Our thinking about performance measurements has evolved over the years.
Early on in my work I began to see a critical need for companies to change their thinking about performance measurement. As more and more companies responded to sharp competition by becoming agile and embracing change, “old style” performance measurements just didn’t fit. I wrote a little book in 1994 [i] about this (New Performance Measures, since out of print) making the case for radical change in how companies measure performance.
Then, in 1996, the first edition of Lean Thinking [ii] blew the doors off our thinking about traditional ways of manufacturing. We came to understand that true Lean Manufacturing demands that companies have an integrated framework for organizing and measuring what they do.
If your company uses full absorption costing or standard costing, then you know about variances. In his new book The Lean CFO [iii], Nick Katko makes a strong case that traditional financial performance numbers don’t give an accurate picture of how a Lean company is doing. Nick’s chapter “Measure Performance, Not Profits” outlines a clear and compelling reason for why you need to change how you measure what you do, so you understand how you make your money, and know better how you can make improvements going forward.
In case you still think radically changing how you measure your operations doesn’t matter much, read my blog about the “near death” experiences of Chrysler & GM
One thing’s for sure: Lean means Lean! Everything your company does has to be aligned completely with flowing value to your customers. Kaizen begins and ends with the business strategy you put in place, up and down the entire Lean enterprise.
Here’s a picture I often use to illustrate this:
The BMA “Starter Set”
When teaching companies where to begin with Lean performance measurements, we make the case that everything starts with making sure the entire Lean effort is working toward the agreed-upon strategic objectives. We use the BMA performance measures “Starter Set” as a way of showing top to bottom linkage (or alignment) of everything you measure to your company’s lean strategy.
While we understand that all companies are different, we think this “one-size-fits-most” approach helps people get the concept easily and quickly; then they are off to the races to make sure that what they are measuring is what is needed at their particular company, and that their measurements make sense according to their own company’s Lean strategy.
Here’s what the BMA Starter Set looks like:
In this series of blogs, I’ll be examining Lean Performance Measures at all levels: including the “Why?” “How Do They Work?” and “What Happens Next?” Stay tuned. Next time: Strategic Measurements for Lean Manufacturing.
[ii] Womack, James P., and Jones, Daniel T., Lean Thinking. Banish Waste and Create Wealth in Your Corporation, New York, Simon & Schuster, 1996. A second edition of this book has since been issued. Available from lean.org or Amazon.