How to Choose the Right Metrics for Lean Operations
The people who really need to know about key operational metrics for lean operations never ask me about them. Why? Because these printing owners are panicking. They’re on the verge of either greatness or failure – and they’re petrified because they don’t know what to do next.
Here’s the scenario: Your business has done well, extremely well, and you’ve grown to a nice, healthy size. But you’ve winged it to this point, without so much as a glance at financial metrics or a hint of a business plan.
Now your sales are growing like crazy, and you feel like you’ve lost control of your organization, or your sales are sliding because, well, you have lost control of your organization.
You are at the tipping point, as they say, and you’re not sure what to do next.
Take solace in knowing that many printing companies have been in the same position. But you should also take heed – those that did not use the cascading goals and metrics I’m presenting here will find themselves headed in the wrong direction.The Balanced Scorecard Model
What you’re about to discover comes courtesy of Ed Klaczak of EJK Consulting Solutions. Ed is LaManna Alliance’s go-to-guy when it comes to lean operations. The task I presented Ed with was simple: What metrics are critical when a company wants to stay lean and mean?
Instead of just presenting me with a number of random metrics, Ed presented a system that tied it all together. Say hello to the Balanced Scorecard Model.
How does it work? Let’s keep it simple: Things start at the top, or the far-left hand box, with the company’s vision, mission statement and initiatives. As you’d expect, you need to establish these before discussion of any metrics begins. (I’ll tell you what happens if you don’t in just a minute.)
Next, you “cascade” your way down to the Executive Goals and Metrics. True to the name, these are goals for your executive team, which are based on achieving the ultimate business vision, mission statement, and company initiatives.
The boxes then cascade down to the next level, to your management team, and then down to the employee level. Every goal is based on the box above, and every goal cascades into the box below. At each level, you have an element of the scorecard which tracks your overall progress.
Note that “feedback” swims upstream. The feedback is what tells you if the goals are being achieved, if they’re realistic, or if there is a process breakdown. These are the critical financial, customer, or operational metrics, specific to your company, but they work within the system to assure everyone is working together.
Beware of Rogue Metrics
Why did Ed start with the Balanced Scorecard system first?
Well, do you remember the tipping point I mentioned at the beginning of the post? This is when your business has grown beyond the ad hoc management style most entrepreneurs are used to, or when your company suddenly finds itself in an ultra-competitive marketplace but has no idea how to get lean.
Either way, you need to integrate lean operations into your company, and that involves using key financial metrics.
But many ad hoc managers aren’t aware of a cohesive system like Ed’s Balanced Scorecard. They employ rogue metrics with no rhyme or reason. Here’s an example.
I had a printing owner for a client who wanted to put his sales people on incentives. He thought this would be a great way to boost sales and drive new revenue.
Great concept, but he neglected one thing. He didn’t get his company goals in line. He didn’t think at all about his executive team or his management team, and how they would handle a huge amount of new orders.
So if we would have green-lighted his request, his sales people would have hit the streets like ravenous dogs. The orders would have flooded in. And guess what? The customers would have been horribly disappointed.
Because there weren’t adequate resources on hand to fill the orders.
There were inadequate personnel to keep the lines running.
And there wasn’t enough cash-flow coming to cover the upfront costs.
It’s similar to the disconnected processes I told you about in a previous post. If these metrics are not all tied together, your organization is going to wobble.
Minimizing Skunk Projects
Another goal of the Balanced Scorecard is to provide aligned goals amongst the various functional areas within the organization and to prevent what he refers to as “skunk projects.”
These are ill-planned, unauthorized projects. They eat up resources and delay schedules. “It happens with a middle manager who has a big ego and wants to do Z, but the rest of the company wants to do X and Y,” Ed explained. “Or the sales guy who has promised vapor-ware by next month, even though there are no physical resources allocated.”
It’s all about project prioritization and project realization, and it’s about stopping the skunk in its tracks.
So at this point, you’re probably wondering, as I was, what’s so complicated about the Balanced Scorecard? Why on earth doesn’t every business owner employ this methodology?
Ed had a simple explanation, and it ties back into the tipping point I mentioned earlier. “Most businesses, as they evolve from a startup, are chasing the next brass ring,” he said. “They have to mature and morph into an organization.”
For most businesses, when they started, there was one project, and everyone was focused on it. The organization was small, and tight-knit. Everyone knew the delivery dates, and it wasn’t uncommon to see the VP out on the shop floor, shirtsleeves rolled up and pitching in.
Then the company grows. You start getting layers. Communication gets worse. And people lose track of their goals.
Again, this occurs with either companies heading up the success elevators, or about to plummet down.
If you’re heading up, you need the Balanced Scorecard to manage your growth effectively in order to avoid the kind of pile-up that can occur with rogue metrics.
If you’re heading down, it’s because you’ve waited too long to effectively establish your metrics. The rogue sales person or the middle manager with the big ego is messing you up, big time.
Ed notes that employing the right metrics is dependent upon where your company or your project is in its life-cycle. When you have a new product in the prototype phase, for example, drilling down into your cost-per-unit may be of non-value. You have start-up costs, and the metrics just wouldn’t be accurate.
So you’ve reached the end of the post, and you didn’t get the key operational metrics for lean operations. That’s true. No, you got something much better. You got the Balanced Scorecard, the system that will help the metrics specific to your business work effectively.
Photo by: jurvetson
Rock LaManna is the President and CEO of the LaManna Alliance. The LaManna Alliance helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic transition – including mergers, acquisitions, organic growth, and exit / succession plans.