by Gary Kapanowski
Performance metrics have been an aspect of business reporting and control from the days of the early industrialists in the 1800’s and even dating to the Roman empire for producing weapons for the military. Performance metrics start with the process that creates the metric, i.e. the people and tasks associated with generating the metric. New metrics may be required for new tasks and processes and potentially change transformation involving breaking past habits. For this analysis, objectives is used concurrently with the organization’s mission and vision for clarity purposes.
For most people, a habit can be formed withing 20 days (1). Implementing a process requires constant monitoring to assure the process is being followed as intended. I will discuss the successful ways a change transformation can occur for performance metrics.
Drucker Approach
Peter Drucker was considered the first management consultant. His mentorship for corporation was considered a privilege and a badge of honor. One of his first questions to a prospective organization was to interview the CEO to test their understanding of their own organization. He wanted to see how each CEO understood their industry and organization. One question was if you could do it all over, would you still be in this industry with this company? If the answer was no, he would not help and let the CEO know that they now have their answer to their problem. The same can be said on performance metrics. Each organization must know their performance drivers, what generates revenue / profit. For the first part of performance metrics is to see what the organization is currently using and ask for each metric why are we using it. Each metric needs to trace to the revenue stream or objectives of the organization. The drivers of the organization. the next step is to identify if the metric is a leading or lagging for the performance. Leading will provide a signal of what will happen so you can adjust before an unfavorable event occurs. Lagging will provide a historical perspective for trend analysis and overall industry performance for competitiveness. The Drucker approach will provide the foundation of where we are with performance metrics and what needs to be improved.
TAIL WAGGIN THE DOG
There is an adage of the tail wagging the dog meaning the smallest or an insignificant aspect of the process can move the entire process. For selecting metrics, an understanding of the metric and how it can be applied can move the organization in unsuspecting ways, even against the objectives of what the metric is linked to. Have a thoughtful and honest discussion of the leading and lagging metrics needed to understand you organization and how you will achieve your objectives. Improvements in the process can be realized by routinely reviewing the process steps which might affect your metrics. Recording the dates of the process improvements will identify the value of lean in your organization as they reflect in the performance metrics. Thus, using the established performance metrics as a value of lean on the organization is a hidden aspect of valuing lean.
SUSTAIN THE PROCESS
One way to verify the process is working as intended is to audit the process. Walk the steps of the process. Physically see what people are doing. Make notes of the tasks performed and how long it takes to do each task. Verify against the assumptions of the process if tasks are added or dropped. One example is a metric for cycle time or labor time for a specific task. To meet the metric, the employee might try to charge their time to another program and not the one they are working on to meet the metric goals. Also, the employee might reduce time or eliminate tasks for the operation to complete. The activity might not be detected initially and avoid defect detection by current statistical process review but will eventually end up in warranty cost increases.
Another way to audit the process is to involve random timecard reporting audits. The random aspect of sampling timecard provides another aspect of control on the issue for misreporting or under reporting time to achieve favorable metric results. For organizations that have ISO 9000 certification, routine audits of process are required for maintaining your certification.
BALANCE SCORECARD
Putting together the performance metrics that connect the organization objectives is now commonplace. As identified by Dr. Kaplan, driving the organization forward requires the tasks for each person in the organization connect to the objectives for personal connectivity and to drive the right performance as required by the objectives (2). Bringing the connectivity of the task and person to the organization’s objectives will assist with the culture working together and focus on achieving the objectives.
CULTURE
When looking at the environment in business, culture is mentioned immediately. For any type of transformation change including processes for performance metrics, the culture needs to be understood to weigh the difficulty and risks involved. In a broad or macro view, does the culture agree with the change and willing to follow the process steps. With the early answer to the culture, the performance metric team will be able to place a timetable and overall success rate for implementation.
Establishing a group culture will out produce the sum of the individual parts (3). By building the culture around a specific set of skills, the collective group creates interactions to complete the task effectively and efficiently. There are three identifiable skills used by these teams that stand out from the others namely: Establish purpose, share vulnerability, and build safety (4). Each skill works together starting with establishing purpose to build group connection then channeling into action. By detailing the narratives create shared goals and values, purpose is connected for everyone involved. Sharing vulnerabilities explains how habits of mutual risk drive trusting organizations. Building safety explores how signals of connection generate bonds of belonging and identity.
