Effective tools for hitting manufacturing targets
KPIs and measures serve to crystallize business strategy, align the organization and clarify accountability. The people, the measures, the accountability, the review and response process and the actions taken are the greater drivers of strategy delivery.
- Servant leadership
- Strategy deployment
- The business case for technology solutions to collect and report KPI data
Key performance indicators (KPIs), scorecards and performance analysis are vital tools for business management. From plant floor to C-suite, they enable stakeholders to make timely decisions and take effective action. Many companies, recognizing the strength of these tools, have invested in information technology (IT) solutions to improve the efficiency and effectiveness of their KPI processes. IT solutions vendors are rolling out exciting innovations that synergize the latest developments in software, sensors, programmable controllers and wireless technology. Nevertheless, many companies continue to struggle with clipboard and spreadsheet processes, often because they are unable to justify an investment in an IT solution.
This article develops a framework to help find a happy balance between user friendly, effective and affordable, and to develop a business case to gain investment approval. Before we get started, let’s look a little closer at the necessary attributes of an IT solution:
User friendly: A user is anyone who interacts with the system, either to input, operate, maintain or receive outputs. “Friendly” means that interactions are easy to perform, not confusing or frustrating. User friendliness can be achieved through additional costs. Automatic scanners, programmable logic controller interfaces, touch screens and mobile solutions increase system costs but deliver value in return. What’s often overlooked is the interplay between ease of use and effectiveness. In short, user unfriendliness undermines effectiveness. We will dig deeper into this dynamic in a moment, through the lens of a powerful concept called servant leadership.
Effective: An effective system delivers the right data in the right level of detail at the right time to each user class, providing the grist for effective decisions and actions. Piling on system features—data collection inputs and reporting outputs—doesn’t necessarily improve system effectiveness. A few powerful KPIs are far more valuable than a sea of detail. The strategy deployment process provides a useful framework to deciding which data points are most critical and what level of detail is most valuable to each user.
Affordable: In terms of IT solutions for KPIs, “affordable” means that the cost of the system is more than justified because of the improved quality of decisions and actions taken as a result of having better data processes. This principle enjoys wide acceptance. The challenge is how to make a credible commitment to deliver better results by having better information processes.
The takeaways for the following discussion on servant leadership and KPIs are:
- Servant leaders maximize results by investing time, resources and recognition to develop employee capabilities to the utmost, empowering associates to act autonomously in the critical moment as the situation demands.
- KPI systems should support manufacturing employees, not be a burden to them. To do this, solutions must provide the differing data needed at each critical function and level in the factory and enterprise.
- Ease of data collection is a necessary condition for data accuracy.
According to Robert K. Greenleaf, “A servant leader focuses primarily on the growth and well-being of people and the communities to which they belong. While traditional leadership generally involves the accumulation and exercise of power by one at the ‘top of the pyramid,’ servant leadership is different. The servant leader shares power, puts the needs of others first and helps people develop and perform as highly as possible.” In a manufacturing plant, the people and communities are the natural work teams, the teams that work together daily to fulfill their roles in delivering successful results.
Figure 1 shown above depicts the profound difference between the traditional leadership hierarchy and servant leadership. On one hand, hierarchical command and control leadership often disenfranchise the people who have the strongest and most direct impact on the value stream—the associates and technicians. In contrast, the servant leader does everything possible to build the capability of those who play critical roles in ensuring daily success in the manufacturing site. We often hear company leaders claim that “our people are our greatest assets.” Going far beyond feel-good pronouncements, servant leaders invest time, effort, resources and recognition to maximize the capabilities and autonomy of those greatest of assets.
Stephen Covey provides powerful insight as well: “I am convinced that [servant leadership] will continue to dramatically increase in its relevance…. You’ve got to produce more for less, and with greater speed than you’ve ever done before. The only way you can do that in a sustained way is through the empowerment of people. And the only way you get empowerment is through high-trust cultures and through the empowerment philosophy that turns bosses into servants and coaches.
“Leaders are learning that this kind of empowerment, which is what servant leadership represents, is one of the key principles that, based on practice, not talk, will be the deciding point between an organization’s enduring success or its eventual extinction.”
What does servant leadership have to do with IT solutions for KPIs? Quite simply, KPI deployments, especially manual systems, are often commissioned and designed by traditional hierarchical managers to address their senior leaders’ information needs. What’s important for top leaders becomes important for everyone. But each level and function in a factory has different responsibilities and activities. The information needed to make decisions and take actions differ as well. Yet in a hierarchical KPI system, these varying needs are bypassed. Similar to the operation of a fire brigade, data is collected on the plant floor, handed from associates to clerks to supervisors and passed up to top leaders. Little attention is paid to how others might benefit from tapping into that information stream.
