Could Your Balanced
Scorecard Use Some
Lean Six Sigma?
Maurice (Mo) Klaus
November 4,, 2010
Copyright 2010 MoreSteam.com
www.moresteam.com
Agenda
• Welcome
• Introduction of MBB Webcast Series
• Larryy Goldman, MoreSteam.com
• Could Your Balanced Scorecard Use Some
Lean Six Sigma?
• Maurice (Mo) Klaus, MoreSteam.com
• Ope
Open Discussion
scuss o a
and
d Quest
Questions
o s
2
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MoreSteam.com – Company Background
• Founded 2000
Select Customers:
• Over 250,000 Lean Six Sigma
professionals trained
• Serving
S i 45% off th
the F
Fortune
t
500
• First firm to offer the complete Black Belt
curriculum online
• Courses reviewed and approved by ASQ
• Registered education provider of Project
Management Institute (PMI)
3
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Master Black Belt Program
• Offered in partnership with Fisher College of Business at The
Ohio State University
• Employs a Blended Learning model with world-class instruction
delivered in both the classroom and online
• Covers the MBB Body of Knowledge with topics ranging from
advanced DOE to Leading Change to Finance for MBBs
• Go to http://www.moresteam.com/master-black-belt.cfm for more
information about curriculum, prerequisites, and schedule
4
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Today’s Presenter
Maurice Klaus
Product Architect , MoreSteam LLC
•
Develops course content, simulations and software,
•
Lean Six Sigma Black Belt
•
Registered Professional Engineer (Michigan)
•
Bachelor and Master of Science degrees in
Mechanical Engineering from The University of
Michigan, Ann Arbor, Michigan
5
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The ‘Dilemma’
Balanced Scorecard implementation can have its challenges…
…but it also shares some commonalities with Lean Six Sigma.
Measures
Ill-defined Measures
Poorly Defined
Strategic Objectives
Strategic Objectives
Targets
Arbitrary Targets
D
Data
C
Collection
ll i
Performance Gap
Performance Gaps That
Don’t Actually Exist
Customer Needs and
Wants Not Considered
Voice of the Customer
Processes Changed
Unnecessarily
Process Improvement
Initiatives
Initiatives That Don’t
Drive Strategy
Projects
Fit to Strategy
œ Should these methodologies be combined somehow? If not combined, then
leveraged? If not leveraged
leveraged, then what?
6
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Objectives
Balanced Scorecard (BSC) and Lean Six Sigma (LSS)
• Common ground
• Key differences
• Keep the BSC and LSS separate
organizationally
• How BSC can benefit from LSS
Don’t Combine – Do Leverage
7
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The Balanced Scorecard ‐ Very Brief Overview
VISION
Why we exist
VALUES
What’s important to us
MISSION
What we will do to achieve our vision
STRATEGY
Our game plan
STRATEGY MAP and SCORECARD
Communicate, Deploy, Align
Balanced
Scorecard
Gap
to achievement
STRATEGIC INITIATIVES
Set priorities and execute the actions necessary to succeed
LEAN – SIX SIGMA – TQM – TQC – etc.
