Developing an improvement-driven plant

Leading indicators not only help predict the lagging results, they also serve as a starting point for continuous improvement because they measure the processes that can be directly managed.

By Jon J. Thorne, Daniel Penn Associates June 5, 2015

The concept of continuous improvement for today’s successful businesses continually modify and improve the way they operate to address internal and external factors that present both threats and opportunities. 

Any business that fails to continuously improve, regardless of their current market position, will eventually be surpassed by those who do. 

Measurement and formal problem solving are key elements to continuous improvement. Improvement on any level requires an objective evaluation of where an organization is and a clear picture of where it would like to be. After clear goals have been identified, the improving organization must create accountability for attaining them. 

Objectively evaluating processes and creating accountability around process improvement are two areas where many companies fall short. In the past there has been little need to develop these skills; in the near future they will be the most common skills among industry leaders.

Key business indicators such as operating and maintenance (O&M) cost, budget variance and cost per unit are common bottom line measures. Key performance indicators such as equipment availability and production losses due to downtime are also well known and widely used. Though each of these measures is useful and meaningful, they do little to drive continuous improvement because they are lagging indicators. Lagging indicators measure the results of a process, not the steps of a process. 

Therefore, lagging indicators measure results so far removed from individual and group actions that they fail to provide information on the true problem or solution. Lagging indicators do not help answer "why" when an undesirable trend appears. To gain some insight into the "why" and to begin formal problem solving and improvement there must be leading indicators.

Leading indicators are those that measure specific activities and processes that are known to affect the lagging indicators. For example, a well-executed proactive/ preventive/predictive maintenance program will lead to reduced emergencies and reductions in unscheduled outages. Leading indicators not only help predict the lagging results, they also serve as a starting point for continuous improvement because they measure the processes that can be directly managed. To develop world class operations, managers can:

  • Formally monitor all of their critical equipment with well executed operator rounds
  • Create and follow a preventive maintenance (PM) program focused on critical equipment
  • Retrain operators on standard operating procedures (SOPs)
  • Practice effective early work identification
  • Effectively plan and schedule all corrective maintenance work to minimize equipment down-time
  • Optimize stores levels to support effective planning and scheduling
  • Train all operators on the critical equipment and its optimal performance
  • Formally solve all recurring equipment problems.

Directly manageable processes like the ones listed above must be measured to give supervisors and managers direction on how to continuously improve.

Measures are only as useful as they are accurate. For years many companies have grown accustomed to using all business and plant performance indicators not only for bottom line measures, but also as individual performance measures. Some companies have even instituted "variable pay" programs that base year-end bonuses partly on business and plant performance indicators. This practice is not necessarily undesirable, but it can serve to foster a strong psychological link between "good" and "bad" measures with rewards and detriments. 

When applied to leading indicators, variable pay programs can undermine the integrity of measures, and any hope for structured continuous improvement. Why? Because no sane person will volunteer information that would result in a cut of their pay or other disincentive:people will adjust the numbers to imply the result they believe is desired.

The only way to hope for accurate data is to remove all connection between leading process indicators and rewards and punishment. Furthermore, indicators must no longer be described as "good" or "bad" but rather as objective, neutral information. It’s not good or bad news; it’s just news. Leading indicators draw no conclusions on their own since they can be affected by a number of variables.  Only systematic investigation of trends can lead to useful and meaningful problem and opportunity identification.

Acceptance of the above concepts, and subsequent modification of managerial behavior, results in another problem: On what basis do I measure individual and group performance of my employees? How do I fairly reward my good performers if it is not based on one of these objective measures? To answer this question we should first agree on why such recognition or rewards are necessary. The root purpose of all rewards and punishments is to hold employees accountable to their assigned responsibilities and motivate everyone toward common goals.

In manufacturing the most fundamental goal is equipment and unit reliability. We all want lowest cost equipment reliability because it affects our bottom line. Since all equipment is engineered, built, operated, and maintained by humans, it can be said that human reliability is the root cause of equipment reliability. We need human reliability because it creates equipment reliability. 

