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Jeff Liker

Jeff Liker: Metrics create a focus for the company so changes lead to meaningful business results

By Jeff Liker, author of The Toyota Way and co-author of Toyota Product Development System and Toyota Under Fire - Last updated: Monday, January 28, 2013 - Save & Share - Leave a comment

I agree for the most part with the observations of my colleagues.  Summary:  “You get what you measure” translates into “Let’s measure what we think we want and we will get it.”  There are two problems.    First, we often cannot measure what we want.  We want engagement, we want people to pay close attention to quality and safety, we want engagement, we want people to produce more in less time, we want people to product just what the customer wants, etc.  Each of the measures is a proxy for what we really want.  With many measures and pressure people work to the measures and make the scores look good, but are not doing what the organization really wants, which in the case of for-profits may be to gain market share and be profitable consistently over time.  As Steve Spear notes, to really get what you want you need to be much more precise about establishing the connections between activities, processes, and measures and work to continuously improve in a systematic way.  On the other hand, I have seen cases where companies drive hard to certain key performance indicators and do get what they want.  This happens most often in my experience during a crisis.

We have a chapter in The Toyota Way to Lean Leadership about how Gary as CEO helped lead Dana (truck chassis components) out of chapter 11 and a central success factor was the use of metrics.  They defined KPIs including the usual suspects of quality, cost, delivery, safety, and morale.  Two of the key outcomes that were heavily focused on were inventory dollars and plant conversion cost.  Inventory dollars freed up meant cash to pay down the expensive debt.  Conversion cost was the sum of all the controllable costs within the plant divided by standard labor hours earned.  I was suspicious of the denominator but they needed to adjust the measures somehow as plants vary so much in size and sales price.  Labor hours earned were what the plant should have earned based on what the plant produced and the expected labor hours per unit.  If the plant overproduced to inventory it would drive up inventory.  If the plant had a lot of scrap and rework to produce a certain amount that would increase the numerator.

It worked and in the first year they saved about $200 million in inventory and about that same amount in cost.  Why?  Gary hired from his network people with lean knowledge and assigned them to regions.  He created an operational excellence office and each plant had someone trained or knowledgeable.  They did major kaikaku activities and plant managers from plants in a region would all participate in the activities of other plants in the region to learn.  Plant managers made plans for the year on A3s that were critiqued by Gary and his staff and they had to make weekly phone calls to headquarters to discuss their KPIs, what happened this week and why and what was to happen next week.  Gary himself was all over the place at the gemba.  He even insisted that out of a certain number of workers made redundant they hold back some to act as team leaders.  Plant mangers who could not keep up either left, were demoted or were let go which amounted to about half in North America.  In many ways this was an ideal lean situation–extremely knowledgeable and active CEO at the gemba, excellent coaching resources, a crisis to motivate, and the ability to replace leaders based on their performance through the crisis. On the other hand it was driven by the KPIs–with a particular focus on short-term cost.

In other ways it was far from ideal.  There was not the time to deeply develop people and culture, there were a lot of angry people, and they were not developing in any detail the systems of flow, experimentation, and scientific methods Steve describes.  So it was not sustainable. After the crisis the company won an award for highest increase in stock value in automotive supply, over 1000 percent.  They got past the bankruptcy and are solvent and growing. The operational excellence office is focusing on a more patient approach to teaching the basics, but still expects results through a form of hoshin kanri.  But Gary and others he brought in have moved on and it is unclear whether the current leadership will be able to maintain the intense focus it will take to truly create a culture of continuous improvement.  So while outcome metrics are not enough, they can be critical in certain situations like a crisis.  And they are also critical to create a focus for the company so changes lead to meaningful business results.

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