Identifying Proper Leading Metrics

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One of the areas of lean that people tend to have difficulty grasping is the relationship between leading and lagging metrics, and how to identify effective leading metrics. People spend a lot of time attempting to determine leading indicators that, in the end, are often disconnected with any of the actions being taken to improve performance. 

Leading and lagging metrics both have a role to play in improving performance and are not difficult to identify once you understand the process and how to properly connect them to the problem-solving.

LAGGING METRICS

A lagging metric measures the result of a process. Barrels of oil produced, total recordable incident rate (TRIR), warranty expenses, and production costs are all examples of lagging indicators because the activities they measure have already occurred. The result lags the activity being measured and, whether you are happy with the result or not, you can't do anything to change it. 

Lagging indicators are important because they tend to represent what's important to the area being measured. They measure a result we are ultimately trying to achieve and help us determine if our efforts were successful in meeting targets.

Other examples of lagging metrics include on-time delivery, actual capital expenditures, defect rate, and customer satisfaction. Identifying them requires a clear understanding of what the business or team is ultimately trying to achieve. 

LEADING METRICS

A leading metric is a measure of an activity that influences a lagging metric.  As a measure of an activity being performed by a team, leading metrics can be influenced by the team in an effort to improve the results of a lagging metric. 

As an example, suppose a team is trying to improve safety performance as measured by TRIR and, through a breakdown of past incidents, discovers that hand injuries represent the largest category.  After breaking down the problem, the team determines that incorrect use of tools is the most likely cause and failing to wear gloves is increasing the severity of the injuries.  As a way to reduce the number and severity of hand injuries, the team introduces regular training sessions and an audit process to help assure team members are using proper tools and gloves.

The team can now create a dashboard that measures like TRIR (lagging metric), injury type (lagging breakdown), hand injuries (lagging metric), training classes held (leading metric) and audit results (leading metric).  By following these leading metrics, the team is assuring that the activities to improve safety are happening and that they are truly reducing hand injuries. 

In the above example, the effort of identifying the leading metrics did not consist of an isolated brainstorming session attempting to identify a specific metric to follow.  It was integrated with the problem-solving process and became nothing more than identifying a measure of the actions taken to eliminate a root cause of the problem.

KEEP IT SIMPLE

The problems people have related to identifying leading metrics often result from failing to connect the effort to problem-solving.  Attempting to determine the proper leading metrics in isolation from problem-solving often leads to frustration and wasted effort in creating and maintaining the measures, and a lack of clarity in understanding how to improve performance of lagging metrics.

Lean Requires Deliberate Action

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It has been decades since we first learned about the Toyota Production System and how it contributes to the company’s quality, productivity, and competitive success.  And although some companies have done very well with lean, most have struggled.  There are many reasons for failed applications of lean, but one that gets very little attention is the notion that lean thinking has no room for generalizations when it comes to performance improvement.  Objectives must be clear and deliberate, and include appropriate plans and measures to assure success.

BEYOND THE VISION

While vision statements are sometimes directional and somewhat general, turning them into action requires clarity around expectations, including short- and long-range objectives in order to make them a reality.  In fact, one of the problems related to visions is that many lack sincerity and do not progress beyond the development of creative slogans and posters.  Within a lean thinking environment, a vision is a serious and deliberate commitment of what the organization expects to be in the future.

I once worked for an organization that determined its vision to be Clearly the Best!  This could be thought of as a general, feel-good slogan if it did not progress beyond creating the statement, but the leadership team that developed the vision spent the time to create a common understanding of what it will mean to be the best.  They rolled it out to the organization with a picture of where they needed to be ten years out, and specifically what needed to be achieved within the next 3-5 years, including:

• A Total Recordable Incident Rate (TRIR) of 0.45
• A 30% reduction in warranty claims
• On time delivery to promise date of 99%
• A 25% improvement in product development cycle time

By aligning the 3-5 year objectives with becoming clearly recognized by customers as the best, the team turned a generalization into deliberate objectives for the future.  Because competitors and customers did not remain static, the team was required to adjust its idea over the years of what it means to be the best, but it was always clear about what it meant at any given point in time.  Achievement of an objective usually meant setting the bar even higher to keep it moving even closer to the vision.  [It should be noted that the company’s mission was very clear which greatly helped the process by providing boundaries for the vision.]

