Chapter 8 – Measuring and Controlling Quality

 Measurement is the act of collecting data to quantify the values of product, service, process, and other
business metrics. Measures and indicators refer to the numerical results obtained from measurement.
Many organizations use the acronym SMART to characterize good measures and indicators: simple,
measurable, actionable, related (to customer requirements and to each other), and timely.
 A unit of work is the output of a process or an individual process step. A nonconformance is any defect
or error associated with a unit of work. In manufacturing we often use the term defect, and in service
applications, we generally use the term error to describe a nonconformance. A nonconforming unit of
work is one that has one or more nonconformances.
 An attribute measurement characterizes the presence or absence of nonconformances in a unit of work,
or the number of nonconformances in a unit of work. Attribute measurements often are collected by visual
inspection and expressed as proportions and counts. Variable measurements apply to dimensional
quantities such as length, weight, and time, or any value on a continuous scale of measurement.
 Throughput yield (TY) is the number of units that have no nonconformances. Rolled throughput yield
(RTY) is the proportion of conforming units that results from a series of process steps.
 Defects per million opportunities (dpmo) = (Number of defects discovered)/opportunities for error ×
1,000,000. In services, the term often used as an analogy to dpmo is errors per million opportunities
(epmo).
 The cost of quality (COQ) is a way to translate quality problems into the language of upper management-
-money. Through the use of quality cost information, management identifies opportunities for quality
improvement. Quality cost information also aids in budgeting and cost control and serves as a scoreboard
to evaluate an organization’s success.
 Quality costs generally are categorized into prevention, appraisal, internal failure, and external failure
costs. In manufacturing, such costs are typically product-oriented, while in services they are labor
dependent.
 Metrology--the science of measurement – is defined broadly as the collection of people, equipment,
facilities, methods, and procedures used to assure the correctness or adequacy of measurements, and is a
vital part of global competitiveness.
 Accuracy is defined as the closeness of agreement between an observed value and an accepted reference
value or standard. Precision is defined as the closeness of agreement between randomly selected
individual measurements or results.
 Calibration is the process of verifying the capability and performance of an item of measuring and test
equipment compared to traceable measurement standards. Measurements made using uncalibrated or
 inadequately calibrated equipment can lead to erroneous and costly decisions. Many government
regulations and commercial contracts require regulated organizations or contractors to verify that the
measurements they make are traceable to a reference standard.
 Repeatability, or equipment variation, is the variation in multiple measurements by an individual using
the same instrument. Reproducibility, or operator variation, is the variation in the same measuring
instrument when it is used by different individuals to measure the same parts, and indicates how robust
the measuring process is to the operator and environmental conditions. Repeatability and reproducibility
require a study of variation and can be addressed through statistical analysis.
 A repeatability and reproducibility (R&R) study is a study of variation in a measurement system using
statistical analysis.
 Process capability is the range over which the natural variation of a process occurs as determined by the
system of common causes; that is, what the process can achieve under stable conditions. The relationship
between the natural variation and specifications is often quantified by a measure known as the process
capability index, Cp.
 A process capability study is a carefully planned study designed to yield specific information about the
performance of a process under specified operating conditions. Three types of studies are a peak
performance study, process characterization study, and component variability study.
 Pre-control is a technique for monitoring process capability over time. It is particularly suited to
machining applications, but should only be used when process capability is rather good.
 Statistical process control (SPC) is a methodology for monitoring a process to identify special causes of
variation and signal the need to take corrective action when appropriate. When special causes are present,
the process is deemed to be out of control. If the variation in the process is due to common causes alone,
the process is said to be in statistical control. Histograms alone do not allow you to distinguish between
common and special causes of variation.
 A control chart is simply a run chart to which two horizontal lines, called control limits are added: the
upper control limit (UCL) and lower control limit (LCL). The process for constructing and using a
control chart includes preparation, data collection, determination of trial control limits, analysis and
interpretation, estimation of process capability using the control chart data, and use a problem-solving
tool.