Design / Redesign / Improve local processes
EMPOWERMENT / PERSONAL OBJECTIVES
Motivate employees
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
8
Adapted from The Strategy-Focused Organization, Harvard Business Press, p73
Motivated & Prepared
WORKFORCE
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Copyright 2010 MoreSteam.com
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Balanced Scorecard Components
Strategy Map
A visual representation of the strategy
Southwest Airlines Example
Theme
Internal
Process
ses
Dependent,
hierarchical
views of the
strategy
which
facilitate the
display of
the causeeffect
relationship
amongst
objectives
Learning
g&
Growth
h
Perspective
Custo
omer
Financial
F
Operating
p
g Efficiency
y Theme
A common area of focus
Profitability
Asset
Utilization
“I’m Staying With
Southwest”
“On-time
Service”
Objective
Measure
Target
Initiative
What the
strategy is
trying to
achieve
How
performance
against the
objective
j
is
monitored
The level of
performance or
rate of
improvement
p
needed
Projects
required to
reach the target
“Lowest
prices”
Fast
Turnaround
Time
F t
Fast
turnaround
time
Ground
G
d Crew
C
Aligned to
Strategy
Adapted from Strategy Maps, Harvard Business Press, p53
On Ground Time
On-Time Departure
30 Minutes
90%
Turnaround Cycle
Time Optimization
Scorecard
9
How progress
is tracked
against
expectations and
Copyright
2010
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corrective
actions identified
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Learning & Grrowth
IInternal Processes
C
Customer
Financial
The Strategy Map Helps Tell The Story
Provide Maximum Value to our Shareholders
…deliver ever-increasing
value to our shareholders.
Maintain
Increase
Same
“What are our shareholders’
expectations and
how do
they define success?”
Optimize Cost
Earnings
Stores Sales
Structure
Growth
ensuring that we 50%
Double
Revenue
Excellent New Products
Unparalleled Customer
Value Through Seamlesswith our customers…
A Good Citizen
…develop
mutually beneficial
long-term relationships
Experience
Execution
“Greatt tasting
“G
t ti
new coffee
drinks”
"To
To satisfy our “No
shareholders,
how must we appear to our customers?
customers?”
No other
“It’s worth it to
coffee shop
go to Sumarks”
like it” which drives our ability to
Introduce 1 New
Make It Easy for
“Sunmarks
cares”
Achieve 90%
Brew and Serve
…excel
at the specificCustomers
processes
which provide
our customersGreen
with
great
Drink per
To
Paper
Excellent Coffee
Quarter
Linger and superior service…
Products
products
Develop an
Effective New
Product Pipeline
Learn and
Achieve 15 Day
Leverage
New Store Start"To satisfy Customer
our customers, at which processesup
must we excel?”
Preferences
Develop and Use
Fair Trade
Sources
enables us to
Our People Are the Difference
Reinvigorating
Develop
In-Store
Coffee Experts
ourEncourage
technical,
relationshipCultivate
and leadership
skills
while
& Reward
Our
Leverage
High Performance
Future
Leaders
Technology
fostering
an entreprenurial
culture…
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10
"To excel at our critical internal processes, how must our organization
change?”
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© 2008 Iolite Corporation
A Complete Strategy Management Plan
Strategy Map
Scorecard
Theme: Operating Efficiency
Financial
P fit bilit
Profitability
Revenue
Growth
Customer
Asset
Utilization
“I’m Staying With
Southwest”
Southwest
“On-time
Service”
Internal
P
Processes
Learning &
Growth
“Lowest
Prices”
Fast
Turnaround
Time
Ground Crew
Aligned To
Strategy
Objectives
Strategic Job
Ramp Agent
Target
Initiative
•
Profitability
•
Market Value
•
30% CAGR
•
Grow revenues
•
Seat Revenue
•
20% CAGR
•
Fewer planes
•
Plane Lease Cost
•
5% CAGR
•
Flight is on-time
•
•
#1
•
•
Lowest prices
Loyalty
•
•
•
#1
70%
Increase
12% annual
•
•
•
•
•
FAA On-Time Arrival
Rating
g
Customer Ranking
# Repeat Customers
# Customers
•
Fast turnaround time
•
On Ground Time
•
30 Minutes
•
On-Time Departure
•
90%
•
% Ground Crew
