Why go Beyond Lean Six Sigma and the Balanced Scorecard?

Why go Beyond Lean Six Sigma
and the Balanced Scorecard?
Forrest W. Breyfogle III
CEO and Founder
Smarter Solutions®, Inc.
Austin, Texas, USA
Forrest@SmarterSolutions.com
www.SmarterSolutions.com
512-918-0280
Referenced Figures and Tables: The Integrated Enterprise Excellence System: An Enhanced Unified Approach to Balanced
Scorecards, Strategic Planning, and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, Copyright 2008
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
1
Why Go Beyond?
•
•
•
•
•
Scorecard and Performance Reporting
The Balanced Scorecard
Red-Yellow-Green Scorecards
Firefighting-Avoidance Scorecard
Integrated Enterprise Excellence (IEE) System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
2
Three Common Failures
• Metrics driving the
wrong behavior
• Scorecards driving
the wrong behavior
• Unneeded
Firefighting
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
3
Department Based Metrics
Major Electronics Company
• IT department directed to reduce
staffing (overhead labor rate metric)
– Currently supported 15 different
customer data warehouse systems
• To meet labor rate metric goal
– Move company to a single integrated
data warehouse with a single support
group
– The effort disrupted the entire company,
increased training costs, never did provide the
needed functionality
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Local
Local
improvement
improvement––
Net
Netloss
losstotothe
the
system
system
4
Efficiency Metrics
Fast Food Company
• Sets primary franchise metric
as “Chicken Efficiency”
– Chicken sold/chicken cooked
• Best Franchise (by efficiency
metric)
– Only cooked to order hours before
closing
– Customers would leave rather than
wait 15 minutes for food
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Forgot
Forgotthe
thetrue
true
purpose
purposeofofthe
the
business
business
5
Scorecards and Performance
Reporting
I need a Performance Dashboard!
I need a Balanced Scorecard!
• This is a current initiative in many
businesses.
• This is a positive path for all businesses!
– Or, is it?
– Can an improper
implementation
drive the wrong
behavior?
Hear
Hearabout
aboutaanew
newtrend
trendand
andget
getinspired.
inspired.
Do
Doitityourself,
yourself,ititcan
cannot
notbe
betoo
toohard.
hard.
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
6
Measured with only a Financial
Scorecard
Enron (and others)
• Entire company leadership driven to keep
stock price up.
– Pay and benefits a function of stock prices
• Company fails
– Adjusted financial practices to maintain
quarterly gains
– Manipulated the market place to keep
revenue up
– Played with financial reporting to make things
look better than they were
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
7
Traditional Performance
Measures: Accounting
•
•
•
… information must also be easily understood and actionable. Over the years,
however, managers have been forced to understand their own departments, not in
terms of income and cost, but as variances and percentages that bear little
relationship to reality
Those same managers learned that variances could be nudged up or down to
present a better picture of the operation – for instance by using labor hours to make
a million pieces of plastic that were not actually needed – even if that meant
damaging the real business interests
Complex accounting created a kind of funhouse mirror, where a skinny man could
look fat by simply shifting his position
From Real Numbers by Jean E. Cunningham and Orest J. Fiume, Managing Times
Press, 2003
Section 2.1: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
8
Performance Measures: Tabular
P erformanc e Meas ure F Y 2001 F Y 2002 F Y 2003 F Y 2003 F Y 2004 Ac tual Ac tual Ac tual Amended Amended P erc entag e of c us tomers s atis fied 99.99%
with dis patc h s taff P erc entag e of priority one c alls dis patc hed to field c rews within 99.99%
80 minutes of rec eipt L abor c os t per c us tomer c all $4.20 taken in Dis patc h O perations Number of c alls taken throug h 62,054
Dis patc h O perations 100%
99.99%
98%
98%
99%
99.99%
95%
95%
$5.31 $5.09 $4.88 $5.09 59,828
63,046
60,000
60,000
Number of priority one c alls dis patc hed to field c rews 5,797
4,828
6,686
5,000
6,500
Number of work orders and c omponent parts (s eg ments ) c reated in databas e 8,226
4,724
7,742
5,500
6,700
Table 2.1: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
9
Performance Measures: Classical
Balanced Scorecard
Financials
Customer
Balance
Balanceininperformance
performancemetrics
metricsisisgood,
good,but
butorganizational
organizational
metrics
metricsshould
shouldnot
notderive
derivefrom
fromthe
thestrategy.
strategy. Satellite-level
Satellite-level
metric
metricimprovement
improvementneeds
needsshould
shouldlead
leadtotostrategy
strategyand
and
there
should
be
natural,
not
forced,
metric
balance.
there should be natural, not forced, metric balance.