 A process is in control if no points are outside control limits; the number of points above and below the
center line is about the same; the points seem to fall randomly above and below the center line; and most
points (but not all) are near the center line, with only a few close to the control limits.
 Typical out-of-control conditions are represented by sudden shifts in the mean value, cycles, trends,
hugging of the center line, hugging of the control limits, and instability.
 Control charts for variables data include: x- and R-charts;x - and s-charts; and individual and
moving range charts. x - and s-charts are alternatives tox – and R-charts for larger sample sizes. The
sample standard deviation provides a better indication of process variability than the range. Individuals
charts are useful when every item can be inspected and when a long lead time exists for producing an
item. Moving ranges are used to measure the variability in individuals charts.
 Charts for attributes include p-, np-, c- and u-charts. The np-chart is an alternative to the p-chart, and
controls the number nonconforming for attributes data. Charts for defects include the c-chart and u-chart.
The c-chart is used for constant sample size and the u-chart is used for variable sample size.
 In designing control charts, one must be concerned with how the sample data are taken, the sample size,
the sampling frequency, and the location of the control limits. These factors influence the amount of useful
information obtained from the charts, the ability to detect process changes, the potential for error, and the
cost of application.
 ISO 9000:2000 places increase emphasis on the use of statistical methods. A new ISO standard, 11462-1,
has been designed to provide guidance for organizations wishing to use SPC to meet these requirements.
Chapter 9 – Process Improvement and Six Sigma
 A process is a sequence of linked activities that is intended to achieve some result, such as producing a
good or service for a customer within or outside the organization. Generally, processes involve
combinations of people, machines, tools, techniques, materials, and improvements in a defined series of
steps or actions.
 Breakthrough is the accomplishment of any improvement that takes an organization to unprecedented
levels of performance. Breakthrough attacks common causes of variation. Six Sigma projects often focus
on breakthrough improvements that add value to the organization and its customers through systematic
approaches to problem solving.
 Structured improvement methodologies typically consist of four steps: redefining and analyzing a problem,
generating ideas, evaluating and selecting ideas, and implementing ideas. Common approaches are the
Deming cycle, creative problem solving, Six Sigma DMAIC, TRIZ, custom improvement methodologies,
and many others.
 The Deming cycle, or PDSA cycle, consists of four steps: Plan, Do, Study, Act. Many organizations use
the Deming cycle as the basis for their organizational performance improvement activities.
 Solving quality problems often involves a high amount of creativity. Creativity is seeing things in new or
novel ways. The creative problem solving process consists of understanding the “mess,” finding facts,
identifying specific problems, generating ideas, developing solutions, and implementing solutions
 The principal problem solving methodology used by Six Sigma is DMAIC—define, measure, analyze,
improve, and control. The Define stage identifies the problem. The Measure stage includes collecting good
data, observation, and careful listening. The Analyze phase of DMAIC focuses on why defects, errors, or
excessive variation occur, and focuses on root cause. The Improve stage focuses on idea generation,
evaluation, and selection. Finally, the Control stage focuses on how to maintain the improvements.
 Six Sigma can be described as a business improvement approach that seeks to find and eliminate causes of
defects and errors in manufacturing and service processes by focusing on outputs that are critical to
customers and a clear financial return for the organization. The term six sigma is based on a statistical
measure that equates to 3.4 or fewer errors or defects per million opportunities.
 Some of the contrasting features between TQM and Six Sigma include: TQM is based largely on worker
empowerment and teams; Six Sigma is owned by business leader champions. TQM activities generally
occur within a function, process, or individual workplace; Six Sigma projects are truly cross-functional.
TQM training is generally limited to simple improvement tools and concepts; Six Sigma focuses on a more
rigorous and advanced set of statistical methods and DMAIC methodology. TQM is focused on
improvement with little financial accountability; Six Sigma requires a verifiable return on investment and
focus on the bottom line.
