The SMART Way to Define

and Sustain Success

KELVIN
F. CROSS
AND RICHARD
L. LYNCH
Just-in-Time techniques and Computer Integrated Manufacturing technologies are revolutionizing the manufacturing sector. But to ensure
sustained success, a firm needs to do more than clarify business strategies
and articulate and implement structural changes.
At Wang Laboratories, Inc., headquartered in Lowell, Massachusetts,
the Experimental Process Improvement Challenge (EPIC), a Just-in-Time
work cell approach, reduced throughput time and improved quality and
worker morale. Based on the lessons learned from EPIC, the entire factory
was restructured.
The results on the production floor were striking. Gone were the
mountains of work in process, the handling systems to move it, and the
tracking slips to control. In their place were independent work teams
capable of assembling and testing an entireprinted circuit board. Impressed
with early results, but not completely satisfied,manufacturing management
pondered what else needed to be done to further increase productivity and
flexibility.
The answer: Institute a management control system with performance
indicators designed to define and sustain success.

WHY A NEW APPROACH?

After EPIC was implemented, managers realized that by relying on
traditional performance measures-such as utilization, efficiency, productivity, and other variances used for financial purposes-they were not
getting the information they needed to make critical business decisions.
And their frustration with the divisionscritical success factors (CSF) and
the monthly budget operating report was manifested in their sporadic
review of the CSF and financial reports.
Manufacturing managers also had four major complaints about the way
their operations were being evaluated:
Kelvin Cross is a consultant with the consulting firm of Gray Judson & Howard of
Cambridge,Massachusetts,and the author of Manufacturing Planning: Key to Improving
Industrial Productivity (Marcel Reker, Inc.).
Richard Lynch is a seniorfinance manager at Wang Laboratories inLmvell,Mawachuretts,
where he is currently the program manager for the newpeformance measurement system.
8

National Productivity RcviewNoL 8, No. lminter 1988189

23

KELVIN
F. CROSSAND RICHARD
L. LYNCH

Unless the performance measures were specifically tuned to their strategies, they were yielding either irrelevant or misleading information, or
worse, provoked behavior that undermined the achievement of their strategic objectives.
Measures that tracked each dimension of performance in isolation were
distorting managements understanding of how effectively the organization as a whole was proceeding with strategy implementation.
Traditional performance measures did not take into account the requirements and perspective of internal and external customers.
Bottom line measures (such as profitability) came too late formid-course
corrections and remedial actions.

Even when established measures were aligned with manufacturing

strategy, reporting of performance information to management was fragmented: Cost measures were reported by the accounting department;
quality measures were produced by the quality department; delivery measures were reported by distribution, and so on. The result was mixed results
on overall performance. For example, the quality department would report
improvement in product plug and play, giving management a sense that
things were improving. The finance depamnent, on the other hand,
separately reported the excess costs (scrap, rework, inventory, etc.) expended to improve quality. As the vice president of manufacturing finance
put it, Trade-offs were hard to identify, let alone understand.
Recognizing the need to revamp its approach to performance management, Wang began searching for an alternative. The company soon found
out that it was not alone. In a survey of 260 financial officers and 64
operating executives, sponsored by the National Association of Accountants and the Computer Aided Manufacturing-International (CAM-I), 60
percent said they were dissatisfied with their performance measurement
system. In the electronics industry, the criticism was sharper: 80 percent
thought their control system wasnt doing the job. The study went on to say
that this response clearly suggests the need to reevaluate and revamp
longstanding performance measurement systems. Interviews with manufacturing management at Wang corroborated the need for a new approach
to define and measure successful performance.
THE SMART APPROACH
The senior vice president of manufacturing called for an effort to define
a framework for:
Measuring departments and functions on how they are contributing
separately and together in meeting manufacturings strategic mission.
Linking operations to strategic goals.
24

National Productivity ReviewNoL 8, No. IrWinter I98811989

THESMART WAYTo DEFINE

AND SUSTAIN
SUCCESS
8

Integrating financial and non-financial information in a way that can be

used by operating managers.
Focusing all business activities on the future requirements of the
business, as dictated by the customer.
Changing performance, incentive, and rewards systems as necessary.

The result of this developmenteffort was StrategicMeasurementAnalysis and Reporting Technique (SMART). In addition to meeting the
objectives of the development effort, SMART provided the means to:

Clarify measures of strategic importance.

Build consensus horizontally across functional or department lines.
Institute measurements at the operational level in each department that
will enable department managers to prepare strategically relevant reports on the health of the business.

