PROMISE: Our kitties will never sit on top of content. Please turn off your ad blocker for our site.
puuuuuuurrrrrrrrrrrr
Forrest Breyfogle—New Paradigms
Published: Wednesday, October 14, 2009 - 12:52
The balanced scorecard is a commonly used vehicle that is to align organizational-chart work efforts to executive-determined strategies and goals. With this approach, strategic planning could be considered as step one in this overall business-management-system process.
Consider now the true needs of a business. For success, it is important that organizations move toward achievement of the three Rs of business—everyone doing the right things, doing them right, and at the right time. However, is a strategic approach an effective methodology for achievement of this three-Rs objective? Could there be a better means to address the economic challenges of the day through the implementation of an enhanced business-management system?
When answering the first question, consider issues resulting from a traditional approach:
The second question is addressed in this paper by first assessing a traditional strategic planning step-one-business-system approach, the resulting actions that typically occur using the balanced scorecard strategic-planning-deployment system, and the potential unhealthy business behaviors that can ensue because of this deployment. Next, an alternative, enhanced business system is described where strategies are analytically and innovatively determined in step five of a nine-step business-management framework. Within this described enhanced corporate performance management (CPM) system, well-defined strategies are created, which lead to targeted improvement or design projects that benefit the enterprise as a whole.
Organizations often annually create a strategic plan to provide direction for the year. In a facilitated off-site session, executives might create a next-year strategy using tools such as a SWOT (strengths, weaknesses, opportunities, and threats) analysis. This effort can result in statements such as that shown in Figure 1.
Foxconn's objective is to maintain its position as one of the leading manufacturers of connectors, PC enclosures, and other precision components, and to successfully develop products and market its products for use in network communication and consumer electronic products. A number of strategies have been developed to attain this objective:
Develop strategic relationship with industry leaders — By working closely with top-tier PC and IC companies, Foxconn is able to predict market trends accurately and introduce new products ahead of its competitors.
Focus on the development of global logistic capabilities — This enables Foxconn to respond quickly and efficiently to the customer's requirements around the world.
Expansion of production capacity — Foxconn currently has production facilities in Asia, Europe, and the United States. Expanding its existing production capacity increases economics of scale.
Achieve further vertical integration — Further integration of the production process allows Foxconn to exercise better control over the quality of its products.
Maintain technologically advanced and flexible production capabilities — This increases Foxconn's competitiveness relative to its peers and allows it to stay one step ahead of the opposition.
New products — Foxconn will leverage off its manufacturing expertise and continue to move tirelessly into new areas of related business.
Figure 1 Corporate Strategy Example
One approach for organizational deployment of executive-created strategies like those shown in Figure 1 is through "the balanced scorecard" and its strategy-mapping process. In the balanced scorecard, metrics are created so that there is alignment with strategy statements, where each measurement category has objectives, measures, targets, and initiatives as illustrated in Figure 2.
An organization can then use red-yellow-green scorecards, as exemplified in Figure 3, for assigning and tracking how well functions achieve their strategic-based measurement goals. With this system, the color is red when the goal is not being met and is to be addressed through corrective action; e.g., Mary needs to resolve the issue of why the color has changed from green to red for her metric.
Figure 2: Traditional performance measures: The balanced scorecard.
The article, "Predictive Performance Measurements: Going Beyond Red-Yellow-Green Scorecards," described issues with this goal-based-measurement-tracking approach and provided an alternative metric-predictive system that, among other things, helps organizations avoid firefighting, which is commonplace with red-yellow-green scorecard systems.
Scorecard balance is important because if you don’t have balance you could be giving one metric more focus than another, which can lead to problems. For example, when focus is given only to on-time delivery, product quality could suffer dramatically to meet ship dates. However, care needs to be given in how this balance is achieved. A natural balance is much more powerful than forcing balance throughout the organizational chart using the balanced scorecard's traditional structure of financial, customer, internal business process, and learning and growth (See Figure 2), which may not be directly appropriate to all business areas. In addition, a scorecard structure that is closely tied to the organization chart has an additional disadvantage in that it will need to be changed whenever significant reorganizations occur.
The article "Financial Crisis and Resolution to Poor Scorecards" described how to achieve a natural scorecard balance throughout the business via the enterprise value chain. Metrics are assigned to an owner who is accountable for the metrics’ performance. These metrics can be cascaded downward to lower organization functions, where these metrics are also assigned owners who have performance accountability. With this system, whenever there is an organizational change, performance-measurement ownership can change but not the basic value-chain metrics.
When creating these metrics, it is important not only to determine what to measure but also to focus on how to report so that this metric performance tracking leads to the most appropriate action or non-action; e.g., do nothing to improve metrics in areas that are not business constraints. An enhanced, forward-viewing tracking methodology to address this need is described in "Predictive Performance Measurements: Going Beyond Red-Yellow-Green Scorecards,"
Jim Collins describes a level-five leader in Good to Great (HarperBusiness, first edition, 2001) as someone who is not only great while leading an organization but also whose effect remains after the person is no longer affiliated with the organization. I describe the level-five, leader-created legacy as a Level Five System.
In my workshops, I often ask, “Do you think that your organization’s strategy would change if there were different leadership?” A vast majority, if not everyone, gives a positive response to this question. Because of this, it seems to me that it would be very difficult for an organization to create a Level Five System when the primary guiding light for the organization is its strategy, which can change with new leadership.