 A six sigma quality level corresponds to a process variation equal to half of the design tolerance while
allowing the mean to shift as much as 1.5 standard deviations from the target. A k-sigma quality level
satisfies the equation: k × process standard deviation = tolerance range/2
 The following Excel formula can be used to calculate dpmo corresponding to the sigma level: = (1 –
NORM.DIST(sigma level, 1.5, 1, TRUE))* 1000000 The sigma level can be calculated on a spreadsheet
using the Excel formula =NORM.S.INV(1 - dpmo/1,000,000) + 1.5.
 A problem is a deviation between what should be happening and what actually is happening that is
important enough to make someone think the deviation ought to be corrected. Quality related problems
often fall into five categories: conformance problems, unstructured performance problems, efficiency
problems, product design problems, and process design problems.
 Projects are the vehicles that are used to organize team efforts and to implement the DMAIC process. Being
able to manage a large portfolio of projects, as would be found in Six Sigma environments, is vital to
organizational success.
 Project teams are a vital part of Six Sigma efforts and are comprised of champions, master black belts, black
belts, green belts, other team members, who each provide different levels of knowledge and expertise in
solving problems.
 Factors that should be considered when selecting Six Sigma projects are: financial return, as measured by
costs associated with quality and process performance, and impacts on revenues and market share, impacts
on customers and organizational effectiveness, probability of success, impact on employees, and fit to
strategy and competitive advantage.
 Most of the tools used in DMAIC have been around for a long time. They include elementary statistical
tools, advanced statistical tools, product design and reliability, measurement, process control, process
improvement, and implementation and teamwork.
 The Seven QC Tools for quality improvement are flowcharts, run charts and control charts, check sheets,
histograms, Pareto diagrams, cause-and-effect diagrams, and scatter diagrams. These tools support quality
improvement processes and problem-solving efforts.
 Toyota created a unique tool, called the A3 Report, to succinctly consolidate and visualize information for
identifying and solving quality problems. They exploit simplicity and visualization to facilitate process
improvement.
 The process of drilling down to a more specific problem statement is sometimes called project scoping.
 A Pareto distribution is one in which the characteristics observed are ordered from largest frequency to
smallest. A Pareto diagram is a histogram of the data from the largest frequency to the smallest. Pareto
diagrams help analysts to progressively focus in on the most appropriate problems.
 One type of high-level process map is called a SIPOC diagram. SIPOC stands for Suppliers-Inputs-
Process-Outputs-Customers. SIPOC maps provide a broad overview of the key elements in the process and
help to explain who is the process owner, how inputs are acquired, who the process serves, and how it adds
value. In defining a problem, it is important to have a fundamental understanding of the process that drives
the results.
 A project charter defines the project, its objectives, and deliverables, and represents a contract between
the project team and the sponsor. A project charter will typically define the problem in a simple fashion,
the project objective, the project team and sponsor, the customers and CTQs on which the project focuses,
existing measures and performance benchmarks, expected benefits and financial justification, a project
timeline, and the resources needed to carry out the project.
 In the Measure stage, Six Sigma uses the notion of a function in mathematics to portray the relationship
between process performance and customer value: Y = f(X), where Y is the set of CTQs and X represents
the set of critical input variables that influence Y. A CTQ tree structure might be used “drill down” from
Y to identify the critical X-factors. Understanding these relationships helps in defining the experiments that
need to be conducted to confirm how input variables affect response variable and sets the stage for the
Control phase by defining those factors that requiring monitoring and control.
 Data sheets are simple columnar or tabular forms used to record data. Check sheets are special types of
data collection forms in which the results may be interpreted on the form directly without additional
processing. They are often used to set up the measure phase of DMAIC.
