Smart Targets:
Motivator or Burden?
Centre for Enterprise Research and Innovation (CERI)
Nigel Ward
A Practitioner's View of Targets in a Change Environment
Scope
 The Role of Measurement in LEAN Improvement.
 The Change Environment!
 Concepts of LEAN?
 The Importance of Measurement?
 Difficulties in Providing Valid Targets and Measures.
 Financial Measures.
 Non-Financial Measures.
 The Impact on Staff Caused by Setting Targets for
Improvements.
 Six Common Reasons why Change Programs Fail.
 Empowerment, Efficacy and Self-correction.
 Key Points.
The Change Environment!
“It has been said that the only people who want to change
are babies who have wet diapers.”
Rev. Sharon Patterson, Ph.D.
Concepts of LEAN
 Focused on the elimination of all non





value-adding activities and waste from
the organisation’s processes.
Relies on employees and value.
It is a philosophy of continuous
improvement.
A set of principles, concepts and
techniques used to improve
systems.
Customer
Long-term relationships with
Define
suppliers.
Changing to:
 Maximise efficiency.
 Improve quality and safety.
 Eliminate unnecessary motion and
inventory.
 Save time.
Map and
Understand
Value Stream
Goals
Increase Productivity
Eliminate Waste
Maximise Resource
Utilisation
Continuous
Process
Improvement
Make the
Value Flow
Concepts of LEAN Six Sigma
 Six Sigma:
 A system developed to systematically improve
processes by eliminating defects.
 Just In Time:
 An inventory strategy implemented to improve the return on investment
of a business by reducing in-process inventory and its associated costs.
 Total Quality:
 Strategy aimed at embedding awareness of quality in all organisational
processes.
 Synchronous:
 The coordination of events to operate a system in unison.
 Value Stream Management:
 Set of processes through which a group of products or services pass
(extends from the receipt of the customer order to the delivery of the
product and / or service).
Concepts of LEAN Six Sigma
Adding Value to the Customer!
The employee asked
me what I wanted.
The employee wrote
down what I wanted
on a piece of paper.
The employee started
to make my sandwich.
The employee
grabbed some foil like
paper and wrapped
my sandwich up.
The employee
grabbed a Styrofoam
container.
The employee placed
some colourful paper
in the bottom of the
container.
The employee placed
my nicely wrapped
sandwich in the
container.
The employee
grabbed a paper bag.
The employee placed
the container into the
paper bag.
The employee taped
the piece of paper
onto the bag.
The employee handed
me the paper bag.
I Paid!
Concepts of LEAN Six Sigma
Adding Value to the Customer!
The employee asked
me what I wanted.
The employee
immediately started to
make the sandwich.
The employee
grabbed the
cardboard box.
The employee placed
sandwich in box and
closed it.
The employee handed
me the box.
I Paid!
So which process
So How
was
Didthe
I Know?
improvement?
• From
One
thing
anwas
Employees
definitelyperspective?
missing from the
• From a Customers’
employees’
face that made
perspective?
me my sandwich!
A SMILE!
LEAN Six Sigma’s Process Improvement
Life Cycle
Define
Project & Identify Process
LEAN Tools
Define
Project & Customer Demand
Measure
CTQs
Evaluate
Measurement
Estimate Process Capability
Map
The Current Service, Production and Information
Flows
Analyse
Root Causes of Defects
Analyse
Process Flow and Wastes
Map Ideal State
Improve
Process Performance by Implementing Changes
Improve
Process Flow and Eliminate Wastes
Control
System to Maintain Gains
Control
Work Pacing and Lead Time
Developing the Solution
Understanding the Metrics
Six Sigma Tools
The Role of Measurement in LEAN
Improvement – Deming
 “It is important that an aim never be




W Edwards Deming
 “We must understand variation.”
 “Profit in business comes from repeat
defined in terms of activity or methods.
It must always relate directly to how life
customers, customers that boast about
is better for everyone... The aim of the
your project or service, and that bring
system must be clear to everyone in
friends with them.”
the system. The aim must include
 The result of long-term relationships is
plans for the future. The aim is a value
better and better quality, and lower and
judgment.”
lower costs.”
“If you can't describe what you are
 “A system is a network of
doing as a process, you don't know
interdependent components that work
what you're doing.”
together to try to accomplish the aim of
“It is not enough to do your best; you
the system. A system must have an
must know what to do, and then do
aim. Without the aim, there is no
your best.”
system.”
