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February 25, 2008

The Myth of Continuous Improvement

Continuous improvement is thrown around as the best way to stay ahead of the competition in business. It's used as a talking point for consultants, senior management, engineers and a wide range of others who have responsibility over a process. Six sigma is the king of continuous improvement still today. Take a documented process and set up metrics and means to improve it incrementally. By definition the process is known to be below standard.

Focusing on continual incremental improvements reduces the flexibility to implement the big changes that could take a process to the next level. Measuring against improvement gives managers a reason to never achieve optimal. If you know that you have to perform 5% better next year, you're going to make sure that you have enough capacity in the system to achieve that performance. The question becomes if you can't fix what you don't measure, how should you actually measure improvement?

Improvement is a relative term. Continuous improvement methods oversimplify the concept. Within business terminology improvement can mean anything from reduced costs, increased profits, better customer service, higher performance accuracy or quicker turn around time. Measuring performance should therefore take into account all the important metrics associated with that process.

The example I always look at is a department of 10 people that is in charge of customer sales:

Year 1: they set the performance baseline that everything will be measured against.
Year 2: department grows to 13 people. Productivity per person goes down, but profitability goes up.
Year 3: department grows to 15 people. Productivity per person goes back to Year 1 levels, revenue per person goes up and profitability stays flat.
Year 4: staff stays at 15 people. Productivity and all other metrics show improvement.

If you choose one metric to judge this department against there would be a down year at some point: productivity went down year 2, profitability didn't improve year 3. That doesn't mean it wasn't successful as a group, only that the situation was such that they improved in varying and changing areas.

Be open with your concept of improvement and make sure that overall things are directionally heading in the right direction. Just because one metric goes down does not mean that everything did. There may be a reason for the decline that will mean when it improves back to the baseline everything should rise proportionally with it.


Scott said...

I enjoyed your comments about continuous improvement. I have found that the Theory of Constraints "Thinking Processes" are a great tool to take a systemic approach to a process. Have you read "The Goal"?

DMusic said...

I have read The Goal and it applies very well to the idea of continuous improvements. It provides a very systematic and logical way for analyzing systems and processing.

I hope you enjoy the blog and continue reading!