The core of Six Sigma is reducing and/or eliminating waste or defects through process improvement. Beyond the initial process improvement efforts, it is about ensuring that standards are set in place that ensures that processes are perpetually improved. This is what is usually referred to as continuous improvement – without this, all Six Sigma projects will be rendered mute over time.

And why go through all this trouble of improving processes? To make sure that value flows through each process unhindered, all the way to the customer.

In order to improve a process, its performance has to be measured. You have probably heard the saying that what cannot be measured cannot be managed. It is in the measurement of performance that KPIs are important to Six Sigma.

What is a KPI?

Before we talk about how KPIs are important to Six Sigma, let’s define what they are. A KPI or key performance indicator is any numerical value that can tell an organization how well it is performing when it comes to achieving its goals. Organizations usually have goals that they wish to achieve, and KPIs tell them what progress they have made so far versus how much more progress they need to make to achieve their goals.

It is believed that KPIs are an invaluable tool for an organization’s decision-makers. By looking at the KPIs, they can tell if the performance they see is expected or below expectations. If the performance is below expectations, then leadership will make the appropriate decision to get the organization back on track. 

And the decisions are likely to lead to successful outcomes since they will be highly informed decisions. 

How to come up with good KPIs?

Now that you know what a KPI is, let us look at how one can come up with good KPIs. While this is not an exhaustive list, you are likely to come up with a good one if the KPI has the following characteristics:

• A good KPI has to be measurable, otherwise, there is no way it can be called a KPI.
• It also has to be related to the organization’s strategic objectives at that time, otherwise, you will end up measuring an irrelevant KPI.
• The KPI needs to be in line with the customers’ requirements and demands
• It has to be simple and well defined.
• It needs to be assigned to an owner; someone who is responsible for reporting and measuring it.
• The KPI needs to be assigned to an individual, team or department that is capable of making sure positive outcomes are achieved from measuring the KPI.

How are they important to Six Sigma?

The question of how KPIs are important to Six Sigma is all about picking the right project to work on. When the performance of an organization is measured, KPIs reveal whether certain targets are being met or not. By looking at which targets are not being met, an organization can identify the processes that need to be improved and start working on the appropriate Six Sigma project to meet those targets.

Without knowing which targets to aim for through the KPIs, it can be all too easy to work on irrelevant projects. Once this happens, the organization will not achieve its goals, and a lot of time, effort and money would have been wasted for nothing.

Besides that, measuring KPIs in Six Sigma projects tells the organization if the improvements efforts are leading them towards their goals. If not, then the Green Belt or Black Belt can take the appropriate action to ensure everything is on track. And by continually measuring the performance of projects, KPIs can also ensure that continuous improvements efforts are being followed through in the organization

Conclusion

As you can see, KPIs are also an essential part of Six Sigma. They ensure the Six Sigma projects being worked on are the right ones and are helping the organization achieve its goals. Overall, it is hard to see how Six Sigma can even be effective without KPIs.

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The concept of Hoshin Kanri provides clarity and focus to an organization, by aligning strategic goals through all levels of an organization. It creates an organic flow of information which runs through an organization, where goals run down from management, through the mid-level operation to the production floor. In return, the flow reverses and the production floors provides resulting actionable data flowing up through mid-level operations to management, thus providing alignment.

Taking the first step of implementing Hoshin Kanri begins with developing long-range strategic goals for the organization. A good rule of thumb is to limit the strategic goals applied to five or less to be truly effective. It also allows the focus of energy and resources on what efforts are most important to the organization. Remember, if everything is important, then nothing is important. They should also be either evolutionary or revolutionary. Evolutionary is incremental achievements through continuous improvement. Revolutionary is all about taking big strides, making breakthrough changes with dramatic scope. Both types of goals are crucial to the life of an organization.

The next step would be to develop the tactics for implementing the goals identified. This step is the purview of middle management operations. They are the experts at implementing and allocating resources. There should be a respectable period of thoughtful back and forth between management and mid-level management to ensure goals are clearly understood and that there is a strong alignment between tactics and goals. Over time, tactics can be adjusted and should be, as things changes. Results must be measured and calibrated.

In the final stage, production operations at the supervisory and team levels work out the details on strategy and clearly understand the strategic goals. This is where the action takes place and success will be measured. Management and leaders must stay connected with actions being implemented, mainly through Gemba walks and monitoring of production data flowing up from the production floor.

The flow created with Hoshin Kanri closes loops and ensures focus, clarity and highly efficient operations. It allows organizations to be agile and flex to changing situations in an efficient manner.

Learn more about Hoshin Kanri and download a template

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Key Performance Indicators (KPIs) can shape strategy and fact-based decision making inside businesses, only if those inside the organization act on them.  It doesn’t matter how brilliantly you’ve aligned your KPIs to your strategy, or even how brilliantly you have captured and presented the relevant KPIs, if they aren’t used as they were intended. If you aren’t using your KPIs to inform your decisions and drive performance, then you are wasting your time and effort.

