Jan 7, 2016 - balanced scorecard (BSC) method, to balance the different forces that drive the organization. ..... their daily jobs in such a way as to contribute.
PRIVACY AND SECURITY IN E-BUSINESS
INTEGRATION OF SYSTEMIC QUALITY AND THE BALANCED SCORECARD Juan Solano, María Pérez De Ovalles, Teresita Rojas, Anna Grimán Padua, Luis Mendoza Morales
JUAN SOLANO is a systems analyst at SUNACIT (SENIAT) in Venezuela. MARÍA PÉREZ DE OVALLES is a professor at Simón Bolívar University in Caracas, Venezuela. TERESITA ROJAS is an associated professor at Simón Bolívar University in Caracas, Venezuela. ANNA GRIMÁN PADUA is an associated professor at Simón Bolívar University in Caracas, Venezuela. LUIS MENDOZA MORALES is an associated professor at Simón Bolívar University in Caracas, Venezuela.
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This article presents the integration of systemic quality (balance between product and process effectiveness and efficiency) as a strategy of systems development organizations, through the balanced scorecard (BSC) method, to balance the different forces that drive the organization. The proposal contemplates a series of tasks that would be undertaken through the strategic plan. Each task assures one aspect of the organization, in addition to creating a strategic map and a series of indicators that demonstrate the cause and effect relationship between systemic quality and the organization. This article also illustrates a case study in which a dynamic simulation technique was used, recreating the present situation of a Venezuelan organization over a five-year period. This strategy was used to try to determine the impact of systemic quality on financial prospects, especially in increasing shareholder value, starting with the simulation of the present state of the company and then introducing systemic quality.
N THE COURSE OF MODERN HISTORY, organizations have confronted all kinds of changes and in recent years they have had to face an increase in clients’ expectations. For manufacturers, meeting those expectations means delivering a quality product. Clients can choose from a series of different manufacturers to see which manufacturer offers the best value for money in terms of quality. This is an important challenge for organizations because quality assurance involves an additional cost in the production chain, which must be balanced against more efficiency-oriented processes. The organizations that develop systems in Venezuela are no exception to this rule; and in today’s increasingly globalized market, they must give their clients better value for the money. The systemic quality approach makes it possible to balance the effectiveness and efficiency of the software process and the soft-
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ware product;1 however, no process capable of integrating this quality approach in the strategic plans of these organizations is known. For this reason, this research proposes the incorporation of systemic quality as a strategy of the organization, through the balanced scorecard (BSC). The BSC is a method for translating strategy into action, and has been successfully implemented in all kinds of companies all around the world. With this integration, an organization that develops software systems can produce a quality assurance plan and successfully carry out all the tasks involved. The most outstanding benefits of this research are: the formulation of a set of indicators that enable the performance of an organizational strategy that has incorporated systemic quality into its practices to be evaluated; it makes it possible to have a dynamic simulation system that represents the present state of the company, and also to evaluate its finan-
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cial impact upon introducing a systemic quality program; and it establishes a strategic map that can be used as the basis of the company’s general strategic plan. This article describes the principle of software’s systemic quality and its relation to the BSC method; the process for creating the BSC to incorporate systemic quality, which is shown as applied to a real case study; and finally the conclusions that will facilitate the orientation of future research. QUALITY AND THE BALANCED SCORECARD
The different quality approaches contribute ideas for monitoring system quality. System quality is defined as “conformance to explicitly stated functional and performance requirements, explicitly stated development standards, and implicit characteristics that are expected of all professionally developed software.”2 Another approach to system quality is Callaos’ systemic quality approach.1 The guarantee of system quality is seen by Callaos as a total quality system integrated by process and product quality, under the criteria of clients and users, and balancing efficiency and effectiveness. With the identification of each type of quality that emerges, and the relations identified, a series of quality relationships are built,1 which can be established as the basis for any software engineering model.
uct effectiveness, process efficiency, and process effectiveness.1 The contribution made by the systemic quality approach is that it enables the different dimensions of system quality (process and product) to be balanced so that, for example, effectiveness can be improved if it is below the levels expected. The attributes that guarantee process and product quality based on the systemic quality approach, presented through the models obtained as a result of research conducted in Venezuela at the Laboratorio de Investigación en Sistemas de Información (LISI) at Universidad Simón Bolívar (USB), have to be established in greater detail. Product Quality
Product quality is the set of characteristics or internal properties of a product that determine its external quality attributes. Developers can build these internal product properties to produce the desired external quality attributes.3 To analyze product quality, the Product Quality Software Model proposed by Ortega et al.4 is taken, which, through a systemic approach, links the ideas of different software product quality models that study product efficiency and effectiveness. The purpose of this model is to consider product efficiency and effectiveness, integrating Callaos’ systemic quality approach,1 the international standard ISO/IEC 9126,5 and Dromey’s model.3
EXHIBIT 2 Balanced Scorecard Model
EXHIBIT 1 Systemic Quality Matrix
Yesterday
Users
Product Efficiency
Product Effectiveness Customer
Users
Clients
Clients
Financial
Process Efficiency
Process Effectiveness
Strategic Vision
Learning and Growth
Internal Process
Today
Tomorrow
Source: Kaplan, 1996. Source: Callaos and Callaos, 1996.
