The Baldrige performance excellence model
How might it be examined in Strategic Business Leader?
In the Strategic Business Leader (SBL) syllabus, the Baldridge model for world class organisations is used as a tool with which business leaders can analyse organisations from a holistic perspective. The model involves looking at seven critical aspects of managing organisational performance, to create and add value to the organisation and increase competitiveness.
2. Why the Baldrige model is so relevant to SBL as a syllabus
SBL is an exam about strategic leadership and the Baldrige model is an ideal way to present and think about performance management, organisational competitiveness and the creation of value. The SBL syllabus contains several main sections and outcomes within the syllabus which relate closely to the factors for success and excellence included within the Baldrige model.
The Baldrige model is shown below in Figure 1:
Baldrige model of Performance Excellence (Malcom Baldrige) by courtesy of Slidesalad ©:
Click diagram to view a larger version
As can be seen in Figure 1 above, there are essentially seven critical aspects which may be considered in managing performance excellence and competitiveness. At the top of the model is the context in which the organisation finds itself (Organisational Profile) which may be determined by applying various strategic models such as SWOT or PESTEL, which involve an understanding of the organisation itself, its environment and current strategic position.
The Baldrige model suggests that strategic business leaders should focus on the above aspects in combination, to ensure effective management of business performance to create excellence and improve competitiveness across the organisation.
3. How to manage performance excellence using the Baldrige model
Looking at the model in Figure 1 above more closely, as far as its main elements are concerned, the model starts with leadership because effective leadership is the cornerstone of excellent performance and competitiveness. Although not specifically mentioned in the model, strong and effective leadership should be supported by robust governance. Looking at the Organisation Profile section of the model (across the top) leaders must first be able to understand the business environment and the strengths and weaknesses of their organisations and their current strategic position, to identify and select alternative strategic options. For a proper evaluation of the strategic options, business leaders must take into account risk factors, but must clearly understand and focus on building strong and productive relationships with customers, as the immediate source and creators of value.
For any strategy to be implemented successfully, which may involve change (some of it potentially disruptive), business leaders must primarily focus on its customers, but also on the workforce and on the effective management of operations (and processes) carried out by that workforce, to ensure that strategy is implemented successfully and to deliver the desired results.
As shown at the right-hand side of the model, the results obtained from implementing corporate strategy must be monitored and measured through the use of analysis and data and knowledge management (box 4), to ensure that performance excellence and increased competitiveness has been achieved. If results indicate underperformance or lack of competitiveness, then the next step is to address why this is and examine the key elements of the model to try and create improvements to performance and competitiveness.
4. How the Baldridge model could be examined in SBL
As already explained, the Baldrige model is a comprehensive and holistic approach to measuring performance and increasing competitiveness. An SBL question could either focus on how the model could be used to monitor and measure performance but could also involve using the model to identify problems and improve the situation in which an organisation finds itself.
The following is an example of how an SBL requirement could cover the Baldrige model:
|Exhibit 1: Scenario/background ABC Company
ABC – Product and geographical structure
ABC Company is a drug and vaccine manufacturer with two manufacturing plants based in two different countries, Country Y and Country Z. It has designed a vaccine to immunise people against a new virus. It sells its vaccine at a price which gives it a very small gross margin and has had pre-orders from two governments with which it has signed formal contracts for the delivery of specified quantities of vaccine at different times and at fixed prices. The government of Country Y placed its order first for an earlier consignment, but Country Z had subsequently placed a larger order for a later consignment, which they were promised would be fulfilled when due. The government of country Y received most of its vaccine supply from the plant situated in Country Y but was also getting additional supplies from the bigger plant in country Z.
Contractual, Production and Operational problems
After mass production had begun, ABC Company began having problems at its major production facility in Country Z with the supply of glass vials (small bottles) into which the vaccine is dispensed during production, as well as experiencing technical problems with the production process. There was also significant workforce absenteeism due to sickness from the virus which the vaccine is intended to prevent. As a result, ABC Company was unable to fulfil its larger order to the government of Country Z from that plant alone.
Potential legal action by customers
The company is now been threatened with legal action by the government of country Z for the non-fulfilment of its order. ABC Company argued it was unable to deliver the vaccine because of its problems at its plant in Country Z, and because the factory in Country Y was still fulfilling the remaining amount of the prior orders placed by the government of that country.
ABC Company now faces a contingent liability to pay considerable damages to the government of Country Z and is also losing money because the planned volumes being produced across both its plants are not being achieved to fully cover development and other fixed costs.
|You are a management consultant with business expertise, commissioned by the board of ABC Company to advise them on their current situation.
