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  • 1. Corporate Performance Management: The Integrated Enterprise Excellence System Forrest W. Breyfogle III CEO and President, Smarter Solutions, Inc. www.SmarterSolutions.com Abstract Described in this paper are some elephant-in-the-room business scorecard policies that are not often openly discussed but can result in very unhealthy behaviors. Described is a business system resolution to these issues, which goes beyond many traditional business practices, including the Balanced Scorecard and project-based process improvement techniques such as Lean Six Sigma. This system addresses the following issues: • Organization scorecard metrics are often created through examination of the org chart, which can result in measures that are in silos relative to the big picture and change when there is a re-organization. • Strategic planning practices where high-level strategies are created in an executive retreat. Often these strategies are opinion based with no formal blending of enterprise analytics with innovation in their creation. In addition, strategic wordings can lead to much interpretation differences of opinion as to how this created organizational focus should be executed when cascaded throughout the organization. • Strategic planning metrics, as part of techniques such as hoshin kanri, are created so that there is alignment with executive-retreat-created plans and is then cascaded throughout the organization with goals. This can involve a great deal of work. Consider what happens when there is a re-organization or a change in leadership or in the economic environment. This can result in much metric-creation rework and associated goals having to be redone. • Traditional metric reporting often has a table of numbers, pie charts, or stacked bar charts. These charts are not predictive and have a similar decision-making view as to driving a car by only looking at the rear view mirror; i.e., an unhealthy behavior. • Variance to metric goals can lead to playing games with the numbers and behaviors that can be destructive for the business as a whole. • Red-yellow-green scorecards can lead to resource draining firefighting, where resolutions are often not long-lasting. • The balanced scorecard decision to choose metrics after selecting strategies can lead to very subjective and non-long-lasting measurements, which are a function of leadership and economic-environmental changes. The Integrated Enterprise Excellence (IEE) system, with its predictive scorecard and other attributes, resolves these issues and gets organizations out of the firefighting mode, where common-cause issues are often reacted to as though they were special cause. Rev 1.1 © Smarter Solutions Inc. 2009 1
  • 2. Business Management System Issues and Resolution General consensus seems to be that the complexity of business is growing; however, organizations often are trying to incorporate a business management system with accompanying metrics that is at the level of Who Moved the Cheese as written by Spencer Johnson. Although this is a good book, it is a relatively simple model. Does this model seem logical? What is needed is a business management system that can handle increased business complexity relative to measurements and improvements, and that can move organizations toward achievement of the 3 Rs of business; i.e., everyone doing the Right things, and doing them Right, at the Right time. The Integrated Enterprise Excellence (IEE) system was described as a 21st century management governance system in the article “The Elephant in the Room – Corporate Performance Management Issues and its Reinvention: Going Beyond Lean Six Sigma and the Balanced Scorecard”1. IEE addresses current management practice issues, which are part of the reason for the economic crisis that is now being experienced, through a no-nonsense system for integrating scorecards, strategic planning, business improvement efforts, and control so that the enterprise as a whole benefits. IEE accomplishes our current business management system re-invention needs through the logic described in Figure 1 and the IEE-system mechanism described in Figure 2. The Enterprise process Define-Measure-Analyze-Improve-Control (E-DMAIC) system described in Figure 2 is a business management governance system where a metric improvement need pulls for the execution of Project DMAIC (P-DMAIC) roadmap improvement efforts that benefit the business as a whole. The IEE system is described at various levels of detail in a four book-volume series. 2,3,4,5 4. Establish 1. Describe 2. Describe value chain, 3. Analyze SMART vision and including satellite-level and enterprise. satellite-level mission. 30,000-foot-level metrics. metric goals. 