Discussion about metrics and KPIs

The following are snippets of a discussion that I have had with Scott Stephens (read his blog ) that started as an answer to a LinkedIn question. I think that it has some important and interesting points about metrics and KPIs.

Question from Scott:

What is your source for KPIs or business metrics? There is a challenge identifying which business measurements are important, how to measure, and how often to measure.

Me
Metrics are used to gauge and measure how a business is performing. Performance is how effectively a business is achieving its defined goals. Hence metrics only make sense in the context of business goals. In order to find the important metrics for your business you should ask yourself what are my business goals and how do I know that I am achieving or performing to the defined goals. Dr. Deming once said that: “Running a company on visible figures alone is one of the seven deadly diseases of management. Manage what you can't measure“. If you are looking for financial metrics the Balanced Scorecard methodology should be a starting place. My suggestion would be to make sure you well defined goals and then figure out how you would measure you are performing against these goals. Those will be the metrics that matter to you.
Scott: If I was specifying an SOA approach to systems, I would want to know what is the required operating spec and how would I state it. So if I know that to achieve a production schedule I need raw material availability, what is the metric to measure raw material availability? What is the definition? Is there a resource that I can share with my supplier? Would they agree that it is a “standard?” Does CAMSTAR software recognize those standard metrics? If so, where do they come from?
Me: Manufacturing KPIs are not practical to standardize. I have done some research into the matter and what I have found is that although there are some definitions of general (or meta) standard calculation their implementation differ. This phenomenon is not only related to KPIs in manufacturing but also to Manufacturing System that are notoriously heavily customized. It is my contention that a standard Manufacturing System, as well as manufacturing KPIs that can be applied broadly is an illusion. The main reasons are a direct result of the dynamic nature of the manufacturing shop floor. Even in companies that try to standardize you will find difference between production lines that manufacture the same product or product family. This is because manufacturing systems evolve; driven by the need to optimize and reduce waste. That is of course is also part of the continuous improvement philosophy. Hence KPIs that are defined today to measure performance toward a goal may not be valid tomorrow since the goal and/or environment have changed.
Scott: I agree that based on my research there is little standardization in the world of business measurements but I am not sure that this is a function of the uniqueness of the users or simply not much work in defining and developing metrics resources. I also agree with the continuous evolution of measurement and process but (and maybe this is my background in systems engineering) I believe that a top-down approach organized by high level measurements will support a results driven business and accommodate the change that you high light. Schedule performance, for example, is a metric that I think crosses multiple industries and organizations. The broad definition and method for calculation will not change although the mechanics for driving change in the measured result will.

Mission and Vision

This topic has always been close to heart since I have experienced both the good and bad side of it. Recently I answered a question on LinkedIn on this topic and thought it would be a good idea to share it.

Here is what I replied:
"I believe that it has to do with leadership. Vision and Mission statement like many other things are part of a company’s culture and organizational development, and have everything to do with motivation and leadership. In order for Mission and Vision to have an effect in an organization, the people have to
1) Know them
2) Understand them
3) Believe in them

In most cases Mission and Vision are known at best, rarely are they understood by anybody else other than the team that came up with them, and even more rarely to people truly believed in them. Intriguingly, when people believe in these statements they are not really necessary, since at that point they are simply part of the companies’ culture. In such cases you will also observe a correlation between strong leadership and organizational focus.

So it really doesn’t help to keep pushing these to people to remember or memorize the statement, you have to motivate them to know, understand, and believe in it."

You can view the whole thread here.

But really what prompted me to write this posting is a proverb I came across:

"Tell me, I forget. Show me, I remember. Involve me, I understand."
-- Chinese Proverb

The Quality Monster

When I was fresh out of college and got involved in my first consulting gig I was somewhat confused to learn about the prevalence and power of the “quality department” in most of the companies that I was working for. Through my studies I learned that quality was a controlling concept that manufacturers used to make sure that everything was – if you will - ok with the product. It took my quite a while to understand and grasp the extent of this monster of an organization, which seemed to have a deliberate separate existence within each company.

Where did this quality organization come from? It seemed unnatural to have quality managed by a separate entity. My understanding at the time was that quality was inherently part of the process. It came from good engineering and good craftsmanship – with a sprinkle of discipline. If you separate the quality management from the process, you create a conflict of interests. The people involved in each department strive towards different goals.

Why then do we have huge quality organizations in regulated industries? Ah-ha “regulated” that may be the clue. It seems to stem from the push for compliance. Regulated bodies like to have confidence that there is compliance. How better to show this other than be dedicating a separate organization to secure compliance? So it seems that in fact its politics and not anything to do with good engineering or manufacturing practices.

In my mind quality and product are tightly connected. Quality products is what we want, there is no sense in product with no quality. Therefore it makes no sense to separate these to organizationally either. Like a good German engineered car (or Japanese nowadays) it is a result of an effective production system. In fact in quality is something you get free if you simply Lean-out your process. Quality is inherent to the process. However you can’t just tell your quality department to go home one day? Is it me that fails to see the benefits in what we consider best practices?

Re-inventing the CIM Wheel?

Lately I have been involved in launching a new product portfolio that consolidates two major manufacturing system’s software domains – manufacturing execution and manufacturing quality. All the discussion around the positioning and value proposition of this new “Integrated” product brought up and discussed ideas that were not in fact new. Although for years, there has been consensus that manufacturing is best operated in an integrated manner the common business practice around adoption and implementation of such systems is still very much departmentalized. In the 80’s the concept of Computer Integrated Manufacturing or CIM as well as other initiatives brought strong focus on the integrated nature of manufacturing and more importantly putting the customer in the center, in other words customer focus. It seems that the originator’s of these concepts where already seeing what is obvious in today’s business environment.

It does not cease to amaze me to what level we keep “reinventing the wheel. In fact in this case we were re-inventing the “CIM Wheel”. Yes remember that concept? Anybody with a degree in industrial or manufacturing engineering has hopefully had some exposure to this concept – right?

There was talk about “breaking down the walls”. Design for Manufacture, Design for X, Concurrent Engineering, etc – remember these hot topics from the 80’s and 90’s? However looking at the picture in today’s manufacturing businesses it is surprising to see that the walls are still there and sometimes they have been re-arranged and reinforced. It seems that the proliferation of information technology with all its rewards and benefits is also used as a tool for reinforcing these walls. How many times has somebody used the “it’s their system…” as an excuse. Another aspect of all of this in comparison to 30 year ago is the emergence of new IT department with CIO leadership that sometimes turns out to be keeper of all the gates between the walls!

So what is it that makes it so hard for us to re-use these old concepts? I am not sure. One notion is that the people that are currently moving into executive or positions of increasing influence where in fact educated during the 80’s and 90’s where these concepts where most prevalent. But is that the only reason? I suspect not. I believe that they are in fact valid today as much as they where 20 or 30 years ago. In fact one of the main barriers at that time was technology, which has advanced explosively and today provides us a rich and usable platform to achieve truly “integrated” manufacturing systems. I believe that today we prefer to use the term interoperability but in essence the goal is the same.