Performance Management & Strategy Execution Blog: The Glue

The Differences Between Functional or Departmental Scorecard Reviews and Breakthrough Scorecard Reviews

Recently I posted an article about the use of cross-functional breakthrough improvement scorecards to drive dramatic results in an organization. Breakthrough improvement scorecards exist in parallel with functional or departmental scorecards, but have slightly different purposes, which affects the skill levels required of the reviewers and reviewees, as well as the content of the monthly performance reviews of these scorecards.

Each breakthrough improvement scorecard is focused on dramatically improving one high level outcome measure, whereas functional scorecards exist to track a functional or departmental list of objectives, measures, targets, and initiatives that should be aligned to the strategic plan and that could be either breakthrough improvement focused, incremental improvement focused, or even daily control in nature. Also, no matter what is shown on the breakthrough scorecards, it must also exist on various functional scorecards because that is where it actually gets functionally reviewed, owned, and executed.

Because of these differences, the monthly reviews are slightly different for each type of scorecard and some of the required skills are different.

First, with functional scorecards one must ensure that the scorecard actually aligns upward to the scorecard at the next higher level. The real question here is “for all of the objectives, measures, targets, and initiatives on the boss’s scorecard, is the lower scorecard contributing to the ones that the boss thinks it should be contributing to?” Once that is agreed upon, then the monthly questions are:

• Is the data up to date?
• Are the targets stretch enough?
• Has the owner explained for any measures that are red; why they are red, what will be done about them, who owns those actions and when they will be completed?
• For any improvement initiatives, are they on schedule, on budget and really getting to the root cause?

For the breakthrough improvement scorecard, the questions are similar, but are more advanced and will require more data stratification and root cause analysis skills either known by both the reviewers and reviewees or, at least, available to them through process analysis experts. The questions now become:

• Has the senior team defined only 3 – 5 breakthrough improvement scorecards? (Any more at one time will dilute the focus and minimize the results)
• For each breakthrough improvement scorecard, has the data been properly stratified into the vital few drivers, thus identifying the most important underperforming leading measures that will be addressed with multiple improvement initiative teams?
• Is the data up to date?
• Are the targets stretch enough?
• Are there enough initiatives targeting this outcome measure to drive significant improvement in the aggregate?
•  For those improvement initiatives, are they on schedule and on budget
•  Which proven improvement initiative methodology will be used to identify, verify and eliminate the root causes?
•  During each monthly review, a review in detail of two or more of the process improvement initiatives should occur.

Finally, the breakthrough improvement scorecards are usually reviewed by the senior management team at their monthly meetings, while the functional reviews occur throughout the organization on a monthly basis prior to the breakthrough improvement scorecard reviews. This sequence ensures timely execution of the initiatives on the functional scorecards, which roll up to the breakthrough improvement scorecard.

Are you using any Breakthrough Improvement scorecards now? Tell me about how they're working (or let me know if you'd like some help getting one started).

           

Driving Dramatic Results: Breakthrough Improvement Scorecards

Especially in an economy like the one we are currently experiencing, organizations must come up with a way to create laser-like focus on the critical areas that are under-performing and dramatically improve them fast...or the consequences can be dire. Incremental improvement is not good enough.

In situations like this, identifying the few areas that must be improved and monitoring their improvement on what I call a "Breakthrough Improvement Scorecard" is a proven way to drive the focus, cross-functional accountability, and dramatic improvement that is absolutely necessary.

A Breakthrough Improvement Scorecard is similar to a Balanced Scorecard in that it contains objectives, measures, targets, improvement initiatives, and owners for each, but it is different in that it usually focuses on only one perspective (like financial) and one high-level outcome measure within that perspective that is under-performing and is cross-functional by design.

Some examples might be operating margin, customer satisfaction, or quality outcomes (like risk-adjusted mortality rates in a hospital). Each Breakthrough Improvement Scorecard focuses on only one outcome measure and an organization should have no more that five or six breakthrough improvement scorecards at one time, due to the number of resources required for each one. The scorecard is designed using some of the correlation tools that you might find in statistical problem solving processes like Six Sigma.

The design begins, of course, with the identification of the biggest organizational challenges or “burning platforms” that require special attention and dramatic improvement. For example, if the burning platform is that operating margin is in the red, first a target for improvement must be set, which would probably be to get it at least into the black.

Then, the operating margin must be segmented into its key drivers or components. Those drivers can be defined by formula (e.g., revenues and expenses), then by location (e.g., revenues by department or business unit; expenses by location or by category such as labor or supplies) and finally by correlation. Correlation is defined using tools like pareto charts or structure trees and would define leading measures like “productivity” as a driver of expenses or “volume” as a potential driver of “revenues.”

