The Six Sigma Business Scorecard makes it easy to understand the value of the process measurements by explaining their relationship to profitability. Features and Benefits of the Six Sigma Business Scorecard 114 Impact of Customer Requirements on Measurements 115 Factors Affecting Profitability 117.
BOB GALVIN’S REFLECTIONS
The Six Sigma and process improvement initiatives were weakened in the mid-1990s due to company growth. I am sure that you will enjoy and learn as much as I did from The Six Sigma Business Scorecard.
PREFACE
Six Sigma Business Scorecard offers the revolutionary method of determining corporate sigma level successfully employed by Motorola in the early 1990s. Corporations that have implemented Six Sigma need a method to determine the corporate sigma level.
ACKNOWLEDGMENTS
INTRODUCTION
Optimizing profitability, cost, and revenue variables is a primary goal of the Six Sigma Business Scorecard. Score Business Six Sigma includes 13 chapters that lead step-by-step through the implementation process.
SIX SIGMA BUSINESS
TRENDS IN
PERFORMANCE MEASUREMENTS
TECHNOLOGY AND GLOBALIZATION
The real challenge is to achieve growth through innovation and excellence while maintaining high profitability. To excel in this environment requires a comprehensive reporting system that can accurately read the market's pulse.
MACRO ECONOMIC MEASURES
These developments helped reduce the effect of time zone differences and cultural barriers, and ensured production was distributed globally. For example, the explosive growth of the electronics industry and competitive pressure resulted in lower margins, despite high innovation and excellent performance.
EVOLUTION IN PERFORMANCE MEASUREMENTS
The purpose of these new quality management techniques was to improve the performance of business processes. Walter Shewhart brought together the disciplines of statistics, engineering and economics to improve the sustainability of manufacturing processes.
JURAN’S FINANCIAL AND QUALITY TRILOGIES
The quality trilogy elements of planning, controlling and improving involve strategic quality planning, process controls and product improvement. All aspects of the Quality Trilogy are managed by the quality department in a serviceable relationship to management.
BUSINESS TRILOGY
The quality trilogy is typically the responsibility of the quality manager or equivalent, who plans quality through data analysis; controls quality through inspection, testing and repair; and improves product quality through programs such as Total Quality Management (TQM). Because the quality manager is held responsible for defective products, one challenge of the quality trilogy is that it points to the quality department for production problems.
ISO 9000 QUALITY MANAGEMENT SYSTEM
The management team manages processes for dramatic improvement (highest quality in the shortest time). Control of production and services, validation of processes for production and service operations, identification and traceability, customer ownership, preservation of product.
PROCESS THINKING
A corrective action is initiated if the verification shows that the requirements are not met. However, even with an ISO 9001 system, the company will operate at below the desired performance levels if the processes are not optimized.
MALCOLM BALDRIGE NATIONAL QUALITY AWARD GUIDELINES
ISO launched ISO 9000 and Motorola launched the Six Sigma methodology in 1987, and Congress launched the Baldrige Criteria in 1988. Facing stiff foreign competition in the semiconductor industry, the late Bill Smith invented the Six Sigma methodology in 1985-1986.
BALANCED SCORECARD
SIX SIGMA BUSINESS SCORECARD
To fine-tune profitability, measures of all aspects of the organization must be looked at in terms of how it actually operates, so that any loss of profitability can be recovered. The Six Sigma Business Scorecard was developed to look at measures of all aspects of the organization.
SIX SIGMA—AN OVERVIEW
COMPLEXITY AND PERFORMANCE
For example, if process and component yields were 99 percent for each part of the operation, the total yield for the entire operation would be much lower, as shown in Figure 2-1. Therefore, a 99 percent performance level does not go far enough for complex products or services.
COST OF POOR PERFORMANCE
Typical accounting practices do not take into account all aspects of the business, as the focus is on the visible waste. The failure rate at each operation is expected to be 3.4 parts per million versus just 99 percent.
BASICS OF SIX SIGMA
With this breadth of improvement, the Six Sigma concept becomes a powerful strategy for driving improvements in organizational performance and profitability. In the first 5 years of implementing Six Sigma, Motorola reported approximately $1 billion in savings in manufacturing operations and similar savings in non-manufacturing operations.
TRADITIONAL APPROACH TO SIX SIGMA
For example, Motorola, GE, Honeywell (formerly Allied Signal), Raytheon, ABB and many others have realized savings in the hundreds of millions of dollars.
