integrating balance scorecard with six sigma
DESCRIPTION
This paper introduced the concept of integrating and linking Business Strategy with Process Excellence initiatives (Six-Sigma) through a Balanced Scorecard approach.TRANSCRIPT
1 MQPE Term Paper 2013
2013
SPJIMR, Mumbai
Aditya Garg (PGP-12-163)
Nilotpal Ray (PGP-12-198)
[ TERM PAPER- THE RESPONSE TO TQM
EVOLUTION – AND REVOLUTION ( 1975 TO 1990 ): SIX
SIGMA, BSC ]
2 MQPE Term Paper 2013
Contents (Part-A) Abstract ......................................................................................................................................................... 1
1.0 Introduction ........................................................................................................................................... 1
2.0 Six Sigma: What is it all about? ............................................................................................................ 2
3.0 The Need for New Performance Management System- Balanced Scorecard (BSC)............................ 3
4.0 The Six Sigma Business Scorecard ....................................................................................................... 4
5.0 The Six Sigma BSC: History and Development ................................................................................... 4
6.0 Components of the Six Sigma Balanced Scorecard .............................................................................. 8
7.0 Flow Model to Design the Six Sigma Balance Scorecard .................. Error! Bookmark not defined.
8.0 Implementation and Monitoring ......................................................... Error! Bookmark not defined.
9.0 Hoshin-Kanri and Six Sigma Balance Scorecard ........................... Error! Bookmark not defined.
9.1 Inter-relation between Six Sigma Balance Scorecard and Hoshin-Kanri: ..... Error! Bookmark not
defined.
9.2 Performance Metrics for BSC- Performance, Profitability and Standards .... Error! Bookmark not
defined.
10.1 Case in Action 1 (Airlines) ............................................................................................................. 15
10.2 Case in Action 2 (US Healthcare Industry)..................................................................................... 16
11.0 Conclusion ......................................................................................................................................... 18
12.0 References .......................................................................................................................................... 19
Part B: Reference papers
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Six Sigma and Balance Scorecard: The Response to TQM Evolution and
Revolution
Authors
Nilotpal Ray (PGDM-Operations Management)
Aditya Garg (PGDM-Operations Management)
S.P. Jain Institute of Management & Research, Mumbai
India
Abstract: The Balanced Scorecard Strategic Management System and Six Sigma Performance
Improvement System have been proven to be effective tools that help executives achieve
breakthrough results. Balanced Score Card is used today by companies all over the world as a
Performance Management System (PMS). Around 57% organizations of the world are currently
using this method. This technique was coined by Kaplan and Norton in 1992. These
developments are closely linked with the Business Excellence movement during the 1990’s. This
term paper provides an overview about the development of Six Sigma, and need for a new PMS,
evaluates the link between the Balanced Scorecard and Six Sigma, how a Six Sigma Business
Scorecard is developed, the components of BSC and the design, implementation and monitoring
of BSC.
Key Words: Balanced Scorecard (BSC), Six-Sigma, Performance Management System (PMS),
Business Excellence
1.0 Introduction:
The Balanced Scorecard (BSC) is a multidimensional framework for detailing, describing and
implementing strategy at all levels of an enterprise by aligning with the objectives, measures,
targets and initiatives to the strategy of the enterprise [1]
. The BSC gives a holistic picture by
aligning the financial objectives with the other perspectives such as customer, internal business
processes and people and knowledge perspectives. The BSC tends to develop strategy focused
organizations and quantifiable measures of performance.
Six Sigma is a philosophy, a structured, systematic, team driven, data driven approach to achieve
business excellence. 3.4 defects per million opportunities is what six sigma strives for in the
process improvement initiatives.
One of the mistakes organizations do is to consider BSC and Six Sigma as separate concepts. But
this is hardly the case. In fact, both these concepts go together. While BSC gives a strategic view
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point and highlights the different processes to attain the strategic goals, Six Sigma identifies the
process which needs improvement and strives to improve upon those. So, both work in
conjunction with each other.
2.0 Six-Sigma: What it is all about?
All business processes are evaluated by the mean and variation of the processes. Variation is one
thing that causes trouble as it goes beyond the tolerance limits of what the customer expects. Six-
Sigma is a variance based thinking that tries to reduce variance and bring processes within the
specification limits specified by the customer. [2]
Sigma capability measures the capability of the
process to perform defect free work. A defect is anything that results in customer dissatisfaction.