Stockholders
Strategic Awareness
•
•
Ground crew aligned
with strategy
•
•
Strategic Systems
Crew Scheduling
Measurement
•
Develop the
necessary skills
•
Develop the support
system
•
Strategic Job
Readiness
Quality
Management
g
Customer Loyalty
Program
Implement CRM
System
• $XXX
•
On Ground Cycle
Time Optimization
• $XXX
100%
•
ESOP
•
$XXX
•
100%
•
Ground Crew
Training
•
$XXX
$
•
Yr 1 - 0%
Yr 3 - 90%
Yr 5 - 100%
•
Crew Scheduling
System Rollout
•
$XXX
•
100%
•
Communications
Program
•
$XXX
Info System
Availability
•
Total Budget
11
Adapted from Strategy Maps, Harvard Business Press, p53
Budget
• $XXX
• $XXX
$XXXX
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Common Ground Between BSC and LSS
• Financial outcomes
• Customer
• Y= f(x), cause-effect hypothesis
• Measures
M
• Root cause analysis
• Projects (initiatives) to close performance gaps
12
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Differences Between BSC and LSS
Balanced Scorecard
Lean Six Sigma
• For executive mgt team first, then for all
• For belts and team members primarily
• Change management is a major focus
• Change management may or may not be a component
• A
A day
day‐to‐day
to day communication vehicle, communication vehicle
continuous
• Focus on project completion, non
Focus on project completion non‐continuous
continuous
• To manage strategy deployment and execution • To manage process improvement (DMAIC) and design (DFSS) projects
design (DFSS) projects
• Works best when initiated at the top management level
• Can be deployed very successfully at lower level operating units
• Does not work as a grass roots movement
• Can work very well as a grass roots movement
• Intended to ultimately involve the entire organization
• Does not necessarily require whole organization involvement
13
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How the BSC Can Benefit From LSS
Let’s take a look at:
• 5 examples
•
•
•
•
Objectives
M
Measures (2)
(2)
Performance Reporting
Initiative Selection
• Real BSC deployments
• Fictionalized
14
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Sunmarks Coffee Company
Learning & Grrowth
Inte
ernal Processes
Custo
omer
Financial
Provide Maximum Value to our Shareholders
Double
Revenue
Maintain
Earnings
Growth
Increase Same
Stores Sales
50%
Optimize Cost
Structure
Excellent New Products
Unparalleled Customer
Experience
Value Through Seamless
Execution
A Good Citizen
“Greatt tasting
“G
t ti
new coffee
drinks”
“No
No other
coffee shop
like it”
“It’s
It s worth it to
go to
Sunmarks”
“Sunmarks
cares”
Introduce 1 New
Drink per
Quarter
Make It Easy for
Customers To
Linger
Brew and Serve
Excellent Coffee
Achieve 90%
Green Paper
Products
Develop an
Effective New
Product Pipeline
Learn and
Leverage
Customer
Preferences
Achieve 15 Day
New Store Startup
Develop and Use
Fair Trade
Sources
Our People Are the Difference
Develop In-Store
Coffee Experts
Encourage & Reward
High Performance
15
© 2008 Iolite Corporation
Cultivate Our
Leverage
Future Leaders
Technology
Copyright 2010 MoreSteam.com
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Strategic Differentiation and Value Proposition
Value Proposition
Operational Excellence
Product Leadership
Customer Intimacy
Best Total Cost
Best Product
Best Total Solution
• P
Process Design/Redesign
Improvement Levers
• Continuous Improvement
p
• Wal‐Mart
Example • McDonalds
Organizations • FedEx
• P
Product d
Technology
• R&D Cycle Time
• P
Problem Expertise
bl
E
i
• Service Customization
• Lexus
• Cabela’s
• Apple
• Nordstrom
• Google
• USAA (insurance)
Adapted from The Discipline of Market Leaders, Basic Business Press, p194
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Double
Revenue
Objective Definition Before LSS
Few guidelines for creating
Double Revenue
• Our revenue growth has been flat for the
past 5 years. Because of our new strategic
objectives, we will experience double-digit
revenue growth from new products.
Revenue growth for existing products will be
no more than single digit but will be positive.
