AMN Perspectives by Thomas Group: Experience at Work
Posted: April 6, 2004, 9 a.m., EST
by John Steidl, Thomas Group consultant and Mike Manor, president, Automotive Aftermarket, Thomas Group
IRVING, TX — In the previous two installments, we discussed the process enterprise and how it is created in an organization. Last issue in particular, we identified that one of the key roles of the process owner is to identify important dimensions of process performance and establish appropriate measures. This week we’ll talk about key differences between traditional measures of performance and the new measures needed in a process enterprise.
Traditional performance measures are typically:
* Associated with an individual or functional department;
* Financial in nature;
* Measures of prior results.
Let’s take a look at each of these.
Since we manage a company by its individual functions, it’s natural for the performance metrics to focus narrowly on those functions. This means they tend to look at things that are within the direct control of the functional manager. You’ll recall from a previous article that “white space” is defined as the gaps in our value delivery process that fall between areas of functional accountability. By definition, performance measures that focus on functions will tend to ignore those gaps. An ideal metric system does not have any critical gaps.
At the same time, because we have to report on financial performance to shareholders, we tend to assume that financial measures are also the best indicators of functional performance. An ideal metric system maintains a balance between financial and operational performance measures.
Finally, most of our traditional metrics are good at telling us when something went wrong, but they’re not very good at explaining why things went wrong, or whether they are now fixed. An ideal metric should help us understand (1) what went wrong, and (2) whether we are back on track, without having to wait for next month’s financial statements.
The new performance measures differ from traditional ones in that they are:
* Associated with a business process;
* Operational in nature;
* Forward-looking drivers.
In order to eliminate critical gaps, we need to measure the performance of complete value delivery processes, cutting across all functions that participate. We need to understand the operational performance of the processes, and we need to understand it in real time. We would also like the metrics we choose to give us insight into performance improvement opportunities.
The key performance dimensions that meet these requirements are time and first pass yield. Time is a critical driver because excess time is always associated with waste. Looking for steps that add the most time to a process will uncover the steps that contribute the most waste. Identifying the root causes of excess time in a process will uncover important opportunities for performance improvement. “On time delivery” should not be confused with the time dimension of process performance. It only tells us whether we met our commitment to the customer, not how long it took us to complete the process, or whether there was any wasted time along the way.
First pass yield is the other key dimension of process performance, and represents quality. It differs in one important way from traditional quality measures, which typically look at the final quality level as perceived by the customer. If our defect level at the customer is 10 ppm, we may feel pretty good about our operation; what this hides, however, is the cost to achieve that quality. An operation that achieves 10 ppm at the customer, with no inspection or re-work, is obviously performing better than one which requires millions of dollars in added costs to achieve the same level. First pass yield analysis looks at a process with a very critical eye. It identifies all steps in the process that create waste in the form of yield loss, and seeks to determine the highest leverage root causes.
Time and first pass yield are concepts that can be applied to all types of processes. We tend to think of them most commonly in a manufacturing context, but all processes incur significant waste in the form of excess time and yield loss. In fact, huge improvements can be made by applying these performance metrics to the business acquisition, marketing/promotion and product development processes. All are improvements that make us more responsive to our customers, as well as more competitive in terms of cost and quality.
The point of this article is not to recommend eliminating all of our traditional performance metrics. Rather, we suggest that appropriate use of these two new process performance dimensions can move us to new levels of competitiveness in the process enterprise.
For additional information, visit www.thomasgroup.com or call Mike Manor at 972-401-4444.
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“AMN Perspectives by Thomas Group: Experience at Work” is written and sponsored by Thomas Group. The opinions expressed in “AMN Perspectives by Thomas Group: Experience at Work” articles appearing on aftermarketNews.com do not necessarily reflect the opinions of AMN or Babcox Publications.