As can be seen from Exhibit 1, there are four types of quality: product efficiency, prodI N F O R M A T I O N
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Ortega et al.4 consider that to analyze product effectiveness, the high-level quality attributes in international standard ISO/IEC 9126 must be taken into account. These include
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synergy must be created between the strategies when connecting and integrating them.
functionality, reliability, usability, efficiency, maintainability, and portability.5 Product efficiency is considered through Callaos’ Systemic Total Quality Model, in accordance with the product’s internal attributes or properties, identified in Dromey’s model,4 such as requirement properties, design properties, and implementation properties. The result is a set of attributes that must be present in a quality system and the factors that influence them, classified into four groups represented by the four dimensions of Callaos’ model.4 The model helps to establish the most important attributes for guaranteeing software product quality, specific to each system, and how these are related to one another. To monitor the factors that affect each attribute, the specific business objectives must be defined so that the metrics capable of guaranteeing product effectiveness can be determined. Process Quality
There are several solutions that enable a company to foster, maintain, and improve quality. Some are aimed at guaranteeing high levels of quality for small firms, such as the Personal Software Process (PSP);6 and there are others for firms with low investment budgets, such as the BOOTSTRAP or SPICE models. However, none of these options explicitly considers characteristics that are inherent to the development of systems, such as process efficiency or process effectiveness. To deal with systems development process quality, the model proposed by Ortega et al.4 was taken. This model integrates the systemic quality approach (conceptual base) with the characteristics present in the SPICE processes model. This model has the following levels: Primary Lifecycle (which consists of the Client–Supplier and Engineering categories), Support Lifecycle (which only contains the Support category), and Organizational Lifecycle (which is composed of the Management and Organizational categories). The interrelationship between these cycles makes it possible to guarantee the quality of the information systems development process throughout the area that characterizes the organization’s operation. Under this category is a series of base practices, principles, and processes. The model proposed promotes, reinforces, and fosters the dimensions of process quality with the systemic quality approach. However, this approach should not be made in isolation
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in the organization, but rather as part of a success-driven strategy. Balanced Scorecard (BSC)
The BSC provides a model that translates an organization’s vision and strategy into specific strategic objectives, monitored through a coherent set of performance indicators. It enables short-term operating control to be linked to the organization’s long-term vision and strategy, and it looks at the organization’s performance from four different angles: financial, client, internal processes, and learning and growth.7 The BSC model can be used in any kind of organization, even those that, by their very nature, do not seek financial gain. In organizations that develop systems and aim at attaining international standards, the BSC model enables them to align these strategic initiatives with their long-term objectives and manage their implementation and evaluation. The BSC is a systemic model and its structure is determined by the reciprocal relationship among the four main perspectives — finance, clients, internal process, and learning and growth — and the organization’s vision and strategy,7 as shown in Exhibit 2. There is an explicit vision and strategy in the base of the four perspectives, and in each one of them strategic objectives, indicators, and specific goals and action plans are formulated. The BSC is based on three time dimensions: yesterday, today, and tomorrow. The organization must control and monitor today’s operations because they will affect tomorrow’s development and are reflected in yesterday’s results. The BSC is not just a record of the results obtained, but an indication of the results expected.8 The BSC can become a business unit’s vision and strategy in operational terms. The BSC is balanced between the objectives and easily quantifiable measurements of the result indicators — the results of past efforts — and the subjective ones, and to a degree the critical ones also, inducers of how results perform.7 This balance between the organization’s perspectives and its systemic nature gives the BSC model a global vision of the organization. Strategic Maps
The BSC provides a new framework for describing a strategy, linking up tangible and intangible assets in activities that create value. In this sense, the BSC uses strategic cause-and-effect linkage maps that describe how intangible assets are promoted and combined with other
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EXHIBIT 3 Process for Creating a BSC Aimed at the Integration of Systemic Quality
Analysis of the sector: its development and the role of the firm Establish and confirm the company’s strategic plan
External opportunities and threats Internal strengths and weaknesses
Motivation Process Leader
Link strategy to budget Strategic meetings Strategic feedback
nc Bala ed
Vision, mission Strategic objectives General strategy
Promote the change through management leadership
Strategy Translate the strategy in operating terms
Sc
General BSC Strategic map Indicators
ore card
Synergy between SBUs Strategic issues
Networks of strategic knowledge link retribution to strategy
Align the organization with the strategy
Make the strategy an ongoing process
Make the strategy an everyday task
Source: Kaplan, 2000.
