Elephant in the Room: Reinventing our Business Management Governance System

Organizations have gained much in process improvement from implementing lean practices and Six Sigma projects. However, these efforts did not prevent our financial crisis from occurring. Lean Six Sigma, total quality management, and other process improvement methods have helped organizations improve. However, these endeavors often occur in organizational silos, where the benefits are not felt at the big-picture level. Because of this, when financial times get tough, lean Six Sigma programs are often downsized and Black Belts and Master Black Belts are laid off.

Often lean and lean Six Sigma projects can evolve into a hunt for defective processes, resulting in the steering committee members pounding their chests in a Tarzan-like fashion proclaiming how much was saved. However, after Six Sigma deployment, many organizations are finding that while $100 million was reported in savings, executives in the big-picture world cannot seem to find the money.

Lean Six Sigma and other improvement techniques are not a business system. The tools of lean and Six Sigma are powerful, however, there could be an even better use of these tools in a business system framework for a transition toward achieving the three Rs of business—everyone doing the right things, doing them right, and at the right time.

Let’s assess a better use of these tools in regard to our current financial crisis. Much has been said about how greed was a major factor that led to our financial dilemma and the unintended consequences. In addition, many blogs, including those from the Harvard Business Review, have placed blame for this crisis on business schools.

A lot of money is being spent to stimulate the economy. However, to me, we have an overall enterprise business governance system problem. Considering this perspective, let’s think about what should be done differently relative to our business management system so that the enterprise as a whole benefits and silo optimizations are avoided.

There are some elephant-in-the-room business management governance policies that nobody seems to openly discuss. These are policies or ways of doing things that may have severe shortcomings but companies do them anyway because "that's the way we've always done it," or "my boss told me to." We need to have candid discussions about these issues. These topics and discussions should include:

Scorecards—Color-coded (red, yellow, and green), goal-setting, and tracking scorecards often lead to playing games with the numbers and unintended consequences. In addition, the reporting of metrics using tables of numbers, bar charts, and pie charts can be deceiving and lead to actions that do not truly fix problems or make long-lasting improvements.

Variance to metric goal tracking—A policy to "meet the quarterly numbers… or else" can lead to very unhealthy behaviors (e.g., Enron effect). These issues are getting more press because of executive bonuses that came at the same time their stock seriously declined. We need to note that these issues can be prevalent, perhaps to a lesser extent, throughout the company. 

Strategy planning and its deployment—Strategic planning sessions often lead to statements (i.e., mission, value, vision) that have measurements and activities aligned to them. This seems like a good practice; however, these strategies can be altered significantly because of changes in leadership and opinions on the economic climate. These factors can cause significant disruption throughout an entire measurement hierarchy. In addition, these statements are often so broad and encompassing that it is hard to get your arms around them when trying to actually implement them (e.g., "We are going to pursue a globalization strategy").

Improvement systems—Although many organizations claim success and benefit from process improvement efforts, there are organizations that excel in lean and yet are not succeeding in their industry. For example, 18 facilities of the Delphi Corp., global supplier of mobile electronics and transportation systems, have won the Shingo Award for Excellence in Manufacturing—an award that was established in 1988 to promote awareness of lean manufacturing concepts and to recognize companies that achieve world-class manufacturing status—and they are having significant financial problems. Clearly defining problems is imperative for the defining of project goals that are consistent with business strategy in benefiting the organization as a whole.

Control systems—Legislation such as the Sarbanes-Oxley Act of 2002 was created to address unscrupulous business accounting practices of organizations like Enron, however, this act did not prevent our current financial crisis from occurring. Quality cannot be inspected into products or business management systems. We need to have "doing the right things, right" built into the system.

None of the above are necessarily bad ideas or methodologies; most often they are just poorly applied and misaligned with company policies. Executives need to step up to the plate and improve their business management systems so that there is healthy policy integration with scorecards, strategic planning, business improvement efforts and control with the result that the business as a whole benefits and no one is playing (or can play) games with the numbers.

About The Author

Forrest Breyfogle - New Paradigms

CEO and president of Smarter Solutions Inc., Forrest W. Breyfogle III is the creator of the integrated enterprise excellence (IEE) management system, which takes lean Six Sigma and the balanced scorecard to the next level. A professional engineer, he’s an ASQ fellow who serves on the board of advisors for the University of Texas Center for Performing Excellence. He received the 2004 Crosby Medal for his book, Implementing Six Sigma. E-mail him at forrest@smartersolutions.com