The Balanced Scorecard and Six Sigma

Building an Integrated Approach For Customer Satisfaction

By Abdulrahman Ali Al-Sheikh

Effect of Poor Customer Service

Effect of Poor Customer Service

?How 67 = 1

One unhappy Customer/Day

1
Tells eleven more

11
Each of the 11 Tells an average of 5 ..

55
Total Unhappy Customers/Day

67

Comparison of Unhappy & Happy Customers

Unhappy Customer/Day One Customer Tells 11 Tells average of Total/Day 11 5 .. 55 1

Happy Customer/Day One Customer 1 Tells 5

5 Tells average of 2 .. 10 Total/Day

67

16

Unhappy Customers Per Year

24455

Happy Customers Per Year

4580

f you can not keep the Customers you have, you dont deserve

INTERESTING STATISTICS

A typical business hears from only 4% of its dissatisfied customers ; of the other 96% ,91% will never come Back Studies show that 68% of customers quite using a business products and services because of poor employee attitudes 70% of the customers will do business with you again if you solve their complaints satisfactorily 95% will do business with you again if you solve their complaints immediately

Factors influencing Customer Perceptions

Customers can make a judgment about you in 30 seconds

of lost business 75 % occurs at the Customers first point of Contact

?What is Strategy

Strategy is the way an organization seeks to achieve its vision and mission:

A set of objectives A method involving people, resources and processes Unique competitive position for the company

According to Michael Porter, strategy is defined by:

Based on clear trade-offs and choices vis--vis competition regarding value propositions and activities

Strategy specifies what you do, and dont do

W.A. Shewhart / Deming Cycle

Decide on changes- Make the changes Standardize Educate & train - Monitor the process - Repeat the cycle 1 ACTION 2 Standardization Summary and Future Plans WHY WHO WHEN WHERE HOW Plan what changes might lead to improvements -decide what data are needed - determine how,when, and by whom data will be collected 1 PLAN WHAT 2 Perception of Problem Evaluation of Current situation Analysis of Causes Planning of CounterMeasures

3 4

ACT PLAN TO TO SATISFY IMPRO VE CHECK DO TO SATISFACTION SATISFY

Evaluation of Results

CHECK

DO

Implementation of Counter-Measures

Compare results of changes with what was planned- Determine whether changes led to improvements

Gather or review baseline data- Make planned changes on a small scale. Gather data to determine what happened after the changes

?The Challenge is Translating Strategy into Action

Less than 10% of strategies effectively formulated are effectively executed

Fortune Magazine

In the majority of failures-we estimate 70% - the real problem isnt (bad strategy)Its bad execution
Fortune Magazine

Strategy has never been more important

Business Week

Why 9 out of 10 companies fail to implement their ?strategies

The Vision Barrier
Only 5% of the work force understands the strategy

The People Barrier

Only 25% of managers have Incentive linked to strategy

9 of 10 companies fail to execute strategy

The Resource Barrier
60% of the organization dont Link budgets to strategy

The Management Barrier

85% of executive teams spend less than one hour/month discussing strategy

Todays Management Systems were designed to meet the needs of Stable Industrial Organizations that were changing incrementally You cant manage strategy with a system designed for Tactics

Several Improvement Techniques Based on Measurement

Quality Certification Program

BALDRIGE .E.F.Q.M

Quality Improvement
SIXMA 6 TQL/TQM

Strategic Management
BALANCED SCORECARD
A tool for measuring implementation of strategic plan

Quality Movement

6 Sigma is a Method It begins by looking ISO 9000 for reducing defects outward to and delivering customers and financial benefits Baldrige & markets to EFQM define determine business In both quality these prctices requirements. The based systems, the specifically scorecard voice of the process methodology itself rules and they are ISO is silent as to silent as to certifications targets or management intent require companies improvements. to document their

(The EFQM Excellence Model (EQA

ENABLERS
10 %10 0 90 %10 14 %10 0

RESULTS
90 %10 15 %10 0

L E A D E R S H I P

People
80 %10

Policy & Strategy

90 %10

Partnership & Resources

P R O C E S S E S

People Results
20 %10 0 Customer

Results
60 %10

Society Results

P E R F K O E R Y M A N C E

R E S U L T S

INNOVATION

AND LEARNING
D:MD/EFQM+PRESENTION

The Malcolm Baldrige National Quality Award (MBNQA)

System 85 Management process of quality 85 Human Resources Development & Management Strategic quality planning Information and analysis 45 0 Customer focus And Satisfaction

Driver

85

12 %10 0

Senior Executive Leadership

85

90

Quality & Operational results

There are 28 Categories in this model with 1000 points total

From the point of view of the entire Organization, both financial and non-financial indicators are important No single measure can provide a clear performance target

Objectives can be conflicting(e.g.short-term profitability Vs.future growth)

Neither can a single measure focus attention on the critical areas of the business: Senior management wants and needs a balanced presentation:

Many companies which focus on only one target have gone out of business (e.g. UK car industrys focus on financial measures in the 1960s) Senior management role is to trade-off different priorities Financial measures to record results achieved for shareholders Non-financial measures which are the leading indicators and drivers of future financial performance

?What is a Balanced Scorecard

BSC
is a Multidimensional framework for describing, implementing, and Managing strategy at all levels of an enterprise by linking objectives,initiatives and measures to an organizations strategy.

