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Grand Rapids Section
            1001



         Scorecards-
How do we know we are tracking
       The right things?
How did it start

• Performance Measures
     – Sloan in the 1940’s


• Balanced Scorecards
      Developed in the early 1990’s by
      Robert Kaplan and David Norton

                               By helping others succeed, we
Michael Hirt
                               bring out the best in ourselves.
13-Mar-08
Balanced Scorecards
• Financial

• Customer

• Business Process

• Learning and Growth

                              By helping others succeed, we
Michael Hirt
                              bring out the best in ourselves.
13-Mar-08
Balanced Scorecards
• Dash Boards or scorecards
• Stop light indicators on the health

• Tracking Frequencies
• Reporting Frequencies

Seminars          Workshops   Consultants

                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
Is it the real world?




                                 By helping others succeed, we
Michael Hirt
                                 bring out the best in ourselves.
13-Mar-08
How did were get here?
• Who makes the decision on what to
  measure?

• How are the measures decided?



• Are they telling us what we want to know?

                                By helping others succeed, we
Michael Hirt
                                bring out the best in ourselves.
13-Mar-08
Who makes the decision?
• Executive Direction
     – Upper Management
     – Middle Management



• Culture- How is the company Driven?



                              By helping others succeed, we
Michael Hirt
                              bring out the best in ourselves.
13-Mar-08
Decision?
• Technology Driven
     – New products R&D


• Market Driven
     – Retain Customers New Customers


• Efficiency Driven
     – Reduce cost or Complexity
                                   By helping others succeed, we
Michael Hirt
                                   bring out the best in ourselves.
13-Mar-08
Culture


Let’s call it the personality of the Company

               In the family called the company,
                      who gets their way?

Engineering               Sales     Manufacturing
                                         By helping others succeed, we
Michael Hirt
                                         bring out the best in ourselves.
13-Mar-08
The Start
• What we are familiar with
• What is easy to measure
• What is going to make us look good



Although these are not the right reasons, it
  is where most get their start.

                                 By helping others succeed, we
Michael Hirt
                                 bring out the best in ourselves.
13-Mar-08
The issue
• No modes for improvement

• Employees that affect performance, may
  not see the correlation to the measure.

• What we have as measures do not relate
  to how the company performs.

                               By helping others succeed, we
Michael Hirt
                               bring out the best in ourselves.
13-Mar-08
The issue
• “that’s the issue, the measures are all
  green, but we are loosing money.”

• “Profits are down for three months in a
  row”

• “We do not believe any of our measures,
  the numbers are not right”
                                 By helping others succeed, we
Michael Hirt
                                 bring out the best in ourselves.
13-Mar-08
How does that Happen?
Two major reasons:

           Lagging Indicators



           The measures encourage the wrong activities




                                             By helping others succeed, we
Michael Hirt
                                             bring out the best in ourselves.
13-Mar-08
Lagging Indicators

• Lagging indicators measure output of past
  activities. Most financial indicators are
  lagging indicators. It’s like horse out of the
  barn, it already happened. We need to
  react and the results of our actions may
  not be seen for two or three reporting
  periods.

                                   By helping others succeed, we
Michael Hirt
                                   bring out the best in ourselves.
13-Mar-08
Wrong Activities
               Purchased Price Variance

Negotiate based on price and “quantity
 breaks”

Excess inventory and carrying costs.


                                   By helping others succeed, we
Michael Hirt
                                   bring out the best in ourselves.
13-Mar-08
Wrong Activities
                Machine Utilization

Run in excess of current requirements to
 maximize the measure.

Excess inventory, Wrong inventory.


                                      By helping others succeed, we
Michael Hirt
                                      bring out the best in ourselves.
13-Mar-08
Wrong Activities
Direct/Indirect labor ratio

Encourages inaccurate labor reporting to
 maintain “acceptable ratio”

Total costs not in control. Lack of integrity


                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
Ultimate Lagging Indicator




                   Profit


                             By helping others succeed, we
Michael Hirt
                             bring out the best in ourselves.
13-Mar-08
Profit
• Byproduct of actions taken in the past,
  sometimes the distant past.

• Profit is the result of many actions. It does
  not indicate which activities are positive
  and which are draining the money.

• Disconnected from non financial factors.
                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
Don’t get me wrong
• Most enterprises are in the business to
  make money. Provide a return to
  shareholders.

• If we use profits as our indicator, its like
  using the speedometer to tell us if we are
  driving in the right direction.


                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
Where do we go?
• These are trying times

• Companies are in the survival plan

• We need to watch the pennies?

