Are KPI’s really Lean?

Lean visual management board

As a former “Ops guy”, it’s a bit of heresy for me to even question the integrity of Key Performance Indicators (KPI’s). In a very real sense, for most of my professional career KPI’s made the world go ‘round. It wasn’t until recently that I realized what side of the “truth and a good story” fence they could actually be on…

One of the stories I tell on this topic is about my wife and an experience she went through. She’s part of a small group of planners and purchasing agents at a service center, and her main role is to maintain inventory, place purchase orders and track shipments to support the service side of her employer’s business.
Within her group, they have several KPI’s like number of backorders, amount of money issued in outstanding PO’s and on-time delivery that are tracked and posted monthly. Her group of about 7 people do well in meeting their objectives, and by all measures (pun intended) things work just fine.

Her employer chose to tie some financial incentives to these KPI’s, which are measured quarterly. Thankfully, they aren’t “all or nothing”, so if one of the metrics is missed, folks still have a chance to earn some extra money by hitting the others. For a long while, the system worked just fine. Goals were set, communicated and generally always met so all the folks in the group were able to enjoy a little extra cash by helping the company meet their objectives.

Then one day someone quit.

As you can imagine, in a group of 7 losing one person represents a healthy impact to the amount of work the group can complete. As the group adjusted to their new normal, an interesting sequence of events unfolded:

• The organization chose to take a “wait and see” approach toward hiring a replacement. While mind-boggling and frustrating to the members and manager of the group (who knew, of course, what being down 1 person would mean to their already maxed-out individual workloads), the company had made it a matter of SOP to take this approach, choosing to watch the KPI’s to test the need for “headcount”,

• Some folks within the group had come to count on the quarterly bonus as a source of income, and having it at risk represented a source of significant emotional stress. The group was small, and they were tight-knit. In a true Respect for People fashion, the remaining group members all pulled together to ensure that the KPI’s were still met so that bonuses would still be earned. This meant putting in a lot of unpaid overtime (they are salaried employees), including taking work home on nights and weekends, sacrificing time with family,

• After another quarter had elapsed, the KPI’s didn’t show much change from the group having been 1 person down. As such, senior management continued to push back on the request to hire a replacement, citing the lack of a “dip” in apparent group productivity.

Thankfully, my wife’s manager at the time was a firm believer in treating her associates with respect, and put together a compelling argument for hiring a replacement. She was able to sway senior management, and a replacement was eventually found and hired.

Don’t get me wrong; KPI’s are important, and I’m a big believer in them. They are an important piece of any Lean initiative, because in order to know if you’re winning, you have to keep score. However, they are not a replacement for going to the Gemba and being present within the operation. Visual management boards (where tracked KPI’s are typically displayed) are fantastic communication devices, but they only tell a piece of the story. Too often managers and leaders simply review these boards without knowing the backstory, which is a mistake. It’s important to understand not just the “what”, but also the “how”, and that only comes through sound Respect for People practices. So walk the floor. Talk with people. By understanding what they need to go through to meet their objectives, you’ll be able to help them put Lean into practice, which helps everyone.