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PLANNING FOR THE SIX SIGMA BUSINESS SCORECARD
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managers react with dismay, This rate of improvement is impossible! We have never done this in the past. After the initial shock, however, when they come to understand the current problems and accept the common corporate goals, the goal of aggressive rate of improvement is accepted. Then the challenge to improve current processes begins. The way to achieve such aggressive rate-of-improvement goals is to examine and test the existing processes and look for a new way of doing them. To institutionalize and sustain such a high rate of improvement, the corporate culture must change. The cultural change begins with a new vision and new enthusiasm. Some call this cultural change corporate renewal; others call it reengineering the corporation. Whatever it s called, the change must be driven by the new, clearly established corporate performance goals. Creating the vision is a critical step that must be led by the company CEO. Why should a leader be interested in achieving the corporate performance goals at an aggressive rate of improvement Well, there must be something in it for the CEO personally, including financial incentives, in addition to the larger corporate goal.
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BUSINESS OPPORTUNITY ANALYSIS
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To achieve financial goals, a clear relationship must exist between the opportunities and the profitability. A business opportunity analysis will establish a baseline and identify the opportunities for improvement. If a company has done limited data collection up to this point, the Six Sigma Business Scorecard measurements can be used as a starting point. If an extensive data collection system already exists, however, those data can be analyzed and used to develop a business model that will identify what drives that company s profitability. With a full understanding of the relationship between opportunities and profitability, being able to visualize the company s actual opportunities, anticipating trends in the industry, and taking into account plans for future growth, the company s leadership can commit to implementing the Six Sigma
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CHAPTER FIVE
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Business Scorecard and improving the company s BPIn aggressively. The following relationships, although well understood, must be constantly monitored (see Figure 5-1): Profits Growth Revenue Cost of goods sold Operational expenses
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Function (Profits, External environment, Internal innovation)
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Once a company s executive understands the potential for profits and its impact on compensation and value to shareholders, it is easier for that executive to commit to the strategic plan that facilitates it. He or she must be further aware, however, of external environmental factors (such as acquisition and mergers, competitive performance, government regulations, societal changes, and economic trends) in order to achieve desired growth.
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ORGANIZATIONAL ADJUSTMENTS
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A business must be organized as shown in Figure 5-2 to balance profitability and growth. The executive leadership team includes the chief financial officer (CFO), the chief growth officer (CGO), and the chief operating officer (COO). The CFO must ensure that the rate of improvement occurs as planned
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Sales Cost of Goods Sold Operational Expenses Execution
Profitability and Growth
External Environment Internal Innovation
FIGURE 5-1.
General profit and growth paradigm.
PLANNING FOR THE SIX SIGMA BUSINESS SCORECARD
CEO (Leadership, Profitability)
COO (Sales, Purchasing, Operations)
CFO (Rate of Improvement, Business Performance Index)
CGO (Employee Innovation, R & D, External Research Management Function)
FIGURE 5-2.
General profit and growth functional layout.
as well as monitor the various business performance indicators that correlate to rate of improvement. The CGO, in the place of chief technology officer (CTO), must monitor external factors and employee innovation beyond the internal research and development activities. The COO is responsible for executing the operational plans within the organization as well as maintaining an eye on any variances in performance. Once the roles, responsibilities, and benefits of key executives are understood and defined along the lines of the Six Sigma Business Scorecard, their commitment starts to build. Executive commitment for any initiative has become a buzzword at many companies. Such commitment is often demonstrated in letters or memos posted in the lobby and throughout the company. In many companies, these are commonly disregarded because employees observe the contradiction between the words and actions of the executive leadership. When the leadership is committed only on paper and not in deeds, employees will follow suit. The key to gaining CEO commitment, and hence that of the rest of the company, is through demonstrating the benefits of aggressive change: better performance, lower costs, higher growth and profitability, and superior financial incentives for executives and employees. The commitment begins with setting a Six Sigma Business Scorecard vision for the company.
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