One-way limited data collection becomes an uncompensated, added burden on the associates who must “feed the system.” For the operator, this results in conflicting priorities. If forced to choose between operating a machine and addressing a production upset, versus recording production data accurately, the operator who cares about the success of his team and his factory will almost always default to the more tangible activity of meeting production targets. On the tough days when upsets abound, his efforts toward data collection become an after-the-fact or fudged activity. It is axiomatic that increased levels of data collection will naturally result in data inaccuracy and gaps.
A servant leader would seek to deploy a KPI system that both streamlines the data collection effort and focuses first on enabling the associate to make faster, more effective decisions. This doesn’t shortchange the leader’s needs to summarize KPIs; on the contrary, that is the main value proposition of an IT solution. Automated data collection and a stable repository make information available in groupings and formats that suit users at all levels.
There are some interesting developments in the market now that dramatically improve data visibility and ease of collection. They include:
- Middleware: These are server-based systems that connect to PLCs on a complex production line. The middleware can be used to integrate complex lines and channel data between equipment controllers and user interfaces, the latter including system operating consoles, system status and performance dashboards and historians. Before this middleware became available, system integration required time-consuming programming within every individual PLC to enable each to “talk” to the other and to KPI systems. Rockwell Automation’s RAPID product line is one example of this type of middleware.
- Mobile solutions: Handhelds are cheap, in wide usage and growing further. Some companies are leveraging them across the enterprise, supporting tasks from factory operation to sales calls. There are many companies offering products in this space. Catavolt, Inc. has published several interesting white papers on strategies to develop stable, secure mobile solutions that leverage the benefits of instantaneous access anywhere it is needed.
The key takeaways around strategy deployment and how it relates to KPIs/IT solutions are:
• Strategy deployment is a process that defines critical success measures (CSMs) and develops strategies and measures at each function and level to align actions and clarify accountability.
• The CSMs and strategies define the measures. The measures include sets of standardized general operating KPIs balanced across a range of performance dimensions, as well as strategy-defined measures of initiative progress, status and results.
• Each function and level has its own span of influence and set of initiatives. The KPIs and initiative measures in a user class should align in content and granularity with the type of work and span of influence relevant to that class.
• Strategy deployment is best accomplished through robust dialogue that takes advantage of the insights of both senior management and subordinates.
• Strategy deployment requires robust, systematic processes to ensure KPIs are owned, reviewed and acted upon.
The strategy deployment process will define what data you need to be most effective at each level and function, and prioritize on those which are most critical to achieving the CSMs. Most organizations engage in annual and multi-year planning processes to translate key enterprise success factors into strategies and measures. At the outset, senior leadership defines the mission, objectives, strategies and CSMs that will deliver organizational success. These objectives, strategies and measures are then broken down into functions and sites, and cascaded level by level, ideally all the way to line associates. Figure 2 shown above provides a schematic of the strategy deployment (SD) process. The SD process is also known as hoshin kanri, a term made popular in Japan in the late 1950s by Professor Yoji Akao.
In Figure 2, the black elements depict how objectives are turned into strategies and measures, and how subordinate levels take guidance from above. Subordinates in turn define their own strategies, initiatives and measures. Take note of the light blue loops in Figure 2. These represent input and alignment dialogue between each level. The cascading of objectives is rarely accomplished effectively as a centralized I Tell/You Do exercise. When deciding on strategies and initiatives, it would be foolish to ignore the valuable insight and expertise that employees at each level may contribute. Further, command-driven strategy deployment risks undermining individuals’ sense of autonomy, squelching imagination and initiative. According to Akao, “Top managers and middle managers must be bold enough to delegate as much authority as possible. That is the way to establish respect for humanity as your management philosophy. It is a management system in which all employees participate, from the top down and from the bottom up, and humanity is fully respected.” Akao’s focus on respect for humanity is another expression of servant leadership.
Returning to Figure 2, take note of the grey dialogue loops. In an unpredictable world, effective SD requires ongoing review and response (R&R) dialogues to evaluate the health of the operation, to check whether strategic plans are on track, to assess whether results are delivered and to determine if course correction is needed. The quality of these dialogues and the decisions they drive are major factors to successful strategy deployment. They also represent an important aspect of SD: The best plans will fall apart unless there are systematic, rigorous processes that evaluate performance information and hold people accountable for actions and results. Measures and accountability go hand in hand.
