Why Lean Performance Measurements? – PART II: Keep the Faith

WHY STRATEGIC MEASUREMENTS?

Everyone’s measurements must drive lean thinking at every level. There are at least three levels of measurements:

3Levels DiagramThe purpose of strategic measurements is for senior managers to monitor the success of the company’s business strategy and take action to stay on track. In the previous blog I showed that measurements are developed by linking them at every level to the company strategy using a “Performance Measurement Linkage Chart”. Strategic measurements assess the performance of the entire company. If you work in a large complex company, then the strategic measurements may apply to the group or division of the company you are responsible for.

Strategic LinkageThe linkage for strategic performance measurements is very simple. You layout your company’s strategic objectives and then workout the measurements that address those objectives. In the posts coming up in the next few weeks, you will see that linking value stream measurements and cell or process measurements takes a few more steps.

The simple example shown here has four strategic objectives relating to the operational and financial success of the company. The senior leadership is making strategic plans to grow the business through sales growth and increased market share. They need to improve the company’s cash flow and bring down their level of debt. In order to achieve this, the company is actively pursuing a lean transformation by creating a culture of continuous improvement, and by recognizing their need to increase the level of skills within their workforce, and to keep the people within their company. (See the BMA “Starter Set of Measurements” in the previous post in this series. http://blog.maskell.com/?p=1446)

I am not of course saying that these are the right measurements for your company. The Strategic Measurements must be developed by linking them to your own strategic goals.

These changes will not come by measurement and wishful thinking. They come by the company leadership deploying strategies that will make these objectives a reality across the company. The Strategic Performance Measurements will show if the changes are working and give the right result.

Strategic measurements are by their nature long term and dramatic. It is common to report the outcomes of these strategic changes each month in the company’s Enterprise Obeya Room. (For more information on Obeya Rooms  http://blog.maskell.com/?p=374 and http://blog.maskell.com/?p=402 )

CONTINUOUS IMPROVEMENT OF THE STRATEGIC MEASUREMENTS

There is little point in reporting measurements if there is no formal and effective method for using these measurements to improve the business. For lean companies there is always a Plan-Do-Check-Act cycle of thinking (PDCA) when measurements are being used. PDCA Strategic

The strategy is developed by the executive team. The strategy is deployed using a formal strategy deployment process. The results of the strategy deployment are measured and posted visually in the Obeya Room. If the strategic measurements show the plan is working well, then the executive team will take action to ensure this continues. If the measurements show that the strategy is NOT being achieved according to plan, then the executive team will take action to better deploy the strategy.

Strategic measurements are usually reported each month, but the nature of strategic change is that it builds up slowly over time. While the PDCA is applied every month, many companies find that significant action needs to be addressed quarterly when there is a clear trend coming through the measurements.

UNDERLYING PRINCIPLES

Effective strategic measurements are driven by these principles:

  • Relate the measurements directly to the company strategy. As the strategy changes the measurements will likely need to be changed.
  • Focus on the vital few measurements. Do not fall into the paradigm of having a vast panoply of reports, charts, and dashboards. Instead do the hard work of settling on the vital few.
  • Report the measurements visually. Create a visual reporting space or Obeya Room to show the results and subsequent actions.
  • Focus the strategic measurements on the achievement of the company’s strategy deployment. Leave the detailed control and improvement at the value stream level.
  • In larger companies there will be group and division measurements that will be driven by their own strategic goals.
  • A disciplined and well designed accounting, control, and measurement system leads to a highly effective organization that is focused on the right things and is quick to respond with innovation to problems and opportunities.

 

 

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