The key to making KPIs perform
Part 1: You want metrics to create the insights that can lead to change
There is no such thing as an obvious idea. The idea that to improve what you are doing you first have to measure what you’re doing seems blindingly obvious to us, yet it had to be invented.
And it took centuries to do that. The first recorded instance of what may loosely be described as a Key Performance Indicator dates back to third century China when the emperors of the Wei Dynasty rated the performance of family members who ran the state.
The daddy of KPIs ─ return on investment ─ was first used by Venetian traders in the 13th century. They struck upon the (then) singular idea of comparing the sums invested in a sailing expedition with the value of the goods the ships brought back from their exotic journey.
But it wasn’t until relatively recently that KPIs were institutionalized and became a core part of how organizations of all types frame the way they operate.
KPIs in manufacturing first emerged in Scotland in the early 1800s, where performance in cotton mills was tracked through the use of “silent monitors”. These monitors were cubes of wood with different colors painted on each visible side. They were displayed above the workstation of each laborer ─ very probably the first KPI dashboard!
In this brief series of two blogs on KPIs, we want to focus first on some of the dos and don’ts of performance appraisal in Quality Management. Our second blog will look at how specific KPIs are helping manufacturing businesses to reach and surpass their Quality goals.
Align your KPIs with your strategic interests
KPIs are about measurement with a clear purpose. Big Data is set to become even bigger as the Internet of Things inserts itself into every nook and cranny of how we manufacture and consume. Very soon, what we can measure will approach infinity ─ and infinity is not a practical idea.
Really, KPIs are the way you strategize your metrics. This is why the KPIs of one factory will never be identical to the KPIs of another, even if they produce the same thing.
In World War II, Robert McNamara pioneered the use of statistics to make US bomber runs more efficient. After the war, he took this data-driven approach to Ford and revolutionized the business.
But what works in one area may not work in another. As Secretary of Defense during the Vietnam War, McNamara introduced the doomed KPI of so-called kill ratios ─ if for every US soldier lost, the North Vietnamese lost 3 or 4 (or more) then America must be winning the war. As the Pentagon fixated on the body count, the KPI became more important than the strategy ─ and that is always wrong. KPIs are there to serve your strategy.
KPIs are not about perfection
“Did the sun rise in the east today?” is not an insightful KPI ─ at least not for the next two or three billion years. Something that is always true is not worth measuring, and a performance indicator is only “key” when it gives us information that can lead to change.
In the white paper on our Quality Maturity Model, we discussed the difficult course every Quality Manager has to steer between the cost of preventing and the cost of remedying failure. Every Quality professional knows that this ratio shifts significantly towards preventive costs as Quality Intelligence matures. Although this is always true, without KPIs to back it up you are relying on gut feelings.
A cascade of very simple KPIs will help you track the ratio for your factory. Weight and number of batches produced divided by the number of batches with rework gives you your First Time Right percentage. There will come a point where you do not want this percentage to be any higher than it is because the cost of getting there would be prohibitive.
KPIs should be a form of communication
Information that is not communicated informs no one ─ a point that sometimes gets lost in the number-crunching. This is where dashboards come in. They should be clear, attractive, intuitive ─ and curated. Each department or individual should be provided with a view of the KPIs most relevant to their goals to focus their attention on what is most important for their jobs.
Also, don’t overdo the visuals, however tempting this may be. Key information should be visually immediate and unambiguous.
A KPI is not for life
Some indicators are project-driven. When the project is finished, or you have improved the processes that you had tasked yourself improve, the KPI has served its purpose. You move on. Other metrics will assume greater importance as you continue to drive Quality Management forward.