Chapter 3

DESCRIPTIVE ANALYTICS II:

BUSINESS INTELLIGENCE AND
DATA WAREHOUSING

1
LEARNING OBJECTIVES
3.1 Understand the basic definitions and concepts of data
warehousing
3.2 Understand data warehousing architectures
3.3 Describe the processes used in developing and managing data
warehouses
3.4 Explain data warehousing operations
3.5 Explain the role of data warehouses in decision support
3.6 Explain data integration and the extraction, transformation, and
load (ETL) processes
3.7 Understand the essence of business performance management
(BPM)
3.8 Learn balanced scorecard and Six Sigma as performance
measurement systems

2
 Data Warehouse

 A physical repository where relational data are specially organized to

provide enterprise-wide, cleansed data in a standardized format
 A relational database? (so what is the difference?)
 “The data warehouse is a collection of integrated, subject-oriented
databases designed to support DSS functions, where each unit of data is
non-volatile and relevant to some moment in time” (Inmon)
 A copy of transaction data specifically structured for query and analysis
(Kimball)
 A data warehouse is a repository of an organization's electronically
stored data, designed to facilitate reporting and analysis . (Wikipedia)
• A decision support database that is maintained separately from the
organization’s operational database.
• Support information processing by providing a solid platform of
consolidated, historical data for analysis.
3
 4 main characteristics of data warehousing

1. Subject oriented
• Organized around major subjects, such as sales progress
• Containing only information relevant for decision support
• Focusing on the modeling and analysis of data for decision makers,
not on daily operations or transaction processing
• For example, to learn more about your company's sales, you can
build a warehouse that concentrates on sales.
Using this warehouse, you can answer questions like "Who was our
best customer for this item last year?" This ability to define a data
warehouse by subject matter, sales in this case, makes the data
warehouse subject oriented (http://docs.oracle.com/)

4
 4 main characteristics of data warehousing

2. Integrated
• Constructed by integrating multiple, various
data sources
• Must place data from different sources into
a consistent format, to do so they must deal
with naming conflict and discrepancies
• Data cleaning and data integration
techniques are applied
• Ensure consistency in naming conventions
among different data sources
• When data is moved to the warehouse, it is
converted 5
4 main characteristics of data warehousing

3. Time variant (time series)

• maintains historical data, data for analysis from multiple
sources contain multiple time points
A data warehouse's focus on change over time
• The time horizon for the data warehouse is significantly
longer than that of operational systems
 Operational database: current value data
 Data warehouse data: provide information from a historical
perspective (e.g., past 5-10 years)
6
4 main characteristics of data warehousing

4. Non-volatile
 After data are entered into a data warehouse, users cannot
change or update the data.
 Operational update of data does not occur in the data
warehouse environment
 Does not require transaction processing, recovery, and
concurrency control mechanisms
 Requires only two operations in data accessing:
• Initial loading of data and
• Access of data 7
 Other DWs Characteristics

 Summarized
 Not normalized
 Metadata
 Web based, relational/multi-dimensional
 Client/server, real-time/right-time/active...
Summary of Data Warehouse

• Runs on a DBMS such as Oracle, SQL, DB2 …

• Keeps a large amount of data from different time for a long
period of time
• Data in data warehouse cannot be overwritten by users
• Data comes from various sources, internally and externally
• Carefully designed to allow for analysis / pattern discovery
on identified subject matter

9
Data Mart

A departmental small-scale “DW” that stores only

limited/relevant data
 Dependent data mart
A subset that is created directly from a data warehouse
 Independent data mart
A small data warehouse designed for a strategic business unit
or a department
Other DW Components

 Operational data stores (ODS)

 A type of database often used as an interim area for a data
warehouse
 Oper marts
 An operational data mart
 Enterprise data warehouse (EDW)
 A data warehouse for the enterprise
 Metadata – “data about data”
 In DW metadata describe the contents of a data warehouse
and its acquisition and use
 12

DW for Data-Driven Decision Making

• An example of a DW supporting data-driven decision making
in automotive industry
 13

