{"id":124993,"date":"2022-02-21T14:01:18","date_gmt":"2022-02-21T12:01:18","guid":{"rendered":"https:\/\/lean.org.hu\/?p=124993"},"modified":"2022-02-21T14:06:13","modified_gmt":"2022-02-21T12:06:13","slug":"forget-problem-solving-at-kpi-level","status":"publish","type":"post","link":"https:\/\/lean.org.hu\/en\/forget-problem-solving-at-kpi-level\/","title":{"rendered":"Forget problem solving at KPI level"},"content":{"rendered":"<p><strong><strong>We often see in our cooperation with companies that in response to any gap in a <em>Key Performance Indicator<\/em> (KPI) people immediately start the root cause analysis and ask the miraculous <em>why<\/em> questions. In our experience, since the KPI level is too complex, it is almost impossible to find the causes of the problem without narrowing down the problem itself \u2013 in other words, without slicing the elephant. Now, let\u2019s have a look at a simple example to see why the deployment of the strategic metrics is important and how it is done at the level of specific operations.<\/strong><\/strong><\/p>\n\n\n\n<p><em><strong>Reading time: <\/strong>4 minutes<\/em><\/p>\n\n\n\n<p><strong><em>Author:<\/em><\/strong><em> Szabolcs Moln\u00e1r, president, senior lean coach<\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"example-pizza-delivery\"><strong>Example: Pizza delivery<\/strong><\/h3>\n\n\n\n<p>Let&#8217;s say you are the <strong>owner of a fast-growing pizzeria chain, <\/strong>and you are opening restaurants one after the other. Your biggest <strong>competitive advantage<\/strong> is speed of delivery. Your motto is <strong>\u201c30 minutes from ring to bell\u201d <\/strong>\u2013 this is how you advertise to customers, and it means no more than 30 minutes can pass between the phone call and the delivery, otherwise the pizza is on the house.<\/p>\n\n\n\n<p>One of your <strong>main KPIs<\/strong> is <strong>revenue<\/strong>. Every month, your accountant sends you the list of your pizzerias\u2019 revenue of the previous month, and one month you notice that the revenue of <strong>restaurant #23 has decreased by 17%<\/strong> compared to the previous month. You call the manager to inform him of this fact and <strong>ask him what the possible reasons for the decrease might be.<\/strong> He says he is sorry but does not know the answer. Now the manager has two options:<\/p>\n\n\n\n<p><strong>One of his two options<\/strong> is to <strong>summon his employees,<\/strong> inform them about the dismal results from the previous month and <strong>ask<\/strong> everyone <strong>to do better<\/strong> next month. <em>Better<\/em>, whatever that means. Even though they feel they are working <em>better<\/em>, <strong>revenue continues to fall<\/strong> next month.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"narrow-down-the-problem-kpi-pi-i\"><strong>Narrow down the problem: KPI \u2013 PI \u2013 I<\/strong><\/h3>\n\n\n\n<p><strong>Another option for the manager<\/strong> is to try to <strong>understand<\/strong> the origin of the difference in revenues. He knows that revenue is the result of the performance of a myriad of business processes. The first step is to <strong>look at the main processes<\/strong> of the restaurant and what <strong>indicators<\/strong> are specific to its performance. They are called <strong><em>Process Indicators<\/em><\/strong> (PI). Your restaurants\u2019 <strong>most important<\/strong> process is the <strong>fulfillment of customers\u2019 orders,<\/strong> and it should run like clockwork as it ensures your market advantage. Once examining this, the manager realizes that the <strong>planned 30-minute \u201cring-to-bell\u201d<\/strong> lead time is actually <strong>40 minutes<\/strong>, so currently there is a <strong>10-minute gap<\/strong> between the actual and the planned or expected status.<\/p>\n\n\n\n<p>Since this process is the combination of the performance of additional workflows, your manager continues to narrow down the problem. He <strong>examines each of the building blocks of the process,<\/strong> i.e. the individual work contents of each block. Their required timeframe will be the <strong><em>Indicators<\/em> <\/strong>(I).