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March 20, 2003

Beyond the What

Where performance management and Six Sigma intersect

by Justin Kestelyn

Everyone's looking for an edge these days, even yacht-racers. As reported in the Seattle Times (Dec. 22, 2002), in preparation for the America's Cup 2003, engineers at Oracle BMW Racing — Larry Ellison's yachting organization — designed a controversial radar system that measures live boat performance and delivers that data directly to the sunglass lenses worn by crewmembers, giving new meaning to the term "heads-up" display. (Even so, the team was defeated by the Swiss challenger Alinghi in the Louis Vuitton Cup semifinal round.)

Business managers in intelligent enterprises, facing a fragmentation of information as well as intense pressure to respond immediately to changes in their competitive environments, are looking for much the same thing: the ability to measure, analyze, and fine-tune organizational performance in real time or near-real time (sunglasses optional). But as the Oracle BMW experience illustrates, expensive technology isn't always the deciding factor — whether in yachting or business.

Outcomes, Shmoutcomes

Unfortunately, traditional business intelligence (BI) strategies don't deliver on the performance management promise. As contributing editor Erik Thomsen points out in this issue's cover story ("BI's Promised Land"), BI technologies such as multidimensional databases and visualization tools can only reflect and represent data, and therefore, outcomes. In BI, it's very difficult to move beyond the "what" to the "why" and "how." In contrast, performance management's goal is to represent processes. And as Thomsen explains, "Thinking in terms of processes sets the stage for you to look at entire sets of interconnected events with an emphasis on the factors that explain, drive, or cause outcomes rather than just the outcomes themselves."

In Thomsen's view, the Six Sigma process-control framework should be a valuable source of inspiration for the performance management approach. Invented in 1986 by a Motorola engineer to quantify manufacturing defects, the Six Sigma approach is rapidly becoming a best practice among businesses worldwide, and not just for quality management. Indeed, Six Sigma "Black Belt" certification is now coveted among quality engineers and business leaders alike.

As Motorola itself describes it, Six Sigma "incorporates data and statistical analysis into a project-based workflow that allows businesses to make intelligent decisions about where and how to incorporate improvements." The true value of Six Sigma techniques in performance management, says Thomsen, lies in their ability to uncover the inherent variability of business processes such as sales forecasting. Because how can you fine-tune such processes unless you know where the baseline lies? As Thomsen writes, "knowing that inherent variability ... is the key to understanding the meaning of real-time events and the appropriate decisions that need to be taken as a result."

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The Missing Piece

Most businesses will never enjoy the access to real-time performance information enjoyed by the Oracle BMW crew. However, many are crafting strategic solutions spanning operational, analytic, and scorecarding or dashboard systems. Those that incorporate elements of the Six Sigma methodology into their performance management stack may experience smoother sailing.