A Generic DW Framework

Data Applications
Sources No data marts option (Visualization)
Data
Marts Routine
ERP Business
ETL
Reporting
Process
Data mart
Select (Marketing)
Legacy Metadata Data/text
Extract mining
Data mart
Transform Enterprise (Operations)
POS Data warehouse
OLAP,
Integrate
Data mart Dashboard,
(Finance) Web
Other Load
OLTP/Web
Replication Data mart
(...) Custom built
External
applications
Data
 14

DW Architecture
• Three-tier architecture

1. Data acquisition software (back-end)

2. The data warehouse that contains the data & software

3. Client (front-end) software that allows users to access and

analyze data from the warehouse
• Two-tier architecture
– First two tiers in three-tier architecture are combined into one

… sometimes there is only one tier?

DW Architectures

3-tier
architecture

2-tier 1-tier
architecture Architecture?
Tier 1: Tier 2:
Client workstation Application & database server
Data Warehousing Architectures

• Issues to consider when deciding which architecture to use:

– Which database management system (DBMS) should be
used?
– Will parallel processing and/or partitioning be used?
– Will data migration tools be used to load the data
warehouse?
– What tools will be used to support data retrieval and
analysis?
 17

A Web-based DW Architecture
 18

Alternative DW Architectures (1 of 2)
(a) Independent Data Marts Architecture

ETL
End user
Source Staging Independent data marts
access and
Systems Area (atomic/summarized data)
applications

(b) Data Mart Bus Architecture with Linked Dimensional Datamarts

ETL
Dimensionalized data marts End user
Source Staging
linked by conformed dimentions access and
Systems Area
(atomic/summarized data) applications
 19

Alternative DW Architectures (2 of 2)
(d) Centralized Data Warehouse Architecture

ETL
Normalized relational End user
Source Staging
warehouse (atomic/some access and
Systems Area
summarized data) applications

• Each architecture has advantages and disadvantages!

• Which architecture is the best?

 20

Ten Factors that Potentially Affect the

Architecture Selection Decision
1. Information interdependence between organizational units
2. Upper management’s information needs
3. Urgency of need for a data warehouse
4. Nature of end-user tasks
5. Constraints on resources
6. Strategic view of the data warehouse prior to implementation
7. Compatibility with existing systems
8. Perceived ability of the in-house IT staff
9. Technical issues
10. Social/political factors
 Data Integration and the Extraction, Transformation,
and Load Process (1 of 2)
 ETL = Extract Transform Load
 Data integration
 Integration that comprises three major processes: data access,
data federation, and change capture.
 Enterprise application integration (EAI)
 A technology that provides a vehicle for pushing data from
source systems into a data warehouse
 Enterprise information integration (EII)
 An evolving tool space that promises real-time data integration
from a variety of sources, such as relational or multidimensional
databases, Web services, etc.
Data Warehouse Development

 Data warehouse development approaches

 Inmon Model: EDW approach (top-down)
 Kimball Model: Data mart approach (bottom-up)
 Which model is best?
 Table 3.3 provides a comparative analysis between EDW
and Data Mart approach
 Another alternative is the hosted data warehouses
 Comparing EDW and Data Mart (1 of 2)
Table 3.3 Contrasts between the DM and EDW Development Approaches
Effort DM Approach EDW Approach
Scope One subject area Several subject areas
Development time Months Years
Development cost $10,000 to $100,000+ $1,000,000+
Development difficulty Low to medium High
Data prerequisite for sharing Common (within business area) Common (across enterprise)
Sources Only some operational and external Many operational and external
systems systems
Size Megabytes to several gigabytes Gigabytes to petabytes
Time horizon Near-current and historical data Historical data
Data transformations Low to medium High
Comparing EDW and Data Mart (2 of 2)
Table 3.3 [continued]
Effort DM Approach EDW Approach
Update frequency Hourly, daily, weekly Weekly, monthly
Technology Blank Blank
Hardware Workstations and departmental Enterprise servers and mainframe
Servers computers
Operating system Windows and Linux Unix, Z/OS, OS/390
Databases Workgroup or standard Enterprise database servers
database servers
Usage Blank Blank
Number of simultaneous Users 10s 100s to 1,000s
User types Business area analysts and Enterprise analysts and senior
Managers executives
Business spotlight Optimizing activities within the Cross-functional optimization and
business area decision making
Additional DW Considerations Hosted Data
Warehouses
 Benefits:
 Requires minimal investment in infrastructure
 Frees up capacity on in-house systems
 Frees up cash flow
 Makes powerful solutions affordable
 Enables solutions that provide for growth
 Offers better quality equipment and software
 Provides faster connections
 … more in the book
Representation of Data in DW