Vision and
Strategy
Internal Business
Processes
Each Category has:
Learning and
Growth
Objectives, measures, targets,
and initiatives
Figure 2.5: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
10
Performance Measures: Balanced
Scorecard Executive Dashboard
•
•
•
Executive Dashboard - example
Example for a Service Organization This Executive Dashboard is tailored to a
global service corporation. The company wins through best-in-class customer
service. The parameters are fed by the following underlying strategic goals: grow
revenue 25% per year, earn minimum of 20% net profit, achieve 60% of revenue
with repeat customers, balance regional growth, fill open positions corresponding
with growth, ensure all employees are competent and high performers, realize
projects within time and cost targets, limit ratio of overhead to productive time to
20%, and satisfy customers 100%.
The charts are color coded to help clearly identify actual performance versus
targets and forecasts. The exclamation marks indicate "red flags" that require
management attention.
Section 2.6: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
11
Performance Measures: Balanced
Scorecard Executive Dashboard
Inventory: WIP, FG
$
Revenue by Market
Bookings
10 0
100
% Profit in %
!
50
20
50
!
6-12
months
A
B
C
!
D
- 50
1 2 3 4 5 6 7 8 9 10 11 12
1 2 3 4 5 6 7 8 9 10 11 12
- 10 0
Top 10 Customers
20
Employee Turnover
!
ASP Widget vs Industry
Quality and Returns
Level 20
Level 17
1 2 3 4 5 6 7 8 9 10 11 12
Level 16
1 2 3 4 5 6 7 8 9 10 11 12
Level 15
10
0
Factory Utilization
New Product Revenue
3
90%
!
Level 30
$ Billings
Level 25
3-6
months
0-3
months
0
0
1 2 3 4 5 6 7 8 9 10 11 12
100
Customer Satisfaction
!
2
30%
1
GREEN
HELPFULNESS
YELLOW
COMMUNICATION
1 2 3 4 5 6 7 8 9 10 11 12
5
COMPETENCE
RED
4
COURTESY
3
SPEED
0
QUALITY
0
1 2 3 4 5 6 7 8 9 10 11 12
Figure 2.6: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
12
Performance Measures: Balanced Scorecard
Executive Dashboard Drill Down
10 0
!
RED
Good
Good=>
=>Uses
Usesdata
data
Poor
Poor=>
=> Not
Notrelative
relativetotopast
past
100%
100%satisfaction
satisfactiongoal?
goal?
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
YELLOW
HELPFULNESS
COMMUNI
CATI
ON
COMPETENCE
COURTESY
0
SPEED
•Why is it a problem?
•Does this lead to good
behaviors?
CUSTOMER SATISFACTION
QUALITY
Executive Dashboard Customer Satisfaction
Example
GREEN
Figure 2.7: The Integrated
Enterprise Excellence System
13
Performance Measures: Balanced Scorecard
Executive Dashboard Drill Down
Executive Dashboard
- Profit Example
PROFIT IN %
30
20
• Why is this a problem?
• Could this lead to the
wrong behavior?
!
10
0
1
Good
Good=>
=> Uses
Usestime
timeseries
seriesplot
plot
Poor
Poor=>
=> Not
Notconsidering
consideringpast
pastfiscal
fiscalyear
year
Can
Cannot
nottell
tellififthis
thisisisaaproblem
problemoror
normal
normalvariation
variation
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
2 3
RED
4
5
6 7
8
9 10 11 12
YELLOW
GREEN
Figure 2.8: The Integrated
Enterprise Excellence System
14
Process Tracking and Performance
Metrics
EFFECTIVE METRICS
TYPICAL METRICS
• Fiscal year
• View the enterprise as a system of
• Unrelated to improvement
processes
system
• View metrics as the result of these
• Point to point comparisons
processes
• Acknowledge the effect of variability
within these processes
• Support long-lasting change as the
result of systematic improvement to
these processes
Figure 3.7: The
Integrated Enterprise
Excellence System
Xs
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Xs
Xs
15
What are Integrated Enterprise
Excellence (IEE) metrics?
•
IEE SATELLITE-LEVEL metric: A high level business
metric like gross revenue or profit margin, with
subgroupings. Presented with no calendar boundaries.
