When we ask people about the ROI of their continuous improvement programs, literally almost no one knows. Most people track their impact of improvement in some way or another, but the data is slippery and often subjective to the extent that they're not willing to stand behind those numbers.
This is perhaps the most frustrating part of measuring improvement for most people. They try to aggregate data from across their organizations using a hodgepodge of reports that all include different information in varying formats, but they know that the result is nowhere near accurate enough to make predictions, validate budget requests, or celebrate publicly.
When you doubt the accuracy of your own impact numbers, how is that information supposed to increase buy-in for improvement from others?
To get ROI data you can trust, you need to establish a system of checks and balances based on the three CI KPIs:
Here's how getting an accurate read on these three numbers results in ROI data that holds water:
Understanding what kind of improvement is happening and the frequency at which it occurs is the first step in attaining metrics you can trust. This data will show you how hard the organization is trying to improve, who is actively involved in the initiative, and which areas of the company need coaching to get more involved.
Key areas to look at here are:
The next area in your system of checks and balances is engagement metrics. By tracking who is doing the improvement and keeping score over time, you’re able to track averages, compare yourself to those averages, and identify trends. You can tell if the ROI you’ve attained is due to a small group of people (indicating an undeveloped culture) or a large group (indicating a sustainable, robust culture).
Reports to monitor include:
How improvement impacts your bottom line is the number you need to report on ROI, but it takes the first two categories of data to ensure that your impact numbers are accurate and that they reflect a predictable trend in business impact.
KaiNexus makes it possible for you to connect improvement with impact in your reporting so that you can drill down into any number to verify accuracy. If you see a cost savings that looks suspiciously high, for example, you can instantly see what improvements are contributing to that and validate that the reporting impact on each is correct.
There is no mystery - and no trust required - when it comes to ROI reporting in continuous improvement software.
Of course, I would be remiss not to mention that it’s imperative to track qualitative variables such as time savings, safety enhancements, health, and environmental impact alongside quantitative factors like cost savings and revenue.
Keep in mind that the other two thirds of improvements are at least as important (if not more so) than those with a financial impact. Those other ideas improve things like quality of the organization's goods and services, as well as the safety and satisfaction of staff and customers. Improvements usually impact multiple areas; for example, an idea that increases revenue may also improve customer safety and satisfaction.
54% of all improvements impact quality
13% of all improvements increase the safety of staff and customers
54% of all improvements increase staff and customer satisfaction
Continuous improvement organizations understand that these metrics play a direct role in ensuring the success of the business, and they strive to achieve the highest possible safety, satisfaction, and quality. They know that happy customers and happy employees are critical for success. The fact that these metrics indirectly affect the bottom line is just an added bonus to continuous improvement.
Of all of the improvement ideas implemented by your staff, you can expect that around 13% will save your organization money.
Over 80% of those cost savings will be annually recurring, resulting in a long-term benefit and far greater ROI.
The average impact of a cost saving idea is $31,043 in its first year of implementation.
People are great at finding ways to increase efficiency. Approximately one in four improvements results in time savings, which can be repurposed to better meet customer needs or it might help us reduce the need to hire more people.
The average impact of an improvement that saves time is almost one hour per day - 270 hours in its first year of implementation.
Furthermore, this time savings is estimated to have a "soft savings" of $7,924 per improvement in the first year the improvement is implemented, based on the cost of that employee's time. It's only "hard savings" if we can reduce overtime costs or if we can do more value-adding work with the same number of people.
80% of your improvement potential lies in your front lines, which means this is the area you need to focus on increasing engagement in order to maximize your ROI. Regardless of how dedicated your senior leaders are or how clever your improvement team is, you need the ideas of the people who actually DO the work. These are the people that know what processes are slowing them down, what wastes money, and what they could change to increase customer satisfaction and revenue. Simply put, the people who DO the work are the best suited to IMPROVE the work.
Continuous improvement is a powerful approach for helping organizations meet increased consumer, financial, and legal demands. Most organizations include leadership in improvement initiatives - but a true continuous improvement organization involves everyone. By engaging every employee in a culture of continuous improvement and innovation, companies achieve increased quality, improved safety, better customer and employee satisfaction, and a significant ROI.
KaiNexus is in the unique position of being able to provide accurate benchmarking data because of the insight our software provides into so many different organizations. We have customers around the world in a wide variety of industries at every stage of their improvement journeys. Our platform provides accurate ROI information for each of these customers, allowing us to understand and share trends, norms, and goals.
The data in this report is based on an aggregation of information from 2011 to the present.
Because our customers use KaiNexus' continuous improvement software to capture, implement, measure, and share improvement across their organizations, they're able to achieve a markedly greater ROI than those attempting to manage improvement without such a robust platform.