“Quality is everyone's responsibility.”
 “We should work on our process, not
“Whenever there is fear, you will get
the outcome of our processes.”
wrong figures.”
The Role of Measurement in LEAN
Improvement – Ohno
Taiichi Ohno
 “Costs do not exist to be calculated.
 “All we are doing is looking at the time
Costs exist to be reduced.”
 “The key to the Toyota Way and what
makes Toyota stand out is not any of
the individual elements…But what is
important is having all the elements
together as a system. It must be
practiced every day in a very
consistent manner, not in spurts.”
 “The more inventory a company has,
the less likely they will have what they
need.”
 “Data is of course important in
manufacturing, but I place the greatest
emphasis on facts.”
line, from the moment the customer
gives us an order to the point when we
collect the cash. And we are reducing
the time line by reducing the non-value
adding wastes.”
 “Where there is no Standard there can
be no Kaizen”
 “Why not make the work easier and
more interesting so that people do not
have to sweat? The Toyota style is not
to create results by working hard. It is a
system that says there is no limit to
people’s creativity. People don’t go to
Toyota to ‘work’ they go there to ‘think’”
The Role of Measurement in LEAN
Improvement
 Long term goals should drive the deployment strategies.
 A guiding vision is important for change management.
 Key long term goals to consider:
 Enterprise transformation.
 Strategic improvement.
 Problem solving.
 Cost reduction.
 Image.
Steven Covey
Begin With The End In Mind
The Role of Measurement in LEAN
Improvement
 Focus on Results by Applying Key Metrics:
 Get data for the last 5 years.
 Benchmark your process against the best.
 Compare your results against your own history.
 If there is no perceived urgent need, people will not
perceive the need to change and will not change.
 Create scorecard /’dashboard to measure baseline
metrics.
 Set SMART targets for
success criteria.
Examples of LEAN
Measures
 Delivery Performance:
• Days Variation.
• % On Time.
• % Fill Rate.
• Days to Process.
 Process Stability:
• Capacity Consumption.
• Unplanned Downtime.
• Changeover/Set-up Times.
• Process Yield.
 Innovation:
• Cycle time for New Product
Introduction.
• New Products Introduced.
• Employee suggestions.
 Productivity:
• Revenue per Full-Time
Equivalent.
• Output per Full-Time
Equivalent.
 Flexibility:
• Cross Training.
• Order to Delivery Cycle Times.
• Part/Process Commonality.
• Modularity.
 Quality:
• Certification for Suppliers.
• Defects / Rework / Scrap.
• Accuracy (BOM, Inventory,
Administration etc).
The Role of Measurement in LEAN
Improvement – Pilot Results
Not-For-Profit
Charity Shop
Productivity
PILOT
IMPACT
25 Pieces / Person
40 Pieces / Person
60% Improvement
Quality
4.6% Defects at
Final Audit
2.1% Defects at
Final Audit
58% Less Defects
Space
9.5 m2 / Person
3.3 m2 / Person
64% Less m2 / Person
WIP
4 Units of WIP Per
Unit Produced.
0.3 Units of WIP
Per Unit Produced
13 Times Less Units
in Inventory
Lead Time
3.7 Days
0.27 Days
93% Reduction
Absenteeism
3.2% Daily
2.1% Daily
33% Reduction
Variation In
Process
+/- 45% Variation
+/- 10% Variation
(Daily Schedule Attainment)
(Daily Schedule Attainment)
88% More Reliable
Process
(Daily Schedule Attainment)
BEFORE
(Daily Schedule Attainment)
Difficulties in Providing Valid Targets and
Measures – Value Stream
Inflow
>>>>
Value Stream Flow Process
>>>>
Outflow
Consists of all tasks required to serve a customer and
create value……and eliminate waste in the flow of
tasks.
Bruce Baggaley
Brian Maskell
Difficulties in Providing Valid Targets and
Measures – Value Stream Costing
Production
Labour
Inflow
>>>>
Operation
Support
Production
Materials
Production
Support
Value Stream Flow Process
Facilities &
Maintenance
>>>>
Outflow
All Other Value
Stream Costs
• Lean measures are intended to provide the process managers with the
information required to improve the processes they manage.
• Traditional measures often drive bad or wrong behaviours.
• Lean measures focus on driving improvements through measuring the
cost drivers within the process.