The next step is to align all of these measures in a correlation or cause-and-effect sequence and review the data for each driver. In other words, productivity drives expenses, which when combined with revenues, drives operating margin. Then, based on the measures that are under-performing most significantly, improvement initiatives would be developed and owners and contributors would be assigned.

The final step to dramatic improvement is for all of these initiative teams to find and eliminate the various root causes of the red measures. As that is completed, the individual gap reductions aggregate into not just incremental improvement, but breakthrough or quantum improvement.

I've been involved in deploying this approach at numerous organizations. One grew revenues from $2 Billion to $7 Billion (a financial organization and Baldrige recipient). Another reduced defects by 60% (a petrochemical company). Yet another reduced customer complaints by 78% (electric utility and Deming Award Winner).

If you're struggling with a way to drive similar types of changes at your organization, consider applying the Breakthrough Improvement Scorecard approach. If you need additional guidance on how to get it moving, please let me know. And if you try it, let me know how it works for you!

Don't Get Killed by an Anecdote

I was working with a client today whose Strategy Execution framework I'm helping to build and automate. When we were talking about setting good targets for some key performance measures, I was reminded of an important lesson I had learned years ago about effectively measuring service levels: hitting average service level targets is not enough.

Several years ago, I worked for a CRM company that managed the laptops of very large companies' sales forces. If a sales rep had a problem, he or she simply overnighted the laptop to our company, we fixed it, and overnighted it back. We targeted a 4-day turnaround. In reality, we almost always turned around repairs and shipped the unit back in one -- or at most two -- days. Great, right?

Well, sometimes there were problems. Sometimes an incoming unit was put in the wrong pile. Or the rep didn't put the right RMA number on it. Or it was shipped out without a label. Not to worry, though. These kinds of thing were REALLY rare and we were always within our targeted 4-day average.

A Brief Primer on Lean Six Sigma and Its Benefits

Before I discuss Lean Six Sigma, I'll quickly cover the fundamentals of the two contributing approaches, Six Sigma and Lean.

Six Sigma is typically defined as a disciplined, statistical approach aimed at increasing profitability by reducing defects. There is a large Six Sigma "tool box" of analytical, data-driven approaches that help companies improve quality in this way.

I tend to think about Six Sigma more holistically than many of its current adherents. I also take to heart a comment made by Bill Smith, the Motorola engineer who invented Six Sigma: “If you want to improve something, involve the people who are doing the job.”

So I see the power of Six Sigma as greatest when it is thought of more broadly, as an organizational shift wherein employees use a disciplined approach to improve overall business performance, using data and focusing on controlling process variation. This is even more powerful when built into a Strategy Execution approach, so that improvement efforts are focused on the most strategically important problems for the business.

How Organizational Culture Affects Target Setting

In two previous blogs (Setting Effective Targets & Three More Ways to Set Targets), I talked about the best ways to set targets for performance measures on Balanced Scorecards.

There are also psychological and cultural aspects that impact how an organization sets targets.

If an organization is risk averse or if management tends to look for someone to blame when performance falls short, targets will be predictably less aggressive and easily achievable. This is usually referred to as “sandbagging” and occurs because the penalty for under-achieving a target is so much greater than the risk of being accused of setting soft targets.

On the other hand, organizations that reward real achievement and where missing a stretch target is not punished, but merely analyzed for root causes and addressed, real “stretch” targets are more likely.

If you're in an organization that leans more toward the risk averse culture, how do you encourage employees to set real stretch targets?

First, examine the management style and their reaction to missed targets. If it is punitive in nature, that managerial behavior must change or the employees will never trust management enough to take a risk and set a stretch target.

However, I have seen organizations where the management reaction to missed targets is healthy, yet the targets are still easily achievable for other cultural reasons. Sometimes these reasons are merely perceived, but as we know, perception is reality.

Three More Ways to Set Targets

Earlier this week I wrote about the two best ways to set targets for performance measures (Benchmarking and using Customer Valid Requirements). As promised, here are three more ways to do it.

The third way to set targets is to look back historically at your performance. If you used to perform better than you do now, strive for that historical target and try to determine what has changed to cause your deteriorated performance and turn it around.

A fourth way to set a target is to determine “what the data shows is possible.” Let me cite an example to help illustrate this method:

Do You Have an Innovation Scorecard?

Last week, I had the opportunity to attend the International Society for Performance Improvement conference in Phoenix, Arizona and met one of the distinguished luminaries of the society, Donald Totsi of Vanguard Consulting.  Given the recent article in BusinessWeek (June 11, 2007) entitled, 3M’s Innovation Crisis: How Six Sigma Almost Smothered Its Idea Culture, I was captured by his findings about the core indicators of what it takes to implement innovative product and services.

Based on Don’s performance analysis of 10 companies that successfully launched RADICALLY new products and services to meet the demands of their marketplace, here are the top ten cultural practices, in order of their perceived importance of executing innovation: