A Holistic Framework for Business Excellence

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1 Tutorials, J. Roberts Research Note 9 June 2003 A Holistic Framework for Business Excellence Most enterprises seek continuous improvement in the quality of their products, services and management. A holistic assessment framework helps enterprises align resources and initiatives to achieve strategic objectives. Core Topic Business Management of IT: Service Management Strategies Key Issue How can IS organizations credibly prove their value and competitiveness? The fathers of the quality movement to improve productivity and performance are W. Edwards Deming and Joseph M. Juran. They championed the concepts of process control, measurement and planning to produce products that are "fit for purpose." In the 1980s, books by Phillip B. Crosby ("Quality Is Free") and Thomas J. Peters and Robert H. Waterman, Jr. ("In Search of Excellence: Lessons From America's Best-Run Companies") highlighted the characteristics of organizational excellence. In 1985, U.S. Secretary of Commerce Malcolm Baldrige chaired a committee to establish a national quality award, which is now known as the Baldrige National Quality Award. A 1991 survey indicated that successful enterprises were improving their performance in productivity, customer satisfaction, employee relations and profitability. In the mid-1990s, Michael Hammer and James A. Champy's book, "Reengineering the Corporation: A Manifesto for Business Revolution," highlighted the opportunities to transform business processes, and total quality management became very fashionable. The Baldrige National Quality Program and similar programs in Europe and Australia (see Note 1) provide self-assessment methods for performance improvement and awards for performance excellence. The measurement that each program uses are very similar (see Table 1). Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Note 1 Business Excellence Awards United States: Baldrige National Quality Program ( Australia: Business Excellence Australia ( Baldrige National Quality Program Table 1 Criteria for Performance Awards Business Excellence Australia European Foundation for Quality Management Europe: European Foundation for Quality Management ( United Kingdom: British Quality Foundation ( Strategic Planning Customer and Market Focus Strategy and Planning Customer and Market Focus Policy and Strategy Customer Results Society Results Management Analysis and Knowledge Management Knowledge and Information Partnerships and Resources Human Resource Focus People People People Results Process Management Innovation, Quality and Improvement Processes Business Results Source: Gartner Research (June 2003) Success and Sustainability Key Performance Results These criteria can be summarized as follows: 1.. Assess the way that leaders develop, deploy and communicate vision, mission and values throughout the enterprise and the community. This can include governance processes, culture, accountability, performance management systems, empowerment, agility, ethics and social responsibilities. 2. Strategy and Planning. Evaluate the enterprise's ability to develop and sustain its strategies, and how it translates them into action plans. This can include details of planning processes, stakeholder involvement, innovation and risk accommodation, and the tracking of action plans. 3. Customer and Market Focus. Assess the enterprise's methods in understanding its markets and customers, and how it builds effective customer relationships. This can include customer satisfaction and loyalty, complaint management, performance measures and competitive analysis. 4. Information Management. Assess how the enterprise gathers and analyzes internal and external data; manages accuracy, timeliness and availability; and leverages the knowledge of its people. Evaluate how information is used to track daily operations, overall performance and decision making. 5. People. Assess how the enterprise engages with its staff to secure alignment with business objectives, including the organization and management of work, performance management, creating a positive working environment, systems 9 June

3 for employee involvement and communication, hiring, training, career development, and employee motivation and satisfaction. 6. Processes. How does the enterprise design, manage and improve its processes to deliver value for its customers and stakeholders? This may include the use of ISO 9000 standards, quality certification, Six Sigma or similar methodologies to drive continuous improvement, design and innovation, supplier management, customer management, benchmarking, process audits and feedback loops. 7. Business Results. Assess the enterprise's success in achieving its business objectives. This can include financial results, growth, customer satisfaction, products and services development, human resource achievements, asset management, governance and social responsibilities. The Baldrige assessment system examines these categories and the subareas within each category, and evaluates performance in terms of approach the appropriateness and effectiveness of methods; deployment the extent to which the approach is applied throughout the enterprise; and results current outcomes in each category, performance relative to benchmarks, and rates of improvement. The Baldrige scoring system uses a scale of zero percent to 100 percent: Zero percent: No systematic approach is evident; the results are poor. 10 percent to 20 percent: The beginning of a systematic approach appears. There are major gaps in deployment and limited performance metrics during this early stage of transition from reacting to problems to general improvement orientation. 30 percent to 40 percent: An effective, systematic approach that meets basic requirements is early in its deployment; some trend analysis is evident. 50 percent to 60 percent: An effective, systematic approach meets overall requirements and is generally deployed. A factbased evaluation and improvement process is in use; improvement trends and good performance are evident. 70 percent to 80 percent: An effective, systematic approach meets multiple requirements and is extensively deployed. A factbased evaluation and improvement process and organizational learning are key management tools. There is clear evidence of innovation that is well-integrated across multiple areas. 9 June

4 Performance is good to excellent, and improvement trends are sustained. 90 percent to 100 percent: An effective, systematic approach is fully responsive to all requirements and deployed throughout the organization. There is a strong, fact-based, systematic evaluation and improvement process, with extensive organizational learning and sharing, and evidence of innovation and integration across the organization. The approach is fully integrated with organizational needs, with excellent performance results, sustained and significant improvement trends, and evidence of industry benchmark leadership. The results fully address key customer, market, process and action plan requirements. Characteristics of best-practice organizations include clarity and unity of purpose, common values, integrated plans, effective communications, commitment to customer service, well-planned and standardized processes, reliable and timely data, clear performance measures, regular innovation, high levels of employee involvement, partnerships with suppliers, and results that are driven by and fully aligned with business objectives. The challenge is to manage improvements toward best practices across all of these areas simultaneously. If best practices were easily defined and simple to achieve, all enterprises would immediately adopt them. However, enterprises are complex mixtures of people, materials and processes that are influenced by the dynamics of their environments. Successful leaders set clear and consistent directions, serve as role models, and motivate and focus the entire workforce. The business excellence frameworks recognize that quality systems and processes are not enough to guarantee success, so they added another category business results to ensure that winners produce strong and improving results. Success in business will always require making the right decisions at the right time, rather than having the right framework in place. You may fully adhere to Six Sigma's principles and be compliant with the International Organization for Standardization, but still be trying to sell the wrong products in the wrong markets. These frameworks are applicable to entire enterprises, but they can also be applied to operational units such as the internal IS organization. Undertaking an initial assessment of performance using internal staff or an external assessor can help an IS organization to better understand the categories that require the most improvement, while also recognizing the holistic approach required to move toward best practices. The assessment also provides a perspective on where process improvement initiatives, 9 June

5 such as Six Sigma and the IT Infrastructure Library, fit within an overall approach to best practices. As IS organizations increasingly move toward an internal service company model (see "Making the Case for the Customer- Focused ISCo"), it becomes more important to adopt a framework such as business excellence to promote continuous performance improvement. Key Facts: Continuous business improvement requires: An assessment of the current state Recognition of strengths and weaknesses A systematic and holistic approach Metrics to measure improvements Employee participation Consistent leadership Bottom Line: Adopting a holistic framework is invaluable in assessing an IS organization's status, prioritizing improvement opportunities and sustaining an integrated focus on the continuing journey to business and performance excellence. 9 June