The goals of six-sigma can be identified as reducing variation, reducing defects, improving yield,
enhancing customer satisfaction and consequently improving the bottom line. The typical
procedure for selection of Six Sigma projects can be seen from the following figure (Figure 1):
Figure 1: Flowchart for selection of Six Sigma Projects
Define, Measure, Analyze, Improve and Control (DMAIC) is used for processes that have not
yet reached entitlement. The steps followed in DMAIC methodology are given below (Figure 2):
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The DMAIC approach involves management involvement, the right kind of organization
structure to facilitate the improvement, customer focus, extensive training and rewards and
recognition for successful problem solving.
The current approach for implementing Six Sigma is at two levels- the corporate and the project
level [3]
. Corporate level requires the leadership to take initiative with the middle management
assisting in the development of a business case for adapting and taking up the Six Sigma
Methodology. It involves establishing the key business performance measurements, ensuring
organizational effectiveness and establishing goals for improvement. Project level six-sigma on
the other hand relies on the DMAIC methodology to look for opportunities for improvement. It
involves extensive training for champions and sponsors, black belt and green belt candidates and
employees.
3.0 The Need for new a Performance Management System (PMS):
Performance Management Systems are the key for success and sustenance of business
organizations. Businesses need to look upon the processes where they have done exceeding well,
which needs to be sustained; and the processes which need improvement, so that it can overcome
the limitations of those processes to increase profitability. The performance management system
of an organization strongly affects people’s behavior, both inside and outside. Given the
information age competition, organizations need to use measurement systems derived from their
strategies and capabilities.
Today, around 500000 companies have heavily invested in the ISO 9000 system [4]
. But, there
are still challenges with respect to establishing a measurement system which maintains
accountability between leadership and operator. Certain companies, following Motorola,
implemented Six Sigma, but faced issues in sustaining the optimum level of performance. The
measurements are often at process level and not aggregated to corporate wellness.
The Balanced Scorecard was then developed to overcome the limitations of previous
measurement systems by supplementing the usual financial measures with other perspectives
such as customer, internal business processes and learning and growth. The BSC thus reveals
more information about an organization than the traditional financial measures did. The BSC is
applied at the strategic level and then flowed down the organization [5]
. One challenge in BSC is
the measurement of the non-financial measures as they are difficult to quantify at times.
Since Six Sigma focused on processes and didn’t reach up at the strategic level to link to
strategies and goals, and BSC focused on strategies and didn’t come down at the managers and
Figure 2: Typical Phases of a Six Sigma Process
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employees level, there is a need for a new and better scorecard system that would combine the
benefits of both.
4.0 The Six Sigma Business Scorecard (BSC):
This is a unique approach to measure performance. It is a complete corporate performance
system that requires leadership to constantly inspire, managers to improve and employees to
constantly innovate. It introduces process measurement in the business for all levels of authority
and responsibility. It has incorporated the proven business practices. The scorecard can be
applied to businesses that offer either products or services. Each business is viewed as a
collection of processes; the management of business processes becomes an objective, which is
monitored using performance measurements.
The Six Sigma business scorecard allows for both measuring success and planning for future.
Planning includes 15 parameters: leadership and improvement, extent of improvement, business
opportunities analysis, organizational adjustments, vision, goals, cost competencies, system
thinking, employee’s involvement, team structure, understanding measurements, identifying
process measurements, action plan for performance, corporate plans and progress review [6]
.
Planning helps to create the system that would improve the company’s performance. This
scorecard represents the first step in the direction of fine tuning business performance for
sustainable profit growth. Emphasize growth cost to maximize profit and emphasize innovation
to maximize growth.
The effectiveness of Six Sigma Balanced scorecard has been validated by data for DOW 30
companies using criteria for America’s Most Admired Companies at Fortune Magazine’s
website.
