Measurement

W. Edwards Deming, the grandfather of the quality movement, believed that you cannot improve what you cannot (or choose not to) measure.  When we add Goldratt’s thinking about the importance of the Goal[1], we have two necessary conditions for improvement: our goal(s) and a few key measures. Our major goal for the future is established based on a clear picture of where we are now. This becomes an important component of a viable vision for the organization

In the area of measurement, between Kendall[2], who suggests that “measures may be dangerous to organizational health,” Neely[3], who proposes that “the perfect measurement system may not exist,” and Lawton[4], who addresses the issue of “customer satisfaction,” a summary of measurement problems emerges:

• There are often far too many measures – beyond human capability to track, respond to and act upon – and this problem is getting worse.
• Measures are frequently outdated.
• We seldom track whether we are satisfying customer desired and undesired outcomes.
• Measures are often of a historical financial (lagging indicator) nature; typically there are too few non-financial measures that predict financial performance and pervade the organization.
• There are no measures properly focused on improvement initiatives (i.e. connected to root cause problems).
• Measures are implemented without input and understanding of the people being measured and/or impacted.
• Measures are too often focused on cost accounting and individual silo/department performance and seldom on total throughput. 

In our experience, there are a few rules of thumb that can help deal with the challenge and necessity of measures and measurement:

• Customer satisfaction is an indicator of financial performance and we need to measure the extent to which customer expectations, and especially outcomes, are met.
• We need relatively few measures to keep track of.  Lawton, for example, proposes 8 areas of focus[5].   Neely offers the idea of possibly 3 financial and 3 non-financial; and the non-financial measures are leading indicators of financial performance[6].
• Progress toward the organization’s big goal (throughput) is measured. We adopt a throughput accounting methodology and move away from cost accounting.
• Measures are known, understood and communicated throughout the organization.
• We measure progress on our efforts to overcome constraints.