When approaching the implementation of KPI structures, there will be key challenges that you are looking to resolve, opportunities you are looking to take advantage of and core behaviour you are looking to encourage (or discourage).
Achieving this in a manufacturing environment can be a challenge and when I first discuss KPIs and metrics with manufacturing businesses there are three common obstacles they are looking to overcome.
KPIs That Function
First, every manufacturer measures many metrics, but the ones they are used to measuring are largely lag measures that tell them what has already happened. Often, they will look at data over a time period of days or weeks or longer to see how that metric performed. Insights from that sort of analysis can be important, but usually metrics like that won’t be able to help you achieve the real-time changes and responsiveness you want from a KPI. So to a certain degree manufacturing managers need to change the way they think about metrics in order to find the ones that will work as KPIs.
Second, since most manufacturing managers have a large amount of data at their disposal, once they understand that lagging measures may not be the best KPIs, they start looking at all the other data they have, and this becomes a problem as well. The sheer amount of it tempts them to treat too many things as KPIs. This can be a helpful exercise because it causes you to look at your data from a different perspective. But it can also cause confusion and that can make it more difficult to find the solutions that will in fact work to change behavior and drive outcomes.
In his book Zero to One, Peter Thiel says “Today’s companies have an insatiable appetite for data, mistakenly believing that more data always creates more value. But big data is usually dumb data”2 Which is well worth bearing in mind when selecting your KPIs.
This brings us to the third and final obstacle, which is that for a KPI to be effective, it must be clear to the person responsible for making it move. While managers may in fact find ways to construct useful KPIs from all their data, that KPI may not be meaningful to the employee. This doesn’t mean the KPI must be simple. But for it to be meaningful and for it to have the desired effect, the employee must see how the metric is a fair measure of their contribution, and they must feel that they can reasonably be expected to control where the measure falls.
I like David Parmenter’s assertion that “The main purpose of performance measure’s is to ensure that staff members spend their working hours focussed primarily on the organisation’s critical success factors.”
For me, this helps retain focus on choosing KPIs that will help your people ask good questions, have robust discussions and take affirmative action, as I've written about previously.
KPIs That Drive Change
So, I look at KPIs as tools used for creating change. It makes sense to take a high level look at your operation and start with a mindset of identifying the biggest possibilities for improving the outcomes you are delivering.
If you know you need to measure something, then you know you are looking to control it. There are ‘drivers’ that each functional area needs to influence and focus on to perform optimally. In my experience, categorising discussions around these drivers helps to focus leadership on the few really key areas of the business where their people can drive improvement.
It helps to simplify the thought process that identifies those few critical success factors. I refer to these factors as the “levers” that people can push and pull to drive their part of the business in the right direction. This simplification is a vital part of the thought process. We use it to eliminate some of the KPIs coming from all that data, and to work towards the ones that will work for your people.
The axiom “if everything is important, then nothing is,” becomes very apt here. You don’t want more than four headline KPIs per team, and no more than four per person. With access to so much data it is sometimes hard to say no, but you must be prepared to do so, if you are to succeed at leading a successful performance metric implementation process.
As always the process of selecting the appropriate KPIs hinges on asking good questions all the way through the selection process. What are the biggest challenges or areas of weakness that we have right now? What are the biggest opportunities for us to improve on performance right now? Along with other deep diving questions this approach will lead you on the right line of creating a strong structure that your people buy into and can celebrate when they achieve and exceed targets.
Please watch this space for The Best Manufacturing KPIs, Part 2