Hampton Roads Quality Management Council

1. Hampton Roads Quality Management Council George M. Yacus, Ph.D. 24 June 2009 Hello. Welcome to the Hampton Roads Quality Management Council and today�s presentation. Most of us are believers in Total Quality Management, Continuous Process Improvement, benchmarking, the theory of constraints, and so forth. I�ve been on the quality journey of evolution since the early 1990s and only recently have I started to put the pieces together into a framework that makes sense to me. Many of you will know most of the content of this presentation, and some of you will only know a little bit about it. No matter what group you are in, however, I believe that it may help to put some of our quality systems pieces into a system that will help the users to achieve better performance.Hello. Welcome to the Hampton Roads Quality Management Council and today�s presentation. Most of us are believers in Total Quality Management, Continuous Process Improvement, benchmarking, the theory of constraints, and so forth. I�ve been on the quality journey of evolution since the early 1990s and only recently have I started to put the pieces together into a framework that makes sense to me. Many of you will know most of the content of this presentation, and some of you will only know a little bit about it. No matter what group you are in, however, I believe that it may help to put some of our quality systems pieces into a system that will help the users to achieve better performance.

2. Acknowledgements 4/21/2012 2 Several of these slides are from a Florida Sterling Council presentation on the Balanced Scorecard, some are from student presentations in my Old Dominion University management classes, and some are home-grown from my colleagues in the U.S. Coast Guard, where I work as a performance consultant.

3. Today�s Agenda 4/21/2012 3 About the speaker Management Theory Systems Theory Total Quality Management Reengineering, Benchmarking, ISO 9000, Scorecards Baldrige Lean Six Sigma Theory of Constraints Turning Theory Into Action Measurement Steverino�s Pizza Summary We have the luxury of having a reasonable chunk of time to talk about the ideas listed here on the slide. Each of the ideas is in itself demonstrates how management theory and performance improvement have improved over time, especially in the past 25 years. This is not an all-inclusive list but is appropriate for this community of practice.We have the luxury of having a reasonable chunk of time to talk about the ideas listed here on the slide. Each of the ideas is in itself demonstrates how management theory and performance improvement have improved over time, especially in the past 25 years. This is not an all-inclusive list but is appropriate for this community of practice.

4. Dr. George Yacus 4/21/2012 4 My quality journey: Naval officer 1974-1994, Helicopter Pilot, NROTC, budgeting, SWO Safety/Total Quality Officer on USS George Washington Testbed for TQL Met W. Edwards Deming in 1992 Ph.D. from Old Dominion University in Strategic /Public Management University Dean, Consultant, USCG Strategic Assessment, HR USN Downsizing Internal Performance Consultant for USCG 2 dozen internal business/performance consultants Baldrige-based national system for improvement L6S Blackbelt trained by Navy LSS College Professor at ODU business school, Troy University, and National Graduate School International Business, budgeting, organizational behavior, others VA Senate Productivity and Quality Award for several years

5. It�s All About Performance - Sports 4/21/2012 5 Tiger woods crushes a golf tee shot 350 yards Sammy Sosa destroys another windshield outside Wrigley field with his home run Pete Sampras smokes another 130 mph ace past his tennis opponent Nadia Comeniche scores a perfect 10 on the balance beam

6. How are We Doing? Right now, the average American business operates at 1.5 Sigma, or 6,210 defects per million (Harry, 1998) All of us have room for improvement The average black belt project saves about $175,000 (Harry, 1998) We are here today to learn how to improve our organizations. How are YOU doing? 4/21/2012 6

7. Management Theory Frederick W. Taylor �Principles of Scientific Management� Divided work into component parts �One best way� Steel industry�processes Would have been a �6-Sigma guy� Henry Ford Mass production, affordable cars Reduced task cycle times on assembly line Vertical integration (owned ships, steel mills, glass factory) Reduced waste & recycled (old steel rails, binder board) Would have been a �lean guy� 4/21/2012 7

