K.P.I.: Key Performance Indicator or Keep Praising Idiots?

With any manufacturing team, one major key performance indicator (or KPI for all you fancy-speaking folks out there) that is commonly used to determine the effectiveness of a facility is using Operating Equipment Efficiency, (or O.E.E.). This measurement is a percentage of the amount of time a machine or process line is running and producing product as compared to the time it could potentially be running. To put it in perspective, “world-class” facilities usually have an OEE of 85%. That means world-class machines and processes are producing quality product 8 ½ hours out of a 10-hour shift. Not bad, right? Imagine if humans had an OEE of 85%; we’d be productive global citizens for almost 20 ½ hours a day! I don’t know about you, but I would be suffering some major sleep depravation if I were working at the capacity.

So why are KPIs, especially the OEE, so important for manufacturers? The reason I’ve been given in my short tenure within the manufacturing world is that it helps predict reasonable pricing for the products that the company is making and is also a good benchmark to analyze every employee’s performance fairly across the spectrum of different working variables and conditions. But, is this type of measurement really fair by definition and appropriate for our modern times anymore? Through my various positions, both as a manager/leader and an employee, I’ve found that KPIs aren’t a very good measurement on the value the employee brings to the company. Especially when everyone’s results are made public.

Though I’m not against the concept of complete transparency within a workplace, (I actually think it’s a great idea) transparency of employee’s performance results and other traditionally secret personal information isn’t set up to succeed in every situation. When the company I was a supervisor for decided that they would post everyone’s daily performance on the machines for the rest of the company to see and have reported to the board of directors in a daily meeting, havoc broke loose. Each operator concentrated on getting their OEE to 100% without considering what damage they were causing to the product or the machine by forcing the machine to never stop running. Within a month, we had to reject over a half a million dollars in product and incurred even more machine repair costs.

Where did we, the company’s leadership, fail? I think it was from not making the employees understand the purpose of measuring OEE. Instead of seeing it as a product pricing measurement tool, the operators saw the concept as a grade on how good of a performer they were and with that score being made public the operators wanted to make sure they weren’t the lowest performer, both for their pride and jobs’ sakes. Where could we, the company’s leadership, improve? Before eventually doing away with the KPI system entirely, an easy transition would be to have a balanced measuring system by not focusing entirely on the OEE. Based on the values of the manufacturer, (i.e. safety, quality, pricing, etc.) the performance review can comprise of a weighted average over different aspects of the job, similar to a school report card. Even though your kid may have received an A in math, you’re not too happy about the F in science and literature. You’d probably preferred B’s across the board, right? In the case I presented earlier, the operators would be considering more aspects of their performance than just how much the machine is running and be a more balanced employee.

However a manufacturer or company measures their performance for their employees, they also need to understand the conditions of the system, too. Is the system set up to fail the company and the employee? A question we’ll go more into in my next blog.

Give me your thoughts and examples on a good KPI system, whether it’s one you’ve seen a company use before or another strategy that should be implemented to increase performance quality.

Photo Credit: http://www.halogensoftware.com/learn/how-to/5-performance-management-tasks-that-are-often-overlooked

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