6. Identify high 8. Assess project's potential improvement 7. Identify and 5. Create completion impact 9. Maintain the areas and establish execute strategies. on enterprise gain. related SMART 30,000- projects. goals. foot-level metric goals. Figure 1: Aligning projects with business needs through EDMAIC roadmap for project selection and P-DMAIC or DMADV roadmap for project execution From Figure 3.6 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008. IEE addresses the business scorecard metric issues that were described in this article’s abstract through step 2 of the process described in Figure 1. In step 2, organizations document their functional steps and how each function will be measured relative to the considerations of quality, cost, and time. The terms satellite-level and 30,000-foot-level used in step 2 describe how metrics will be tracked over time without calendar boundaries. Satellite-level metrics are financial metrics such as the monthly tracking of profit margins and total revenue growth year- over-year. The 30,000-foot-level metric designation is used to describe high-level operational metrics such as on-time delivery, defective rates, and lead time. Rev 1.1 © Smarter Solutions Inc. 2009 2
  • 3. In businesses, strategies are often created as step 1 in their business system, where organizational work is to align to these strategies. Performance operational goals are then typically assigned to functions throughout the organization where there is a tracking system that assesses how well these goals are being met. This common practice can sound quite attractive, but this system can lead to unhealthy organization behaviors. D M A D V Define Measure Analyze Design Verify Product/Process Product/Process Product/Process Product/Process Product/Process DESIGN FOR IEE (DFIEE): DMADV D M A I C Define Measure Analyze Improve Control ENTERPRISE PROCESS: E-DMAIC D M A I C Define Measure Analyze Improve Control Wisdom Plan Project Baseline Lean MSA of the and Metrics Project Assessment Organization PROCESS IMPROVEMENT PROJECT: P-DMAIC Figure 2: IEE high-level enterprise process roadmap with P-DMAIC process improvement and DMADV design project roadmaps From Figure 3.1 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008. An organization can spend much time creating a strategic plan, perhaps at an executive retreat; however, people throughout the organization often have difficulty interpreting what should be done specifically to address strategically-aligned measurement goals, as they are passed down through the organization chart. In his book Good to Great, Jim Collins describes a level-five leader as someone who is not only great when he or she is leading an organization but when the organization maintains greatness after the leader is no longer there. I describe the level-five-leader-created legacy as being a Level-Five System. Do you think organizational strategies would change if there were different leadership? A vast majority would respond “yes” 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. To create a Level- Five System, organizations need to have stability at the front-end of their business system, even through leadership change. The IEE 9-step system provides this front-end Rev 1.1 © Smarter Solutions Inc. 2009 3
  • 4. foundation in steps 1 and 2. Strategies are important and need to be created through a wise blending of analytics with innovation. IEE addresses this through the IEE strategy-creation step 5 of this 9-step process. In step 2 of the 9-step process, it is stated “describe the value chain, including satellite-level and 30,000-foot-level metrics.” With this form of high-level system tracking, there are no calendar constraints. This article focuses primarily on step 2 of the overall 9-step IEE Corporate Performance Management (CPS) system. The IEE Value Chain and its Long-lasting, Business-system Benefits In many businesses today, the enterprise value chain is not viewed as a system of non-siloed processes with performance measurements. Instead organizations often report metrics in their area of the business for how things are going every week, month, or quarter relative to goals. This form of goal-setting reporting can lead to much firefighting and, in extreme cases, a meet- the-numbers-or-else culture that is fatal; e.g., Enron. The IEE value chain shown in Figure 3 describes what the enterprise does (rectangles in the figure) and its performance measures of success (ovals in the figure), from a customer and business point of view. In describing what the organization does, the center portion of the value chain can have procedural drill downs with attached documents. Metrics for each of the functional steps are described within the connected ovals. The value chain is a portion of the Define-Measure phases of the E-DMAIC portion of the IEE system, as was shown in Figure 2. Product Quote New Customer Gross Effective Inputs Development Response Lead Time Additions Revenue Lead Time Time Percent Developed Existing Days Sales Annualized Timely Inputs Product Design Customer Quote Quality Defective Rate Outstanding Gain in Gross Quality Additions (DSO) Revenue Voice of the Invoice and Develop Produce & Report Customer Market Product Sell Product Collect Product Deliver Product Financials (VOC) Payment Net Profit RFQ Response Margins Work in Acceptance Process (WIP) Rate Labor Human Information Relations Relations (HR) Safety and Internal Technology On-time Environment Process (IT) Delivery Reworks Enterprise Learning and Process Growth Management Product TOC Legal Finance (EPM) Margins Throughput Figure 3: Value chain with scorecard/dashboard metrics. Shaded areas designate processes that have subprocess drill-downs. From Figure 7.3 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008. Rev 1.1 © Smarter Solutions Inc. 2009 4
