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Balanced Scorecard and Six Sigma: Complementary Tools to Advance the
Leadership Agenda

By Michael E Nagel, Vice President, Balanced Scorecard Collaborative


The Balanced Scorecard Strategic Management System and the Six Sigma Performance Improvement
System are proven tools that help executives achieve breakthrough results. Unfortunately to date these
powerful frameworks are largely used independent of each other. At its essence, the BSC works
because it clarifies an organizations strategy (how executives will create and sustain value) and aligns all
of the organizations resources and energies (budgets, people, initiatives, etc.) to achieve the strategy.
Six Sigma works because it closes performance gaps by solving the root causes of specific performance
problems. These frameworks are complementary and if used together they offer huge potential value.

The Balanced Scorecard

The Balanced Scorecard (BSC) is a multidimensional framework for describing, implementing, and
managing strategy at all levels of an enterprise by linking objectives, measures, targets and initiatives to
an organizations strategy. The BSC provides an enterprise view of an organization's overall performance
by integrating financial objectives with other key objectives in the customer, internal business process,
and people and knowledge perspectives. The BSC is not a static list of measures, but a framework for
implementing complex programs of change and indeed, for helping organizations become more strategy-
focused.

Fortune reports that 9 out of 10 organizations fail to execute their strategies. The BSC was selected by
Harvard Business Review (HBR) as one of the most important management ideas of the past 75 years.
This is because BSC users consistently beat the odds against successful execution of strategy. Since its
creation in 1992 by Drs. David Norton and Robert Kaplan of Harvard Business School, the Balanced
Scorecard (BSC) has been implemented at corporate, strategic business units, shared service functions,
and cascaded to team and individual levels at thousands of organizationsin the private and public
sectorsworldwide. The BSC has been the subject of four articles in HBR, two best-selling business
books (now in 18 languages), numerous Harvard Business School case studies, and public conferences
around the globe. A third book by Norton and Kaplan titled Strategy Maps: Converting Intangible Assets
into Tangible Outcomes, will be available in November.

Using The Balanced Scorecard

A well-developed Balanced Scorecard is the centerpiece of the executive management meeting. Most
executive management meetings focus almost exclusively on financial performance and only occasionally
address strategy. By contrast the BSC enables strategy-focused meetings. In such meetings,
executives use the scorecard measures and targets to quickly zero in on the financial and non-financial
parts of the strategy that are working or failing. The parts of the strategy that are behind plan are
discussed to learn about the underlying performance issues. Depending on part of the strategy under
review, performance gaps can be the result of economic conditions, unrealistic target setting, seasonality,
competitor actions, physical plant capacity, labor productivity, product or process issues, project
management, inadequate technology, etc. Once executives understand the causes of strategic
performance problems, recommendations are put forth and decisions are made to improve performance.




Balanced Scorecard Collaborative/Palladium 55 Old Bedford Road Lincoln, MA 01773 Tel: 781.259.3737 Fax: 781.259.3389 bscol.com
Depending on the part of the strategy under review, executives may decide to adjust performance targets,
reallocate resources, launch a new project or initiative, cancel a project or initiative, change part of the
strategy, etc. Most scorecard organizations conduct strategy-focused meetings on a monthly basis and
the result is that business managers are executing their strategies reliably, rapidly, measurably, and
knowledgeably.

How are the Balanced Scorecard and Six Sigma Complementary?

The Balanced Scorecard Strategic Management System is a framework to describe the strategy for
creating value and tool to manage the execution of that strategy. When used as the centerpiece of the
executive decision process, the BSC identifies performance gaps and is used to facilitate decisions on
how to address specific performance issues. However, unlike Six Sigma, the BSC is not a solution for
closing specific strategic performance shortfalls. Balanced Scorecard and Six Sigma are complementary
because the former provides the strategic context for targeted improvement initiatives and the latter is a
business improvement approach that can solve a myriad of performance issues.

The following illustration uses an airline example to show how the BSC framework provides the strategic
context for launching Six Sigma projects that are aimed at closing strategic performance gaps. The left
side of the illustration is a portion of a strategy map that describes strategic objectives across the four
BSC perspectives. The arrows represent the cause and effect relationship between strategic objectives.
Moving from left to right, each strategic objective has a corresponding measure, target and initiative.
Objectives Targets
Target:
The level of
performance or
rate of improvement
needed
Initiati ve:
Projects or
programs
required to reach
the target
Initiatives Measures
Measure: How
performance against
the objective is
monitored
Object ive: One
aspect of what the
strategy is trying
to achieve
Section Of An Airline
Strategy Map
Financi al
People &
Knowledge
Ground
Crew
Alignment
Plane
Utilization
Fast
Turnaround
Time
Attract & Retain
More Customers
Customer
Internal
Lowest
Prices
Return on Net
Assets
Wi l l a Si x Sigma project cl ose the
perfor mance gap of the target?
Target
Current
gap
PURPOSE: Strategic ini tiatives
should be selected and funded
because they have a direct
i mpact on strategy
advancement.
Fast ground
turnaround
30 Minutes
90%
Six-Sigma non-
maintenance
cycle time
reduction
On Ground Time
On-Time Departure






Balanced Scorecard Collaborative/Palladium 55 Old Bedford Road Lincoln, MA 01773 Tel: 781.259.3737 Fax: 781.259.3389 bscol.com
In this example, the airline wants to increase return on net assets. The strategy for doing this requires an
aligned ground crew who can turn around a plane quickly and get it back in the air. Consistent
achievement of these two objectives enables the airline to offer lower prices. A lower price is a customer
value proposition that should attract and retain customers. The airline measures fast turnaround times by
tracking the amount of time a plane spends on the ground and the percentage of planes that depart on
time. The performance target for these measures is 30 minutes and 90% respectively. To improve its
actual performance on these targets, the airline uses Six Sigma to lower non-maintenance cycle time.

In short, the Balanced Scorecard describes the strategy for creating value and it aligns resources to
ensure the strategy is successfully executed. Six Sigma executes the strategy by using data and process
improvement tools. BSC is the compass and Six Sigma is the fuel.

For more information on how to align your Six Sigma Program to strategy through the use of the
Balanced Scorecard, please contact Michael Nagel by email at mnagel@bscol.com or by phone at (781)
402-1154.