Note: This is a talk to be given by me at CII-SNCEL – 3rd National Seminar on Manufacturing Excellence 26th Sept 2012 at Kolkata.
How the Heck we Cascade Strategies of a Balanced Score Card?
By Dibyendu De,
Director Reliability Management Consultant Pvt Ltd
And Chief Mentor of International Institute of Nemetics Foundation
We would discuss the groans and joys of cascading strategies developed in a Balanced Score Card down to the shop floor level in a manufacturing unit and examine the importance of the interface between Human and Technology to bring about changes, order and balance in an otherwise uncertain world. In other words how do we implement the strategies that would help an organization to survive and do better?
Why is this question so important?
It is important because we aren’t always quite sure about how to implement good strategies in reality. As of now a top-down approach is usually taken with employee ‘buy-in’ in mind. Hence we have a 3 tier approach to the traditional roll out usually accompanied by loud and clear drum rolls. The first of these tiers, i.e. Tier 1 is about framing the Balanced Score Card (BSC) by the top management. This is followed by Tier 2 roll out where departmental and unit heads are involved, which then is finally handed down to the shop floor – Tier 3 usually not on a platter though always accompanied by a lot of anxiety and trepidation.
What is a Balanced Score Card (BSC)?
But before we delve any further let us have a working metaphor for BSC. It is a dashboard. It is something like we have in an aircraft’s cockpit which is laid out with wonderful and often beautiful looking array of impressive instruments measuring all sorts of parameters and variables, while an aircraft is in flight. Such a dashboard informs a pilot whether everything is going on track and whether he/she would be able to achieve a given objective of safely flying hapless passengers to their desired destination. That is the good part. The bad part is that these same instruments also inform when something starts to go wrong so that the pilot can take corrective actions to maintain the safety of the aircraft and its passengers, which, fortunately, in most cases they are able to do.
With this metaphor in mind it might be easy to understand as to why a firm’s strategy as outlined by a BSC has four fundamental components or building blocks, which are as follows:
a) Financial Performance
b) Internal Processes
c) Learning and Growth
Clearly all of them are interdependent on one another. The success of such interdependence as a whole would then determine the overall performance, productivity, profitability and future sustainability of the firm.
However, it might be fair to say that creating a strategy through BSC is relatively easier than cascading the strategy down to the shop floor for any measurable improvements to take place. Why is it so? This is because there are no clear cut defined strategies in place. But that is not an error or mistake. It is nearly impossible to think of any pre-defined strategies to take care of implementation. This is simply because of the complexity involved within the whole organization. Therefore, emerging strategies have to evolve. And these would be uniquely different in style, content and application from one strategic unit to the other. Even the implementation strategy for sister units might not be the same. That is precisely the challenge and the beauty of cascading or implementing the broad overall strategy formulated at the top management level.
It is easier to picture it like the famous Russian doll, Matryoshka, having strategies within strategies each with their own implementation plans. It goes without saying that it would not only involve a very liberal dose of applied creativity but also a non-linear process of sense making within the overall complexity of an organization and its various interfaces. Moreover, such measureable improvements must be done quickly enough so as to be reflected in the balance sheet and customer happiness.
Let us now see through some examples of how cascading takes place in real life in some manufacturing units. For want of time and space, I would take only one objective from each component of the overall top strategy of a BSC along with its specific measure and then illustrate the point through a live example, to demonstrate how that objective is effectively met to provide on-going benefit to a manufacturing organization. Perhaps it is not out of place to mention that in each of these cases I have been intimately engaged. That might have possibly left me wiser with a receding hairline that helps me to share such intimate moments with you all.
Financial Performance (the 1st Component)
Objective -> Cost Leadership (this appears to be a very common objective for most manufacturing organizations)
Specific Measure -> Unit cost
This is a case of a polyester yarn producing unit located in the eastern part of India. During the years following economic liberalization they were facing tough competition from the Chinese. While they were selling their yarn at Rs 112 a kg the Chinese competitors were happy selling the same quality of yarn at Rs 97 a kg.
