σ

SIX FORUM

Balance Your Scorecard with Six Sigma

To Boost Performance

T he balanced scorecard is a performance

management system that translates strate-
gy into execution. It is a dynamic management
gaps, analyzes root causes and implements sus-
tainable fixes with careful change management.
Combining the elements from both
The key inputs to process performance
come from two sources:
The organization’s key processes (and
system that reinforces, implements and executes approaches into a business improvement system changes introduced during the imple-
corporate strategy. As, articulated by Robert S. can provide the answers to four key questions mentation of continual improvement
Kaplan and David P. Norton in their best-selling that are asked by all managers: projects).
book, The Balanced Scorecard (Harvard Are we meeting or exceeding customer Ongoing feedback on performance
Business School Press, 1996), this approach pro- requirements? obtained from customers.
vides a framework for looking at value creation
Are we driving and supporting strategic Managing and improving the core opera-
and organizational strategy from four different
execution? tional processes of an organization is the key to
perspectives:
Are we focusing business improvement process excellence or performance manage-
1. Financial. The strategy for growth, prof-
resources to the best effect? ment. The concept of performance manage-
itability and risk viewed from the per-
Are we fixing issues and resolving the ment is the nexus where balanced scorecard and
spective of the shareholder.
causes of problems? Six Sigma can join to produce a formidable
2. Customer. The strategy for creating weapon that aligns strategic intent with tactical
value and differentiation from the per- Praveen Gupta, author of
execution.
spective of the customer. Six Sigma Business Scorecard
Gupta says that while the financial, cus-
3. Internal business processes. The strate- (McGraw-Hill, 2003) contends
tomer, process and learning perspectives in bal-
gic priorities for various business that linking balanced scorecard
anced scorecard represent a big improvement
processes that create customer and share- with Six Sigma gives organiza-
over managing solely through the financial per-
holder satisfaction. tions a means for fusing strate-
spective alone, organizations may still need to
gic intent together with opera-
4. Learning and growth. The priorities to consider whether these four perspectives meet
tional deployment at the tacti-
create a climate that supports organiza- their needs today.
cal level. “The balanced scorecard concept was
tional change, innovation and growth. “The four perspectives of balanced score-
developed about 10 or so years ago,” says Gupta.
card may need to be supplemented to accom-
With balanced scorecard, senior managers “Since then, very few improvements have been
modate changes in the business environment
can measure how their business creates value for made to its process. In addition, balanced score-
due to the information explosion which has
current and future customers. By not focusing card has been developed as a strategic manage-
occurred since the early days of balanced score-
exclusively on financial measures of perform- ment system that has had difficulty in being
card,” says Gupta. “For example, the rate of
ance, although they are still important, balanced ‘operationlized.’ Six Sigma is a more opera-
improvement, innovation and executive
scorecard can reveal and measure the drivers of tional-driven methodology that focuses on exe-
accountability are new dimensions that could be
long-term value and competitive performance. cution more than on the strategy. Combining
added to balanced scorecard to complete a cor-
However, balanced scorecard is more than strategic intent through balanced scorecard and
porate performance measurement system.”
just a measurement system as it enables organi- an execution methodology via Six Sigma would
zations to clarify their vision and strategy and make sense and allow users to benefit from the
translate them into action. It provides feedback strengths of both approaches.” Building a Strategic Corporate
around both the internal business processes and Scorecard
external outcomes in order to continuously Linking Balanced Scorecard and Performance management (see Figure 1,
improve strategic performance and results. page 7) can be measured in an organization
Six Sigma through a scorecard or dashboard. Such a score-
When fully deployed, it functions as a manage-
Measuring internal business process per-
ment system that transforms strategic planning card shows the key organizational objectives
formance, or process excellence, can be accom-
from an academic exercise into the nerve center and their metrics and status across the four per-
plished through executing an ongoing assess-
of an enterprise. spectives of balanced scorecard. In the scorecard
ment of process capability and customer satis-
Six Sigma is a widely accepted approach to or dashboard, the colors of green, yellow and
faction with business performance. However, it
building process excellence by continually red illustrate how well the objectives are being
is important to understand that process excel-
improving the performance of products and realized.
lence has no regard for organizational bound-
processes against customer requirements. It is a Greens represent performance (meeting
aries or functions. Customers view organiza-
rigorous system that listens to customer and the objectives), while red signifies the need for
tions through their processes and not through
business requirements, measures performance immediate intervention to implement a correc-
their organizational structures. (See SIX SIGMA FORUM on page 7)