The Performance Pyramid (below) represents the structural framework

for the new information network thats the basis for the SMART control
system. A four-level pyramid of objectives and measures ensures an
effective link between strategies and operations. This model translates

FORMANCE PYRAMID

ORJECTlVES

MEASURES

OPERATIONS

National Productivity ReviewNoL 8, No.IIWinter 1988189

25

KELVIN
F. CROSSAND RICHARD
L. LYNCH
strategic objectives top down (based on customer priorities) and rolls
measures bottom up.
At the top level, a vision for the business is articulated by corporate
senior management. This vision forms the basis for corporate strategy.
Management can then assign a corporateportfolio role to each business unit
(cash flow, growth, innovation, etc.) and allocate resources to support.
At the second level, objectives for each business unit are defined in
market and financial terms. Strategies to meet these objectives are then
outlined. Most business units define success in terms of: (1) reaching the
short-term goals of specified levels of positive cash flow and profitability
and (2) achieving the long-term goals of growth and market penetration.
At the third level, for each Business Operating System (BOS) supporting
the business strategy, more tangible operating objectives and priorities can
be defined in terms of customer satisfaction,flexibility, and productivity.
A BOS includes all internal functions, activities, policies and procedures, and supportingsystems (for example,planning and control, information, rewards, and communication) required to implement a particular
business strategy, involving the development, production, and provision of
specific products or services to particular markets. Wang s production
facility represents a Business Operating System for filling customers
orders. Wangs new product introduction process, change control, and
sales administration are all examples of Business Operating Systems.
The BOS is the starting point for effective measurement and control at
the department level. The link between each departments performance and
the overall strategy and performance of the business, the BOS enables
department measures to focus on the effectiveness of the entire operating
system rather than on the efficiency of a single department. When
addressing all the activities,processes, procedures, and systems required to
execute a strategy, the BOS objectivescan be defined in terms of customer
satisfaction, flexibility, and productivity (see box on page 27). The
principal relationships between the business operating system objectives
and the top tier market and financial goals are illustrated by their position
in the pyramid. For example, the market measures are supported by
customer satisfaction and flexibility.
At the BOS level, customer satisfactionmeans how customer expectations regarding quality and delivery are managed. At the heart of the
middle tier-and critical to Wangs competitiveness-flexibility addresses the responsiveness of the operating system. Completing this tier,
productivity refers to how resources, including time, are managed. For
example, at Wang the EPIC project improved flexibility and productivity
by focusing on reduced throughput time in the assembly operation. By
converting from batch processing to a continuous flow operation, throughput time of twenty days was cut to three days. The ability to respond to new
26

National Productivity ReviewNoL 8, No. IlWinter 198811989

THESMART WAYTo DEFINE

AND SUSTAIN
SUCCESS

BOS Performance in Perspective

Once the concept of the BOS is understood, its imperative that the three major
driving forces behind the BOS be clarified.
They are: customer satisfaction, flexibility,
andproductivity. AU three driving forces are
involved in every BOS. but at different levels of intensity. The driving forces and their
relative strength can be derived by the busines strategy and the capability gap that exists
between the strategicdemand and the ability
of the BOS to respond. The objectives for,
and the relative importance of, each of these
driving forces is determined by the business
strategy. For a given operating system, each
of these forces is important, but its not
unusual for one to be of primary influence.
By understanding the driving force of the
operating system, it becomes easier to identify priorities at the department level.
Customer satisfaction as a driving
force: For many operating systems, especially those that support the external customer directly, customer satisfaction is of
paramount importance. For the business as
a whole, customer satisfaction can be defined in terms of quality, delivery, and price.
Only quality and delivery can be translated
into operational terms. Typically, price is
more dictated by the market or the business
strategy than it is by the business operating
system. For instance, low cost across departments and functions will allow for lower
pricing, and expedient delivery and higher
reliability, for higher pricing.
An operating system driven by customer
satisfaction will place strong emphasis on
quality and delivery reliability measures. A
customer satisfaction-drivenoperation also
affects the measurement of work flow
among departments. Such an operating
system would tend to emphasize external
measures of quality and delivery from department to department. For instance, the
new product introduction group may be primarily concerned with process and product
quality, which, in turn,will improveflexibility and productivity in volume production.
Flexibility as a driving force: Ulti-