Write a report to the board of directors of ABC Company to analyse ABC Company’s current position and recommend approaches the company could adopt to help improve its competitiveness and deliver performance excellence.
Note SBL does not specify the model to use but It is clear from the wording of the requirement that the candidate should apply the Baldridge model. However, in a live SBL exam it would also be acceptable to use alternative models, or even to use no specific model at all, to answer this requirement, as long as the requirement was being addressed.
b) Suggested approach to answering the question:
The approach to take in this technical requirement would be to use the elements in the Baldrige model as headings in the report, starting with the organisational profile.
Title: Report to ABC Company on the current situation and recommendations for action
To: Board of Directors
From: A. Consultant
The current situation ABC Company faces is critical in a number of ways:
- Potential legal liability
- Dissatisfied and important customers
- Low margins and profitability issues
- Supply issues
- Operational/process problems with production
- Staff shortages
In section 2 of my report I will analyse the current situation and the key areas of performance which need to be addressed and I will include my recommendations under each heading.
Issues to address:
(ii) Organisational profile
ABC Company is facing several strategic and operational problems. It has set pre-contracted prices which are too low, meaning that the shortfall in production capability has led to lower volumes being produced than were required to cover fixed costs. Furthermore, ABC Company relies on two main customers for the sale of its entire output of the product and one of these is extremely dissatisfied and is threatening to sue the company. Finally, there are immediate in-bound product supply problems, workforce and operational issues to address.
The leadership of ABC Company needs to address these issues urgently and act proactively to understand its current position and how to improve it. It must do that by prioritising which issues it must deal with based on importance and urgency. Clearly the leadership should focus first and foremost on both its customers and their needs and also address their supply, workforce and operational issues, to deliver better results.
To resolve the issues facing ABC Company, alternative strategies will need to be considered such as how to manage the customers as the immediate issue and how to improve production capacity by addressing the supply, workforce and operational/process problems. For the medium term the company needs to review its business model such as their reliance on only two main customers and on its overall vaccine pricing policy.
The company must engage positively and actively with its two main customers to ensure that it can eventually deliver on its contractual arrangements to both governments, but first it must establish exactly what its contractual obligations are and any flexibility there may be for any variations in the contract. Depending on any flexibility within the contracts, ABC Company must reassure both customers that it can deliver on its contractual arrangements within an acceptable timeframe.
In the short-term there may be a need to import some of the output from the plant sited in Country Y or to reduce exports from its factory in Country Z to Country Y. These proposals must be subject to meeting acceptable delivery times for the completion of the prior orders with Country Y and also fulfil their overall contractual obligations to Country Z.
There seems to be a workforce shortage problem at the plant in Country Z and this needs to be resolved. The absenteeism is due to sickness caused by the virus which the vaccine produced is intended to prevent. An immediate concern would be to re-deploy additional staff, possibly from the other plant in Country Y, or to increase domestic recruitment for the plant in Country Z. Another possible solution would be to vaccinate all staff working at both plants to help prevent further spreading of the virus within the working environment. There may be scope to re-organise processes and retrain staff to improve output and/or reduce the number of staff required to operate the plant.
There appears to be a specific operational issue with the supply of glass vials into which the vaccine is dispensed before packing. This needs to be investigated and a solution found. It may be an option to seek alternative suppliers or use a different material such as a suitable type of plastic, which might also save costs.
It is not clear from my discussions with you, but there also seem to be other technical operational and process problems which need investigating, which may not only be causing the production problems but may increase the cost base. If properly investigated and resolved, this may mean that production output can be increased, and unit cost savings achieved, to help increase profit margins.
viii) Measurement, analysis and knowledge management
In addressing all of the above critical areas of performance, ABC Company needs to use effective knowledge management to measure and analyse its performance (results), particularly in the operational areas. It must measure and analyse its costs and carry out a break-even and cost-volume-profit analysis to establish minimum volumes it needs to sell to cover its costs and to meet its output targets, both from a workforce and operational perspective.
ABC Company is facing a critical situation which it must address urgently. The most urgent is to effectively negotiate and manage the expectations of its major customers, particularly of Country Z, which is threatening legal action; identifying any flexibility offered within the contract terms. Secondly it needs to address its vaccine supply problems by re-scheduling its deliveries of vaccine from both plants, working to increase its workforce availability and deal with the supply issues affecting the bottling of the product. There are other immediate operational/process issues to resolve, but in the longer term, ABC Company must look at its overall pricing model, its cost structure and how to reduce its dependence on only two major customers, by seeking other contracts, possibly on better terms.
Written by a member of the Strategic Business Leader examining team