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Throughput Is More Important Than Efficiency

New to KPIs?

Thinking you want to use Key Performance Indictors (KPIs) to measure and improve your efficiency?

Did you know that measuring efficiency can actually be a dangerous endeavor? Not always, but often.

Don't believe me? OK, answer these questions:

1. Which is more important to you: 

a. to be efficient?

b. to be profitable?

2. When you're playing a game, which is better:

a. to win the game well?

b. to look good while playing the game?

3. If you are trading in the stock market, which is more important:

a. to be "right" about a stock or other trading instrument?

b. to consistently make a positive return on, and of, your capital?

If you answered "b" to all three of these questions, you have a good handle on the most important aspect of the "Theory of Constraints" (ToC). ToC states that "throughput" is more important than "cost accounting." We know this intuitively, however when we put on our "business hats"

There are of course more details to ToC, but if you keep an eye towards these kinds of questions as you define your KPIs, your team will reap the benefits.

When we establish KPIs and publish them on scoreboards and dashboards, it changes behavior. Keep the larger objective of "staying in business*" in sight when you design your KPIs. You don't want your team (including yourself) gaming the system to make the numbers look good. It is human nature and often happens.

For more ideas on KPIs, have a look at our KPI Library.

The purpose of the encourage work platform is to help you lead your teams towards worthy objectives.

 

* I spent a lot of time (and money) obtaining a college education.

The two most valuable academic pieces of information I learned from my college investment were:

1. The primary objective of a business is to "stay in business."

2. Simplify, Reduce, Eliminate.

There, now you don't have to spend nine semesters getting a quality education like I did. Focus on moving your business forward, not on having "good numbers"!

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