The term value flow analysis is derived from the concept of value stream mapping, which is deeply rooted in activities relating to producing and delivering a product or a service to the customer. James Womack, Daniel Jones, and Daniel Roos first formulated the value stream concept in their book entitled ‘The Machine that Changed the World”. Published in 1990, the book was considered to have launched the Lean movement, which popularized methods of systematic reduction of waste in working processes.
James Womack and Daniel Jones further took on the concept in their book entitled “Lean Thinking,” published in 1996. It defines a value stream as “the set of all specific actions required to bring a product or service through critical management tasks.” (Womak & Jones, 1996, p. 19) According to Drew Locher, the author of “Value Stream Mapping for Lean Development,” “Value stream mapping is an effective and proven tool to assess existing business processes and to re-design them based on <Lean> concepts.” (Locher, 2008, p. 1)
As related to process performance and a potential model for linking processes to organizational strategy, value flow analysis enables the categorization of KPIs through their contribution to the main stages in the value generation chain: input, process, output, and outcome. Furthermore, this distinction allows for a deeper understanding of each KPI’s contribution to the organizational objectives set, based on clear assignation to the following listing:
Input metricsare associated with the quantity or quality of the resources engaged in a particular task or operational activity. Such metrics or KPIs will be generally linked to budgets, human capital, and other tangible assets the organization brings to the production/development process. Input metrics will generally be related to achieving financial objectives, such as maintaining the company’s financial discipline, internal processes objectives like the efficient use of company resources, or people-related objectives, such as the availability of human resources for the organization.
Process metricsareaffiliated with the transformation process that is involved with taking the company’s inputs and converting them into desired outputs for the organization. Process metrics commonly reflect on the activities or actions that are taken to convert inputs into organizational outputs. Process metrics will reflect on the achievement of internal processes objectives as a rule. Quality and time-based considerations will be best reflected with selecting and establishing process metrics or KPIs for the organization.
Output metricsareindicative of the results obtainedwith the designated inputs of the organization. Output metrics or KPIs will commonly reflect on a backward or reversed control representation of the efficiency with which the company’s resources or inputs are used to produce final products or develop end-user services.
Outcome metrics reflect the ultimate effect on the value of the organization’s production and service development processes. Outcome metrics or KPIs will frequently support top-level objectives while reinforcing the company’s overarching purpose as reflected in its strategic themes. Although not generally used with the more common Value Stream Mapping technique, outcome metrics are desirable because they allow for a more valid association with organizational objectives by organizational layers.
Documenting processes by use of the value flow analysis serves multiple purposes. The quality of process outputs and outcomes is directly related to the quantifiable amount of inputs, efficiency, and speed with which they are used in the process of their transformation. As quantifiable measures of a company’s operational performance, KPIs are therefore an effective instrument for decomposing processes by their main value creation stages:
Quantitative KPIswill stand for the measurable characteristics of the inputs that go into the value creation chain. Quantitative KPIs easily relate to an objective appreciation of the amount of inputs or resources the company uses to obtain its desired outputs and positively influence envisioned outcomes.
Time-related KPIswill be easily identifiable with the activities or actions that are undertaken as part of a process. Time-related KPIs will always be process-based, given that they are the only ones capable of accurately reflecting on the speed of the transformation process.
Qualitative KPIswill relate mainly to the outputs and outcomes in the company’s value creation chain while reflecting on the quality of results produced as part of the transformation process. Qualitative measures are still quantitative; however, they possess the additional capacity of reflecting on the quality of operations conducted.
These particular characteristics make KPIs easily responsive to the four stages in the value creation process and are also similar to the characteristics of organizational objectives, which are either quantitative (i.e., Reduce operating costs) or qualitative (i.e., Improve service quality). This, in turn, makes it easy for an organization to assign KPIs to desired business objectives in a concentrated effort of monitoring the high-level strategies or the company’s follow-through on its strategic themes.
Some say when you fail to plan, then you plan to fail. This is the reason why you should establish a solid strategic planning process for your company. But strategic planning won’t succeed without the right data. Data gathering may sound simple, but you should not underestimate it. Why does it matter and how should you gather your company’s performance data?
Performance monitoring is a systematic process taken by the management in order to track the company’s performance and drive results and continuous growth. Performance monitoring could also send signals to top management which part of their business operations are failing or working below expectancy. This process plays an important part in the strategic planning initiative.
