This article appeared in May 2016 on the APICS website
As an APICS Instructor (Association for Operations Management, formerly American Production and Inventory Control Society), I often say:
You cannot manage what you do not measure
What gets measured gets done
What gets rewarded gets done – first
While I am known for stating the above, I did not write it. One of the wise instructors at BCIT where I studied Operations Management said it. It didn’t stick right away, but the quote was one of the gems that came to mind a few years after graduating. It is a surprisingly powerful concept.
Let’s break it down line by line:
“You cannot manage what you do not measure”
Think of this line in opposing terms. What you don’t measure manages you! For example, if you don’t measure inventory levels, they will be what they will be. You are at the mercy of the Inventory.
Too high or too low – which is worse? The answer is “Yes”. By this I mean neither is acceptable. Too high is bad, as inventory left to its own devices degenerates. There are cash flow implications of having too much inventory. If Inventory is too low, it means stock outs, low customer service, and potential loss of revenue, both short and long term. This is a high level view. The more you “measure” it, the worse it looks.
Besides the above, there is no accountability when things are not measured. No one is or can be responsible. Think of trying to drive your car without a speedometer. You may have an idea of how fast you are driving, but without an accurate speedometer (Measurement) you are guessing. Over or under does not matter. Think of the cost of failure – a speeding ticket at the low end, injury or death to you, your passengers or pedestrians at the high end.
What is the cost of failure if your organization is not measuring correctly?
“What gets measured gets done”
This line indicates what is measured causes people to modify their behaviour. Let’s put you back in the car again. You are coasting down a hill, when in the distance you notice a police officer with a radar gun. What do you do? The most common response I get from my students is “Hit the brakes!” Rarely does someone say, “Check the speedometer.”
Two things happened here: you recognized you were being measured and you modified your behavior.
People in general tighten up their processes and comply with protocol when they are aware they are being measured.
How many cameras do you know of in warehouses where the staff does not know the camera is not connected to a recording device or even a monitor? The very presence of a camera achieves the desired results: modified behaviour.
“What gets rewarded gets done – first”
If people are being measured on more than one thing at a time, they will be required to prioritize one over the other(s). How do they choose which to elevate above the rest? Consciously or subconsciously, they will look for the reward.
Rewards come in many forms. Money, recognition, satisfaction, a parking space, corner office, tickets to sporting events, even pizza.
Here comes the warning though: if the people on our team are “rewarded” for activities which are not aligned with the organization’s strategic goals, we will never achieve the organization’s strategic goals.
An extreme example is a sales person who is “rewarded” based on orders. The more orders they get, the more money they will earn. If there is not a definition of what constitutes an acceptable order, this reward program can work against the organization. What if the sales person gets orders for products you don’t sell, or the orders are dominated by low margin products?
Or, what if the reward was based on achieving sales of orders aligned with the products providing the organization with a strategic advantage? Even better, what if the reward was based on how close sales are to the plan agreed to during the S & OP meetings? You can easily see the impact different rewards will have.
Having trouble getting forecast numbers from the Sales Department? Have their reward be based on a combination of sales growth and alignment with the forecast. They will modify from being order takers to real sales persons – controlling their destiny and serving their (your) customers better, gaining marketshare in the process.
Whether you are deciding what to measure, or what to reward, be careful what you select so the modifications in behaviour are in the best interests of the organization. Then you will experience first hand the power of this little gem.
Brett Mewett, CFPIM, is a Senior Manufacturing Consultant and Project Manager with Essential Software Solutions Inc. in Vancouver, BC, Canada. He has been teaching APICS CPIM courses at the British Columbia Institute of Technology (BCIT) since 2003. He may be contacted at firstname.lastname@example.org or found here on LinkedIn.