Going Beyond Lean Six Sigma and the Balanced Scorecard

QUESTION: I’m looking for a good Lean Six Sigma training to get my Black Belt certification and have all our managers receive their yellow belt.

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I will be again presenting at the following Lean Six Sigma conferences this spring, which you could find very beneficial. These conferences provide networking opportunities and knowledge sharing:

• February 27-28 2012 ASQ Lean and Six Sigma Conference
• February 28-29 2012 International Lean and Six Sigma Conference
• May 15-18 2012 WCBF – 11th Annual Lean Six Sigma and Process Improvement in Healthcare Summit 2012
• May 21-23, 2012 ASQ World Conference on Quality and Improvement (component of main conference)

Let’s consider what are the common problems people face when trying to align their Lean Six Sigma initiatives with business objectives?

From a Google search I found an example business objective as “We want to achieve sales of €10 million in European markets.”  I know how to do that – buy any business in Europe that has over €10 million in sales or sell our products at a deep discount.

However, next year comes around and we notice how our profitability is down.  An analysis showed that the business we just bought or our discounted pricing is losing us a lot of money.  Not my problem – I met the goal that was passed down to me; i.e., increase the top line. Nobody included in the goal anything about being profitable with the increased sales. Continue reading →

In one section of the January 25, 2012 Wall Street Journal the following articles appeared:

• At Yahoo, the Ad Decline Continues
• J&J Net Slumps on Charges
• AMD Posts Loss After Write-Downs, Says Sales Will Decline This Quarter
• Quiznos Slices Debt in Restructuring
• Sony in Talks to Invest in Olympus

If care is not taken, one can get really depressed when reading articles like these, especially if one’s own company is being described.

In each article, there will be a different story; however, I think that there are some commonalities. A consistent theme that I am finding is that organizations need to do a better job in orchestrating their business management system. With all the problems companies and countries are now having because of the current financial crisis, I still don’t understand why people are not challenging the way businesses are run; i.e. improving their business management system.

In my view, one of the major business-management-system problems is organizational scorecards or dashboards. One area of concern is how the metrics are determined, where often too many non-actionable measurements are included. Another point is how metrics are reported in the company’s dashboard. I suggest that use of a table of numbers, of stacked bar charts, or of pie charts for managing the business is not unlike driving a car by only looking at the rear view mirror; i.e., an unhealthy behavior.

In addition, common-place stop-light-variance-to-goal metric reports can also have many issues, including playing games with the numbers, which can lead to destructive behaviors. It has been said that if you can improve productivity, or sales, or quality, or anything else, by five percent next year without a rational plan for improvement, then why were you not doing it last year? This statement makes a lot of sense to me and makes a case for why common-place red-yellow-green scorecards can cause many organizational problems.

Metrics and the reporting thereof should be part of an overall enhanced system. Effective and reliable metrics require the following characteristics:

• Business alignment:  Metrics consume resources for both data collection and analyses.  Metrics need to provide insight to business performance, its issues, and its needs.  Metrics surrounding your business alignment can be found by looking at your value chain.
• Honest assessment:  Creating metrics so that the performance of someone or an organization will appear good has no value and can be detrimental to the organization. Metrics need to be able to provide an honest assessment, whether good, bad, or ugly.
• Consistency:  Identified components in any metric need to be defined at the outset and remain constant. Criteria and calculations need to be consistent with respect to time.
• Repeatability and reproducibility: Measurements should have little or no subjectivity. We would like a recorded measurement response to have little or no dependence on whom or when someone recorded the response..
• Actionability:  Often measures are created for the sake of measuring, without any thought as to what would be done if the metric were lower or higher.  Include only those metrics that you will act on; that is, either remove a degradation problem or hold the gain. When the metrics response is unsatisfactory, organizations need to be prepared to conduct root-cause analysis and corrective or preventive actions.
• Time-series tracking:  Metrics should be captured in time-series format, not as a snapshot of a point-in-time activity. Time-series tracking can describe trends and separate special-cause from common-cause variability in predictable processes.
• Predictability:  A predictability statement should be made when time-series tracking indicates that a process is predictable.
• Peer comparability:  In addition to internal performance measurements, benefits are achieved when comparisons can be made between peer groups in another business or company. A good peer comparison provides additional analysis opportunities, which can identify improvement possibilities.

A system for achieving all these characteristics of a good metric as an integral part of an overall enhanced business management system is described in the article Inputs Into Action .

I am to be conducting the evening ASQ Dallas section meeting and tutorial.

As with my other presentations and tutorials, this topic is being (can be) presented at various ASQ and other technical conferences and meetings.  Let me know if you are aware of an organization who might have an interest in me talking with them or speaking on the topics.

The title of the two sessions are:

• Presentation: Lean Tools Application in a Business Management System
• Tutorial: Accurate Scorecarding of Lean Metrics

Presentation description:

Lean has a very good tool set; however, it is not a business management system.  What organizations need for addressing the challenges of the day is an effective framework that integrates the tools of Lean with predictive scorecards and analytical/innovative strategies so that process improvement efforts are undertaken, which benefit the enterprise, as a whole.

Described is a methodology where Lean tools are used to describe an enterprise’s as-is state. This current state value chain (not to be confused with value stream mapping) would include standardized procedures, documentation, and value stream maps in one location that is readily accessible by those who need the information. With this system, the value chain inclusion of Lean metrics such as takt time, lead time, and defective rates provide process stability assessments, which can then be reported as predictive statements, when appropriate.  This form of reporting would lead to effective process improvement efforts that prevent much “problems-of-the-day” firefighting waste, which has minimal, if any, long-term benefits.

The described methodology breaks down common-place organizational silos where this business fundamental performance map provides scorecards and procedures that have ownership. Linkage of performance measurements with controls in the value chain provides a framework for preventing unhealthy behaviors, which can lead to very detrimental consequences. The described Lean-tool-business-system alignment methodology provides the structure for organizational movement toward achievement of the 3Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time.

Included in this overall business management system is also a roadmap that describes how Lean tools can be efficiently, effectively, and consistently be integrated within an overall Define-Measure-Analyze-Improve-Control (DMAIC) project execution roadmap.