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DEVELOPING A NEW MEASUREMENT SYSTEM
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What an organization truly needs is measurements that start with its objectives and relate to processes that can be aggregated to overall performance. When this happens, measurements directly relate to profitability. In other words, the measurement system starts with a goal, it flows down to the process level, and it can be optimized. The measurement system must be able to provide a prompt and futuristic snapshot of the business s health to the executives. A measurement system itself should not be a major expense. The ideal system can be quickly summarized, reported, communicated, and acted upon to prevent opportunities for
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NEED FOR THE SIX SIGMA BUSINESS SCORECARD
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waste of resources, including intellect. A good measurement system promotes intellect rather than effort. For example, a company of about 150 employees wanted to implement an improvement process to reduce waste and improve profitability. The initial attempt to develop a welldefined strategy with goals, objectives, targets, and a sound plan for execution failed. The plan was impossible to implement due to the required effort, existing culture, and skills of the employees. The company s leadership then changed tactics. A new system was devised in which (1) each area supervisor was given a continual improvement goal, (2) a weekly review was performed, and (3) appropriate feedback was given on a green sheet or a red sheet. To our surprise, the supervisors were able to improve processes in 44 out of 52 weeks and reduce waste by about 80 percent. The company experienced its best-ever operational and financial performance. Soon after, a new leadership team lands in the company. The leaders decide to bring their cronies and implement their own system. Soon enough, the company loses all the benefits of its previous system, loses money, and eventually closes. Time after time, it is not the company s processes or measurements that are the problem; rather it is that leadership is not defined as a process that should be measured for maintaining constancy of purpose, direction, and profitability. In other words, a good measurement system must include measurements for leadership as well. Profitability is a real challenge in today s business environment due to increased competition, reduced development time, shrinking margins, and pressures on price. To achieve increased profitability, objectives must be clearly defined and communicated, and the system must be optimized. The measurement system must provide feedback to fine-tune the system so that the business can achieve its profitability objectives just as a guided missile that, with some statistical variation, hits its target. With the help of the right measurements and proper execution, the accuracy of the business system to hit the target must be refined for long-term sustainability. Typically, leadership has focused on sales, finances, and the operational measurements of quality and cycle time. The
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CHAPTER THREE
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more recent Balanced Scorecard measurements focus on financials, learning, internal processes, and customers all linked to the strategic level. The Balanced Scorecard measurements, however, have not worked effectively at the operations level; thus, they are not suitable to a business s organizational structure. A new business scorecard system based on the knowledge gained thus far through various efforts is called for one that not only directs the organization to achieve profitability, but also maintains profitability by ensuring a high rate of improvement in internal operations. The level of performance is not what counts; instead the rate of improvement is what matters to achieve profitability. The Six Sigma methodology, if executed as intended, achieves improvement objectives, and the Six Sigma Business Scorecard helps to achieve the intended profitability objectives. The Six Sigma Business Scorecard combines information from the strategic, operational, and execution aspects of the business. Only through aggressive goal setting, effective data collection, analysis, reporting, communication, and improvement efforts can a business achieve the desired objectives. A Six Sigma Business Scorecard reflects the effectiveness of all processes at the action level instead of the strategic level. The Six Sigma Business Scorecard relates to the organization instead of viewing the organization from the measurements perspective.
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