?What is a Balanced Scorecard

At the highest conceptual level, the BSC is a Framework that helps organizations translate strategy into operational Objectives that the both behavior and performance.

Balanced Scorecard - Terminology

Diagram of the cause and Effect relationships between Strategic objectives :Strategic Theme Customer Service Excellence Financial
Max.Return On Assets

Statement of What strategy Must achieve And whats Critical to its success

How success in Achieving the The level of Strategy will be performance Measured and Or rate of tracked Improvement needed

Key action Programs Required to Achieve objectives

Profitable Growth

Customer Industry Leading

Customer Loyalty

Objectives Seamless Cross Group Delivery of Service

Measurement Promised %Delivery

Target 97% )first time(

Initiative Service Dispatch Automation

Internal

Seamless Cross Group Delivery of Service Effective Customer Service Processes

Understand Drivers Of Customer Value

Learning

Ensure Market Driven Skill Development

How Do You Measure Strategy?

STRATEGY
FINANCIAL

&LEARNING GROWTH

To achieve our CUSTOMER financial Service objectives Price/Cost , what customer needs must we INTERNALPERSPECTIVE To satisfy serve? our Objective Measures INTERNAL Customers Cycle TimeInitiative Target & PROCESS shareholde Quality rs, in Productivit which y internal business LEARNING PERSPECTIVE processes must we Objective Measures To excel? Market achieve Target Innovation Initiative our goals, how must Continuous learning our organizati Intellectual assets on learn & innovate?

FINANCIAL PERSPECTIVE To satisfy Objective Measures our Target Initiative Sharehold Profitabilit ers what y financial Growth objectives Shareholde must we r accomplis Value CUSTOMER PERSPECTIVE h? Objective Measures Target Initiative Image

The Balanced Scorecard converts strategy into an integrated system of objectives defined across four business perspectives

Initiatives to Communicate and Focus

Strategic Priorities bjectives O
Custo Financial mer
F1 Financially Strong F2 F3 F4 F5

Measures
ROCE Cash Flow Net Margin Full Cost/Gallon Volume Growth Premium Ratio Non-Gasoline Revenue Share of Segment Mystery Shopper Rating Dealer Gross Profit Growth New Product ROI Dealer Quality Source Yield Gap Unplanned Downtime Inventory Levels Run-out Rate Activity Cost by Completion Employee Perfect Orders Survey Days Away Personal from Work )%(BSC Strategic

Targets Initiatives
18% $500mm 11% yr/5% 45% $2b 45% +4.5 25% Asset Dispositio n Program C Store Alliances Mystery Shopper Program Dealer Committ ee Review Program

ROCE Asset Utilization Profitability Cost Leader Profitable Growth

C1 Delight the Targeted Consumer C2 Build WinWin Win Dealer Win Relations Relationship with Dealer L1 Innovative Build the Franchise &products services L2 Best-inIncrease the Class Customer Teams Value L3 Refinery Operational Excellence Performance L4 Inventory Management L5 Cost Leader L6 On Spec/On Good Neighbor Time L7 Improve BHS L1 Climate Motivated & for Prepared Action Workforce L2 Competenci Delight the Customer

Internal

+20% +4.5 3%> 2%> sales 15% PM 90% Program +99% ISO 9000 yr/250> Safety Training 4.8> 80% 85% Skills Program Competenc y Developme

Learni ng & Growt h

Business Drivers - Cause / Effect Hypothesis

Financia l Satisfactio n

ROCE

Shareholders

Customer Loyalty On-time Delivery

Customers

Internal Business Processes Process Cycle Time Process Process Quality Learnin g& Growth
Employee Skills

Employee

The balanced scorecard is developed through a structured process

Step1
Hold 1-2-1s On Business Objectives

Step2
Facilitate Workshop 1 on Business Objectives

Step3
Hold 1-2-1s On Measures

Step4
Facilitate Workshop 2 On Measures

Step5
Hold 102-1s And support Sub-Groups

Step6
Facilitate Workshop 3 On Target and Actions

?How Long does it take to develop a BSC

)Typical BSC Development (8-12 Weeks) BSC Implementation (1-1.5 Years BSC development and implementation timeframes vary with many organizational factors, :including Size Complexity Leadership commitment Management commitment

Typical development schedule:

Steps Step Steps

1-3 4 5-6

(Weeks 1-5 ) (Weeks 4-7 ) (Weeks 6-12)

Remember --- each organization is different. No one schedule or approach is appropriate for all organizations

Implementation of the BSC typically may take 1--- 1.5 years

What is Six Sigma?

Six Sigma

The Greek letter sigma is used to measure how far something deviates from perfection. Six sigma means a company tries to make error-free products 99.9997%.

