Business Excellence ’03
Designing PMS Using Tools To Support the Deployment of BSC
Lima, Lobo, Favaro, Marcondes
Designing Performance Measurement Systems Using Tools To Support The
Development Of Balanced Scorecard
Paulo Corrêa Lima
Campinas State University – Faculty of Mechanical Engineering
plima@fem.unicamp.br
Carlos Eduardo d’Araújo Villaça Lobo
Taktica Manufacturing Consulting
clobo@taktica.com.br
Cleber Favaro *
Taktica Manufacturing Consulting
cfavaro@taktica.com.br
Andreza Benatti Marcondes
DaimlerChrysler Brasil
andreza_benatti.marcondes@daimlerchrysler.com
balanced scorecard, alignment of strategies, performance
management systems, quality, corporate strategic planning
1/8
measurements,
performance
Fig. 1.
INTRODUCTION
BSC links performance measures with the
manufacturing strategic plan, and consequently with
the organization’s overall strategy. Starting with the
business’ strategic view, manufacturing performance
is evaluated from different points of view.
With a growing level of competition, companies
have been looking for tools to develop and increase
competitive performance. Senge [1] notes that
systems react to how they are measured. Therefore,
choosing a wrong measure could create, in the worst
case, distorted judgment and local sub-optimal
performance. On this environment, the design of
Performance Measurement Systems (PMS) shows it
importance to business’ evolution.
According to Hacker [4], the BSC mixes short and
long term measures because it uses different points
of view. For example, the financial view provides the
short-term view and learning and growth provides
the long-term view, giving the right balance between
different points of view.
Maskell [2] characterizes traditional cost systems
as irrelevant (not linked with strategy), distorted
(overhead allocation) and inflexible (over time). In
order to overcome those problems, one of the most
relevant PMS developed is the Balanced Scorecard
(BSC), proposed by Kaplan and Norton [3].
The importance of these four points of view is
verified by the results produced by the interactions
among them. Learning and growth leads to improved
employee skills, consequently better process quality
and process cycle time which leads to on-time
deliveries in the internal process point of view. These
on time deliveries result in customer loyalty and,
finally, a better return on capital from the financial
point of view.
BSC is well developed and known, but how to
deploy it from the high levels down to the lower level
inside the company without compromising the
integration among the measures in all levels still a
problem that should be better investigated. A
promising possible solution is to use some kind of
methodology as Hoshin Kanri or Axiomatic Design to
address this task.
According to Kaplan and Norton [3], the BSC
permits the organization be customer oriented, highquality product supplier, work teams organized, first
come to market, and oriented by long-term results.
Finally, the BSC provides a balance between
measures. It prevents that managers optimize one
measure with the sacrifice of others, known as local
optimizations.
BALANCED SCORECARD
The BSC, shown in Figure 1, provides not only
financial measures but also performance measures
from the point of view of the customer, the internal
business process, and learning and growth.
On this paper we are interested on how the
measures pointed out on BSC are deployed through
all organizational levels. The following sections
presents Hoshin Kanri framework and Axiomatic
Design approach. The use of them are different
possible answers to the necessity of deploy the
performance measures in the BSC guaranteeing
integration among them. Furthermore it is also
presented real cases their use to support BSC
deployment.
Financial
Objectives
Goals
Measures
Initiatives
Customer
Objectives
Goals
Measures
Internal Process
Strategic
View
Initiatives
Objectives
Goals
Measures
Initiatives
Learning and Growing
Objectives
Goals
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BSC adapted from Kaplan and Norton [3].
Measures
Initiatives
2
domains continues, resulting in a hierarchical
decomposition of system requirements and design
parameters.
AXIOMATIC DESIGN, PRODUCTION SYSTEM
DESING AND PMS
Axiomatic design is a general design
methodology proposed by Suh [5] involving the
continuous interaction between the desired
objectives and the means to achieve them. The
objectives of a design are stated in the functional
domain and are called functional requirements (FR’s);
the physical solutions are generated in the physical
domain and are called design parameters (DP’s).
In the production system design decomposition,
the FR’s are more general at the upper levels, and are
focused in the overall production system design. At
the lower levels the FR’s are more specific and focus
on the sub-systems or cell design and further on the
machine and assembly stations design. The Figure 2
shows the upper levels of Production System Design
Decomposition (PSDD) according Cochran et. al.[8].