 Dimensional Modeling
 A retrieval-based system that supports high-volume query
access
 Star schema
 The most commonly used and the simplest style of
dimensional modeling
 Contain a fact table surrounded by and connected to several
dimension tables
 Snowflakes schema
 An extension of star schema where the diagram resembles a
snowflake in shape
Multidimensionality

The ability to organize, present, and analyze data by several

dimensions, such as sales by region, by product, by salesperson,
and by time (four dimensions)
 Multidimensional presentation
 Dimensions: products, salespeople, market segments,
business units, geographical locations, distribution
channels, country, or industry
 Measures: money, sales volume, head count, inventory
profit, actual versus forecast
 Time: daily, weekly, monthly, quarterly, or yearly
 28

Star Schema versus Snowflake Schema

OLTP

 OLTP (on-line transaction processing):

• Major task of traditional relational DBMS

• Day-to-day operations: purchasing, inventory, banking,

manufacturing, payroll, registration, accounting, etc.

• Database type : Operational

29
OLAP

• OLAP (on-line analytical processing) is a reporting application

that provides high-performance analysis and easy reporting on
large volumes of data
• The goals of OLAP:
– multidimensional data analysis,
– provide fast and flexible data summarization, analysis, and
reporting capabilities
– ability to view trends over time
 Type of database : Data warehouse

30
 OLTP vs OLAP
OLTP OLAP
Users Clerk, IT professional Knowledge worker
Function Day to day operations Decision support
To suit typical database function Designed for reporting on
DB Design
of update, edit, delete, relational Subjects, data warehouse
Historical, summarized,
Current, up-to-date
Data integrated, multidimensional,,
detailed,
consolidated
Usage Repetitive, structured Ad-hoc, un-structured
Access Read/write Read. Lots of scans
Type of Work Short, simple transaction Complex query
# Records Accessed Tens Millions
# Users Thousands Hundreds, Tens
31
DB Size 100MB-GB 100GB-TB
OLAP Operations

 Slice - a subset of a multidimensional array

 Dice - a slice on more than two dimensions
 Drill Down/Up - navigating among levels of data ranging
from the most summarized (up) to the most detailed
(down)
 Roll Up - computing all of the data relationships for one or
more dimensions
 Pivot - used to change the dimensional orientation of a
report or an ad hoc query-page display
 33

OLAP
• Slicing Operations on a Simple Tree-Dimensional Data Cube

A 3-dimensional
OLAP cube with Sales volumes of
slicing a specific Product
operations on variable Time
and Region

e
m
Ti
Product
Geography

Cells are filled

with numbers
Sales volumes of
representing a specific Region
sales volumes on variable Time
and Products

Sales volumes of
a specific Time on
variable Region
and Products
Successful DW Implementation Things to Avoid

 Starting with the wrong sponsorship chain

 Setting expectations that you cannot meet
 Engaging in politically naive behavior
 Loading the data warehouse with information just because it
is available
 Believing that data warehousing database design is the same
as transactional database design
 … more in the book
Massive DW and Scalability

 Scalability
 The main issues pertaining to scalability:
 The amount of data in the warehouse
 How quickly the warehouse is expected to grow
 The number of concurrent users
 The complexity of user queries
 Good scalability means that queries and other data-
access functions will grow linearly with the size of the
warehouse
 How the database looks like for the two types

