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CHAPTER ONE
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BALANCED SCORECARD
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Robert Kaplan and David Norton introduced the Balanced Scorecard in 1991 in The Harvard Business Review. The Balanced Scorecard was a relief for many organizations; it gave management a new way of monitoring a company s performance by measuring past success and setting goals for the future. The Balanced Scorecard is designed to provide a strategic vision for the organization by looking at four perspectives: financial, customer, learning and growth, and internal business processes. For each of these four areas, the company looks at goals (How will we define success ), measures (What will we measure to know we are successful ), targets (What quantitative results do we wish to achieve ), and initiatives (What activities will we do to achieve them ). The Balanced Scorecard has been used by senior executives for more than a decade as an excellent tool for strategy development. Kaplan and Norton demonstrated how executives in industries such as banking, oil, insurance, and retailing have used the Balanced Scorecard to guide their current performance and target future performance goals. However, implementation at the grassroots level has been questioned for practicality.
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SIX SIGMA BUSINESS SCORECARD
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The business environment has changed a lot during the last decade. Several hundreds of thousands of businesses worldwide implemented ISO 9000 quality management systems. About a million copies of Baldrige Criteria are shipped to businesses annually. Many businesses and their suppliers have implemented the Six Sigma methodology. However, the challenge is to improve profitability significantly, to prevent marketplace dynamics such as the dot-com meltdown of 2000. The value of performance measures has become more important than ever. With the current and anticipated unsettling business environment accelerating trends in technology, high expectations for performance, eroding prices, and shrinking profitability
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TRENDS IN PERFORMANCE MEASUREMENTS
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margins businesses need a performance measure (or scorecard) that is robust and that addresses various aspects of a business including the marketplace dynamic. Businesses need a tool that provides a framework and guidance, creates challenges, and stimulates excitement. Businesses need performance measures that continually renew and reenergize them, forcing them to discard the status quo and embrace innovation on a continual basis. Such a system must rely on the basics of a business. A business is a collection of processes, including the leadership process. Each business process has inputs that include suppliers, assets, resources (capital, material, people), and information. The process also has a vision, measures, policies and procedures, and output that includes products or services for customers. Every business has variances. The question is what to do with them. Each business must have a process to handle excessive variances in the organization. Typically, these variances are the leaks in profitability. To fine-tune profitability, one must look at measures of all aspects of the organization the way it really works in order to reverse any loss of profitability. The Six Sigma Business Scorecard has been developed to look at measures of all aspects of the organization. It addresses the concerns that executives express about current scorecard systems, such as their ineffectiveness at relating to the employees who do the work. Most scorecards are strategic in intent and do not flow down to process measures. For any scorecard to be implemented successfully, the scorecard must include sound planning, operational excellence, and sustainable growth. With an understanding of the Business Trilogy, process model, and dynamic economic environment, a Six Sigma Business Scorecard was developed that personifies leadership and management; aligns purchases and operations; drives customer service and sales; and promotes employee excellence, innovation, and improvement. Such a scorecard should intuitively be persuasive to executives for strategy as well as rewarding to employees for continual excellence through innovation. The Six Sigma Business Scorecard, as shown in Figure 1-6, is driven by those responsible for inspiration, planning, and
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