Most business speak of metrics, but fail on one common theme: metrics are often treated in isolation, not as part of a larger whole. As a consequence, our efforts often lead to results we don’t expect. In what follows, I’ll provide a guide to map your performance metrics so that they are actionable, make sense, and bring meaning to the everyday efforts of the employee.
1. Define Strategic Objectives
Applying resources such as money and tactical efforts such as Lean or Six Sigma on non-strategic issues is a terrible use of resources. Launching and supporting projects with little or no significance to the strategy of the organization sends a signal to everyone in the business:
We will push this initiative through, no matter if it doesn’t really fit in the larger whole.
Leadership at all levels needs to invest in making sure Lean Six Sigma projects are aimed at the right targets. This process starts with defining the strategic objectives in a clear, concise manner. The objectives should closely align with the personal goals and objectives of the individual leader.
Typically, the outcome of this step is such statements as:
- Reduce plant operating cost by 10 percent in the next two years.
- Increase revenue per sales representative by 25 percent in two years.
- Reduce product development cycle time by 500 days in the next three years.
The key is to define the goal as precisely as possible, with a clearly defined metric and a time frame (1 – 3 years). The outcome should be a short list of statements that all meet the test of being clearly aligned with the objectives of the executive or the leadership team in charge.
2. No Navel Gazing: Remember the Customer
It has to be said, but forming strategic goals without the perspective of the customer will almost lead to failure. Outside of the sales and marketing functions, this step is often overlooked. To the extent possible, one should aim at verifying the assumptions made at this stage with actual customers or market research. The outcome of this step is a list of statements such as:
- Deliver within 10 days of the order exactly as specified.
- Reduce cost per vehicle by $50.
- Increase Patient Satisfaction by 20%.
The leader or the team should spend some time in making sure they really understand the customer and verifying the outcome with the customer. Those in the organization who do not directly deal with customers need to work hard on understanding their role in satisfying external customers as well as analyzing how their performance impacts internal customers.
3. What are the Drivers of Your Processes
The third step is to identify the critical drivers that will make the strategic objective actionable. At this stage, it is useful to involve a cross-functional leadership team or utilize an existing leadership forum to have a dialogue about such questions as:
- How will the business accomplish this objective?
- What are the critical drivers?
- To what degree does the team agree on these drivers?
- What assumptions does the team make about other factors?
- What are team members’ joint and individual assumptions about cause-and-effect relationships?
- What contribution does the team expect a particular driver to have on the overall objective?
- What performance does the business need to accomplish the goal?
- To what degree are the different drivers in conflict with each other?
- How do these drivers link to business processes?
- Who is responsible for the performance of critical drivers?
The outcome is a list of process drivers, oftentimes with two levels, that everybody on the team agrees to. In the process, the team will have had a frank discussion and converged on a joint picture of what it will take to succeed. Below is an example of a Driver Tree:
Once the drivers have been established, the team should identify the business processes that impact the process drivers and the metrics that will help the team keep track of progress.
4. Operational Definition: Define Your Metrics
To the extent that this process reveals more than was known and agreed upon before – which is to be expected if the team really had a dialogue – the existing metrics will most likely not be sufficient to keep track of progress. In most instances, the leadership team will have to agree on how to keep score and ensure that the definition of the metric reflects the intent. While this seems like a trivial exercise, it is important that the leadership team thinks through to what extent the metric is properly defined. Table 2 provides an example of metric definition.
5. Determine Baseline and Gap
Once the measurement has been defined, the next step is to develop a picture of the current performance. The emphasis should be on establishing performance over time – typically two years, or a similar period that is representative.
A Chart like the one below can be helpful in identifying the Baseline, Gap, and the key processes involved that will move the needle:
6. Use Pareto Principle
The data will provide a start for the team to identify the root causes of performance gaps. Following the same logic as with the driver trees, the team will probe for causes, and identify a wide range of possible avenues to close any gaps. Some of these ideas will not necessarily lend themselves to using Six Sigma or Lean, but others will.
At this stage, training the executives on the Six Sigma process and providing them with a process for identifying where Six Sigma can help will be critical. The outcome should be a prioritized list of projects that will be sufficient to close the gap, with a clear definition of deliverables and timelines. This stage could take a significant amount of time, especially when delegated to the next level in the organization (which is important to ensure buy-in of those expected to deliver the results).
7. Launch Improvement Projects & Strategic Initiatives
The leaders of the business must hold the teams accountable while being patient in terms of the process. They must insist that project teams use data and logic instead of gut response and conventional wisdom. It is all about executive presence and engagement. Many employees and team members will judge project importance primarily on their perception of how important the leader in charge thinks the project is. Project team leaders should expect scrutiny and critical thought from the executive team, as well as visible engagement and support, adequate resources, and a willingness to make responsible, tough decisions in a timely manner.
8. Drive Results and Monitor Achievement of Objectives
Once a project is done or close to being done, the executive needs to ensure that the project delivered on the result. Too many DMAIC projects derail in the Improve phase and do not deliver a sustainable improvement in performance. Reviewing performance against the stated objective is critical. It holds the team accountable – formally acknowledging that the team has delivered the expected result, or that it needs to go back to the drawing board and return with a recommendation for closing the gap. The review process also signals that the project is truly critical to the business, and thus deserves a leader’s active involvement.
Project reviews provide an opportunity to demonstrate progress, commitment and consistency, as well as reinforce the message of focusing on the key drivers to accomplish the goal.
9. Hansei: Refine the Approach
The final step in this iterative process is to review periodically whether the assumptions made along the way are correct. In some cases, the executive or leadership team will realize that they made some incorrect assumptions and refine their tactics and the underlying strategy. Keeping an ear to the ground and being open to learning is crucial to avoid the problem of winning the battle (completing the projects) but losing the war (missing the strategic objective). The leadership team should meet periodically and review whether the assumed link between drivers and outcome is valid or requires adjustment.
In conclusion, mapping of metrics means that the organization will be mobilized to focus on the few vital strategic initiatives that will move the needle and make an impact to the organization. And, the nested approach will align people’s motivation and behavior to focus on those few important items.