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Wednesday, April 30, 2014

How to track the impact of your company’s improvement activities

Tracking the impact of improvement activity is really important because senior management will need to see that it has had a positive impact on return on investment (ROI). Undertaking improvement activity through Lean Six Sigma (LSS) will always require some deal of initial investment, for instance for the training and supporting of ‘change agents’; in the case of LSS, these agents are known as Belts.

Lean Sigma Six structure pyramid
The Lean Sigma Six system helps streamline project management

When investing in the above, the overall purpose will be to create some value; value for the shareholders, value for the organisation’s customers and also for the organisation’s employees. However, it is not always easy to be able to track and confirm the exact results that improvement activity has and because of this difficulty, it can therefore end up being ignored.  

The problem with failing to track and report a result properly is the circle within the ROI improvement cycle fails to be closed. This can mean senior management within the organisation fail to see what positive impact the changes and ‘improvements’ have had. Why then did they invest so much money in the project; training and supporting the LSS team?

Even if there was a suitable return as a result of the changes, because it hadn’t been tracked properly, it would appear there was none. What a waste! The problem with tracking the impact of improvement activity is further compounded by the fact it is also notoriously difficult to track improvements in customer satisfaction and organisational culture; both areas the improvement activity is meant to impact on.

So, how can you track the impact of your company’s improvement activity properly?

Financial impacts

Since LSS projects tend to focus on improving organisational processes, progress tends to be relatively straightforward since you can focus on the following metrics:
  • Scrap reductions:  Projects should see a reduction in the amount spent on labour and materials.
  • Rework reductions: Projects should see a reduction in the amount spent on labour; there can also be some material savings with these projects.
  • Lead-time reductions: These projects are more difficult to relate directly to cost-savings; however, when taking in to account the positive impact lead-time reductions have on inventory reductions, it becomes easier to do so. Reducing lead-time improves inventory control and therefore lowers the amount spent on storing, counting and managing excess inventory.

Customer impacts

Sometimes it is possible to attribute increases in market and revenue share as a result of increased customer spending, therefore relays a positive customer impact as a result of the improvement activity. However, more often than not it is best to steer clear of trying to accurately track customer impact in this manner since it is nigh impossible to account for the other factors, such as macroeconomic change or competitor activity, which may have influenced spending.

It is much better to focus your tracking activity on factors that can be more easily tracked. For instance projects that aim to tackle the number of customer complaints; these are easily tracked because you can see directly the proportion that these are being reduced and also the timescale. You can make tracking more qualitative by backing up your quantitative data through customer surveys; attributing reductions with your improvement activity timeline.

Cultural impacts

Tracking cultural impact objectively is extremely difficult; some might say impossible. It is therefore usual to do so in a mixture of different ways, such as through employee surveys and maturity assessments, as well as through any of the business KPIs that relate to the behaviour of the organisation’s employees.

Most companies run regular employee surveys in order to track how attitudes of the employees are with regards to changes and improvements that have been made and also regarding customer centricity. You can keep an eye on how these attitudes are changing over time and therefore track these changes, relating them to your improvement activities.

Maturity assessments can vary in their complexity but generally they are conducted through the means of a questionnaire or perhaps an audit. By means of a graduated scale, they help to show where organisations are on their route to excellence.

KPIs relating to employee behaviour can be assessed relatively easily and objectively, since they are quite straightforward. If you hit them, you are improving; however, whether or not they are an accurate assessment of culture is yet to be fully confirmed.

In summary, the idea is to track the impact of your company’s improvement activities as accurately and efficiently as you can. If you do all of the above, good for you. If you find one method more helpful than another, that’s fine too. The most important thing everyone must acknowledge is that this tracking must be done. Without it you are at great risk of not being able to explain why any of your projects make financial sense, which is most certainly not a position you want to find yourself in.

About the author: James writes for Sigma Pro. When not writing, he can often be found keeping track of improvement activities both at work and at home.

Image license: US-PD