Satellite-Level
30,000-Foot-Level
•
IEE 30,000-FOOT-LEVEL
metric: A project or
operation metric variable
like defective rate, lead
time, or days sales
outstanding (DSO) with
infrequent
subgrouping/sampling.
Figure 3.4: The Integrated
Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
16
What are good metrics?
• 30,000 foot-level metrics are derived
from the business value chain producing
functions
• Improvements in the 30,000 foot-level
metrics correlate with satellite-level
metric improvements
• Goals for satellite-level metrics lead to
business strategies
• Undesirable performance in 30,000 footlevel metrics creates a pull for
improvement projects
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Effective Inputs
Product
Development
Lead Time
New Customer
Additions
Quote
Response
Time
Lead Time
Timely Inputs
Developed
Product Design
Quality
Existing
Customer
Additions
Quote Quality
Defective Rate
Voice of the
Customer
(VOC)
Enterprise
Process
Management
(EPM)
Develop
Product
Market Product
Information
Technology
(IT)
Finance
Sell Product
Produce &
Deliver Product
RFQ Response
Acceptance
Rate
Work in
Process (WIP)
Internal
Process
Reworks
On-time
Delivery
Product
Margins
TOC
Throughput
Gross
Revenue
Days Sales
Outstanding
(DSO)
Invoice and
Collect
Payment
Percent
Annualized
Gain in Gross
Revenue
Report
Financials
Net Profit
Margins
Human
Relations (HR)
Safety and
Environment
Labor
Relations
Legal
Figure 7.3: The Integrated
Enterprise Excellence System
Satellite-Level
30,000-Foot-Level
17
Firefighting – a necessary skill?
• Firefighting, what is it?
– Effort to correct a crisis while ignoring
other activities
– Treating common cause problems as
special causes
• What are the issues with Firefighting?
– Takes resources away from planned
work, causing it to be delayed. (possibly
creating the next fire)
– Top leadership was promoted because
of firefighting skills
– Needed action in order to react to
changing priorities
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Are
Arewe
weasking
askingthe
thewrong
wrong
question?
question?
Why
Whyare
arethe
thepriorities
priorities
changing
changingso
sooften?
often?
18
A Corporation’s
Red-Yellow-Green Scorecard
Monthly S C O R E C AR D
B us ines s Unit N ame
Meas urement
C US T O ME R
C us tomer Metric A
Y ellow if equal to or hig her than
G reen if equal to or higher than
C us tomer Metric B
Y ellow if equal to or hig her than
G reen if equal to or higher than
C us tomer Metric C
Y ellow if equal to or hig her than
G reen if equal to or higher than
C US T O ME R
F INANC E
F inanc e Metric A
Y ellow if equal to or hig her than
G reen if equal to or higher than
F inanc e Metric B
Y ellow if equal to or hig her than
G reen if equal to or higher than
F inanc e Metric C
Y ellow if equal to or hig her than
G reen if equal to or higher than
F inanc e Metric H
Y ellow if equal to or hig her than
G reen if equal to or higher than
F inanc e Metric I
Y ellow if equal to or hig her than
G reen if equal to or higher than
F INANC E
INT E R NAL B US INE S S O P E R AT IO NS
IB O Metric A
Y ellow if equal to or hig her than
G reen if equal to or higher than
IB O Metric B
Y ellow if equal to or les s than
G reen if equal to or les s than
IB O Metric C
Y ellow if equal to or les s than
G reen if equal to or les s than
IB O Metric D
Y ellow if equal to or les s than
G reen if equal to or les s than
IB O Metric F
Y ellow if equal to or les s than
G reen if equal to or les s than
IB O Metric G
Y ellow if equal to or les s than
G reen if equal to or les s than
IB O Metric H
Y ellow if equal to or hig her than
G reen if equal to or higher than
INT E R NAL
B US INE S S O P S
L E AR NING AND G R O W T H
L &G Metric A
Y ellow if equal to or les s than
G reen if equal to or les s than
L &G Metric B
Y ellow if equal to or hig her than
G reen if equal to or higher than
L E AR NING
& G R O WT H
T arg ets Aug '04
