastery: Innovation is mission-critical in everything an organization does. Total supply chain skill sets must be leveraged to optimize the total time-to-market cycle. This means developing new technologies, products and processes faster, better, more reliable and at lower global cost…over and over and over.
- Customer Mastery: Organizations must do a much better job of understanding the voice of the customer and the customer’s critical-to-quality elements across various market segments and respond in real time. This means mastering the masteries and their associated costs to an acceptable profit expectation for their stakeholders, who also are customers.
- Supply Chain Mastery: Organizations must make the investment to create a synchronized and fluid supply chain, so that they can manage the complex logistics of matching supply and demand – getting the right inbound and outbound products to the right places at the right time, and executing upstream and downstream adjustments instantaneously.
- Integration and Data Mastery: Organizations need highly integrated information so they can sense, interpret and respond to new opportunities and measure their performance in real time (i.e., a single version of the facts, uniform sense, interpret, respond and measure best practices).
- Human Resource Mastery: Associates must be provided with the opportunities for constant injections of new skills and capabilities, so they understand the challenges of the new economy and have the right technical, teaming and personal skills to execute change.
The well-structured business improvement strategy is a large part of what is referred to as the foundation mastery in the model. Many organizations are missing this foundation mastery and will have difficulty moving forward and mastering the other masteries. Every organization should define two or three high-level, key performance indicators for each of the strategic elements mentioned above. Every Lean, Six Sigma or any other strategic improvement initiative should be forced to pass the litmus test in terms of being directly linked to the key performance metrics. World class Lean and Six Sigma environments have a formal evaluation process where they continuously rate the importance and likely success of potential initiatives in the pipeline against these factors. This formal process strives for alignment and linkage between strategic needs and daily Lean and Six Sigma activities. This formal process also regulates improvement activity where organizations do a great job on fewer targeted opportunities, rather than the typical train-the-masses and activity-for-activity’s-sake improvement programs.
Real-Time, Good-Day/Bad-Day Metrics
In a Lean and Six Sigma environment, performance metrics tend to fall into the following major categories:
- Velocity improvement, responsiveness, speed, flex bandwidth, cycle time reduction, quick changeover.
- Schedule attainment through robust synchronization (pull), optimizing throughput up and down the total value stream, and fully integrated customer and supplier networks.
- Quality improvement, defect reduction, elimination of waste, rework, repair, scrap.
- Process capability, stability and variation reduction, parameter optimization, predictability, reliability.
- Productivity improvement and accomplishing more value-added output with less inputs or resources such as people, inventory, space, downtime, overhead support, etc.
- Financial improvement such as margin improvement, cost reduction, scrap reduction, material reduction, overhead reduction, and other specific P&L line item accounts.
Although these are all great metrics, “The good-day-or-bad-day” approach is most valuable when applying these Lean and Six Sigma metrics to their specific environments. This is a pretty simple approach. Imagine walking around the organization to see if the company is having a good day or a bad day? The answer would be easy if there were a few very visual, daily, event-driven metrics in each of these areas around the categories mentioned above. For example, take schedule attainment. That is an easy one for a production area. But what about customer service or warranty? It is the same logic. How many customer service issues were not able to be resolved today? How many returns received today have not yet been processed? What is the status of new products in the development queue? What were yesterday’s collections versus receivables due? How many orders received today are not releasable to manufacturing? How many A, B and C level part shortages occurred today?
There are so many incredible Lean and Six Sigma opportunities in these transactional processes. It is literally a goldmine for most organizations. All it takes is the first step – a visual, role-specific dashboard approach to performance measurement. These key process metrics should be measured daily at a minimum, and many organizations are moving to event-driven metrics that allow them to monitor, sense, interpret, respond and measure in real time. Many advanced organizations use a projector-and-screen approach, where key metrics are literally updated and projected in real time.
There is a saying that goes something like this: “What gets measured, gets attention and improves. You get what you measure. But be careful what you measure because you might just get it.” Performance measurement drives the right desired behaviors to achieve the right desired results. Conversely, the wrong performance measures drive the wrong behaviors to the wrong results.
Performance Measurement: Lessons Learned
For many organizations, Lean and Six Sigma run the risk of becoming the next lost opportunity like other previous improvement initiatives. Management believes in it, their customers are demanding that they do it, but they just cannot figure out how to turn actions into cash flow. Management also is questioning why it should continue if it cannot see any performance value or financial impact. Lean and Six Sigma are extremely powerful enablers of strategic improvement and breakthroughs in operating performance. However, Lean and Six Sigma blindly deployed in the absence of understanding the business mastery requirements, and without a well-organized business improvement strategy is a prescription for sub-optimizing results and a rapid loss of organizational interest.