At a recent industry conference, I asked my 80-plus audience to raise their hands if they were “OK” with the current status of their performance measurement governance practices – including Metrics Identification, Measuring, Tracking, and Controlling. Only three managers raised their hands.
Upon digging a little deeper, I learned that the widespread feeling among middle and senior managers is that they are measuring too much or too little, or are measuring the wrong metrics. The majority also feel that their performance measurement governance doesn’t drive good behavior or trigger continuous improvement. In this case, from a Lean perspective, it is a waste of time and money.
The root causes of the above concerns and challenges, based on my interactions with several companies across different industries, can be summarized under four categories:
- Difficulty in identifying the right metrics. Current metrics are typically isolated, focused on specific functions, and not aligned to corporate strategy. There is a need for new sets of metrics that compliment that can capture a company’s agility. There is also a need for metrics that will yield the most information on success with the least investment of time and effort.
- Difficulty in understanding root causes when key performance indicators (KPIs) targets are not achieved. This can be due to inability to understand the tradeoff and interrelation between metrics. For example, an increase in fill rate can happen at the expense of inventory levels and cash-to-cash cycle time. Root cause analysis is contingent upon the organization’s ability to track the necessary Tier 2 metrics (more on these metrics in my next post).
- Lack of clear ownership and roles & responsibilities. Not all metrics have performance targets or assigned owners which means no accountability. Clear roles & responsibilities are needed to maintain metrics parameters like formula, granularity, data refresh frequency, audit frequency, etc.
- Lack of consistently clean data. This results in a lack of confidence and trust in the output. Having access to accurate and available data only 80 percent of time is not enough to obtain buy-in from stakeholders or drive accountability and continuous improvement. Business units and key stakeholders will not agree to align with less-than-accurate data.
To address the above root causes and ensure effective performance measurement, Lean and Agile Governance should be in place. This approach honors the principles of efficiency and waste elimination while also enabling the flexibility to deal with the changing business by, for example, adding new metrics or adjusting targets and taking corrective actions. Another aspect of Lean and Agile Governance is to identify metrics that measure the success of becoming a lean and agile organization. I like to think about Lean as equivalent to Operational Excellence + Asset Reduction + Cost Savings, while Agility is equivalent to Responsiveness + Reliability + Flexibility.
Lean and Agile Performance Measurement Governance should consist of three key elements:
- Identifying the right business metrics at different organizational levels
- Systemized metrics tracking
- Formal process & cadence for metrics reviews and controlling
Next week, I shall share the details of these three key elements of Lean and Agile Performance Measurement Governance. In the meantime I’d like to know – What is your experience in this area?