0.720
0.750
1.830
1.860
0.750
0.780
3.05
3.1
2.2
2.25
0.9
0.95
0.21
0.25
S ep'04
O ct'04
N ov'04
D ec'04
J an'05
F eb'05
Mar'05
Apr'05
May'05
J un'05
J ul'05
Aug '05
0.63574 0.653576 0.660404 0.732996 0.62521 0.708566 0.641873 0.727115 0.687201
0.6123 0.670894
0.6341 0.654525
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
1.866044 1.804823 1.777056 1.87373 1.791988 1.826504 1.824634 1.799849 1.822007 1.838969 1.87088 1.893155 1.894069
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
0.82475 0.730724 0.627179 0.728212 0.751174 0.801946 0.780248 0.761874 0.68133 0.790902 0.728168 0.790485 0.794933
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
3.387525
3.05
3.1
2.09819
2.2
2.25
0.762611
0.9
0.95
0.222716
0.21
0.25
0.490024
0.3
0.35
2.965966
3.05
3.1
2.254758
2.2
2.25
0.958071
0.9
0.95
0.480099
0.21
0.25
0.27568
0.3
0.35
RED
YELLOW
GREEN
3.042505 2.891057 3.485847 2.867981 2.764183 3.297147 3.301612 2.892969 2.737161
3.0936 2.772979
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
2.345674 2.207099 2.316309 2.214396 2.156223 2.493305 2.509988 2.163489 2.168469 2.288786 2.14113
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
1.051227 0.867969 1.158351 0.82278 0.800541 0.989747 0.980718 0.611179 0.789868 1.035084 0.920254
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.296397
0.203
0.3541
0.2326
0.1693
0.4552
0.2278
0.194
0.288
0.321
0.241
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.190908
0.357
0.5284
0.4058
0.3391
0.3347
0.3247
0.327
0.286
0.383
0.247
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
Monthly S C O R E C AR D
0.3
0.35
B us ines s Unit Name
1.70
1.73
1.7693
1.70
1.73
0.20531
0.25
0.22
0.427692
0.26
0.21
2.66634
2.60
2.58
0.113318
0.086
0.068
0.043949
0.06
0.05
1.222222
1.33
1.45
1.73499
1.70
1.73
0.18053
0.25
0.22
0.505666
0.26
0.21
2.64814
2.60
2.58
0.157456
0.086
0.068
0.078984
0.06
0.05
1.222222
1.33
1.45
4.47048
5
4.5
68.1916
65
75
5.23666
5
4.5
69.643
65
75
1.80064 1.76888 1.76068 1.79877 1.863956 1.862206 1.829389 1.875557 1.741041 1.69758 1.704457
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
0.184817 0.16204
0.18
0.178
0.202
0.205
0.176
0.226
0.201
0.197
0.231
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.504354 0.568529 0.44906 0.464186 0.446241 0.422419 0.445758 0.475769 0.340339 0.366324 0.354783
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
2.69324 2.67166
2.68
2.66
2.67
2.68
2.65
2.67
2.67
2.69
2.7
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
0.163175 0.146534
0.113
0.143
0.143
0.173
0.143
0.163
0.133
0.143
0.143
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.051823 0.055083 0.110424 0.068515 0.080985 0.076333 0.07306 0.077379 0.103885 0.069867 0.142498
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
1.166667
1
1
1
1 1.166667 1.333333
1.25 1.230769 1.266667
1.3125
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
Meas urement
F INANC E
F inanc e Metric A
Y ellow if equal to or hig her than
G reen if equal to or hig her than
F inanc e Metric B
Y ellow if equal to or hig her than
G reen if equal to or hig her than
0.25
0.22
0.26
0.21
2.60
2.58
0.086
0.068
0.06
0.05
1.33
1.45
5
4.5
4.17365
5
4.5
57.0598
65
75
4.57158
5
4.5
62.4947
65
75
4.54306
5
4.5
59.6528
65
75
4.31449
5
4.5
74.1863
65
75
4.67242
5
4.5
77.7315
65
75
3.67574
5
4.5
54.8459
65
75
F inanc e Metric C
Y ellow if equal to or hig her than
G reen if equal to or hig her than
65
75
T arg ets Aug '04
3.57205
5
4.5
83.5998
65
75
O c t'04
Nov'04
Dec '04
3.387525
3.05
3.1
2.09819
2.2
2.2
2.25
2.25
2.965966 3.042505 2.891057
3.05
3.05
3.05
3.1
3.1
3.1
2.254758 2.345674 2.207099
2.2
2.2
2.2
2.25
2.25
2.25
3.485847
3.05
3.1
2.316309
2.2
2.25
0.762611
0.9
0.9
0.95
0.95
0.958071 1.051227 0.867969
0.9
0.9
0.9
0.95
0.95
0.95
1.158351
0.9
0.95
3.05
3.1
4.94651
5
4.5
57.6235
65
75
S ep'04
4.92629
5
4.5
66.4914
65
75
4.55868
5
4.5
54.2673
65
75
6.00471
5
4.5
50.719
65