mately, an operating system is said to be

flexible if it can efficiently meet the changing demand of its customers. Flexibility has
both internal and external components. The
external component relates to meeting the
demand of the customer. The internal component relates to doing that efficientlyfaster, with no waste. For example, an operating system that delivers a product to a
customer can meet the customers rquirement by having everything in inventory. To
the customer, the operating system would
appear flexible, but in reality it is not a truly
flexible operating system. For example, in
manufacturing, finished goods inventory
may be used to meet customer satisfaction
requirements. However, from internal
managements perspective, the operating
system is not flexible and the cost of that
inflexibility is higher carrying costs.
Wangs production facility in Lowell is
an example of an operating system driven by
flexibilty. Given theuncertainty of forecasts
and expandedproduct offerings for strategic
markets, the plants goal is to be so fast that
it can build to customer order.
Productivity as a driving force: Productivity relates to pricing. An operating
system that delivers an upscale high-priced
product may be driven by customer satisfaction. However, productivity is typically the
driving force when f i i compete on the
basis of price in a commodity market.
Productivity is an internally driven
force. It is not directly perceived by the
customer;however, it often gets more attention than the two other driving forces. Productivity should be viewed in context of the
most cost-effective and timely means of
achievingcustomersatisfaction and flexibility objectives. Objectives can then be stated
in terms of short cycles, asset management,
and lowest total cost. Wangs professional
computer production (actually a subsystem
within the plant) is a good example of an
operating system driven by productivity,
where costs are lowered by reducing
throughput time and eliminating waste.

National Productivity ReviewlVoL 8, No. IIWinter 1988189

27

KELVIN
F. CROSS
AND RICHARD
L. LYNCH
demands in less time meant an increase in flexibility, and faster throughput
boosted productivity: Work-in-process inventory was reduced by 85 percent and the new work cells required fewer people and less rework.
While these three objectives help in understanding the driving influences in the operating system, they must be translated further to provide a
clear foundationfor specificoperationalmeasures. At the department level,
the objectives are converted into specific operational criteria: quality,
delivery, process time, and cost (specific measures within each of
these areas need to be defined for each department). These four criteria for
department measures can translate strategic direction into department
action.
The objective of any function or department in the BOS is to increase
quality and delivery, and to decrease process time and cost. High-quality
products or services (based on customer-driven target values) and regular
on-time delivery will ensure customer satisfaction. The combination of
externally driven delivery (when the customer wants to take delivery) and
internally driven process time (how can we reduce the time to make the
product) defines flexibility. Productivity goals can be achieved by reducing
both process time and cost. At the local department level, cost is viewed as
the excess money (or waste) incurred to meet the other performance
objectives.
As the foundation of the performance pyramid, the operational measures-quality, delivery, process time, and cost-are the keys to achieving
higher-level results. Corrective action and continuous improvement at
the department level will minimize unpleasant surprises at the top level
and ensure successful implementation of the organizationh business
strategy.
Because the four operational pillars on which the SMART program is
built are so critical to the organizations success, they warrant closer
analysis.
Quality: Its no longer acceptable to think of quality as conformance to
specifications. Quality has a far broader meaning in todays marketplace.
Quality means translating the voice of the customer into appropriate
company requirements at each stage from producthervice concept to
delivery. The Japanese call this Quality Function Deployment (QFD). For
marketing and R&D this means innovative designs within price and
reliability ranges expected by the customer. For production, quality is
translated into reliability, durability, aesthetics, and perceived quality.

Delivery: Good delivery results when performance equals expectations.

There are two aspects of delivery: quantity and timeliness. The objective
of the SMART approach is to align performance with expectation. For
instance, the customer and supplier may agree on a percentage to be
28

National Productivity ReviewlVoL 8, No. 1lWinter 198811989

THESMART WAYTo DEFINE

AND SUSTAIN
SUCCESS

delivered to schedule and a percentage to be delivered on demand. There

will inevitably be some give-and-take regarding both the customers
expectations and the suppliers agreement regarding performance.

Process (orThroughput)Time: Process time refers to the actualtime it takes

for a department to deliver the product or service from the time the work is
requested of that department. Typically only five percent of the total cycle
or process time is devoted to adding value. In many cases, the product is
waiting to be worked on 95 percent of the time. The same is true for paper
transactions as well! In focusing on process time, its important to
remember three points. Process time is entirely within department control;
has a powerful influence on flexibility,which is rapidly becoming the most
competitively oriented factor in industry; and has a major effect on productivity. In fact, a recent article in Business Week noted that the new math
of productivity points to time as a manufacturersmost precious resource.
For example, in production rapid process time will minimize work-inprocess inventory and should eliminate or at least minimize the need for
finished goods inventories. Carrying costs will be reduced and cash flow
improved. Also, the cost of reworking WIP and finished goods to comply
with an engineering change order for a specific customer requirement is
eliminated. Productivity is enhanced by the rapid identification and
correction of problems before too many defective subassemblies and/or
finished products are built. Rapid process time means that emphasis is
placed on building the product or delivering the service right the first time.
As the build cycle shrinks, it becomes more predictable and dependable.
By reducing the distance (time) between consumer and producer, customer
satisfaction improves. Its important to note that process time in behindthe-scenes functions (such as manufacturingand new product introduction)
has traditionally received less attention than it has in service delivery
operations-for example, restaurants, 24-hour photo labs, and dry cleaners-where the customer waits for delivery.