Difficulties in Providing Valid Targets and
Measures – Example of a Value Stream
Difficulties in Providing Valid Targets and
Measures – Performance Measurements
Traditional Measurements
•
•
•
•
•
Labour Efficiency.
Machine Utilisation.
Cost Variances Versus Standard.
Earned Value.
Departmental Budget Focus.
John Seddon
Lean Six Sigma Measurements
•
•
•
•
•
Throughput.
Cycle Time.
First Time Quality.
Inventory Turns.
Value Stream Focus.
Michael George
Difficulties in Providing Valid Targets and
Measures – Assumptions
Traditional Measurements
•
•
•
•
•
•
Make More Product.
Build Inventory.
Utilise Resources to the Max.
Optimise Department Efficiencies.
Track Direct Labour.
Allocate Other Costs.
John Seddon
Lean Six Sigma Measurements
• Eliminate Barriers to Flow.
• Focus on Value Stream Rather
Than Departments.
• Continuous Improvement and
Teamwork.
• Eliminate Waste, Inventory and
Over Production.
Michael George
Difficulties in Providing Valid Targets and
Measures – Measuring in a LEAN Way
Traditional
View
The financial
and
customer
metrics
reflect the
outcomes of
the
processes a
company
deploys and
the people
running
those
processes!
Financial
Customer
Process
People
LEAN View
Measuring
the
effectiveness
of the people
and key
drivers of
delight for
the business
and the
customers
will ultimately
result in
outstanding
‘top level’
performance!
Difficulties in Providing Valid Targets and
Measures – Customer Value
Customer Perceptions of Value (Quality and Satisfaction)
(After Zeithaml et al, 2006))
Before Change (Measured)
Data Box
Trigger
What causes people to start doing something for the customer
Done
How do we know when an item has been completed?
Manual Cycle Time (Minutes / Item and Cost / Item)
How many seconds of manual work are done on each item?
Change Over Time (Minutes / Item and Cost / Item)
How long does it take to change from one item to another?
Chargeable Waiting Time (Minutes / Item and Cost / Item) Waiting time where employee is unable to continue work.
Non-Chargeable Waiting Time (Minutes / Item and Cost /
Item)
Waiting time where employee is able to continue work on another item/process.
Total Flow Time (Minutes / Item and Cost / Item)
How long does it take to flow - start to finish time (waiting or being worked on)?
Assumed Cost / Minute
Calculated using average capitation rate for those involved in process.
Assumed Volume / Year
Calculated using average volume of items process.
People per Item of Work
How many people work in the area?
WIP Pieces
How many items are in the area (being worked on or waiting)?
Direct Cost of Materials
Cost of materials involved in either directly supporting or making item.
Cost per Item and Total Cost Item/Year
Total cost of servicing and/or manufacturing item and total annual cost.
% Yield 1st / 2nd / 3rd Time Through
How many items are defect-free the first time (no rework required)? Used to
calculate amount of rework.
Volume and Cost / Year Including Rework
Calculated using average volume of items process plus number of items having to
reworked due to poor yield.
Cumulative % Yield
How many items are defect-free the first time (no rework required)? Used to
calculate amount of rework.
Customer Value Add (CVA) (Minutes, %, Cost)
Activity in process that is essential to deliver customer requirement (External
Focused).
Stakeholder Value Add (SVA) (Minutes, %, Cost)
Activity in process that is essential to deliver stakeholder requirement eg but are
required for financial and/or legal reason (Internal Focused).
Business Value Add (BVA) (Minutes, %, Cost)
Activity in process that is required by business to improve VA, that has the potential
to add future value to the customer or stakeholder.
Non-Value Add (NVA) (Minutes, %, Cost)
Activity in process that add no value from customer or stakeholder perspective and
are not required for financial and/or legal reason?
Type Notes
Process Step
1
Difficulties in Providing Valid Targets and
Measures – Example of a Value Stream
Difficulties in Providing Valid Targets and
Measures – Example of a Value Stream
Difficulties in Providing Valid Targets and
Measures – Example of a Value Stream
Difficulties in Providing Valid Targets and
Measures – Examples of Value Streams
Value Add (%)
Non-Value Add (NVA)
(Minutes, %, Cost)
Business Value Add
(BVA) (Minutes, %,
Cost)
Stakeholder Value
Add (SVA) (Minutes,
%, Cost)
Customer Value Add
(CVA) (Minutes, %,
Cost)
Activity in process that adds
no value from customer or
stakeholder perspective and
are not required for financial
and/or legal reason?
