Page 35 - Performance Leadership

24 • Part I A Review of Performance Management

deliver the same goods or services for a lower price. Organizations can
also try to influence demand, to make better use of the available
resources, or can influence how much resources (time, money, mate-
rials, labor) are consumed by the company’s activities. The principles
of ABC can be applied to areas broader than cost accounting. For
instance, most organizations today are concerned with customer, prod-
uct or channel profitability. In the case of customer profitability, we
need to identify how much the customer-facing processes cost, how
much they deliver, and how we can use customer segmentation to
optimize different processes for different customer segments. And
increasingly there is an interest in service pricing, where customers’
requests generate products or services. ABC helps to set a profitable
price on these one-off requests.
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Six Sigma is described as a rigorous and disciplined methodology
that utilizes data and statistical analysis to measure and improve a
company’s operational performance, practices and systems. Six Sigma
identifies and prevents defects in manufacturing and service-related
processes. In many organizations, it simply means a measure of qual-
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ity that strives for near perfection. Sigma (the lower-case Greek letter
) is used to represent the standard deviation (a measure of variation)
of a statistical population. The phrase “six sigma process” means that
if you measure six times the standard deviation between the mean out-
come of the process and the nearest critical threshold, there is a mini-
mal chance of failure. Six Sigma is rooted in quality management,
based on, for instance, Deming’s Plan-Do-Check-Act cycle. Six Sigma
is not a project, but a process aimed at continuous improvement.
Processes are continuously monitored, analyzed, improved, and con-
trolled, to ensure that any deviations from target are corrected before
they result in defects. But perhaps the term most connected with Six
Sigma is “black belt,” the name for Six Sigma experts who dedicate
their time to continuous improvement.
In addition to methodologies originating from finance and opera-
tions, there are methodologies with a strategy management background.
Perhaps the biggest step forward in performance management in the
last century is the fundamental understanding of the concept of critical
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success factors (CSFs), originating in the 1960s and widely popularized
in the 1980s. Critical success factors are the limited number of areas in