It is common to see summary statistics (such as sum, average, median, and standard deviation) being used in reports and dashboards.  In addition, various metrics are used as Key Performance Indicators (KPIs).  For example, in manufacturing, management often use Overall Equipment Effectiveness (OEE) to gauge efficiency.  In quality, process capability indices (e.g. Cpk) are used to evaluate the process’s ability meet customer requirements. In marketing, the Net Promoter Score (NPS) helps assess customer satisfaction.

All of these are statistics, which are simply functions of data. But what does each of them tell us? What do we want to know from the data? What specific information is needed for the decision?

Unfortunately, these basic questions are not understood by most people who use performance metrics or statistics.  I discussed some specific mistakes in using process capability indices last July.  A more general problem is that statistics can hide the information we need to know.

For example, last year I was coaching a Six Sigma Green Belt (GB) working in Quality.  A manufacturing process had a worsening Cpk.  The project was to increase the Cpk to meet the customer’s demanding requirement. Each time we met, the GB would show me how the Cpk had changed.  But Cpk is a function of both the process center (average) and the process variation (standard deviation), which comes from a number of sources (shifts, parts, measurements, etc.).  The root causes of the Cpk change were not uncovered until we looked deeper into the respective changes in the average and in the different contributors to the standard deviation.  

The key takeaway is that when multiple contributors influence a metric, we cannot just monitor the change in the metric alone.  We must go deeper and seek other information needed for our decisions.

Many people may recall in statistics training that the teachers always tell them “plot the data!”  It is important to visualize the original data instead of relying on statistics alone because statistics don’t tell you the whole story.  The famous example to illustrate this point is the Anscombe’s quartet, which includes four sets of data (x, y) with nearly identical descriptive statistics (mean, variance, and correlation) and even the same linear regression fit and R².  However, when visualized in a scatter plot, they look drastically different.  If we only looked at one or few statistics, we would have missed the differences.  Again, statistics can hide useful information we need.

Nowadays, there is too much data to digest, and modern tools can conveniently summarize and display them. When we use data to inform our business decisions, it’s easy to fall into the practice of looking only at the attractive summary in a report or on a dashboard.  The challenge of using data for decision making is to know what we want and where to get it.

Guess who wrote below about information monitoring for decisions?

With the coming of the computer this feedback element will become even more important, for the decision maker will in all likelihood be even further removed from the scene of action. Unless he or she accepts, as a matter of course, that he or she had better go out and look at the scene of action, he or she will be increasingly divorced from reality.

Peter Drucker in 1967.  He further wrote:

All a computer can handle is abstractions. And abstractions can be relied on only if they are constantly checked against concrete results.  Otherwise, they are certain to mislead.

Metrics and statistics are abstractions of reality – not the reality.  We must know how to choose and interpret these abstractions and how to complement this information with other types¹. 

1. For more discussion on “go out and look” (aka Go Gemba), see my blog Creating Better Strategies.

When I talk to people in CI, many often tell me that they prefer Lean to Six Sigma or have shifted more efforts from Six Sigma to Lean in their organizations.  There are many reasons for the preference.  One of them is that Lean is more relevant or applicable in their organizations — the emphasis on statistical methods in Six Sigma is burdensome given the lack of suitable data and skills.  

While Lean and Six Sigma are inseparable in practice, I also think that Lean is a better introductory CI methodology than Six Sigma.  The Lean concepts (such as value, value stream, flow, pull, and pursuit of perfection described in Lean Thinking) are much easier to understand by people in organizations new to CI.  By introducing simple Lean concepts and tools, such as 5S, Kanban, and 7 types of waste, we can quickly engage the organization and start creating a CI culture.

One caution of relying on simple Lean tools is that organizations may not grow beyond the infancy.  A symptom, for example, could be the “seven-waste scavenger hunts” as described by Mike Rother and John Shook in their book Learning to See (a must-read, by the way, for Lean practitioners).  This happens when the organization fails to invest in understanding the true customer value and mapping out the end-to-end value stream, therefore, missing the majority of the waste hidden in the processes.

