Three Ways to Measure Success of a Continuous Improvement Initiative
The ability to measure success of a continuous improvement initiative is critical to the overall success of the project. From a change management perspective, projects are more likely to be successful when executive sponsors are visible and active. For executive sponsors to take on this active role they need to understand the value the initiative is bringing to the organization. If the value is great, then precious resources will be allocated to the project at the expense of other competing initiatives. Quantitative and qualitative measures of the initiative’s value can be combined to determine a measurement of success.
The ability to measure success of a continuous improvement initiative represents the “check” in the Plan-Do-Check-Act cycle introduced by W. Edwards Deming and is foundational to the scientific method. The Check entails observing and assessing results against objectives established in the Plan phase. If the results do not meet expectations then adjustments are made and the cycle repeats.
Measuring success is also important from a change management perspective as a means to increase organizational awareness, create a desire for change, and reinforce the value of the initiative to the organization. Awareness, desire and reinforcement, together with knowledge and ability, are key elements of a successful change management plan.[1] These elements are critical for eliminating employee resistance, thereby addressing the number one obstacle to success for major change projects.
With an understanding of why it is important to measure success, let’s explore several methods for how to measure success. When committing to a new initiative, or simply analyzing the results of an existing one, the discussion invariably turns to how to measure the success of the project. Leaders of lean implementations are always prepared for the inevitable question, “How do you know that you are successful?” Most often it is the finance person asking, but the appeal is universal. Consider the following three ways for measuring success.
First, you should measure success based upon the financial results.
Has the project improved profitability (an income statement view) or generated incremental cash flow (a balance sheet view) or both? Recognize that organizations measure improved financial results in various ways. Some organizations prefer a total cost of goods sold approach, perhaps expressed as a percent of sales. Other organizations, particularly those organized as cost centers, prefer a cost per unit measure. Depending upon the project, a more specific and refined measure – defect cost, productivity, OEE or some measure of inventory dollars – might be required.
Value stream mapping with complete material and information flow data serves as a valuable tool for focusing problem solving and identifying areas for improvement. From a pure lean perspective, a KPI of lead time is considered a critical measure of success. There is one rule to follow: whatever measure(s) or KPI(s) you choose must provide line of sight to the improvements. For example, don’t choose an inventory measure if your project is directed at productivity.
To prepare for measuring the financial impact, develop a systematic approach. Begin by establishing a baseline from which to measure improvements. The task of establishing a baseline should also include establishing and standardizing the data requirements and calculation method for arriving at the performance measurement. Since this activity is largely numbers-driven, it’s a good idea to include the Finance Department as a partner in this process. Including the “keepers of the numbers” in the process establishes credibility in the reporting and ensures that the calculation method will be consistent with accepted accounting principles. Once methodology and data requirements are defined, develop a standardized benefits tracking report, establish the interval for reporting and create a distribution list to ensure all stakeholders remain informed.
A second way to measure success is by using an assessment tool.
Assessments are very common. They can be extremely detailed and documented with their logic or more open-ended and qualitative in nature. Most assessments result in a score that can be presented in a radar chart or other matrix or continuum. The more useful assessments will score the operation using benchmark or best-practice-derived data that correlates your results to a best-in-class comparison.
In most cases, when organizations implement improvements suggested by assessment results, their processes, business practices and results will improve. Subsequent assessment scores will also improve, providing a measure of success as the company moves along a path of continuous improvement and ever closer to benchmark or best-in-class performance. Several of the most popular assessments include a lean assessment based upon the Toyota Production System and a Reliability Excellence assessment focused on reliability and maintenance best practices.
A third way to measure success is to understand how you are viewed by your stakeholders.
No organization operates in a vacuum. Companies interact with many interested parties whose perceptions are critical to the long-term success of the business. These interested parties or stakeholders can include your shareholders, owners, customers, employees, partners and suppliers, and your community – all of whom have an interest in the financial performance of the business. As your company plans for its future, it should have a strategy component that is focused on the needs and expectations of it stakeholders. By its very nature, a well-conceived continuous improvement initiative will be consistent with such strategy objectives.
There are a range of tools and techniques that a company can use to identify and assess a measure of satisfaction and acceptance by its key stakeholders. These tools and techniques include surveys, focus groups, benchmarking and assessments. It is important that key stakeholders have a positive view of your organization. It is inevitable that large scale improvement initiatives will be recognized as a success or otherwise by these key stakeholders. For example, executive leaders for multi-site operations regularly tour their company’s various locations and can easily recognize both performance improvements and visual changes related to successful lean initiatives. Similarly, in the automotive industry it is common for customer teams to not only regularly visit and tour their supplier facilities, but also to perform assessments and even provide recognition awards for high-performing companies. From a society perspective, a motivated and engaged workforce can easily create within the community a positive view of a company’s success.
It is incredibly powerful and rewarding to have executive leaders, customers and suppliers who frequent your plant or business comment upon the noticeable changes and improvements as they are being made. Not only is this form of recognition exceptionally motivating to all who are involved – it also plays an important role in providing a secure future for the business to grow and prosper. How a company is viewed by key stakeholders is clearly a measure of success.
No continuous improvement initiative is complete without a clearly defined approach for measuring success. Since success can be defined in a variety of ways it is necessary to adopt several metrics that, when taken together, will provide a more complete picture and understanding of the implementation results. The success of improvement projects can best be measured by changes in financial results, by utilizing an assessment process and by adopting tools and techniques designed to provide an understanding on how the company is viewed by its key stakeholders. These three key measures together will provide a balanced view of the success of your continuous improvement implementation initiative.
[1] More information about Prosci’s ADKAR®model can be found at www.change-management.com.
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