A basic principle of axiomatic design is translating
customers’ needs – external or internal - into FR’s,
and then translating them into DP’s. Thus, the design
procedure is customer guided. There are also
constrains defined in the functional domain that
restrain possible design solutions (DP’s). In order to
obtain a better design, Suh [5] has proposed two
axioms to be used in the selection of design
parameters: the independence axiom and the
information axiom. The independence axiom states
that the FR’s must be independent. This means that
an adjustment of a DP should only affect the
corresponding FR. Therefore, this design approach
requires the design to find one and only one solution
(DP) for each objective (FR). The second axiom states
that the information content in the design must be
minimized. The information content is defined in
terms of the probability of a DP satisfies a given FR.
Based on this definition, systems that have a high
content of information have a low probability of
success.
Business Objectives / FR (What)
DP1
Maximize
long-term
return on
investment
Production
System
Design
FR11
FR12
FR13
DP11
DP12
DP13
Maximize
sales
revenue
Minimize
production
costs
Minimize
investment
over system
lifecycle
Production
to
maximize
customer
satisfaction
Elimination
of non-value
adding
sources of
cost
Investment
based on a
long term
system
strategy
FR-111
FR112
FR113
DP-111
DP112
Deliver no
defects
Deliver
products on
time
Meet
customer
expected
lead time
Defect-free
production
processes
Through-put
time
variation
reduction
DP113
Mean
through-put
time
reduction
Fig. 2.
Top Levels of PSDD (Cochran et al.[8])
The DP’s show how the system is supposed to
achieve the desired objectives or FR’s. In order to
measure how well the FR’s are satisfied in practice,
the degree to which each DP satisfies its
corresponding FR should be stated in terms of
measurable parameters. These measures or systems
variables can then be used to control the production
system.
A different way to see the set of performance
measures obtained from axiomatic design
decomposition is shown in Figure 3.
The theory of axiomatic design has been applied
to the design of production systems by many authors
including Cochran [6], Suh et. al. [7], Cochran et al.
[8], Duda [9] and Lobo [10]. According to this
decomposition, the highest level FR is to maximize
the return on investment over the system lifecycle.
The DP for achieving this is the design of the
manufacturing system. This DP can be further
decomposed into three functional requirements:
maximizing sales revenue, minimizing production
costs, and minimizing investment over the
production system lifecycle. This process of going
back and forth between the functional and physical
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Physical Implementation / DP (How)
FR1
As shown in Figure 3, the FR’s at higher levels of
axiomatic design decomposition are the enterprise
strategic objectives set. Going through the
decomposition of these FR’s, the right solution – DP,
to each FR is pointed, and consequently its
performance measure.
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everyone in the company is involved on the task of
improve performance from the customer point-ofview.
The Hoshin Planning occurs every year and it
starts with a research about market share, rivals’
position and market demand. The following action is
to collect and analyze the performance data of the
last year. The main intend is to study internal and
external environment, organizing and stratifying past
problems.
Fig. 3.
The core objectives are defined at the highest
level of the company – at the BSC, when the mission
of it is defined in general terms. The objectives
include all the systems changes required to achieve
the aimed goals.
Using PSDD with BSC (Lobo et al. [11])
HOSHIN KANRI
The managers are informed about those goals
and they must validate the proposition. Thus, the
process is based on the consensus of different
management levels assured by negotiations between
them as stated by Rich and Hines [17]. This crossfunctional alignment is the catch ball that consists
the hardest phases of Hoshin Kanri development. The
name comes from the children’s game where the
kids stand in a circle and pass the ball amongst them.
In Hoshin, the goals, the means and their deployment
represent the ball that is passed from one manager
to other trying to create a virtuous circle of
continuous improvement as stated by Tennant and
Roberts [13].
The Hoshin Kanri was developed in Japan during
the 50s as a tool to integrate Total Quality Control
and its deployment. Also known as policy
deployment, it has being used in Western by a
restricted but increasing group of companies, as
Xerox, HP and P&G as cited by Mulligan et al. [12]
and Witcher and Butterworth [13].
Tennant and Roberts [14] define that the
fundamental tasks of Hoshin framework are:

To provide a focus on corporate direction by
setting, annually, a few strategic priorities;

To align the strategic priorities with local plans
and projects;

To integrate the strategic priorities with daily
management;

To provide a structured review of progress of the
strategic priorities.
The involvement of the whole departments is
essential, because it is the way to avoid resources’
overload caused by Hoshin plans and projects. Pareto
and Fishbone diagrams make possible to find the
root cause of low efficiency bringing success to
Hoshin plan.
