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Forrest Breyfogle—New Paradigms

Quality Insider

Avoiding Company Decline

It all starts with good, actionable metrics

Published: Tuesday, February 7, 2012 - 11:44

In one section of the January 25, 2012, Wall Street Journal, several articles pointed to an underlying dysfunction in companies from diverse industries. Although they offered different products and services, they all had one thing in common: Employees may have been working their hardest, but their management systems weren’t doing their jobs.

Here are the articles:

At Yahoo, the Ad Decline Continues
J&J Net Slumps on Charges
AMD Posts Loss After Write-Downs, Says Sales Will Decline This Quarter
Quiznos Slices Debt in Restructuring
Sony in Talks to Invest in Olympus

One could really get depressed when reading articles like these, especially if his company is being described.

In each article, there is a different story; however, I think there are some commonalities. A consistent theme I am finding is that organizations need to do a better job in orchestrating their business management system. With all the problems companies and countries are now having because of the current financial crisis, I still don’t understand why people are not challenging the way businesses are run—i.e., improving their business management system.

To me one of the major business-management-system problems is organizational scorecards or dashboards. One aspect of this issue is how the metrics are determined; often, too many nonactionable measurements are included. Another point is how metrics are reported in the company’s dashboard. I suggest that using a table of numbers, stacked bar charts, and pie charts for managing the business is not unlike driving a car by looking only at the rear-view mirror—i.e., an unhealthy behavior.

In addition, commonplace stoplight-variance-to-goal metric reports also have issues, including playing games with the numbers, which can lead to destructive behaviors. It has been said that if you can improve productivity, or sales, or quality, or anything else, by five percent next year without a rational plan for improvement, then why were you not doing it last year? This statement makes a lot of sense to me and makes a case for why commonplace red-yellow-green scorecards can cause many organizational problems.

Metrics and its reporting should be part of an overall enhanced system. Effective and reliable metrics require the following characteristics (see also pages 49—51 of my book, Integrated Enterprise Excellence, Volume II, Citius Publishing, 2008):
Business alignment. Metrics consume resources for both data collection and analyses. Metrics must provide insight to business performance, its issues, and its needs. Metrics surrounding your business alignment can be found by looking at your value chain.
Honest assessment. Creating metrics so that the performance of someone or an organization will appear good has no value and can be detrimental to the organization. Metrics must be able to provide an honest assessment, whether good, bad, or ugly.
Consistency. Identified components in any metric must be defined at the outset and remain constant. Criteria and calculations need to be consistent with respect to time.
Repeatability and reproducibility. Measurements should have little or no subjectivity. We would like for a recorded measurement response to have little or no dependence on whom and when someone recorded the response.
Actionability. Often measures are created for the sake of measuring, without any thought as to what would be done if the metric were lower or higher. Include only those metrics that you will act on; that is, either remove a degradation problem or hold the gain. When the metrics response is unsatisfactory, organizations must be prepared to conduct root-cause analysis and corrective or preventive actions.
Time-series tracking. Metrics should be captured in time-series format, not as a snapshot of a point-in-time activity. Time-series tracking can describe trends and separate special-cause from common-cause variability in predictable processes.
Predictability. A predictability statement should be made when time-series tracking indicates that a process is predictable.
Peer comparability. In addition to internal performance measurements, benefits are achieved when comparisons can be made between peer groups in another business or company. A good peer comparison provides additional analysis opportunities, which can identify improvement possibilities.

 

You need a means for creating solid metrics that have all of these characteristics as an integral part of an overall enhanced business management system. In upcoming articles I will be discussing how to create good metrics and what tracking these means for your organization.

 

Discuss

About The Author

Forrest Breyfogle—New Paradigms’s picture

Forrest Breyfogle—New Paradigms

CEO and president of Smarter Solutions Inc., Forrest W. Breyfogle III is the creator of the integrated enterprise excellence (IEE) management system, which takes lean Six Sigma and the balanced scorecard to the next level. A professional engineer, he’s an ASQ fellow who serves on the board of advisors for the University of Texas Center for Performing Excellence. He received the 2004 Crosby Medal for his book, Implementing Six Sigma. E-mail him at forrest@smartersolutions.com

Comments

Statistical Thinking and Scorecards

The key is getting upper-level managers to understand special vs. common causes. Incorparating staistical thinking with performance measurements such as balance scorecards is the only way to break free of traditional and misguilded thinking at all levels.

RDeRoeck 

Looking forward to your tips

My thoughts on three elements of management systems:

* Baldrige Criteria -- A stretch but every organization should read this and make attempts to apply the criteria (requires committment)

* Human Resource Management -- Checks and Balances can be done by adequate employee assessments.  OR is it about how much do I make?

* Culture -- Work environment plays a big role in keeping everyone motiviated in the right direction, and not just the ones with access to golf clubs, premium seats at events, or corporate jets.

Incorporating three elements of management systems

Your three management system thoughts should be considered within the creation of a business system. The question is how can policies and measurements be created and defined so that they lead to healthy behaviors that positively impact the enterprise as a whole. Relative to the metric aspect, we need to address not only what we measure but how we report the information so that the most appropriate behaviors result. I will be sharing my methodologies for addressing these aspects in future articles, which challenges many of traditional approaches such as stoplight scorecards.