Tuesday, June 16, 2009

Operational Improvement Frameworks

In today’s highly competitive market, the primary goal of any business is to continuously improve operations to meet market demands and provide value to the customers. To achieve this goal, management needs to think and act strategically. Their actions must be based on facts and focus on factors that create or add value and predict organizational and operational success. It is through knowing and understanding these facts that businesses can make informed decisions and initiate necessary improvements. We cannot improve what we cannot measure and more so, we cannot improve what we do not understand.

There are several methodologies that companies can implement to help drive operational and performance excellence to improve overall business results. Some of these methodologies include: Balanced Scorecard, Malcolm Baldrige Criteria, and Six Sigma. Each of these practices runs on data, provides success measures, and identifies specific goals. They all depend on factual information and reliable data to measure and analyze the quality of given processes to improve organizational and operational performance. Their scope of measuring performance goes beyond evaluating traditional quantity indicators such as financial or accounting-based productivity considerations. These tools are fact-based decision-making mechanisms that can aid organizations in performing analyses to appraise and control processes, and boost performance. They aim to streamline systematic series of actions and improve market position.

The Balanced Scorecard approach uses “a carefully selected set of quantifiable measures derived from an organization’s strategy” (Niven, 2006, p. 13). The goal of using the Balanced Scorecard is to translate strategies into action and metrics. “I see this tool as three things: communication tool, measurement system, and strategic management system” (Niven, 2006, p. 13). It explores a strategy using four perspectives: financial, internal, customer, and innovation and learning perspectives. When these perspectives are integrated, the Balanced Scorecard can provide a system to track, assess and capitalize on crucial success factors.

Companies or organizations use the Balanced Scorecard to address three significant challenges: fully measure organizational and operational performance, effectively monitor and extract the value of intangible assets, and successfully implement strategy. The weakness of the Balanced Scorecard is that it does not show relationships and dependencies between its four designed quadrants. An example would be making a change in one quadrant may degrade or upgrade performance in another quadrant. In order to bridge this gap, it is important to have a good understanding of how critical indicators are developed and what processes these indicators depend on.

The methodology that uses Malcolm Baldrige Criteria is “built on a set of core values and concepts” (George, n.d., para. 2). George noted that the Criteria for Performance Excellence booklet states, “the Criteria are designed to help provide organizations with an integrated approach to organizational performance management that results in delivery of ever-improving value to patients/customers/students improvement of overall organizational effectiveness and capabilities organizational and personal learning” (para. 1). It is known to assist organizations use a more focused and methodical approach to performance management. It can address governance and ethics-related concerns and take into account important decisions driving both short-term and long-term organizational sustainability. This approach defines a combined framework and a set of fundamental practices for a high-performance management system. However, it does not recommend starting points nor specific quality tools and techniques. To address this weakness, it would be ideal to utilize a systematic and process-oriented methodology such as Six Sigma.

Gygi, DeCarlo, and Williams (2005) described Six Sigma as the single most effective problem-solving methodology for improving business and organizational performance. It is a systematic and data-driven approach that addresses and solves process-related challenges to achieve bottom-line results. It can reveal the cost of poor quality in factual terms and provide direction as to how it can be improved or corrected.

The focal point of Six Sigma is on changing or improving results by focusing on inputs, modifying these inputs and controlling them. Properly applying Six Sigma tools can yield great results when implemented. Its weakness, however, is that it does not cover all the elements required to optimize organizational performance.

These methodologies can all be used individually as operational improvement tools but to address the weakness of each practice, a combination of systems would be the most effective solution. The success of any or a combination of these quality management tools highly depends on corporate buy-in and mindset. Equally important is the commitment to change management practices for improvement and engaging workforce and customers to ensure proper alignment of processes and resources.

“The most effective integrated management system would be one in which an organization uses the Baldrige Criteria as a method of establishing a “culture of excellence,” assessing performance, and prioritizing initiatives” (Grizzell, 2004, para. 10). It is highly recommended that either Six Sigma or Balanced Scorecard methods be used within the context of a Baldrige-based integrated culture of performance excellence. Combining the tool sets of Six Sigma or the Balance Scorecard methods with a framework for high performance management could assist companies as they drive to operational excellence.