To accomplish 20 times as much, you need to learn and continually use all eight steps of the 2,000 percent solution process in the correct order.
The steps are listed here:
1. Understand the importance of measuring performance.
2. Decide what to measure.
3. Identify the future best practice and measure it.
4. Implement beyond the future best practice.
5. Identify the ideal best practice.
6. Pursue the ideal best practice.
7. Select the most effective people and provide the right motivation.
8. Repeat the first seven steps.
In this essay, you’ll learn how to pursue the second step: Decide what to measure.
Having created an environment where the value of measurements is appreciated, your next step is to gain the most benefit from measurements. Begin by focusing on a particularly important process within your organization where you expect to find a large improvement opportunity. Then you should determine what measurements about this process will help you make the fastest progress. If you are a laggard in developing successful new products in an industry where that skill is critical, the new product development process would be a fine place to start. Using the experience that you gain in looking at the first process, you can go on to extend this approach to other important processes and opportunities.
Pick Your Organization’s Low-Hanging Ripe Fruit
Organizations that make exponential progress are much more focused than competitors on making large improvements. The natural tendency is, by comparison, to measure processes where progress delivers emotional satisfaction to employees whether or not improving those processes will be very beneficial to the organization’s success. Fight that tendency where the potential benefits are modest.
Change Is a Moving Target
As circumstances change, what you need to measure changes too. For example, at one time U.S. auto quality was so poor that drivers primarily sought cars that wouldn’t break down. Many U.S. consumers bought Japanese vehicles. But when American quality improved, customers started seeking brands that offered the best dealer service. That was a short-lived trend, however, as better new-car quality reduced the need for dealer service.
Styling again became important. Lexus lost ground because it did not look much different than much less expensive Japanese offerings. Next, American drivers went for minivans and sport utility vehicles. At first, Japanese companies did not respond because such vehicles were not in demand in Japan. As you can see from this example, you will fail if you keep measuring and focusing on the same thing. As each shortcoming is eliminated, customer cravings will shift to something else. The able executive will continually switch what is measured, how much emphasis is placed on that measure, and what actions are taken to reflect the current and potential customer and stakeholder environments.
Find the Suggestion-Box Winners
A large consumer products company found that it lagged all of its competitors in measures of financial performance. Stung by this information into wanting to change, management encouraged employees to suggest improvements. Tens of thousands of suggestions were received.
Rather than treat all these ideas equally, management established a review team that included executives from every functional area. The reviewers looked for ideas that offered enormous immediate and long-term benefits that were easy to implement right away.
Another team of fifteen executives was assigned to see that these top options got enough implementation attention. One percent of the ideas provided 95 percent of the cumulative improvement. As a result of this effort, three years later the organization was the number one performer in its industry by any financial measurement.
Choosing to pursue those highest potential ideas aggressively was a good idea. You should do the same.
Less Is More
A lack of focus may mean that no gains occur. A major retailing company learned this lesson in the late 1970s. Panicked by earnings drooping below breakeven, management looked to implement 100 improvement projects in a year. None succeeded. At that point, focus shifted to just four high payoff programs, none of which was on the original list of 100 projects. These programs all succeeded due to focused attention, and the company was soon earning high profits.
Pick Improvements That Help Everything Else
What do you do when nothing works well? Identify how performance in one area affects performance in all other areas. Another leading retailer with severe problems learned this lesson by testing a number of improvement ideas to see how many other performance areas were helped. What was learned? Allowing employees to spend more time serving customers made both employees and customers much happier. Sales and profits rose as a result. This approach was counter to the retailer’s previous instinct to slash employees every time that profit targets were missed.
Measure at the Right Level with the Right Measure
Large organizations often confuse themselves by overaveraging what they measure. For example, tracking the average temperature on a given day around the world won’t tell a retailer what kind of apparel to offer in a given store. Start looking at the temperature by store, and you may begin to improve your stocking.
Identify Your Most Important Processes
Ask these questions to begin your search for your most important processes:
1. How long could your organization survive without each process?
2. How long could your organization prosper if each process were done poorly?
3. How long will your organization last if it performs each process less well than competitors?
Having gotten a sense of what your most critical processes are, ask these questions:
1. If you did the process as well as you can imagine it, what would be the size of the benefit compared to how well you are doing today?
2. If you implented the process as well as you can imagine it, what other opportunities would open up?
3. What would pursuing those opportunities be worth?
Potentially Important Processes to Measure
1. Monitoring of institutional investor decisions to purchase your competitors’ shares and debt rather than yours
2. Developing new products and services that provide customers with major benefits over competitors’ offerings
3. Marketing for attracting and retaining customers with whom you have a profit margin advantage over competitors
4. Shifting your mix of customers, products, and services to improve your costs versus competitors
5. Identifying and implementing your most important cost-reduction opportunities
6. Finding and realizing your organization’s largest opportunity areas
7. Reducing cost of capital in ways other than by borrowing more money and refinancing at lower interest costs
8. Adjusting compensation and recognition activities to reinforce helpful employee behavior
9. Obtaining win-win ideas for mutual benefit from suppliers, partners, and the communities you serve
Find the Critical Factors for Your Most Important Process
Once you have selected an important process to focus on, narrow your attention further to reveal the most important parts of the process. The following questions will help you:
1. Who can help you determine the critical factors in the process you are investigating?
2. How can you measure what may cause or influence the process’s important aspects?
3. What’s the best way to check your conclusions about the critical factors of important processes by using statistical analyses?
Start by Measuring Everything You Can Think of (That Seems Worth the Cost) Concerning the Process’s Output and Its Influences – and Then Narrow Your Focus
This is a good time to identify which measures are most available for comparisons outside of your organization. Be sure to check all your data to see how well they help you understand your performance. Once you’ve done that, begin eliminating some measurements while paying more attention to others. To make this shift, work with data until you can identify causes and effects with statistical accuracy.
In deciding how much to spend to measure and analyze, keep in mind the size of the potential benefits. Some expensive measures are well worth the cost. One firm found that a single measure (which cost more than all of the other measures combined) provided almost all of the insights into improving an essential process. Had the company stopped looking because of expense, the firm’s sales would be less than half and profits below a quarter of the current level.
Copyright 2007 Donald W. Mitchell, All Rights Reserved