8. Management Theory Philip B. Crosby Importance of senior management �Quality is Free� 14 step approach to quality improvement Four absolutes Quality means conformance to requirements Quality comes from prevention The quality performance standard is zero defects Quality measurement is the price of nonconformance 4/21/2012 8

9. Management Theory Dr. W. Edwards Deming Total Quality Management (TQM) Founder of the 3rd wave of the industrial revolution National folk hero in Japan Studied Walter Shewhart and statistical methods �Out of the Crisis� , �If Japan Can, Why Can�t We?� Red beads, PDSA, 94% management / 6% special causes 14 Points and 7 Deadly Diseases 4/21/2012 9

10. Management Theory Dr. Armand V. Feigenbaum Total Quality Control (TQC) Principles TQC is company-wide, all functions are involved Quality is what the customer says it is Quality and production costs are in partnership Higher quality will equate to lower costs Both individual and team zeal are required Management must continuously be unrelenting on quality Quality and innovation work together in product development All of management is involved in quality, not just the experts Continuous improvement includes new and existing technologies Quality is the most cost-effective route to productivity Quality must be implemented with both customers and suppliers 4/21/2012 10

11. Management Theory Dr. Kaoru Ishakawa Companywide Quality Control (CWQC) Top to bottom organizational participation Start-to-finish of product life cycle Respect for humanity Quality Circles and �fishbone diagram� Dr. Joseph M. Juran Trilogy Quality Planning Quality Control Quality Improvement Rapid rate of improvement and thousands of improvements 4/21/2012 11

12. Systems Theory Enables managers to describe the behavior of organizations 12

13. Systems Theory Block diagram of process Closed (e.g. thermostat)/open (e.g. climate) systems Feedback loop SIPOC is our contribution Supplier Input Process Output Customer 4/21/2012 13

14. Total Quality Management A business management strategy aimed at embedding awareness of quality in all organizational processes. Variety of definitions � good theory, but lacking tools Components include Product/service Quality Continuous improvement (kaizen) Delighting the customer Long term view Reduction of variation System of profound knowledge (systems approach, variation, epistemology, psychology) Plan, Do, Check, Act 4/21/2012 14

15. Total Quality Management 14 Points 1."Create constancy of purpose towards improvement". 2."Adopt the new philosophy". 3."Cease dependence on inspection". 4."Move towards a single supplier for any one item.�5."Improve constantly and forever". 6."Institute training on the job". 7."Institute leadership". 8."Drive out fear". 9."Break down barriers between departments". 10."Eliminate slogans". 11."Eliminate management by objectives". 12."Remove barriers to pride of workmanship". 13."Institute education and self-improvement". 14."The transformation is everyone's job".  4/21/2012 15

16. Total Quality Management 7 Deadly Diseases Lack of constancy of purpose. Emphasis on short-term profits. Evaluation by performance, merit rating, or annual review of performance. Mobility of management. Running a company on visible figures alone. Excessive medical costs. Excessive costs of warranty, fueled by lawyers who work for contingency fees. 4/21/2012 16

17. Reengineering, Benchmarking, ISO 9000, Scorecards Reengineering The application of technology and management science to the modification of existing systems, organizations, processes, and products in order to make them more effective, efficient, and responsive (now being called Business Process Reengineering) Benchmarking Benchmarking is the process of comparing the cost, time or quality of what one organization does against what another organization does. � benchmark - a standard by which something can be measured or judged; "his painting sets the benchmark of quality� 4/21/2012 17

18. Reengineering, Benchmarking, ISO 9000, Scorecards International Organization for Standardization (ISO) a family of standards for quality management systems Allows for formal registration and certification Some of the requirements in ISO 9001 include: a set of procedures that cover all key processes in the business; monitoring processes to ensure they are effective; keeping adequate records; checking output for defects, with appropriate and corrective action where necessary; regularly reviewing individual processes and the quality system itself for effectiveness; and facilitating continual improvement 4/21/2012 18 Common criticisms: -amount of money, time and paperwork required for registration. -promotes specification, control, and procedures rather than understanding and improvement. -reliance on the specifications of ISO 9001 does not guarantee a successful quality system. -certifications are in fact often based on customer contractual requirements rather than a desire to actually improve quality. - a vehicle to increase consulting services with numerous certifying bodies -management fadCommon criticisms: -amount of money, time and paperwork required for registration. -promotes specification, control, and procedures rather than understanding and improvement. -reliance on the specifications of ISO 9001 does not guarantee a successful quality system. -certifications are in fact often based on customer contractual requirements rather than a desire to actually improve quality. - a vehicle to increase consulting services with numerous certifying bodies -management fad

