In last week’s post, I touched on the point that Business Process Improvement (BPI) is best measured in terms of its contribution to an organization’s net income. That sounds easy, right? Well, think again.
As is the case with nearly all metrics, if the BPI program metric is ill-defined, it can drive dysfunctional behaviors and lead to a host of other maladies, to include a complete failure of the BPI program itself. In cases where the program fails, an initiative that would have otherwise been a huge asset to the organization has now become an additional cost and a liability.
One company with which I previously worked (which shall remain nameless) struggled tremendously with grasping the appropriate way to measure the effects of their business process improvement program. Instead of tracking, measuring, and rewarding improvements to the system that would position the company to operate more efficiently and generate consistently higher annual net income, the company leadership insisted on assessing BPI projects based upon how much additional net income an improvement or set of improvements generated within the fiscal year in which the project was completed and improvements were implemented. Here are some of the very MAJOR problems with that approach:
1. BPI is to net income as acceleration is to distance and net income per year is analogous to miles per hour (MPH). As such, the best measure of the value of a BPI project is how much a given project, once complete, will increase net income on a periodic basis going forward–NOT how much additional net income the company received by virtue of the project THIS period. The distinction is subtle enough to be overlooked, yet profound enough to have life-or-death implications for the BPI program itself.
Let’s say I have a car I am driving at its maximum speed of 100 MPH and I want it to go faster. If a mechanic tells me she can make improvements to my engine that would enable me to accelerate up to and maintain a cruising speed of 120 MPH, I should probably accept the offer. At a minimum, however, I should consider the offer to be one to increase my process (car) capability by 20 MPH and not simply an offer to get me 20 miles further down the road during this hour.
2. Reluctance to commit to longer-term, bigger-hitting projects. Let’s say the mechanic in the above example tells me that it will only take 30 minutes to make the adjustments to my engine that will get me the additional 20 MPH. Another procedure, however, that takes two hours to implement would increase my speed by 100 MPH. A faulty BPI metric will erroneously lead to the selection of the lesser project every time, regardless of the magnitude of the capability improvement associated with the larger project, since the larger project cannot even be completed within the hour. At least the smaller project will yield 10 additional miles this hour since it only takes half the hour to complete, right?
3. Tendencies to delay projects in an attempt sync them with the fiscal calendar. What happens when we structure performance management around the faulty BPI metric? Let’s say, in our mechanic analogy, we dole out bonuses at the end of each hour to the mechanics who got us the most distance during the most recent hour and terminate the mechanics that did not get us any farther down the road for two consecutive hours. First off, we are going to terminate the mechanic with the two-hour project that would actually have improved our capability the most. Secondly, since the mechanic leading the 30-minute project knows she will only get 10 miles of credit for the project if she begins the project at the start of the first hour and takes half the hour to close it, she will most likely delay closing the project until the start of the second hour so as to receive the full 20 miles credit for the project at the end of the second hour. By letting the flawed metric drive our performance management, we have not only cost ourselves the opportunity to improve our capability so as to get 100 more miles out of every hour after two hours of project work, but we have also cost ourselves 10 additional miles that we could have gained in the first hour that were deferred to the second hour.
4. Inaccurate (and costly) project prioritization. Since resources are often scarce, there is an inherent requirement in any business to prioritize them. When it comes to business process improvement, business leaders ultimately want to commit resources to the projects that will benefit the business the most. It is fairly obvious, in the mechanic example, that the two-hour project will ultimately benefit the business the most in the long run. Based upon the flawed metric, however, the half-hour project appears to be the most beneficial to the business and would receive a higher priority accordingly.
The issues above are just a handful of some of the difficulties that can result from ill-defined BPI program metrics. If you are a business leader do not let ill-defined BPI metrics obstruct your view of the end goal and make sure that your BPI metrics are well-defined from the start. If you have gotten lost in my mechanic analogy, please go back through my examples above and substitute “business” for “car”, “business process” for “engine”, “year” for “hour”, and $10k for each mile that is mentioned and the business context should become crystal clear.