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FIGURE 4-7.
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CHAPTER FOUR
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Six Sigma Business Scorecard A performance measurement system. Can provide a snapshot of a business s performance, as well as identify measurements that would drive performance toward profitability. Designed to identify a set of measurements that impact profitability. Establishes accountability for leadership for wellness and profitability. Includes all business processes, management and operational, i.e., leadership, innovation, rate of improvement, sales, service, purchasing, and production operations. Balances management and employees roles; balances cost and revenue of heavy processes. Emphasizes aggressive rate of improvement for each measurement, irrespective of target. Emphasizes learning and innovation at all levels based on the process feedback. Enlists all employees participation. Focuses on maximizing profitability. Heavy on execution for profitability. A measurement system based on process management.
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Balanced Scorecard 1. A strategic management system. 2. Relates to a longer-term view of the business.
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3. Designed to develop a balanced set of measurements 4. Identifies measurements around vision and values. 5. Critical management processes are to clarify vision/strategy, communicate, plan, set targets, align strategic initiatives, and enhance feedback and learning. 6. Balances customer and internal operations without a clearly defined leadership role. 7. Emphasizes targets for each measurement. 8. Emphasizes learning of executives based on the feedback. 9. Focuses on growth. 10. Heavy on strategic intent. 11. Management system consisting of measurements.
FIGURE 4-8. Balanced Scorecard and Six Sigma Business Scorecard comparison.
what contributes to the loss of profitability and growth can be daunting. Using lessons learned from the Six Sigma methodology, the Six Sigma Business Scorecard offers a method for maximizing corporate profitability. By integrating the existing quality management system with a performance measurement system, a corporation can aim for dramatic improvement in performance and significant improvement in profitability.
C H A P T E R F I V E
PLANNING FOR THE SIX SIGMA BUSINESS SCORECARD
he Six Sigma Business Scorecard helps executive leadership and shareholders not only understand the company s performance through simple measurements, but also plan success. The Six Sigma Business Scorecard can help create a system that will improve the company s performance.
LEADERSHIP AND IMPROVEMENT
Many companies neglect to plan for improvement, in both good times and bad. When the economy is strong, margins are good, and the company is profitable, the leadership does not sense the urgency to improve profitability through strategic planning. On the other hand, when the economy weakens, margins shrink, and profit evaporates faster than steam, the focus is directed to fighting fires rather than planning. Rather than plan to collect meaningful operational data, leadership develops a plan backward from sales numbers and hypothetical profitability projections. The numbers are allocated to managers, who then create measurement methods to achieve the desired numbers. When the net results of this effort are not good, the real problem areas become even more difficult to identify. Thus begins the spiral of cost management: cutting expenses, reducing the workforce, and streamlining the product or service portfolio.
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CHAPTER FIVE
To be successful, leadership must gather information that accurately demonstrates what is happening in the business. Leadership must identify the key business measurements that indicate corporate wellness, gather operational performance data, identify opportunities for improvement, and use all this information to develop a strategic plan to improve business performance. The urgency to achieve the desired results must be clearly understood by the executive and management teams of the company.
EXTENT OF IMPROVEMENT
What extent of improvement is appropriate to aim for When a business sets a goal to improve performance by 10 percent per year, employees are likely to complain that no one in the company feels any improvement. In fact, they may even feel that the company s performance has degraded. The reason is that the tangible results of about one-half of any improvement in performance may be consumed by cost-of-living adjustments. Another portion of the improvement may be attributed to measurement errors (whether intentional or not), and the remaining improvement may be attributed to real improvement in a few areas. As a result, most employees see no improvement, practically speaking. More significantly, the resulting improvement correlates insignificantly with improvement in profitability. Suppose a company s CEO sets a goal to improve business performance by 10 percent. The management team is requested to submit a plan that will achieve the expected results. Naturally, they look for areas that can easily be tweaked. The 10 percent improvement is quickly realized, and everyone celebrates the success. There s a better way to plan, however. Suppose that the CEO asserts that an aggressive rate of improvement is critical to maximize profitability and assigns challenging rate-of-improvement goals to all management team members. Practically everyone has the same goal: to improve at the specified rate. Typically,
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