THE BREAKTHROUGH APPROACH TO SIX SIGMA
Passionate implementation of the Six Sigma methodology is the means, customer satisfaction is the end, and superior profitability is the financial outcome. The current Six Sigma approach consists of two levels of implementation - the corporate level and the project level.
D EFINE
The critical aspects of enterprise-level preparation for Six Sigma methodology include establishing key business performance measures, ensuring organizational effectiveness, readying the organization for Six Sigma, and setting objectives for improvement. The Commitment Matrix (Figure 2-6) is an effective way to assess what support is needed compared to the current level of commitment from each of the business functions.
M EASURE
Traditional quality costs consist of four categories: internal defects, external defects, evaluation, and prevention. The goal is to increase the preventive cost of quality and reduce internal defects, external defects and evaluation components.
A NALYZE
Failure mode and effects analysis (FMEA), as shown in Figure 2-12, is an excellent tool that has been used primarily in the automotive and aerospace industries, or where personnel safety is a concern. Detectability - Examine the current model, then, on a scale of 1-10, rate the detectability of each failure (10 = least detectable). Cont.) Failure Mode and Effects Analysis Model.
I MPROVE
To improve a process, you must gain knowledge about the process, its environment, its components, and its responses. The Full Factorial technique, commonly used for most process improvement activities, requires the selection of key variables, the desired settings for the new process, and the amount of improvement desired.
C ONTROL
Experimental error is quantified and used to determine the level of confidence in the experiment results. One way to keep the Six Sigma initiative alive is to have the organization divide itself into functional areas, with.
CHALLENGES IN IMPLEMENTING SIX SIGMA
After Six Sigma training, projects count toward Six Sigma success. As discovered through Six Sigma methodology at Motorola and GE, significant savings can be realized in service areas as well as in manufacturing.
NEED FOR THE SIX SIGMA BUSINESS
As this table shows, only about one-third of employees can easily answer questions about business performance, which means that information about business performance is not easily accessible to employees. For the process improvement system, only about 20 percent could easily answer any questions.
MISSING RATE OF IMPROVEMENT
INSUFFICIENT PROCESS PERFORMANCE MEASUREMENTS
The product is designed according to the best design capabilities, which are almost all imaginary and include all the creative juices and genius of the design team in each product. When the product works, it is signed off for full production and shipping to the customer.
DEMING’S 14 POINTS*
Looking at all 14 points in their entirety, it appears that Deming's approach is to create an organization that is natural in its functioning. Deming believed that leadership's role should be to care for employees, develop their skills, and achieve business goals through employees' total involvement.
MEASUREMENT CHALLENGES WITH QUALITY SYSTEMS
Leadership must be driven to maintain business continuity in a competitive environment by creating jobs, growth and profitability. Leadership's lack of commitment to transforming an organization into a profitable one in the long term is a major cause of poor performance.
L IMITS OF ISO 9000
Verification methods are needed to ensure compliance with the requirements at various stages of the process. The Balanced Scorecard is best deployed at a strategic level and flowed down the organization.
MEASUREMENTS ACCORDING TO THE GOAL
DEVELOPING A NEW MEASUREMENT SYSTEM
The Six Sigma Business Scorecard combines information from the strategic, operational and execution aspects of business. The Six Sigma Business Scorecard is about the organization rather than looking at the organization in terms of metrics.
THE SIX SIGMA BUSINESS
SCORECARD
BUSINESS AND LEADERS
Customers like their products or services and pay well for them, and the company is successful. What really happens is that as certain aspects of the business change, new variables are introduced and the business system loses its optimal level of performance.
CURRENT ACCOUNTING SYSTEMS
The problem, however, is that these kinds of strategic plans are not necessarily linked to the business processes that contribute to the planned sales growth.
INFORMATION AGE PARADIGM
To ensure the best return on investment, the need for each process is questioned, and the total cost must be managed. This is the information needed to identify a company's core competencies as well as its capacity for innovation.
SIPOC ANALYSIS FOR CONSTRAINTS
Cisco, having acquired so many smaller companies, has near-real-time information about the financial performance of the entire company, so it can plan timely corrective actions. Similarly, leadership should establish real-time measurement of internal processes—a system of feedback and corrective action to correct unacceptable levels of performance.
