The Types of Business Performance Metrics
There a variety of business performance metrics used to measure performance across a business. Without a doubt they are a key mechanism for analysing the effectiveness of any business operation. However, what is measured may vary from one business to another and these vary when viewed from the perspective of a Lean metric. Lean metrics allow businesses to measure, evaluate and react to changes in performance base on the needs of the customer.
Traditional Business Metrics
Traditional business metrics often stem from manufacturing and supply-chain environments. These have typically focused on ‘historical’ financial indicators such as; sales turnover, variances against budge and profit indicators. These types of metric form a snapshot of time and have no relationship to the customer’s requirements other than to be a profitable business to be there the next time they place an order.
Examples of Traditional Metrics:
- Sales Turnover
- Actual vs Budget
- % Downtime
- Material Cost of Sale
Lean Business Metrics
One of the first attempts to create Lean metrics was by the popular work of Robert Kaplan and David Norton (1990) who proposed the Balanced Scorecard concept towards business performance measures. Their method was to focus on four main attributes; financial, customer, internal business processes and development through learning and growth. The balanced scorecard went to develop metrics that were focused on the benefits to the business and what value it was providing to the customer.
With the understanding of Lean methodology and the acceptance of the Toyota Production System, there is more focus towards a management understanding how businesses create value for their customers. Developing metrics that are based on this concept of value created allows businesses to react to real-time performance data. In this way performance measures are not longer a traditional textbook calculation done on computer, far from the source of manufacturing. Now metrics can be created in real time to measure the performance data.
Examples of Lean Metrics:
- Lead Time/Takt time
- Schedule performance
- Shift Defects/Errors
- Customer satisfaction scores
- Productivity ratio
In many businesses you will see good examples of Lean metrics based utilising the QCDSM model – Quality, Cost, Delivery, Safety and Morale. Within this structure lean metrics have found a place to measure the performance of a business or process against the specified needs of their customers. Although there is still a need for some traditional metrics, there is a strong shift towards the advantages for Lean metrics which are tailored to the performance produced for the customers – after all “What is measured improves” Peter F. Ducker.