Chapter Eight

Models of Improving
Operations
 Introduction to Reengineering
• Business Process Reengineering (BPR)
– One of the buzzwords of the late 80’s and early 90’s
– “…achieves drastic improvements by completely
redesigning core business processes”

• BPR has been the subject of numerous articles and books;

classical examples are:
“Reengineering Work: Don’t Automate, Obliterate”,
Michael Hammer, Harvard Business Review, 1990
“The New Industrial Engineering”, Davenport and
Short, Sloan Management Review, 1990
 The Concept of BPR
• BPR: the fundamental rethinking and radical redesign of
core business processes to achieve dramatic
improvements in critical performance measures such as
quality, cost, and cycle time, service.

• It involves innovation: Creating new products and

services, as well as positive thinking are critical to the
success of BPR.
 Brief History of BPR
• Most agree that Michael Hammer laid the foundation to the
reengineering approach…

• … But many factors influenced the birth and hype around BPR
– The origins can be traced back to a number of successful
projects undertaken by management consulting firms like
McKinsey in the 80’s
– TQM had brought the notion of process improvement onto
the management agenda
 Cont’d …
 The recession and globalization in late 1980’s and early
1990’s stimulated companies to seek new ways to improve
business performance
 Programs often aimed at increasing flexibility and
responsiveness
 Middle management under particular pressure
• But many factors influenced the birth and hype around
BPR
– The Productivity Paradox (Stephen Roach)
 Despite powerful market and service innovations related
to IT and increased computer power in the 1980’s there
was little evidence that IT investments improved overall
productivity
 Cont’d …
• …Organizations were not able to utilize the capabilities of the new
technology – Automating inefficient processes has limited impact
on productivity

- Articles and books by Hammer, Davenport, Short, Champy etc.

legitimized and defined the reengineering approach
 Early success stories were heavily published in the popular
press
- Many consultants/vendors launched their own versions of
BPR
 All types of change programs were labeled reengineering
 Gave BPR a bad name
 Reengineering Is ...

Extremist's
Extremist's
View
View

• Obliterate/demolish what you have now and

start from scratch
• Transform every aspect of your organization
 Definition of Process
• A process is simply a structured, measured set of
activities designed to produce a specific output for a
particular customers or market.
Characteristics:
– A specific sequencing of work activities across time and place
– A beginning and an end
– Clearly defined inputs and outputs
– Customer-focus
– How the work is done
– Process ownership
– Measurable and meaningful performance
 New Business Model: A Conceptual Breakthrough
Market Management
Target & Segment
of Aggregate Market

Use Group
Information
“I Think I Know.” Use Individual
Information

Prospects
&
Customers
Sell &
Capture Individual
Information
“I Know for Sure.” Renew

Personalized
Service
Customer Management
 Reengineering Example
Cash Lane
No more than
10 items

Which line is
shorter and
faster?
Reengineered Process

Key Concept:
• One queue for
multiple service
points
• Multiple services
workstation
 BPR Principles
• Organize around outcomes, not tasks.
• Have those who use the output of the process perform
the process.
• Subsume information-processing work into the real work
that produces the information.
• Treat geographically dispersed resources as though they
were centralized.
• Link parallel activities instead of integrating their results.
• Put decision points where the work is performed and
build controls into the process.
• Capture information once and at the source.
 A BPR Framework
Organization Technology
– Job skills – Enabling
– Structures technologies
– IS architectures
– Reward
– Methods and tools
– Values – IS organizations

Process
– Core business processes
– Value-added
– Customer-focus
– Innovation
Business Process Reengineering Life Cycle
Define corporate visions
and business goals Visioning

Identify business Enterprise-wide engineering

processes to be Identifying
reengineered
Analyze and measure
an existing process Analyzing
Process-specific
Identify enabling IT & engineering
generate alternative Redesigning
process redesigns
Evaluate and select a
process redesign Evaluating

Implement the
reengineered Implementing
process
Continuous
improvement of the Improving
process

