Integrating Balance Scorecard with Six Sigma

2013

MQPE Term Paper 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

]

1

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

2

MQPE Term Paper 2013

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

3

MQPE Term Paper 2013

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. SixSigma 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):

fgdssf

4

MQPE Term Paper 2013

Figure 2: Typical Phases of ainvolvement, Six Sigma Process The DMAIC approach involves management 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

5

MQPE Term Paper 2013

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

6

MQPE Term Paper 2013

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

7

MQPE Term Paper 2013

‘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 SixSigma works hand in hand

towards fulfilling the business strategy of a company.

Figure 3: Components of Balanced Scorecard (Kaplan, Norton 1996) [8]

8

MQPE Term Paper 2013

Figure 4: Roadmap of Implementing BSC and Six-Sigma Six Sigma project management and BSC:

9

MQPE Term Paper 2013

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]

10

MQPE Term Paper 2013

Components of the Six Sigma Balance Scorecard: The Six Sigma BSC combines the various measurements into 7 elements [10]: 1.

2.

3.

4.

5.

6.

7.

Leadership and Profitability Management and Improvement Employees and Innovation Purchasing and Supplier Management Operational Execution Sales and Distribution 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].

11

MQPE Term Paper 2013

12

Understand the intent of the Six Sigma business scorecard. How it aligns to the company strategy (Hoshin Kanri)

1

Commit to using the Six Sigma business scorecard by integrating Six Sigma in a revised vision of the company. Use metrics to define target.

2

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.

3

Establish short term and long term improvement goals for a profit center or the company.

4

Establish measurements for each element of the Six Sigma business scorecard for each profit center.

5

Establish the relationship between profitability and Six Sigma business scorecard measurements.

6

Develop plans to utilize technology to automate the data collection and analysis. Using ERP systems can help in this case.

7

If multiple profit centers exist, establish an aggregated Six Sigma business scorecard for the corporation

8

Identify key processes for improving business performance

9

Identify input, in-process, and output process parameters

10

Establish data collection methods for these process parameters

11

Collect data and calculate the error rate, cycle-time and cost for each department

12

MQPE Term Paper 2013

13

Plot trend charts and present the data with respect to established goals on a weekly basis

13

Publish the weekly BPI and monthly Six Sigma business scorecard reports

14

Review business performance using Six Sigma business scorecard results

15

Identify measurements with the greatest variance and adverse performance

16

17

18

19 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

MQPE Term Paper 2013

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]

14

MQPE Term Paper 2013

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-DoControl-Act) cycle is adapted to Hoshin Kanri as the FAIR (Focus-Alignment-IntegrationReview) 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

15

MQPE Term Paper 2013

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 Focus Characteristics

Balance Scorecard Vision & Strategy Performance based

Hoshin Kanri Vision + Vital Few Objectives Process based

Orientation

Target oriented

Means oriented

Strength

Structured framework

Weakness

Top down; participation

and

conceptual Catchball Process communicative lack

and

of Hard to determine the vital few metrics

16

MQPE Term Paper 2013

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  Employee Recognition  Rate of Improvement  Rate of Improvement  Total Spending per sales  New Business  Supplier’s defect rate  Customer Satisfaction  Operational Cycle time  Operational Sigma 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.

17

MQPE Term Paper 2013

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.

18

MQPE Term Paper 2013

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

19

MQPE Term Paper 2013

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.

20

MQPE Term Paper 2013

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.

---

21

MQPE Term Paper 2013

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)’ Developments on Balanced Scorecard: A Historical Review’; COMSATS Institute of Information Technology (CIIT), Lahore Campus Pakistan. 2013.pp 4-8 (Ebsco paper) 3. Salem, M.A., D.N. Hasnan and D.N.H. Osman, 2012. Accountability Journal, pp: 842857. "Balanced Scorecard: Weaknesses, Strengths and its Ability as Performance Management System Versus of Other Performance Management Systems," Journal of Intellectual Capital, pp: 487-504. Environment and Earth Science, 2(9): 1-10.

