In implementing an enhanced business management system steps 3 – 6 of the 9-step Integrated Enterprise Excellence (IEE) business management system, focus is given to improvement so that the enterprise as a whole benefits.
To determine where to improve, companies need to analyze their enterprise for the purpose of determining the 30,000-foot-level metrics in the value chain that could be improved to address voice of the customer (VOC) inputs and the financials (See Application of the Business Management System, Steps 1 & 2) so that the enterprise as a whole benefited.
This analysis, step 3 of the 9-step business system, showed several opportunities for improvement to the bottom line. One opportunity was a 2-percentage point reduction in defective rates, which would not only reduce the primary customer complaint but also increase profit margins by 0.5 percentage points. A baseline of this defective-rate 30,000-foot-level metric is shown in Figure 1, along with a Pareto chart of encountered defect types.
30,000-foot-level Metric of Defective Rate
Step 4: Set SMART Goals for Satellite-level Metrics
Profit margins in the manufacturing company’s industry average 16 percent. With its initial median of about 13.9 percent, as shown in Figure 2, the company set a goal to achieve a monthly median profit margin of 16 percent in 12 months. Basing the goal on the industry average was not an arbitrary target, which could lead to unhealthy behaviors, but rather addressed the achievable aspect of SMART goal setting. (SMART goals are specific, measureable, achievable, relevant and timely.)
Corporate management understood that in order to achieve this goal,
- Structured process improvement efforts needed to be undertaken; i.e., the improvement needs of the performance metrics were “pulling” for the creation of projects that benefited the entire enterprise.
- The business assured the alignment of projects to overall business needs through the development of an enterprise improvement plan (EIP), as described in the next step.
Steps 5 and 6: Create Strategies and Set 30,000-foot-level Performance Goals
A SMART goal was set to reduce the current 5-percent defective rate by 2 percentage points in 6 months. The owner of the defective-rates metric was responsible for meeting that goal. In any organization, this accountability leads to process owners who uphold the need for the judicious completion of projects.
The alignment of this VOC/business strategy and goal with other organizational needs is shown in the partial enterprise EIP in Figure 2. From the figure, it can be noted that strategies and improvement efforts may overlap. In the case of the manufacturing company, targeting defective rates led to two projects on reducing the occurrence of two types of defects.
Through this EIP, initiatives were identified that supported both the VOC issue and an improvement in the financials.
IEE Enterprise Improvement Plan
Item number three of the following was just addressed relative to describing the application of a business improvement program. Other aspects that need consideration for this objective are items one, two, and four:
- Application of the Business Management System
- Application of the Business Management System, Steps 1 & 2
- Application of the Business Management System, Steps 3 – 6
- Application of the Business Management System, Steps 7 – 9
For additional information see: