Project-based Organizations toward Strategy Implementation:
Integrating BSC and Six Sigma Approaches
Han-ching Lin
Chihlee Institute of Technology, Taiwan
Abstract: In hyper-competition era, it is clear that the rigid organizational structures were not well suited to deal with tasks that were
both new and complex. Therefore, the project-based organizations of Six Sigma as a systematic approach for quality improvement and
business excellence has been applied extensively, with an increasing amount of literature illustrating its rationale, implementation, and
impact on the quality profession and business excellence. Due to limited resources in organizations, managers shall hold the
accountability to select appropriate Six Sigma projects for implementing company’s strategies effectively. However, the issue related
with how to utilize the Six Sigma projects according to company strategic planning context is still lack of discussion. In order to reach
significant effectiveness of resources utilization aforementioned, the paper proposes an integration approach by linking both Balanced
Scorecard (BSC) and Six Sigma management for maximizing the strategy implementation performance. In the final part, a case study is
conducted to perform how Organizations can utilize Six Sigma as the strategic improvement tools for implementing the planed strategies
which underlie the BSC approach based on the KPI management system respectively.
Keywords: Project-based organizations, Six Sigma, Balanced Scorecard (BSC)
INTRODUCTION
For business management, it is no doubt that “Do the right thing” is more important than “Do the thing right”. However, the popular
press frequently reports examples of costly business plans that did not perform expected outcome. In fact, for reaching the expected
implementation results, two issues should be considered at early stage, “What should be improved (means “Do the right thing”)” and
“how it should be improved (means “Do the thing right”)”. If managers overlook the former issue, it is not possible to realize the planned
strategic implementation effectiveness obviously.
Contemporaneously, regarding the issue of “Do the right thing”, the introduction of Balanced Scorecard (BSC) concept by Kaplan and
Norton (1992) toward defining the business performance result based on a systematic viewpoint linking financial and non-financial
aspects is popularized for a decade. The feature of BSC is to present the top management with a concise summary of the key
performance indicators (KPI) of a business, and to link and facilitate alignment of business operations with the overall strategy. Based on
the strategy maps, BSC formed by KPI management is efficiently to provide a medium to transfer the vision of the company into a set of
clear objectives (Fernandes et al., 2006).
On the other hand, many efforts of developing updated management tools to reach the objectives of the improvement of enterprise’s
performance have been conducted. Among these management approaches, Six Sigma approach has now been well recognized and
broadly applied across many countries as an effective methodology of attaining excellence in the quality of products and services. It’s a
disciplined application of statistical problem-solving tools to identify and quantify waste and indicate steps for improvement (Greg,
2005). The core strategy used in Six Sigma is to make improvements through a process-focused, customer-driven methodology based on
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statistical thinking and methods (Snee, 2005). Moreover, a successful Six Sigma strategy will move an organization toward zero defects
(Mikel and Schroeder, 2000).
So far, the application of Six Sigma and BSC has been used independently of each other. The author advocates both abovementioned
approaches can be integrated as one management combination module to appeal the significant strategic effect. Thus, this paper aims to
propose an integration approach by linking both Balanced Scorecard (BSC) and Six Sigma management for maximizing the strategy
implementation performance.
As the structure of this paper, the author firstly reviews the Six Sigma management. Then, the BSC approaches based on KPI
management is described. Thirdly, the paper will present the logic related with how company integrates both BSC and Six Sigma
efficiently. Moreover, for validating the application of the suggested integration approach, a representative case study will be illustrated
later. Finally, the author will demonstrate some suggestions for the integration of Six Sigma and BSC approaches concisely for
conclusion.
PROJECT-BASED ORGANIZATIONS OF SIX SIGMA
The definition of a “project”, according to Ralph (1951), refers to “any undertaking that has definite, final objectives representing
specified values to be used in the satisfaction of some need or desire.” The idea of project-based organizations therefore arose to create
temporary organizational units in order to realize value-added tasks as efficiently as possible. An emphasis on cross-functional projects
diminishes the orientation to hierarchy and procedure and strengthens cross-functional cooperation. Finally, the organization becomes
more agile, and able to respond to changing market/customer needs. Additionally, the project-based organizations use efficient
management tools with better resources deployment to shrink time to market or quality improvement in order to align project initiatives
with strategic objectives. The use of cross-function task forces contributes to the emergence of project-based management as an emerging
management philosophy and process for the integration of ad hoc activities in organizations. Moreover, projects became characterized by
a distinct life cycle and a management system that provided for a formal and legitimate integration of organizational resources across the
existing line and staff organizational design. Practically, the project-based organizations consist of a variety of specialists representing the
disciplines needed to bring the project to a successful conclusion.
