Every organization has its mission it strives to fulfill, and has the strategic goals that guide its operations in the short and long term. There are multiple tools, managers and top executives employ to help them design, plan, and implement organizational goals.
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Once the goals are set, and the actions have been implemented, there is a need to measure the performance against the pre-agreed standards, which will define the success, and indicate the fields that need improvements.
Key Quality Metrics:
- 6 Sigma Metrics. The key in implementing six sigma model is to coordinate the logical discussion of the process, with the comprehensive data on the performance. Model initially has been designed to be used in the manufacturing, and is a widely accepted quality improvement method.
- Continuous Improvement. The ultimate goal of the Continuous Improvement is to increase the “customer value delivery”. The concept has been developed in Japan, and is an incarnation of the idea that, there is always room for improvement. Since the method is designed around customer value maximization, consumer feedback is crucial in proper implementation of the approach.
- TQM. Quantitative measurements are key in TQM. For the manufacturers it involves measures of costs, time, errors, defective products, and cost vs. budget evaluations. TQM has been widely accepted as one of the most prominent tools in increasing consumer satisfaction, and minimizing the costs of reworks, refurbishing, failed orders, and returned products.
- Quality Improvement. Internal quality measures are important, but, since the companies operate in a competitive business environment, external measures are necessary in order to get a complete picture of the company’s performance. For example, while many companies have the internal financial measures, such as productivity, profitability, efficiency, and liquidity, industry professionals have designed the industry averages, which companies can compare their results to, and objectively assess the company’s financial health. For example profitability; if an industry average is gross profit of 30% of total sales, and company has the gross profit that is lower than the industry average, management has a clear message, which they have to improve sales, and control the cost of production.
Six sigma metrics model is designed to focus on the processes in an organization, and transform them in the way, that would make them more adequate, profitable, and effective. Not only the model allows to transforms the way processes are managed, but it provides much better understanding of existing measures. Thus, management has a better view of the key performance measures, and is able to make better decisions in order to improve overall performance.
Some of the key aspect of the six sigma quality indicators might be: 6 sigma metrics, financial perspective, cost of poor quality, activity based costing, customer perspective, customer satisfaction, on time delivery, employee perspective, total trained in six sigma, number of projects completed, lessons learned, sigma perspective, sigma level, rolled through yield, defects per million opportunities, first time yield, process perspective, cycle time, lead time, mean time to repair, capacity, and rework hours.
Continuous improvement methodology is based on 5 key measures. They are: quality, productivity, schedule, effort, and cost. Effective and complete implementation of this method provides organization with several advantages; improved resource utilization, improvements in coordination of multiple project and related processes, predict and take measures where the risk of a failure is the greatest, reduce overhead, collect data on key measurements, and improve analytical abilities.
The central principle in the continuous improvement idea is that management has to reflect on the processes that company is engaged in. What we mean is that, management has to interact with the consumers that have bought the product, or subscribed to the services, and consider the feedback that they provide. Continuous improvement methodology dictates to be engaged, keep track, and be on top of the processes that have impact on the customer value. It needs constant monitoring, and quality checks, since the processes tend to deviate from the originally set standards.
Total quality management (TQM) approach is an idea that dictates monitoring quality on every aspect of the organizational performance. It has been widely used in education, hospital, government, and other private industries, that strive to increase the quality, and maximize customer satisfaction.
For a manufacturer, TQM would start from buying raw material from a supplier, and end with a follow up call to a customer that has bought the product. TQM is a complex and often, time-consuming process, but the improvements in the quality are significant. It involves various different measurements in the performance, and often is assisted with management tools such as balance score card.
If implemented appropriately, TQM provides clear goals, and enables users to compare and evaluate actual performance, against the set standards.
Quality improvement; it is a goal that every organization tries to achieve. There are numerous approaches that have been designed over the years, and have been implemented by the organization in various different industries. Companies can identify the key measures, and create KPIs that would compare the actual performance against the set standards. Important thing to remember is to upgrade the key measures and adjust them to the changing business environment.
Some of the KPIs that would help an organization in maintaining quality will be, percentage of products that meet the preset quality guidelines, number of processes with best practices, number of quality checks thou ought the process, and percentage of improvements in the quality.
Similar concept can be applied to employee skill improvement, sales performance, production, and other key field in organizational performance.