5.0 The Six Sigma BSC- History and Development:
BSC was developed by Harvard professors, Robert Kaplan and David Norton (Kaplan and
Norton, 1992; 1996) [7]
. BSC is a strategic management device to transform strategy into actually
real action, which includes four management process dimensions: finance, customer, internal
process, and learning and growth. The features of BSC are to implement strategies in actually
daily operations and to move the focus of evaluation from financial perspective to customer,
internal process, and learning and growth, helping industries convert strategies into actual
operations. BSC not only evaluates past performance, but also creates future focus. BSC can
effectively connect evaluation systems and organizational strategies. Therefore, the concepts of
BSC have been adopted by many industries and the related research followed closely behind.
The four dimensions of BSC are depicted in Figure 3.
Combination of Six Sigma and BSC
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The combination of integrating Six-Sigma with BSC was first proposed by Gerald. K. DeBusk
and Chuck Debusk (November 2011) in their Harvard Note: ‘Combining Hoshin Planning with
the Balance Scorecard to Achieve Breakthrough Results’[8]
. The following is an excerpt of
their paper:
“Many organizations today are adopting Lean and Lean Six Sigma (LSS) tools
and philosophies. Studies conducted by us revealed that four of every ten
organizations are using Lean or Lean Six Sigma. Earlier research that we
performed on LSS raised our curiosity as to what complimentary effects, if any,
exists for organizations that both LSS and Strategy or Policy Development tools
such as Balance Scorecard or Hoshin Planning which originated in Japan. If such
strategy deployment tools where being used in LSS organizations, would their use
have an effect on LSS benefits? We surveyed more than 200 members of the
Execution Premium Community (XPC), asking them about their use of LSS and
of the BSC and Hoshin Planning. The results reveal that the combination of BSC
and Hoshin Planning can be especially helpful for those organizations pursuing
LSS.”[8]
According to the article, companies like Toyota, Motorola, GE and 3M integrates Hoshin
Planning with Six Sigma [9]
. The Balance Scorecard aligns the day to day business decisions of
the company with the overall strategy of the company. The metrics of BSC are to be designed in
such a way that it reflects the growth/expansion/market development strategy of the company in
the long run. Let us take an example. Suppose a Company X is promoting Lean Philosophy both
within and outside its organization. Now let us assume that within the vertical of ‘Internal
Processes’ the company calculates production cost/unit of widget produced. Now, going by the
lean philosophy, this is not a proper measure since this will lead the company to
‘overproduction’ (thus increasing the number of widgets produced) to reduce the per unit
production cost. Thus ‘overproduction’ and ‘lean’ will become two conflicting ideas within the
company. Instead, if the company goes with minimizing the measurement of production
cost/unit man-hour saved or production cost/unit of capacity utilization, this will result in
living upto the company strategy of Lean Philosophy. Because, in both the cases, either reducing
the production cost alone, or increasing the man-hour saved or capacity utilization alone will
result in the decrease of the overall metric.
Same case happens when Six-Sigma Projects of a company is aligned to the business strategy
through BSC. Let us take another example of Company Y whose underlying business strategy is
to create shareholder value through ‘Product Differentiation’. This logically gives rise to one of
the business objectives of ‘Built in Quality within Manufacturing Processes to reduce cost of
poor quality’. Now, if we refer to the Kaplan-Norton verticals of BSC this goes into the vertical
of managing ‘internal processes’. Moving on, this gives rise to one the operational objective of
‘reducing cost of poor quality’. This in turn can give rise to one of operational metric of
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‘reducing percentage defects in a particular process by 20% (say)’. This paves the way for the
scope of a Six-Sigma Project (Define + Measure phase) in this area.
This is how; every six sigma project an organization takes up, it gets aligned with the guiding
business strategy of the company. The flow-chart (Figure 4) gives an idea about how BSC and
Six- Sigma
works
hand
in hand
towards fulfilling the business strategy of a company.
