How to Build a Diagnostic System of KPIs Using a Process View

March 4, 2014 by Stacey Barr

Back in the 1990s process thinking was all the rage. Organisations world-wide were identifying their core business processes, mapping and flowcharting and doing Six Sigma and Lean and BPR to ramp up business performance. Was it just a fad?

Or is there something more fundamentally important, particularly to mastering business performance, to process thinking?

Why put your attention on processes?

One very essential reason that we have corporations, businesses and other organisations in the first place, is that something needs to get done again and again for a particular group of stakeholders or customers.
This thing that needs to get done again and again—which might be roads being built in our cities, or illnesses being diagnosed and cured, or apples being available at the supermarket—happens through a process.

In other words, how work actually happens in our organisations and businesses is through a series of steps or activities that flow together as a process.

Here’s the kicker: how well our processes are designed directly determines how well we do the thing our organisation is supposed to do. Process performance directly impacts organisational or business performance.

Contrary to popular belief, it’s actually process performance that has the biggest impact on organisational and business success, not people performance.

So process performance is too important not to measure.

What do you measure about processes?

You’re not going to know what to measure about processes until you first figure out what your processes are, and what results they produce that most drive organisational success.

One of the best ways to figure out your processes is to start with your customers, and name the outputs you produce for them. Then for those outputs, map backwards to find the flows of activities and steps that produce those outputs. Flowchart all the way back to the very trigger that sets that output-producing process into action. Mostly it’s when the customer asks for your service or product.

Just imagine a company, let’s call them Shake The Tree Inc., that grows and packs apples for customers to buy at the supermarket. The output is clearly apples ready to eat! And the flow of activities in the apple producing process might, at a rather high level, involve:

  1. Take advance orders for apples from green grocers.
  2. Nurture and grow the apples throughout the season.
  3. Pick the apples when ripe.
  4. Pack the apples.
  5. Ship the apples to green grocers.

The first type of process measure is the Process Result Measure.

The results that matter to Shake The Tree Inc. from this process might include things like green grocer satisfaction with apple quality, and earnings per tonne of apples.

They’d want to measure these, and we could call these measures Process Result Measures:

  • Average Green Grocer Satisfaction = The monthly average satisfaction that green grocers, who purchased apples from us in the month, have overall with the quality of apples they received.
  • Earnings Productivity = The average amount of revenue earned per tonne of apples picked.

The second type of process measure is the In-Process Measures.

Each of the above broad steps in the process might impact the process results. For example, Earnings Productivity would be impacted by the costs of fertilizing and pest control at step 2. The proportion of apples discarded (maybe because of worms or unsightly skin markings) at steps 3, 4 and 5 would also impact earnings per tonne of apples.

Shake The Tree Inc. would want to measure these too, to diagnose how they could improve earnings next year. We could call these measures In-Process Measures, since they measure the results of activities IN the process:

  • Fertilization Costs = Total cost of purchasing and applying fertilizer to the apple crop.
  • Pest Control Costs = Total cost of purchasing and applying pest-control to the apple crop.
  • Discarded Apples = The percentage of the apple crop that was not sold to end customers.

In-process measures are the drivers of process outcome measures.

The great thing about using processes as the framework to identify your performance measures is that you build a natural diagnostic system of measures.

The measures of process results tell you how the process is going in general. But rarely do they tell you how to improve process performance. That’s where the in-process measures come into their own. They are measures that give you the clues about what to fix to improve performance. Nice.

For PuMP users, you’d align Process Result measures to the results in the blue layer of the Results Map. And then your In-Process Measures would align to the results in the orange layer of the Results Map.

TAKE ACTION:

Have a go at identifying and flowcharting just one of the business processes in your organisation or company. Notice how easy it is to identify results that could be important to measure.