ASSURING ALIGNMENT

In the above example, by creating specific long-term objectives, the team was able to quantify the milestones that needed to be achieved along the way to becoming the best.  Leaders mobilized the team around these objectives, resulting in plans and dashboards that monitored progress along the way.  Additionally, they provided opportunities for leadership development and coaching that proved invaluable for sustaining the gains.

If the vision is kept alive year-after-year by developing associated long-term objectives, it becomes much easier to assure that actions – from annual plans to daily problem-solving – are aligned and focused on continually closing the gaps between the present and the future.

Consider the following vision statements:

• To be recognized as a trusted partner by customers, communities, and suppliers in all areas we operate;
• We will be the leader in researched-based education;
• To consistently provide products that make life healthy, exciting, and rewarding

 It is easy to see why these statements were created but unless they are associated with long- and short-term objectives, they are not deliberate statements about the future.  Developing the vision is important, but it must constitute a serious commitment and be followed up with deliberate actions and measures to prevent the exercise from becoming futile.

Are We Happy With Mediocrity?

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“Nobody gives a hoot about profit.  I mean long-term profit.  We talk about it, but we don’t do anything about it.” – W. Edwards Deming

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hy do so many companies seem to be happy with mediocre performance? People generally consider the idea of having it all – perfect safety, high quality, short cycle times, low costs – as something that is impossible to achieve.  As a result, the bar is set low and everyone feels good when the low targets are achieved.

So often, it is our experience that interferes with moving to the next level of performance. We don't set aggressive targets because we know they are impossible to achieve and, in the end, we don't want to be disappointed or suffer the consequences of missing a target. As a result, we trudge along with average results and view many problems as inevitable or out of our control. If we're lucky, our competitors operate in the same mode. If not, we fall further and further behind until we are either acquired or forced to close our doors.

Energy Can Be Created and Destroyed

A group-wide acceptance of problems as inevitable is what causes people to lose their energy and inspiration. When one views significant improvement as impossible, intrinsic motivation wanes and extrinsic motivation – e.g., compensation – dominates. And the longer this type of “it happens” mentality continues within a company and the more deeply engrained it becomes in the culture, the more difficult it becomes to change course.

Leaders can stop or prevent mental mediocrity by first realizing that their own behaviors and the systems they created may at the root of the problem. It's not necessarily easy to do, but letting go of some traditional beliefs and methods of management can begin to drive the type of change that can energize improvement efforts and give people the confidence that they can have it all.

To do this first requires that leaders believe that problems are not inevitable and that the company has the ultimate control over its own future. They must fundamentally believe that they can have it all.

Stretching Without Breaking

Leaders have to trust that the people in the organization possess the talent to successfully tackle the difficult problems facing the company. They must often develop this ability, though, by stretching people and encouraging them to accept challenging projects and targets, and coaching them in their efforts to succeed. People won't always be successful in achieving the target (if they are, they're probably not being stretched enough), but the learning and development that occurs with each project is invaluable to tackling future problems and opportunities.

A stretch target refers to a target that is difficult, but not impossible to achieve and, although you can't stretch people all the time, you've got to make sure there is enough tension within the organization to keep people developing and the company's performance improving.

Getting people to accept stretch objectives assumes that they will not be penalized for missing a target. Reward systems need to support development and participation in stretching the organization rather than merely meeting a target. If you encourage people to stretch but continue with a reward system based on meeting targets, nothing will change. People will continue to pursue safe targets and push back on any attempt to stretch. In the end, mediocrity will reign.

More often than not, organizations cause their own problems. The effects of problems caused by the external environment tend to pale in comparison to those created on the inside. Understanding and accepting this, however, often requires a shift in thinking toward the idea that mediocrity is unacceptable and that the organization can, and will, have it all.