To bring down the cost to a competitive level was a difficult proposition due to various factors the first of which was their complete dependency on import of raw material. Second was their inability to scale up operations owing to chronic fund crunch. Third was the cost of energy that went into the process. So this was a complex problem waiting to be resolved.
Clearly there weren’t any self evident solutions in sight. They would be forced to rely on their imports, pay the energy bills in time without being able to scale up owing to the prohibitive cost of technology that has to be obtained from Japan.
So what was done? They focussed on improving the plant reliability and upgrade their production capability within the given constraints.
With 24 failures in a month plant reliability was extremely poor. Such frequent stoppages also caused a lot of work in progress material loss with the consequent rise in energy cost apart from the poor productivity of the plant.
With this in mind they concentrated on improving plant reliability through the following means –
- Focus on the plant as a whole.
- Understand the ‘failures’ and the nature of the failures that were taking place.
- Implement small inexpensive design changes to improve both performance and reliability
- Implement integrated Condition Based Maintenance by taking a systems approach.
- Try to extract more production out of the given resources with the help of accelerated testing methods.
- To cascade the strategy it took them around 24 weeks (6 months) of intensive effort.
- They could produce 129% of their given capacity, which meant a total reduction of energy cost by around 20% apart from the increase in productivity by 29% using the same resources.
- 24 failures in a month were brought down to 1 failure in a year bringing down both energy cost and loss due to loss of work in progress material.
- Cost of imported spares brought down by more than 50%
- The improvements enabled them to sell their products at a rate of Rs 87/- per kg against the Chinese price of Rs 97/- per kg.
- And they could sustain the on-going benefits for the next five years.
Customer Perspective (the 2nd Component)
Objective -> Responsive Supply
Specific Measure -> On- time delivery (this also appears to be a persistent problem for many manufacturing firms).
With the opening up of markets in India a manufacturing company suddenly found themselves flush with orders, which was much more than what they really expected. As a result they began to fail in their deliver y commitment to their customers and in no time the delay in delivery grew exponentially to touch 725 days. This meant that the unit could only deliver the goods to the customer in 2 years. It was obvious that it wasn’t acceptable to the customer and if this continues the sudden opportunity for accelerated growth the company found themselves in would quickly evaporate.
Considering the cash flow and the company’s resources it was also not possible for the company and the unit to immediately build up on their existing infrastructure to match the demand.
Hence what was done instead was to look at the entire production process and initiate quick changes in the design of the production system, which fundamentally meant the following:
- Institute a ‘factory within factory’ concept. That meant produce different types of products in separate designated spaces instead of everything going together in one space. The amount of space given for each type of product depended both on the product volume and the expected growth in that market segment.
- Instead of measuring their throughput in terms of tonnage they started measuring the throughput in terms of order processed and adapted their processes according to the number of orders to be handled in a month and the committed delivery dates against each order.
- Always trying to find the shortest path to accomplish an order in the shortest possible time. The strategy was to combine flexibility and structure.
- It took them 6 months to implement the strategies to reorient their production systems.
- The delay in delivery was brought down from 725 days to only 17 days.
- The turnover of the company increased from a mere Rs 8 Crores (Rs 1 Cr is around $ 0.2 million) to over Rs 150 Crores in the next 5 years (i.e. over 15 fold increase) without any major capital investment to boost their infrastructure.
- The cost of production went down drastically and their profitability improved by over 50%.
- Now the company has grown to a size of Rs 1500 Crores in just under 12 years from the start of cascading the strategy. It is now a legitimate Indian multi-national having their presence in 4 continents.
Internal Process Perspective (the 3rd Component)
Objective -> Manufacturing Excellence
Specific Measure -> Cycle Time, Yield, Quality etc..
This is a case from a FMCG (Fast Moving Company Goods) company. The company had a strategy to increase their sales of shampoo. In order to do so they thought of penetrating the market of rural India and make its product available to the masses instead of concentrating in the cities for their turnover and survival. In order to do so they strategized to sell their shampoo in small sachets and sell those at Re 1/- per sachet. The idea was grand and it was rolled out from one of their strategic units in India.