I don’t mean to imply that organizational strategies are bad, but strategies created without structurally analyzing the overall enterprise, with its organizational value chain and its metrics, in conjunction with the utilization of techniques such as theory of constraints (TOC) can lead to unhealthy behaviors for the business as a whole.
Organizational leaders often openly discuss business complexity growth; however, do we believe that our past, somewhat simplistic, management system of creating a strategy and setting goals throughout the organization can address our current business complexities? In my opinion, there are some improvement opportunities with our current business-management system. What is needed is a system that provides the framework for leadership to understand and to manage their organization systematically through a complex, ever-changing environment.
An organization can find it more beneficial if it first builds a long-lasting, value-chain system that maintains stability through leadership changes. The value chain would describe what is done functionally in the organization with accompanying big picture, 30,000-foot-level, operational-performance metrics, in other words, the front-end to a Level Five System framework. From a value chain, an overall business governance system could then blend analytics with innovation to determine targeted strategies that benefit the enterprise as a whole. This whole-enterprise assessment is to be made relative to financial tracking metrics, which can have revenue growth and profit margin goals.
The integrated enterprise excellence system is a means to accomplish these needs, as illustrated in Figure 4, where strategy creation is step five in this business-system framework. This corporate performance management system helps an organization not only to create effective strategies but also to move toward achievement of the three Rs of business.
The described enterprise-governance system addresses management business issues head on, including the integration of innovation within an overall enterprise execution roadmap. Provided below is a business system, not just a problem-solving project execution methodology such as lean Six Sigma or lean kaizen events.
The first two steps of this enhanced business-management-governance system illustrated in Figure 4 describe a framework that provides a means to achieve long-lasting business consistency for large and small businesses, governments, and non-profits.
In step 1 of this business-governance system, everything aligns with the organization’s vision and mission. Execution of this step in the overall business process describes who we are and where our efforts need to be focused.
Step 2 describes what we fundamentally do as a business and how we will measure the business functions. This is accomplished through the value chain, as described in "Financial Crisis and Resolution to Poor Scorecards," where the organizational chart is subordinate to the value chain.
The balanced scorecard provided a needed performance-measurement component, the concept of balance. With this scorecard methodology, customer needs, for example, are balanced with the financials, which is good. However, deriving metrics from an external strategy can be a very harmful aspect of this measurement-tracking system.
Setting natural, balanced performance metrics based on business functions, independent of the organizational chart, as shown in the 9-step integrated enterprise excellence management-governance system, will result in targeted non-conjectured based strategies that are analytically/innovatively determined.
The scorecard should primarily represent the business functional performance, not the execution performance of strategies. The strategies, which are established in step 5, are chosen to drive the functional value-chain metrics in the right direction. Organizations need to have a system for managing strategic plans with a project management tool and use the scorecards to report functional performance.
Quality Digest does not charge readers for its content. We believe that industry news is important for you to do your job, and Quality Digest supports businesses of all types. However, someone has to pay for this content. And that’s where advertising comes in. Most people consider ads a nuisance, but they do serve a useful function besides allowing media companies to stay afloat. They keep you aware of new products and services relevant to your industry. All ads in Quality Digest apply directly to products and services that most of our readers need. You won’t see automobile or health supplement ads. So please consider turning off your ad blocker for our site. Thanks,
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
The Balanced Scorecard: Issues and Resolution
There's a better means to address the economic challenges of the day.
Traditional Strategic Planning
From Figure 3.4 Integrated Enterprise Excellence, Volume II – Business Deployment: A Leader’s Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books, 2008.
From Figure 3.5 Integrated Enterprise Excellence, Volume II – Business Deployment: A Leader’s Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books, 2008.
Figure 3: Red-yellow-green tabular scorecard example. Click for larger image.
From Table 3.5 Integrated Enterprise Excellence, Volume II – Business Deployment: A Leader’s Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books, 2008.
Analytically and Innovatively Determined Strategies
Figure 4: The Integrated Enterprise Excellence System. Click here for larger image.
From figure 4.7 Integrated Enterprise Excellence, Volume II – Business Deployment: A Leader’s Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III, Bridgeway Books, 2008.
Summary
Our PROMISE: Quality Digest only displays static ads that never overlay or cover up content. They never get in your way. They are there for you to read, or not.
Quality Digest Discuss
About The Author
Forrest Breyfogle—New Paradigms
© 2022 Quality Digest. Copyright on content held by Quality Digest or by individual authors. Contact Quality Digest for reprint information.
“Quality Digest" is a trademark owned by Quality Circle Institute, Inc.
Comments
Balanced Scorecard
We have never found the balanced scorecard to be either helpful or useful. Command and control management with top-down metrics miss great opportunity for improvement AND add to the burgeoning waste of measures that are worthless. As long as companies continue down this path, improvement is far from the important customer-centric measures.
We find working with service organizations that understanding customer purpose and designing against customer demand offers the biggest lever for improvement. This requires different and (our opinion) better thinking.
Tripp Babbitt
www.newsystemsthinking.com
Forrest Breyfogle on Balanced Scorecard
I agree with Tripp Babbit.
I think this article by Forrest Breyfogle is both confusing and misleading.
Alan