 The operational database (relational):

36
 How the database looks like for the two types

 The datawarehouse (star schema):

37
 DW Administration and Security

 Data warehouse administrator (DWA)

 DWA should…
 have the knowledge of high-performance software, hardware, and
networking technologies
 possess solid business knowledge and insight
 be familiar with the decision-making processes so as to suitably
design/maintain the data warehouse structure
 possess excellent communications skills
 Security and privacy is a pressing issue in DW
 Safeguarding the most valuable assets
 Government regulations (HIPAA, etc.)
 Must be explicitly planned and executed
 39

The Future of DW
• Sourcing…
– Web, social media, and Big Data
– Open source software
– SaaS (software as a service)
– Cloud computing
– Data lakes
• Infrastructure…
– Columnar
– Real-time DW
– Data warehouse appliances
– Data management practices/technologies
– In-database & In-memory processing New DBMS
– New DBMS, Advanced analytics, …
 40

Data Lakes
• Unstructured data storage technology for Big Data
• Data Lake versus Data Warehouse
Data lakes store all types of raw data, which data scientists may then use for a variety
of projects. Data warehouses store cleaned and processed data, which can then be
used to source analytic or operational reporting, as well as specific BI use cases.

Table 3.6 A Simple Comparison between a Data Warehouse and a Data Lake
Dimension Data Warehouse Data Lake
The nature of data Structured, processed Any data in raw/native format
Processing Schema-on-write (SQL) Schema-on-read (NoSQL)
Retrieval speed Very fast Slow
Cost Expensive for large data volumes Designed for low-cost storage
Agility Less agile, fixed configuration Highly agile, flexible configuration
Novelty/newness Not new/matured Very new/maturing
Security Security Not yet well-secured
Users Business professionals Data scientists
Business Performance Management (1 of 2)

 Business Performance Management (BPM) is…

A real-time system that alerts managers to potential
opportunities, impending problems, and threats, and then
empowers them to react through models and collaboration
 Also called corporate performance management (CPM by
Gartner Group), enterprise performance management (EPM
by Oracle), strategic enterprise management (SEM by SAP)
Business Performance Management (2 of 2)

 BPM refers to the business processes, methodologies,

metrics, and technologies used by enterprises to measure,
monitor, and manage business performance.
 BPM encompasses three key components
 A set of integrated, closed-loop management and analytic
processes, supported by technology …
 Tools for businesses to define strategic goals and then
measure/manage performance against them
 Methods and tools for monitoring key performance
indicators (KPIs), linked to organizational strategy
 43

A Closed-Loop Process to Optimize Business

Performance
• Process Steps

1. Strategize
2. Plan
3. Monitor/analyze
4. Act/adjust
Each with its own sub-
process steps
 44

1 - Strategize: Where Do We Want to Go?

• Strategic planning
– Common tasks for the strategic planning process:
1. Conduct a current situation analysis
2. Determine the planning horizon
3. Conduct an environment scan
4. Identify critical success factors
5. Complete a gap analysis
6. Create a strategic vision
7. Develop a business strategy
8. Identify strategic objectives and goals
2 - Plan: How Do We Get There?

 Operational planning
 Operational plan: plan that translates an organization’s
strategic objectives and goals into a set of well-defined
tactics and initiatives, resource requirements, and
expected results for some future time period (usually a
year).
 Operational planning can be
 Tactic-centric (operationally focused)
 Budget-centric plan (financially focused)
3 - Monitor/Analyze: How Are We Doing?

 A comprehensive framework for monitoring performance

should address two key issues:
 What to monitor?
 Critical success factors
 Strategic goals and targets
 How to monitor?
4 - Act and Adjust: What Do We Need to Do
Differently?