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  1. Ray Grant says:

    Hi Stacey.
    Like this article – why, because it is about process performance. We are in the aerospace / defence industry and are registered as an AS9100 certified company. As a result, the demonstration of process effectiveness is key to maintaining our certification. It is true that we are not growing apples but never the less we do need to understand how our processes interact across the business, how we develop our performance measures and what we do with the results. PuMp fits us to a tee. Slowly, slowly people are starting to understand the need for ‘a process’, would you believe, to develop our performance measures.
    In the past we probably started and finished at PuMP stage 6. With PuMP we are starting to widen our horizons in terms of having useful measures and knowing what to do with them. A long way to go on the journey but we at least now have a good foundation to build upon.
    A note on AS 9100. It promotes the adoption of a ‘process approach when developing, implementing and improving the effectiveness of a Quality Management System….’. The standard requires that six of its requirements are clearly defined within a documented procedure and guess what…. it doesn’t mention having a defined process for performance measurement. Key, I would have thought. Maybe there is an opening for you there to have a big influence on the aerospace industry?
    I would be interested to know if there are other PuMP users in the Defence / Aerospace Industry who hold a similar view.
    Best Regards
    Ray

    • Stacey Barr says:

      G’day Ray,

      I had a conversation with a client of mine in the Netherlands, Patrick, the day before I wrote this article. We were talking about aligning PuMP with processes and I explained that has always been my vision but not too many people seem to have a process model for their business or organisation. So it’s great to hear you’re interested too, Ray!

      I am working on a new training program specifically about using PuMP to cascade strategy into business processes, and get them aligned. If you have ideas, even if in aerospace, please let me know.

      Ray – you can email Claire at info@staceybarr.com and she’ll look up our customer database to see if there are others in your industry using PuMP, that you can connect with.

      Glad to hear of the progress you’re making with PuMP, too! Keep at it.

      Smiles, Stacey.

  2. Chris Hendricx says:

    Hi Stacey… YES !! It is the story I have been telling a while now to certain clients : performance through processes. Processes are the bricks of an organisation. Without them, it feels unstable and the organisation might collapse. If I talk about performance management I always show a triangle figure and in each corner you have 1. BPM 2. BI 3. CPM, in the middle KM. Business Process Management to understand what you need to do and how well you have to do it. Business Intelligence to support your BPM (know your processes) and your Corporate Performance Management for measuring (operational dashboards, strategical scorecards, …). Once you understand how your organisation performs you might want to save that knowledge (Knowledge Management) and become a learning organisation.
    Sincere greetings, Chris from Belgium (Pump Workshop London 2010).

    • Stacey Barr says:

      Chris, hi and nice to hear from you again!

      Your model sounds intriguing… I agree they are all very central components to performance management. I’m curious about how you might see the link to strategy development? Is it separate? Where does it link, in your opinion?

  3. Dafna Levy says:

    Hi Stacey,

    I’m glad that you published this process-oriented article. In addition to the practical actions you gave, I would like to recommend a great technology to complemet them nicely, called process mining.
    Some useful materials and examples can be downloaded for free from my website.

    Thanks,

    Dafna

  4. Tommaso Palmitesta says:

    I would advise Ray Grant not to blame the Standard (AS9100). If he looks up clause 4.1 General requirements, the Standard requires (4.1 e) “monitor, measure where applicable, and analyze those processes” … Also 8.2.3 Monitoring and measurement of processes “The organization shall apply suitable methods for monitoring, and where applicable, measurement of the QMS processes …”. Of course it lets you decide if you wish to use KPIs or whatever! The problem lies with management only interested in passing the certification audit with the minimum effort (90% of cases).

  5. Wherever process improvement is mentioned I read it, because that is my business. And read it again to see if there are comments from whom I can learn something new. Today I want to say to Ray that he got his wish! All ISO management systems are going to have a common basic structure starting next year, including AS9100. And the new structure requires ALL management system to perform …. “Performance Evaluation” (Clause 9). Clause 9.1.3 e) also requires to “assess the performance of processes”. But he probably knows this already.

  6. Mohammad Tohamy says:

    I see that KPIs are to measure Key Success Factors of the approved strategy.

    It is great to visualize them as measuring processes. This will have s many positive effect on the process as a whole, but how can we simplify a strategy’s key success factor and represent it by a process?

    Thank you.

    • Stacey Barr says:

      Mohammad, I don’t believe it’s a matter of representing a strategy’s key success factor as a process. It’s more about identifying which business processes will impact on the key success factor. If you have a key success factor like ‘our staff are the best in the industry’ then the business processes that impact this would be: recruitment, training and development, and performance management.

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