One can use or develop a comprehensive Lean or CI maturity model to assess their organization’s progress.  I simply ask one question:  How is management using Lean?

In essence, how Lean is used by management determines whether the organization can achieve high Lean maturity. More specifically, do they conduct organized, systematic analysis and improvement of the value stream?

In Learning to See, Rother and Shook differentiate value-stream improvement from waste elimination activities as “flow Kaizen” versus “process Kaizen.”  While all employees can eliminate waste in their areas, value-stream improvement is the responsibility of the senior management, who can see across functions, set the vision, and lead the change. 

This management ownership concept is not new but rarely practiced.  Peter Drucker wrote in his 1964 book Managing for Results that a business needs a cost analysis that “Looks at the entire business as one cost stream” and “Defines ‘cost’ as what the customer pays rather than as what the legal or tax unit of accounting incurs.” Cost quantifies value and waste.  Once quantified, value and waste can be analyzed and managed.

It is important to note here that “cost is a term of economics” as Drucker pointed out – “The cost system that needs to be analyzed is therefore the entire economic activity which produces economic value.” Few companies look at the value stream spanning the entire business, let alone beyond its legal boundaries.

The frontline employees do not have the knowledge of the entire business.  Management must have it. 

Through Lean activities, such as Value Stream Mapping that crosses functions and organizational boundaries, management improves its understanding of the true cost (again, from a customer’s perspective).  It is with this understanding by the senior management that we identify substantial opportunities for improvement and value creation. Many CI initiatives lose momentum because they simply do not produce meaningful results at the business level, i.e. making it more competitive and more profitable.  

Lean has the power to transform a business, but this only happens after Lean is owned and practiced by the senior management.  Until then, Lean is like a sprouting seed without the sun – it will never reach its potential.

Who doesn’t? But how?

For over a decade, I have used many management methodologies for business improvement, e.g. Lean, Six Sigma, Enterprise Process Management, Change Management, etc. One of the biggest lessons I learned is that no matter what methodologies we use, ultimately, sustainable improvement is built on one foundation: understand, develop, and enable people.

Anytime when the people component is lacking in a change initiative or operating model, it will inevitably fail.

It is not a new concept, and no one seems to disagree with the premise. Yet few put enough emphasis on people in everyday practice. The people and culture piece often gets the least amount of attention on a Balanced Scorecard — if it is used at all. Businesses need to achieve financial goals, satisfy customers, and improve capabilities. No doubt. Guess who make these happen: it’s their people.

Many organizations start to pay attention to people only after they begin a change initiative or when there is an attrition problem. Even then the task is often delegated to Human Resources or other specialists, and the resources disappear as soon as the initiative officially ends or when the symptom is gone.

But change is constant. The need to develop and enable people never ends, and it is the professional responsibility of the managers.

Nowadays, every organization tries to be agile and embrace change, including digital transformation. But are their people willing, prepared, and ready? The outcome is predictable: those who succeed have nurtured the right culture and people from the start.

People familiar with the Lean concepts know the seven types of waste and the benefits of relentless elimination of such waste. Lean practitioners are trained to see them in everyday activities and act on them. There is the eighth type – unused human potential, which is the biggest but least visible or recognized waste. Reducing or eliminating this type of waste is not the responsibility of a process improvement or HR specialist but management. Unfortunately, many managers (if not the majority of) do not proactively develop and enable their people. They are only trained or expected to handle performance issues when things go wrong.

Not realizing people’s creative and productive potential is a huge missed opportunity for both the organization and employees. But it doesn’t have to be.

I encourage every manager to ask one question:
What have I done today to develop my people or improve the environment to enable them to accomplish more? How about in the last week, in the last month?

I want to leave you with one of my favorite quotes from Peter Drucker.

Entrepreneurs innovate. Innovation is the specific instruments of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates resources. There is no such thing as a “resource” until man finds a use for something in nature and thus endows it with economic value. Until then, every plant is a weed and every mineral just another rock.