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KPI Identification with Fishbone Enlightenment

Published
  • March 01 2005, 1:00am EST
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As you may recall from earlier columns, effective business performance management implementations are all about driving down the performance management pyramid from vision to strategies to objectives to critical success factors (CSFs) and finally to key performance indicators (KPIs). In our continuing effort to identify those important 10 to 15 KPIs, we will explore another Six Sigma technique called root cause analysis that uses a "cause and effect" diagram to discover all the processes driving a specific CSF. Because the diagram itself can look like the skeleton of a fish, the moniker of "fishbone" diagram has gained wide acceptance, and we will use this going forward (see Figure 1). However, if you want to impress your colleagues, you can use the more technical Six Sigma parlance - the Ishikawa diagram, named after Professor Kaoru Ishikawa of Tokyo University who developed this approach in 1943 to resolve steel production problems. Although the original intent of the fishbone diagram was to generate a comprehensive list of possible causes for manufacturing problems and defects, we will finesse the technique to identify the relationship between CSFs and KPIs.

For our case study, we will focus on supply chain management (SCM), and show how the fishbone diagram allows us to think through all those cause components that potentially influence SCM productivity and help identify the candidate metrics for KPIs. Creation of an effective fishbone diagram includes the following steps:

Select the critical success factors. The CSFs should include a variety of balanced scorecard perspectives and diverse metrics families such as productivity, profitability, quality and innovation. (See my October 2004 column.) Place the CSF (in this case productivity) on the horizontal backbone arrow line for our SCM example.

Categorize the candidate causal factors involved. Review the input variables and processes that impact the CSF. These may be any areas that are directly involved in meeting the CSF. Draw lines off the spine for each driver, and label them. The factors can be thought of as the bones of a fish. For our SCM example, the causal factors are equipment, people, quality and data.

Identify the candidate causal drivers involved. For each of the factors considered in stage 2, brainstorm possible causes that may be related to the factors. Several of these may be those all-purpose metrics delivered with you BPM and BI software packages. Show these as smaller lines coming off the bones of the fish. The causal drivers provide potential candidates for leading KPI metrics because their results can impact an important CSF. Causal drivers such as cycle time, labor efficiency and data accuracy are shown on Figure 1.


Figure 1: KPI Identification Fishbone Diagram

Analyze the fishbone diagram. At this point, the diagram should show all possible drivers for the CSF. Now you can decide if one (or more) drivers should be used as a KPI to succinctly capture the productivity CSF. For our SCM example, it may make sense to include both cycle time and customer complaints to capture equipment efficiency and product quality, respectively.

In our SCM example, we were able to identify all the important drivers associated with improving productivity. The fishbone diagram provides an elegant framework for assessing the impact of all potential drivers on productivity and identifying candidate metrics for elevation to KPIs. It also provides a very effective technique for concentrating the team's efforts on a specific CSF and for creating a baseline for brainstorming and team thinking. 

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