tangible and intangible assets to generate value creation propositions for clients and to achieve the financial results expected by shareholders.9 The strategic maps present a picture of an organization’s critical objectives and the crucial relationships between the key performance indicators.9 They describe the process of transforming intangible assets into tangible clients and financial results. They give executives a framework for describing and managing strategies in a knowledge economy. They constitute a generic architecture for describing a strategy and help the organization visualize a cohesive, integrated, and systematic form. Beyond understanding, a strategic map is the basis for enabling management systems to implement strategies quickly and effectively.9 Given the importance of implementing the strategies that guarantee success in systems development organizations, it is necessary to develop a formal proposal that enables organizations to involve quality as a strategy for the creation of products that help improve productivity and growth. I N F O R M A T I O N
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PROCESS FOR CREATING A BALANCED SCORECARD THAT ADDRESSES INTEGRATING SYSTEMIC QUALITY
The objective of the process is to point out the phases necessary to incorporate systemic quality as strategy in organizations that develop systems. This means creating a BSC that addresses incorporating systemic quality, obtaining a strategic map, and indicating how it should be disseminated in the organization. This cyclical process consists of seven phases, as shown in Exhibit 3 and described below. 1. Analysis of the Sector, Its Development, and the Role of the Company
The objective of these phases is to establish a consensus on the characteristics and requirements of the sector: in this case the information technologies sector, and specifically in the systems development market. It shows a series of external threats and opportunities, as well as internal strengths and weaknesses.
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2. Establish or Confirm the Company’s Strategic Plan
The objective of this phase is to establish or confirm the organization’s strategic plan, intensify the internal and external analysis of the previous step, and ensure that the agreements arrived at in the previous step are met and that the commitment toward quality is guaranteed. 3. Translate the Strategy into Operational Terms
In this phase, what is sought is to transfer the strategy into operational terms through the BSC. To do so, the vision according to each of the perspectives is broken down and the general strategic issues are formulated. Financial Perspective. The creation of value for the shareholders must be guaranteed, through a balance between growth and productivity. There are different financial indicators for measuring the creation of value for the shareholders (ROCE [return on capital employed], ROI [return on investment], EVA (economic value added]).9 Client Perspective. Here, it is necessary to understand how the growth sought in terms of volume can be generated through clients. The competition must be valued, and the clients’ preferences and segments must be discovered. Those segments that value quality and innovation, and are prepared to pay more for them, are the segments on which to focus. Internal Process Perspective. The strategy adopted was to differentiate between its basic operating processes and operating excellence in its support processes. Product and service innovations are measured by the market share they have managed to gain and the profitability of the investment. Product quality will be measured through an indicator called the Product Quality Index, which is derived from the metrics associated with the respective quality model. Learning and Growth Perspective. Three strategic objectives are identified: (1) basic competencies and skills refer to the skills expected to be found in employees; (2) technology refers to the information technologies that must be used in the value chain; and (3) the climate for action refers to the organization commitments that must be implemented by the human resources department.