 Success (or mere survival) depends on new projects:

creating new products, entering new markets, acquiring new
customers (or businesses), or streamlining some process.
 Many new projects and ventures fail!
 What is the chance of failure?
 60% of Hollywood movies fail
 70% of large IT projects fail, …
Why …

 Can we operate on operational database to obtain the answers

to our business questions?
 Answer: require complex query formulation, preparation of
data to address the query and if use the operational database,
the process will be very slow due to complex joins and
multiple scans
 A typical data warehouse query scans thousands or millions of
rows. For example, "Find the total sales for all customers last
month."
 A typical OLTP operation accesses only a handful of records. For
example, "Retrieve the current order for this customer." 48
 Data Warehousing - Concept

Data mart
 Smaller and focuses on a particular subject or department.
 It is a subset of data warehouse/departmental data warehouse
 A data mart is a smaller DW designed around one problem, organizational
function, topic, or other focus area.
Can be Dependent data mart
 A subset that is created directly from a data warehouse
 Ensures that the end user is viewing the same version of the data that are
accessed by all other data warehouse users
Or Independent data mart
 A small data warehouse designed for a strategic business unit or a
department
49
 Data Warehousing - Concept

 Enterprise data warehouse (EDW)

 A large scale data warehouse used across the enterprise for
decision support
 Used to provide data for many types of DSS, including
CRM, supply chain management, BPM, KMS etc
 Metadata
 Data about data. In a data warehouse, metadata describe the
contents of a data warehouse and the manner of its use.
 Metadata in layman term: Metadata describes other data. It provides information about a
certain item's content. For example, an image may include metadata that describes how large
the picture is, the color depth, the image resolution, when the image was created, and other
data. http://www.techterms.com/definition/metadata 50
Data Warehousing - Process Overview

The data warehousing process consists of the following steps:

1. Data are imported from various internal and external sources
2. Data are cleansed and organized consistently with the organization’s
needs

3a. Data are loaded into the enterprise data warehouse

4a.If desired, data marts are created as subsets of the EDW

—or—
3b.Data are loaded into data marts
4b.The data marts are consolidated into the EDW

5. Analyses are performed as needed 51

Data Warehousing - Process Overview

The major components of a data warehousing process

• Data sources. Data are sourced from operational systems and possibly from
external data sources.
• Data extraction. Data are extracted using custom-written or commercial
software called ETL (Extract, Transform, and Load).
• Data loading. Data are loaded into a staging area, where they are transformed
and cleansed. The data are then ready to load into the data warehouse.
• Data warehouse/Comprehensive database. This is the EDW that supports
decision analysis by providing relevant summarized and detailed information.
• Middleware tools. Middleware tools enable access to the data warehouse
from a variety of front-end applications.

52
Data Warehousing - Process Overview

53
Data Warehousing Architectures
 There are several basic architectures for data warehousing
 To distinguished the architectures data warehouse is divided
into three parts:
 The data warehouse itself
 Data acquisition (back-end) software, which extracts data from legacy
systems and external sources, consolidates and loads into the data
warehouse
 Client (front-end) software, which allows users access and analyze data
from the warehouse

54
Data Warehousing Architectures

55
 Data Warehousing Architectures

Factors that potentially affect the architecture selection decision:

1. Information interdependence between organizational units
2. Upper management’s information needs
3. Urgency of need for a data warehouse
4. Constraints on resources, funding
5. Strategic view of the data warehouse prior to implementation
6. Compatibility with existing systems
7. Perceived ability of the in-house IT staff
8. Technical issues, technology
9. Social/political factors/nature of users
56
Data Integration: The Extraction,
Transformation, and Load (ETL) Process

Data integration is a term that

covers three processes which
combine to move data from
multiple sources into a data
warehouse:
1. accessing the data,
2. combining different views of
the data (federation), and
3. capturing changes to the
data

57
 Data Integration : The Extraction,
Transformation, and Load (ETL) Process

Extraction, transformation, and load (ETL) technologies

 Fundamentally, a DW could not exist without ETL
 The ETL process consists of:
 extraction (reading data from one or more databases),
 transformation (converting the extracted data from its previous
form into the form in which it needs to be so that it can be
placed into a data warehouse)
 load (putting the data into the data warehouse)
 The ETL process also contributes to the quality of the data in a
DW, its purpose is to load the data warehouse with integrated and
cleansed data 58
 Data Transformation Tools – To purchase or to build?