Figure 3: Components of Balanced Scorecard (Kaplan, Norton 1996) [8]
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Figure 4: Roadmap of Implementing BSC and Six-Sigma
Six Sigma project management and BSC:
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Project management includes five major processes, “Initiating”, “Planning”, “Executing”,
“Monitoring and Controlling”, and “Closing” as well as nine knowledge areas, “Integration”,
“Scope”, “Time”, “Cost”, “Quality”, “Human resource”, “Communications”, “Risk”, and
“Procurement” [9]
. Evaluations and selections of projects, which are created through the project
initiation stage, can bring enterprises improvements and financial benefits, but both cannot be
carried out simultaneously under constraints of labor, budget, and time. Thus, it is crucial to
select projects based on certain criteria. Six Sigma project manages establishing dimensions. In
addition to the features of Six Sigma projects, to further acquire perfection and thoroughness,
one can consider quality strategies of BSC. Kaplan and Norton (1996) [8]
pointed out that BSC
can integrate organization’s mission, views, goals, and strategies into one comprehensive
evaluation structure for measuring strategy and management system. Because the themes of Six
Sigma project and organizational goals call for each other and BSC links performance
evaluation, organizational goals, and strategy together, this implies that BSC and Six Sigma
project process share similarity. BSC emphasizes quality and cost and takes into account of four
major directions including finances, customer, internal process, and learning and growth to
effectively achieve desired goals. Thus, the idea of BSC can complement the inefficiency of the
dimensions of evaluation structure. Following Figure 5 shows the proposed evaluation
framework of process performance of Six Sigma project management based on the BSC.
6.0
Figure 5: Six Sigma Project Management and BSC [9]
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Components of the Six Sigma Balance Scorecard:
The Six Sigma BSC combines the various measurements into 7 elements [10]
:
1. Leadership and Profitability
2. Management and Improvement
3. Employees and Innovation
4. Purchasing and Supplier Management
5. Operational Execution
6. Sales and Distribution
7. Service and Growth
The corresponding 10 measurements include [10]
:
1. Employee recognition
2. Profitability
3. Rate of improvement in process performance
4. Recommendations per employee
5. Total spending per sales
6. Suppliers’ defect rate
7. Operational cycle time variance
8. Operational Sigma
9. New business per total sales
10. Customer satisfaction
The measurements listed above are more to do with the processes than with the function. It
strives to challenge the existing processes and improve profitability. The system is not
prescriptive though, it needs to be adapted to local conditions of a given company to match its
organizational structure and culture. Based upon the ten critical measurements, the scorecard
includes Business Performance Index (BPIn), which is the sum of weighted average of corporate
performance in various measurement areas of the scorecard. This BPIn can be used to determine
sigma level at corporate, which is missing in the traditional six sigma methodology.
7.0 Flow Model to Design the Six-Sigma Balance Scorecard:
The flow model to design an effective Six Sigma Balance Scorecard for the Organization is
depicted in the following flowchart (Figure 6). This Flow Model provides a detailed roadmap of
the BSC implementation. Ideally the BSC implementation in a company should be more
proactive rather than reactive. Integration of BSC with Six Sigma roadmap is a very crucial part
and should be done with proper strategy in place [11]
.
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Commit to using the Six Sigma business scorecard by integrating Six Sigma in a revised vision
of the company. Use metrics to define target.
Understand the intent of the Six Sigma business scorecard. How it aligns to the company strategy
(Hoshin Kanri)
Create a Business Performance Index (BPI). BPI is a sum of weighted corporate performance in
various categories of the Six Sigma business scorecard. This scorecard also portrays how the BPI
can be used to determine a corporate sigma level that is missing in the Six Sigma methodology
used today.
Establish short term and long term improvement goals for a profit center or the company.
Establish measurements for each element of the Six Sigma business scorecard for each profit
center.
Establish the relationship between profitability and Six Sigma business scorecard measurements.
Develop plans to utilize technology to automate the data collection and analysis. Using ERP
systems can help in this case.
If multiple profit centers exist, establish an aggregated Six Sigma business scorecard for the
corporation
Identify key processes for improving business performance
Identify input, in-process, and output process parameters
Establish data collection methods for these process parameters
Collect data and calculate the error rate, cycle-time and cost for each department
1
2
3
4
5
6
7
8
9
10
11
12
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Figure 6: Flow Model to develop Six-Sigma BSC [11]
8.0 Implementation and Monitoring:
The first step in implementing the Six Sigma business scorecard is to perform feasibility study to
identify which categories of improvement can be easily implemented and which will require
greater effort. Based on the processes that exist in a business, the leadership team must develop a
Six Sigma business scorecard that is suitable to achieve its process improvement objectives. The
successful implementing Six Sigma business scorecard includes creating awareness, building the
business model, establishing the BPI, establishing Six Sigma business scorecard measurements,
ensuring data collection capability, managing change and integrating technology and the Six
Sigma business scorecard. Implementing the Six Sigma business scorecard requires a total
leadership approach. It requires balance between production and innovation, productivity and
creativity, management and leadership, cost and revenue, personal and professional and
profitability and growth. Since the Six Sigma business scorecard is a measure of tangible and
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17
18
19
Plot trend charts and present the data with respect to established goals on a weekly basis
Publish the weekly BPI and monthly Six Sigma business scorecard reports
Review business performance using Six Sigma business scorecard results
Identify measurements with the greatest variance and adverse performance
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intangible accomplishments, the leaders, therefore, need to find a personality suitable way to
maintain a balance between knowledge and goodness, wealth and health, tangibles and
intangibles and profits and growth. The strategy must be developed for execution by knowing the
current capability, constraints and resources. The tool for Six Sigma includes the Six Sigma
business scorecard, Six Sigma, innovation and the 4P (Prepare, Perform, Perfect and Progress)
model of process improvement. Small businesses can make adjustments to the measurement
system based upon function and the size of the organization. The broad guidelines for
implementing an effective Six Sigma BSC goes as follows [12]
:
It is better to assign a person to be the champion for implementing and maintaining the
scorecard measurements.
An efficient data collection mechanism should be established and database in which to
enter the data should be conceptualized.
Analysis needs and reporting procedures should be mandated.
Data should be reviewed and necessary action should be taken in a timely fashion.
Six Sigma BSC should be reviewed on a monthly basis.
Measurements should be reviewed and correlated with profitability and growth and
appropriate actions should be taken wherever necessary.
Simply implementing the Six Sigma business scorecard is not enough to improve the business
performance. The business scorecard must be implemented interactively - the management and
employees must be involved in review and actions. In order to be profitable and achieve growth,
a company needs to monitor employee recognition, rate of improvement and innovation in
addition to the standard performance measurements of cost, quality and cycle time. The objective
of the review process is to ensure these indicators demonstrate the corporate performance as
planned. The purpose of the management review is for leadership collectively to understand
company’s performance look into the opportunities for further improvement, identify conflicting
priorities among various departments and assess the strategies being implemented for
effectiveness and operational execution for expected results. An effective management review
must be planned with a clear agenda. The following figure (Figure 7) shows the agenda on the
basis of which it should be formed [13]
:
Agenda for Implementation
Status and
Effectiveness
Measurement
Metrics
Corporate Sigma
Level
Continuous
Improvement
Sustainability of
BSC
Figure 7: Agenda for Implementing Six Sigma BSC in Organization [13]
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The monitoring includes mainly leadership performance review, employee’s performance
review, management performance review and annual review. Under leadership performance
review, the leadership must be evaluated as a process by stakeholders, including employees. The
employee performance review includes the elements like excellence expectations, demonstrated
excellence, areas of improvement, growth plans, value plans and plans for innovations. The
management performance review incorporates assessments in the key areas of rate of
improvement, breakthrough solutions, direct value creations (including Six Sigma projects) and
leadership practices. Assessments in these areas must be performed against clearly established
expectations for improvement. The business scorecard emphasizes the role of managers to lead
the aggressive rate of improvement, generate savings and recognize employees. Besides having
annual goals for Six Sigma implementations and using the Six Sigma business scorecard,
successful implementation requires an annual review for suitability, adequacy and effectiveness
of the corporate strategies, including Six Sigma. Finally, an independent review by a third party
will ensure the integrity of the Six Sigma business scorecard.
9.0 Hoshin Kanri and Six Sigma BSC [14]
:
The Japanese translation of Hoshin-Kanri is as follows:
ho: method
shin: shiny metal showing direction
kanri: planning
A useful interpretation of the literal translation is that Hoshin-Kanri is a methodology for setting
strategic direction. It is also known as Hoshin Planning, Policy Management, and Policy
Deployment. Hoshin-Kanri (HK) is a quality planning and management method that was
developed in Japan by Yokogawa Hewlett-Packard in the early 1970s. By 1975, it had become
widely adopted by other Japanese industries. By the mid-1980s, a few Western companies, such
as Hewlett-Packard, Porter and Gamble, AT&T, Xerox Corporation, IBM, Florida Power and
Light, and Texas Instruments [14]
, had started implementing their own versions of HK. With the
exception of these few companies, its initial reception by other Western companies was less than
warm. HK called for a lot of Change Management mechanisms in the organization which most
of the companies were not flexible enough to adhere to.