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There are many different measures for supporting these three objectives, including percentage of scope of a personal balanced scorecard, employee survey, and availability of strategic information. Once the learning and growth perspective has been specified, the systems development organization has a complete picture of the new strategy, through the translation of the vision and strategy into a set of objectives and indicators of the four perspectives, as shown in Exhibit 4. The aspects in which quality models are incorporated and integrated are highlighted (boldface) therein. Note that in Exhibit 4 the quality models inserted are shown with their corresponding indicators (international standard). The causeand-effect links between the objectives and the indicators of the four perspectives are then shown. Exhibit 5 shows a proposal for a strategic map for integrating the systemic quality approach in systems development organizations, with their objectives and indicators, as well as how their representation on a map can be linked and clearly communicated to the rest of the organization. At the end of this phase, the organization must have a BSC of objectives and indicators that really reflect the strategy. By translating the strategy to the logic architecture of a strategic map and a BSC, a common and understandable reference for all the business units and employees is created. 4. Align the Organization with the Strategy
This phase seeks to ensure that each business unit and specialized department, each with its own strategy, is aligned with the organization’s generic strategy. To do so, a synergy must created between the strategies when connecting and integrating them. Connections or links, which it is hoped will create the synergy, must be established. These links are achieved through the common strategic issues, which are established by the leadership team, and enable a language that is common to everyone to be created. In this proposal, it is considered that the strategic issues that must be common and shared by all the business units and departments are financial growth, increase in client value, operational excellence, quality, correct information, motivation, and preparation. Exhibit 6 shows the how the proposed BSC is linked to the business units and the shared ser-
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EXHIBIT 4 Balanced Scorecard Oriented toward Systemic Quality Integration
Perspective
Strategic Topics
Strategic Objectives
Strategic Indicators
Financial
Growth
F1 Increase shareholder value F2 New sources of revenue from outstanding quality products and services F2 Increase customer value through improvements to products and services F3 Cost leader in the sector F5 Maximize utilization of existing assets
Shareholder value Growth rate of volume compared with growth rate of sector Rate of product renewal compared with total customers Comparing expenses with the sector’s: Free cash flow Operating margin Share of selected key markets Rate of customer satisfaction Comparing value for money with the sector Percentage of errors with customers Profitability of new product investment Rate of new product acceptance Rate of product quality
Productivity
Customer
Charm the customer Cost leader
Internal Process
Growth
Increase customer value Operational excellence
Good neighborliness Learning and growth
Motivated and wellprepared staff
C1 Continually satisfy the customer chosen as the objective C2 Value for money C3 Reliable operations C4 Quality service I1 Create and develop innovative products and services I2 Implement a systems product quality model with a systemic approach I3 Technological improvements to products I4 Apply flexible development methodologies I5 Advisory services I6 Provide a flexible global infrastructure I7 Meet specifications on time I8 Cost leader in the sector I9 Implement a quality system development model process I10 Develop outstanding relationship with suppliers I11 Improve health, safety, and environment L1 Climate for action L2L2 Fundamental skills and competencies L3 Technology
vices. In aligning these issues, the units and department are linked to the strategy through the common issues and objectives shown on their BSC. 5. Make the Strategy Everyone’s Daily Job
The next phase is to link each of the employees with the business unit and the organization’s strategy. The BSC can be used to put across the strategic objectives to the employees, as all of them must understand the strategy and do their daily jobs in such a way as to contribute to its success. The program proposed has two levels of incentive: (1) at the level of the organization (a given percentage to attain the financial goals); and (2) at the business unit level (a given percentage to align with the general strategy and shared services, as well as the financial results). Until there is a link between staff remuneration and the goals of the BSC, the strategy will have no credibility. I N F O R M A T I O N
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Cost reduction Fixed asset production Improved yield Rate of compliance with specifications Rate of process quality Number of safety incidents Rate of absenteeism Employee survey Staff hierarchy table (percent) Availability of strategic information
6. Make the Strategy an Ongoing Process
The objective of this phase is to propose a process for managing the strategy. It seeks to integrate tactical management (financial budgets, annual reviews) and strategic management. To do so, three important practices are proposed: (1) link the strategy to the budgetary process, (2) hold management meetings to review the strategy, and (3) develop a process for learning and adapting the strategy. With this approach, the process is continuous and seeks to keep the strategy current and credible over time. 7. Promote Change through Management Leadership
For this phase, the intention is to stress the importance of the participation of the management team in the change process that the BSC brings to the organization. The integration proposal described here seeks to establish a framework of reference to develop a systemic quality program and the way to link it to outstanding financial results.
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Timeliness Product availability
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EXHIBIT 5 Strategic Map Proposed for Integration of Systemic Quality Approach
Improve Shareholder Value Growth Strategy Financial Perspective
New Sources of Revenue from Outstanding Quality of Products and Services
Productive Strategy
Increase Customer Value through Product and Process Improvements
Charm the Customer
Become a Cost Leader in the Sector
Maximize Utilization of Existing Assets