The output of project-based organizations usually focus on providing the entity with something new or improved which enhances the
organization’s ability to meet its operational (short-term) or strategic (long-term) objectives.
As the pervasiveness of searching for excellence, a good appreciation of the methodologies deployed in Six Sigma formed by
project-based organizations would contribute to the effectiveness of its application. In this section, a brief review is given to the major
phases and tools used in Six Sigma, leading to an explanation of the practical management approach.
The Six Sigma strategy originated with Motorola and became popular by Jack Welch, former CEO of General Electric. The Six Sigma
strategy focuses on the elimination of hidden costs generated as a result of producing defective products and services. These costs are
often difficult to measure, but their elimination can add 30 to 40 percent to the companies’ profits (Mikel and Schroeder 2000).Six Sigma
is an organized and systematic method for strategic process improvement and new product and service development that relies on
statistical and scientific methods to make dramatic reductions in customer defined defect rates (Hahn et al., 1999).
The focus of Six Sigma is to create processes that only have random causes of variations present. An organization operating at
six-sigma level can expect its products and services to attain no more than 3.4 defective parts per million. Basically, organizations can
estimate the benefits of Six Sigma projects presented in financial returns by linking process improvement with cost savings (Kwak and
Anbari, 2006).
Theoretically, there are two sub-methodologies in Six Sigma management approach: DMAIC and DFSS. DMAIC is an acronym for
Define-Measure-Analyze-Improve- Control. Generally, after the project Definition phase, key process characteristics are identified and
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benchmarked in the Measure and Analyze phases, followed by the Improve phase where a process is modified for better performance,
and then the Control phase aims at monitoring and sustaining the gains. For showing the logic of the DMAIC sub-model in Six Sigma,
the main activities and major tools are summarized in table 1. (Lin&Chen, 2007; Goh, 2002; Greg, 2005).
On the other hand, DFSS, which stands for Design for Six Sigma, is sometimes referred to by process acronym, DMADV,
Define-Measure-Analyze-Design-Verify. DFSS is the sub-methodology used for development of a new product, service or process with
high quality and a focus on customer expectations (DeBusk and DeBusk, 2007).
Table 1. Summary of main activities and major tools in DMAIC sub-model
Phases
Define phase
main activities
Major tools
1.Identify the important problems in processes
1. Project selection
2.Select a project to combat one or more problems and
2. Impact and benefit analysis
define the parameters of the project
3. Project road-mapping
3.Determine the vital few factors to be measured, analyzed,
improved and controlled
Measure phase
1.Select CTQ (critical-to-quality) characteristics for your
1. CTQ identification
product or process (the CTQ Y’s, where Y=CTQ
2. Quality function deployment
characteristic)
3. Failure mode and effects analysis
2.Define performance standards for Y
4. Target and specification formulation
3.Validate the measurement system for Y
5. Quality benchmarking
4.Establish the process capability of achieving Y.
6. Descriptive statistics
7. Measurement system analysis
Analyze phase
1.Define the improvement objectives for Y.
1. Capability analysis
2.Identify the sources of variation in Y
2. Hypothesis testing
3.Screen potential causes for change in Y and identify vital
3. Identification of causes of variation
few initial X’s (where X=key variable in the process)
4. Analysis of variance
5. Correlation analysis
6. Regression analysis
Improve phase
1.Discover variable relationships among the vital few initial
X’s
1. Design of experiments framework
2. Factorial designs
2.Establish operating tolerances on the vital few initial X’s
3. Fractional factorials
3.Validate the measurement system for the vital few initial
4. Balanced block designs
X’s
5. Nested designs
6. Mathematical modeling
Control phase
1.Determine your ability to control the vital few initial X’s
1. Control plans
2.Implement a process control system for the vital few
2. Process monitoring and control
initial X’s
3. Mistake proofing
4. Quality system documentation
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No matter for DMAIC or DFSS in Six Sigma, Kwak and Anbari (2006) proposed linking Six Sigma to business strategy, customers,
suppliers and human resources is crucial for implementing a successful Six Sigma program. Therefore, Balanced Scorecard (BSC) is an
effective tool for linking Six Sigma and enhancing the projects value of Six Sigma implementation since BSC is a strategic management
system that aligns the organization’s resources behind its strategies for success.