Many companies organize their strategy deployment KPIs into scorecards. The balanced scorecard describes a platform of standard KPIs that measure performance across multiple critical dimensions. These include safety, quality, cost, productivity, delivery, employee capability and engagement, environmental sustainability and financial performance (return on assets, working capital, etc.). The fundamental concept at work in the balanced scorecard is that organizational success requires managing performance in as many dimensions as are needed to meet the company’s CSMs. Tables 1 and 2 on this page provide examples of how balanced scorecard metrics align with CSMs at various functions and levels of the supply chain and within a factory. Frequently, a balanced scorecard is deployed for each division and at several levels of the organization. Each function focuses on the measures that are relevant to the work that they do to deliver the CSMs. The level of granularity in each measurement category aligns with the span of influence of the person being held accountable. For example, an operator has no direct influence in setting the production schedule. An operator can influence equipment stops, run speed, product quality and planned downtime execution. If output suffers because additional changeovers are required, it would be fair to hold him accountable for changeover execution and startup efficiency, but not for the number of changeovers.
In Tables 1 and 2, KPIs are described in broad terms. This article is not intended to provide recommendations regarding which KPIs should be adopted. The selection of KPIs and their target values must be determined by the company CSMs, strategies and objectives. Many publications and websites provide guidance on KPI selection and deployment. As a practical tip, many of these publications spend a great deal of time on definitions and classifications, for example, distinguishing between leading and lagging KPIs. These discussions can intrigue and also distract. Keeping the SD framework in mind, suffice it to say that one man’s ceiling is another man’s floor. As long as KPIs and measures serve to crystallize strategy, align the organization and clarify accountability, the rest is semantics.
As the old saying goes, “The best time to plant a tree is 20 years ago, but if you need a tree and don’t have one, the best time is now.” The idea is get started, start small and grow over time. It takes years to build out an effective SD process across an enterprise. But the rollout effort can be divided up and worked from milestone to milestone in ways that suit your resource bandwidth. General Electric Intelligent Solutions uses a maturity map to help guide clients to adopt solutions step by step, ensuring foundation systems are in place first, since more advanced solutions work better on a stable foundation.
Every manager will agree with these statements:
- Timely and accurate information makes for better decisions at all levels.
- Insight to trends and events enables effective improvement planning.
- IT solutions make both of these benefits possible. In contrast, data systems based on clipboards and spreadsheets may provide these benefits, but they are often plagued by the following inefficiencies:
- Time spent on manual systems detracts from other duties. In some cases, additional overtime or headcount is needed to meet the process demands.
- Handoffs and transfers of data from one point to another inevitably result in disconnects, often due to communication and manual entry errors. These mishaps result in additional work.
- Disconnects also occur as numbers may be updated in one part of the data handoff chain, while another is still working with the outdated information.
Fortunate is the manager who hasn’t suffered the experience of being in an important meeting where, rather than being able to make effective decisions, the conversation devolves into arguments and frustration around the accuracy of the numbers.
Figure 3 shown on this page depicts how technology solutions can present the data that stakeholders need, when they need it, at the appropriate level of granularity. The principal challenge in developing a business case for technology solutions for KPIs lies not in getting people on board with the benefits of timeliness, accuracy and efficiency; it lies in how to justify the investment.
Managers often view technology solutions differently than they do capital equipment. It is easy to quantify the hard savings to be gained with a new, faster, more automated piece of equipment. In contrast, managers hesitate to commit to hard savings obtained through a technology solution’s delivery of more accurate and timely performance insight. Instead, they cite soft savings like increased data accuracy, reduced processing time and other elements that may or may not add to the bottom line.
But if we look at them more closely, those hard savings for capital equipment are founded on a broad set of assumptions as to how the equipment will be scheduled, operated and maintained; in other words, how it will fit within the strategy deployment system. But no manufacturing system can run by itself over an extended period of time. The people, the measures, the accountability, the R&R process and the actions taken are the greater drivers of strategy delivery.
Senior leaders are naturally hesitant to grant requests for an investment when the applicant is unwilling to commit to hard savings. A manager requesting investment in IT solutions for KPI data collection may find success by following one of these routes:
- Be declarative about the savings or cost avoidance that the KPI solution will enable the factory to realize. Clarify which strategic priorities the system will support, what measures the system will focus on and how those measures will be owned and used in the R&R process to deliver target savings. Then, identify either the entire amount of target savings as the payout for the capital request, or identify a portion of it that is at risk of under-delivery if the enabling benefits of the IT solution are absent.
- If a strategic initiative involves a large capital project, one which will generate a healthy payout, add the technology play as a value-adding option to be included within the scope of the project. This works best when two conditions are met: First, the technology clearly supports the operation and maintenance of the new initiative, and second, the technology cost is small in comparison with the overall project, so that it does not dilute the ROI too much.
Finding the right balance of user friendliness, effectiveness and affordability may sound like a daunting task. But with the right set of principles, and the correct framework for strategy deployment, it will become an interesting and highly rewarding endeavor.