Adjusting and revising targets for manufacturing excellence
Companies must be creating challenging, but realistic, targets for key performance indicators (KPIs) to help drive behaviors and actions for companies.
Companies must be asking what the point of is not sharing the best in class targets. It comes down to the purpose of key performance indicators (KPIs), which is to drive behaviors and actions. If you have a target set too high, you lose motivation, and same goes if it is too low (as they have already achieved it). You need a challenging, but realistic, target in achieving based on the current state of the program.
This is not to say, that there should not be a short or medium-term target, these are needed to measure progress, but those targets need to be matched to the current state. As the organization and its processes mature, the KPIs should be reviewed and the targets should be revised.
Determining the interim target
So how do you determine what the target should be? Well, there are a few different ways to do so. The first is to benchmark your current state and determine what is realistic to achieve in the next 6 to 12 months. This is a great approach, as the business case and benefits can be calculated and focus applied to the right KPIs.
The second way is to have an assessment done (internally or externally) and determine where you fall in maturity against others. This will allow you to make an informed decision on where your target should be based on similar maturities. The potential downside to this approach is that once again, the targets may be too high or too low.
After a period of time has passed, such as 6 or 12 months, the performance against the KPIs should be reviewed. This will allow the organization to decide if the targets need to be revised (higher or lower). This is critical as it will ensure the targets stay relevant. It is also okay to change the KPIs if they are no longer relevant to the organization.
KPIs need to drive actions
KPIs are designed to drive changes in behavior, hence performance, that will make positive changes to the organization. Creating unrealistic targets can not only demotivate, but it can also cause “creative” ways to calculate the performance, resulting in “meeting” the target. This results in a lack of improvements.
The importance of selecting the right targets cannot be overlooked, as it can influence the entire program and it is okay to revise the targets as needed. The right KPIs (including balancing KPIs) need to be selected and the targets based on the current performance of the organization.
The neverending journey
So as a company matures and the performance improves, the targets should be moving as well. The increments that they move will be greatly reduced as the maturity improves, as the improvements become harder to achieve. It is this change in expectations and the continued challenge which will drive continuous improvements in the organization.
James Kovacevic, principal instructor at Eruditio, a CFE Media content partner. This article originally appeared on Eruditio’s blog.