An operations manager stops by your office (he’s managing by walking around) and says that he has good news and bad news. The good news is that the company shipped more widgets to customers last quarter than it did the previous quarter but the bad news is that executive management thinks that we performed worse. How is this possible?
When I posed this hypothetical scenario during a recent workshop, the attendees had a wide range of suggestions. The products had a higher defect rate that led to lower customer satisfaction. The company shipped the wrong product to customers or shipped the products to the wrong location. And they even suggested that the company might have manufactured and shipped more product than customers actually ordered.
All are very creative ideas but not the source of the performance problem. Instead the answer lies in the difference between outputs and outcomes. For example, suppose the organization shipped 1500 widgets in Q1 and 2000 in Q2. Clearly, its output increased. Many organizations would create a dashboard with a graph like the following to show that its performance increased:
However, this is flawed thinking. Just increasing output does not necessarily increase performance. Imagine for a moment that the organization wanted to ship 3000 units in Q1 and 5000 units in Q2. In that case, the organization might add a line depicting the target values so that the graph looks like this:
The difference between the actual value and the target value in Q1 is 1500 units and in Q2 is 3000 units. In other words, the gap between what we did and the outcome we were trying to achieve actually doubled. Does that seem like better performance?
Of course not. True performance improvement comes when we close the gap between actuals and targets.