 A special type of process map, typically used in the DMAIC analyze phase, is a value stream map. The
value stream refers to all activities involved in designing, producing, and delivering goods and services to
customers. The value stream map allows one to measure the impact of value-added and non-value-added
activities on the total lead time of the process, and compare this to the takt time—which is the ratio of the
available work time to the required production volume necessary to meet customer demand. If the value
stream is faster than the takt time, it generally means that waste in the form of overproduction is occurring;
when it is less, the firm cannot meet customer demand.
 A root cause is “that condition (or interrelated set of conditions) having allowed or caused a defect to occur,
which once corrected properly, permanently prevents recurrence of the defect in the same, or subsequent,
product or service generated by the process.” Root causes must be analyzed during the analysis phase for
improvement to take place. Root cause analysis is an approach using statistical, quantitative, or qualitative
tools to identify and understand the root cause.
 A cause-and-effect diagram is a simple, graphical method for presenting a chain of causes and effects and
for sorting out causes and organizing relationships between variables.
 Scatter diagrams are the graphical component of regression analysis. While they do not provide rigorous
statistical analysis, they often point to important relationships between variables.
 Brainstorming, a useful group problem-solving procedure for generating ideas and has been described as
useful “for the sole purpose of producing checklists of ideas” that can be used in developing a solution to a
problem. Thus it is a valuable tool during the improve stage of the DMAIC process.
 Lean production refers to approaches that originated at the Ford Motor Company in the early 1900s, but
which were refined and modernized by the Toyota Motor Corporation later in the century. Lean approaches
focus on the elimination of waste in all forms, including defects requiring rework, unnecessary processing
steps, unnecessary movement of materials or people, waiting time, excess inventory, and overproduction.
A simple way of defining it is “getting more done with less.” Some of the key tools used in lean production
are the 5S’s – seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain);
visual controls; efficient layout and standardized work; pull production; single minute exchange of dies
(SMED); total productive maintenance; source inspection; and continuous improvement.
 In service contexts, lean production is often called lean enterprise.
 The tools and approaches used in Six Sigma and lean production are different, yet complementary. Lean is
focused on efficiency by reducing waste and improving process flow while Six Sigma is focused on
effectiveness by reducing errors and defects. Lean Six Sigma can be defined as an integrated improvement
approach to improve goods and services and operations efficiency by reducing defects, variation and waste.
Lean Six Sigma has gained considerable favor among practitioners in many organizations.
 Although Six Sigma was developed in the manufacturing sector, it can easily be applied to a wide variety
of transactional, administrative, and service areas. Services are generally driven by four key measures of
performance:
o Accuracy, as measured by correct financial figures, completeness of information, or freedom from data
errors
o Cycle time, which is a measure of how long it takes to do something, such as pay an invoice
o Cost, that is, the internal cost of process activities (in many cases, cost is largely determined by the accuracy
and/or cycle time of the process; the longer it takes, and the more mistakes that have to be fixed, the higher
the cost)
o Customer satisfaction, which is typically the primary measure of success. Therefore, differences between
services and manufacturing make opportunities in services more difficult to identify, and projects more
difficult to define. Small organizations (including manufacturing and services) can use Six Sigma, although
perhaps in a more informal fashion.
Chapter 10 – The Baldrige Framework for Performance Excellence
 The Malcolm Baldrige National Quality Improvement Act was signed into law (Public Law 100-107) on
August 20, 1987. The focus of the program was defined as:
o Helping to stimulate American companies to improve quality and productivity for the pride of
recognition while obtaining a competitive edge through increased profits;
o Recognizing the achievements of those companies that improve the quality of their goods and
services and providing an example to others;
o Establishing guidelines and criteria that can be used by business, industrial, governmental, and
other enterprises in evaluating their own quality improvement efforts; and
o Providing specific guidance for other American enterprises that wish to learn how to manage for
high quality by making available detailed information on how winning enterprises were able to
change their cultures and achieve eminence.
 In 2010, via an act of Congress, the Program changed its name to the Baldrige Performance Excellence
Program, dropping the term “quality” to signify its broader mission: to improve the competitiveness and
performance of U.S. organizations, rather than improvement of quality, which many people associate
primarily with goods and services. The award’s name also changed to simply the Malcolm Baldrige
Award.