75
Table 2.5: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
19
Monthly SCORECARD
Business Unit Name
Measurement
CUSTOMER
Customer Metric A
Yellow if equal to or higher than
Green if equal to or higher than
Customer Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Customer Metric C
Yellow if equal to or higher than
Green if equal to or higher than
Let’s
Let’sexamine
examine
Finance
FinanceMetric
MetricBB
Targets Aug'04
0.720
0.750
1.830
1.860
0.750
0.780
FINANCE
Finance Metric A
Yellow if equal to or higher than
Green if equal to or higher than
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Finance Metric C
Yellow if equal to or higher than
Green if equal to or higher than
Finance Metric H
Yellow if equal to or higher than
Green if equal to or higher than
Finance Metric I
Yellow if equal to or higher than
Green if equal to or higher than
3.05
3.1
2.2
2.25
0.9
0.95
0.21
0.25
0.3
0.35
INTERNAL BUSINESS OPERATIONS
IBO Metric A
Yellow if equal to or higher than
Green if equal to or higher than
IBO Metric B
Yellow if equal to or less than
Green if equal to or less than
IBO Metric C
Yellow if equal to or less than
Green if equal to or less than
IBO Metric D
Yellow if equal to or less than
Green if equal to or less than
IBO Metric F
Yellow if equal to or less than
Green if equal to or less than
IBO Metric G
Yellow if equal to or less than
Green if equal to or less than
IBO Metric H
Yellow if equal to or higher than
Green if equal to or higher than
1.70
1.73
0.25
0.22
0.26
0.21
2.60
2.58
0.086
0.068
0.06
0.05
1.33
1.45
LEARNING AND GROWTH
L&G Metric A
Yellow if equal to or less than
Green if equal to or less than
L&G Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Green if equal to or higher than
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
C
33%
33%red
red&&50%
50%green?
green?
Special
SpecialororCommon
CommonCause?
Cause?
5
4.5
65
75
3.1
2.2
2.25
Sep'04
Oct'04
Nov'04
Dec'04
Jan'05
Feb'05
Mar'05
Apr'05
May'05
Jun'05
Jul'05
0.63574 0.653576 0.660404 0.732996 0.62521 0.708566 0.641873 0.727115 0.687201
0.6123 0.670894
0.6341
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.720
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
1.866044 1.804823 1.777056 1.87373 1.791988 1.826504 1.824634 1.799849 1.822007 1.838969 1.87088 1.893155
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.830
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
1.860
0.82475 0.730724 0.627179 0.728212 0.751174 0.801946 0.780248 0.761874 0.68133 0.790902 0.728168 0.790485
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.750
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
0.780
3.387525
3.05
3.1
2.09819
2.2
2.25
0.762611
0.9
0.95
0.222716
0.21
0.25
0.490024
0.3
0.35
2.965966
3.05
3.1
2.254758
2.2
2.25
0.958071
0.9
0.95
0.480099
0.21
0.25
0.27568
0.3
0.35
3.042505 2.891057 3.485847 2.867981 2.764183 3.297147 3.301612 2.892969 2.737161
3.0936
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.05
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
2.345674 2.207099 2.316309 2.214396 2.156223 2.493305 2.509988 2.163489 2.168469 2.288786
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
1.051227 0.867969 1.158351 0.82278 0.800541 0.989747 0.980718 0.611179 0.789868 1.035084
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.95
0.296397
0.203
0.3541
0.2326
0.1693
0.4552
0.2278
0.194
0.288
0.321
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.190908
0.357
0.5284
0.4058
0.3391
0.3347
0.3247
0.327
0.286
0.383
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
1.7693
1.70
1.73
0.20531
0.25
0.22
0.427692
0.26
0.21
2.66634
2.60
2.58
0.113318
0.086
0.068
0.043949
0.06
0.05
1.222222
1.33
1.45
1.73499
1.70
1.73
0.18053
0.25
0.22
0.505666
0.26
0.21
2.64814
2.60
2.58
0.157456
0.086
0.068
0.078984
0.06
0.05
1.222222
1.33
1.45
1.80064 1.76888 1.76068 1.79877 1.863956 1.862206 1.829389 1.875557 1.741041 1.69758
