360 Degree Metrics for Lean Transformation
While embarking on a holistic Lean transformation, I have seen practitioners struggle to come up with metrics that can provide a 360 degree view of the quality of a deployment. What normally happens is that success is defined with metrics such as quality and lead time, which are right but not complete. The success of a Lean transformation should be measured with an all encompassing set of metrics, which covers the immediate and not-so-immediate performance issues as well as elements that ensure sustainability.
My experience tells me that the majority of times practitioners take up an incomplete set of metrics is because Lean change agents are not aware of what comprises an all encompassing list. Even if they are aware, they are not comfortable placing the entire set of metrics on the table as they are not sure how they would accomplish using them. Or, they would not like commit to using metrics that are very organic in nature and have results that take time (such "people engagement" metrics).
The type of metrics that practitioners will use will vary based on the context and the type of Lean project that has been chosen for implementation. However, as leaders responsible for Lean implementation, we need to keep in mind the most important metrics that should be looked at to gauge the health of a Lean transformation.
Important Metrics for a Successful Lean Deployment
There are broadly two types of metrics that need to be kept on the radar:
|Primary Metrics||Secondary Metrics|
|Metrics that measure the direct output metrics||Metrics that measure the results or outcomes of the primary metrics|
|Metrics||What do they mean?|
|Time||Time taken to complete an end-to-end execution of a process, also known as "customer-to-customer time." The measurement starts from the time the order is placed with the customer until the time the customer gets served. Examples include lead time of a process and time to service.|
|Quality||Ability of the process to create an error-free product /service, which is made per the customer requirements. Examples of quality metrics are error percentage, rejection percentage and first pass yield percentage.|
|Service||Manner in which service representatives interact with and serve the customer. It includes behavioral dimensions such as friendliness, warmth and product knowledge.|
|Resource||Measures effectiveness of resource utilization in the process and includes areas such as people, infrastructure, capital and materials. Examples of resource metrics are manpower productivity percentage, capital productivity levels and infrastructure used/person.|
|Metrics||What do they mean?|
|Flexibility||Ability of the process to manage varying customer demands, new product introduction, customer requirements, risks, regulation, etc. Examples of flexibility metrics are number of exceptions handled, number of new products introduced and number of customized solutions to customers.|
|Engagement (People Engagement)||Level of engagement of members who are directly or indirectly impacted by the Lean transformation. Examples of engagement metrics are people engagement percentage and penetration percentage across hierarchies.|
|Cost / Revenue||Impact of the transformation on the top-line or bottom-line of the company. It also includes impact on cost of the product or service offered by the company. Cost efficiency could manifest as reduction in price, service charge, premium, fees, etc. Revenue enhancement could manifest as an increase in market-share, increased share-of-wallet, etc.|
|Customer Satisfaction||Feedback from customers on the quality of the product/service provided by your company. This could be measured by customer satisfaction/engagement/loyalty index, etc.|
Avoid a Half-Baked Lean Transformation
If a Lean transformation does not positively impact all the above metrics, it is a half-baked transformation. We all know what happens to half baked products.
Just imagine that a Lean transformation of mortgage processes delivers great metrics in the areas for lead time and quality but there is no visible change in employee engagement. Do you think the change will sustain?
Or just imagine a project done on a sales process that showed radical reduction in acquisition costs but the quality of interaction with customer continued to be less than acceptable. Do you think the improvement met all the business expectations?
Or let’s imagine a Lean process improvement that has excellent lead time and quality ratings but is not able to take care of the variability of customer demand.
I have seen companies declaring victory by looking at commonly used metrics such as "lead time," "quality," etc. This is "good" but if you are looking for "great" results focus on all above that I have listed. Some may take time to show results but I can guarantee long term success.