MANAGING THE PROFITABILITY PROCESS
However, after several successful years, Nokia's innovative products and a slump in Motorola's performance saw Motorola's market share decline while Nokia's growth exploded. Motorola recognized this in the early 1980s when its leadership committed the company to dramatic improvement using the Six Sigma methodology.
EXTERNAL FACTORS
When Motorola launched the cell phone in the mid-to-late 1980s, it created a new industry. In today's business environment, where competition is increasing faster and faster, and where profitability must be managed like a missile, companies need a spreadsheet that takes these factors into account.
PROCESS-BASED MEASUREMENTS
The Six Sigma Business Scorecard can be applied to businesses that provide products or services. The Six Sigma Business Scorecard is the next step in the natural evolution of performance measurement systems.
BUSINESS PROCESSES TO CONSIDER
By viewing each business as a collection of processes, the management of each business process becomes a goal that is monitored using performance metrics. The Six Sigma Business Scorecard addresses the need for managers to wrap their arms around the whole business and not just its parts.
ELEMENTS OF THE SIX SIGMA BUSINESS SCORECARD
The influence of the manager's decision is multiplied by the number of employees in the company and suppliers. The Six Sigma methodology requires an aggressive level of improvement in customer-critical areas.
5.O PERATIONAL E XECUTION
Empowerment includes clear communication of project expectations, expected behaviors and processes, and accountability for results. Since the success of the sales process is seen as getting new business, it should be measured that way.
7.S ERVICE AND G ROWTH
For a company to be successful, there must be a balance between total sales and the ratio of new business. The network of dealers and distributors that sell your products and services should be similarly managed as a process with clear expectations for sales and margins.
SIX SIGMA BUSINESS SCORECARD MEASUREMENTS
Sales can bring in a new customer, and customer service can build that relationship to win repeat and additional business. This is because the final measurement system must reflect the true indicators of deviations in the company's performance.
BUSINESS PERFORMANCE INDEX
Leadership and profitability are weighted 30 percent, and the rate of leadership and improvement is ranked 20 percent. The Index Contribution column includes the weighted contribution for each category determined by multiplying the category importance and performance values against plans.
CORPORATE DPU AND DPMO
The Metrics column identifies one or two key business indicators, and the Category Abbreviation column links the metric to the corresponding Six Sigma Business Scorecard element. For example, the Leadership and Rate of Improvement categories are rated as highly important due to their direct correlation with profitability.
CORPORATE SIGMA LEVEL
COMPARING BALANCED SCORECARD AND SIX SIGMA BUSINESS SCORECARD
Using lessons learned from the Six Sigma methodology, the Six Sigma Business Scorecard provides a method for maximizing business profitability. Can provide a snapshot of a company's performance, as well as identify measurements that could drive performance.
PLANNING FOR THE SIX SIGMA BUSINESS
LEADERSHIP AND IMPROVEMENT
To be successful, leadership must gather information that accurately shows what is happening in the company. Leadership must identify key business measurements that indicate corporate well-being, collect operational performance data, identify opportunities for improvement, and use all this information to develop a strategic plan to improve business performance.
EXTENT OF IMPROVEMENT
The way to achieve such aggressive improvement rate goals is to examine and test existing processes and look for a new way of doing them. Why a leader should be interested in achieving corporate performance goals with an aggressive rate of improvement.
BUSINESS OPPORTUNITY ANALYSIS
Whatever it is called, the change must be driven by the company's new, clearly defined performance objectives. However, he or she must be further aware of external environmental factors (such as acquisitions and mergers, competitive performance, government regulations, social changes and economic trends) to achieve the desired growth.
ORGANIZATIONAL ADJUSTMENTS
When the roles, responsibilities and benefits of key executives are understood and defined according to the Six Sigma Business Scorecard, their commitment begins to strengthen. In many companies, these are usually ignored because employees see a contradiction between the words and actions of the executive management.
VISION
To achieve a company's vision, the company's beliefs or values determine the decisions executives and employees will make. The values include respect for each other, honesty and integrity, or care for the company and its customers.
GOALS
If the company's core belief is "We must serve the customer to the best of our ability," then decisions should be based on the impact on the customer's perception of the product or service.
CORE COMPETENCIES
SYSTEMS THINKING
According to Stephen Haines, the author of The Manager's Pocket Guide to Systems Thinking and Learning (1998), systems thinking involves thinking backwards. By establishing processes to realize vision and goals, we can then create measurement criteria that describe the specific factors that define success.