For this they bought some expensive machines from Germany and Italy to run a pilot. Soon the pilot became quite successful and the demand for their product was growing by the day. In order to meet the rising demand they would have to quickly do something to boost their productivity and quality else the new found market would soon be taken over by their competitors who by that time have deployed similar strategies to tap into the large Indian rural market to ensure sustainability of their business. But they had a few problems in hand, which were the following:
- In order to meet the growing demand they would have to increase their productivity from their present level of 60 sachets per minute per machine to around 80 sachets per minute per machine. But their present machines just would not allow that to happen. As soon as they wanted to step up the production rate the machines violently shook from a level of around 15 microns to 65 microns making it impossible to continue operation.
- This meant that they would have to augment their production system by adding 10 more new machines each of which would cost them a little over Rs 1 Crore (around $ 0.2 million). The return on investment on the additional Rs 10 Crore in 2 years time wasn’t working out. The additional problem was that such machines were neither designed nor built in India. So none had the expertise to help the company with a cheaper but more effective machine.
- In addition the wastage of material with the present process was around 8%. That was pushing up costs which was undesirable in the cost conscious business landscape the company wanted to grow in.
- Then there was another major issue. The sealing of the sachets was giving way under pressure which led to loss of material and customer complaints. Such losses occurred during transportation and during end use of the product.
- On top of all this there was an rigid labor issue. The contract with the labor union was to operate at the maximum designed rate of 60 sachets per min and not go beyond that. They would only agree to produce more than the agreed rate only if the company procured higher rated machines.
So, the problem as a whole seemed insurmountable. Moreover it appeared to be a problem that involved many disciplines like Quality, Maintenance, Production, Finance, Personnel etc. It was clear from some initial efforts that this complex problem cannot be addressed by the usual reductionist approach to solve problems.
Since the company was not making any headway they decided on the following strategy:
- Redesign the machine by not only keeping the functional objectives in mind but also find ways to address the present failures and problems to improve upon the situation.
Soon a completely new design was drawn up and local vendors were engaged to build the machine. Initially one machine was built to test out how it works.
- The machine effortlessly produced 80 sachets a min. That meant an increase in productivity and energy conservation.
- The vibration level at the enhanced rate of production was only 6 microns way below the previous level of 65 microns.
- Material loss reduced from 8% to less than 1% helping them achieve cost effectiveness.
- The sealing problem vanished.
- More importantly the machine could be designed and built at Rs 7 Lacs, which was less than 1/10 the cost of an imported piece of machinery.
- However, the more important point was that workers cooperated in the production process as promised. The production process was re-designed accordingly.
- The company achieved its given strategy by installing 10 such new machines at the cost of 1 imported machine giving them an ROI in less than a year’s time.
- The company continues to enjoy the on-going benefits till date.
Learning and Growth Perspective (the 4th Component)
Objective -> Manufacturing Learning (a vital but often overlooked fact in manufacturing units)
Specific Measure -> Time to design a new product and quickly bring it to market
I think Product Design and Development would soon become a very important aspect for Indian companies in as our focus on manufacturing keeps growing if we are to keep up with other competing nations in the manufacturing sector.
The usual reason of not being able to keep up with the desired pace of creating and bringing in new products in the market that is cited and felt is the lack of adequate manpower – those who might be exclusively dedicated to this purpose since all manufacturing units try their best to operate on minimum possible manpower taking cost into consideration.
However, we would see in the following case how this problem can be cleverly addressed without much strain on manpower or budgets. This is indeed a true leading indicator of strategy that would help any manufacturing organization to be in good stead as learning within the organization grows.
An Indian MNC felt the need of quickly developing a few new products and also improve upon their existing products to suit changing requirement of the market and also to face competition. However, for reasons as cited above, the company was in a fix as to how this issue might be properly addressed to increase their haul of patents to help them penetrate new markets and grab a part of the market share from their competitors.
What was done?
- Every year students in their third year of engineering go for internship by being attached to some company doing real work. This was the opportunity that was exploited. Five to six good students from a good engineering college were carefully selected or handpicked through an innovative process making them eligible for a paid internship with the company to work upon new product development and improving design of existing products.