Unclear Vague
Unclear,
Vague, Unmeasureable,
Unmeasureable Open
Open-ended
ended
17
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Double
Revenue
Objective Definition With LSS
Leverage Score: 5
Based on operational definition requirements
5 being best score
Double Revenue
• Through
g a combination of expanding
p
g into
new markets and penetrating our existing
markets we will double the revenue
generated through sales of our products
within 3 years. The percent of sales from
new products will increase from 40% in year
1 tto 55% iin year 3
3.
Clear Unambiguous
Clear,
Unambiguous, Measureable,
Measureable Time-bound
Time bound
18
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Measure Selection Before LSS
Brew and Serve
Excellent Coffee
• Declarative
•
“We’re measuring ‘time to prepare’ so let’s keep
d i th
doing
that.”
t”
• Comparative
•
“Our biggest competitor measures customer
engagement time: from the time the customer enters
the line to the time the order is placed. Let’s do
b tt and
better
d measure ffrom the
th time
ti
th
the customer
t
arrives until they leave. ”
• Nominative
N i ti
•
“Let’s vote.”
What do the objectives suggest? What does our strategy need?
19
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Double
Revenue
Measure Selection With LSS
Based on Value Driver (i.e. CTQC) Trees
Leverage Score: 4
Key Elements
(also Objectives)
Objective
Value Drivers
Strategic Measures
New markets
New market revenue growth
(%)
Maximize existing channels
and customers
Share growth in existing
markets (%)
New products
New Product Revenue (%)
Acquisitions
NPV / Payback
Double Revenue
Provide
Maximum Value
to Our
Shareholder
Maximize
Earnings Growth
Increase Same
Store Sales 50%
Optimize Cost
Structure
“what
what we want
want”
“where
where it comes from
from”
“how
how it
it’s
s measured”
measured
Explicit relationship
Measures reflective of the value that the Objectives deliver
20
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Target Setting Before LSS
Brew and Serve
Excellent Coffee
• Declarative
•
“Our serve time averages
g 180 seconds so let’s
set our target to 175 seconds and give ourselves
a stretch task.”
• Comparative
•
“Our biggest competitor averages 3.5 minutes so
let’s set our target
g to 3.2 minutes. This will make
sure we attain a competitive advantage.”
• Nominative
•
“Let’s vote.”
What does the customer want? What does our strategy need?
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Target Setting With LSS
Brew and Serve
Excellent Coffee
Leverage Score: 2
Voice of the Customer process followed
Objective
j
Value Drivers
Strategic
g Measures
Target
g
Timely Delivery
Time to Serve (sec)
210 seconds maximum for
specialized drinks
Brew and Serve
Excellent Coffee
Good Tasting
Surveys, observation,
benchmarking
Voice of the Customer Process
Our serve time = 180 sec
Gather
Comp. serve time = 3.5 min
Active &
Passive
Information
Sort
Affinity
Diagram
Develop
CTQC
Tree
Translate
Specifications
The targets = the required level of performance
22
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Performance Reporting Before LSS
Brew and Serve
Excellent Coffee
Poorly Defined Measures and Targets
Arbitrary target
(declarative)
Project chartered
(unnecessarily) to
improve performance
What does the process “say”?
say ?
23
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Performance Reporting With LSS
Disciplined approach through Voice of the Process first
Brew and Serve
Excellent Coffee
Leverage Score: 2
Histogram
Next: what is the process
capability?
Process Behavior Charts
Next: is the process meeting spec?
Finally: analysis & recommendation
First: is the process stable?
• Continue to monitor
More process management
management, less process tinkering
24
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Leverage
Technology
Initiative Selection Before LSS
• Declarative
• “We need to make sure we have something covering our ERP
system.
y
It’s that important.”
p
• Comparative
• “When
When I was working at our competitor,
competitor we had a project to set up onon
line collaborative design and development. We need the same thing
here.”
• Nominative
• “Let’s vote.”
• Enumerative
• “We have the right amount of initiatives already, let’s move on.”