<\/p>\n\n\n\n<p>The 30-minute process is planned to look like this:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>5 minutes: taking the order, preparing the pizza<\/li><li>10 minutes: baking the pizza<\/li><li>5 minutes: boxing, printing the receipt, mounting the motorbike<\/li><li>10 minutes: delivery<\/li><\/ul>\n\n\n\n<p>In comparison, this is what he measures in reality:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>5 minutes: taking the order, preparing the pizza<\/li><li>20 minutes(!): baking the pizza<\/li><li>5 minutes: boxing, printing the receipt, mounting the motorbike<\/li><li>10 minutes: delivery<\/li><\/ul>\n\n\n\n<p>A deeper analysis <strong>shows<\/strong> that the difference is generated <strong>at the level of the pizza baking operation, <\/strong>which <strong>affects<\/strong> your <strong>lead time,<\/strong> which in turn has a major <strong>impact on your revenue:<\/strong> in an increasing number of cases you deliver pizzas to the customers for free because of the delay. In addition, some of the customers are leaving because other market players can also deliver pizza within the 40-minute timeframe.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"time-for-the-whys-the-point-of-cause\"><strong>Time for the whys: the point of cause<\/strong><\/h3>\n\n\n\n<p><strong>It is worth<\/strong> starting to look for the causes <strong>at the level of the pizza baking operation<\/strong> where it is easy to <strong>find out<\/strong> <strong><em>why<\/em><\/strong> a pizza takes twice as long to bake (e.g. one of the heating coils in the oven has burnt out).<\/p>\n\n\n\n<p>But if we had asked <strong>why at the level of the revenue (KPI),<\/strong> we would have been left with <strong>uninformed guesses<\/strong> as to the reasons for the decline.<\/p>\n\n\n\n<p>An additional <strong>advantage<\/strong> of having <strong>employees<\/strong> who <strong>are aware<\/strong> of the <strong>expectations<\/strong> for each activity (e.g. baking time\/pizza or number of pizzas baked\/hour) is that the <strong>first slow-baked pizza<\/strong> can be an <strong>early indicator<\/strong> that <strong>something is wrong.<\/strong><\/p>\n\n\n\n<p>This way, we <strong>can intervene<\/strong> immediately when one of the two heating coils has burnt out <strong>as opposed to<\/strong> noticing the problem <strong>a month later <\/strong>when it has already had an impact on <strong>revenue (KPI).<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"you-cannot-solve-problems-at-kpi-level\"><strong>You cannot solve problems at KPI level<\/strong><\/h3>\n\n\n\n<p>Of course, connections are not that simple in everyday reality, but the <strong>moral<\/strong> of the story is that the more we can keep our finger on the pulse of our processes, i.e. <strong>know<\/strong> <strong>what is happening now<\/strong> and <strong>what should be happening,<\/strong> the sooner we can <strong>intervene<\/strong> if something does not go according to the plan. It is also much easier to start troubleshooting because you can be hot on its trail.<\/p>\n\n\n\n<p><strong>Remember: you cannot solve problems at KPI level! <\/strong>It is merely a <strong>\u201chistorical\u201d indicator<\/strong> that shows the performance of some strategic pillar of your company <strong>in the rear-view mirror.<\/strong> Moreover, we can only look in this mirror <strong>12 times a year<\/strong> (presuming reports are generated monthly) and <strong>decide which way to steer<\/strong> the boat next month. However, these decisions will be <strong>based on assumptions only <\/strong>because in the absence of PI and I-level indicators <strong>we will have no idea what caused a KPI-level indicator to deteriorate.<\/strong><\/p>","protected":false},"excerpt":{"rendered":"","protected":false},"author":9,"featured_media":121396,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","footnotes":""},"categories":[1],"tags":[754],"class_list":["post-124993","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-egyeb","tag-posts-in-english","infinite-scroll-item","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"featured_image_src":"https:\/\/lean.org.hu\/wp-content\/uploads\/2021\/10\/KPI-szinten-felejtsd-el_SEO.jpg","author_info":{"display_name":"nesicz.regina","author_link":"https:\/\/lean.org.hu\/en\/author\/nesicz-regina\/"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - 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