Manage change and stakeholder interests

 Using Value Chain to Identify High-Level Processes
Corporate Infrastructure

Human Resource Management

Supporting
Activity
Technology Deployment

Procurement
Added
Value

Inbound Outbound Sales Service

Logistic Operation
Primary Logistic and
Activity Marketing
 Criteria for Selecting Processes
• Broken
• Bottleneck
• Cross-functional or cross-organizational units
• Core processes that have high impacts
• Front-line and customer serving - the moment
of the truth
• Value-adding
• New processes and services
• Feasible
 Process Data
• Basic Overall process data:
– Customers and customer requirements
– Suppliers and suppliers qualifications
– Breakthrough goals
– Performance characteristics: Cost, cycle time, reliability,
and defect rate.
– Systems constraints: Budgetary, business, legal, social,
environmental, and safety issues and constraints.
• Measure critical process metrics
– Cycle time
– Cost
– Input quality
– Output quality
– Frequency and distribution of inputs
 Redesigning
Identify
Identifyenabling
enablingIT
IT&&generate
generate
alternative
alternativeprocess
processredesigns
redesigns
How can business
processes be
transformed using IT?
Business
Business
Reengineering
Reengineering

Business-pulled Technology-driven

Information
Information How can IT support
Technology
Technology business processes?
 Evaluation Criteria
• Costs
– Design and implementing the business process
– Hire and train employee
– Develop supporting IS
– Purchase of other equipment and facilities
• Benefits
– Customer requirements
– Breakthrough goals
– Performance criteria
– Constraints
• Risk
– Technology availability and maturity
– Time required for design and implementation
– Learning curve
– Cost and schedule overrun
 Order Management Cycle

1. Order Planning
2. Order Generation
3. Cost estimation and pricing
4. Order receipt and entry
5. Order selection and prioritization
6. Scheduling
 Cont’d …
7. Fulfillment
– Procurement
– Manufacturing
– Assembling
– Testing
– Shipping
– Installation
8. Billing
9. Returns and Claims
10. Post sales Services
 Empowered Customer-Focus Processes

Manager as Coach

Teamwork Customer-facing Process

Empowered
Font-line
worker
Values and Quality
delivered to
Customers timely
Think from the Customer Back
Define
The Outcomes
TheCustomer
Customer

Redesign
Outputs
Activities/Tasks
Determine
Activities
Functions/Processes

Define
Organization Job Responsibilities

Management
Develop
Organization Structure
 The Reengineering Diamond
Customers & Competitors
Values
Valuesand
and
Suppliers
Beliefs
Beliefs

Enlighten Foster

Customers
Business Management
Management&&
Business
Processes
& Measurement
Processes&& Measurement
Functions Info. Tech. Systems
Systems
Functions

Entail Demand

Jobs
Jobs, ,Skills,
Skills,&&
Culture Organizational
Organizational
Structures
Markets
Structures
When Should a Process be Reengineered?
• Three forces are driving companies towards redesign (The three
C’s, Hammer & Champy, 1993)
 Customers
– are becoming increasingly more demanding
 Competition
– has intensified and is harder to predict
 Change
– in technology
– constant pressure to improve; design new products
faster
– flexibility and ability to change fast are requirements for
survival
Cont’d …
• Useful questions to ask (Cross et al. (1994))
– Are customers demanding more for less?
– Are your competitors providing more for less?
– Can you hand-carry a job through the process much faster
than the normal cycle time (ex five times faster)?
– Have your incremental improvement efforts been stalled?
– Have technology investments been a disappointment?
– Are you planning to introduce radically new
products/services or to serve new markets?
– Are you in danger of becoming unprofitable?
– Have cost-cutting programs failed to turn the ship around?
– Are operations being merged or consolidated?
– Are the core business processes fragmented?
What Should be Reengineered?
• Processes (not organizations) are reengineered
– Confusion arises because organizational units are
well defined, processes are often not.
• Formal processes are prime candidates for reengineering
– Formal processes are guided by written policies;
informal processes are not.
– Typically involve several departments and many
employees.
– More likely rigid and therefore more likely to be
based on invalid assumptions.
Cont’d …
Screening criteria
1. Dysfunction
– Which processes are in deepest trouble (most
broken or inefficient)?
2. Importance
– Which processes have the greatest impact on the
company’s customers?
3. Feasibility
– Which processes are currently most likely to be
successfully reengineered?
Dysfunctional or Broken Processes
Symptoms and diseases of broken processes
Symptom Disease
1 Extensive information Arbitrary fragmentation
exchange, data redundancy of a natural process
and re-keying
2 Inventory, buffers and System slack to cope with
other assets uncertainty
3 High ratio of checking and Fragmentation
control to value-adding
4 Rework and (re)iteration Inadequate feedback
along
chains
5 Complexity, exceptions Accretion onto a simple
base
and special cases
 Importance
 Assessed by determining issues the customers feel
strongly about and identifying which processes most
influence these issues