Hoshin Kanri perceives the strategic management of an organization as a process and
implements process control activities to strategic management. Deming’s PDCA (Plan-Do-
Control-Act) cycle is adapted to Hoshin Kanri as the FAIR (Focus-Alignment-Integration-
Review) cycle by Witcher & Butterworth which is presented in Figure 8. FAIR is an annual
cycle, which begins when management ‘acts’ to review the previous year’s performances and
formulates the strategic focus for the coming year, which is expressed as the ‘vital few
objectives’. Then the cycle turns to the ‘plan’ phase and the vital few objectives are aligned with
annual plans and deployed by the ‘catchball process’ through the business units. The ‘do’ phase
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is the integration of the vital few objectives into daily management, in other words the plans are
executed where the PDCA cycle is used continuously for taking corrective actions, process
improvement and standardization. The ‘control’ phase is a review of the annual performance.
Data from a completed cycle are fed back into the act phase, so the cycle starts over.
Figure 8: The FAIR Cycle of Strategic Management [14]
9.1 Inter-relation between Six-Sigma Balance Scorecard and Hoshin-Kanri
Balanced Scorecard and Hoshin Kanri are analogous, both seek breakthrough performance,
alignment of strategies, and integrated targets for all levels within an organization, yet there are
areas where they differ [15]
.
Area Balance Scorecard Hoshin Kanri
Focus Vision & Strategy Vision + Vital Few Objectives
Characteristics Performance based Process based
Orientation Target oriented Means oriented
Strength Structured and conceptual
framework
Catchball Process and
communicative
Weakness Top down; lack of
participation
Hard to determine the vital
few metrics
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Yet, Hoshin-Kanri and BSC is very fundamentally related as shown below (Figure 9).
Figure 9: The House of Business Excellence
9.2 Performance Metrics for BSC- Performance, Profitability and Standards
Growth and profitability must be distinctly managed. Profitability depends more on internal
factors, while growth depends more on external factors. Growth is realized through strategy and
profit through execution. The Six Sigma business scorecard incorporates factors that lead to both
profitability and growth. To improve profitability key measurements are highlighted to maintain
visibility of profitability. These measurements are purchasing, operational execution, and sales
and distribution. Other measurements highlighted to drive growth include leadership, employee
innovation, service and growth. For the BPI, measurements can be broken down into profit and
growth categories as shown below [16]
:
Profit Metrics Growth Metrics
Profitability
Rate of Improvement
Total Spending per sales
Supplier’s defect rate
Operational Cycle time
Operational Sigma
Employee Recognition
Rate of Improvement
New Business
Customer Satisfaction
Additional measurements are monitored at the departmental and process levels. These include a
large number of measurements for leadership in order to promote innovation and profitability.
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10.1 Case in Point 1: Airlines Industry [17]
The following illustration (Figure 10) uses airline sector example to show how the BSC
framework provides the strategic context for launching Six Sigma projects which are aimed at
closing strategic performance gaps. The left side shows the strategic objectives across the four
BSC perspectives. Moving from left to right, each strategic objective has the corresponding
measure, target and initiative.
Figure 10: Six Sigma-BSC in Airline Industry
Here, the airline wants to increase return on net assets. The strategy to do this requires quick
clearance of the plane by the ground staff who can turn around the plane quickly and get it back
in the air. This would enable the airline to consistently improve and offer lower prices. Lower
price is a customer proposition that would attract and retain customers. The airline measures fast
turnaround times by tracking the amount of time a plane spends on the ground and the
percentage of planes that depart on time. The performance targets for these are 30 minutes and
90% respectively. Now, in order to achieve and retain these targets, airline uses six sigma to
lower non-maintenance cycle time.
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So, to summarize, the Balanced Scorecard describes the strategy for creating value and it aligns
resources to ensure the strategy is successfully executed. Six Sigma is the platform by which
these strategic measures are achieved using data and process improvement tools. BSC acts here
as the compass and Six Sigma as the fuel.
