A while back we talked about measuring what matters. We briefly talked about key performance indicators (KPIs) and how they measure the quality of performance and assist in developing performance goals and strategies on both the individual and organizational levels.
We came across an article on Industry Week on how to select the best KPIs to drive operational improvement. In it, author Jason Piatt says the key to success is selecting KPIs that will deliver long-term value to the organization.
Piatt says managers have a habit of adding KPIs but not converting the list to the appropriate size to drive strategic intent. Not everything needs to be measured, so focus on the really important things to help your business grow.
KPIs should measure performance toward the strategic objectives of the business. They should be measuring the most important factors in achieving your goals and being successful.
Make sure your measurement system is valid. Priatt suggests validating the repeatability and reproducibility of your measuring system.
Everyone in your organization, on all levels, should be able to relate to the metrics. Piatt says KPIs, such as overhead absorption percentages, are common, but they aren’t necessarily effective for production personnel. He suggests using metrics such as units shipped per hours worked if your objective is to increase production and/or reduce hours per unit.
To obtain the strategic objectives or goals you have set, the KPIs you choose must be controllable. Piatt says this is often forgotten in a successful operational strategy. He suggests asking yourself, “Is the individual empowered to make necessary changes in order to drive performance of the KPI?” If they aren’t, change it so your team is able to meet their objectives.
Business leaders can be inundated with data and sometimes don’t know where to look first. Choosing the right KPI isn’t always easy so use these tips to help you along the way. Like we’ve said before, it’s important to have a broad range of metrics that enable you to assess the performance and understand why you are performing as you are.
What other tips would you add?
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Delivering quality products and services should be top-of-mind for every business leader, regardless of industry.
It doesn’t matter whether you are a professional services provider or manufacture automative products, you should aim to improve quality. It drives sales, and will reduce costs and reenergize employees, too.
In a Inc.com post, Drew Greenblatt, president of Marlin Steel, offers five tips to help you improve quality, both in your products and your business.
Greenblatt recommends that two important KPIs to begin measuring immediately are quality escapes and quality captures.
Quality captures are process and product errors that are identified and captured internally before the client sees the finished product or service.
“Captured quality errors aren’t as bad because the client never knew — maybe they suffered a delayed delivery, but that’s it. Your client is not injured by the stumble.”
Quality escapes are more dire, because they were discovered by the client. They risk the long-term relationship with the client, and escaped internal quality checks.
“Measuring these mistakes transparently will bring your team’s attention to these issues, and they will understand they are important.”
When quality errors happen, focus on the process. Often, the root cause of a decrease in quality isn’t a person, but an organization’s internal process.
Greenblatt cautions against playing the blame game, saying that it will ultimately affect morale, and decrease productivity.
Address process issues by adding new checks or revising timelines so employees don’t feel rushed to produce on tight schedules.
Regular meetings about quality are necessary, but initial meetings can be lengthy. It’s important to have conversations with everyone involved whenever a quality issue emerges, in order to identify the root cause.
As processes are strengthened and systems become more robust, these meetings will become periodic check-ins.
A quality chart is a good way to prioritize quality issues by size, scope, and importance.
When addressing any quality issues, Greenblatt recommends devoting the most time and energy to those areas that experience issues most frequently.
Quality improvement is an iterative process, so organizations should always be looking for ways to deliver the maximum value to the client or customer, while streamlining internal processes for efficiency.
“Work the biggest quality issues until they become smaller issues.”
Make the results of your quality evaluations and checks public.
Post them around your place of business, communicate why they’re there, and give context to the numbers. Your employees should see this emphasis on quality as a company-wide endeavor, and posting the latest numbers to your team publicly is a great way to demonstrate the organization’s commitment both to quality and its people.
Companies typically use financial measures such as sales and earnings to track and communicate performance. But what happens when those aren't the most important business metrics?
Investors and leaders can miss out on problems and opportunities if they're too focused on the wrong business metrics.
According to Michael J. Mauboussin, a contributor to Harvard Business Review, the right business metrics help you understand, track, and manage the cause-and-effect relationships that determine the value of your company.
The difficulty lies in figuring out how to make a coherent narrative out of the wealth of data accumulated by today's businesses, says Dimitri Maex, co-author of “Sexy Little Numbers.” Maex wrote about measuring what matters and making sense of your data, and says measurement planning is the way to make sense of the surplus of information available to today's businesses.