Market Company

Customer Issues Processes

Product Cost Product Design

On-time Delivery Order Processing
Product Features Procurement
After-sales service CRM
 Feasibility
 Determined by: Process Scope, Project Cost, Owner
Commitment and the Strength of the Redesign Team
– Larger projects offer potentially higher payoffs but
lesser likelihood of success
Process Scope Project Cost

Process
Feasibility

Owner/Corp. Team Strength

Commitment
 The Process Paradox

• The process paradox refers to the decline and failure of

businesses that have achieved dramatic improvements
through process reengineering

 To avoid getting caught in the process paradox

companies must
“Get the right processes right”
 Suggested Framework for BPR (I)
• In general, keywords for successful BPR are creativity and
innovation…
• …but BPR projects also need structure and discipline, preferably
achieved by following a well thought-out approach.

BPR Framework due to Roberts (1994)

• Starts with a gap analysis and ends with a transition to
continuous improvement.
• The gap analysis focuses on three questions:
1. The way things should be
2. The way things are
3. How to reconcile the gap between 1 and 2
 Robert’s Framework for BPR
Opportunity Current capability
assessment analysis

Process Design

Risk and impact

assessment

Transition plan

Implementation
Pilot test and transition

Infrastructure Tracking and

modifications performance

Continuous improvement
process
 Suggested Framework for BPR (II)
BPR Framework due to Lowenthal (1994)

• Consists of 4 phases
1.Preparing for change 3. Designing for change
2.Planning for change 4. Evaluating change

• Phase 1 – Goals
– Building management understanding, awareness
and support for change
– Preparing for a cultural shift and acquire employee
“buy-in”
 Cont’d …
• Phase 2 – Assumption
– Organizations need to adopt to constantly changing
marketplaces
• Phase 3 - Method
– To identify, assess, map and design
– A framework for translating process knowledge into
leaps of change
• Phase 4 – Means
– Evaluate performance during a specified time frame
 Lowenthal’s Framework for BPR

Phase I Phase II

Preparing for Planning for

change change

Phase III Designing

change

Phase IV Evaluating
change
 Suggested Framework for BPR (III)
BPR Framework due to Cross, Feather&Lynch (1994)
1. Analysis
– In depth understanding of market and customer
requirements
– Detailed understanding of how things are currently done
– Where are the strengths and weaknesses compared to the
competition

2. Design
– Based on principles that fall into six categories
i. Service Quality – relates to customer contacts
ii. Workflow – managing the flow of jobs
 Cont’d …
iii. Workspace – ergonomic factors and layout
options
iv. Continuous improvement – self sustaining
v. Workforce – people are integral to business
processes
vi. Information technology
3. Implementation
– Transforming the design into day to day operations
 Cross et al’s Framework for BPR
Customer
Requirement analysis

Analysis
Current
Baseline Design process review
Phase
analysis specifications
Design options

Design High-level design

principles

Detailed design Design

Phase
Build in CI Model/validate
feedback new design

Pilot new
design

Transform the business

Implementation
Phase
 Revolutionary vs. Evolutionary Change
• The reengineering movement advocates radical redesign and
rapid revolutionary implementation and change
• A revolutionary change tactic
– Turns the whole organization on its head
– Has potential to achieve order of magnitude improvements
– Is very costly
– Has a high risk of failure
• To reduce risks and costs of implementation many companies
end up with a strategy of radical redesign and evolutionary
implementation tactic
– Implementing the feasible plans given current restrictions

 Implemented process is usually a compromise between the

original process and the “ideal” blueprinted process
design
 Revolutionary vs. Evolutionary Change
 Elements of evolutionary and revolutionary change theories
Element Evolutionary change Revolutionary change model
model
Leadership Insiders Outsiders

Outside resources Few, if any, consultants Consultant led initiative

Physical No, part time team Yes, “off-campus site”

separation members
Crisis None Poor performance

Milestones Flexible Firm

Reward system Unchanged New

IT/process change Process first Simultaneous process and IT

change
 Cont’d …
• The critical element in choosing between a
revolutionary and evolutionary approach is time

