Kaplan & Norton Got it Wrong-Lean Six Sigma Balanced Scorecard
Since Kaplan and Norton’s article "The Balanced Scorecard - Measures that Drive Performance” published in the Harvard Business Review in 1992, the Balanced Scorecard (BSC)methodology has become one of the most popular performance and strategic management frameworks used in both public and private organizations around the world. However, this methodology has its own weaknesses, which we’ll discuss shortly.
To overcome the traditional Balanced Scorecard (BSC) approach, we propose a Lean Six Sigma BSC Framework, which can be seen as the “beta version” of the Lean Six Sigma Framework integrating both the BSC methodology and our “No Data, No Problem” methodology. This new Lean Six Sigma Balanced Scorecard Framework will allow organizations to implement their strategies in a more efficient and effective way when comparing with the traditional framework. And such new Framework will be introduced in the latter half of this blog.
Original Balanced Scorecard Framework
There are two fundamental challenges with the original BSC approach and are as follows:
1. Takes a long time to fully utilize the BSC
In order to use the original BSC methodology to predict performance, organizations must have enough historical data to show the relationships between various performance indicators. In addition, organizations often require making numerous iterations of the original scorecard to reach to a point where these organizations can make decisions based on predicted or forecasted performance.
2. Causality is difficult or impossible to establish with unstable processes
In the original BSC developed by Norton and Kaplan, a series of strategic objectives are developed across the following perspectives:
- Customer Service;
- Process; and
Each of these objectives are linked through a series of cause and effect relationships that cut across all four perspectives and strategies forming what is called a strategy map.
In order to establish the necessary cause and effect relationships (i.e. relationship of causality) between the various perspectives, certain fundamental principles must exist. One of the primary conditions for causality is that the variation in the process must not be changing. If the process varies significantly over time, it is difficult, but not impossible, to establish causality. In fact when causality is tested for with unstable processes, you run the risk of a Type 1 error (i.e. rejecting a claim that was correct). For example, a test is conducted to determine if increased training increases productivity, which is a true statement. However, if the process you are testing is unstable, you may conclude that the statement is not true when it is.
The Lean Six Sigma Balanced Scorecard
The Lean Six Sigma BSC methodology we developed has two significant differences with the original BSC framework:
1. Link stable processes with each objective in the Strategy Map
The Lean Six Sigma BCS (briefly described in this blog) uses the same framework as Norton and Kaplan with the exception that it links stable processes with each of the objectives in the strategy map. In this type of BSC, each of the organization’s objectives is driven by an underlying (stable) process. And by improving these stable processes, that organization achieves breakthrough performance, meet its objectives and implement strategy.
2. Gather the required data quickly
Using our “No Data, No Problem” methodology as explained in previous blog (http://tleecorp.com/blog/bid/186739/No-Data-No-Problem-My-Lean-Six-Sigma-Data-Collection-Secrets) , an organization will undertake an exercise to collect data for 10 days over a month for all the processes. If the process has long cycle times, it is possible that the 10-day data collection maybe repeated over a longer period of time than 30 days. This data will be used to populate the scorecard and establish causality.
High Level approach to setting up the Lean Six Sigma Scorecard
Five major steps to set up a Lean Six Sigma Balanced Scorecard:
Develop the strategic objectives across the four perspectives outlined in the original BSC framework, key performance Indicators, targets and projects to achieve these targets.
Before going out to measure each objective, the organization should identify the key processes that are used to meet these objectives.
Undertake an exercise to collect data for 10 days over a month for all the processes outlined in step 1 using the “No Data, No problem” method (http://tleecorp.com/blog/bid/186739/No-Data-No-Problem-My-Lean-Six-Sigma-Data-Collection-Secrets).
Conduct an assessment of the stability of the processes once all the data is collected and validated (http://tleecorp.com/blog/bid/186739/No-Data-No-Problem-My-Lean-Six-Sigma-Data-Collection-Secrets). If the processes are not stable, then the organization should implement a six sigma project to stabilize the processes.
Use the data collected to establish the cause and effect relationships once the processes are stabilized.
Refine the strategy map based on the results of Step 5 and develop a reasonable data collection plan to monitor and report the scorecard results.
This blog provides a very high level outline of our Lean Six Sigma Balanced Scorecard. Our “enhanced” balanced scorecard framework ensures processes are stable before determining which strategies are working and which are not. To contact Toppazzini and Lee Consulting CLICK HERE.
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The following URLs provide great additional information on Lean 6 Sigma
Toppazzini and Lee Consulting Lean 6 Sigma Consulting at -Lean Six Sigma Consulting
Linkedin Six Sigma Group at http://www.linkedin.com/groups?home=&gid=37987&trk=anet_ug_hm
ISixSigma web site at www.isixsigma.com
ASQ web site at www.asq.org