Cost (Waste): In the new productivity context, cost is viewed in terms of

the excess money (or effort) spent in order to achieve the required quality,
delivery, and process time. At the BOS level, the main objective is to
improve productivity by reducing overall costs. At the department level,
however, the cost objective is to eliminate waste.
These four major performancecriteria detailed above are seldom equally
important at any point in time, and will probably change over time. For
example, delivery may be critical for a time, but as competition heats up,
quality or cost may become a decisive factor with customers. Thus, the
control system must be sensitive to the businesss and organizations future
performance requirements.
National Productivity ReviewNoL 8, No. INinter 1988189

29

KELVINF. CROSS
AND RICHARD
L. LYNCH
~

~~

APPLYING SMART
Once the conceptualframework was developed and supported by senior
management, SMARTwas implemented in the printed circuit board assembly operation of Wangs Lowell plant. This operation was chosen for three
reasons. First, it was close to the end customer (one department from
distribution); second, it was the department where the EPIC project was
initiated;third, and most important, its management was open to change and
committed to making SMART work for them.
Teams were established with members from the department instituting
the measures, the downstream or customer department(s), and the
upstream or supplying department(s). The definition and methods of
measurement wefe established by a joint venture. Through negotiation and
compromise, the team members defined realistic, workable, and mutually
acceptable performance indicators to optimize workflow throughout the
entire operating system and, thus, better support the business.
The illustrationbelow shows how the SMART model was applied in the
board assembly operation. Quality and delivery performance measures
were first developed for the departments output from the perspective of the
customer (the final assembly department). Internal process time and cost
goals were then established to best meet their external challenge. Next, the
board assembly department worked out new quality and delivery measures
with the supplier (materialsdepartment). In this way, new requirements and
changing priorities are communicated as quality and delivery expectations from the downstream departments.

The SMMIT approach specif= that ail internal measures be

svuclured 60 a decmaw quais improvement (like golr)

All exlemal measures are stnrctured

IS S h o w bj Ell InCrSa58.

84

that improvement

~~

30

Natwnal Productivity ReviewNoL 8, No. IMinter 198811989

THESMART WAY
To DEFINE
AND SUSTAIN
SUCCESS

Three months after SMART had been implemented,management eliminated 20 percent of the measures used in their critical success factors, such
as shop work order aging, productivity, machine utilization, and purchase
price variance. A significant number of their measures needed refinement
(for example, cost is now defined in terms of waste: inventory, rework, etc.).
Working with its customer, the final assembly department, the board
assembly department developed a new quality index. Also, new measures
concerning timely delivery and the quality (completeness) of materials
were established with the warehouse.

THE SMART DIFFERENCE

The SMAFtT approach to performance measurement is fundamentally
different from other popular programs designed to evaluate a departments
performance. For example, an Internal Control System is essentially an
accounting system designed to catch and correct the majority of bookkeeping errors. SMART is a strategically driven performance control system
and, therefore, it serves a much broader business decision support system.
SMART provides a framework for a management control system, but
with a new twist. Most management control systems are locked in time,
monitoring past performance. SMART combines elements of a control
system with elements of strategic planning. The framework for SMART
allows the control system to continually self-adjust to thefuture needs of the
business, as identified by the voice of the customer. Yet, SMART differs
from department goal setting. When measures are related to fixed goals, the
goal, once attained, is typically set higher. When the focus is on variances
or shortfalls, feedback is often negative, killing motivation to improve. To
be effective motivators, measurements should be defined in a way that
encourages continuous improvement. In SMART,the focus on continuous
improvement ensures consistent reinforcement.
Although it embraces key aspects of Quality Function Deployment
(QFD), a system of translating customer requirements into appropriate
company imperatives, SMART is more than a quality program. Like QFD,
SMART recognizes that quality, delivery, and price are customer-driven,
and internalizes these concepts as operational terms at each stage of the
producthervice creation process. But SMART also extends this viewpoint
by adding internal operational performance criteria (process time and cost)
and provides the mechanism to evaluate trade-offs among all four performance criteria.
Finally, SMART is not a new term for Management by Objectives
(MBO). MBO is a process in which manager and subordinate sit down at
the beginning of each performance period and agree upon individual job
goals, which subsequently serve as a basis for personal performance
assessment. Proponents of MBO say that it is a system for managing an
National Productivity ReviewNoL 8, No. 1IWinter 1988189

31

KELVINF. CROSSAND RICHARD

L. LYNCH

organization: holding managers accountable; encouraging all employees to

contribute to department goals; coordinating goals within the organization;
and measuring results. Although SMART and MBO share some common
elements, such as planning and measuringperformance, there are at least six
fundamental differences between the two techniques:
1) SMART is not intended as a mechanism for assessing individual
contributions at review time. Rather, SMART is aimed at group
perfOrmance.
2) In SMART, it is assumed that management has already determined its
business objectives in the course of its strategic planning process.
SMART forces managers to focus on how to satisfy the customer
rather than meeting internally set goals that may or may not be strategyrelated.
3) While MBO centers on the manager-subordinate relationship within
the departments vertical structure, SMART focuses on the horizontal
work flow independent of organizational boundaries.
4) SMART is more concerned with the performance of the business as
a whole operating system than with the performance of each individual
part. SMART shifts the performance focus from departmental competition to operating system teamwork.
5) Once set, MBO objectives tend to become fixed throughout the
organization. Adapting to changes in the external environment is often
difficult. SMART, on the other hand, is a flexible system. It fosters
change by establishing customers as key determinants of performance
requirements and by establishing aprocess that facilitates change when
appropriate.
6) MBO measures tend to be one-dimensional, often financially oriented. SMART measures-quality, delivery, process time, and
cost-are multidimensional, relating to the performance of the business
system and the execution of strategy.
In an award-winning article, The Productivity Paradox, published in
the July-August 1986 issue of the Hurvard Business Review, Wickham
Skinner challenged conventional wisdom concerning cost and productivity. An obsession with cost reduction produces a narrowness of vision and
an organizational backlash that work against its underlying purpose, he
wrote. To boost productivity in its fullest sense-that is, to unleash a
powerful team of people supported by the right technology-we must first
let go of old-fashioned productivity cost reduction as a primary goal. In
SMART, the emphasis is on continuous improvement objectives for increasing quality and delivery while decreasing process time and cost.
OBSERVATIONS ON IMPLEMENTATION
The empirical data and observations from the Wang experience suggest
that the SMART way to implement measures may take longer than other
32

National Productivity ReviewNoL 8, No. l/Winter 1988f1989

THESMART WAYTo DEFINE

AND SUSTAIN
SUCCESS

approaches,but that the effort is worth it. When central groups, such as the
finance department, develop measures, they usually arent N l y understood
or accepted. When measures are instituted by edict, a great deal of effort is
typically spent playing games with the numbers, fighting the results, or
ignoring them until they go away. But when measures are developed,
instituted, and updated at the operating level to match a particular strategy
and work flow, the result is more likely to meet the needs of management
at every organizational level. Managers at Wangs Lowell plant also noted
short-ten benefits from the implementation of SMART. Even before data
on the newly established measures were collected and reported, sentice
improved from one department to the next because of the clearer focus and
improved dialogue between customer and supplier.
In essence, SMART measures departments and functions on how they
are contributing separately and together in meeting their strategic mission.
The overall impact will be powerful. SMART is already changing Wangs
internal reporting, which is used in the business decision-making process.
But SMART will not change either inventoryvaluation or Wangs external
reporting practices. Management anticipates that when SMART is fully
implemented in Wang manufacturing,it will have at least four broad effects
on Wang:
Mindset will be changed from focusing on stand-alone functions (vertical hierarchy) to integrated supplier-customer networks (horizontal
workflow).
New organizational alignments and priorities may emerge.
Needs/priorities of management information systems will change to
match the new information needs.
The basis for investmentjustification will change from primarily a return
on investment (ROI) calculation to include a more qualitative statement
on how the project affects operational requirements for quality, delivery,
and process time.
The SMART approach is not limited to manufacturing. The greatest
opportunity for further improvements in corporate performance will come
when two different functions-such as marketing and R&D, R&D and
manufacturing, or manufacturing and salesmeet.
Everyone wins with SMART-the customer gets better, more consistent
satisfaction;senior executives are more securethat their strategy is on track;
and operating managers are focusing consistently on key result areas. This
all adds up to better corporate performance for the stockholder and a
satisfying work environment.

National Productivity RevLwNoL 8, No. llWinter 1988189

33