19. Reengineering, Benchmarking, ISO 9000, Scorecards Balanced Scorecards (Kaplan & Norton) Financial/Mission Customer Business Process Learning & Growth Dashboards What�s the Difference? A dashboard is a performance monitoring system A scorecard is a performance management system 4/21/2012 19

21. Reengineering, Benchmarking, ISO 9000, Scorecards �The goal of a scorecard is to keep the business focused on a common strategic plan by monitoring real world execution and mapping of that execution back to a specific strategy� (MBWA Blog) �A dashboard falls one level down in the business decision making process from a scorecard; as it is less focused on a strategic objective and more tied to specific operational goals� (MBWA Blog) �Reports are best used when the user needs to look at raw data in an easy-to-read format� (MBWA Blog) 4/21/2012 21

22. Baldrige Malcolm Baldrige National Quality Award Former Secretary of Commerce Malcolm Baldrige A �system of systems� approach A categorization 1000 point scale, national winners score about 600 Process Applicant submits written application Individual review Consensus review Site visit Feedback 4/21/2012 22

23. Baldrige Seven categories (points) Leadership (120) Strategic Planning (85) Customer and Market Focus (85) Measurement, Analysis, and Knowledge Management (90) Workforce Focus (85) Process Management (85) Results (450) We�ll come back to Baldrige later 4/21/2012 23

24. Lean Entire production system, including customer Includes sales, assembly, design, supply chain Elimination of waste Continuous flow Customer pull 4/21/2012 24

25. Lean Benefits Lower production costs Fewer personnel Quicker product development Higher quality Higher profitability Greater flexibility and agility 4/21/2012 25

26. Six Sigma Based on reduction of variation One sigma is 691,462 DPMO ( 30.9) Two sigma is 308,538 DPMO (69.1) Three sigma is 66,807 DPMO (93.32) Four sigma is 6,210 DPMO (99.379) Five sigma is 283 DPMO (99.977) Six sigma is 3.4 DPMO (99.99997) Losses in a 3 or 4 sigma company cost 10-15% of revenue 4/21/2012 26

27. Six Sigma Why Six Sigma Works Bottom line results Senior management is involved A disciplined approach (DMAIC) Short project completion times (3-6 months) Clearly defined measures of success Infrastructure of trained individuals Focus on customers and processes Sound statistical approach 4/21/2012 27

28. Theory of Constraints Dr. Eliyahu M. Goldratt (1984) A method for identifying and overcoming key bottlenecks and constraints which inhibit an organization from achieving its goal Scott Bonney�s John Deere Tractor Example Managing the constraint Identify the constraint Exploit the constraint Subordinate all other processes Elevate the constraint 4/21/2012 28

29. Turning Theory Into Action So, we have all this historical evolution of management and full toolbox of analytical and process tools How do we use these to improve organizational performance? The answer: A Baldrige Management Framework Are there any success stories? Yes, there are! 4/21/2012 29

30. What Do Excellent Organizations Do? 4/21/2012 30 Strategy Selection and Appropriate Measures They define Mission, Vision, Values, and Key Business Factors, and select performance measures They develop a strategy with specific goals on the basis of Customer Valid Requirements (existing and future) competitor performance, and benchmarking of excellent processes

