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THE SIX SIGMA BUSINESS SCORECARD
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leadership. What is valued must be measured. In today s business environment, where competition is increasing at an everrapid rate and where profitability must be guided as a missile, businesses need a scorecard that accounts for such factors.
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Alternative measurement systems have been difficult to implement because they are oriented to the leadership or executive level, not the execution level. For example, the Balanced Scorecard, which has been defined as a strategic management system, has been successfully implemented at only a small number of companies, compared to the number of companies that have implemented a quality management system. What s needed is a system that is strategic in intent, yet has very clear links to an organization s processes. Such a system must be easy and inexpensive to implement. Its measurement system must be easy to understand and must include analysis, reporting methods, and improvement mechanisms. Certainly in this information age, implementing such a system for quick summaries and reports is much easier than it was several years ago.
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SIX SIGMA BUSINESS SCORECARD
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The Six Sigma Business Scorecard is a complete corporate performance system that requires leadership to inspire, managers to improve, and employees to innovate to achieve the optimum level of profitability and growth. Based on my experience with more than 100 companies (small to large), I developed it through analyzing these companies internal operations, participating in strategic planning at several companies, meeting with CEOs and staff, participating in the direct improvement of several operations, and being involved with Six Sigma at its conceptual stage by working with the late Bill Smith. The Six Sigma Business Scorecard incorporates proven business improvement practices. It introduces process measurements in a business irrespective of responsibility and authority, it pushes for a dramatic rate of improvement, and it holds the
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CHAPTER FOUR
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leaders accountable for business success through their passion and active involvement. The Six Sigma Business Scorecard can be applied to businesses that offer products or services. It works for organizations that are private or public, small or large, government or education institutions, and with one or multiple locations. By viewing each business as a collection of processes, the management of each business process becomes an objective that is monitored using performance measurements. The Six Sigma Business Scorecard addresses the need for leaders to put their arms around the entire business and not just its parts. It allows them to be total in nature instead of fractional (strategic or operational), and so practically guarantees improvement instead of leaving them guessing at what will be successful. The Six Sigma Business Scorecard is the next step in the natural evolution of performance measurement systems.
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BUSINESS PROCESSES TO CONSIDER
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Typical business processes are shown in Figure 4-3. Within each process, there are subprocesses and activities where excellence must be achieved through effective measurements and monitoring. The Six Sigma Business Scorecard encompasses the following aspects of a business: 1. Purpose of business 2. Future performance
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Business Processes Accounting and Measurements Learning and Innovation Research and Development Administrative and Facility Management Maintenance and Calibration Leadership and Profitability Information Management and Analysis Purchasing and Supply Chain Management Business Policies and Procedures Business Planning and Execution Global Marketing and Sales Recruitment and Development Audits and Improvement Production and Service Partnerships and Alliances
FIGURE 4-3.
Business processes.
THE SIX SIGMA BUSINESS SCORECARD
3. All business processes 4. Measurements that can be aggregated to the corporate level
ELEMENTS OF THE SIX SIGMA BUSINESS SCORECARD
Considering the business s purpose, its processes, and its total culture, the Six Sigma Business Scorecard combines various measurements into seven elements, as shown in Figure 4.4: 1. 2. 3. 4. Leadership and profitability Management and improvement Employees and innovation Purchasing and supplier management
IMPROVEMENT
Management and Improvement
Purchasing and Supplier Management
Sales and Distribution
C O S T
Leadership and Profitability Operational Execution Service and Growth
R E V E N U E
Employees and Innovation
INNOVATION
FIGURE 4-4. Six Sigma Business Scorecard.
CHAPTER FOUR
5. Operational execution 6. Sales and distribution 7. Service and growth These seven elements and their related measurements are shown in Figure 4-5. By no means is this set of measurements universal. The intent of each measurement is to assess effectiveness of activities critical to an organization s wellness and profitability.
Categories Objectives Measurements Leadership and Profitability Lead company to wellness and Communication Inspiration (LNP) profitability Planning Accuracy Community Perception Employee Perception Employees Recognition Compensation/Profitability Asset Utilization Return on Investment Debt-to-Equity Ratio Profitability Shareholders Value Growth Management and Drive dramatic improvement Goal Setting Improvement (MAI) Rate of Improvement Planning for Improvement Employees and Innovation Involve employees intellectually Employee Innovative Recommendations per Employee Investment per Employee (EAI) Number of Patents or Publications per Employee Purchasing and Supplier Reduce cost of goods or Material Acceptance Management (PSM) service Total Spend/Sales Suppliers Defect Rate (Sigma) Suppliers Involvement in Development Cost of Goods/Service Sold Operational Cycle Time Operational Execution Achieve performance Process Defect Rate (Sigma) (OPE) excellence Customer Defects/Total Defects Number of Inquiries Sales and Distribution Manage customer New Business ($)/Total Sales ($) (SND) relationships and generate Profit Margins ($)/Sales ($) revenue Customer Satisfaction Service and Growth (SAG) Gain competitive advantage and grow Customer Retention Repeat Business ($)/Total Sales ($) New Product or Services Patents or Trademark
FIGURE 4-5.
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