Aligning KPI’s to the Process Metrics | Operational Excellence Quick Hits

Speaker 1: (00:06)
In this session, we’re going to talk about the third part of the decision-making within the management system. We want to make effective decisions, so we want to make sure that the key performance indicators, these key performance metrics here in the foundation piece, are aligned with the process metrics. If we have misalignment between the process metrics and the key performance indicators, the organization isn’t going to achieve its potential.

Speaker 1: (00:36)
So what is measurement’s purpose? The purpose of measurement is to provide judgment on the current state of the organization and to induce people in the organization to take action that is aligned with the goal of the organization. Therefore, we want metrics that induce people to take those actions, so we’re looking for more of leading indicators than more of lagging indicators. The more leading indicators we have, the more or less it’s going to induce people to take the right action.

Speaker 1: (01:05)
Also provides immediate feedback on the effectiveness of the decision-making process. If we’re not making the correct decisions and we get immediate feedback on that, we can recalibrate our decision-making process. So Dr. Goldratt said, “Tell me how you measure me, and I’ll tell you how I behave.” People behave in the way that they’re measured. So in order to get the correct behavior, we’ve got to have the correct measurements at the process level. We have the correct measurements at the process level that are aligned with the KPIs for the organization, the organization will meet or exceed its goals.

Speaker 1: (01:41)
So if we have misalignment between the KPIs and the process metrics, usually this results in lack of ability to achieve the business initiatives that are defined for the organization, a breakdown in communication between departments, increased pressure on managers to increase the performance of the company, in some cases, gets down to micromanagement of the people, negative business effects being transferred to the customer, so sometimes those negative issues that we’re having in the organization get transferred to the customer. Also, low employee morale and the employees feeling like they’re being micromanaged, slow response to dealing with changing market conditions, and lastly, inability to make sustainable improvement in the business performance. So again, if the process improvement isn’t sustainable, then it’s not an improvement for the organization. So the alignment of the KPIs to the process metrics is extremely important in achieving operational excellence.