• The process can either be done through

– purchasing data transformation tools and setup ETL, or
– purchase the tool together with the expertise to setup ETL, or
– developing the tools using programming languages.

• Programmers can set up ETL processes using almost any

programming language, but building such processes from scratch
is very complex.

59
Data Transformation Tools – To purchase or to build?

• Increasingly, companies are buying ETL tools to help in the

creation of ETL process (Wikipedia)
• Examples of ETL tools
– IBM InfoSphere DataStage
– Microsoft SQL Server Integration Services (SSIS)
– Oracle Data Integrator (ODI)

60
 Data Transformation Tools –
To purchase or to build? A Consideration
 Should organization purchase data transformation tools or build
the transformation process itself ?
 Data transformation tools are expensive
 Data transformation tools may have a long learning curve
 It is difficult to measure how the IT organization is doing until it
has learned to use the data transformation tools
 Not an easy decision !
 However many believe purchasing the tools should be able to
kick start the project faster and simplify the maintenance of the
data warehouse . 61
 Data Warehouse Development

• Choosing the vendors

– Six guidelines to consider a vendor
1. Financial strength
2. Qualified consultants
3. Market share
4. Industry experience
5. Established partnerships
6. These indicate that a vendor is likely to be in business
for the long term, to have the support capabilities its
customers need, and to provide products that
interoperate with other products the potential user has
or may obtain.
62
 Data Warehouse Development

 A data warehousing project is a major undertaking.

 More complicated as it comprises and influences many
departments, input output interfaces and can be part of business
strategy.
 Data warehouse development approaches
 Inmon Model: EDW approach
 Kimball Model: Data mart approach
 Which model is best?
 There is no one-size-fits-all strategy to data warehousing
 It depends on the need and the capacity of the organization
 For many organizations, data mart approach is a convenient
first step in implementing DW 63
Data Warehouse Development
Kimball Model Inmon Model

Pros: Pros:
Easy to build organizationally Business Enterprise View
Easy to build technologically Design consistency
Cons: Data reusability
Enterprise wide view unavailable Cons:
Redundant data costs Require corporate leadership and vision
High ETL costs
High DBA costs 64
Eventually it can be this …

65
 Data Warehouse Development

Effort Data Mart (Kimball EDW (Inmon Model)

Model)
Scope One subject area Several subject areas
Development Time Months Years
Development Cost $10K - $100 K ++ $1000000 ++
Development Difficulty Low to medium High
Sources Only some operational and Many operational and
external systems external systems
Size Megabytes to several Gigabytes to petabytes
gigabytes
Hardware Workstations and Enterprise servers and
departmental servers mainframe
OS Windows and Linux Unix, S/390
66
Number of simultaneous 10s 100s to 1000s
users
Real-Time Data Warehousing

 Traditionally, a data warehouse are not business critical, data are

commonly updated on a weekly basis – not allowing for
responding to transactions in near real time
 Today, organizations are facing the need for real-time data
warehousing, as decision support has become operational.
 The emergence of real-time data warehousing (RDW) or
active data warehousing (ADW)
 The process of loading and providing data via a data warehouse
as they become available .
67
Real-Time Data Warehousing

 The need for real-time data

 A business often cannot afford to wait a whole day for its
operational data to load into the data warehouse for analysis
 Real-time data collection can reduce or eliminate the nightly
batch processes

68
Data Warehouse
Administration and Security Issues
 Due to its huge size and complicated nature, DW requires strong
monitoring and administrating
 Needs more than a DBA
 Needs data warehouse administrator (DWA)
A person responsible for the administration and management of
a data warehouse