A Philosophy
Defects Cost money.Fewer defect mean less cost Lowest cost is most competitive producer

A Statistic
Six Sigma processes will produce less than 3.4 defects or mistakes per million opportunities

A Process
, To achieve this level of performance you must define .measure, analyze, improve and control

A Brief History of Six Sigma

Started by Robert Galvin Motorola (1987) Followed by Larry Bossidy Allied Signal (now Honeywell) (1991) Encouraged Jack Welch General Electric (1995) Who encouraged Ken Chenault American Express And George Fisher - Kodak Followed by many others

Six Sigma Vision

To deliver defect free products and services faster, cheaper and better by:
Learning and applying the Six Sigma approach Creating ownership through involvement Sustaining the gain through continuous improvement

Companies that adopt Six Sigma institute a rigorous discipline of process capability analysis and reduction in variation

Six Sigma Objectives

To produce goods and services at a Six Sigma level. As your organization moves toward Six Sigma quality, you will: Eliminate defects Reduce production and development costs Reduce cycle times and inventory levels Increase profit margin and improve customer satisfaction Drive industries to design and produce products/ services to Six Sigma standards. Use a data-driven structured approach to attack defects to improve the sigma level of your goods and services.

Attacking the Sources of Variability Sources of Variability

Incoming Parts And Materials
Tools for supplier issues: Process characterization and optimization Logic and intution Seven Basic Tools (paretos, fishbones, maps etc. Note: This tool requires Sound manufacturing data

Design
Tools for design issues: Process characterization and optimization Design for Manufacturability Design for Six Sigma Note: This tool requires Sound manufacturing data

Process Capability
Tools for process issues: Process characterization and optimization Logic and intution Seven Basic Tools (paretos, fishbones, maps etc. Note: This tool requires Sound manufacturing data

What tool(s) should we focus our efforts on ?

Sigma Significance

Sigma Numbers

Defects per Million

Yield

Improvements

1 2 3 4 5 6

690,000 308,300 67,000 6,220 233 3.4

30.9% Times 2 69.2 93.3 99.94 Times 26 99.98 Times 68 99.9997 Times 5 Times 11

What is 1% Defect?

5 lost e-mail messages per month 7 hours each month without electricity Overnight carriers lose 15,000 packages per week 25 incorrect car rental reservations per company per day Todays Standard Sigma Standard Six Historical Standard 3 Capability 4 Capability 6 C apability 93.319% 99.379% 99.99966%

Actual Six Sigma Benefits?

20,000 lost articles of mail per hour 5,000 incorrect surgical operations per week 200,000 wrong drug prescriptions each year Unsafe drinking water almost 15 minutes each day No electricity for almost 7 hours each month

Seven lost articles of mail per hour 1.7 incorrect surgical operations per week 68 wrong drug prescriptions each year 1 Minute of Unsafe drinking water every seven months One hour no electricity every 34 years

Actual Six Sigma Benefits?

Dupont announces 4th Quarter earning for 2000, savings from Six Sigma of .$700 million

Invensys announces year 2000 earnings, savings from Six Sigma .million pounds 110

Toshiba expects to cut 130 Billion in fiscal year ending .March 2001 through Six Sigma

Reasons for Harvesting the Fruits

2400 process improvements were made, reducing defects by 61 percent yielding $350 million in annualized cost savings.
Larry Bossidy, Chairman & Chief Executive Officer, Allied Signal

All decision, all actions, every new goal and every strategy must move GenCorp closer towards achieving our PRIORITIES (Operational Excellence and Value Creating Growth)
John B.Yasinsky, Chairman & Chief Executive Officer, GenCorp.

Six Sigma --- GE Quality 2000 --- will be the biggest, the most personally rewarding and, in the end, the most profitable undertaking in our history. in the next decade GE hopes to save from $7 billion to $10 billion using Black Belts.
Jack Welch, Chairman & Chief Executive Officer, General Electric Co.

Putting It All Together

Set Objectives

Plan

Do

Check

Act

External Intelligence

Strategy Development

Strategy Focused Organization Balanced Scorecard Business plan and Budgets Operations

Business Excellence Self Assessment

EFQM And Baldrige

Six Sigma Projects

Monitor

References

1 2

The Balanced Scorecard

by Robert S. Kaplan, David P. Norton, Boston and Lincoln,Mass, February 1996

Balanced Scorecard Quick Reference

by Balanced Scorecard Collaborative Inc. Lincoln, MA, y2000

3 Building the Balanced Scorecard, Practitioners Guide Book

by Balanced Scorecard Collaborative Inc, Workshop in London, 12-13 June 2001

Creating Value using Balanced Scorecard

by Bywater, Executive Forum, Dubai,31 March 2001

Operations

5 Six Sigma Management Overview

by Peter Grey, The Sam Group,22 October 2000 The 2nd Abdu Dhabi Quality Conference & Exhibitions Manual

6 And other various presentations from internet on Six..

Sigma and Balanced Scorecard