• We don’t know about what’s the day after
  tomorrow!
                               By helping others succeed, we
Michael Hirt
                               bring out the best in ourselves.
13-Mar-08
Leading Indicators
• Leading indicators either measure activity
  in it’s current state on in the future state.

• Forecasting out what the future would look
  like.

• Powerful measures, sometimes are
  difficult to define.
                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
How do we identify
•      Three Different ways to approach
     1. Identify all of your current measures

     2. Focus on your Vision

     3. Look forward strategically




                                       By helping others succeed, we
Michael Hirt
                                       bring out the best in ourselves.
13-Mar-08
Identify your current Measures
• Go through are the areas of the
  organization and document what is being
  measured. Not just what is on the
  scorecard.

• “What gets measured gets done.”

• Organize by business process.
                              By helping others succeed, we
Michael Hirt
                              bring out the best in ourselves.
13-Mar-08
Identify your current Measures
• I have used cross functional surveys in the
  past to identify how well a company
  measures themselves.




                                By helping others succeed, we
Michael Hirt
                                bring out the best in ourselves.
13-Mar-08
Identify your current Measures
• Summarize the information and use a
  cross functional team to identify:



     – Leading or Lagging indicator

     – Association with other measures


                                      By helping others succeed, we
Michael Hirt
                                      bring out the best in ourselves.
13-Mar-08
Identify your current Measures
• The association link can be an important
  one.

     – Lagging indicators may have more than one
       leading indicators associated with it.
     – Us an affinity diagram or a Fish Bone
       Diagram to graphically show the association.


                                      By helping others succeed, we
Michael Hirt
                                      bring out the best in ourselves.
13-Mar-08
Identify your current Measures
• Through these activities
     – You identify all the measures that are current.

     – Which ones may be more important than your
       current indicators

     – Focus on the leading indicators for the
       improvements

                                       By helping others succeed, we
Michael Hirt
                                       bring out the best in ourselves.
13-Mar-08
Identify your current Measures
               Potential Leading Indicators

Inventory Turns
Although a financial calculation, keeps the
  company focused on material flow.

The impact is on Cash Flow

                                     By helping others succeed, we
Michael Hirt
                                     bring out the best in ourselves.
13-Mar-08
Identify your current Measures
               Potential Leading Indicators

On time delivery
Both to internal and external customers.
Company will focus and work for ways to
 eliminate waste, not needed activities.


                                     By helping others succeed, we
Michael Hirt
                                     bring out the best in ourselves.
13-Mar-08
Identify your current Measures
               Potential Leading Indicators

Product Margins
Sales minus cost. Understand that variation
  is waste. Work to reduce that variation.




                                     By helping others succeed, we
Michael Hirt
                                     bring out the best in ourselves.
13-Mar-08
Focus on your Vision
          What is the mission of the company

                     Who are we?

               What are our core values?

                What are our principles?

                                     By helping others succeed, we
Michael Hirt
                                     bring out the best in ourselves.
13-Mar-08
Focus on your Vision
• If we use these ideals as our guide to
  running the company

     – We can identify what they look like

     – How they are measured

     – What is acceptable

                                       By helping others succeed, we
Michael Hirt
                                       bring out the best in ourselves.
13-Mar-08
Focus on your Vision
   Manufaturing Facility                                              Reporting Month

                                               People
                                                       Work related
                                      Training Hours
                                                         injuries
                                         Tunover       Absenteeism



              Profits                                                                   Product
                       Scrap $                                                 Perfomance
         Cost
                     PPM-Internal                                              Productivity   Pull Ticket %
    Improvement $




          Technology                                                                 Customers
    Program Status Systems-Internal                                           PPM-External        CCN
                      Systems-
                                                                                Delivery
                      External



                                                                                  By helping others succeed, we
Michael Hirt
                                                                                  bring out the best in ourselves.
13-Mar-08
Focus on your Vision
• Communicate to all the employees these
  measures.

• Show that the company believes in what it
  says.

• They can see how they effect the results.

                                By helping others succeed, we
Michael Hirt
                                bring out the best in ourselves.
13-Mar-08
Look forward strategically
• Where does the company want to be?

     – Executives need to be looking 3-5 years out

     – What will the company look like at that time?

     – Use Indicators as the road map to get us
       there.

                                       By helping others succeed, we
Michael Hirt
                                       bring out the best in ourselves.
13-Mar-08
Look forward strategically
• Using the SWOT Analysis:
Strengths, Weaknesses, Opportunities, Threats


Identify what the key areas of each section
  would look like and how would we know if
  was happening.
What would be the measure, acceptable
  range?
                                  By helping others succeed, we
Michael Hirt
                                  bring out the best in ourselves.
13-Mar-08
Look forward strategically
• These can be the leading indicators of the
  future.