 The Malcolm Baldrige Award recognizes U.S. companies that excel in performance excellence practices
and results that achieve the highest levels of customer and stakeholder satisfaction. The seven Baldrige
Award criteria define key practices in categories of: leadership; strategic planning; customer focus;
workforce focus; measurement, analysis and knowledge management; operations focus; and results.
 The award examination is based upon a rigorous set of criteria, called the Criteria for Performance
Excellence, designed to encourage companies to enhance their competitiveness through an aligned
approach to organizational performance management
 The Core Values and Concepts provide a set of key principles that characterize a culture of performance
excellence. They are:
o Visionary Leadership o Managing for Innovation
o Customer-Driven Excellence o Management by Fact
o Organizational and Personal Learning o Societal Responsibility
o Valuing Workforce Members and Partners o Focus on Results and Creating Value
o Agility o Systems Perspective
o Focus on the Future
  The Baldrige criteria continue to evolve to ensure that they reflect current business and organizational
practices that facilitate performance excellence. A key focus today is on (organizational)
sustainability – which refers to an organization’s ability to address current business needs and to
have the agility and strategic management to prepare successfully for the future, and to prepare for
real-time or short-term emergencies.
 In the Baldrige Award process, each item in categories 1-6 of the Criteria is evaluated on four factors:
approach, deployment, learning, and integration. Approach refers to the methods used to accomplish
the process, the appropriateness of the methods to the item requirements and the organization’s
operating environment, the effectiveness of the use of the methods, and the degree to which the
approach is repeatable and based on reliable data and information (i.e., systematic). Deployment refers
to the extent to which the approach is applied in addressing item requirements relevant and important to
the organization, the approach is applied consistently, and the approach is used (executed) by all
appropriate work units. Learning refers to refining the approach through cycles of evaluation and
improvement, encouraging breakthrough change to the approach through innovation, and sharing
refinements and innovations with other relevant work units and processes in the organization.
Integration refers to the extent to which the approach is aligned with organizational needs identified in
the Organizational Profile and other process items; measures, information, and improvement systems
are complementary across processes and work units; and plans, processes, results, analyses, learning,
and actions are harmonized across processes.
 Category 7 addresses results. Results refers to an organization’s outputs and outcomes. The factors
used to evaluate results include current performance levels; the rate and breadth of performance
improvements; performance relative to appropriate comparisons and benchmarks; and the extent to
which results measures address important customer, product, market, process, and action plan
performance requirements; include valid indicators of future performance; and are harmonized across
process and work units to support organization-wide goals.
 Characteristics that distinguish Baldrige recipients from other organizations include achievement in
results, entrepreneurism and innovation, agility, governance and leadership metrics, and effective work
systems and work processes.
 Many organizations use the Baldrige Criteria for self-assessment or internal recognition programs, even
if they do not intend to apply for the award. The benefits of using the criteria for self-assessment
include accelerating improvement efforts, energizing employees, and learning from feedback—
particularly if external examiners are involved.
 The Baldrige Award has had a significant economic impact, and has generated a phenomenal amount of
interest, and many companies use its criteria as a basis for internal assessment of their quality systems.
A study of the social impacts of Baldrige, done in 2011, concluded that the benefit-to-cost ratio for the
group of surveyed applicants was 820 to 1. Importantly, the program changed the way in which many
organizations around the world manage their operations, and helped significantly to bring the principles
of TQ into the daily culture of these organizations.
 Although Deming was not a supporter of the Baldrige Award, many of Deming’s principles are
reflected directly or in spirit within the criteria. In fact, Zytec (now a part of Artesyn Technologies),
which implemented its total quality system around Deming’s 14 Points, received a Baldrige Award.
 Many international award programs are patterned after or are similar to the Baldrige Award, such as the
European Quality Award, Canadian Awards for Business Excellence, and the Australian Business
Excellence Award, and many states in the U.S. have similar programs.