Cost Leader
Basic Timeliness Safe Mark of Trust Customer Perspective
Differentiators Innovative Products Personal Quality and Touch Standards Services Increased Customer Value
Growth
Internal Perspective
Technological Improvements to Products
Create and Develop Innovative Solutions Implement a Software Product Quality Model with a Systemic Approach
CostBenefit Relationship
Reliable Operations
Operational Excellence Provide a Flexible Global Infrastructure
Apply Flexible Development Methodologies
Timeliness
Advisory Services
Cost Leader in the Sector
Quality Services
Good Neighborliness
Implement a Systems Development Process Quality Model Outstanding Relationship with Suppliers
Improve Health, Safety, and the Environment
Motivated, Web-Prepared Staff Learning and Growth Perspective
Competencies
Technology
Functional excellence Teamwork Goal-Oriented Systemic vision
State-of-art technology Virtual office Workflow Knowledge management
The systemic nature of the BSC allows this proposal to be adapted to the context of organizations that develop software systems in Venezuela, as well as the goals of each of the indicators. It has to be valued by some method (quantitative or qualitative) that enables the feasibility, viability, and dimensions of its application to be determined. The integration proposal defined above was applied to a case study with a view to analyzing its behavior and viability. CASE STUDY
This section describes the development of the integration proposal in a Venezuelan organization. It involves developing the process to cre-
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ate the BSC and the strategic map to create a quality vision. For reasons of confidentiality, the company’s name has been changed to VenSoft, C.A. This company has functioned in Venezuela since 1989 and is the branch of a wellknown international firm whose head office is in the United States. This company develops systems for customers in several sectors, including financial, telecommunications, government, manufacturing, etc. It acts as an integrator of different technologies in the entities with which it works. Its employees facilitate the transformation of organizations into intelligent business entities by applying technology to their business processes. Currently, there is a work team of expert programmers and potential programmers that enables han-
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Competencies Align and link goals and retributions Personal and professional growth
PRIVACY AND SECURITY IN E-BUSINESS
EXHIBIT 6 How BSC Strategies Are Linked to Business Units
Business Global Balanced Scorecard (Shared Strategic Agenda) Issues
Line of Business
Indicators
Support Units
SBU A SBU B SBU C SBU D
1. Financial growth
xxx
2. Increase client value
xxx
xxx
xxx
xxx
xxx
3. Operational excellence
xxx
xxx
xxx
xxx
xxx
4. Quality
xxx
Marketing and Advertising Operations Research Manufacturing Services Certification Programs
5. Correct information
xxx
Supply Programs
6. Motivation and preparation
xxx
Human Resources
A global BSC defines general strategic priorities.
Each SBU develops a longrange plan and a BSC with the company’s strategic agenda.
dling of orders from old and new clients. The major tasks of the process for creating the BSC are summarized below, aimed at integrating systemic quality. Review of Basic Assumptions
These conditions were reviewed at VenSoft, C.A. and the result is shown in Exhibit 7. As can be seen, the majority of the assumptions are covered in all directions, and all that is left is to develop the commitment to quality and the leadership team throughout the organization. The conclusion is that VenSoft, C.A., meets all the basic conditions for starting to apply the integration proposal. Analysis of the Context. A large amount of historical and strategic data on the performance of the organization in recent years was required. How near or how far the result is from reality depends on the quality of the information supplied. The results of this task are presented in Exhibit 8. These are the organizational indicators (value drivers) needed to do the first simulation of the case study. The strategy to be followed in the simulation of VenSoft’s organizational model for checking the integration of systemic quality was based on value management principles. This makes it possible to ensure that the valuation of an organization depends on its capacity to create financial value and that the creation of this depends, in turn, fundamentally on the I N F O R M A T I O N
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strategy implemented.10 In short, if the present financial value of the organization is determined, and if the growth expected in five years is simulated, it is possible to establish the financial shareholder value in the current context, also called the pre-strategy value. If later on, a growth and productivity strategy based on the BSC and systemic quality is introduced, this must affect the financial shareholder value, and then a second simulation with the changes in value drivers is done over a similar period in the current context, in order to value the changes in fianancial shareholder value. To represent VenSoft, C.A., a dynamic model was created in ITHINK release 5, as can be seen in Exhibit 9, in which the value drivers provided by the perspectives are related to one another. This model can be viewed as if it were a snapshot of the company. In this exhibit, rectangles represent accumulations (for example, inventory, cash on hand, manpower, or commitments), circles represent the logical relationships indicated by the arrows, and connectors describe flows or activities that fill or empty accumulations. To determine the present shareholder value at VenSoft, C.A., the simulation model was implemented, taking as the input the “value drivers” provided at the start of this task. Exhibit 10 summarizes the financial results tax (where ISR means income tax and DISR means after income tax). The shareholder value at the present stage or at the pre-strategy value (PRE Va) is:
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Each support unit develops a plan to share best practices to create synergy in all the SBUs.
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EXHIBIT 7 Review of Fundamental Premises at VenSoft, C.A.
Premises
Administration
Human Leader Creativity Leadership team Sense of belonging Organizational Systemic vision Defined processes Resources Cultural Commitment to quality Systemic thinking Shared vision Recognition Motivation Technological Technologies Teamwork Mass media Accessibility Management Strategic plan Change management
Departments Development
Operations
x
x
x
x
n/a n/a
n/a n/a
Note: Current; x to be developed; n/a, not applied.