6 OCTOBER/NOVEMBER 2004
Six Sigma Forum
financial benefits. However, to launch a corpo-
ratewide initiative, the leadership must establish
Vocabulary
(Continued from page 6)
corporate drivers monitored using a dashboard,
tive action. Yellow typically means that the Dashboard
a combination of Six Sigma and balanced score-
process and its metric require watching and According to iSixSigma, “A
card. Interestingly, Six Sigma business score-
possible investigation to determine if problems dashboard is a tool used for collect-
card, which is a hybrid of Six Sigma and bal-
are present should the trend continue. ing and reporting information
anced scorecard, has been developed to address
Gupta stresses that having the right meas- about vital customer requirements
these issues. This approach has received excel-
urements is essential for ensuring alignment and/or your business’ performance
lent reviews and is now being formalized as a
between strategy and tactics and monitoring the for key customers. Dashboards
process in its own right in collaboration with a
progress toward corporate goals and objectives. provide a quick summary of
leading business school.”
“Companies must launch Six Sigma initiatives process and/or product perform-
to accelerate improvement in profitability and ance.”
Strategy Into Action
growth. However, there must be measurements
Effective performance management can be (http://www.isixsigma.com/dic-
to monitor the progress towards goals and the
implemented by combining elements of bal- tionary/Dashboard-218.htm)
execution of strategies. Six Sigma business
anced scorecard and Six Sigma approaches to:
scorecard, which combines Six Sigma and bal-
anced scorecard, is a great tool to launch a meas- Break strategic themes down to vital
urement system. Six Sigma business scorecard objectives (balanced scorecard).
thrives on inspiration by leadership, improve- Assign metrics/targets to vital objectives Focus attention on variations in metrics
ment by managers and innovation by employ- (balanced scorecard). (actual versus target) within the perform-
ees,” says Gupta. Measure objectives against targets (bal- ance management process (balanced
A corporate scorecard flows out from an anced scorecard). scorecard).
organization’s strategic themes. The role of sen-
Focus attention on variations in metrics Prioritize project/initiative opportunities
ior management is to develop the strategic
against target (balanced scorecard). against objectives (balanced scorecard).
themes across each of the four perspectives con-
tained in balanced scorecard. Once the strategic Connect metrics/targets to critical quality Address capability gaps with improve-
themes are identified, they in turn can be trans- factors (Six Sigma). ment projects and initiatives (Six Sigma).
lated into goals and objectives and which can Address capability gaps with project/ini- Listen to the voice of the customer to
then be cascaded down through the organiza- tiative improvement opportunities (Six highlight new opportunities (Six Sigma).
tion as operational tactics. Six Sigma can have a Sigma). Once a project/initiative has been selected,
key role to play in translating strategy into With an effective performance manage- a project-level scorecard or dashboard can be
action for those objectives which have strong ment process in place, organizations will identi- devised to measure its performance and ensure
linkages to critical to quality (CTQ) factors. fy many improvement opportunities that arise it remains aligned with strategic intent and
Gupta says organizations must remember from existing performance-capability gaps, cus- business objectives. Alternatively, multiple proj-
to link strategy to tactics, and a scorecard/dash- tomers or stakeholders. A project/initiative ects/initiatives can be tracked on a suitably
board that combines Six Sigma and balanced selection process can then be used to identify designed scorecard.
scorecard is an excellent way to do this. “Six which improvement opportunities should be Executing the selected projects/initiatives
Sigma has become corporate culture, DNA or pursued. and then monitoring them through the score-
the standard of excellence,” says Gupta. “To The selection of specific projects/initiatives card to “fix the reds,” will deliver change to the
launch a Six Sigma initiative, economic oppor- is implemented by combining elements of bal- core processes of the organization. Often root
tunities are identified to realize immediate anced scorecard and Six Sigma approaches to: causes and solutions will not be immediately
apparent, nor will fixes necessarily be effective
Figure 1: Performance Management without paying due attention to the change
process itself. In fact, this is one of the most
STRATEGIC BALANCED SCORECARD common reasons why organizations with effec-
tive strategies fail to execute when issues and
PERSPECTIVES OBJECTIVES METRICS STATUS
complications arise.
“Balanced scorecard, which has become a
FINANCIAL Profitable Business Margin +2 pts yr/yr RED philosophy of using financial and nonfinancial
Larger Deals 10 Deals > $50m by Q4 YELLOW
measurements, needs to be improvised to meet
today’s business needs and implemented
CUSTOMER Brand Value Seen as Survey Score > 0.8 by Q4 GREEN
Partner References up 100% yr/yr RED accordingly. Simply having four perspectives
appears to be a little primitive in today’s busi-
Sales Process Excellence Winrate > 80% by Q4 YELLOW ness environment. Six Sigma nicely comple-
PROCESS
Product Range Refreshed Launch window < 45 days GREEN ments the four perspectives of balanced score-
card,” states Gupta.
PEOPLE Retain Talent Attrition under 5% GREEN
Management Excellence Survey Score > 80% RED

OCTOBER/NOVEMBER 2004 7