When a Green KPI Creates Red Problems

When a Green KPI Creates Red Problems

How local improvements can make the entire system worse.

A workshop manager notices that some technicians have available time.

Rental equipment is waiting to be repaired.

Preparing a unit for a customer can take up to two weeks.

The solution seems obvious: use the available time to repair equipment in advance, especially the models with the highest historical demand.

Technicians become busier. More equipment becomes available. The utilization indicator improves.

Everything appears to be moving in the right direction.

Except that rental demand is low.

Very low.

The repaired equipment begins accumulating. Spare parts are consumed. Storage space becomes scarce. Equipment must be transported, moved, organized, and eventually inspected again before delivery.

The workshop’s utilization indicator is green.

Other indicators, including some belonging to the workshop itself, are turning red.

And the organization is spending more money to serve customers who haven’t called.

An improvement in one indicator is not necessarily an improvement in the system. Sometimes, it can make the system worse.

When Being Busy Becomes the Objective

Most organizations measure how effectively they use their resources.

Equipment utilization, labor productivity, machine availability, and productive hours are familiar indicators.

They can provide valuable information.

But they become dangerous when we begin treating maximum utilization as the objective rather than as one piece of information about the system.

Consider a technician who has completed the work currently required.

If there is no additional demand, what should happen?

From a traditional utilization perspective, available time may appear to be a problem that needs correcting.

But from a systems perspective, that availability may represent something valuable: the capacity to respond when demand arrives, handle unexpected problems, perform preventive activities, develop skills, or improve the process itself.

Of course, sustained excess capacity deserves investigation. It may indicate a mismatch between resources and demand.

But keeping people busy does not resolve that mismatch.

It may simply conceal it.

We should not confuse the absence of work with the failure to work.

Capacity Is Not Demand

Capacity tells us what a process can do.

Demand tells us what the system needs it to do.

When capacity exceeds demand, an organization has choices.

It can preserve flexibility, redeploy resources, develop capabilities, improve processes, or reconsider how capacity is allocated.

It can also produce more than is currently needed.

That last option often makes local productivity indicators look better, but it may create costs elsewhere.

In our workshop example, historical rental demand was used to identify which equipment should be repaired first.

That was not an unreasonable approach.

Historical information can support planning, especially when demand is predictable and customers value immediate availability.

But historical demand is not the same as current demand.

Nor does it automatically justify preparing every available unit.

A decision to build inventory should consider expected demand, service requirements, replenishment time, existing inventory, holding costs, and the risks of equipment remaining unused.

Without those considerations, anticipation can quietly become overproduction.

And overproduction rarely travels alone.

How One Green Number Creates Several Red Ones

When a process produces more than the next process or customer needs, the consequences extend beyond the original operation.

In the workshop, repairing equipment without sufficient demand generated additional requirements.

Spare parts were consumed earlier than necessary.

Equipment occupied space that could have served other purposes.

Moving and organizing units required labor and transportation.

Capital became tied up in equipment that might remain unused.

Some activities also risked being repeated.

A returned rental unit needed an initial inspection to establish its condition.

Before repairing it, technicians needed to determine what work was required.

And before delivering it to another customer, the organization still needed to verify that it was fully functional.

These inspections do not necessarily serve identical purposes, and some are essential.

But performing work earlier does not automatically eliminate the work required later.

Depending on storage time and conditions, it may even introduce additional verification or handling.

The important question is not whether every activity can be eliminated.

It is whether the total work required by the system has decreased.

A process can become more efficient locally while making the overall flow more expensive.

Did We Improve the Process, or Move the Work?

Suppose preparing a rental unit after receiving a customer request normally takes two weeks.

By repairing units in advance, the workshop may reduce the time between a customer’s request and equipment availability.

That can be valuable.

But what exactly improved?

If the repair process still requires the same labor, parts, inspections, and waiting time, the organization may not have made the repair process faster.

It may simply have completed much of the work before the customer requested the equipment.

The measured response time improves because the clock starts later in the work’s lifecycle.

This does not automatically mean the strategy is wrong.

For frequently requested equipment, maintaining an appropriate quantity of ready-to-rent units may be a sound business decision.

Customers may genuinely benefit from immediate availability.

But the decision must be evaluated against the costs and risks of preparing and holding that inventory.

Otherwise, a shorter customer response time can conceal a longer inventory holding period and higher total cost.

Moving work outside the measurement window is not the same as improving the work.

The first changes when the work is performed.

The second changes how effectively it is performed.