EXHIBIT 8 Analysis of the Context
Organizational Characteristic
Value
No. of years in the software systems development sector Do they have systems quality assurance programs? Availability of managing director as project leader Financial value drivers Sales (millions) Rate of growth of sales (percent) Operating margin (percent) Accumulated fixed investment (first year) (mb)a Increase in working capital (percent) Increase in accumulated fixed investment (percent) Income tax rate (percent) Capital cost (WACC) (percent) Total investments in securities and shareholdings (mb)a Market debt (mb)a Customer value drivers Customer base Share of selected market (percent) Rate of customer satisfaction (1–5) Internal business process value drivers Average price of products and services (mb)a Learning and growth value drivers Base of professionals Base of candidates Learning time (months) Global employee satisfaction index (1–5) Annual contracting rate (percent) Annual staff defection rate (percent)
12 No High
a
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EXHIBIT 9 Summary of VenSoft, C.A., Dynamic Model at Present
EXHIBIT 10 Financial Results Forecast at VenSoft, C.A.
Millions of Dollars
2000
2001
2002
2003
2004
2005
Sales – Cost Operating margin Income tax (ISR) DISR margin + Depreciation – Increase in fixed investment – Increase in capital Operating cash flow
1 0.35 0.65
0.65 0.43 0.80 0.24 0.56 0.07 0.51 0.05 0.07
1.45 0.51 0.94 0.28 0.66 0.07 0.16 0.06 0.50
1.78 0.62 1.15 0.35 0.81 0.07 0.20 0.07 0.60
1.98 0.69 1.29 0.39 0.90 0.07 0.22 0.08 0.66
2.32 0.82 1.51 0.45 1.06 0.07 0.26 0.10 0.10
PRE Va = U.S.$2.08 million This is the value that can be offered to shareholders following the value drivers provided by VenSoft, C.A., according to the simulation. Analysis of the Sector: Its Development and Role
In this task, the managers of VenSoft, C.A., were presented with the opportunities and threats, as well as the general strengths and weaknesses that the researchers consider are present in the software systems development sector in Venezuela. The objective was to analyze the different points of view and arrive at a consensus on the sector and think of a strategy. In general, it was agreed that the systems develI N F O R M A T I O N
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opment sector in Venezuela is an expanding process. Establish and Confirm the Strategic Plan
In this task, VenSoft’s strategic plan was reviewed to detect the level of adaptation to the research. In general, VenSoft’s main components — such as vision, mission, and values — are clearly defined and provide a way of seeing the organization. Translate the Strategy into Operational Terms
The task consists of studying and adapting these elements to the context of VenSoft, create the strategic map and the BSC for VenSoft,
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growth in value can be properly appreciated. To check this assumption, a second simulation model, done with ITHINK, will be used, where the strategy is incorporated and the changes observed. The model created represents the company and expresses the strategy through the BSC. During the implementation of the dynamic simulation model, the following results, by perspective, were observed:
EXHIBIT 11 Strategic Map Focused on Systems Dynamics for Vensoft, C.A.
Fixed Investment
(+) Shareholder (+) Value
(+)
Growth
Financial
Productivity (+)
(+) Market
(+) (+) Competitiveness
Learning and Growth Perspective
Employee satisfaction was driven by fixed investment during the first year (410 million), which provided more access to technologies for systems development. Exhibit 12 shows the result of these indicators over a 16-month period. This graph shows how a level of satisfaction in the employees is reached (line 3) higher than 4 (scale from 1 to 5) after month 6, which aims at the objectives set.
Custom (+)
Customer
(-)
(+) Product Quality
Operating Costs
(+) Process Quality
Internal Process
(-)
(+) Access to Technology
(+)
Employee Satisfaction
Internal Processes Perspective
Learning and Growth
perform the second simulation, and obtain the financial results from the strategy. The idea is that the only changes added to the initial simulation model will be the process quality and Product Quality Index and then to determine their impact. In the first place, the BSC matrix was adapted and new indicators introduced at the financial level, such as financial shareholder value and free cash flow. From the perspective of the clients, the Client Satisfaction Index was added. At the employee level, the indicators proposed by the Staff Satisfaction Index were summarized. The other strategic objectives and indicators were accepted and it is hoped that they support the strategy, as shown in Exhibit 4. Then, the strategic map of the integration proposal was reviewed to confirm the causeand-effect relationships most capable of supporting VenSoft’s strategy and make the necessary changes. These changes are shown on the strategic map shown in Exhibit 11, where the relationships between VenSoft’s indicators are highlighted. At that point in time, the company has a clear map of how to implement the growth and productivity strategy. This strategy must bear fruit in the medium and long term, where the