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.70
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
1.73
0.184817 0.16204
0.18
0.178
0.202
0.205
0.176
0.226
0.201
0.197
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.22
0.504354 0.568529 0.44906 0.464186 0.446241 0.422419 0.445758 0.475769 0.340339 0.366324
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.26
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
0.21
2.69324 2.67166
2.68
2.66
2.67
2.68
2.65
2.67
2.67
2.69
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.60
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
2.58
0.163175 0.146534
0.113
0.143
0.143
0.173
0.143
0.163
0.133
0.143
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.086
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.068
0.051823 0.055083 0.110424 0.068515 0.080985 0.076333 0.07306 0.077379 0.103885 0.069867
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
1.166667
1
1
1
1 1.166667 1.333333
1.25 1.230769 1.266667
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.33
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
1.45
4.47048
5
4.5
68.1916
65
75
5.23666
5
4.5
69.643
65
75
4.17365
5
4.5
57.0598
65
75
4.57158
5
4.5
62.4947
65
75
4.54306
5
4.5
59.6528
65
75
4.31449
5
4.5
74.1863
65
75
4.67242
5
4.5
77.7315
65
75
3.67574
5
4.5
54.8459
65
75
4.94651
5
4.5
57.6235
65
75
3.57205
5
4.5
83.5998
65
75
4.92629
5
4.5
66.4914
65
75
4.55868
5
4.5
54.2673
65
75
3.1
3.1
3.1
3.1
3.1
2.09819 2.254758 2.345674 2.207099 2.316309
2.2
2.2
2.2
2.2
2.2
2.25
2.25
2.25
2.25
2.25
3.1
3.1
3.1
3.1
3.1
3.1
3.1
2.214396 2.156223 2.493305 2.509988 2.163489 2.168469 2.288786
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.25
2.25
2.25
2.25
2.25
2.25
2.25
0 82278 0 800541 0 989747 0 980718 0 611179 0 789868 1 035084
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
20
IEE: Building a Better Scorecard
TRADITIONAL SCORECARD EXCERPT Traditional Performance Reporting Example – Red-Yellow-Green Scorecard
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05
2.10
2.25
2.35
2.21
2.32
2.21
2.16
2.49
2.51
2.16
2.17
2.29
2.14
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
IEE Improved Reporting for Process Assessment and Improvement
INDIVIDUALS CONTROL CHART
Normal Probability Plot
Individuals Control Chart
99
2.7
2.6
2.5
UCL=2.6192
95
The metric is colored red when a goal is not being met and corrective action needs to be taken.
90
2.3
2.2
70
_
X=2.2583
Percent
Response
80
2.4
60
50
40
32.657
30
This can result in counter‐productive initiatives, 24/7 firefighting, the blame game, and proliferation of fanciful stories about why goals weren’t met. 20
2.0
1.9
10
5
LCL=1.8974
5
04 '04 t'04 v' 04 c'04
05 '05 r '05 r'05 y'05 ' 05 l'05
'0
g'
p
n'
n
b
a
Ju A ug
Ja
Ju
Oc
A p Ma
De
No
Fe
Au
Se
M
Date
1
2.2
2.1
1.9
2.0
2.1
2.2
2.3
Response
2.4
2.5
2.6
Histogram
Most importantly it tells us nothing about what to expect in the future!
2.2
4
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
21
IEE: Building a Better Scorecard
TRADITIONAL PERFORMANCE REPORTING SCORECARD
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05
2.10
2.25
2.35
2.21
2.32
2.21
2.16
2.49
2.51
2.16
2.17 2.29
2.14
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20 2.20
2.20
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25 2.25
2.25
1
Response
SAME DATA
2.7
Individuals Control Chart
UCL=2.6192
2.6
2.5
2.4
_
X=2.2583
2.3
2.2
2.1
1
P
PROCESS IS
R
PREDICTABLE
O
2.0
1.9
Au
g
Se '0 4
p'
O 04
ct
N '0 4
ov
De ' 0 4
c'
Ja 04
n'
Fe 05
b
M '0 5
ar
'
Ap 05
r
M '0 5
ay
'
Ju 05
n'
0
Ju 5
l' 0
Au 5
g'
05
LCL=1.8974
Date
IMPROVED IEE DASHBOARD
1
Given no occurrences beyond the upper and lower control limits and no statisticallydetermined trends, the process is said to be in control. Then we can infer that the upand-down monthly variability is the result of common-cause variability. In that case, the
process is predictable.
