Business six sigma business scorecard ensuring performance for profit

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Business six sigma business scorecard ensuring performance for profit

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  • 1. Praveen Gupta has developed an excellent methodology for aligningsenior management, supervisors, and employees in continuouslyimproving the critical drivers of sustained high performance. Robert F. Anderson, President, Robert F. Anderson and Associates, Inc.This book must be studied by all who are driven to create a corpo-rate environment that attracts good employees, demands results,and produces sustained profitability. Lonnie C. Rogers, President, Ideal AerosmithThe Six Sigma Scorecard simplifies implementation of the SixSigma initiative by using measurements for better, faster, and cost-effective performance throughout the company. The BusinessPerformance Index (BPIn) is an excellent tool for executives tomonitor corporate performance for growth and profitability.Anton Hirsch, President, Corbra Metal WorksThe Six Sigma Business Scorecard makes it easy to understand thevalue of the process measurements by explaining their relationshipto profitability. Using a business scorecard is an excellent idea toensure improvement.Chuck Georges, Vice President of Manufacturing, MolonMotor & Coil CorporationSynthesizing the tenets of Six Sigma methodology and the SIPOCelements with the balanced scorecard, Praveen has given leaders inall disciplines the business tools to measure and direct their effec-tiveness in terms of profitability and growth. Brian OReilly, Director of Quality & Regulatory Affairs, Dentsply Professional