31. 4/21/2012 31 Organizational Business Processes

32. 4/21/2012 32 Here is a generic illustration of the appropriate components of a comparative line graph. We see that the graph has a clear Title and figure number. We also see that each axis of the graph is clearly marked and consistent with the �story� that the line graph is telling. A �Good Arrow� is present to ensure that the direction of the lines is not misinterpreted. There is also a legend to assist in interpretation of the different graph components. This is a very strong graph in that there are illustrations of how the organization is performing as a whole, how each division of the organization is performing, and how the organization is performing relative to several benchmarks. If you were the CEO of this organization, where would you want to concentrate your resources in order to create world class performance in customer satisfaction? Here is a generic illustration of the appropriate components of a comparative line graph. We see that the graph has a clear Title and figure number. We also see that each axis of the graph is clearly marked and consistent with the �story� that the line graph is telling. A �Good Arrow� is present to ensure that the direction of the lines is not misinterpreted. There is also a legend to assist in interpretation of the different graph components. This is a very strong graph in that there are illustrations of how the organization is performing as a whole, how each division of the organization is performing, and how the organization is performing relative to several benchmarks. If you were the CEO of this organization, where would you want to concentrate your resources in order to create world class performance in customer satisfaction?

33. What Do Excellent Organizations Do? 4/21/2012 33 Using Measures to Improve Performance They actually use Strategic Plans and Annual Plans to manage the organization They actually use data to make business decisions They review, analyze, and take action on poorly performing measures at all levels of the organization They can demonstrate how changes in quality, human resource initiatives and customer satisfaction impact financial performance They understand the correlation and relationships between all performance measures

34. Measurement system design typically includes�(does this look familiar?) 4/21/2012 34 Identifying the highest priority processes (TOC) Documenting the processes (DMAIC) Identify the customer (internal / external) Identify customer needs / requirements Identify the process owner Identify key steps / decisions Establishing indicators and performance expectations (targets, trends, controls) (VARIATION) Developing process control system (LEAN) Monitor indicators Implement and standardize improvements

35. What is an Indicator? 4/21/2012 35 A measurement that represents reality A gauge of progress A way of learning about your process performance The best indicators focus on measuring what�s important to the customer - Customer Valid Requirements (CVRs)

36. What is Not an Indicator? 4/21/2012 36 A feeling A best guess An opinion A belief An intuition A thought

37. Criteria for Good Indicators 4/21/2012 37 Close fit to customer valid requirements Better, Faster, Cheaper, Safer, Fairer Accurate data Low cost data collection ($$ and effort) Understandable by others Roll-up (and breakdown) capabilities

38. What are the advantages of utilizing Balanced Scorecards? 4/21/2012 38 Translates and communicates the organizational Vision, Mission, and Values Provides essential information to determine strategic goals, objectives, and initiatives Assists in allocating resources and effort Creates empowerment to improve performance throughout the organization Provides opportunities for stakeholder feedback and organizational learning

39. Alignment 4/21/2012 39 Does this look familiar to you? Its kind of like asking everyone to quickly close their eyes and point North, right? Many organizations have problems with alignment. Different parts of the organization are moving in different ways, some with and some against the grain of the overall organization.Does this look familiar to you? Its kind of like asking everyone to quickly close their eyes and point North, right? Many organizations have problems with alignment. Different parts of the organization are moving in different ways, some with and some against the grain of the overall organization.

40. Alignment�Better 4/21/2012 40

41. Alignment�Best 4/21/2012 41 Finally, in an ideal system we see the aligned efforts of all parts of the organization supporting the overall direction and goals. This allows the organization to rapidly develop.Finally, in an ideal system we see the aligned efforts of all parts of the organization supporting the overall direction and goals. This allows the organization to rapidly develop.

42. Core Values Visionary Leadership Customer-driven Excellence Organizational and Personal Learning Valuing Workforce Members and Partners Agility Focus on the Future Managing for Innovation Management by Fact Societal Responsibility Focus on Results and Creating Value Systems Perspective 4/21/2012 42