– If the firm is in a reactive mode responding to a crisis

 a revolutionary approach may be the only option
– If in a proactive mode  an evolutionary tactic might
work
 The Evolutionary Change Model (I)
• Basic principle
– People directly affected by or involved in a change process
must take active part in the design and implementation of that
change
– Real change is achieved through incremental improvement
over time
• Change should come from within the current organization
– Should be carried out by current employees and leadership
– Should be adapted to existing resources and capabilities 
flexible milestones
– Should be based on open and broad communication
• New processes and procedures are implemented before
introducing new IT systems 44
 The Evolutionary Change Model (II)

• Advantages of an evolutionary change tactic

compared to a revolutionary approach
– Less disruptive and risky
– Increases the organization's ability to change
• Disadvantages
– Takes a long time to see results
– Does not offer the same potential for order of
magnitude improvements
– Vision must be kept alive and adjusted over time as
external market conditions change
 The Revolutionary Change Model (I)
• Based on the punctuated equilibrium paradigm
– Radical change occurring at certain instances
– Long periods of incremental change in between
• Revolutionary change
– Happens quickly
– Alters the very foundation of the business and its culture
– Brings disorder, uncertainty, and identity crises
– Needs to be top driven
– Requires external resources and new perspectives
– Involves tough decisions, cost cutting and conflict resolution
• The change team is small and isolated from the rest of the
organization
– Avoid undue influence from current operations
– Communication with people in the process is on a “need to know” basis
 The Revolutionary Change Model (II)
• Advantages with a revolutionary implementation approach
– Drastic results can be achieved quickly
– If successful, the ideal “blueprinted” design is put in place
• Disadvantages with a revolutionary change tactic
– Very strenuous for the organization
– High probability for failure
– Diverts top management attention from the external marketplace
– Goes against core values of many organizations
 Empowerment
 Bottom-up involvement
 Innovation
– Secrecy creates uncertainty about the future roles of individual employees
 resistance to change
 BPR Success Stories and Failures

Success Stories
• Ford cuts payable headcount by 75%
• Mutual Benefit Life improves underwriting efficiency by 40%
• Xerox redesigns its order fulfillment process and improves
service levels by 75-97% and cycle times by 70% with
inventory savings of $500 million
• Detroit Edison reduces payment cycles for work orders by 80%

Failures
• An estimated 50-70% of all reengineering projects have failed
• Those that succeed take a long time to implement and realize
 Reasons for BPR Failures
• Lack of support from senior management
• Poor understanding of the organization and the infrastructure
• Inability to deliver necessary technology
• Lack of guidance, motivation and focus
• Fixing a process instead of changing it
• Neglecting people’s values and beliefs
• Willingness to settle for marginal results
• Quitting too early
• Allowing existing corporate cultures and mgmt attitudes to prevent redesign
• Not assigning enough resources
• Working on too many projects at the same time
• Trying to change processes without making anyone unhappy
• Pulling back when people resist change
Etc…
 What does it take to succeed with BPR?
• Hammer and Champy
– “The role of senior management is crucial.”
• Empirical research indicates…
– organizations which display understanding, commitment and
strong executive leadership are more likely to succeed with
process reengineering projects.
• Common themes in successful reengineering efforts
1. Firms use BPR to grow business rather than retrench
2. Firms emphasize serving customers & compete aggressively
with quantity & quality of products & services
3. Firms emphasize getting more customers, more work and
more revenues instead of downsizing
 Reengineering and its Relationships to
Other Improvement Programs (I)
• Reengineering - what is that?
– “The fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical,
contemporary measures of performance such as cost, quality,
service and speed” (Hammer and Champy 1993)
– A number of similar definitions by other authors also exist

• Reengineering characteristics
– Focus on core competencies or value adding business processes
– The goal is to achieve dramatic improvement through rapid and
radical redesign and implementation
Þ Projects that yield only marginal improvement and drag out over
time are failures from a reengineering perspective
 Reengineering and its Relationships to
Other Improvement Programs (II)
Rightsizing Restructuring Automation TQM
Reengineering

Assumptions Staffing Reporting Technology Customer Fundamental

questioned relationships applications needs

Focus of Staffing, job Organization Systems Bottom-up Radical

change responsibilities
improvements changes

Orientation Functional Functional Procedures Processes Processes

Role of IT Often blamed Occasionally To speed up Incidental Key

emphasized existing systems

Improvement Usually Usually Incremental Incremental Dramatic and

goals incremental incremental significant

Frequency Usually one Usually Periodic Continuous Usually one

time one time time
 Relationship between Discontinuous
(Radical) and Continuous Improvement

Theoretical
Capability
Improvement

Statistical
Process
Incremental Radical Control
Improvement Improvement

Time
BSC
 The Balanced Scorecard
 Customer Perspective, Internal Business
Processes, Learning and Growth and Finance
 Makes it easier for management to carry out
strategy.
 A balanced scorecard system provides a basis
for executing good strategy well and managing
change.
 What is the balanced scorecard?
 Developed in the early 1990’s by Dr. Robert
Kaplan and David Norton
 The balanced scorecard retains traditional
financial measures.
 But financial measures tell the story of past
events, an adequate story for industrial age
companies for which investments in long-term
capabilities and customer relationships were not
critical for success.
 Cont’d …
 The financial measures are inadequate,
however, for guiding and evaluating the journey
that information age companies must make to
create future value through investment in :

customers – suppliers – employees – processes -

technology - and innovation
 What is the balanced scorecard?
• The Balanced scorecard is a management system
that enables organizations to clarify their vision
and strategy and translate them into action.
• Provides an organization with feedback of both the
internal business processes and external
outcomes, which allows for continuous
improvement of strategic performance and results.
• Nerve center of an enterprise
 Cont’d …
The balanced scorecard is centered on four performance
metrics or perspectives:
 Customers
 Internal processes
 Financial
 Learning and growth
When implemented properly, each one of these
perspectives contains four subparts consisting of
 Objectives
 Measures
 Targets
 Initiatives
Cont’d …
– Objectives - what the strategy is to achieve in that
perspective
– Measures - how progress for that particular
objective will be measured
– Targets - refer to the target value that the company
seeks to obtain for each measure
– Initiatives - what will be done to facilitate the
reaching of the target
Cont’d …
• The term “scorecard” signifies quantified
performance measures and “balanced” signifies
the system is balanced between:
– Short-term and long term objectives
– Financial and non-financial measures
– Lagging and leading indicators
– Internal and external performance perspectives
Cont’d …
 Cont’d …
Kaplan and Norton defined a four-step process
that has been used across a wide range of
organizations
 Defining the measurement architecture
 For example will the system be used at the strategic business
unit level rather than the corporate level.
 Specify strategy objectives.
 These should be carefully decided upon and selected as those
deemed critical in achieving breakthrough competitive
performance and limited in number to 15 to 20, or 3 to 4 in
each perspective to avoid information overload.
Cont’d …
 Choose strategic measures
 These measures should be closely related to the
actual performance drivers and will later be used for
evaluating the progress made toward achieving the
objectives
 Develop an implementation plan to integrate
the scorecard into management.
 Customer Needs
• Who is your customer?
– What age, gender, group does our product appeal to?
• What services or products do they expect from you?
– Do we provide personal services, do your products serve as advertised?
• How do you listen to and learn from your customers?
– Do we provide feedback calls or emails?
• How do you retain and acquire new customers?
– Do we use new advertisement and how do we advertise?
• How do you meet customers’ needs?
– Do we provide help lines and how can we provide help to customers?
• How do you measure customer satisfaction and dis-satisfaction?
– Do we use surveys to find out how customers feel about us?
 Customer Concerns
• There are four major categories that managers need to
address when concerning their customers.
– Quality
• Are there often recalls or problems with defects with our
products.
– Time
• Do we save time by limiting defects and do we provide fast
on time delivery.
– Performance and service
• Do we perform up to customers standards and do we
provide fast and adequate services.
– Cost
• Do we try to minimize cost when dealing with ordering,
scheduling delivery, and paying for materials in order to
lower cost of our products to our consumers.
 Customer Perspective
• With customer perspective managers and companies
have to be careful and make sure they are setting up
their balance scorecard to help customers.
• Examples of things that don’t concern customers are
profit per customer, revenue per customer, and improve
profit per customer.
• These objectives don’t necessarily protean to the
customer perspective but rather the companies
perspective of the customer.
• Managers need to take a step back and look at how
customers perceive your company and what they want
to get out of your company.
 Examples of Customers Perspective
• Two main questions that a company should ask itself to
protean to their customers are:
– How should we appear to our customers
• Do we show a promising future
• Do we show a strong sense of concern
– What is our differentiating value proposition to our
targeted customers
• How are we different from our competitors
• What makes us better than our competitors
 Perspectives of Kaplan and Norton
• There are four broad categories that Kaplan and Norton
base the customer perspective around.
– Best buy
• Companies that supply services and products at low prices
and fast service.
– Product leadership and innovation
• Companies that focus on customer that buy the newest and
most advanced cutting edge technology.
– Customer complete solutions
• Companies that try to sell things like computers where
customers customize them to their liking.
– Lock in
• Companies that will make a product then to buy accessories
for that product you have to buy the same brand name
because other brands out work with that product.
 Successful balanced Scorecards
• When using critical thinking of strategy, objectives, and
measures companies can get a feel for who their
customers are and what they can offer them.

