Metrics Should be Everywhere (Part 1)
by Tom Stocker
Everyone uses metrics. You, your management team and your employees. (Yes, even your employees at the lowest level). But many in management don’t realize it or believe it. Some folks really don’t think much about metrics, or only equate them to financial indicators. But non-financial metrics can be more effective and powerful than the financial scorecard. I don’t mean to minimize the importance of financial metrics. At the end of the day they are the ultimate scorecard and measure of business success. But in many cases, more than you would think, they are useless in measuring your business’s effectiveness, identifying and correcting problems or getting your workforce to help make improvements.
It is all too common for management to ignore their employees when discussing metrics. Most consider metrics management tools and don’t share them with line workers. Many managers indicate they don’t use non-financial metrics while, in fact, they have metrics in use all around them. Most think their employees don’t understand metrics and many don’t think about how powerful metrics could be if they took the time to tailor metrics for their employees to use and understand.
There are five categories of metrics I recommend for all companies, service or manufacturing to use. In fact, most do use all or most of these categories in some form, and there are countless measures used within each. When used in concert with each other and within a work center or company, you can tell how well a center or company is doing with a high degree of accuracy. In most cases, the financial results reflect the condition of these five categories of metrics. They are:
- Customer – “on time and complete” is the most common and important measure. Some also break this metric down to complete, on-time or some other variant. I like to keep it simple to understand. Did I give the customer everything they wanted when they wanted it? This is one of the most important indicators as it touches the customer directly. It can indicate how well your delivery process is, what your sales force spends their time on (firefighting or selling) and can be a pretty good indicator of how happy your customers are (given you ship them quality product with good value and service).
- Productivity – includes throughput, linearity, efficiency and other measures of work center or company (service or manufacturing) product delivery effectiveness. Many of these indicators work in concert with each other such as throughput and efficiency. Getting the right number of product through the process with the right number of workers is much better (and cheaper) than not getting enough through the process with too much labor.
- Inventory – (mostly manufacturing, but can be adopted by service companies.) The most obvious measures are inventory value, turns or days (weeks, months) on hand. But a more important measure is number of inventory outage instances, a very powerful metric and one that affects every employee in a profound way. If they don’t have something they need in order to finish building or delivering something, they can’t do their job. It is easy to see how the more instances of outages, the more out of control the manufacturing process may be and downstream, the potential for disappointing customers.
- Quality – warranty is the first indicator, and although after the fact, indicates how often unacceptable product or service reaches customers. This can also indicate whether your sales force is proactive and out selling or spending more time on damage control. Inside quality measures sometimes don’t exist and warranty is the only indicator. Others have various metrics along the entire product cycle or at the end. Each has a use and can provide early indications of issues, or at least catch problems before the product reaches the customer.
- Employee welfare – indicates how well you pay attention to your employees’ safety and well-being. Common indicators may be reportable accidents, OSHA incidents or other such safety measurements. This category is most common in manufacturing and distribution operations. A safe and clean environment is key to employees feeling they are an important part of your focus.
So, how do employees understand these indicators? It depends. Not all categories fit in every operation. And the indicators must be in the form germane to how the employee works. If an employee works with units per hour, dollars per unit is not a good indicator. Likewise, material outages expressed in dollars does nothing for an employee who is trying to figure out why she always runs out of bolts. Number of outages would be more appropriate.
Once effective measures are put in place, they must be communicated regularly (daily?) with the workforce. Employee involvement meetings with a focus toward problem solving and reaching daily requirements are a very powerful tool. Metrics provide the people closest to (doing) the work with a tool to see how they are doing against goals, ways to find suggestions for improvement and the sense of empowerment they may never have had before. In many cases that empowerment also increases pride and a sense of contribution.
No one likes to fail. Human nature is to be competitive. Providing your employees with a scoreboard will automatically increase productivity IF you provide the proper communication about what you are measuring, why and the expectations for improvement. And yes they do use metrics in their every day lives. They follow sports, gasoline prices, balance checkbooks and have stock portfolios. They understand.