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44. What�s an Organizational Profile?  4/21/2012 44 Your organization�s environment Your organization�s relationships Your organization�s competitive environment Your organization�s strategic challenges Your organization�s performance improvement system Now let�s discuss organizational profiles. Sterling asks all organizations who participate in an assessment process to complete an �Organizational Profile.� Each organization has its own set of demographic and production factors that create the foundation for the organization�s existence. The Sterling Council places an emphasis on focusing the criteria to meet the specific requirements of each individual business. Sterling strives to understand each business by identifying the Key Business Factors. And if you speak Sterlingese, you will call these the �KBF�s�. A clear description of the KBFs helps Sterling Examiners understand what is most important to the organization. This allows the examiner to look for those factors throughout the body of the application and in the Business Results. For example, if your organization is highly dependent upon suppliers to deliver materials just at the right time, then you would want to describe this in the Organizational Profile. Sterling Examiners would, in turn, look in your application for how your organization manages suppliers to ensure �just in time� delivery of materials. This is because you have indicated that the aspects of the Sterling criteria that relate to managing suppliers is an important component of your business.Now let�s discuss organizational profiles. Sterling asks all organizations who participate in an assessment process to complete an �Organizational Profile.� Each organization has its own set of demographic and production factors that create the foundation for the organization�s existence. The Sterling Council places an emphasis on focusing the criteria to meet the specific requirements of each individual business. Sterling strives to understand each business by identifying the Key Business Factors. And if you speak Sterlingese, you will call these the �KBF�s�. A clear description of the KBFs helps Sterling Examiners understand what is most important to the organization. This allows the examiner to look for those factors throughout the body of the application and in the Business Results. For example, if your organization is highly dependent upon suppliers to deliver materials just at the right time, then you would want to describe this in the Organizational Profile. Sterling Examiners would, in turn, look in your application for how your organization manages suppliers to ensure �just in time� delivery of materials. This is because you have indicated that the aspects of the Sterling criteria that relate to managing suppliers is an important component of your business.

45. The Leadership Triad 4/21/2012 45 The system begins with the leadership triad. It�s also called the driver triad, because this is what makes the system run. If you don�t start with leadership, you won�t get far. Leadership sets direction and purpose for the organization, reviews and manages performance, commits resources, motivates employees, and helps us focus on what�s important. How do they do that? Well, successful leaders are always focusing on customers. Customer satisfaction and market leadership are keys to success. Leaders learn all about customers and markets, and then use that information, along with information about their own performance, to create critical strategies that will lead the organization to success. All three of these areas work together to set direction.The system begins with the leadership triad. It�s also called the driver triad, because this is what makes the system run. If you don�t start with leadership, you won�t get far. Leadership sets direction and purpose for the organization, reviews and manages performance, commits resources, motivates employees, and helps us focus on what�s important. How do they do that? Well, successful leaders are always focusing on customers. Customer satisfaction and market leadership are keys to success. Leaders learn all about customers and markets, and then use that information, along with information about their own performance, to create critical strategies that will lead the organization to success. All three of these areas work together to set direction.

46. The Results Triad 4/21/2012 46 The system is focused on results. That is the end point of the system. But you can have all the leadership, and all the planning you want. In and of themselves, they don�t create results. Your work processes and the employees who carry out those processes is the combination that actually creates results. This is where the rubber meets the road� The critical linkage to business results. If you systematically improve your methods for doing work, and systematically improve employee skills, knowledge, well-being, and satisfaction, positive results are bound to happen. That�s what the results triad is all about. By managing our processes, and focusing on human resources, we directly drive results. The system is focused on results. That is the end point of the system. But you can have all the leadership, and all the planning you want. In and of themselves, they don�t create results. Your work processes and the employees who carry out those processes is the combination that actually creates results. This is where the rubber meets the road� The critical linkage to business results. If you systematically improve your methods for doing work, and systematically improve employee skills, knowledge, well-being, and satisfaction, positive results are bound to happen. That�s what the results triad is all about. By managing our processes, and focusing on human resources, we directly drive results.

47. Link Leadership to Results with Key Factors 4/21/2012 47 Leadership impacts on the results triad with the understanding of the organization � the organizational profile. Here is where the organization�s environment, relationships and challenges will be evaluated and integrated into the business. This is the big picture linkage between leadership and results.Leadership impacts on the results triad with the understanding of the organization � the organizational profile. Here is where the organization�s environment, relationships and challenges will be evaluated and integrated into the business. This is the big picture linkage between leadership and results.

