the balance scorecard versus quality award models as strategic frameworks

The Balance Scorecard versus

Quality Award Models

as Strategic Frameworks

 Dr. Shuki Dror

Head, Department of Industrial Engineering and Management

ORT Braude College

Agenda

Paper objectives

Strategic frameworks for performance management

Comparison between organizational performance

management frameworks

QFD Balanced Scorecard Construction Map

Illustrative Example

Conclusions

Paper objectives

This paper extends the comparison presented by

Wongrassamee et al., by using Otley's five points for comparing

three performance management frameworks, i.e. MBNQA,

EFQM, and the Balanced Scorecard.

A structured methodological approach based on the Quality

Function Deployment (QFD) for implementing the Balanced

Scorecard in an individual organization is presented.

Malcolm Baldrige National Quality Award (MBNQA)(1987-2008)

European Foundation for Quality Management (EFQM) (1988-2008)

Balanced Scorecard (BSC) (1992, 1996, 2001)

Strategic frameworks for performance management

MBNQA

Strategic planning

Customer focus

Process management

Business results

Human resources

Leadership

Measurement, analysis, and knowledge management

profile

EFQM

People

management

Partners &resources

impact on society

People satisfaction

leadership policy & strategy

Customer satisfaction

Processes Business results

Enables Results

BSC

Learning Internal

processes Customer Financial

Comparison between organizational performance management frameworks

Otley (1999) suggested several topics that have to be

considered in the development of an organizational

performance management framework:(1) High level objectives

(2) Long term programs

(3) Processes

(4) Targets and performance measures

(5) Feedback

High level objectives

The MBNQA excellence model

Multiple criteria based on TQM principles: - leadership - strategic planning - customer focus (leadership triangle) - human resources - process management - business results (results triangle) - measurement, analysis, and knowledge management

The EFQM excellence model

Multiple criteria based on TQM principles: - leadership - people management - policy and strategy - resources - processes (enables) - people satisfaction - customer satisfaction - impact on society - business results (results)

The Balanced Scorecard

Multiple perspectives

of the strategy: - learning - internal processes - customer - financial sequential objectives

Long term programs

The MBNQA excellence model

No answer, but the relative weights of the criteria and the sub criteria can outline mode of action.

The EFQM excellence model

No answer, but the relative weights of the criteria and the sub criteria can outline mode of action.

The Balanced Scorecard

Utilizing a strategy map

Processes

The MBNQA excellence model

- One of the criteria. - The processes are part of the results triangle.

The EFQM excellence model

- One of the criteria. - The processes are part of the enables.

The Balanced Scorecard

- One of the perspectives.

Targets and performance measures

The MBNQA excellence model

- Not specific. - Acceptable levels could be determined.

The EFQM excellence model

- Not specific. - Acceptable levels could be determined.

The Balanced Scorecard

- It is required to define targets and acceptable levels to the measures. - There is no method for setting targets.

Feedback

The MBNQA excellence model

- The model itself provides feedback as an outcome of the evaluation method. - There is no attitude to the lag time.

The EFQM excellence model

- The model itself provides feedback as an outcome of the evaluation method. - There is no attitude to the lag time.

The Balanced Scorecard

- Two levels of feedback: operational level and strategic level - The financial perspective provides feedback to the customer perspective as well as to the processes. - There is no attitude to the lag time.

The balanced scorecard advantages

Sequential objectives

Capacity to support long-term programs

Potential to select relevant performance

measures based on real data

Two levels of feedback

The balanced scorecard limitations

Focusing on learning as the only source for causality

No basic guidelines for selecting performance measures

No method for setting targets to measures

Complex feedback from the financial perspective to the

customer perspective and to the process perspective

Lack of lag time consideration between causes and its effects

QFD To improve the implementation of the balanced scorecard

The QFD helps to overcome the two of the limitations:

(1) No basic guidelines for selecting performance measures

(2) Complex feedback from the financial perspective to the

customer perspective and to the process perspective

Quality Function Deployment (QFD)

Product quality design methodology.

The QFD technique was developed in 1972 at

Mitsubishi and during the 80's and the 90’s

has been gradually and successfully adopted

by U.S. and Japanese firms.

Quality Function Deployment (QFD)

Extract the customers' needs or desires and

translate them into demands on technical

product characteristics, engineering

parameters and ultimately into production

systems.

QFD Modeling Approach

Balanced Scorecard Construction Map

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3

Quality and service performances Internal Processes

MATRIX 2

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3

Quality and service performances Internal Processes

MATRIX 2

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3 MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3 MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3 MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4 MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5

MATRIX 3 MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4 MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Learning type/level Induced Operational Conceptual

Relative weightCustomer Perspective

Relative weight Internal Perspective

MATRIX 5 MATRIX 5

MATRIX 3 MATRIX 3

Quality and service performances Internal Processes

Product and service technical performances

Input from customers Product quality & service

Time/cost performancesInternal Processes

MATRIX 4 MATRIX 4

Inputfrom team

MATRIX 1 MATRIX 1

Customer perspectiveCustomer types and benefits

Internal perspective Efficiency

Input from management Revenue Growth Productivity

Relative weightsCustomer Types

Relative weightInternal Perspective

MATRIX 2 MATRIX 2

Induced Learning

Induced learning is training at the individual

level and developing/enhancing Information

Systems/Technology.

Operational & Conceptual Learning

Operational learning and conceptual learning

are viewed here as combinations of

organizational structures and improvement

tools.

Both operational learning and conceptual

learning involve teams.

Operational Learning

Operational learning as being achieved by

means of local teams using rather basic tools

such as the seven basic graphical tools or

SPC.

