How Do You Measure Success?

Nice list. I also like to track inventory. We track WIP per employee, turns, and obsolete and slow moving inventory.

My boss (CEO) told me last Monday that my role is to save money, so my performance metric (and our measure for successful implementation) is dollars saved per quarter. The target value is my salary.

I find that I’m now shifting my focus from developing an infrastructure for LSS, to finding projects with quantifiable hard savings. I do this without regard to whether those projects are aligned with our strategic vision.

We started a Lean implementation last year, and added Six Sigma this year. We are experiencing record growth and profits. I am the lone BB, recently trained. My title is LSS Champion, a new position for both me and my company. I’ve worked here (steel forging) for 30 years, starting at the bottom.

Should my main focus now be on high dollar initiatives, or should I follow my gut and continue to build a foundation for LSS, including increased kaizens, even if the dollar savings aren’t as easily quantifiable?

Sorry for the long post. All comments are welcome and appreciated.

Measuring lean success should be the same as measuring business success. Lean is an enabler of market share growth, profit growth and people growth. There is something called a balanced scorecard which is helpful in measuring not only financial performance but also in tracking operational metrics, people / cultural metrics and customer metrics. Without a balanced approach and a focus on cost, you will gain short-term results only and not build an organization capable of continued improvement. This may be the biggest difference between a six sigma focused approach and the lean approach: train a few experts versus train everyone as experts.

As to Mark’s comments about it being all about headcount reduction, Ohno’s point was that there is a huge difference between apparent productivity improvement and actual reassignment of people. In the original Japanese there was some wordplay between identical words “shojinka” reduce headcount and “shojinka”.

Ohno focused on that issue so that people would actually reassign people instead of show on-paper improvements try to hold onto the people in their area for just-in-case situations. He was an advocate of cost reduction across a much broader spectrum of cost: materials, energy, logistics, cost of capital, etc. Many manufacturers today have 80% – 90%+ cost in areas other than labor.

“Costs exist to be reduced.” – Taiichi Ohno

“Building things starts with building people.” – One of the Toyota founders

If you’re not doing both, lean fails. Over the long term, so does the organization itself.

Ron – I’ll respectfully disagree that measuring the # of events is a #1 key measure. That’s at best a secondary type of measure beyond actual business results: safety, quality, on-time delivery, cost and ultimate long-term profits. Too many companies (and hospitals) get wrapped around “# of events” as something to be proud of.

I understand that every change requires three categories of people, the Change Sponsor, the Change Agent, and the Change Target. Lean discussion threads seem to be almost exclusively between Change Agents. I have yet to see a posting from a change target, the value-adding people from the Gemba. So most of these conversations tend to be about how we can change someone else, rarely about how we can change ourselves.

If my assumption is correct, then we should be a bit careful about which measurements we apply at each stage of the lean journey. As change agents, if we’re trying to change the culture of the people on the Gemba, some of the measures proposed, no matter how well-intentioned, may be counterproductive and may lead to unexpected consequences.

I am no great fan of suggestion schemes: they are usually badly designed and discourage rather than encourage. When the Japanese were being benchmarked in the 70s and 80s, one measure was the number of suggestions submitted by each employee. The company I work for (which shall remain anonymous) experienced one suggestion (I repeat one) for every 200 employees annually. This was not because we lacked experience, intelligence or imagination. You were not allowed to submit any suggestions about your own job: it was assumed that you would make these suggestions as a matter of course, even though there was no encouragement and no process to assess and implement them. You can imagine the reaction of the department which received your suggestion.

I’m also no great fan of focusing on hard savings particularly at the start of any Lean journey. “Turkeys don’t vote for Christmas”, because the easiest hard saving is showing people the door. We are still in awe of the black art of accountancy which has proved so reliable that companies like Enron were allowed to flourish. In the early stages of a cultural change, I would recommend any savings, be they hard or soft, should be valued; no matter how small or even if they are difficult to estimate: success breeds success. As experience grows across the work force, and they get better at seeing and tackling waste, the savings will grow. When I was a Black Belt, Green Belts were only allowed to tackle projects if they realised savings of more than $10,000. One Green Belt I had trained came to me in frustration saying her supervisor would not allow her to work on her proposal because it would only save an estimated $7,000! Can you think of a better way to discourage people from getting involved in kaizen?

Be it Lean or Six Sigma or any combination of the two, the really hard work is to create kaizen momentum and to see that that momentum remains through succeeding generations of managers. Unfortunately, this requires a clear sense of (Strategic) direction, stamina, patience, a sense of humour, and more patience. All too often, success is declared when the first green shoots of a “kaizen spring” are detected. The trainers/coaches/sensei are dispensed with, and the whole façade goes downhill to a place often worse that the starting point. You now also have disgruntled people in the Gemba. Always remember you are fighting a corrosive form of entropy, and that any system will degrade over time even if it does reach “World Class”.

I have a suspicion (no more) that the Balanced Scorecard was designed to make MBAs comfortable in leadership positions. This allows them to travel back in time to one of their idols, Alfred Sloan, who developed “management by numbers”. It also allows them to avoid visits to the Gemba where their ignorance of how value is added, could be exposed.

My apologies if this sounds like a rant, but I hope it helps.

Does success of updating the charts on MDT1 or mini-business area determines the success of Lean