  • 5. With IEE, the organization chart is subordinate to the value chain. In an enterprise, the value chain is long lasting even through organization changes, where ownership of process functions and metrics would change, when appropriate. Let’s now consider the metric portion of the value chain. In IEE, metrics are to have alignment to how the business is conducted. This is in contrast to creating metrics around the organization chart, which can significantly change over time. It is important not only to determine what should be measured but also to have a reporting methodology that is most beneficial to the business as a whole. Before elaborating more on IEE step 2, let’s examine how metrics are often traditionally reported. Traditional scorecards such as a table of numbers, stack bar chart, the balanced scorecard, and red-yellow-green report outs as shown in Figure 4 describe what has occurred in the past for some time interval but do not make predictive statements. What an organization needs is predictive metric statements that can be viewed collectively so that if the predicted metric future performance is not what is desired for the organization as a whole, an improvement project can be created. I call this a metric-performance-improvement- need pull for process improvement project creation. This approach is in contrast to leadership brainstorming for projects that someone is to work on, for example, during a Lean Six Sigma training session next week. I call this traditional Lean Six Sigma deployment approach a push for project creation. IEE Predictive Metrics The red-yellow-green scorecard shown at the bottom of Figure 4 is from a corporation’s actual scorecard system. Let’s now further examine this scorecard in Figure 5 where it is compared to an IEE 30,000-foot-level scorecard system; i.e., where 30,000-foot-level is to represent a high- level-metric view, like an airplane view of the earth. The IEE metric system has two steps. The first step of this process is to analyze for predictability. The second step is the formulation of a prediction statement, when the process is considered predictable. To determine predictability, the process is assessed for statistical stability using a 30,000-foot- level individuals control chart, which can detect if the process response has changed over time and is stable. The second step is the formulation of a prediction statement, when the process is considered predictable. To determine predictability, the process is assessed for statistical stability using a 30,000-foot- level individuals control chart, which can detect if the process response has changed over time and is stable. A process could have multiple regions of stability, where the latest region of stability could have been for the last three weeks, three months, or three years. When there is a current region of stability, data from this last region can be considered a random sample of the future. For this example, note how the 30,000-foot-level control chart in Figure 5 indicates that nothing has changed, even though a traditional red-yellow-green scorecard showed the metric frequently transitioned between red, yellow, and green. For the traditional scorecard, the performance level was red 5 out of the 13 recorded times. Included in this figure is a probability plot that can be used to make a prediction statement. Much can be learned about a process through a probability plot. Let’s next examine some of these probability-plot-benefit characteristics. The x-axis in this probability plot is the magnitude of a process response over the region of stability, while the y-axis is percent less than. A very important advantage of probability plotting Rev 1.1 © Smarter Solutions Inc. 2009 5
  • 6. is that data do not need to be normally distributed for a prediction statement to be made. The y- axis scale is dependent upon the distribution type; e.g., normal or log-normal distribution. Tabular Reporting Balanced Scorecard P erformanc e Meas ure  F Y  2001  F Y  2002  F Y  2003  F Y  2003   F Y  2004  P erc entag e of c us tomers  s atis fied  Ac tual  Ac tual  Ac tual  Amended  Amended  Financials 99.99% 100% 99.99% 98% 98% with dis patc h s taff  P erc entag e of priority one c alls   dis patc hed to field c rews  within  99.99% 99% 99.99% 95% 95% 80 minutes  of rec eipt  L abor c os t per c us tomer c all  Vision and $4.20  $5.31  $5.09  $4.88  $5.09  taken in Dis patc h O perations    Number of c alls  taken throug h  62,054 59,828 63,046 60,000 60,000 Customer Processes Dis patc h O perations   Number of priority one c alls   5,797 4,828 6,686 5,000 6,500 Strategy PROFIT IN % dis patc hed to field c rews   Number of work orders  and  CUSTOMER SATISFACTION 30 c omponent parts  (s eg ments )  8,226 4,724 7,742 5,500 6,700 10 0 c reated in databas e  Classic Bar Charts ! Learning 20 600000 Sales Person 1 0 10 ! 