A well-designed system may need both, but it should understand the difference.

When an Observation Becomes a Priority

Why did the workshop manager decide that his technicians needed to be busier?

In the situation that inspired this reflection, a senior executive had observed technicians who appeared to be idle.

He had not instructed anyone to repair equipment in advance.

He had simply commented on what he saw.

The manager responded by finding work for his team.

This illustrates how leadership influences behavior even without issuing explicit instructions.

A comment from someone in authority can become a priority.

A priority can become an initiative.

And an initiative can produce results that appear successful according to the indicator being watched.

The manager’s response was understandable. He wanted to use his resources effectively and improve the workshop’s performance.

But the original observation had not established whether the technicians were actually underutilized over time, why they had available capacity, or whether additional work was needed.

A few people appearing idle during a brief visit do not establish a productivity problem.

A walk through the workplace can reveal something worth investigating.

It cannot replace the investigation.

And a number confirming that people are busy does not establish that their work is creating value.

When the number becomes the objective, improving the number can become more important than improving the system.

When My Improvement Becomes Your Problem

The workshop example also reveals a familiar organizational pattern.

A department improves its own performance and considers its responsibility fulfilled.

The consequences appear somewhere else.

Production increases output, but the next process cannot absorb it.

Purchasing obtains a better unit price, but inventory and storage costs increase.

Maintenance maximizes equipment availability, but production does not need the additional capacity.

A department celebrates its results while another struggles with the consequences.

And the familiar response appears:

“My department did its part. The rest is someone else’s problem.”

But the system does not recognize departmental boundaries in the same way organizational charts do.

Inventory occupies real space.

Unnecessary movements consume real time.

Additional inspections require real labor.

And customers experience the performance of the entire system, not the individual achievements of its departments.

A problem transferred to another department has not been solved. It has changed location.

Sometimes it has also become more expensive.

The challenge is not to prevent departments from improving.

It is to ensure their improvements contribute to a shared purpose.

Improving Capacity Without Increasing Output

There is a distinction I consider particularly important.

Improving a process does not necessarily mean producing more.

Suppose a team reduces the time required to repair a rental unit from two weeks to one.

If the improvement comes from eliminating unnecessary waiting, improving parts availability, simplifying the work, reducing defects, or improving coordination, the process has developed a valuable capability.

But if demand remains low, the organization does not need to double the number of units it repairs.

The improvement can instead provide faster response, greater flexibility, more reliable delivery, and capacity for other valuable activities.

The same principle applies when customer demand increases.

If the required production rate is higher than the current rate, the first question should not be how to make people work faster.

It should be how to improve the process so the required rate becomes achievable, reliably and sustainably.

The purpose of improvement is not to maximize activity. It is to make the work better suited to what the system needs.

Sometimes that means producing more.

Sometimes it means producing less.

And sometimes it means being ready without being unnecessarily busy.

Who Is Responsible for the Whole?

If every department is measured and rewarded primarily for its own performance, why should we be surprised when people optimize their own departments?

A workshop manager cannot be expected to consistently prioritize system-wide performance if the management system only recognizes technician utilization.

Nor can a production manager be expected to reduce unnecessary output if doing so makes the department’s productivity indicator appear worse.

People respond to the expectations, measurements, and consequences embedded in their environment.

That does not eliminate individual responsibility.

But it means leadership must take responsibility for the conditions under which people make decisions.

Improvement requires more than asking every department to achieve better numbers.

It requires a shared understanding of what the organization is trying to accomplish, how its processes depend on one another, and what consequences a local decision may create elsewhere.

Before celebrating an improvement, we should ask:

• What changed for the customer?

• What changed for the next process?

• Did total work, cost, or lead time decrease?

• Did we eliminate waste or move it elsewhere?

• Can the improvement be sustained without creating new problems?

These questions do not replace local indicators.

They give those indicators context.

And they help distinguish an improvement that benefits a department from one that benefits the system.

Green Is Not the Same as Better

The workshop manager succeeded in making his technicians busier.

The utilization indicator improved.

But the organization consumed resources, accumulated equipment, and generated work that current demand did not justify.

The manager had not intended to create waste.

The executive had not ordered him to do so.

The technicians had simply performed their assigned work.

The problem emerged from individually understandable decisions that were never adequately connected to the needs of the system.

A green indicator can be evidence of progress.

It can also be evidence that we have become very good at doing something we should not be doing.

Before celebrating a green KPI, we should ask what it took to make it green.

Because the objective was never to make everyone busy.

It was to make the system better.