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During the first year, heavy financial investment and the increase in employee satisfaction stimulated both process and product quality, and also appreciably reduced operating costs after the first year. This takes into account the fact that improvements in quality are appreciable in the medium and long term. Exhibit 13 shows this behavior. Client Perspective
It can be seen that product quality is what drives client satisfaction and this in turn increases market share from 20 to 46 percent in five years, as shown in Exhibit 14. It can also be seen that client satisfaction goes hand in hand with product quality at very low operating costs. Market share is also driven by the competitiveness of the company. In conclusion, the client value proposal must be in accordance with the following order of priority: quality, time, price. Financial Perspective
Finally, financial results that justify the change toward a growth and productivity strategy based on systemic quality are sought. These results must be achieved through growth of market share and increased earnings, and by an increase in productivity, which involves a reduction in operating costs. The analysis of this perspective is based on value management. A
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EXHIBIT 12 Behavior of the Learning and Growth Strategy
1: 4.50 2: 5.50 3: 5.00
1: 3.00 2: 4.00 3: 4.00 1. Impact on Investment IT 2. Access to Technologies 3. Employee Satisfaction
1: 1.50 2: 2.50 3: 3.00 1.00
4.75
8.50
12.25
16.00
Growth and Learning (Months)
EXHIBIT 13 Behavior of the Internal Processes Perspective
1: 4.50 2: 5.50 3: 5.00
1: 3.00 2: 4.00 3: 4.00 1. Impact on Investment IT 2. Access to Technologies 3. Employee Satisfaction
1: 1.50 2: 2.50 3: 3.00 1.00
4.75
8.50
12.25
16.00
Growth and Learning (Months)
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EXHIBIT 14 Behavior of the Client Perspective
1: 5.00 2: 3.30 3: 3.95 4: 0.45
1: 4.00 2: 3.00 3: 3.60 4: 0.40 1. Employee Satisfaction 2. Product Quality 3. Process Quality 4. Operational Costs 1: 3.00 2: 2.70 3: 3.25 4: 0.351.00
16.00
31.00
46.00
61.00
Growth and Learning (Months)
EXHIBIT 15 Financial Results after Simulating the Quality Strategy at Vensoft, C.A.
Millions of dollars
2000
2001
2002
2003
2004
2005
Sales – Cost Operating margin ISR DISR margin + Depreciation – Increase in fixed investment – Increase in capital Operating cash flow
1 0.35 0.65
0.65 0.38 0.85 0.25 0.59 0.07 0.05 0.51 0.10
1.45 0.45 0.10 0.30 0.70 0.07 0.06 0.17 0.53
1.84 0.57 1.27 0.38 0.89 0.07 0.08 0.22 0.66
2.34 0.73 1.61 0.48 1.13 0.07 0.10 0.28 0.81
2.97 0.93 2.04 0.61 1.44 0.07 0.13 0.35 1.02
summary of the financial results is given in Exhibit 15. Financial shareholder value and, in this case, post-strategy value (POS Va): POS Va = U.S.$2.73 million The creation of value can be determined by deducting the pre-strategy value from the poststrategy value; if the result is positive, the strategy generated that amount of financial value. For the VenSoft case, the following was obtained:
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Align the Organization with the Strategy
This task seeks to align VenSoft’s directions with the values already established by the strategy. In the first place, it is important to point
Created value = POS Va – PRE Va Created value = U.S.$2.73 – U.S.$2.08 = U.S.$0.65 million
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This was the financial shareholder value that generated the differentiation and productivity strategy proposed by this research. Once the case study has been simulated, the creation of value over the five years can be determined; however, in the first year there were no significant changes from the previous stage, which confirms the idea that the benefits of a quality program are quantifiable in the medium and long term.
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Make the Strategy a Daily Job EXHIBIT 16 Leaflet Disseminating VenSoft, C.A., Strategy
Shareholders
Corporate Goals
Goals
Initiatives January
200
Fiancially Strong Strong and consistent financial policy.
150 100 50 0
2001
Exhibit 16 shows an example of how VenSoft’s strategic leaflet should look. After disseminating the organization’s strategy, the goals set must be related to employee remuneration. A table of incentives based on the BSC was therefore proposed, as shown in Exhibit 17. Each perspective and indicator was given a weight that depends directly on the organization’s mission. The behavior of the end-of-year bonus will depend the goals expected being totally or partially attained. Therefore, a strong link between the value of achieving the strategy and the benefits for the staff is created. In summary, this is how the strategy becomes an everyday task: first by disseminating it in simple language and then by linking it to monetary incentives.
2002
2003
Increase shareholder value Improve revenue through growth Improve operating costs
January 200
Clients
Market Leader We ensure a large market share.
150
Improve client satisfaction
100 50 0
Value products and services Generally speaking, provide better products and services and value for money.
2001
2002
2003
January 200 150
Improve product quality
100 50 0
2001
2002
2003
Employees
Internal Processes
January
Quality Assurance Excellent performance in terms of process and product quality.
