Process measures are vital to monitoring an organization’s execution against its intended goals. They provide a look inside an organization’s progress and reveal what works and what needs to be fixed to reach key performance targets. But not all data is useful, and “key performance indicators” alone may not tell the whole story.
Understanding the fundamentals of performance measurement is key to avoiding the common shortfalls with measurement systems. When measuring the performance of work, start with the fundamental Supplier-Input-Process-Output-Customer (SIPOC) business process model. There are a limited number of process characteristics that can be measured, and the choice of those measures should be driven by the business process purpose imbedded in its SIPOC. This applies no matter what the process type, whether it is manufacturing, administrative, physical, or intellectual.
No work gets done in an organization without a business process to deliver it, therefore measuring what matters always begins by examining the processes and aligning performance measurement with performance goals. Any process can be measured regardless of its type or where it resides. There are seven basic types of process measures. These are summarized as follows.
Value Proposition Effectiveness
Effectiveness measures the ability to create and serve a loyal customer. Every process has a customer value proposition and a winning value proposition includes defining the customer, the customer’s problem that the process solves, and the unique and valuable way that it does so. Measuring and evaluating effectiveness is essential and we find that few organizations, and virtually no processes, adequately measure this indicator.
Productivity measures the volume of outputs produced to resources consumed, including facility, equipment, people, and information technology. Resource productivity assesses the economic value provided by a resource compared to the cost of its acquisition and operation. Organizations acquire resources with the express purpose of using them to produce profits, yet few organizations measure the extent to which these resources are used productively.
Conversation Efficiency evaluates the waste produced by a process while converting inputs to valuable products and services. It assesses the inputs and resources consumed by the process to a targeted potential. Less efficient organizations consume more resources with higher costs to produce comparable products and services.
Customer alignment measures the level of volume match-up between a customer, process, and supplier. Process alignment looks at the extent to which a process or system gives its customers what they want when they want it. It is established by the customer preferred response requirements, as the Customer Demand Profile sets the cadence for process delivery requirements. An essential first step to managing process performance is to design output and supplier input capabilities to meet the customer demand profile.
Cycle Time measures the time required by a process to receive inputs provided by suppliers and convert the inputs into outputs desired by the customer. When cycle time exceeds a customer’s specified response time, the process must compensate by holding inventory, extending the customer’s delivery time beyond specification, and/or missing the delivery date.
Compliance Control measures the extent to which a process adheres to third-party standards such as International, Industry, Federal, and Local standards. For some vital industries, it’s important to ensure the regulatory controls are integrated into the processes and these controls are validated on a periodic basis by a second or third party.
Process Value measures cost-benefit economics to market, sell, produce, and deliver products and services. Every process has a Cost of Goods Sold (COGS), whether it produces a product or service and whether that output is sold outside of the firm or not; COGS includes all the process costs associated with the SIPOC.
Most enterprises do not have well-designed measurement systems. They can site department or enterprise goals but lack effective measurement of their progress toward those goals. Every measure should have a specific purpose for furthering organization performance. Measures should align with business processes, business systems, and enterprise purposes. Because you get more of the behavior that you measure and reward, it is essential to measure process performance that drives toward aligned enterprise purpose.