EMPLOYEES’ INVOLVEMENT
Employees knew that the leadership favored some employees over others and was not objectively trying to achieve business goals. Instead, the leadership always pushed employees to produce more while ignoring their ideas for improvement.
TEAM STRUCTURE
When productivity did not improve, the productivity consultant was fired, quality degraded, and the company closed. Surveys show that employee loyalty improves when they achieve a lot; this happens when employees are challenged intellectually and recognized for their achievements.
UNDERSTANDING MEASUREMENTS
Level 0 responsibility is assigned to an executive with leadership quality, level 1 responsibility is assigned to a team of top executives, and level 2 responsibility is assigned to process or department managers. Department managers then develop a series of measurements according to the guidelines of the Six Sigma Business Scorecard.
IDENTIFYING PROCESS MEASUREMENTS
The metrics for the purchasing process must therefore consider the purpose of the purchasing function. In addition, supplier data must be linked to production performance to ensure the efficiency of the procurement process.
ACTION PLAN FOR PERFORMANCE
Performance data should be collected on parts and performance should be evaluated against established specifications. If the deviation from the specification is significant, possible causes of the deviation in the suppliers' processes should be sought.
CORPORATE PLANS
PROGRESS REVIEW
Sigma Business Scorecard plans should be reviewed weekly and monthly, both departmentally and as a business, to ensure that everyone is playing a role in contributing to dramatic improvement and higher profitability. Finally, the Business Performance Index should be posted throughout the corporation as a minimum common communication for all employees to monitor their company's performance.
SIX SIGMA BUSINESS
DEVELOPMENT
The management of the company is now in the hands of the employee and the founder or manager. Although the performance of each individual is still clearly visible, the complexity of the business is increasing.
PROFITABILITY VISIBILITY
MEASUREMENT FAILURES
The problem is that when managers begin to measure actual performance against the stated goal, the goal is not met and the goal continues to be missed, in part because of the misrepresentation of the goal line. The Six Sigma Business Scorecard attempts to solve the above problems and improve the effectiveness of the performance measurement system.
FEATURES AND BENEFITS OF THE SIX SIGMA BUSINESS SCORECARD
IMPACT OF CUSTOMER REQUIREMENTS ON MEASUREMENTS
Silence can be better than speaking, and in the case of customer requirements, the implicit requirements are just as important as the explicit ones. These customers are partners in the company's success and help them create innovative solutions together with their suppliers.
FACTORS INFLUENCING PROFITABILITY
The Six Sigma Business Scorecard treats the design process as part of the operational execution category. After all, effective product or service designs require innovation from all aspects of the company.
GROWTH AND PROFITABILITY
However, to measure the effectiveness of the design process, a company must take the time to understand the details of the tasks in the design department, the variance or control of the activities, and the importance of each process in the final product. According to this model, management has a significant influence on profitability, which is reflected in the compensation the company's management receives.
OWNERSHIP FOR PERFORMANCE
Leadership must also monitor variation in business performance, not just performance levels. The management team is jointly responsible for developing and using the Six Sigma Business Scorecard to monitor business performance.
STEP-BY-STEP DEVELOPMENT OF THE SIX SIGMA BUSINESS SCORECARD
Commit to using the Six Sigma Business Scorecard by integrating Six Sigma into a revised vision for the business. Establish metrics for each category of the Six Sigma Business Scorecard for each profit center.
SAMPLE MEASUREMENTS
If multiple profit centers exist, prepare a composite Six Sigma Business Scorecard for the corporation. A similar graph can also be made for 1 year to increase the presentation of the data.
BPIn EXAMPLE
The Six Sigma Business Scorecard and BPIn can be developed for a company of any size. The main intent of the Six Sigma Business Scorecard is to drive dramatic improvements internally and improve profitability.
IMPLEMENTING THE SIX SIGMA BUSINESS
The BPIn and Sigma levels can be used as a rough baseline for business performance and as a catalyst to commit to an integrated business performance measurement system, the Six Sigma Business Scorecard.
CREATING AWARENESS
BUILDING THE BUSINESS MODEL
In a sense, the BPIn includes level I measurements, and the Six Sigma Business Scorecard includes level II measurements. This model must be clearly understood and easily visualized by all the managers of the business.