Activity in process that is
required by business to
improve VA, that has the
potential to add future value to
the customer or stakeholder.
Activity in process that is
essential to deliver stakeholder
requirement eg but are
required for financial and/or
legal reason (Internal
Focused).
Activity in process that is
essential to deliver customer
requirement (External
Focused).
40.00%
35.00%
30.00%
25.00%
20.00%
Current State
Proposed State
15.00%
Future State
10.00%
5.00%
0.00%
Customer Value
Add (CVA) (%)
Stakeholder Value
Add (SVA) (%)
Business Value
Add (BVA) (%)
Non-Value Add
(NVA) (%)
The Impact on Staff Caused by Setting
Targets for Improvements
 Six Common Reasons why Change Programs
Fail:
 Failure to Create a Sense of Urgency.
 If people do not understand why change is needed, then they stay in
their comfort zones.
 Failure to Create a Coalition for Change.
 You have to get the 'movers & shakers' on board at the beginning.
 Failure to Understand the Power of Vision and to
Communicate it Powerfully, Through Word and Deed.
 Failure to Remove Obstacles to Change.
 They hold you up, and exhaust the energy and resources
 Failing to Achieve ‘Quick Wins'.
 They prove it is not only possible, but relevant.
 Declaring Victory Too Soon.
 If you do not keep at it, it vanishes overnight.
 Change has to become embedded, habituated and part of the culture.
John Kotter
The Impact on Staff Caused by Setting
Targets for Improvements
John Fisher's Personal Transition Curve 2003
The Impact on Staff Caused by Setting
Targets for Improvements
 Empowerment, Efficacy and Self-correction:
 Successful culture and organisation change requires high levels of
empowerment for people and work teams.
 The empowerment is necessary for the system to self-correct at the
lowest levels.
 High directive, bureaucratic systems that attempt to correct at high levels
are inherently unstable.
 Motivation:
 All of this ties in to motivation.
 People and teams who believe they have control of their situation work
harder and perform better.
 They take pride in their efforts.
 Pride gives meaning to their work and their lives.
The Impact on Staff Caused by Setting
Targets for Improvements
 Fully Engage Leaders in LEAN Six Sigma:
 Require leaders to be highly visible in leading LEAN Six Sigma.
 Structure engagement in key deployment activities.
 Lean Six Sigma Goal Setting:
 Identify the most serious business problems.
 Set explicit LEAN Six Sigma goals.
 Link to pay and job performance appraisals.
 Understand the Business Goals and the Major
Organisation Drivers:
 Get leaders to understand their customer requirements.
Peter Scholtes
 Put Deployment Accountability Where it Belongs:
 Executives and managers need to own LEAN Six Sigma and targets.
 The policy deployment strategy needs to get executive ownership
quickly.
The Impact on Staff Caused by
Setting Targets for Improvements
 Keep them Simple:
 People must understand them for them to be effective.
 People must trust the measures - most powerful if people create them
for themselves.
 Ensure they are Timely:
 Frequency should be based on needs of the process.
 Real-time, hourly, by shift, by day, by week, etc.
 Use Fewer than You Think:
 Select the top 6 to 8 key metrics that drive overall performance.
 Measurements Must be in Place to Drive Improvement:
 Provides the motivation for change
 LEAN Six Sigma Measures Change as the Business
Changes:
 As the processes improve, so too must the way we measure success.
Smart Targets: Motivator or Burden?
Key Points
 Performance measurements that motivate LEAN Six Sigma
actions.
 A valid assessment of the financial impact of lean
manufacturing improvement.
 Replacement of standard costing with costing of the value
stream.
 Driving the business from customer value.
 Challenge the status quo.
 Create a compelling vision.
 Establish shared values.
 Enable others to act.
 Model the way.
 Encourage the heart.
Smart Targets: Motivator or Burden?
Key Points
• Every morning in Africa, a gazelle wakes up; it knows it must run faster
than the fastest lion or it will be killed.
• Every morning in Africa, a lion wakes up; it knows it must outrun the
slowest gazelle or it will starve to death.
• It doesn’t matter whether you are a lion or a gazelle; when the sun comes
up you had better be running!
Smart Targets:
Motivator or Burden?
Centre for Enterprise Research and Innovation (CERI)
Nigel Ward
A Practitioner's View of Targets in a Change Environment
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