Check out this informative video!

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Key performance indicators (KPIs) are among the most common tools used in business to help manage more effectively and guide the progress of the organization. They provide clarity to murky issues and put the spotlight on potential opportunities. Key performance indicators can help an organization predicate an impending storm and avoid potential downfalls.

Leaders often misunderstand or overuse the term. They tend to relate key performance indicators to any type of business data measurement. To be effective, key performance indicators need to be metrics that matter to the business of the organization. KPIs need to be linked to the overall strategy of the organization, which means to first identify what matters the most and what provides the proper measurement. Leaders and key stakeholders can monitor these indicators over time and adjust plans and programs as needed to improve the KPIs in support of the organization’s strategic goals. The ideal process for identifying and implementing key performance indicators involves the leaders and contributors regularly revisiting and revising the measures. This is a fine-tuning process, which takes time and diligence by all parties.

Key performance indicators can shape strategy and fact-based decision making inside organizations. It doesn’t matter how brilliantly you’ve aligned your KPIs to your strategy, or even how brilliantly you have captured and presented the relevant KPIs. If leaders aren’t using your KPIs to inform their decisions and drive performance, then they are wasting time and effort. A well-designed set of KPIs should provide a clear indication of current levels of performance and help leaders make better decisions that brings the organization closer to achieving its strategic objectives. By avoiding the pitfalls, leaders can ensure KPIs are designed, implemented and used exactly as they were intended – to help the organization succeed and avoid the inevitable storm.

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What Are the Different Kinds of KPIs?

KPIs are not merely numbers; they’re critical insights into business functioning and help businesses make better decisions. The best metrics will offer actionable insights which help identify improvement areas. 

We can broadly classify KPIs into several types. Financial performance indices will track sales, return on equity capital, return on investment, and profit by shares. 

Economic indices measure the effectiveness of markets and the scope for new product introductions in specific segments.

It’s also possible to track operational efficiency, productivity, and product quality and value. 

Identify Your Targets and Chase Them the Right Way

When you’re focused on business process optimization, it is crucial to first identify your targets. Without an understanding of what it is you’re trying to really optimize, the optimization exercise has little chance of success. 

Remember that it’s very important to select the right metrics and KPIs based on your target business requirements. Not every KPI will be of use to every business as each business is unique and so are the challenges it faces. 

Your financial and sales teams will ideally be tracking different KPIs as what’s important for the financial team will not be as concerning to the sales team.

You should first study the current state of your business before you set out to select the KPis that will matter the most. Make sure the baseline information on which you base your selection process is not lacking in any way and is as complete as possible. This will help you to reduce risks later.

Avoid Tracking Too Many KPIs When You Begin

You should try to limit the number of KPIs when you start as it can quickly get overwhelming if you’re trying to track multiple KPIs all at the same time. Chances are, you’ll not give each individual KPI the attention it deserves which will impact the overall success of the organization. 

Build a small pool of the most significant KPIs at the moment and work with them. Once you’re comfortable tracking and monitoring them, gradually expand the pool by adding in more relevant KPIs.

Wrap Up

KPIs are indicators of specific parameters and business outcomes that are used to measure performance levels. Metrics significantly differ and you should select the ones that matter the most for your line of business and the target you have in mind when it comes to optimizing processes. 

Indicators such as employee satisfaction, productivity, financial indices, and economic metrics all have specific, well-defined purposes and would appeal to specialized business departments. The ultimate goal is to reduce defects, improve quality, and bolster productivity to meet customer expectations.

In the end, it’s an iterative process and you’ll find yourself choosing and rechoosing new KPIs as you venture ahead. Remember to start one step at a time rather than aiming to fix all metrics in one single iteration.

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Since Lean Six Sigma combines the best of both Six Sigma and Lean methodologies, it focuses on improving processes. Tracking the process quality through KPIs and metrics is central to achieving Lean Six Sigma objectives for your business. Let’s see the main KPIs and metrics managers should focus on.

What are Lean Six Sigma KPIs and Metrics?

The central goal is to reduce defects and improve efficiency. Metrics and KPIs (Key Performance Indicators) are quantifiable measures of how a process has been performing and its quality. 

KPIs and metrics are great ways to benchmark your business processes and compare their relative progress with time. Improving customer satisfaction is key and KPIs can help you how far your business has been successful so far in that objective. 

Keep Track of Deadlines with Process Cycle Time

This refers to the time a product takes as it passes through the production cycle. This is on a per-product basis. 

Improve Customer Satisfaction with Lead Time

The lead time is the time it takes between a customer placing an order and the product being delivered to them. It’s the total turnaround time it takes your business to meet customer expectations. 

Improve Quality with Defect Rate

A defect is a lack of efficiency in the process of product manufacture. Every business should target reducing the defect rate as much as possible. The defect rate measures the number of defects per product unit.