In other words, the integration of BSC and Six Sigma
can enhance efficiency of resources utilization and realization of strategic objectives.
BALANCED SCORECARD BASED ON KEY PERFORMANCE INDICATORS MANAGEMENT
Due to the fault of financial-focus performance measurement, both practitioners and researchers have emphasized the need to move
beyond financial indicators of operations and to incorporate a much wider variety of non-financial metrics in an organization’s
performance reporting and reward systems (Banker et al., 2004). Thus, in recent years, the integration perspective, the balanced
scorecard (BSC), a comprehensive measurement system including both financial and non-financial aspects, has been designed to keep
track of an organization’s key success factors (Souissi and Itoh, 2006). Based on the concept of going concerned, the spirit of the BSC is
based on the assumption that the efficient use of investment capital is no longer the only determinant for competitive advantages, but
increasingly soft factors such as intellectual capital, knowledge creation or excellent customer orientation become more important. It
supplements traditional financial measures with measures from three additional perspectives: those of customers, internal business
processes, and learning and growth (Sara et al., 2007).
Financial
Customers
.Enhance Value-
.Profit growth
Internal
Processes
.Cost down and
added (VA)
products’ value
products ratio
re-definition
Learning
&Growth
.Increase products
related training
.Enhance the
.Enhance repeated
.Improve servicing
high profits orders
processes for high
internal/external
profits orders
competition
consciousness for
Figure 1. The goal of Profits growth linkage for definitive four aspects in BSC
Broadly speaking, the BSC approach gives several significant benefits compared with traditional performance measurement systems.
First, for improving the shortcoming of financial-concentric measures, BSC is designed to broaden managers’ vision by guiding their
attention to wider aspects of the company’s operations. Second, as an effective holistic performance measurement system, BSC provides
robust causal linkage to connect the multiple levels between non-financial measures and financial measures. Thirdly, the strategy maps
and its corresponding Key performance indicators (KPI) in BSC show clear profile of the linkage between company’s vision down to
directive business operations. Figure 1 shows a representative example of the links of four aspects on the goal of profits growth in a
company.
AN INTEGRATION APPROACH FOR LINKING BSC AND SIX SIGMA
In recent decades, Six Sigma is widely applied in manufacturing and servicing industries. However, how to link the application of Six
Sigma projects with company’s strategy and vision firmly is an important issue in practice fields. Nevertheless, the Balanced Scorecard
System is an effective framework to describe the strategy for creating value and powerful tool to manage the execution of that strategy.
In other word, Balanced Scorecard and Six Sigma can be integrated as one combination module for searching for excellence because the
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former provides the concrete context for targeted strategic initiatives and the latter is a scientific improvement methodology that can
improve performance significantly.
Figure 2 presents the validated cause-and-effect linkage logics with Six Sigma and BSC based on KPI management. Firstly, BSC
demonstrates a concrete management tool of converting company vision into strategies and their corresponding measurement KPI. Then,
with proper challengeable target objectives setting, the corresponding performance metrics and goals required to accomplish the key
strategies are to be created later. Thirdly, companies should pay attention to allocate demanded resources to actualize the commitment
strategies in order to approach company vision. Therefore, to establish Six Sigma projects teams based on BSC framework and monitor
the performance of corresponding strategy’s KPI outcomes are essential for approaching company vision respectively. In other words,
the Six Sigma management approach can be performed more powerful and effective when integrating with BSC approach concurrently.
Company Vision
What is company
vision?
How to realize
the vision in
Financial
Aspect
Customers
Aspect
the view of
four aspects
and their key
strategies?