4. Cobbold, I. and G. Lawrie, 2003. "The development of the Balanced Scorecard as Strategic Mangement Tool," in PMA Conference, Boston. pp-4-8; 2011.

5. Coronado, R. B and Anthony, J. (2002), “Critical Success Factors for the Successful Implementation of Six Sigma Projects in Organisations”, The TQM Magazine,14.2, pp.

92-99.

6. Snee, R.D. (2004), Six-Sigma: “The Evolution of 100 Years of Business Improvement Methodology”, International. Journal of Six Sigma and Competitive Advantage,1, pp.420.

7. Robert Kaplan and Norton (2009), ‘Conceptual Foundations of Balanced Scorecard’ Handbook of Management Accounting Research: Volume 3 (Elsevier, 2009). HBR Publication; pp-1-8 accessed from URL: http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf on 2nd June 2013 8. Gerald K. DeBusk, Chuck DeBusk; (2011); ‘Combining Hoshin Planning with the Balanced Scorecard to Achieve Breakthrough Results’; Source: Harvard Business Publishing Newsletters accessed from URL: http://hbr.org/product/combining-hoshinplanning-with-the-balanced-scorec/an/B1111B-PDF-ENG on 5th June 2013.

9. Hung-Yi Wu, Fei-Liang Chien, Yueh-Ju Lin, Shu-Feng Yang (2011); ‘Analysis of Critical Factors Affecting the Quality Cost of Process Management of Six Sigma Project Based on BSC’; International Research Journal of Finance and Economics; pp-5-9.

(Ebsco paper) 10. Pfeifer, T., Reissiger, W. and Canales, C. (2004), “Integrating Six Sigma with Quality Management Systems”, The TQM Magazine, 16, pp. 241-249.

22

MQPE Term Paper 2013

11. AlSagheer, A., (2011) “Six Sigma for Sustainability in Multinational Organizations”, Journal of Business Case Studies 7(3), pp. 7-15. accessed from URL: http://www.dba.idm.sssup.it/attachments/DBAakf.pdf on 30th May 2013.

12. Kaplan, R. S., and Norton, D. P., (1996). “Using the balance scorecard as a strategic management system”, Harvard Business Review 74(1), pp. 75-85.

13. Aolgueras Marcos, A., (2012). "An IT Balance Measurement to Strategic Management: Part I," Scorecard Design under Service Management Accounting Horizons, pp: 87-104.

14. Gerald K. DeBusk, Chuck DeBusk; (2011); ‘Combining Hoshin Planning with the Balanced Scorecard to Achieve Breakthrough Results’; Source: Harvard Business Publishing Newsletters accessed from URL: http://hbr.org/product/combining-hoshinplanning-with-the-balanced-scorec/an/B1111B-PDF-ENG on 5th June 2013.

15. Devane, Thomas. (2004). Integrating Lean Six Sigma and High-Performance Organizations: Leading the charge toward dramatic, rapid and sustainable improvement, John Wiley & Sons, New York. accessed from URL: www.carlisle.army.mil/library/bibs/leanss.pdf on 2nd June 2013. (Ebsco paper) 16. Bain and Company guide, (2012). "Balanced Scorecard," 13 December 2010. [Online http://www.bain.com/publications/articles/manage Outcomes, Boston: Harvard Buiness School Press. accessed as on 1st June 2013.

17. Micheal E Nagel (2009) ‘Balanced Scorecard and Six Sigma: Complementary tools to advance the Leadership Agenda’ accessed from URL: www.bscol.com/pdf/Final_BSC_Six_Sigma_Article-Nagel_v2.pdf on 30th May 2013.

18. Bradley Schlutz (2010); ‘Merging Six Sigma and the Balanced Scorecard’; accessed from URL:http://www.isixsigma.com/methodology/balanced-scorecard/merging-six-sigmaand-balanced-scorecard/ as on 9th May 2013.

---

23