James Clear also notes that its not necessary to change a person to change their behavior. Just change their environment. Sometimes by moving people around the process can affect their behavior. Flex scheduling or process rotation can have the same impact as moving to a different department or new location within the organization.
LEADING CHANGE
Another aspect of identifying performance metrics includes potential change in the process or work definition / identity of people in the organization. Many organizations experienced a lack of success in transformation change. In Leading Change, Kotter identifies the eight common mistakes made in unsuccessful change transformations: Allowing too much complacency, failing to create a sufficiently powerful guiding coalition to implement change, understanding the power of vision, under communicating the vision by a factor of 10, permitting obstacles to block the new vision, failing to create short-term wins, declaring victory too soon, and neglecting to anchor changes firmly in the corporate culture (5). To counteract these common mistakes, an eight-stage process is identified to assist organizations for successful transformation implementations: establishing a sense of urgency, creating the guiding coalition, developing a vision and strategy, communication the change vision, empowering employees for broad-based action, generating short-term wins, consolidating gains and producing more change, and anchoring new approaches in the culture (6). The overall implication for the organization is to encourage an open mindset approach to the daily tasks to be best suited for accepting change and creating change (7).
ATOMIC HABITS
When implementing performance metrics, its essential for each person in the process to review their steps and look for improvement, even a small amount like 1%. The cumulative long-term effect will be noticeable and meaningful. A daily 1% improvement will yield 37% over a year (8). These small wins produce the confidence needed to continue the full implementation and sustaining process of change and eventually produces good new habits to produce the change needed for the performance metric to work properly. Habits are the compounding interests of self-improvement and successful change transformation (9). The problem is that the slow pace of change and transformation makes it easy for a bad habit to return. I like to use the movie 12 Commandments when Moses left the group and they quickly returned to their old ways of practicing religion. Another good parable is the Sorites Paradox stating that one small action can have significate effect on the macro environment.
There are several ways to encourage good new habits in a process of individual. One is to have the specter of review or accountability. Instituting routine or random audits of the process of individual tasks will provide assurance that the process is correctly followed. The downside is if the audits are not random or institutionalize to occur routinely, the organization will not achieve transformation though empowerment, encouragement, or motivation but will result in unsuccessful process improvement, unnecessary variance, and excessive administration costs.
Another way is to build good habits using the science of habit formation: cue, craving, response, and reward (10). To start a new habit is to make a specific plan for when and where they will perform the new habit. Creating a monthly plan of action for each day along with a checklist is a great start. The four basic steps include making it obvious, attractive, easy, and satisfying (11).
SUMMARY
Treating success as not as goal to reach or a finish line to cross but rather a system to improve or a continuing process to refine is a more realistic and proven successful approach over many years by organizations and individuals alike. Bad habits repeat not that you or your organization doesn’t want to change but you have the wrong process for change.
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References
(1) Duhigg, Charles, The Power of Habit: Why We Do What We Do in Life and Business. Random House. 2012.
(2) Kaplan, Robert S., & Norton, David P., The Balance Scorecard. Harvard Business Review Press. 1996.
(3/4) Coyle, Daniel, The Culture Code, Banton Books, 2018.
(5/6) Kotter, John P., Leading Change. Library of Congress Cataloging. 2012.
(7) Dweck, Carol S., Mindset: The New Psychology of Success. Ballantine Books. 2007.
(8/9/10/11) Clear, James, Atomic Habits: Tiny changes, Remarkable Results. Penguin Random House. 2018.
Gary Kapanowski, Certified Lean Six Sigma Master Black Belt and Certified ASQ Bronze Lean professional, is Cost Accountant, Lean Six Sigma Master Black Belt Lecturer at Lawrence Technological University Professional Development Center, and Contributing Editor and Editorial Board for the Journal of Cost Management. Gary has been a featured speaker at over 170 professional annual conferences and lean workshops at over 45 universities with over 7,000 professionals and university attendees. He has 21 published papers on lean and accounting along with a business column in the Journal of Cost Management starting in 2019. His recent work produced the first redefinition of lean as a business strategy and beyond an operational efficiency tool for implementation. Currently, he has partnered with others to form The M Plus Group to assist leaders and organizations during uncertainty.