Internal
Process
Aspect
Learning &
Growth
Aspect
Key strategy 1
Key strategy 1
Key strategy 1
Key strategy 1
Key strategy 2
Key strategy 2
Key strategy 2
Key strategy 2
Key strategy 3
Key strategy 3
Key strategy 3
Key strategy 3
………………
………………
………………
…
…
…
Key strategy 2
What are the
KPI1,KPI2,KPI3
KPI1,KPI2,KPI3
KPI1,KPI2,KPI3
KPI1,KPI2,KPI3
corresponding
………………
Key strategy 3
…
………………
………………
………………
…
…
…
………………
………………
………………
………………
…
………………
…
…
…
………………
…
………………
………………
………………
…
………………
………………
………………
……
Analyze
……
Improve
……
Control
KPI?
Six Sigma Projects based on KPI management for actualization on corresponding strategy
Define
Measure
objectives
current Cpk
root causes
performance
outcomes
Figure 2.The linkage logics with Six Sigma and BSC based on KPI management
To sum up, Six Sigma cannot be treated as another stand-alone activity. The application of Six Sigma requires adherence to a whole
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philosophy rather than just the usage of a few tools and techniques of quality improvement. Six Sigma projects must be targeted for
process and product improvements that have a direct impact on both financial and operations goals. Even if the first efforts are to focus
on fairly narrow problems, the impact on the whole business should be obviously. It needs to be clear how projects and other activities
link to customers, core processes, internal learning/growth and competitiveness (Coronado. and Antony, 2002).
CASE STUDY
In order to illustrate the application of the suggested integration approach, a representative case study is conducted in this section. The
case study is a practical case involved in improving cycle time and customer satisfaction projects of Six Sigma related with the engine
repair business in a representative aerospace company. The aerospace company, A company, is a leading provider of airplane repairing
business in Taiwan. For nearly three decades, A company has provided efficient repair support of aerospace equipments to Taiwanese
local company as well as neighborhood countries. With the scale of over 250 employees in Taiwan, A company adopts a strategic plan “to
make services quick and precise for all customers.” Due to the hyper-competition in aerospace repairing business, the top management of
A company determined to further strengthen its competence on time-based competition by utilizing the integration of BSC and Six Sigma
approaches. Therefore, the top management executes the so-called “5110” plan as following steps:
1) Establish the core unit of strategy planning: Before 2003, the strategy planning in A company was adhered to the CEO mindset only.
Although the CEO, Tony Chang, in A company is well experienced and ambitious, the hyper-competition in aerospace repairing
industry made him ambivalent to confront speedy changes solely. For achieving the vision as the leader in industry and broadening
decisions making perspectives, A company firstly formed a core strategy planning committee, the strategy committee, including the
CEO, 2 vices presidents and 8 senior managers members in the middle of 2005.
2) Profile the 5 year long-term objective according to SWOT analysis: With deep discussion, the strategic planning committee
established a 5 year long-term objective with the slogan of “5110” in the end of 2005. The slogan implies that A company will
struggle to be the No.1 (the second number in slogan) and reach 10% profit growth annually (the last number in slogan) within 5
years (the first number in slogan). Comparatively, in 2005, A company ranked No.2 in the industry, and profit growth rate was
averagely 6.5%.
3) Develop the strategy maps based on BSC: In order to actualize the objective of “5110” vision, the strategy committee tried to break
down the objective into 4 aspects, financial and customers, internal and learning & growth, according to the structure of BSC. The
first step was to develop strategy maps by vertical analysis viewpoint. Then, the horizontal analysis was executed as well. Finally,
the strategy alignment was implemented to make sure all the strategies are firmly linked logically.
4) Monitor the performance of strategy implementation by KPI: As the development of strategy maps was finished, the related KPI need
to be constructed in order to monitor the performance of strategy implementation. It is critical for setting the appropriate KPI to lead
the right direction toward approaching company’s strategic goals and vision. Moreover, A company built up a real-time information
system to track and feedback the output of KPI effectively.
5) Execute Six Sigma projects to meet the KPI goals: Through the application of KPI monitoring system aforementioned, the Projects
Management Office (PMO) is able to find out the progress of strategy implementation. Once the gaps were beyond expected, the
Six Sigma projects would be initiated promptly. Meanwhile, the corresponding committee member should hold the accountability
for establishing Six Sigma projects and monitoring the progress of projects.
6) Analyze the feedback information of projects performance: It is crucial to share the information among managers without time lags.
