Lean Performance Measurement Systems
Why can't we get it right?
By Lee Ducharme & Patrick Lucansky
By Lee Ducharme & Patrick Lucansky
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Performance metrics play a vital role in guiding and shaping organizational behavior. Based on our experience with “World Class” organizations, several elements are important factors in the selection and maintenance of performance measurements. The effectiveness of performance metrics is frequently related to the organization’s ability to integrate several approaches: First, the matching of measurements with business strategy. Second, the balancing of product, process, and financial measurements. Third, creating metrics that relate and correspond to every level of the organization. In the current metrics environment, the metric process is characterized by the following ingredients:
It is our belief, organizations that are successful implementing performance metrics deploy a strategy that reflects business factors that are critical to meeting the needs of the marketplace they serve. Organizational behavior is, therefore tied to a strategy that is directly linked to end users or customer expectations. In return, the strategy acts as a conduit between the needs of customers and a guide to workforce performance at all levels. In the computer industry (e.g. Dell Computer), time to market and customization are the over-riding factors that drive business strategy. Likewise, low cost production drives the strategy in markets like raw materials and automotive suppliers. In either case, it is management’s responsibility to recognize and assess benefits and results driven by the customer base in each market. Examples of business strategies and industry requirements are further detailed in Table I.
Table I
During the 70’s and early 80’s, business objectives were driven by a production strategy that produced as much product as the marketplace could handle. Performance metrics were focused on operational features like cost of labor, raw materials, functionally related overhead, and production output rates based on sales projection or forecasts. In the current business environment, decision making and organizational behavior based on information from narrowly defined operational factors could be disastrous.
The past ten years has seen a remarkable change in technology, communication, and customer expectations. Every business strategy has been challenged to meet a marketplace that desires low cost, high quality products, and immediate on demand. The web market made it possible to review and transport products and services quicker than ever. Faced with major changes, performance metrics and management strategy, spawned movements like Total Quality Management, which in turn obsoleted traditional paradigms and models. the adoption of Total Quality Management practices has markedly shifted an organization’s focus (Table II) and the subsequent results to a more process-based approach. The focus within an organization is now on what the objectives are, rather than on how the workforce is to achieve its goals. (Table II represents the issues and results in a traditional business approach). A process driven approach describes efficiency, |
Table II
cycle-time and quality of a series of activities. They tell us how well an activity or series of activities perform rather than how a workforce performs. The process view reflects the need that organizations have for a category of information about cause of work and how well that work is completed. A typical list of core processes that constitutes those activities and work are reflected in Table III.
Aside from the cultural implications between the “how” and “what” approach, a shift from a traditional, functional, and results-driven strategy to a process focused, causal strategy has taken place. Striking a balance between results and causal drivers is now the underlying philosophy that drives performance metrics in support of business strategy and critical success factors. Before going much further, it is important to discuss the structure that supports this balanced approach. By balanced approach, we mean the dual view of results and monitoring metrics, and the successful integration of financial, process, and product enhancements measurements. With respect to “dual view”, we emphasize that some traditional results-based metrics are valuable, and play a vital role in a meaningful performance metrics approach. As discussed, corporate strategies are changing. Measurements must support business strategy, while metrics packages are to be diverse and cross-functional and used to managed the “what’s” of organizational behavior, rather than the “how’s”. The structure that supports and keeps a balanced approach is characterized by the following:
When used as a management tool in support of a balanced view, organizations must breakdown processes at their lowest levels. The linkage to tier one (or dashboard) emphasizes the need to clarify the characteristics that underlie a robust metrics process.
All performance measurements packages must include a focus on customer satisfaction, short and long-term goals, an internal/external scope, be linked to benchmarks, and can be used for training and shaping behavior. |
