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Tuesday, August 20, 2013

Why Measurements Matter

I was re-reading Bill Gates' annual letter on behalf of the Bill and Melinda Gates Foundation the other day (www.billsletter.com) and reflecting on the power and importance of measurement. Bill stresses this issue in the opening part of his letter and cites numerous examples of how careful measurement has helped numerous foreign aid and humanitarian programs to be evaluate their effectiveness and make adjustments which led to even greater successes. While he is speaking about large global development issues, his comments are just as applicable to the business world and I encourage everyone to read it.

In it he refers to William Rosen's fantastic book, The Most Powerful Idea in the World, about the invention of the steam engine and in particular about the development of a new way to precisely measure energy output. The book makes a very strong case that this invention, which enabled people to evaluate quickly and effectively the impact of design modifications on performance, was the key to fostering the rapid innovation which created this enormous expansion in our quality of life. As Rosen wrote it enabled invention to become "commonplace". Rosen makes a strong case that without such tools, invention is "doomed to be rare and erratic".

I believe the same is true for business operations, and not just on the product innovation side of things. Operational improvement is essential in every business, and having measurements that provide us with fast, effective feedback is critical to success. Businesses and markets are highly complex organisms so it is rare that anyone would succeed completely in the launch of any new initiative or improvement. We need a way to get fast and accurate feedback on the actions we take, or we are destined to flail around blindly trying new things and hoping they work.

Organizations are launching new initiatives all of the time, whether it's re-structuring, or some program like Lean, Six Sigma, Balanced Scorecard, TOC, etc. Unfortunately most of these efforts go on for a while, deliver little real gain (at least less than expectations in almost all cases), and then fall by the wayside. Re-structuring is a good example. How many companies have go through re-organizations to make them flatter or more hierarchical, more centralized or less centralized, only to go in the opposite direction 5-10 years later when they are going through a down period? And how many times have you heard: "Oh we tried (fill in the blank) already, it won't work for us", even though some of the things worked and also worked in other companies. The next step of course is to abandon the initiative entirely--to throw the baby out with the bath water.

Improvement efforts often take a long time, but, why? And do they really have to? Of course they will take a long time (and deliver much less than they could) if we don't have a fast, effective feedback mechanism like Rosen talks about in his book, because it will be trial and error, with little way even to evaluate our errors. But what is it like when we do have a fast feedback loop that quickly tells us the effectiveness of our actions, and points to where and how they are falling short. Monitoring how effective are our improvement actions in business provides us the input we need to make the small corrections, additions, and changes that will get us to the next level. It's not about luck, and its not about genius, it's straightforward test and re-test. You hit a golf ball on the driving range and it slices to the right. You get immediate feedback that your clubface was open at impact and you need to make an adjustment in your swing to close it. Imagine what it would be like if you couldn't see the flight of the ball to tell you how effective your swing was?

For years I have included this as one of the five key principles of improvement that I share with my clients--take structured actions and design ways to get fast feedback on their effectiveness. "Structured actions" means implement changes consistently because if you do things a little bit different in different places/ situations, you won't know what really caused the results you got. It's not easy to design these fast feedback loops so that you can judge the effectiveness of your actions, and I think too often we skip this step in our excitement to improve things. But the price organizations pay when they skip this step will be high. The good results they do get will be slower and lower than if they were able to monitor progress over a short horizon and make the small corrections that are almost always needed.

Thanks to Bill Gates and William Rosen for reminding us of just how important effective, fast measurements are to any process.

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