Since Six Sigma projects usually cover multiple functions cooperation, it is preferred to share the analysis of success factors or
bottle neck problems with related members. Only by the utilization of aforementioned positive thinking and cooperation culture, can
A company resolve the conflicts of resources procurement effectively. Moreover, effective feedback and information sharing reduce
the uncertainty of decisions making as well.
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By the implementation of abovementioned steps, A company successfully integrated BSC and Six Sigma approaches effectively.
Moreover, in order to ensure the success of each strategy, the strategy committee conducted a deep discussion with related department
managers and finally built up its KPI management system. Based on the KPI management system, each strategic objective has a
corresponding measure, target and concrete definition. A company also formulated a consistent system for assessing the KPI
performance of related departments and ensuring the appropriate linkage between individual performance and their corresponding
rewards. On the other hand, for diminishing the performance gaps, employees training and development was implemented according to
strategy execution requirement respectively.
Figure 3 shows the process of integrating BSC and Six Sigma approaches that are aimed at closing/ removing strategic performance
gaps. Moreover, the system deploys a visual monitoring dashboard to keep active a real time feedback function.
Establish
Profile the 5
Develop the
Monitor the
Execute six
Analyze the
the core
years
strategy
performance
sigma
feedback
unit of
long-term
maps based
of strategy
projects to
information
strategy
objective
on BSC
implementa
meet the
of projects
planning
according to
tion by KPI
KPI goal of
performance
strategies
SWOT
analysis
Figure 3. The process of integrating BSC and Six Sigma approaches in A company
As the execution of the integration of BSC and Six Sigma, A company conducted several projects and built up its training system for
Six Sigma Black Belts and Green Belts simultaneously. Firstly, all Six Sigma projects were initiated based on KPI performance gaps.
Then, in order to ensure the projects progress were under control, the champion kept frequent discussion with project managers and held
the responsibility to help related resources procurement. Thirdly, the project teams utilized voice of the customer (VOC) to identify and
reengineer the critical business operation processes in order to eliminate waste and variation/errors in core activities. Finally, by
conducting the Six Sigma project based on the systematic data analysis, the representative Six Sigma projects performance for achieving
KPI goals were identified as follows:
1)
Reduce the cycle time of bill-issuing activities from averagely 25.77 working days to 3.08 days dramatically. Additionally, the
annual cost saving created for this project is NTD 1,865,824.
2)
Shorten the cycle time of material-preparing for High Pressure Turbine from averagely 27 working hours to 1.5 hours. Moreover,
the turnover rate of repairing is enhanced 1.5 times. Finally, the annual increased profits for this project are NTD 1, 528,164.
3)
Abbreviate the problem-diagnosis working time from 3.77 hr/man to 1.0 hr/man per order averagely. The cost saving for this project
is approximately NTD 1,255,948 annually.
4)
Diminish the reject ratio of materials/parts procurement from 0.071% to 0.019% accordingly. The cost saving for this project is
NTD 2,474,618.
To sum up, in the case study, the integration Six Sigma and BSC based on KPI management describing the strategy for creating value
and aligned resource to ensure the developed strategy is successfully implemented and then leads to approach company’s long term
objectives. It is obvious to conclude that BSC based on KPI management could be the compass and Six Sigma is the powerful vehicle to
reach destination.
CONCLUSIONS
The project-based organization of Six Sigma focuses on digging out and solving the root causes of specific performance problems. On
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the other hand, BSC is an effective perspective to profile the framework toward enterprises’ strategy linkage and aligns the
organization’s resources to achieve their goals and vision. This paper proposes a creative framework that so far both abovementioned
approaches have been used independently can be integrated effectively toward improving organizations’ strategies implementation
performance.
In other words, both Six Sigma and BSC approaches should not be treated as yet stand-alone management tools respectively. It
means that combining both approaches can offer more powerful potential contributions on strategies implementation. BSC and Six
Sigma can be firmly integrated because the former provides the strategic context concretely for targeted initiatives of strategies
implementation and the latter is a robust systematic operations improvement approach. Organizations that perform the BSC management
approach can utilize Six Sigma as the strategic improvement tools to implement the planed strategies which underlie the KPI
management system respectively. In the case study, thanks to the effective integration of BSC and Six Sigma approaches, the results
prove that the representative aerospace enterprise, A company successfully implemented KPI management system and finally increased
profits and customers satisfaction significantly by concentrating resources utilization on strategic activities.
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