• Strategy gurus, like Michael Porter stress the fact that

it is more important to accomplish more with less.

• Don’t try to please everyone when setting up your

balanced scorecard because you can’t.
 Internal Processes
• Internal business process objectives address the
question of which processes are the most critical
for satisfying customers and shareholders
– A firm must concentrate its efforts to excel in these
areas

• Metrics based on this prospective allow the

managers to know how well their business is
running and whether its products and services
conform to customer requirements
 Internal Process Examples
• Cost
• Throughput
• Quality

Objective Specific Measure

Manufacturing
Cycle time, yield
excellence
Increase design
Engineering efficiency
productivity
Reduce product launch Actual launch date vs.
delays plan
 Internal Processes
• In addition to the strategic management
process two kinds of business processes may
be identified, these include:

– Mission-oriented processes - special functions of

government offices which often involve many
unique problems in their processes

– Support processes - more repetitive in nature.

 Financial Performance
• The financial performance perspective of the balanced
scorecard addresses the question of how shareholders
view the firm and which financial goals are desired
from the shareholder’s perspective.

• These financial goals are dependent on the company’s

stage in the business life cycle.
Financial Performance: Business Life Cycle

• There are three main stages to this cycle

which include:
– Growth stage -goal of the company is growth
• An example of a growth goal would be revenue growth.
– Sustain stage - the goal of the firm is profitability
• Measures in this stage may include ROE, ROCE, and
EVA.
– Harvest stage - the goal of the firm is cash flow
and reduction in capital requirements.
 Financial Performance
The table below outlines possible financial
performance objectives and their metrics.

Objective Specific Measure

Growth Revenue Growth

Profitability Return on equity

Cost Leadership Unit Cost

Learning & Growth

How much a company must: learn – improve -

and innovate to meet objectives?
 Use of the scorecard:
• To set objectives
• To determine measures
• To predict outcomes
• To determine initiatives
• To gain the big picture
Key performance indicators include(KPI):

• Illness rate/days of absence

• Employee turnover
• Gender/racial ratios
• Internal promotion %
 A learning & growth example:

• Objective: increase internal promotions

• Measure: bigger % of in house promotions
• Target: +10% in 2 years
• Additional classes and training
Learning & growth must focus on
measurable outcomes to move the
company forward.
Scorecard allows for actionable
terms derived from company
strategy.
 Redesigning process

• Define measurement architecture

• Specify strategic objectives
• Choose strategic measures
• Develop implementation plan
 Potential Benefits
• Translation of strategy into measurable parameters
• Communication of strategy
• Alignment of individual goals with strategic
objectives
• Feedback of implementation results
Potential Disadvantages
• Lack of a well defined strategy
• Use of only lagging measures
• Use of generic metrics
 Building & Implementing a Balanced
Scorecard:
Nine Steps to Success
 Cont’d …
 Step One: Assessment
- BSC Development Plan
- Strategic Elements
- Change Management
 Step Two: Strategy
- Customer Value
- Strategic Themes
- Strategic Results
 Step Three: Objectives
- Strategy Action Components
 Cont’d …
 Step Four: Strategy Map
- Cause-and-Effect Links
Step Five: Performance Measures
- Performance Measures
- Targets
- Baselines
 Step Six: Initiatives
- Strategic Projects
 Cont’d …
Step Seven: Performance Analysis
- Software
- Performance Reporting
- Knowledge Sharing
Step Eight: Alignment - Cascading
- Unit & Individual Scorecards
Step Nine: Evaluation
- Strategy Results
- Revised Strategies
 Conclusion
• Balanced scorecard is a performance
management system that can be used in any
size organization.
• Allows management to measure financial and
customer results, operations, and organization
potential.
Six Sigma
 The Six Sigma
• Six sigma is a business improvement approach
that seeks to find and eliminate causes of defects
and errors in manufacturing and service
processes by focusing on outputs that are critical
to customers and results in a clear financial
return for the organization.
• The term six sigma is based on a statistical
measure that equates to at most 3.4 errors or
defects per million opportunity
 Cont’d …
• A goal of near perfection in meeting customer
requirements
• A sweeping culture change effort to position a company
for greater customer satisfaction, profitability and
competitiveness
• A comprehensive and flexible system for achieving,
sustaining and maximizing business success; uniquely
driven by close understanding of customer needs,
disciplined use of facts, data, and statistical analysis, and
diligent attention to managing, improving and reinventing
business processes
 Sigma Table

Sigma Defects per Yield

Million
6.0 3.4 99.9997%

5 233 99.977
4 6210 99.379
3 66807 93.32
2.5 158,655 84.1
2 308,538 69.1
1.5 500,000 50
Cont’d …
Sigma Defects per Yield
Million

1.4 539,828 46.0

1.3 579,260 42.1
1.2 617,911 38.2
1.1 655,422 34.5
1.0 691,462 30.9
0.5 841,345 15.9
0 933,193 6.7
 Why Does it Work?
• It measures the VARIATION in a process.
– Brought about by Poor Process Design.
– Brought about by Environmental Conditions.
– Brought about by People.
– Brought about by Different Systems.
– Brought about by Skills and Behaviours.
– Brought about by Measurement Systems.
 Six Sigma Quality Programs
• Six Sigma is originally a company wide initiative at Motorola for
breakthrough improvement in quality and productivity
– Launched in 1987
– Rendered Motorola the Malcom Baldridge National Quality Award 1988
• The ongoing success of Six Sigma programs has attracted a
growing number of prestigious firms to adopt the approach
– Ex. Ford, GE, AMEX, Honeywell, Nokia, Phillips, Samsung, J.P. Morgan,
Maytag, Dupont…
 Broad definition of Six Sigma programs
“A company wide strategic initiative for process improvement in both
manufacturing and service organizations with the clear objective of
reducing costs and increasing revenues”
– Fierce focus on bottom line results
 Technical Definition of Six Sigma
• Reduce the variation of every individual process to render no more than 3.4
defects per million opportunities
• Assuming the process output is normally distributed with mean  and
standard deviation  the distance between the target value and the closest
specification limit is at least 6  and the process mean is allowed to drift at
most 1.5  from the target

 - 1.5    1.5

Lower Specification Limit (LSL) Target Value (T) Upper Specification Limit (USL)

4.5σ 1.5 1.5 4.5

6σ 6σ
 The Six Sigma Cost or Efficiency Rationale
• Reducing costs by increasing process efficiency has an
immediate effect on the bottom line
– To assure worker involvement Six Sigma strives to avoid layoffs

The Six Sigma Variation

Efficiency loop
Improvement projects

Commitment Reduced Costs

Cycle Time Yield

Increased Profits
 The Six Sigma Cost or Efficiency Rationale
• Oriented around the dimensions of variation, cycle time &
yield
Variation
• Can be divided into two main types
1. Common cause or random variation
2. Special cause or non-random variation
• Non-random variation
– Relatively few identifiable root causes
– First step in reducing the overall variation is to eliminate non-
random variation by removing its root causes
• Random variation
– The result of many different causes
– Inherent in the process and can only be affected by changing the
process design
 The Six Sigma Cost or Efficiency Rationale

Variation (cont.)
• Important concepts in understanding the impact of variation
– Dispersion
– Predictability
– Centering
• Dispersion
– Magnitude of variation in the measured process characteristics.
• Predictability
– Do the measured process characteristics belong to the same
probability distribution over time?
– For a predictable process the dispersion refers to the width of the
pdf.
• Centering
– How well the process mean is aligned with the process target value.
 The Six Sigma Cost or Efficiency Rationale

Variation (cont.)
• Ideally the process should be predictable, with low
dispersion, and well centered
• Standard approach for reducing variability in Six Sigma
programs
1. Eliminate special cause variation to reduce overall dispersion and
improve predictability
2. Reduce dispersion of the predictable process
3. Center the process to the specified target
• Six Sigma use traditional tools for quality and process
control/analysis
– Basic statistical tools for data analysis
– The 7 QC tools
The Six Sigma Cost or Efficiency Rationale