 In comparing Baldrige, ISO 9000, and Six Sigma, Baldrige focuses on performance excellence for the
entire organization in an overall management framework, identifying and tracking important
organizational results; ISO focuses on product and service conformity for guaranteeing equity in the
marketplace and concentrates on fixing quality system problems and product and service
nonconformities; and Six Sigma focuses on measuring product quality and driving process
improvement and cost savings throughout the organization.
 Many organizations have successfully blended ISO 9000, Six Sigma, and/or Baldrige in their practices.
Honeywell Federal Manufacturing & Technologies uses the analogy of taking a journey to performance
excellence. ISO 9000 is the driver’s license; it provides the discipline and the rules to follow. Six
Sigma is the car; the tool that gets you to your destination. Baldrige is the roadmap.
Chapter 11 – Strategy and Performance Excellence

 Strategy is the pattern of decisions that determines and reveals a company’s goals, policies, and plans to meet the
needs of its stakeholders. Strategic planning is the process of envisioning the organization’s future and developing
the necessary goals, objectives, and action plans to achieve that future.
 An effective strategic planning process should incorporate the short- and longer-term factors that affect the
organization and its marketplace, such as customers’ expectations, new business and partnering opportunities,
workforce development and hiring needs, the increasingly global marketplace, technological developments, the
evolving e-business environment, changes in customer and market segments, evolving regulatory requirements,
changes in community and societal expectations and needs, and strategic moves by competitors.
 The goal of strategy development is envisioning the future for purposes of decision making and resource allocation.
Effective strategy development requires a systematic process that involves participation by all necessary
stakeholders, ensures that relevant and important data and information are captured and analyzed, addresses both
short- and long-term time horizons, addresses key strategic challenges, and leads to innovation and sustainability.
 Strategy development begins with determining the organization’s mission, vision, and values (guiding principles). The
mission of a firm defines its reason for existence; it answers the question “Why are we in business?” The vision
describes where the organization is headed and what it intends to be; it is a statement of the future that would not
happen by itself. Values, or guiding principles, guide the journey to a vision by defining attitudes and policies for all
employees, which are reinforced through conscious and subconscious behavior at all levels of the organization.
 A fact-based environmental assessment is needed to support strategy development. This should
include the organization’s strengths, weaknesses, opportunities, and threats (SWOT); early indications
of major shifts in technology, markets, customer preferences, competition, or the regulatory
environment; long-term organizational sustainability; and the ability to execute the strategic plan.
 The Baldrige Organizational Profile addresses the basic characteristics of the organization, organizational
relationships, the competitive environment, the advantages an organization has and the challenges that it faces, and
its approach to performance improvement. The Organizational Profile provides a frame of reference to help an
organization better understand the internal and external factors that shape its operating environment.
 The term strategic challenges refers to those pressures that exert a decisive influence on an organization’s likelihood
of future success. Strategic challenges frequently are driven by an organization’s future competitive position relative
to other providers of similar products or services.

 Strategic planning results in strategies, strategic objectives, and action plans that set the direction for
achieving the mission. Strategies are broad statements that set the direction for the organization to take
in realizing its mission and vision. Strategic objectives are what an organization must change or
improve to remain or become competitive. Action plans are things that an organization must do to
achieve its strategic objectives.
 Strategy deployment refers to developing detailed action plans, defining resource requirements and performance
measures, and aligning work unit, supplier, and/or partner plans with overall strategic objectives. Deploying strategy
effectively is often done through a process called hoshin kanri. Hoshin kanri, or policy deployment, emphasizes
 organization-wide planning and setting of priorities, providing resources to meet objectives, and measuring
performance as a basis for improving it. It is essentially a total quality approach to executing a strategy.