Measure Compliance with Safety Metrics

It is imperative to track and quantify workplace safety. While the metrics differ depending on your business nature, log incidents and injuries and study their trends over several years. You can also track lost workdays to understand the implications incidents have on lost time. Safety metrics are the perfect way to understand compliance with regulations, like the OSHA guidelines.

Quantify Productivity 

Measuring labor productivity is a great idea for managers to keep performance goals on track. You can watch out for the number of product units produced per labor hour spent. Alternatively, it can also be measured in terms of monetary costs. 

Track People Presence

Certain metrics account for unplanned events which will directly affect business turnover. Track absenteeism rates to know the number of leaves, both approved and unapproved, and the major reasons, including emergencies and illnesses. You should also monitor terminations and employment rates.

Wrap Up

Consistency is crucial when managers use metrics to track project progress. A metric or Key Performance Indicator (KPI) is a quantifiable measure of how your business has been performing. KPIs help you see how far you are in your Lean Six Sigma roadmap. 

Metrics will immediately identify all areas where there’s a major scope for improvement. Business success is directly impacted by the metrics you select and monitor so identify and choose the best ones based on your methodologies. This improves product quality and bolsters customer satisfaction levels manifold.

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KPIs or Key performance indicators may be defined as an analytical approach to evaluate your company’s performance for achieving business goals. By using KPIs, organizations may appraise business success in achieving targets and also keep their focus on the performance output of business along with an eye on the working of various departments like HR, sales, and marketing.

In other words, the Key Performance Indicator is an approach to calculate the success of a business house and its progression in fulfilling its goals.

Most corporates and the higher management of an organization use key performance indicators to find out and study the features required for a successful business. Constructive key performance indicators always concentrate on the functions and processes related to the business of the organization that are beneficial in achieving goals and targets too. 

KPIs for all business setups are different according to the structure and nature of the organizations and their business preferences. In other words, we can say that the key performance indicators for a new start-up business would be entirely different from a public limited company and a private limited company. Hence KPIs differ from organization to organization based on business priorities. 

Interestingly the senior managers holding different positions in the different departments of an organization have different ideologies for KPIs. As far as different key performance indicators are concerned one manager might prioritize profitability, another one sales, a third one marketing and customer satisfaction, and so on. In a successful organization, a blend of different KPIs is used for better performance and goal achievement.

Why Key Performance Indicators?

1. It is an analytical approach that guides senior managers and management as to what changes in the business process can improve performance for achieving desired goals.
2. Corporates can judge the actual status of their business by using KPIs.
3. If properly used, the Key Performance indicators can warn the user about possible future business problems and guide them to protect their business investments.
4. KPIs application motivates and involves employees to improve the performance of the business process which certainly results in the success of the business. 

How to select the appropriate KPI?

The selection of correct and appropriate KPI is very important. This will involve and motivate all the employees for better performance to fulfill their organization’s goal. On the other hand, the selection of incorrect and inappropriate KPIs will result in poor performance and a fall in business achievements. While choosing the right KPI, the following points should be kept in mind:

1. Always measure the correct articles to fetch the business goals and objectives and to also improve the efficiency of your team members. 
2. Evaluate and analyze business processes, organization’s ideology, and overall business goals. 
3. The mindset of every individual, corporate and senior manager is different according to the nature of the business and its goals.

KPIs: What should be measured?

Nowadays in the global business market, the accurate calculation or measurement of business performance is very simple and fast. An intelligent Data analyst always concentrates on an organization’s key performance indicators and their tracking the right way. The most important point is to decide which things should be measured. Some simple guidelines for your reference: 

• By extracting the requirements of each department, detach all the problem points one by one.
• Recognize and concentrate on your main organizational goals. 
• Just keep in mind which factors can improve the process and employee efficiency for achieving business goals.
• As a data analyst, go deep into analyzing metrics.
• After selecting decisive KPIs, try to split them. Consider the best 8 to 10 KPIs to achieve a company’s goal into an accurate metric.  
• The sole purpose of key performance indicators is to obtain targets and set goals for quantifiable amelioration.
• Spare some quality time and choose the most appropriate KPI rather than opting for mix and match.
• With the help of selected 8 to 10 KPIs, analyze the data and start data design.
• Examine data sources, guess the intricacy of data design, and develop the correct BI tools.
• Split the selected KPI into its data element.
• After connecting KPI data to your work process, constitute metrics effectively.
• To keep everyone on board, design a bilateral and exceptionally perceptible dashboard.

Winding up: Notes

As a data analyst one should utilize the data in an effective manner for the best results. Ask questions for better evaluation and for efficient and transformative data analysis. Someone once said, “if you can’t measure, you can’t manage”.

Key Performance Indicators are one of the best techniques that evaluate business performance and help in achieving business goals globally irrespective of the business nature, location, and departments. It is evident that without calculating and evaluating the business process and activities, you can’t get success in business, and KPIs help in achieving business goals by evaluating and analyzing customer data.

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