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
22
IEE: Building a Better Scorecard
TRADITIONAL PERFORMANCE REPORTING SCORECARD
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Response
2.7
2.6
Individuals Control Chart
Normal Probability Plot
UCL=2.6192
99
SAME DATA
2.5
2.4
2.3
_
X=2.2583
2.2
2.1
2.0
2
LCL=1.8974
95
90
80
70
60
50
40
30
20
32.657
10
5
1
Au
g
Se '04
p'
O 04
ct
N o '0 4
v
De '04
c'
J a 04
n'
F e 05
b
M ' 05
ar
'
A p 05
r'0
M 5
ay
J u '05
n'
0
Ju 5
l
A u ' 05
g'
05
1.9
Percent
1
Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05
2.10
2.25
2.35
2.21
2.32
2.21
2.16
2.49
2.51
2.16
2.17
2.29
2.14
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.2
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
Response
Date
IMPROVED IEE DASHBOARD
2
Since the process is predictable, we can consider past data from the
region of stability to be a
random sample of the future.
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
23
IEE: Building a Better Scorecard
TRADITIONAL PERFORMANCE REPORTING SCORECARD
Finance Metric B
Yellow if equal to or higher than
Green if equal to or higher than
Response
2.7
2.6
Individuals Control Chart
Normal Probability Plot
UCL=2.6192
2.5
2.4
2.3
_
X=2.2583
2.2
2.1
2.0
2
LCL=1.8974
Au
g
Se ' 0 4
p'
O 04
ct
N o ' 04
v
De '04
c'
J a 04
n'
F e 05
b
M ' 05
ar
'
A p 05
r'0
M 5
ay
J u ' 05
n'
0
Ju 5
l
A u ' 05
g'
05
1.9
Date
99
Percent
1
Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05
2.10
2.25
2.35
2.21
2.32
2.21
2.16
2.49
2.51
2.16
2.17
2.29
2.14
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.20
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
2.25
95
90
80
70
60
50
40
30
20
32.657
10
5
1
3
2.2
1.9
2.0
2.1
2.2
2.3
2.4
2.5
2.6
Response
IMPROVED IEE DASHBOARD
3
PREDICTABLE PROCESS WITH ~32.6% NONCONFORMANCE RATE
(i.e., USING CURRENT PROCESS, METRIC WILL BE BELOW 2.2 ABOUT 1/3 OF THE TIME)
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
24
IEE Helps Confront the Hazards
COMPLIANCE
COMMODITIZATION
REGULATION
LIABILITY SUITS
GLOBAL COMPETITION
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
25
IEE Evolution
THE
THENEXT
NEXTSTEP
STEPIN
INTHE
THEEVOLUTION
EVOLUTIONOF
OFIMPROVEMENT
IMPROVEMENTSYSTEMS
SYSTEMS
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
26
What can you do? – IEE
• High-level enterprise metrics create a system so that organizations
get out of the firefighting mode
– There is no playing games with the numbers
• Project-based system that has a
support infrastructure similar to GE’s model
– Differences include:
• Do not require a defect definition for projects; i.e., primary metric is not a
quality metric
• Focus on pull for project creation from value-chain metric improvement
needs, where there is alignment to business goals and
analytically/innovatively determined strategic objectives
• Integrates Six Sigma, Lean, and TOC tool applications so that the
right things are done at the right time
IEE
IEE==Integrated
IntegratedEnterprise
EnterpriseExcellence
Excellence
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
27
IEE Enterprise Measurements, Analyses, and
Improvements
Satellite-Level
Process
Step 1
30,000-FootLevel
Work
Process
Step 3
Process
Step 2
Process
Step 4
Process
Step 5
Process
Step 6
Capacity of
process step
Customer
Demand
Organization’s
Vision and
Mission
Capacity is less
than demand
Voice of
Customer
D
M
A
I
C
Define
Measure
Analyze
Improve
Control
ENTERPRISE PROCESS: E-DMAIC
Effective Inputs
Timely Inputs
Voice of the
Customer
(VOC)
Product
Development
Lead Time
New Customer
Additions
Developed
Product Design
Quality
Develop
Product
Existing
Customer
Additions
Market Product
Quote
Response
Time
Quote Quality
Sell Product
RFQ Response
Acceptance
Rate
Enterprise
Process
Management
(EPM)
Information
Technology
(IT)
Finance
Gross
Revenue
Lead Time
Defective Rate
Produce &
Deliver Product
Days Sales
Outstanding
(DSO)
Invoice and
Collect
Payment
On-time
Delivery
Product
Margins
TOC
Throughput
Report
Financials
Net Profit
Margins
Work in
Process (WIP)
Internal
Process
Reworks
Percent
Annualized
Gain in Gross
Revenue
Human
Relations (HR)
Safety and
Environment
Labor
Relations
Legal
Business Goal
FMEA
Risk
Analysis
Strategies
Increase
monthly gross
revenue by 8%
in 10 months.