 Whenever an organization seeks to do something different, people are invariably impacted. Strategic
objectives and action plans often require significant changes in human resource requirements, such as
redesigning the work organization or jobs to increase employee empowerment and decision making,
promoting greater labor/management cooperation, modifying compensation and recognition systems, or
developing new education and training initiatives.
 The Seven Management and Planning Tools help managers to implement policy deployment and are useful in other
areas of quality planning. These tools are the affinity diagram, interrelationship digraph, tree diagram, matrix
diagram, matrix data analysis, process decision program chart, and arrow diagram.
 The effectiveness of an organization depends in part on its organizational structure—the clarification of authority,
responsibility, reporting lines, and performance standards among individuals at each level of the organization.
Common organizational structures are the line, line and staff, and matrix organization. Organizational structure for
quality must reflect individual company differences and provide the flexibility and ability to change. Companies must
understand that processes, rather than hierarchical reporting relationships, drive quality within the organization.
 The term work systems refers to how the work of an organization is accomplished. Work systems
involve the workforce, key suppliers and partners, contractors, collaborators, and other components of
the supply chain needed to produce and deliver products, services, and business and support processes.
 Core competencies refers to an organizations areas of greatest expertise that provide an a sustainable competitive
advantage in the marketplace or service environment.
 Outsourcing refers to the practice of transferring the operations of a business function to an outside supplier. The
opposite of outsourcing is vertical integration, by which certain business functions are acquired and consolidated
within a firm. The decision to outsource or vertically integrate should be strategically driven.
Chapter 12 – Measurement and Knowledge Management for Performance Excellence
 Organizations need performance measures to drive strategies and organizational change, to manage
resources, and to operate processes effectively and continuously improve. Data and information support
control, diagnosis, and planning. Benefits include better knowledge of product and service quality, worker
feedback, a basis for reward and recognition, means of assessing progress, and reduced costs through better
planning.
 The balanced scorecard consists of four perspectives: financial, internal, customer, and innovation and
learning perspectives. A good balanced scorecard contains both leading and lagging measures and links
them through logical cause-and-effect relationships.
 The Baldrige criteria provides a slightly different view of a balanced scorecard, and focuses on five
categories of performance results:
1. Product and process outcomes
2. Customer-focused outcomes
3. Workforce-focused outcomes
4. Leadership and governance outcomes
5. Financial and market outcomes
 Although many specific measures and indicators can be defined in each category, the ones an organization
chooses should be tied to those factors that make it competitive in its industry.
 The purposes of a performance measurement system include providing a perspective of the past, present,
and future; identifying trends and progress; facilitating understanding of cause-and-effect relationships;
providing direction and support for continuous improvement; and allowing performance comparison to
benchmarks.
 Many organizations make two fundamental mistakes: (1) not measuring key characteristics critical to
company performance or customer behavior, and (2) taking irrelevant or inappropriate measurements.
Leading organizations select appropriate measures and indicators using well-defined criteria.
 Performance measures and indicators are typically used by senior leaders for high-level performance
reviews, and should be aligned with an organization’s vision and strategy. Effective performance measures
that are aligned with business strategy should be driven by internal and external factors that shape an
organization’s operating environment.
 Strategic and process measures should be aligned in order to drive strategic goals through the organization.
ERP – Enterprise Resource Planning – systems provide an infrastructure for managing information across
the enterprise.
 Analysis refers to an examination of facts and data to provide a basis for effective decisions. Effective
analysis capabilities ensure that managers can understand the meaning of data, particularly cause and effect
linkages between external lagging results and internal leading indicators. Simple or sophisticated tools may
be used effectively to analyze data and provide information for managers. As one moves up the
organization, information needs to be transformed and integrated into forms that are meaningful to different
levels of managers. One powerful method of analysis is interlinking – the quantitative modeling of cause-
and-effect relationships between external and internal performance measures. Data mining also provides a
means of understanding relationships and patterns in data.