Initiatives disconnected from strategy
25
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LSS projects and
BSC initiatives
Initiative Selection With LSS
Leverage Score: 3
Criteria
From the
F
th
strategy
development
process
Weighting
Rate & Rank
Pairwise
P
i i
comparison
Cause-Effect
C
Eff t
Matrix
Select
Based
B
d on
cut-off
values
A comprehensive portfolio of projects
6th example if
time allows
26
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References
•
Balanced Scorecard Step-by-Step: Maximizing Performance and
Maintaining Results, Niven, Paul R.
•
Fundamentals of Decision Making and Priority Theory with The Analytic
Hierarchy Process, Saaty, Thomas L.
•
Out of the Crisis, Deming, W. Edwards
•
The Balanced Scorecard: Translating
g Strategy
gy Into Action, Kaplan,
p
Robert S. and Norton, David P.
•
The Discipline of Market Leaders, Treacy, Michael and Wiersema, Fred
•
The Strategy-Focused Organization: How Balanced Scorecard
Companies Thrive in the New Business Environment, Kaplan, Robert S.
and Norton
Norton, Da
David
id P
P.
27
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Summary
Balanced Scorecard (BSC) and Lean Six Sigma (LSS)
•
Common ground
•
Key
y differences
•
Keep the BSC and LSS separate
organizationally
•
How BSC can benefit from LSS
Don’t Combine – Do Leverage*
* Except the Project and Initiative Selection Process
Process, Combine These
28
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Thank you for joining us
29
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Resource Links and Contacts
Questions? Comments? We’d love to hear from you.
Maurice (Mo) Klaus
Klaus, Product Architect - MoreSteam.com
MoreSteam com
mklaus@moresteam.com
Larry Goldman
Goldman, Vice President Marketing - MoreSteam.com
MoreSteam com
lgoldman@moresteam.com
Additional Resources:
Archived presentation, slides and other materials:
http://www.moresteam.com/presentations/webcast balanced scorecard.cfm
http://www.moresteam.com/presentations/webcast-balanced-scorecard.cfm
Master Black Belt Program: http://www.moresteam.com/master-black-belt.cfm
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Join Us for Another MBB Webcast
“Fault Tree Analysis for Root Cause Analysis of Sporadic
Events“
Debra Detwiler, Bridgestone Americas
Thursday, November 18, 2010, 11 AM EST
http://www.moresteam.com/presentations/webcast-fault-tree-analysis.cfm
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Critical Success Factor Decomposition for Measures
Average length of
service of staff who
have left this month
# of social functions
planned
# of team members
without agreed goals
Job
Satisfaction
# of recruitments
from internal referrals
Turnover of key staff
in last 3 months
in last 3 months
# of team members
that have mentors
# of team members
who have presented
to Senior Mgmt.
Team
# of team members
with career paths
Career paths
for team
members
# of key positions
with succession
planning
New branch
# of recognitions
made in last 20
working days
Recognition of
team
members
# of team
members who
are working on a
major project
# of team members booked
to attend executive
management courses in next
six months
# of team members
who have not had
Performance
informal feedback in
Feedback
l 3 months
last
h
Compensation
Team members whose
compensation has not
been benchmarked in
Team members paid below
last 6 months
benchmark
# of applicants for
vacancies
# of team members Sick leave taken by
featured in press team members
releases, intranet
newsletter
# of days leave taken
Team members who in last 12 months
have not received
# of CEO
Overtime hours
recognitions in last recognition in last 3
works by team
month, 2 months, 3 months
members
32
months
RETURN
New branch
T i i
Training
New branch
Encourage &
Reward High
Performance
# of incentive payments to
team members that are
late
# off team
t
members
b who
h
have attended executive
management courses
Work
Environment
Team members who
have not had at least
a week’s vacation in
the last 6 months
Team members with
no vacation
scheduled in the next
6 months
th
% of team members
# ofCopyright
problems identified
by
covered by 3602010 MoreSteam.com
team members
that have
degree evaluations
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been addressed