Conceptual Learning

Conceptual learning has a wider scope and as

such has to rely on cross functional teams

applying more sophisticated tools such as

enhanced QFD and advanced statistical tools

such as Design of Experiments (DOE).

Illustrative Example Illustrative Example

Cross Functional Team

Finance Market oriented Information systems Human resource members Industrial engineers R&D representatives

Benefits

Customer Perspective

Internal Perspective

Retailers:Service

performance

Users:Product

performance

Managers:Efficiency

Revenue Growth2515

Productivity--53

Importance 10252055

Normalized Importance0.200.450.351

Imp

orta

nce

Matrix 1 - Deployment of the financial perspectiveMatrix 1 - Deployment of the financial perspective

Matrix 2 – The House of Quality in simplified form Matrix 2 – The House of Quality in simplified form

Product and service technical performances

Product characteristics(Quality)

Service characteristics

)Time()Flexibility(

variation of Solids

%

Calciumcontent

Fat %

Additives

Life length

Deliverytime

Packagesize variety

Ordermodific

ation

Nutritious431.21.6

Not fatty5251.53.8

Fresh5210.9

Delectable34541.52.7

Consistency 4151.53.8

HandlingCost

43410.8

Cost of Stock

5451.51.5

LowRisk

1451.51.5

Importance 247302658515120

Normalized Importance 0.200.060.250.220.040.070.040.121

Cu

stom

er P

ersp

ecti

ve

Use

rs (

0.45

)

Pro

du

ct p

erfo

rman

ce

Ret

aile

rs (

0.20

)

S

ervi

ce p

erfo

rman

ce

Imp

orta

nce

Sal

es P

oin

t

Wei

ghte

d I

mp

orta

nce

Matrix 3 – Deployment of product/service technical characteristicsMatrix 3 – Deployment of product/service technical characteristics

Quality/ service performances of Internal Processes

Design Quality

Process QualityProcessTime

Response

Userreviews(rank)

Range of packaging

size

Process capability

(Scrap rate)

Quality assurance

effort

Manufacturing & transfer

FailuresSupplier lead time

Information /Com

Versatility(Human)

Set up

Ordermodification

1115540.12

Packagesize variety

50.04

Deliverytime

5443330.07

Life length3332310.04

Additives5320.22

Fat% 40.25

Calciumcontent

30.06

Variation of % Solids

4530.20

Importance 3.20.201.781.160.550.520.400.810.810.7310.2

Normalized Importance (NI)

0.310.020.180.110.060.050.040.080.080.071

0.65 *NI 0.200.010.120.070.040.030.030.050.050.050.65

Imp

orta

nce

Fle

xib

ilit

yT

ime

Qu

alit

y

Pro

duct

an

d se

rvic

e te

chn

ical

per

form

ance

s

Matrix 4 – Deployment of internal efficiency Matrix 4 – Deployment of internal efficiency

Time/cost performances of Internal Processes

Process CostProcess TimeResponse

Manufacturing & transport

Waste WI P

Manufacturing &

transport

Failures

Supplier lead time

Information /Com

Versatility(Human)

Set up

Flexibility5555

Production (rate)

234334445

Asset utilization

234424444

Cost per unit

5535321223

Importance 51213181410232424143

Normalized Importance (NI)

0.030.080.090.130.100.080.160.170.171

0.35 *NI 0.010.030.030.040.030.030.060.060.060.35

Eff

icie

ncy

(0.

35)

Imp

orta

nce

Learning Induced

KnowledgeOperational Knowledge

(Local Teams)

Conceptual Knowledge

(Cross Functional Teams)

Training Informationcapability

Basicseven tools

SPCQFD(Enhanced)

DOE

Set up 440.11

Versatility (Human)53220.11

Information /Com54230.11

Supplier lead time230.06

Failures

414220.06

Manufacturing & transport20.08

WIP40.03

Waste34330.03

Manufacturing & transport10.01

Quality assurance effort5244430.07

Process capability(Scrap rate)

22550.12

Range of packaging size50.01

User reviews(rank)

550.20

Importance 1.471.152.281.311.882.6810.8

Normalized Importance0.140.110.210.120.170.251

Structure Importance 0.250.330.421

Matrix 5 – Deployment of internal process performances Matrix 5 – Deployment of internal process performances In

tern

al P

roce

sses

R

esp

onse

Pro

cess

T

ime

Pro

cess

C

ost

Pro

cess

Q

ual

ity

Des

ign

Q

ual

ity

Imp

orta

nce

Conclusions

It is shown that among the three frameworks the balanced scorecard has important advantages. Hence, it is selected here as a 'fundamental' strategic framework of an individual organization.

However, the balanced scorecard has some essential limitations.

To improve the implementation of the balanced

scorecard in an individual organization a structured methodological approach based on the Quality Function Deployment (QFD) is presented.

Conclusions

The QFD matrices ensure that every financial performance defined by the enterprise strategy is linked to a set of performance measures in the relevant domains that may eventually influence its future results.

Through QFD, priorities for improving performance measures in each of the three other domains are determined.

Conclusions

The QFD matrices warrant that proposed learning actions are consistent with eventual financial results.

The QFD systematic approach assists in organizing the balanced scorecard thus promoting continuous improvement for achieving strategic goals.

Reference

Dror, S. The Balance Scorecard versus Quality Award Models as Strategic frameworks, Total Quality Management and Business Excellence, 19, 6: 583-593, 2008.

Dror, S. and Barad, M. Utilizing Quality Function Deployment to Construct a Balanced Scorecard Map, In Proceedings of the Performance Measurement and Management Conference, Boston, USA, 165-172, 2002.

E N D