2. This page intentionally left blank. 3. SIX SIGMABUSINESSSCORECARDEnsuring Performance for ProfitPRAVEEN GUPTAMcGraw-HillNew York Chicago San Francisco Lisbon London MadridMexico City Milan New Delhi San Juan SeoulSingapore Sydney Toronto 4. Copyright 2004 by The McGraw-HIll Companies, Inc. All rights reserved. Manufactured in theUnited States of America. Except as permitted under the United States Copyright Act of 1976, no partof this publication may be reproduced or distributed in any form or by any means, or stored in a data-base or retrieval system, without the prior written permission of the publisher.0-07-143147-0The material in this eBook also appears in the print version of this title: 0-07-141730-3All trademarks are trademarks of their respective owners. Rather than put a trademark symbol afterevery occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefitof the trademark owner, with no intention of infringement of the trademark. Where such designationsappear in this book, they have been printed with initial caps.McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales pro-motions, or for use in corporate training programs. For more information, please contact GeorgeHoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069.TERMS OF USEThis is a copyrighted work and The McGraw-Hill Companies, Inc. (McGraw-Hill) and its licensorsreserve all rights in and to the work. Use of this work is subject to these terms. Except as permittedunder the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may notdecompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon,transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it withoutMcGraw-Hills prior consent. You may use the work for your own noncommercial and personal use;any other use of the work is strictly prohibited. Your right to use the work may be terminated if youfail to comply with these terms.THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUAR-ANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OFOR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMA-TION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE,AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUTNOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR APARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the func-tions contained in the work will meet your requirements or that its operation will be uninterrupted orerror free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inac-curacy, error or omission, regardless of cause, in the work or for any damages resulting therefrom.McGraw-Hill has no responsibility for the content of any information accessed through the work.Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental,special, punitive, consequential or similar damages that result from the use of or inability to use thework, even if any of them has been advised of the possibility of such damages. This limitation of lia-bility shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tortor otherwise.DOI: 10.1036/0071431470 5. To my parents, Prem Vati and Kishan Lal Gupta,Bill Smith, the inventor of Six Sigma,and the astronauts of space shuttle Columbia,for their ethics, vision, and sacrifice, respectively. 6. This page intentionally left blank. 7. For more information about this title, click here.CONTENTSBob Galvins Reflections xiiiForeword xxiPrefacexxiiiAcknowledgments xxvIntroduction xxviiCHAPTER ONE. TRENDS IN PERFORMANCEMEASUREMENTS1Technology and Globalization 1Macroeconomic Measures2Evolution in Performance Measurements 3Jurans Financial and Quality Trilogies 5Business Trilogy6ISO 9000 Quality Management System 7Process Thinking 9Malcolm Baldrige National Quality Award Guidelines10Balanced Scorecard 14Six Sigma Business Scorecard 14CHAPTER TWO. SIX SIGMAAN OVERVIEW 17Complexity and Performance 17Cost of Poor Performance 18Basics of Six Sigma 21Traditional Approach to Six Sigma22The Breakthrough Approach to Six Sigma 23Define 24Measure26Analyze 31 viiCopyright 2004 by The McGraw-Hill Companies, Inc. Click Here for Terms of Use. 8. viii CONTENTS Improve36 Control 37Challenges in Implementing Six Sigma 39CHAPTER THREE. NEED FOR THE SIX SIGMABUSINESS SCORECARD43Missing Rate of Improvement 45Insufficient Process Performance Measurements46Demings 14 Points 49Measurement Challenges with Quality Systems 50Limits of ISO 900050Shortcomings of Six Sigma Measurement 53Limits of the Balanced Scorecard 54Measurements According to The Goal 56Developing a New Measurement System 56CHAPTER FOUR. THE SIX SIGMA BUSINESSSCORECARD 59Business and Leaders 59Current Accounting Systems61Information Age Paradigm 61SIPOC Analysis for Constraints 63Managing the Profitability Process 65External Factors 66Process-Based Measurements 67Six Sigma Business Scorecard 67Business Processes to Consider 68Elements of the Six Sigma Business Scorecard 691. Leadership and Profitability 712. Management and Improvement 733. Employees and Innovation 764. Purchasing and Supplier Management 785. Operational Execution 796. Sales and Distribution 837. Service and Growth 83Six Sigma Business Scorecard Measurements84Business Performance Index (BPIn) 85Corporate DPU and DPMO 86Corporate Sigma Level 87 9. CONTENTS ixComparing Balanced Scorecard and Six Sigma Business Scorecard87CHAPTER FIVE. PLANNING FOR THE SIX SIGMABUSINESS SCORECARD 89Leadership and Improvement 89Extent of Improvement90Business Opportunity Analysis91Organizational Adjustments92Vision 94Goals 95Core Competencies 96Systems Thinking 96Employees Involvement 97Team Structure 98Understanding Measurements 99Identifying Process Measurements100Action Plan for Performance 103Corporate Plans 106Progress Review 106CHAPTER SIX. SIX SIGMA BUSINESSSCORECARD DEVELOPMENT 109Profitability Visibility 111Measurement Failures112Features and Benefits of the Six Sigma Business Scorecard 114Impact of Customer Requirements on Measurements 115Factors Influencing Profitability 117Growth and Profitability118Ownership for Performance 120Step-by-Step Development of the Six Sigma Business Scorecard 121Sample Measurements 123BPIn Example 124CHAPTER SEVEN. IMPLEMENTING THE SIXSIGMA BUSINESS SCORECARD 127Creating Awareness128Building the Business Model 128 10. xCONTENTSEstablishing the BPIn129Establishing Six Sigma Business Scorecard Measurements 130Ensuring Data Collection Capability 132War on Waste134Managing Change 135Integrating Technology and the Six Sigma Business Scorecard 138CHAPTER EIGHT. ADAPTING THE SIX SIGMABUSINESS SCORECARD TO SMALL BUSINESSES141Six Sigma Business Scorecard and Business Size141Implementing in a Small Business 144CHAPTER NINE. MONITORING PERFORMANCEUSING THE SIX SIGMA BUSINESS SCORECARD147Management Review147Leadership Performance Review 150Employees Performance Review 153Management Performance Review 154Compensation for Performance 157Communication with the Community 158Annual Review158CHAPTER TEN. PERFORMANCE, PROFITABILITY,AND STANDARDS 161Dow Jones Industrial Average Companies161Performance and Profitability 162Measurements for Growth and Profitability 165Balancing the Six Sigma Scorecard for Growth and Profitability 166Business Performance Index (BPIn) 168Managing for Profitability 171Managing Sales171Reducing Costs172Facilitating Growth 174Inspiring for Innovation 175CHAPTER ELEVEN. LEADERSHIP FORPERFORMANCE 177Leadership Challenges177Lessons in Leadership180 11. CONTENTS xiSeven Practices of Good Leadership for Superior Execution 182Personal Practices 182Professional Practices 183Leadership Expectations183Leadership Role Models 185Leadership Characteristics According to the MBNQA Guidelines187Leadership Improvement 189CHAPTER TWELVE. SIX SIGMA SCORECARDVALIDATION 191The Ten BPIn Measurements192 1. Employee Recognition (Percentage of EmployeesRecognized by CEO) 193 2. Profitability193 3. Rate of Improvement in Process Performance 194 4. Recommendations per Employee 194 5. Total Spending/Sales 195 6. Suppliers Defect Rate 195 7. Operational Cycle Time Variance 196 8. Operational Sigma 197 9. New Business/Total sales 19710. Customer Satisfaction 198Application of BP