48. Information-Rich Environment 4/21/2012 48 Ever hear the saying, �data rich, information poor?� That comes from organizations gathering a ton of data, but not understanding effective ways to analyze the data so that it can be converted into useful information that will be acted upon. We must have an environment rich in information and analysis. Every aspect of the system creates information, uses the information to enhance specific performance, and shares information to enhance overall performance. Leadership needs information about performance, about customers, and about competitors to develop successful strategies and plans. Then leadership needs information about the strategies to manage them. We also need information about our processes and our human resources to effectively manage. Business Results are information � key performance information. Everything in the system has some relationship to information and analysis.Ever hear the saying, �data rich, information poor?� That comes from organizations gathering a ton of data, but not understanding effective ways to analyze the data so that it can be converted into useful information that will be acted upon. We must have an environment rich in information and analysis. Every aspect of the system creates information, uses the information to enhance specific performance, and shares information to enhance overall performance. Leadership needs information about performance, about customers, and about competitors to develop successful strategies and plans. Then leadership needs information about the strategies to manage them. We also need information about our processes and our human resources to effectively manage. Business Results are information � key performance information. Everything in the system has some relationship to information and analysis.

49. Measuring Across the Model 4/21/2012 49 Leadership: How do we measure leader�s abilities to set/communicate direction? How do we measure our role as good citizens? Strategic Planning: How do we measure the effectiveness of our strategic plan? Customer/Market Focus: How do we measure market factors & determine if we are meeting or exceeding customer requirements?

50. Measuring Across the Model 4/21/2012 50 Information & Analysis: How do we measure how well our measurement system is performing? (Redundant? � Not really!) HR Focus: How do we measure employee factors for work, training, and well-being? Process Management: How do we measure effectiveness/efficiency of business processes?

51. Balanced Scorecard Linkages 4/21/2012 51

52. Balanced Scorecard Performance Reviews 4/21/2012 52

53. Let�s Talk About Pizza PERFORMANCE 4/21/2012 33

54. Steverino�s Pizza 4/21/2012 54 Vision - �Steverino�s Pizza will be recognized by customers, stakeholders, and employees as a premier company with whom to do business.� (Elements � recognition, internal/external stakeholders, competitive, partnership) Mission � �We make pizza right.� (Elements � make pizza right, deliver fast, competitive pricing) Now let�s reflect! Take a moment to think about the question shown here, and jot down your ideas in your notes. Then take a moment to share your ideas with people around you / at your table. Optional: If time allows you could call on people in the audience to give you an answer from the reflection, or ask �raise your hand if you named a: Customer satisfaction result Financial result Human resource result Organization-specific result Now let�s reflect! Take a moment to think about the question shown here, and jot down your ideas in your notes. Then take a moment to share your ideas with people around you / at your table. Optional: If time allows you could call on people in the audience to give you an answer from the reflection, or ask �raise your hand if you named a: Customer satisfaction result Financial result Human resource result Organization-specific result

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56. Start with the customers� 4/21/2012 56 Who is the customer? Consider demographics and market data Develop customer segments to ensure that specific needs are met What does the customer want? Determine specific criteria for products or performance Consider price, delivery time, defects, safety Consider relative value

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59. 4/21/2012 59 Getting Started � The Segments 1) Begin with a list of customers, stakeholders, or processes that represent segments within each perspective 2) Then identify and articulate their specific requirements

60. 4/21/2012 60 Measures & Current Performance Convert requirements into measures so they can be tracked and add current performance if available.

61. 4/21/2012 61 Comparisons, Goals and Gaps Compare performance against competitors and benchmark organizations Set LTGs to communicate importance and STGs to ensure milestones are met The gap is the difference between Current Performance and the STG

62. SUMMARY 4/21/2012 62 Management Theory Systems Theory Total Quality Management Reengineering, Benchmarking, ISO 9000, Scorecards Baldrige Lean Six Sigma Theory of Constraints Turning Theory Into Action Measurement Steverino�s Pizza Summary