Each word in Principle Five: Make Measurable Improvements in All Aspects of the Business is significant. It applies to all elements in the company and should result in continuous positive proof that improvements are being made. If an organization wants to remain successful, maintaining the status-quo is no longer sufficient. A coin toss is a simple analogy. When a coin is flipped in the air, it is either going up or coming down. Only for a split second is it stationary when its upward motion stops and its downward motion begins. Gravity is a constant force or impediment that cannot be ignored. In the business world, the impediment is customer expectation. Between changing needs and competition, every organization is constantly challenged. In virtually every business in every segment, competition is becoming more aggressive, and in many sectors, it is coming from new rivals that did not exist only a short time ago. Principle One: Stay in Business discusses this issue in detail. Constant improvement is no longer an option but is required for survival and growth.
Constant improvement requires the development and adherence to formalized processes to eliminate variations from the established goals as compared to the actual data captured by metrics. This last statement is the essence of virtually all quality programs. Both process and quality concepts are discussed in Chapter 6.03 of this collection.
The words “measurable improvements” in Principle Five are all about metrics. A paraphrased definition of metrics is “a quantifiable measure used to track, monitor, and assess some aspect of the business.”
The “track, monitor, and assess” terms in the paraphrased definition are components of the quality monitoring process. Metrics allow awareness and then assessments to be made. Those actions need to be focused on the desired end result. Yogi Berra and Laurence J. Peter’s humorous but accurate quote, “If you don’t know where you’re going, you will probably end up somewhere else” explains the reason for the need to clearly establish the desired end result. In essence, you must define the goal, plan the route, and track your progress while making adjustments along the way.
Although a formal metrics program is essential, the mere act of measuring causes improvement by raising awareness. With awareness, changes can begin to be made. As examples, if I weigh myself in the morning, I usually eat differently that day. Or, if I can see a police car in my rear-view mirror, I drive more carefully. My actions are not uncommon; all of us respond when we know we are being observed or measured. In the two previous examples, the results of not taking action appear to be negative, but both cases are intended to improve outcomes, healthier weight and avoiding accidents.
Metrics, in and by themselves, are not useful without a reference like ideal weight or speed limit. Past performance, goals, and forecasted results are necessary to track, assess, and develop executable action plans to achieve the desired results within the desired time frame. Unfortunately, it is easy to fall into the trap of setting lofty goals and then expecting them to be met without developing clear incremental action plans to achieve them.
As an example, of how easy it is to fall into the lofty goal trap, consider a company that sets an annual revenue target. In mid-January, the goal seems easily attainable. However, the sobering fact is that in mid-January, the end of the year is only fifty weeks away! A few of the questions that should be asked in mid-January include:
- How many prospects do we have in our sales funnel today?
- What is our sales cycle?
- How long does it take to fulfill an order or to get a customer online and generate revenue?
- Are there seasonal sales variations that we should consider?
- Do we have the staff and programs in place to meet the forecasted demand?
- Is our current competitive position strong enough to make attaining the goal reasonable?
- What monthly indicators can we develop to track our performance?
Finally, in mid-January ask the question, “If we miss our annual goal, what are probably the most likely reasons for the miss?” In virtually every business, there are warning signs that appear along the way. By continuously measuring and monitoring the situation, course corrections can usually be made.
The example above focused on revenue. An equal number of questions relating to definitive goals can easily be developed for Human Resources, Development Engineering, Finance, Manufacturing, Customer Service, Field Engineering, Marketing, and every other organization within the company.
Although financial metrics are used by virtually every company, metrics should be established for every element within the organization as well as for every person. Everyone in the organization should think of their job as either helping to increase revenue or reduce costs. At first glance, some individuals may have a difficult time defining specific metrics that apply to their responsibilities. Even if known, they may be reluctant to quantify them. Being measured may be uncomfortable but is a necessary business reality. Focusing on three or four individual or team metrics are all that is necessary. Programs do not have to elaborate and, in fact, may be counterproductive. With too many metrics, the importance of any one metric may be lost.
Finally, metrics need to be quantifiable. Terms like “better,” “faster,, or “cheaper” may sound impressive but are subject to interpretation. Definitive numbers, verifiable by others, remove guess work and interpretation.