Increase
monthly profit
margins by 2%
in 10 months.
High Potential Areas
Projects
Improve
marketing
effectiveness
by 15% in 10
mo.
Improve product group
C search engine
ranking by 25%.
Reduce DSO
mean by 3
days in 7 mo.
Reduce DSO of
product group D and
leverage benefits to
other business groups.
Improve RFQ
acceptance
rate by
improving
quote response
time so that
quotes are
completed in
14 days. To be
completed in 5
mo.
Developed in
Example 12.1
Increase TOC
throughput by
2% in 7 mo.
R d
From: The Integrated Enterprise Excellence System: An Enhanced, Unified Approach
to Balanced Scorecards, Strategic Planning, and Process Improvement
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
Developed in
Example 12.2
Reduce costs from
d f tt
4b 15%
28
IEE System
D
M
A
D
V
Define
Product/Process
Measure
Product/Process
Analyze
Product/Process
Design
Product/Process
Verify
Product/Process
DESIGN FOR IEE (DFIEE): DMADV
D
M
A
I
C
Define
Measure
Analyze
Improve
Control
ENTERPRISE PROCESS: E-DMAIC
D
M
A
I
C
Define
Measure
Analyze
Improve
Control
Plan Project
and Metrics
Baseline
Project
Lean
Assessment
MSA
Wisdom
of the
Organization
PROCESS IMPROVEMENT PROJECT: P-DMAIC
Figure 3.1: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
29
IEE Improvement Methodology
Key Process
Output
Variable
30,000 Foot-Level
Metric
1
2
Customer
needs
Customer
needs
UC
_
X=
LC
Frequency of
non-conformance
Frequency of
non-conformance
Enterprise
Enterprisemeasurement
measurement
improvement
need
improvement needpulls
pullsfor
forthe
the
creation
creationofofaaproject
project
Bottom-line benefit is
the translation of these
differences into money
D
M
A
I
C
Define
Measure
Analyze
Improve
Control
Plan Project
and Metrics
Baseline
Project
Lean
Assessment
MSA
Wisdom
of the
Organization
Project
Project
execution
execution
roadmap
roadmap
PROCESS IMPROVEMENT PROJECT: P-DMAIC
Figure 3.8: The Integrated Enterprise Excellence System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
30
SELECTED ATTRIBUTES
++: Attribute included
+: Partial/incomplete Inclusion
- : Not included
Integrated Traditional Traditional Original Enterprise Excellence Six Sigma
Lean
Balanced (IEE)
Scorecard
Defines process for improvements at operational/project level
++
++
++
‐
Defines process for improvements at enterprise level
++
‐
+
‐
Derives projects from enterprise value chain
++
++
‐
++
‐
+
‐
‐
Uses DMAIC process to integrate enterprise scorecards, strategic planning, business improvements, and control (E‐DMAIC)
++
‐
‐
‐
Supports standardized graphical representation of selected data (dashboard)
++
‐
‐
+
Aligns enterprise level business metrics (satellite‐level) and operational metrics (30,000‐foot‐level)
++
‐
‐
‐
Includes process for definition of rational metrics, aligned at operational and enterprise level
++
‐
‐
‐
Includes process for distinguishing between "common cause" and "special cause" problems so as to eliminate firefighting
++
‐
‐
‐
++
‐
‐
‐
Uses DMAIC process to implement process improvements (P‐DMAIC)
Integrates best practices of multiple disciplines: SS, Lean, DOE, etc.
test
www.smartersolutions.com
31
What’s Next?
• Enroll in a scheduled Smarter
Solutions webinar or training session
to learn more about IEE
• Download free articles from
the Smarter Solutions online
resource library at
www.SmarterSolutions.com
• Order IEE books direct from the
• Call or write us to discuss how
Smarter Solutions online store,
Amazon.com, Barnes & Noble, or
other book sellers
IEE might help you and your
organization address the business
challenges of the 21st century
Smarter Solutions, Inc.
11044 Research Blvd
Austin, TX 78759
512-918-0280
forrest@SmarterSolutions.com
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
32
Summary
•
•
•
•
•
Scorecard and Performance Reporting
The Balanced Scorecard
Red-Yellow-Green Scorecards
Firefighting-Avoidance Scorecard
Integrated Enterprise Excellence (IEE) System
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
33
Copyright 1992 – 2009, Smarter Solutions, Inc., www.SmarterSolutions.com
34