The keys to human reliability are well-defined processes—which must include clear roles and responsibilities—and accountability. While some have successfully defined their work processes, they are often lacking effective, objective accountability mechanisms. Since it is impossible for a single person to effectively hold all elements of an organization accountable, it is necessary to establish a system of accountability. The key elements of a system of accountability include:

  • Documented mission, vision, and values.
  • Documented strategy and direction.
  • Documented financial and operating goals.
  • Documented key roles, responsibilities and relationships required to achieve the goals and/or execute the organization’s key processes.
  • Documented performance criteria (standards) for the key responsibilities.
  • Documented measurement indicators and methods for the performance criteria.
  • Documented and utilized performance improvement processes.

Developing, documenting and communicating the company’s mission, vision, and values defines, at the base level, the operation’s core role within the company, what we want the operation to look like in the future, and the basic norms of individual and corporate behavior we want to follow while achieving the mission. 

The strategy and direction provides the organization with a “roadmap” for fulfilling its mission and vision. It is the next level of detail in articulating those things for which the organization and its members will be accountable. Typically, a statement of strategy and direction deals with the external and internal forces that may impact the organization over the next three to five years and a general plan for managing these issues. 

The plan will include plant and business unit level goals that will be used in the next step to develop more detailed operating goals. Operating goals setting defines specifically the key outcomes that the organization is accountable for achieving. Based on the plant level goals set by management, each level of management/supervision will “translate” his or her goals from the level above. 

For example, if the maintenance manager has a goal of implementing a well-managed PM program, his supervisors may set goals around maintaining accurate PM data and completing all PM jobs on time.

Identifying key roles and responsibilities is the activity of defining who will perform the tasks needed to carry out the organization’s key work processes (i.e. work management process, capital projects, safety, etc.). This step will also define who is responsible for tasks specific to achieving business unit and department level goals. These key roles and responsibilities are typically captured in the form of a master roles and responsibilities matrix

Documentation of this master matrix creates the central focus point for the system of accountability because it is the most basic element that supports clear expectation setting. If a organization finds the roles and responsibilities matrix difficult to compile, it is likely that the organization’s key processes are either poorly defined or poorly documented.

In order to begin measurement, documented performance criteria should be developed for each of the key responsibilities. This is the activity of setting standards and expectations for each of the key responsibilities defined. For consistency, columns can be added to the roles and responsibilities matrix to capture standards and criteria. For example:

At this point there should be clarity on what specifically should be measured for use in evaluating individual performance in a way that positively supports accountability and alignment with business goals. This removes the need or desire to hide process and performance problems. 

It does not stop here, though. To close the loop on performance management there must be a process to correct (improve) individual and organizational performance when the measures indicate a variance from standards. This process should include:

  • Performance reviews (individual and organizational)
  • Performance improvement planning — laying out actions needed to enable performance to meet or exceed documented standards
  • Performance improvement tracking
  • Focused training
  • Coaching — time allotted over a number of days or weeks to follow up on items covered in training or performance review sessions
  • Performance improvement is an iterative process that follows this basic flow.

Instituting a culture of continuous improvement through the proper use of measures and the utilization of a documented system of accountability can be a daunting task. The winners will be those companies that have successfully transformed themselves from everyday producers of products to the most reliable, continuously improving competitor in the market.

At every level of the organization, following these steps collaboratively (i.e. employee and supervisor together) will serve to objectively manage employee performance. Taking action to improve becomes a personal commitment for each person involved. 

The ability to make and keep personal commitments is human reliability; an organization whose system of accountability supports making and keeping commitments not only leads to human reliability (and therefore equipment reliability), it also sets into motion a continuous cycle of improvement throughout the organization.

– Jon J. Thorne is senior consultant & associate of Daniel Penn Associates. He has conducted maintenance and operations process consulting for a wide variety of industries in North and South America, Europe, Asia, Africa and the Middle East. Daniel Penn Associates is a CFE Media content partner. Edited by Joy Chang, digital project manager,