 Comparative data refer to industry averages, competitor performance, world-class benchmarks, or
performance measures of other organizations with similar product offerings. Comparative data are needed
because an organization needs to know where it stands relative to competitors and to best practices;
comparative information and information obtained from benchmarking often provide the impetus for
significant (“breakthrough”) improvement or change; and comparing performance information frequently
leads to a better understanding of processes and their performance.
 The analysis of data provides the foundation for management review. Managers review performance results
to assess organizational success and performance relative to competitors, to understand how well progress
on strategic objectives and action plans is being achieved, and to identify priorities for improvement and
opportunities for innovation for products, services, and processes.
 The quality of information can be improved by capturing data only once, and as close to the origin of the
data as possible; eliminating human error by capturing data electronically where possible; using a single
database whenever feasible; eliminating all unnecessary handling of data by intermediaries, such as data
entry clerks; placing accountability on the creators of data and information; ensuring proper training; and
defining targets and measures of data quality.
 Knowledge assets refers to the accumulated intellectual resources that an organization possesses. Explicit
knowledge includes information that is stored in documents or other forms of media. Tacit knowledge is
information that is formed around intangible factors resulting from an individual’s experience, and is
personal and content-specific. Knowledge management is the process of identifying, capturing,
organizing, and using knowledge assets to create and sustain competitive advantage.
 The ability to identify and transfer best practices within the organization is sometimes called internal
benchmarking. Internal benchmarking requires identifying and collecting internal knowledge and best
practices; sharing and understanding those practices; and adapting and applying them to new situations and
bringing them up to best practice performance levels. Rapid knowledge transfer (RKT) involves the
discovery, learning, creation and reuse of knowledge that eventually becomes intellectual capital—
knowledge that can be converted into value and profits.
 A growing reservoir of proven, valuable and profitable best-practice business knowledge (an aspect of
RKT) is currently available for transfer, and most of it is free. The worldwide quality and productivity
improvement revolution has produced business excellence models that replicate successes, including the
Baldrige criteria, the EFQM European Award, the Shingo Prize for Excellence in Manufacturing, ISO 9000,
Lean, and Six Sigma.
Chapter 13 – Leadership for Performance Excellence

 Leadership is the ability to positively influence people and systems under one’s authority to have a meaningful
impact and achieve important results. Leaders create clear and visible quality values and integrate these into
the organization’s strategy.
 Six key leadership competencies are: navigator, communicator, mentor, learner, builder, and motivator. These
competencies depend on a collection of personal leadership characteristics: accountability, courage, humility,
integrity, creativity, perseverance, and well-being. They are reflected in the Leadership category of the
Baldrige criteria.
 Strategic leadership is defined as “a person’s ability to anticipate, envision, maintain flexibility, think
strategically, and work with others to initiate changes that will create a viable future for the organization, and
its competitive advantage to the organization in this way.”
 The leadership system refers to how leadership is exercised throughout a company, including how key
decisions are made, communicated, and carried out at all levels; mechanisms for leadership
development; and guidance regarding behaviors and practices. An effective leadership system creates
clear values, and sets high expectations for performance and performance improvements, builds
loyalties and teamwork, encourages initiative and risk taking, and subordinates organization to purpose
and function.
 Leadership has been studied from many different perspectives. Some of the contemporary and emerging
theories include attributional, transactional (charismatic), transformational, substitutes for leadership,
and emotional intelligence theories. The purpose of leadership theories is to explain differences in leadership
styles and contexts. They can provide guidance to senior leaders in pursuing performance excellence.
 An important aspect of an organization’s leadership is governance – the system of management and controls
exercised in the stewardship of an organization and corporate social responsibility (CSR). Governance
processes may include approving strategic direction, monitoring and evaluating CEO performance, succession
planning, financial auditing, executive compensation, disclosure, and shareholder reporting. CSR relates to
responsibility to the public through the practices of good citizenship and includes ethics, aspects of corporate
governance, and protection of public health, safety, and the environment. Corporate social responsibility has
become a strategic imperative and a competitive or marketplace necessity.