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That’s where the key performance indicators (KPI) come in. KPIs are quantifiable measurements, which have been agreed on prior to starting the measurement process. In other words, KPIs contain sets of standards, which organization is trying to achieve. KPIs may differ from organization to organization, and may be implemented in numerous different ways. For example, a manufacturing company may set low production costs as KPI, retailer may set the percentage of profits relative to sales, as the key performance indicator.
Regardless of the organization, and the performance measure it tries to evaluate, KPIs have to meet three characteristics. KPI has to reflect organizational goals, it has to be quantifiable, and it has to be key to company’s success.
KPI has to reflect organizational goals; measure has to be reflecting the goal, in order to be effective. Let’s consider an example. Company that strives to be the most profitable company in the industry, will have the measures such as, sales volume, profit levels, cost structures, and customer satisfaction. These measures are relevant to the profitability, and evaluating them will help the company achieve its goal. Measures like donation and community service will not be included in to the KPI.
Quantifiable; in order for the KPI to be usable, and deliver the value it was created for, it has to be quantifiable. Quantifiable means that it can be compared to the sets of standards, and viewed in comparison with the competition. For example, company’s goal is to become the most profitable in the industry, and sets the KPIs as sales volume, and percentage of profits relative to sales. Unless company can measure the dollar amount generated in sales, and percentage of profits relative to sales, it is impossible to evaluate the performance. Quantity allows KPI to be compared to the competition as well; how much was the revenue in compare to competition, who is the highest seller, and where do we stand in the process of achieving our goal? These are the benefits of quantifiable measurements.
KPI has to be key to organizational success. There are numerous aspects of the performance that company might measure, but only some of them are critical to its success. For example, company that strives to become the most profitable in the industry, will have several key aspects that it would focus on; for example sales volume and cost effectiveness. So the idea is to keep the number of KPIs small, in order to keep the focus on what’s important. Furthermore, KPIs have to be consistent, meaning, they have to be the same on year to year, until the goal is achieved.
Users of KPI, and The Benefits It Offers
Uses of the KPI are diverse. They can be used in numerous tasks involving the strategic planning, performance evaluations, and budgeting. The users of KPIs are management and top executives that are in charge of the organization. While the users may vary, the key service that KPIs serve is unchanged. We are going to discuss 4 basic methods, and the configuration of each one of them is different, depending on the user and the task it was designed to accomplish. KPI can be adjusted to reflect the field it was designed to measure, and can be changed to reflect the needs of a particular user. Upper management and top executives are more focused on the greater picture, while the lower management is more concerned with the particular aspects of company’s operations. Regardless of the function, KPIs are versatile enough to get the job done.
Let’s consider an example; again, company decides that the goal is to become the most productive company in the industry. Who would use the KPI? It is obvious that the goal was set by the top management, and they have designed the key measurement points that they would like to see improved. For example, they might set the goal for the sales department to reach $1 million mark. For the cost department, not to exceed the 70% mark relative to sales, and so on. On the middle manager levels, KPIs will be little different, but still, they will focus on the goals of each department.
So, KPIs are a diverse and very versatile means of measuring the performance. They can be adjusted to reflect the goal, measure, and the scope of the measurement. Below is the list of some of the benefits KPIs provide.
- Transparency of the information, and availability of the key measures.
- Ability to provide real time information on the key measures.
- It is a systematic approach to the performance measurement.
- Improves productivity.
- Highlights best and worst performers.
- It is a useful tool in budgeting.
- Provides information that can be interpreted for more visualization.
So the KPIs are valuable tools in measuring performance of the key functions, and are used by the management in the process of implementing strategic goals.
As you can see, the techniques and processes that have been designed to improve the overall performance of a business organization are numerous. It is not surprising, since every business organization is created to do better, and improve the value it delivers to a consumer.
Attention to quality, and overall consumer satisfaction has gained the importance as the world develops. Globalization and lowered trade barriers have only intensified the competition. Companies compete for every consumer, and for every dollar on the global market. The ultimate benefit goes to a consumer, who is able to acquire a better quality product, for a lower price.
Measures and techniques such as KPIs we have just discussed, have been around for a long time. For example, Six Sigma has been originally designed by Motorola, in order to combat the growing defects in the manufacturing process. While the methods and approaches to increased quality of the product are numerous, they all serve one purpose, improvement in overall quality.
They all have to be quantitative, or measurable in other ways, serve the strategic goal of a company, and be the key in the success of an organization.
As the competitive environment changes, so are the measures that are designed to keep the companies in business. It will not be too long, until we will discuss another innovation in the quality management process.
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