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The ROI of Continuous Improvement

Understanding the ROI of Improvement

What Matters in the Calculation?

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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:

  1. Activity
  2. Engagement
  3. Impact

Here's how getting an accurate read on these three numbers results in ROI data that holds water:

Reports

Activity

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:

  1. Submission vs. Completion: 

    Improvements should be completed at about the same rate as which they come into your system. Those that stall out after being identified bring down morale, decrease engagement, and reduce your impact. You should be able to check the percentage of in-progress improvements at any time and drive a greater impact by increasing that number.
  2. User and Location Boards: 

    You need visibility into how many improvements have been submitted, what people are currently working on, and the change rate of their past improvements. You also need to know how long it takes for improvements to pass from submission to completion. When these stats are doing well, your ROI is going to increase.
  3. Status Reports: 

    Visibility into the status of improvements across the organization enables you to assess the health of your improvement culture. A healthier culture has few overdue improvements because people prioritize the implementation of ideas and tracking of their impact. A greater ROI follows a healthier culture.

 

Engagement

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:

  1. User Engagement Summary

    You need to know how many improvements people submit per year on average and the percentage of people who are active in your improvement management system. This tells you how wide your improvement culture goes.
  2. Engagement by Role

    Insight into the engagement rates at every level of your organization helps you to identify areas that are contributing to your ROI and those that need more coaching. A high ROI that results from a small group of people is less significant and more likely to be an anomaly than a high ROI achieved by a wide swath of people. 
  3. User Participation Summary

    Insight into which type of improvement work is contributing to your ROI - and the number of people engaged in them - also bolsters trust in you ROI data.

 

Impact

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.

Benchmark Data

for the ROI of Improvement

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1 in 3 Improvements has a Financial Impact 

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.

 



1 in 10 Improvements Save Money

 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.

 



1 in 4 Improvements Save Time


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.

 



$25,000 Annual Impact Per Person

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.

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How many employees are engaged in improvement?

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Annual Impact:

Quality

Improvements

Satisfaction

Improvements

Safety

Improvements

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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. 

 

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How Does KaiNexus Increase Your Impact?

More People. Faster Change Rate. Bigger Impact.


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Engage More People

Engage

Spread and sustain your improvement culture by engaging more people at every level.

Accelerate Improvement

Accelerate

 Drive more improvements across the finish line with an increased rate of change.

Increase Impact

Impact

Know, grow, and show your impact using real-time reports with the details that matter.