69
Data Warehouse
Administration and Security Issues
What skills should a DWA possess? Why?
 Familiarity with high-performance hardware, software and
networking technologies, since a data warehouse is based on
those.
 Solid business insight, to understand the purpose of the DW
and its business justification, familiarity with business
decision, making processes to understand how the DW for
business strategic purpose will be used easy.
 Excellent communication skills, to communicate with the
rest of the organization 70
 Data Warehouse
Administration and Security Issues
Effective security in a data warehouse should focus on four main areas:
1. Establishing effective corporate and security policies and procedures. An
effective security policy should start at the top and be communicated to
everyone in the organization.
2. Implementing logical security procedures and techniques to restrict access. This
includes user authentication, access controls, and encryption.
3. Limiting physical access to the data center environment.
4. Establishing an effective internal control review process for security and
privacy
71
Performance Measurement

 Performance measurement system

A system that assists managers in tracking the
implementations of business strategy by comparing actual
results against strategic goals and objectives
 Comprises systematic comparative methods that indicate
progress (or lack thereof) against goals
KPIs and Operational Metrics
• Key performance indicator (KPI)
A KPI represents a strategic objective and metrics that
measure performance against a goal
• Distinguishing features of K P I s
– Strategy
– Targets
– Ranges
– Encodings
– Time frames
– Benchmarks
 74

Performance Measurement 2

• Key performance indicator (KPI)

Outcome KPIs Driver KPIs

(lagging indicators e.g., revenues) (leading indicators e.g., sales leads)

• Operational areas covered by driver KPIs

– Customer performance
– Service performance
– Sales operations
– Sales plan/forecast
 75

Performance Measurement System

• Balanced Scorecard (BSC)

A performance measurement and management methodology

that helps translate an organization’s financial, customer,
internal process, and learning and growth objectives and
targets into a set of actionable initiatives

“The Balanced Scorecard: Measures That Drive

Performance”

(HBR, 1992)
 76

Balanced Scorecard
The meaning of “balance”?

Financial
Perspective

Internal
Customer VISION & Business
Perspective STRATEGY Process
Perspective

Learning and
Growth
Perspective
Six Sigma as a Performance Measurement System

 Six Sigma
A performance management methodology aimed at reducing
the number of defects in a business process to as close to
zero defects per million opportunities (DPMO) as possible
 The DMAIC performance model
A closed-loop business improvement model that
encompasses the steps of defining, measuring, analyzing,
improving, and controlling a process
 Lean Six Sigma
 Lean manufacturing / lean production
 Lean production versus six sigma?
 Comparison of BSC and Six Sigma (1 of 2)
Table 3.7 Comparison of the Balanced Scorecard and Six Sigma
Balanced Scorecard
Strategic management system
Relates to the longer-term view of the business
Designed to develop a balanced set of measures
Identifies measurements around vision and values
Critical management processes are to clarify
vision/strategy, communicate, plan, set targets, align
strategic initiatives, and enhance feedback
Six Sigma
Performance measurement system
Provides snapshot of business’s performance and
identifies measures that drive performance toward
Profitability
Designed to identify a set of measurements that
impact profitability
Establishes accountability for leadership for wellness
and profitability
Includes all business processes—management and
operational
Comparison of BSC and Six Sigma (2 of 2)
Table 3.7 [continued]
Balanced Scorecard
Balances customer and internal operations without a
clearly defined leadership role
Emphasizes targets for each measurement
Emphasizes learning of executives based on feedback
Focuses on growth
Heavy on strategic content
Management system consisting of measures
Six Sigma
Balances management and employees’ roles; balances
costs and revenue of heavy processes
Emphasizes aggressive rate of improvement for each
measurement, irrespective of target
Emphasizes learning and innovation at all levels based
on process feedback; enlists all employees’
Participation
Focuses on maximizing profitability
Heavy on execution for profitability
Measurement system based on process management
Effective Performance Measurement Should

 Measures should focus on key factors.

 Measures should be a mix of past, present, and future.
 Measures should balance the needs of shareholders,
employees, partners, suppliers, and other stakeholders.
 Measures should start at the top and flow down to the
bottom.
 Measures need to have targets that are based on research
and reality rather than arbitrary.