• The actions taken can effect the future and
  can be adjusted with minimal impact to the
  daily operations.

• Forecasting
                                By helping others succeed, we
Michael Hirt
                                bring out the best in ourselves.
13-Mar-08
Look forward strategically
• We want to be a supplier to Toyota

     – What does a supplier look like
           • How are they different to us
           • What do we need to change
           • What is our plan




                                            By helping others succeed, we
Michael Hirt
                                            bring out the best in ourselves.
13-Mar-08
Culture- The drivers from earlier
• Technology Driven
     – New products R&D


• Market Driven
     – Retain Customers New Customers


• Efficiency Driven
     – Reduce cost or Complexity
                                   By helping others succeed, we
Michael Hirt
                                   bring out the best in ourselves.
13-Mar-08
Culture- Technology
• New products R&D

     – How about tracking number of Patents
       applied for?

     – Tracking number of new products brought to
       market.


                                     By helping others succeed, we
Michael Hirt
                                     bring out the best in ourselves.
13-Mar-08
Culture- Market Driven
• Retain Customers New Customers

     – Scheduled future appointments

     – Ask How is the Customer measuring us?
           • Align with major customer goals
           • Understand their metrics



                                               By helping others succeed, we
Michael Hirt
                                               bring out the best in ourselves.
13-Mar-08
Culture- Efficiency Driven
• Reduce cost or Complexity

     – Ratio of jobs with 2 or less operations

     – Ratio of BOM’s used in more that one
       product.




                                        By helping others succeed, we
Michael Hirt
                                        bring out the best in ourselves.
13-Mar-08
Wrap UP
• What three things?

• Use the note sheet on the table

• Use it as a tickler for tomorrow



                                 By helping others succeed, we
Michael Hirt
                                 bring out the best in ourselves.
13-Mar-08
Three Things
• May be the difference between a leading
  and lagging indicator

• The idea that Lagging indicators have
  leading indicators associated with them

• Using Quality tools in different ways to get
  results.
                                 By helping others succeed, we
Michael Hirt
                                 bring out the best in ourselves.
13-Mar-08
Thank you


               What questions can
                 I answer ???


                                By helping others succeed, we
Michael Hirt
                                bring out the best in ourselves.
13-Mar-08

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Scorcard- Tracking The Right Things