Cycle time and Yield

• Cycle time (lead-time, response time)
– The time a job spends in the process
• Yield (productivity)
– Amount of output per unit of input or per unit time
• Improvement in cycle time and yield follow the same tactic
as for variation
– Gain predictability, reduce dispersion and center to target
• The target is usually broadly defined as
– Minimize cycle time and Maximize yield
• Six Sigma principle
– Improvement in average cycle time and yield should not be made
at the expense of increased variation
 The Six Sigma Revenue or Effectiveness Rationale

• Determinants of the company’s revenues

– Sales volume closely related to market share
– Sales prices
Þ Revenues contingent on how well the firm can
satisfy the external customers’ desires
 An important Six Sigma Success factor is the
focus on internal and external customer
requirements in every single improvement
project
 The Six Sigma Cost & Revenue Rationale

Variation

Improvement projects Customer satisfaction

Increased Market
Commitment Reduced Costs Share & potentially
higher prices

Increased Profits Increased Revenues

Cycle Time Yield

 The Six Sigma Framework
 Centered around a disciplined and quantitatively oriented
improvement methodology (DMAIC)
– Define, Measure, Analyze, Improve, Control

Top Management Commitment

Training

Improvement Methodology
Define Measure Analyze Improve Control

Measurement System

Stakeholder Involvement
 Six Sigma Success Factors
• The bottom line focus and big dollar impact
– Encourages and maintains top management commitment
• The emphasis on - and consistent use of - a unified and
quantitative approach to process improvement
– The DMAIC methodology provides a common language so that
experiences and successes can be shared through the organization
– Creates awareness that decisions should be based on factual data
• The emphasis on understanding & satisfying customer needs
– Creates focus on doing the right things right
– Anecdotal information is replaced by factual data
• The combination of the right projects, the right people and the
right tools
– Careful selection of projects and people combined with hands on training
in using statistical tools in real projects
 Implementing Six Sigma
• Six Sigma is a goal for process improvement that
forces us to put our vision of quality in numerical
terms (i.e 3.4 defect parts per million or
99.99966% “good”)
• A more practical definition is ‘Data driven problem
solving
• Variation is measured by the range of the process.
• The less variation the tighter and more accurate
the process
 Tableting Process and Its Variables
Process Variables (Xs)

= Blending Time and Temperature

= Compression Speed and Force
Y = f (X)
= Coating Air Temperature and Moisture
= Water Addition
Process Inputs (Xs) Process Outputs (Ys)
Dissolution
API Content
Blend Compress Coat Uniformity
Excipients Package Yield
Waste
Environmental Variables (Xs)
= Ambient Temperature and Humidity
= Blending and Compression Rooms
= Raw Material Lot
= Operators
= Equipment
 Six Sigma Improvement Methods
DMAIC vs. DMADV

Define

Measure

Analyze

Continuous Improvement Reengineering

Improve Design

Control Validate
 DMAIC Process Improvement Framework

Sense
Sense of
of Six Sigma
Tools
Urgency
Urgency Results ($$)

Data Control

Improve

Analyze

Measure Leadership
Teamwork
Stakeholder Building
Define Project Management
 Composition of Six sigma
Team member:
• individuals from functional areas who
supports specific projects

Green belts:
• employees trained with the introductory six
sigma tools and methods
• work on projects on part time basis
• Assist black belts
 Cont’d …
 Black belts:
• Fully trained six sigma experts with up to 160 hrs
of training
• Perform much of the technical analysis required
of six sigma projects
• Usually full timers
• Have advanced knowledge on DMAIC methods
• Need good leadership & communication skill
• Targeted as future business leaders
 Cont’d …
 Master Black belts:
• Highly trained in how to use six sigma tools &
methods
• Full time six sigma black belts
• Provide advanced technical expertise
• Responsible for six sigma strategy, training,
mentoring, deployment and results
• develop & coach team, lead change
 Cont’d …
 Champions:
• Senior level managers
• Understand the philosophy & tools of six sigma,
select projects, set objectives, allocate resources
& mentor teams
• Own six sigma projects
• They work toward removing barriers
(Organizational, financial, Personal)
• Report results to top management
CONTINUE……….

KAIZEN
BPI