In order to successfully monitor company performance, the management should be able to gather corporate performance data swimmingly.
Data Gathering
Data gathering in general should start with KPI activation. This KPI activation consists of four different steps: meeting with the data custodians, securing the activation budget, designing the data gathering template, and communicating the template to the data custodians. KPI activation is a step that allows management to develop infrastructure for capturing and managing data.
After KPI activation is done, the next step is the ongoing data gathering process. This is where the management or the performance management team sends the KPI data gathering notification to the KPI custodians and receives the data relevant to performance monitoring. For this step, it is imperative for the performance management team to gathers and centralize the relevant data before checking the data quality.
After sending the KPI data gathering notification, the management or the performance management team could also send the KPI custodians a reminder via email to make sure the data custodians prepare the data needed.
Once the relevant data is gathered, the performance team should check the quality of the data before calculating the KPI results and analyzing the data. The quality of the data should be checked based on multiple dimensions.The main dimensions are Accuracy, Completeness, Consistency, Conformity, Timeliness, and Uniqueness. In reality, the performance management team may find the relevant data does not meet those requirements/quality. When the data does not meet a certain quality, it is preferred for the top management or the performance management team to clarify the data to the data custodians.
Data analysis is a set of processes of examining, transforming, and modeling data to generate relevant business insights that can be used in the decision-making process. In analyzing KPI results, the performance team should use analytics.
The final step of data gathering is to generate a performance report. In this phase, data custodians, the report generator, and the strategy performance team are collectively responsible for compiling all performance results, business insights, and analysis in a certain format for the decision-makers.
In conclusion, a solid data gathering enables decision-makers to set the right company’s objectives for the next period. A solid data-gathering process will help the performance management team provide the performance report required by the top management faster, making the top management adjust the company’s strategy and objectives properly. If you want to learn more about how you could establish a solid data gathering process, sign up for The KPI Institute’s Certified KPI Professional and Practitioner course.
When formalizing and implementing a performance management system (PMS) based on key performance indicators (KPIs), there are multiple activities to be considered and many stakeholders to be engaged in the process. Therefore, you’ll need a project plan to make performance management an ongoing process within your organization.
What matters most is not to have an extra process in place, but to do it right by connecting strategy formulation with strategy implementation and KPI across the organizational levels. The way you will design and implement the PMS based on KPIs will play a huge role in the way it will be perceived by the employees. This is exactly why our approach is based on a combination of analysis and research, workshops and feedback activities.
Zooming out, the proposed project plan includes 14 stages:
5 Stages: System Design
5 Stages: System Activation
4 Stages: Project Management
Zooming in, all 14 stages include major sub activities that indicate how granular this puzzle can be. A real image of efforts and resources engaged.
What are the key elements to ensure that a KPI implementation project plan will be a success story?
The differentiator in creating successful conditions is represented by the employees’ trust in the project. Why? Because change brings fear, and fear must be managed in connection to the implementation of KPIs.
Fear of becoming replaceable or unnecessary
Fear of unrealistic (too high) targets
Fear of extra work
As what I wrote in a previous article, if fears exist, then managers should consider looking for a course, training, or coaching session on how to guide their employees in managing their fears. Another step is to have an organizational message with a system that reinforces the organizational culture and the real intentions and effects of such a project, reassuring everyone that they will not be swept away by it.
Could this project be considered for departmental level only?
The KPI implementation project plan can be applied to the departmental level only. It has advantages and disadvantages Since this KPIs system is not a stand alone, the departmental level will ultimately get connected to the strategic (superior) and individual level (lower).
One advantage of this approach is the system will be founded on a strong understanding of operations and specific processes and developed at departmental (mid) level. Another advantage is increased involvement of employees in developing the system. This can generate a high sense of commitment and engagement based on their contribution.
Meanwhile, the disadvantage of this approach is that starting with the lowest level may not ensure a strategic orientation, and it may be predominantly narrow instead, given the limited understanding of the overall organization’s mid- and long-term commitments.
If you would like to learn more about KPI measurement and KPI implementation, sign up for The KPI Institute’s Certified Professional and Practitioner training course.
Productivity is a measure of the efficiency of production, expressed as the ratio of output to inputs used. Performance is defined as the accomplishment of a given task measured against preset standards of achievement, such as accuracy, completeness, cost and speed.