- The new interns are given a liberal dose on how design improvements are done and how new designs are created. This was supported by live examples with hands on understanding. They are then given a firsthand experience of the applications and the manufacturing processes that produce the product. This is followed by presentation of the design problems.
- The interns work on these problems for around 2 months with minimum guidance (based on the principle of self organized learning) to bring their concepts to the prototype stage before they return to their college for their academic sessions. Their designs are then subjected to rigorous tests including field tests. If it passes the tests the product is given the finishing touches to form the final shape.
- Once through, the new products are rapidly introduced in the market.
- The time taken to complete such a process is around 3 to 6 months.
- This method has now been tested over the last 5 years. In this short span the company has been able to obtain 12 new patents in international markets and many of their existing designs were upgraded.
- With a slew of new or upgraded products backing them, the company has been able to make inroads into markets which were thought to be impenetrable at one point of time thereby making their presence felt in existing markets which helped them to flourish and create a ‘niche’.
- It has proven to be extremely cost effective. However to step up on the proven success the next natural course of action would be to go for more open innovation.
Lessons Learned and Conclusions:
- Cascading the strategies of a Balanced Score Card is often difficult and at times confusing. The primary reason for this is not the lack of management focus or lack of employee ‘buy in’ as usually thought. The difficulty of cascading lies in the difference in the perspective we take on improvement and cascading strategies. The usual perspective is the linear perspective. We think that cause and effect are directly linked for anything we would like to improve upon. Unfortunately that is not the case. The world of manufacturing is a highly complex system that necessarily calls for a different type of skill set to negotiate the given non-linearity within this complexity.
- In most cases of improvement initiatives, we focus on changing people’s ‘behaviour’ through some methodology. My experience has shown that such a perception hardly works or to tell the truth has not worked at all. The trick is to focus on either changing the behaviour of products or machines or technology or focus on ‘failures’, which then changes the collective consciousness of the organization to create good hard value that sustains the organization in the long run. This as I find is a proven and effective route to change human behaviour for the better. It also makes their job and life easier and effective leaving human beings to do what they do best – that is focus on exceptions rather than focus on periodicity.
- In every case that we discussed was focussed on any or all of the following: a) Productivity b) Performance c) Profitability. However, the spin offs are of no lesser importance, which are a) Energy conservation b) Material conservation c) Cost effectiveness d) Sustainability. It helps the society and our planet at large. And in every case the underlying focus has continued to remain on ‘failures’. So ‘failures’ and their nature inform both strategy and its cascading to create value. The principle that is involved is ‘model failures’ not ‘systems’.
- Lastly, there is no ‘one hat that fits all’. Every case as I have tried to show is unique in its own context. What works in one situation might not work at all in other situations, however similar they might appear. Therefore, strategies, innovations and implementation plans are to be worked out based on the emerging context a manufacturing organization operates in. Only some clever thinking would not do. Only some brilliant ‘doing’ would not do either. The difference lies in thinking and doing things differently and contextually. This is the only difference that creates the essential difference in performance. It calls for contextual intelligence which when developed to a collective level is simply unstoppable.
Let us create the difference that creates the difference in our lives. So much depends on us to build a sustainable future for the next seven generations. And the best thing is we don’t need a big theory to create that essential difference since we live in a non-linear world that calls for creative non-linear approach. We call this a Nemetic approach to life. And it works. We as Nemeticians assert this claim with evidence based confidence.
Note: It does not really matter whether we improve through BSC or Business Case or Business Plan since the principles of long lasting changes and improvement remain exactly the same. The principles of Nemetics employed to improve any situation goes beyond all changing terminologies, which are often called fads. Surprisingly, the same principles can be employed in Design, Health, Education and a host of things.
a) Research notes of the Institute
b) Discussion notes with Gautum Dhar, Mgr, TMKPL on pitfalls of cascading BSC.
The author wishes to thank Mr Fabian Szulanski for encapsulating the Nemetic idea through his slogan ‘Don’t Model Systems; Model Failures instead’
The author, Dibyendu De, might be contacted over email – email@example.com