by Lee Fried, on 31 Aug 2006 10:46 am
The Journey
Careful what you Measure
I had an interesting discussion yesterday on performance measurement for the Model Line and our centralized LEAN consultancy. Many of the measures being discussed in my opinion are complex and non-operational. We are so used to developing outcome. measures that do nothing to encourage improvement or business results in the long-term For example there is some pressure from leadership to demonstrate a measurable ROI for our LEAN efforts. Trying to determine an ROI for each LEAN event would lead to a considerable amount of effort trying to demonstrate results, but conclude with fuzzy metrics that may or may not be the result of the LEAN work. Additionally, by tracking and ROI based on LEAN efforts we end up putting the focus on LEAN itself as opposed to the team that is using LEAN thinking to achieve the results in the first place. Overall our goal should be to only measure things that will lead to improvement. The measures should be simple, easily reported and provide incentives for teams to make improvements in Quality, Cost and Delivery.
on 04 Sep 2006 at 1:44 pm 1.Karl McCracken said …
Hi Lee -
I tend to agree - trying to work out ROI on this sort of stuff is generally rather pointless. If Lean is really working, then in addition to the Halleluja Chorus Kaizens, it’ll be generating hundreds of tiny improvements a month. Individually, these are probably worth a few dollars here and there, but they add up to a whole bunch of benefit. Because the individual returns are small, an ROI focus would tend to dismiss them as worthless (especially as the cost of working out ROI would have to be met from somewhere . . . ), and you’d end up just doing the big Kaizen events.
Now, a lot of people would like this - afterall, why bother with the small improvements of dubious payback when you can bet on some fully justified and costed winners?
But this is completely missing the point. Three points in fact. Firstly, Lean is about creating a culture of improvement, and to do that, it’s essential that people feel empowered to make whatever improvements they can - no matter how small the benefit. Secondly, lots of small improvements have a significant competitive advantage - they’re extremely hard to copy, and often, there’s a degree of path-dependancy, making them IMPOSSIBLE for competitors to copy. And finally . . . statistically most things do in fact fail. But given an equal probability of failure (say, 99%), it’s better to have a hundred low cost improvements of which only one pays back big-time, than trying to engineer out that the odds for that one big project!
That’s what I think - and sorry, as I’d intended this to be a nice short reply!
Karl.
on 04 Sep 2006 at 4:11 pm 2.Lee Fried said …
Dear Karl,
I appreciate the long comment and really like the the three points. I will use them with my leadership team tomorrow.
I think you are absolutely correct, I would take many small improvements any day over the “silver bullet” that often organizations are looking for. The “small stuff” is not so small to those that are working in the processes and have to deal with the same problems day in and day out. By empowering and resourcing teams to implement their ideas and fix the problems an organization gets the best return on investment that it could ever ask for: an engaged and high performing culture. Just don’t ask me to measure it!
Thanks for your input,
Lee