  • 1. Grand Rapids Section 1001 Scorecards- How do we know we are tracking The right things?
  • 2. How did it start • Performance Measures – Sloan in the 1940’s • Balanced Scorecards Developed in the early 1990’s by Robert Kaplan and David Norton By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 3. Balanced Scorecards • Financial • Customer • Business Process • Learning and Growth By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 4. Balanced Scorecards • Dash Boards or scorecards • Stop light indicators on the health • Tracking Frequencies • Reporting Frequencies Seminars Workshops Consultants By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 5. Is it the real world? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 6. How did were get here? • Who makes the decision on what to measure? • How are the measures decided? • Are they telling us what we want to know? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 7. Who makes the decision? • Executive Direction – Upper Management – Middle Management • Culture- How is the company Driven? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 8. Decision? • Technology Driven – New products R&D • Market Driven – Retain Customers New Customers • Efficiency Driven – Reduce cost or Complexity By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 9. Culture Let’s call it the personality of the Company In the family called the company, who gets their way? Engineering Sales Manufacturing By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 10. The Start • What we are familiar with • What is easy to measure • What is going to make us look good Although these are not the right reasons, it is where most get their start. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 11. The issue • No modes for improvement • Employees that affect performance, may not see the correlation to the measure. • What we have as measures do not relate to how the company performs. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 12. The issue • “that’s the issue, the measures are all green, but we are loosing money.” • “Profits are down for three months in a row” • “We do not believe any of our measures, the numbers are not right” By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 13. How does that Happen? Two major reasons: Lagging Indicators The measures encourage the wrong activities By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 14. Lagging Indicators • Lagging indicators measure output of past activities. Most financial indicators are lagging indicators. It’s like horse out of the barn, it already happened. We need to react and the results of our actions may not be seen for two or three reporting periods. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 15. Wrong Activities Purchased Price Variance Negotiate based on price and “quantity breaks” Excess inventory and carrying costs. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 16. Wrong Activities Machine Utilization Run in excess of current requirements to maximize the measure. Excess inventory, Wrong inventory. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 17. Wrong Activities Direct/Indirect labor ratio Encourages inaccurate labor reporting to maintain “acceptable ratio” Total costs not in control. Lack of integrity By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 18. Ultimate Lagging Indicator Profit By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 19. Profit • Byproduct of actions taken in the past, sometimes the distant past. • Profit is the result of many actions. It does not indicate which activities are positive and which are draining the money. • Disconnected from non financial factors. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 20. Don’t get me wrong • Most enterprises are in the business to make money. Provide a return to shareholders. • If we use profits as our indicator, its like using the speedometer to tell us if we are driving in the right direction. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 21. Where do we go? • These are trying times • Companies are in the survival plan • We need to watch the pennies? • We don’t know about what’s the day after tomorrow! By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 22. Leading Indicators • Leading indicators either measure activity in it’s current state on in the future state. • Forecasting out what the future would look like. • Powerful measures, sometimes are difficult to define. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 23. How do we identify • Three Different ways to approach 1. Identify all of your current measures 2. Focus on your Vision 3. Look forward strategically By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 24. Identify your current Measures • Go through are the areas of the organization and document what is being measured. Not just what is on the scorecard. • “What gets measured gets done.” • Organize by business process. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 25. Identify your current Measures • I have used cross functional surveys in the past to identify how well a company measures themselves. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 26. Identify your current Measures • Summarize the information and use a cross functional team to identify: – Leading or Lagging indicator – Association with other measures By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 27. Identify your current Measures • The association link can be an important one. – Lagging indicators may have more than one leading indicators associated with it. – Us an affinity diagram or a Fish Bone Diagram to graphically show the association. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 28. Identify your current Measures • Through these activities – You identify all the measures that are current. – Which ones may be more important than your current indicators – Focus on the leading indicators for the improvements By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 29. Identify your current Measures Potential Leading Indicators Inventory Turns Although a financial calculation, keeps the company focused on material flow. The impact is on Cash Flow By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 30. Identify your current Measures Potential Leading Indicators On time delivery Both to internal and external customers. Company will focus and work for ways to eliminate waste, not needed activities. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 31. Identify your current Measures Potential Leading Indicators Product Margins Sales minus cost. Understand that variation is waste. Work to reduce that variation. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 32. Focus on your Vision What is the mission of the company Who are we? What are our core values? What are our principles? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 33. Focus on your Vision • If we use these ideals as our guide to running the company – We can identify what they look like – How they are measured – What is acceptable By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 34. Focus on your Vision Manufaturing Facility Reporting Month People Work related Training Hours injuries Tunover Absenteeism Profits Product Scrap $ Perfomance Cost PPM-Internal Productivity Pull Ticket % Improvement $ Technology Customers Program Status Systems-Internal PPM-External CCN Systems- Delivery External By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 35. Focus on your Vision • Communicate to all the employees these measures. • Show that the company believes in what it says. • They can see how they effect the results. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 36. Look forward strategically • Where does the company want to be? – Executives need to be looking 3-5 years out – What will the company look like at that time? – Use Indicators as the road map to get us there. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 37. Look forward strategically • Using the SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats Identify what the key areas of each section would look like and how would we know if was happening. What would be the measure, acceptable range? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 38. Look forward strategically • These can be the leading indicators of the future. • The actions taken can effect the future and can be adjusted with minimal impact to the daily operations. • Forecasting By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 39. Look forward strategically • We want to be a supplier to Toyota – What does a supplier look like • How are they different to us • What do we need to change • What is our plan By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 40. Culture- The drivers from earlier • Technology Driven – New products R&D • Market Driven – Retain Customers New Customers • Efficiency Driven – Reduce cost or Complexity By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 41. Culture- Technology • New products R&D – How about tracking number of Patents applied for? – Tracking number of new products brought to market. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 42. Culture- Market Driven • Retain Customers New Customers – Scheduled future appointments – Ask How is the Customer measuring us? • Align with major customer goals • Understand their metrics By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 43. Culture- Efficiency Driven • Reduce cost or Complexity – Ratio of jobs with 2 or less operations – Ratio of BOM’s used in more that one product. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 44. Wrap UP • What three things? • Use the note sheet on the table • Use it as a tickler for tomorrow By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 45. Three Things • May be the difference between a leading and lagging indicator • The idea that Lagging indicators have leading indicators associated with them • Using Quality tools in different ways to get results. By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08
  • 46. Thank you What questions can I answer ??? By helping others succeed, we Michael Hirt bring out the best in ourselves. 13-Mar-08