Womack and Jones [15] suggest that Hoshin
breaks down the top management’s targets and
allocates people and resources into few projects in
order to achieve the planned goals.
Each manager must define a group of three or
four quantitative indicators that are set in order to
track the results. In the next step the teams
elaborate a Hoshin Action Plan that shows in details
the corporate objectives and the initiatives to
support them. It is also defined a Hoshin
Implementation Plan, including tasks, its owners,
check points and due dates. The indicators follow this
Implementation
Plans
providing
feedback
The Deming’s PDCA cycle and the seven quality
tool enounced by Ishikawa [16] compound the base
of Hoshin approach that aims to create value to the
end-customer through quality assurance. Using them
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information for elaborating and reviewing strategic
planning.
0
To summarize, Akao [18] defines the Hoshin
logics as being a transformed PCDA cycle that
becomes CAPD, where results are checked, strategy
is defined, projects are planned and executed.
1
2
Maximize
Sales
revenue
2
Deliver no
defects
3
Deliver
products
on time
4
Meet
customer
expected
lead time
5
Operator
has
knowledg
e
of
required
tasks
6
The PMS proposed was based on production
system axiomatic design shown in Figure 4. It is also
pointed the FR’s related to direct labor – Workers
strategic objectives, FR’s related to managers –
management strategic objectives, and FR’s related to
the board – manufacturing strategic objectives. The
set of FR’s for each person on the system is his own
balanced
scorecard.
3
Operator
s
Manufacturing Strategic Objectives
Management Strategic Objectives
Workers Strategic Objectives
Fig. 5.
Strategic Objectives for the people inside an
organization
7
Operator
consistent
ly
performs
tasks
correctly
Determin
e
capability
of process
0
Design
Solutions
(DP's)
1
Production
to
maximize
customer
satisfaction
2
Defect free
production
processes
3
Throughpu
t
time
variations
reduction
4
Mean
throughput
time
reduction
5
Training
Program
6
Standard
work
methods
7
Measure
current
process
8
Improve
capability
of process
8
Design of
experiment
s
9
Supply
descriptiv
e info to
support
resource
9
System
that
conveys
nature of
problem
0
Performanc
e Measures
1
Return
sales
2
% of product
with defects
delivered
3
% of products
delivered on
time
4
Mean
response
time
5
Existence of a
training plan
and number
of
training
hours
6
Number
of
defects
caused
by
non-standard
methods
7
Process
parameters
8
Process
capability
9
%
of
problems
well
described
on
Relationship among performance measures
through hierarchical levels.
Figure 5 exemplify the results of applying the
deployment in one branch of Production System
Design Decomposition. It provides a clear structure
to understand the impact of each person on the final
results, from the plant manager to the operator. For
example, a reduction in the number of defects – shop
floor performance measure – due unclear standard
methods will result in a reduction in the number of
For each FR there is a PM to evaluate in what
degree the design parameter selected is satisfying its
FR. Different DP’s are possible to address the same
FR. The performance measure evaluates how good
the FR is satisfied and helps on the selection of the
best DP.
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Managers
The first case is based on a development done to
an automotive supplier part. The company would like
to develop a PMS that does not fail in financial
pitfalls. The company was starting a conversion
process from mass to lean production system and
tries to adequate its performance measures to better
reflect the results and set a direction to continuous
improvement cycle.
Fig. 4.
Strategic
Objetives
(FR's)
Plant
Manager
APPLICATION OF THE APPROACHES
Balanced Scorecards
0
Level
5
defective
parts
delivered
–
management
performance measure. This, in turn, will result in
increased sales revenue, and consequently in better
return on investment – board of director’s
performance measure.
(financial, project, employees, costs, customer,
society and environment).
To illustrate the approach, the customer
perspective was chosen and its two indicators – on
time delivery and quality - are tracked. In an initial
research in 1999 the performance for on time
delivery and quality was 80% and 28% respectively.
The department started by identifying the demand
for target price report by each customer through a
Pareto diagram, shown
in Figure
7.
Major Customers
(1999)
The purposed system started on last October
2002 and there are not enough data to quantify the
system’s improvement, but the fact that the
deployment assigns performance measurement for
every level and linked them certified that the system
objectives are clear and the efforts are well focused
on changing it.