10.2 Case in Point 2: US Healthcare Industry [18]
Healthcare’s Value Chain
Understanding healthcare, from a business perspective, is critical to insuring the long-term
viability of a delivery system. It is also a prerequisite to applying both the balanced scorecard
approach and Six Sigma methodology. Six Sigma originally grew from a setting that was
primarily industrial and product-focused. Within this environment, operations are performed on
raw materials and as a result they become more valuable component parts. These component
parts are then built into higher-level assemblies and ultimately products of progressively
increasing value. The value chain for healthcare differs significantly from this model and is
illustrated below (Figure 11):
Figure 11: Healthcare Value Chain
The value chain for healthcare begins with highly satisfied, dedicated and well- motivated care
providers. This produces high internal quality, which relates to process steps that are felt by the
institution and are not directly felt by the patient or referring physician. An example of an
internal quality metric is the cycle time for the transcription of a radiology report. This represents
an interim step in the process that begins with the recognition of need for the exam and ends with
the authenticated report in front of the clinical decision maker. Naturally then, high external
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quality follows from high internal quality. In other words, quality in those steps that are felt by
the customer leads to high customer satisfaction and loyalty. This, in turn, leads to revenue and
margin, completing the value chain.
When appropriate performance metrics are aligned along the value chain, they provide greater
insight into how the system is performing today, and what it may anticipate in the future. This
concept is illustrated below. In this illustration the organization under consideration is operating
well in its financial and customer satisfaction metrics as indicated by the upward pointing green
arrows. Employee satisfaction and internal quality are poor as indicated by the downward
pointing red arrows. As a result, external quality felt by the customer is beginning to decline as
indicated by the yellow arrow pointing sideways. It is intuitive that if this trend continues,
customer satisfaction and financial performance will begin to decline as well.
Figure 12: Cause and Effect on Value Stream
The balanced scorecard approach is based upon understanding healthcare’s value chain and
aligning both strategy and the extended delivery teams’ behavior to focus on those activities
necessary for the sustained creation of value. Six Sigma methodology is based on statistically
quantifying the impact of causal factors on the variability of results. When applied in concert,
they represent powerful tools that can be effectively deployed to align the organization’s vision,
mission, strategy and specific behaviors toward the sustained creation and delivery of value.
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11.0 Conclusion:
The business scorecard strives for excellence, while standards require acceptance. To integrate
Six Sigma and ISO 9001 requirements, business leaders must understand how the ISO 9001
standard on performance will affect various elements of the business. The Six Sigma business
scorecard can be used to identify key business processes, establish measures of performance and
link those measures to the profitability of the company. As required by the ISO 9001 standard,
therefore, a procedure must be established to list a final set of measurements, collect necessary
data, analyse data, identify opportunities for improvement and formalize improvement action
using the corrective action system. Once the measurements are established, reviews of
performance levels and trends become part of the management review meeting. During this
review meeting, performance against planned goals is discussed and any necessary actions to
achieve continual improvement goals are implemented. To benefit from Six Sigma methodology
and comply with the continual requirements of the ISO 9001 standards, businesses must apply
the methodology economically. Improvements to products or services need to be linked to
corporate profitability. The improvement must accomplish in a cost-effective manner and only if
benefits outweigh the cost. Business management systems such as ISO 9001 require
implementation of measures of effectiveness, and methodology to improve. The business
scorecard can be used to monitor key business processes linking to the profit stream and Six
Sigma can be used as a methodology to improve processes. The business scorecard, therefore,
drives performance in conjunction with the business management system.
Six Sigma business scorecards is a unique approach to measure business performance which
includes consideration of all players who determine business performance in a corporation, thus
ensuring accountability, collaboration and innovation. It mandates inspiration by executives,
improvement by managers and innovation by employees. Six Sigma business scorecard delivers
an innovative execution map allowing the organizations to implement, reap and quantify the
many advantages of Six Sigma. It shows how to implement a successful and measurable Six
Sigma programme.
---
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12.0 References:
1. Praveen Gupta (1997), Six Sigma Business Scorecard, ‘Measuring Corporate
Performance through Six Sigma Business Scorecard’; 2nd Edition, New Delhi, Tata
McGraw-Hill, 2007, xviii+310pp. (Ebsco paper)
2. Iqra Abdullah, Tahira Umair, Dr Yahya Rashid and Basharat Naeem (2013)’
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