Most businesses have measurements for sales and profitability.
They do not, however, have measurements for operational effectiveness. Every company has an accounting function, whether internal or outsourced, to summarize the accounts payable and receivable, balance sheet, and profit and loss.
Many organizations, although they hope to be profitable, are penny-wise and dollar-foolish.
Some companies have established measurements that sup- port the premise that they are profitable. This premise is quite possible in industries with a niche market, a lack of competi- tion, good margins, and some waste that can be tolerated.
However, that privilege is only for the lucky few. Most compa- nies have stiff competition, complex products, and a complex system that does not identify opportunities to reduce waste.
A typical business today consists of buildings, equipment, employees, material, customers, and management. The organi- zational structure may include one or multiple facilities at one or several locations. Besides that, a business may have several parts, products, or types of services that it offers to customers.
Typically, the business is managed by making sure products are delivered to the customer in the best possible manner. The focus is on shipping the product or delivering the service as best as possible to maximize the revenue. At the end of the month, the leadership knows how much money has been made in profits or how much more credit is needed to manage the cash flow.
Inside a company, life is a little more interesting. First, the sales staff are busy selling more to earn a commission than to make margins for the company. For example, a salesperson makes a deal for $500 million and earns a commission. The com- pany finances the sales and pays out the commission. The revenue is recorded on the books, showing sales growth. A few months later, however, the customer files for bankruptcy. The company ends up in debt for $500 million, while the salesper- son already earned the bonus and recognition and moved on.
46 CHAPTERTHREE
Ch03_Gupta_141730-3 8/8/03 3:03 PM Page 46
Meanwhile, design engineering is busy designing the part or the product. The product is designed to best-of-design capabilities, which are practically all imaginary and incorpo- rating all the creative juices and genius of the design team in each product. Some prototypes are built and tested for func- tionality. The design works by hook or crook, and the product is released to production. Production may pilot-test a few runs to verify the design. When the product works, it is signed off for full production and shipment to the customer.
Here is where the fun begins. Purchasing is buying parts from the suppliers. Suppliers celebrate their success in making sales to the company. Production, however, is having trouble producing a good product. Sometimes the product fails due to bad parts; sometimes it is incorrectly assembled by machine operators who are tired of fighting fires. Sometimes failure is due to marginal design specifications; at other times inspec- tion and testing did not catch enough failures. In addition, the product fails at times in the field because the company CEO told employees to ship the product at any cost in order to keep his word to his customers (even if it meant skipping some veri- fication steps).
Now the customer returns the product. Someone receives it in the company, reviews it, and assigns credit to the customer.
Someone, if any time can be found, analyzes the root cause of the problems and finds an operator who needs some counsel- ing. Quality engineering issues a corrective action, completes the paperwork, and closes the corrective action. The customer gets a copy of the completed corrective action, accepts the response, completes paperwork, and life goes on.
In addition to this life in sales-to-service operations, other business activities are ongoing. Managers make sure the product gets out the door. The support staff expedite materials and whatever else is needed to keep the operations running. They ensure bills are paid and invoices issued, that employees are paid, and that struggling employees get help when necessary.
The most interesting personalities may be those of the owners, CEOs, or presidents. They are earning a good salary, and their companies have been having some profitable years due to favorable market conditions. They are stressed, though,
NEED FOR THESIXSIGMABUSINESSSCORECARD 47
Ch03_Gupta_141730-3 8/8/03 3:03 PM Page 47
because they do not understand what is going on in the real business. They ask the staff how things are going, and the staff respond, “Just fine!” They do not probe further, because they believe that is the best answer they can get. Digging any deeper might stir debate, and they want to avoid conflict with the staff, even if it means avoiding the truth.
These situations may typically occur in a privately owned and improperly staffed small business—one run by an old-style management. However, similar situations occur in divisions of large corporations as well. They happen because those in charge lack understanding of the business, fail to identify a common purpose, and cede management of the processes. As a result, each employee is trying to manage his or her time at work independently. Many inefficiencies result from conflicting priori- ties and questionable interests on the part of employees.
Some companies have a few performance measures in place, even fancy-looking reports and charts. However, their basic goal seems to be to produce parts as fast as possible.
Keep everybody physically busy instead of allowing time to be mentally busy.
Many businesses have very few measurements; some have a lot of measurements but not necessarily the right ones; others may have extensive measurements imposed from headquarters.
However, these measurements do not correlate with the busi- ness reality because of ineffective communication between leadership, management, and staff. The result is insufficient review and analysis and an improper focus on speed instead of doing the job well.
Henry Ford once said that a waste of time is much more significant than a waste of material, because the material has some salvage value, while time has none. Wasted time is a par- ticular problem for many service industries because so much of the work they do is based on intangibles, giving them more
“wiggle” room. Yet service industries face similar issues in terms of measurements and performance. The issues of learning to perform better and faster at lower cost in the service industry are identical to the ones faced by the manufacturing industry.
In larger corporations, the complexity and diversity of operations mean that the overhead to arrange a meeting costs more than the meeting itself. In one company, I asked my
48 CHAPTERTHREE
Ch03_Gupta_141730-3 8/8/03 3:03 PM Page 48
next-door employee to set up a meeting time, as I was new there. He gave me a date for an hour to meet but a month out. There was no sense of urgency to get the job done at this corporation, and the time spent scheduling and waiting for meetings that should take place quickly wasn’t recognized as a cost.