2 QUALIY SPEED COURTESY HELPFULNESS COMPETENCE T COMMUNI ON 0 CATI 500000 3 4 1 2 3 4 5 6 7 8 9 10 11 12 5 Revenue (Dollars) 400000 300000 These traditional performance measures often provide stories These traditional performance measures often provide stories 200000 of the past but do not provide aaprediction of the future or give of the past but do not provide prediction of the future or give 100000 direction where improvement efforts should focus direction where improvement efforts should focus 0 Month 4 5 6 7 8 9 10 11 12 1 2 3 Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05 Finance Metric B 2.10 2.25 2.35 2.21 2.32 2.21 2.16 2.49 2.51 2.16 2.17 2.29 2.14 Yellow if equal to or higher than 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 Green if equal to or higher than 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 Figure 4: Various traditional scorecard reporting approaches From Table 2.1, Figure 2.2, Figure 2.5, Table 2.5 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008. If the data on a probability closely follows a straight line, we act as though the data are from the distribution that is represented by the probability plot coordinate system. Estimated population percentages below a specification limit can be made by simply examining the y-axis percentage value, as shown in Figure 5. For this case, we estimate that about 33% of the time, now and in the future, we will be below our 2.2 specified criterion or goal. There is a certain amount of technical training needed to create 30,000-foot-level metrics5; however, the interpretation of the chart is quite simple. In IEE, a box should be included below the chart that makes a statement about the process. For this chart we can say that the process is predictable with an approximate non-conformance rate of 32.8%. That is, using the current process, the metric response will be below the goal of 2.2 about 1/3 of the time. As a business-management policy, red-yellow-green versus IEE reporting can lead to very different behaviors. For this example, a red-yellow-green reporting policy would lead to fighting fires about 33% of the time because every time the metric turned red, management would ask the questions, “What just occurred? Why is our performance level now red?” Red-yellow-green scorecards can result in counter-productive initiatives, 24/7 firefighting, the blame game, and proliferation of fanciful stories about why goals were not met. In addition, these scorecards convey nothing about the future. With IEE-performance-metric reporting, we gain the understanding that the variation in this example is from common-cause process variability and that the only way to improve Rev 1.1 © Smarter Solutions Inc. 2009 6
  • 7. performance is through improving the process itself. With IEE, someone would be assigned to work on improving the process that is associated with this metric. This assumes that this metric improvement need is where efforts should be made to improve business performance as a whole. Traditional Performance Reporting Example – Red-Yellow-Green Scorecard Targets Aug'04 Sep'04 Oct'04 Nov'04 Dec'04 Jan'05 Feb'05 Mar'05 Apr'05 May'05 Jun'05 Jul'05 Aug'05 Finance Metric B 2.10 2.25 2.35 2.21 2.32 2.21 2.16 2.49 2.51 2.16 2.17 2.29 2.14 Yellow if equal to or higher than 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 Green if equal to or higher than 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 2.25 IEE Improved Reporting for Process Assessment and Improvement Individuals Control Chart Normal Probability Plot 99 2.7 2.6 UCL=2.6192 95 90 2.5 80 2.4 Response 70 Percent 2.3 _ 60 50 X=2.2583 40 2.2 30 32.657 20 2.1 10 2.0 5 2.2 1.9 LCL=1.8974 1 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6 04 04 04 04 04 05 05 05 0 5 05 05 05 05 g' p' ct' v' ec' n' b ' ar' pr' ay' n' ul' g' Response Au Se O N o D J a Fe M A M J u J Au Histogram Date 2.2 4 3 Frequency 2 1 0 1.9 2.0 2.1 2.2 2.3 2.4 2.5 2.6 Response Predictable process with an approximate 32.6% nonconformance rate (i.e., Using the current process, Finance Metric B will be below 2.2 about 1/3 of the time.) Figure 5: Illustration of IEE-improved finance metric B continuous-response reporting: Red-yellow- green scorecard versus IEE reporting (Histogram included for illustrative purposes only). From Table 6.2 The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning and Business Improvement, Forrest W. Breyfogle III, Bridgeway Books, 2008. In organizations, the IEE value chain functions and metrics maintain basic continuity through acquisitions and leadership change. The IEE value chain with its 30,000-foot-level metric reporting can become the long-lasting front end of Jim Collins’ Level-Five 5 System and a baseline assessment from which strategies can be created and improvements made in the Analyze-Improve phases of the E-DMAIC roadmap. Additional articles6 are available that describe additional aspects of the IEE system at various levels of detail. The IEE 4 book-volume series provides a high-level description of the system through two books2, 3, where Volume I is written as a novel. Volume II of the series4 provides a step-by-step E-DMAIC roadmap progression, while Volume III of the series5 lays out the P- DMAIC roadmap step-by-step details, where Lean and Six Sigma tools are truly integrated for project execution. A description of an Integrated Enterprise Excellence system implementation is described in an American Management Association article7 and a case-study video8. Rev 1.1 © Smarter Solutions Inc. 2009 7