ESTABLISHING THE BPIn
Managers who take actions based on the business model show that they are sensitive to concerns about the company's growth and profitability. Total synergy and integration of management intentions, decisions and actions is required to achieve sustained growth and profitability.
ESTABLISHING SIX SIGMA BUSINESS SCORECARD MEASUREMENTS
After the team establishes BPIn metrics, the number of executives reporting to the CEO and COO (or executive staff) should be determined. Additionally, the number of new sales orders is a good indicator of business strength.
ENSURING DATA COLLECTION CAPABILITY
Six Sigma Business Scorecard, data collection planning is one of the more important activities. Business leaders need to clarify the importance of a business strategy and the role of the Six Sigma Business Scorecard in achieving results.
WAR ON WASTE
In most cases, no single person or department can remedy the unacceptable situation or solve the process problem. The steps include making the problem visible, expressing the expectation that the problem will be resolved, training employees in problem-solving tools, demonstrating understanding of the problem and modeling the process to correct it, communicating the solution, setting up a system to verify effectiveness. implementation of the solution and recognition of the contributions of those who helped solve the problem.
MANAGING CHANGE
To do so, management must make management responsible for the implementation of the Six Sigma Business Scorecard and responsible for its success. Each category on the Six Sigma Business Scorecard is assigned a leader for clear accountability for the initiative and metrics.
INTEGRATING TECHNOLOGY AND THE SIX SIGMA BUSINESS SCORECARD
Using information technology, the data collection, aggregation, analysis and reporting of the Six Sigma Business Scorecard can be automated. Ultimately, the purpose of the Six Sigma Business Scorecard is to achieve a rapid pace of improvement (not just improvement), experience improved profitability (not just process improvement), and achieve business growth (not just monitor revenue).
ADAPTING THE SIX SIGMA BUSINESS
SMALL BUSINESSES
SIX SIGMA BUSINESS SCORECARD AND BUSINESS SIZE
Management and Profitability Yes, measurable Yes, measurable Yes, measurable Management and Yes, guidelines Yes, guidelines Yes, measurable improvement. Employees and innovation Yes, guidelines Yes, guidelines Yes, measurable Procurement and suppliers Yes, measurable Yes, measurable Yes, measurable management.
IMPLEMENTING IN A SMALL BUSINESS
The Six Sigma Business Scorecard can be a valuable asset for small businesses that see opportunity for growth. Especially in small businesses, implementing the Six Sigma Business Scorecard should not become a burden on company resources.
MONITORING PERFORMANCE
MANAGEMENT REVIEW
To prevent these reviews from becoming a trivial exercise, the audit guidelines at each level must be clearly defined and the objectives of the Business Performance Index and Six Sigma Business Scorecard must be communicated. The interaction between the various departments must be revised to improve synergy and mitigate adversity.
LEADERSHIP PERFORMANCE REVIEW
This can be achieved through a standard set of questions that cover different aspects of leadership. However, with each new assignment, the leadership process must be adapted to the company's objectives, and that adjustment requires a lot of input because the actions of leadership can have an impact.
EMPLOYEES’ PERFORMANCE REVIEW
Rather, they should be accompanied by more frequent communications about performance, such as weekly reports or monthly operational reviews. Management must plan to help employees develop new skills and expand their roles to help the company grow.
MANAGEMENT PERFORMANCE REVIEW
The management team is the 'execution team' and its members must be fully involved in developing realistic goals based on facts, as well as in developing plans to achieve them. The performance evaluation in the areas of level of improvement, breakthrough solutions, direct value creation and leadership practices should be conducted against clearly established expectations for improvement.
COMPENSATION FOR PERFORMANCE
Continuous improvement at an aggressive pace must be management's mantra, and subconscious actions must communicate management's performance.
COMMUNICATION WITH THE COMMUNITY
ANNUAL REVIEW
Finally, an independent third-party review will ensure the integrity of the Six Sigma Business Scorecard.
PERFORMANCE,
PROFITABILITY, AND STANDARDS
DOW JONES INDUSTRIAL AVERAGE COMPANIES
Companies in different operational sectors have some identifiable variances in their financial statements that reflect changes in their business operations.
PERFORMANCE AND PROFITABILITY
For example, distribution companies have relatively high inventory costs, while companies in the financial sector have virtually no inventory. These measurements reflect cost and revenue streams, key processes and the most important financial measurements used to report a business's performance.
