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market conditions or exploitation efforts will result in the need to modify activity dramatically. Without an effective feedback mechanism contained within the measurements, people tend to drive toward the target without recognition that the conditions of the measurement have changed. In other words, it will result in actions that, even though are believed to be the right thing for improving ROI, can actually be hurting the company. The problem is that yesterday the same actions may have been absolutely the right thing to do. Everyone throughout the organization must understand that the feedback mechanism drives measurement away from being “fixed.” The problem that people can have in understanding this is that the target can stay constant, but the means to achieve it, and therefore the measurement, may change. BM clearly makes this connection for people. Although on-time delivery to the buffer is the target, very different actions are needed every day dependent on the real-time state of all of the buffers (time, stock, and capacity). Decisions on where to flex labor or where to direct maintenance, quality, or engineering efforts may change according to the status of the buffer.

Though an effective operational planning and control solution is a prerequisite to a proper measurement system, the operational system will fail to properly execute or sustain without an effective way to provide feedback on the current system status as well as help to synchronize decisions and actions.

So, How Is the Operational System Performing?

Two very different, and potentially conflicting, approaches to performance measurement exist for answering this question, although both are important. The first approach is using a performance standard. A set goal or benchmark is provided, which the employees collectively strive to meet over the course of some finite amount of time. For example, “decrease inventory by 30 percent company-wide in the next six months.” The second approach is to obtain the everyday pulse with an exceptions feedback mechanism, analyzing the information and deciding if and what action needs to be taken to correct the situation or cause of the exception. The problem is that while both have a place in organizations, they are easily confused. Any growth opportunities will be minimized when they are up against the fixed performance target for employees’ attention, unless the connection between the two is clear—which often is not the case, especially in larger organizations.

A performance standard will generally create a status quo that an individual being measured will be satisfied with attaining, often ignoring the other factors that are necessary to the optimization of the whole company ROI. This is not the behavior that the organization truly wants and needs because the standard is usually a subset of one of the five tactical objectives of ROI. In other words, the measure will drive organizational conflict (as discussed in the beginning of the chapter). Therefore, once the feedback system directs attention to the source of the problem, the key is to identify, define, and resolve the system conflict. (See conflict resolution in Chapter 24.)

The local metric must be clear, aligned with the global target, deconflicted as much as possible with other measures, and must remain that way. Remember, despite having properly selected productive measurements to begin with if there is not an effective feedback and accountability system providing the current reality and relevance of all local measures to the goal, the system will often be desynchronized and conflicted.

Focusing on Improvement

In contrast to the fixed target, a feedback system does not have an end point but provides continual monitoring of flow to determine exceptions. The regions in BM used to monitor flow are set such that one can respond to an exception and react quickly enough to maintain the desired flow. Additionally, by conducting an analysis of these exceptions and identifying and eliminating the causes of exceptions, a process of ongoing improvement