  • 8. References 1. Breyfogle, F. W. (2009) “The Elephant in the Room – Corporate Performance Management Issues and its Reinvention: Going Beyond Lean Six Sigma and the Balanced Scorecard,” Smarter Solutions, Inc. 2. Breyfogle, F. W. (2008), The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning, and Business Improvement, Bridgeway Books, Austin, TX. 3. Breyfogle, F. W. 2008. Integrated Enterprise Excellence Volume I—The Basics: Golfing Buddies Go Beyond Lean Six Sigma and the Balanced Scorecard, Bridgeway Books, Austin, TX. 4. Breyfogle, F. W. (2008), Integrated Enterprise Excellence Volume II—Business Deployment: A Leaders’ Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Bridgeway Books, Austin, TX. 5. Breyfogle, F. W. (2008), Integrated Enterprise Excellence Volume III—Improvement Project Execution: A Management and Black Belt Guide for Going Beyond Lean Six Sigma and the Balanced Scorecard, Bridgeway Books, Austin, TX. 6. Integrated Enterprise Excellence Resource Center containing over 100 articles (http://www.smartersolutions.com/pdfs/online_database/register.php) 7. Dickman, S. and Breyfogle, F. W. (Winter 2008-2009) “New Methods to Achieve Production and Financial Gains,” MWorld, American Management Association, New York, NY. 8. Video: “Integrated Enterprise Excellence (IEE) Case Study: Oracle Packaging,” (2008), Smarter Solutions, Inc., Austin, TX Rev 1.1 © Smarter Solutions Inc. 2009 8
  • 9. About the Author Forrest Breyfogle, III Integrated Enterprise Excellence In a professional career spanning over a quarter century, Forrest Breyfogle has established himself as a leading edge thinker, a prolific author, an innovative consultant, a world-class educator, and a successful business executive. His work is documented in eleven books and over ninety articles on the topic of quality improvement. A professional engineer, Forrest is also a member of the board of advisors for the University of Texas Center for Performance Excellence. He is the founder and CEO of Smarter Solutions, Inc., an Austin, Texas based consulting firm offering business measurement and improvement consultation and education to a distinguished list of clients worldwide, including BAMA, CIGNA, Dell, HP, IBM, Oracle Packaging, Sherwin Williams, Cameron, TIMET, and TATA. He served his country on active duty in the US Army for 2 years, and has played an active leadership role in professional and educational organizations. Forrest received the prestigious Crosby Medal from the American Society for Quality (ASQ) in 2004 for his book, Implementing Six Sigma (second edition). This award is presented annually by the American Society for Quality to the individual who has authored a distinguished book contributing significantly to the extension of the philosophy and application of the principles, methods, or techniques of quality management He is a widely recognized authority in the field of management improvement and is a frequent speaker before professional associations and businesses. His earlier work in the field of management science has been widely acclaimed. A previous book, Implementing Six Sigma, sold over 40,000 copies and still ranks among the top Amazon books in Applied Mathematics/Engineering Statistics and Industrial Engineering /Quality Control. He founded Smarter Solutions in 1992 after a 24-year career at IBM. The associates of Smarter Solutions specialize in helping companies throughout the world improve their bottom line and customer satisfaction through the implementation of techniques that are beyond traditional Lean Six Sigma and the balanced scorecard methodologies. His latest and most extensive work has been in the documentation of a new system of enterprise management, the Integrated Enterprise Excellence (IEE) system, in a series of four books. IEE provides a detailed roadmap that builds on and integrates the best practices of earlier disciplines like Six Sigma, Lean, TQM , PDCA, DOE, and TPS combined with innovative analytical tools to produce improvements at the highest level of an enterprise. In addition to assisting hundreds of major clients in the wise implementation of improvement systems worldwide, Forrest has also developed over 300 hours of classroom instruction used to train executives, managers, and Black Belt practitioners to plan for, implement, and manage IEE systems. He also leads formal seminars and workshops worldwide. Forrest Breyfogle forrest@smartersolutions.com 512-918-0280 x401 www.smartersolutions.com