Tips for getting started with “digitization” – Blog #3: Creating effective “KPIs”

by | Feb 23, 2023 | Blog

Written by: Paul Hogendoorn, MEE Cluster Digital Transformation Consultant

In the first column in this “tips for digitization” series, the focus was on making sure the company leadership was on board with the digitization initiative, and that the company’s business objectives and vision for the future were aligned with the digitization initiative. The second column focused on how important (and easy) it is to establish a digital baseline, gaining an empirical understanding of when and where value is being added in your daily operations, and where and when it isn’t. The focus on this column is on establishing effective key performance indicators (“KPIs”) that connect everyone in the company – from the leadership to the folks on the floor – with the daily “value creating” performance of the company in real-time. At this point (in your digitization journey), you should have 14 to 30 days of empirical data from which to build your first digital live KPIs.

There’s a common expression that says “what gets measured gets improved”, or put another way, “you can’t improve what you don’t measure”. This is fundamentally true, but establishing effective KPIs is critical to your company’s improvement success. The 4 important things to remember when establishing your KPIs are: they have to be 1) meaningful, 2) empirical, 3) relevant, and 4) visible in real-time.

Meaningful. The KPIs need to be intuitively understood by the people that directly affect it – it has to be meaningful to them. Too often companies show complicated KPIs on the plant floor that are not understood by the people doing the work on the plant floor – and often not in the executive office either. (“OEE” is a prime example of a KPI that is understood by a very few people in the company, but yet it is often broadcast and on display to everyone).

Empirical. Manually recorded data is often inaccurate. It’s not deliberately collected wrong, but there’s a lot of chance for error, interpretation, and perhaps some well-intended ‘editorializing’. Remember, “anecdotal measurement leads to anecdotal improvement”. You need real data and real measurement to drive real improvement. It needs to be objective and non-disputable. As one worker once explained their company’s primary KPI to me: “It is what it is; when its good, we all go home happy. When its not so good, we aim to do better”. (Refer to the last column for an explanation of how easily an empirical data collection system can be applied to your existing equipment or in your plant).

Relevant. Make sure the KPI matters to the company and sets the focus on what you want to do more of as a company (or perhaps, what you want to do less of). Beware of potential conflicting KPIs. For instance, if one of the company’s primary improvement objectives is to reduce the amount of WIP (work in process) to keep partially completed jobs from clogging up aisleways and tying up capital, an “OEE” or “spindle uptime” KPI might be motivating some parts of the operation to pull tasks forward to keep their machines “running” and those KPI scores high, while creating a lot of unnecessary WIP in other areas. Make sure your KPIs are aligned with what is most important. (Remember, what gets measured does get improved – for better or worse!)

Visible in Real-time. This is the factor that is often overlooked but may be the most impactful. Showing measurements after the fact (last month, last week, last shift) has very little affect on people’s performance now. With real-time measurement, the “Hawthorn Effect” comes into play, tapping into intrinsic (and therefore sustainable) motivators. It doesn’t just drive productivity – it increases engagement and satisfaction. “Pearson’s Law” states it succinctly: “When performance is measured and reported back, the rate of improvement accelerates.” This is what we all want – we want to accelerate the rate of improvement, and that means getting everybody on the same page, in real time, together.

If this is the stage that you are at and you would like to know more about establishing meaningful digital KPIs for your operation, send an email to and we will send you a quick questionnaire regarding your processes, your improvement objectives, and your current challenges.

Two of the most common questions I hear most often asked at this stage is, “how do I get my people to buy in?”, and “what other information do I need to drive our Continuous Improvement efforts?” Those two questions are closely related and will be the focus of the next two blogs! Stay tuned!