A KPI is a Key Performance Indicator [1], which is a type of performance measurement. KPIs evaluate the success of an organization, plant, product line(s), product(s), program(s), project(s), and/or focus on a single process or work cell. They often drive potential improvements, so KPIs are routinely associated with performance improvement initiatives.
What is important to understand about KPIs within the LEAN Business System [2], is:
1. Without measuring your performance, you will not have the ability to clearly understand your current situation. And if you initiate any type of improvement project by applying LEAN principles and concepts, you will never understand if your implementation and application efforts are having a direct impact on your desired results.
Without Measuring Your Performance Through KPIs, You Will Not Have the Ability to Understand Your Current Situation or if Your Improvement Efforts are Having a Direct Impact on Your Desired Results
2. KPIs need to be relevant (e.g., to the project or to the area) and understandable by the team members, because they ultimately drive actions and the subsequent results. Therefore, selection of your KPIs (how and what) are just as important as having them in the first place!
3. KPIs must be deployed throughout the entire organization. This includes every product line and product, every area including value-stream and work cell, every functional group, every program and project, every level of the organization, and all the way down to every team member (regardless of level or area of operation).
Within the LEAN Business System, the Toyota Production System (TPS) utilizes Hoshin Kanri to accomplish this process as part of their Strategic Planning, which is simply translated from Japanese in the LEAN context as Policy Deployment or Policy Management. What is interesting to observe with the Hoshin Kanri process is that not only does every KPI drill-down to the operational level for every team member, but the KPIs are also cross-functional, meaning there is interdependence with everything the organization does.
KPIs Must Be Deployed Throughout the Entire Organization
4. Along with KPIs being deployed throughout the entire organization, they must be communicated to everyone and then made visible. This not only makes the KPI targets clear to everyone, but brings transparency to every team member, as well as everything the organization does.
5. Results and the performance against the KPIs must be frequently monitored. Within the LEAN Business System, this is done through the Management System [3], which is a structured review system providing real-time feedback and coaching [4] to the team member(s).
Results and the Performance Against the KPIs Must be Frequently Monitored
References, and Links to Further Explanations
- Learn more about Key Performance Indicators, from Wikipedia.
- Business System is one of Our Fundamentals of LEAN we have Defined: Business System.
- Management System is a Core Element of Our Balanced Approach for Implementation Training. Also learn more about the LEAN Management System within our A3 Methodology, and Thinking Training.
- Coaching is one of the Secondary Elements of Our Paradigms: Coaching.
Insight from a Master Sensei
Everything you do is reflected in the KPI, and this is the basis for your continuous improvement activities. Always keep this in mind, and have the following questions in the back of your mind:
- What is the KPI?
- Where do you want to go? And how do you want to impact the KPI?
- What are the steps in where you want to go? And how will this be reflected in the impact of the KPI?