848
BSC and Hoshin Kanri
The Industrial Projects Department (IPD) of an
automotive company is the second case study. This
department is a support financial area that supports
all company defining target prices for investments
and expenditures. Till 1999, the IPD had difficulties to
decide based on data from many corporate levels. At
that time, the department decided to implement a
BSC using hoshin kanri to deploy its goals and to find
the root cause of poor performance.
96
31
Purchasing
Fig. 7.
Department Scorecard
2
Project
5
Customer
3
Employees
6
Society
Development
Other
Pareto diagram for major customers at the
beginning of the project.
For the purchasing department – the major
customer -, a detailed analysis was done using
fishbone diagram. Using brainstorm sections, the
causes of non-satisfaction were pointed out and
detailed till the root causes being identified - Figure
8.
The Figure 6 shows the framework adopted by
the department to manage its objectives from
strategic level to daily management. Deploying the
directive goals it became possible to set a new
reference to strategic planning, aiming at creating
value at company’s and shareholders point-of-view.
1
Financial
Production
18
On time delivery
4
Costs
Enterprise
Scorecard
7
Environment
BSC Customer
Perspective
Strategy
Quality
Hoshin Kanri
Fig. 8.
Action Plan
What
Pareto
Fig. 6.
Fishbone
Who When Where Why
5W1H
How
Fishbone Diagram to reach roots causes of nonsatisfaction.
Check planned vs. done
Deployment of Enterprise Scorecard using Hoshin.
To each root cause, an action plan was created in
order to improve the process. The format of this plan
is a 5W1H (what, who, when, where, why and how).
The plans are reviewed monthly and the goals
tracked by single indicators assigned to each one. The
In spite of defining the original four perspectives
purposed by Kaplan and Norton (1992), the
enterprise scorecard is divided on seven perspectives
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final results are on time delivery and quality, straight
linked to the board’s scorecard and the partial
targets give feedback information to validate the
department’s strategy.
CONCLUSION
The use of axiomatic design decomposition to
deploy BSC performance measures, link strategy and
people, driving their actions, not only providing a
way to deploy strategy to daily operations but also
indicating the performance measurements that
should be used. Instead of using the performance
measurement system to support the strategy, the
performance measurement system is a consequence
of the true link, the axiomatic design decomposition.
Axiomatic design decomposition leads the system to
be designed according to the functional
requirements of the system, its own strategic
objectives. Consequently, the correct performance
measurement for evaluating the production system is
the adequacy of the design solution used.
The following graphics - Figures 9 and 10, show
the planned and effective results since the beginning
of this approach.
The integration of BSC and Hoshin has provided
alignment of efforts to assure that the planned
strategic goals were aimed. As Hoshin is strongly
based on well known quality tools, the whole
department could take part on the process. No
training was necessary and improves are reached
inexpensively and so fast. The visual management of
evolution indicators and its feedback to all
hierarchical levels are a significant gain.
Axiomatic design decomposition is a powerful
tool to deploy BSC although is too complex and need
more history to test its applicability.
100%
Hoshin Kanri also proves to be a powerful tool to
deploy the Scorecard. It establishes links between
strategic planning and daily management, supported
by quality tools like Pareto and Fishbone diagrams.
The fact of those tools are well known, makes the
implementation faster and brings fast Looking for
root causes of poor performance, it concentrates
efforts to cut them, leading to a continuous
improvement process that aim at adding more value
at customers point-of-view.
Planned
Done
60%
40%
20%
20
02
20
01
20
00
Year
Fig. 9.
100%
80%
80%
90%
60%
In spite of having positive results, the application
of Hoshin is strongly related with the catchball
process whose complexity must be more studied.
Planned
Done
Quality
Planned
Done60%
40%
References
40%
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1990.
[2] Maskell, B.H., Performance Measurement for World
Class Manufacturing, Productivity Press, 1991.
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R., Norton, D., The Balanced Scorecard –
Year
Measures that Drive Performance, Harvard Business
Review, 1992, January: p. 71-79.
[4] Hacker, M. E.; Brotherton, P. A., Designing and
Installing Effective Performance Measurement
Systems”. IIE Solutions, 1998, August: p. 18-23.
19
99
0%
220
0002
2
0%
70%
220
000
11
20%
20
00
80%
20%
20
00
Quality
On Time
Delivery
100%
100%
11999
999
20
02
Planned and effective results from 1999 to 2002.
Year
Year
Fig. 10. Planned and effective results from 1999 to 2002.
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20
02
20
02
19
99
0%
20
01
Quality
80%
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and
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