200 100 50 0
Making the Strategy an Ongoing Process
Increase employee satisfaction Improve productivity recognition
150
2001
2002
2003
January
Improve Productivity Maintain and improve productivity levels throughout the organization.
200
Increase employee satisfaction Invest in technologies
150 100 50 0
2001
2002
2003
January
Better Employees Constantly strive to improve employees professionally and personally.
200
Competitive salaries Training program Performance-based pay
150 100 50 0
2001
2002
2003
out that although the company is a subsidiary of a larger corporation abroad, it is functionally and organizationally independent; that is, it can make changes in its structure and organization, provided it maintains and improves the global objectives. To continue with the BSC, the directions must be aligned with the strategy, and in turn with the company’s shared suppliers and services, such as Internet access, legal counsel, international courier service, photocopying, printing, etc. Therefore, strategic issues that will be shared by everyone must be selected. The strategic issues identified for VenSoft are integral quality, increase in client value, operational excellence, and financial excellence. The objectives and goals must then be noted and information shared with the suppliers so that they too can be aligned with the organization’s requirements. I N F O R M A T I O N
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With this approach, the method for calculating annual budgets for the organizations is defined because the strategies can be linked with the allocation of resources. To attain tangible results, systemic quality requires a constant flow of resources for what might be a longer period of time than the annual budget. Basically, three activities to be carried out by the VenSoft’s administration and management are recommended: (1) make the next budget for the company linked to the strategies they support; (2) hold periodic meetings to evaluate the strategies and take strategic feedback; and (3) hold meetings in which scenarios can be developed on the course of the strategy. Therefore, it is recommended that dynamic simulation tools, such as ITHINK, be used to facilitate and stimulate participation by all directors and managers in the discussion of new ideas and scenarios. Through these activities, interest can be maintained in attaining the goals and fulfilling the strategies. It is the responsibility of the managers to keep this process active at all times. Promote Change through Leadership
For VenSoft, C.A., change management has always been a very important issue and the need to support a project of this extent with backing from the same level is recognized. The president shares the researcher’s point of view that it is not possible to promote so many players and attain the necessary consensus without backing from the leading figures in the firm. At VenSoft, the board of directors is of the following opinion: “If the proposal can produce improve-
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EXHIBIT 17 Incentives Based on the BSC for VenSoft, C.A.
Category
Indicators
Financial (60 percent)
Shareholder value Return on capital employed (ROCE) Economic value added (EVA) Free Cash Flow Operating costs Client satisfaction index Rate of growth of market Process quality index Product quality index Productivity Employee quality index
Client (10 percent) Internal Processes (10 percent)
Training and growth (20 percent)
ments in internal processes that promise and increase shareholder value to such a large degree, all possible support must be given in order to achieve it.” To conclude, at the end of the first iteration of the integration proposal, there are some results that must be carefully analyzed so that one is able to improve the proposal and determine the conclusions and recommendations of the case. CONCLUSION
The integration proposal developed in this research represents a summary of different organizational areas, seeking to close the gap between software engineering projects and organizational strategies. The starting point was the research on process and product systemic quality developed by LISI and an effort was made to connect them to the different organizational sources that can make facilitate their implementation. This systemic vision of the organization, and the balance between the forces of the organization, coincide with the BSC method. The integration of systemic quality in organizations that develop software systems through the BSC arise by combining the strengths of the process and product quality models with the perspectives of the organization that support them. The specifications were complemented with the most important organizational aspects found in the specialized literature in order to this study with the best practices documented by the major authors in the field of BSC.
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18 13 13 10 6 7 3 3 3 4 20
The systemic nature of BSC enables its application to be applied beyond a system of indicators, so it can be used as a launching pad for general strategic plan within the organization. The dynamic simulation system enabled the behavior of the financial variables to be analyzed, thereby reducing the analysis time for the case study. As a result of the case study, it is clear that the proposal determines the causal relationship between quality and the other organizational indicators, until the financial perspective is reached, which enables the feasibility of a quality strategy to be evaluated in management terms, beyond the methodology to be used or the approach to be followed. ▲ Acknowledgment
This research has been financed by the project FONACIT S1-2000000437. References 1. Callaos, N. and Callaos, B., “Designing with a Systemic Total Quality,” at The International Conference on Information Systems Analysis and Synthesis ISAS’96, Orlando, FL, July 11–13, 1996. 2. Pressman, R., Ingeniería del Software. Un enfoque práctico, McGraw-Hill, Spain, 2002. 3. Dromey, G., “A Model for Software Product Quality,” IEEE Transactions on Software Engineering, 2(2), February 1995. 4. Ortega, M., Pérez, M., and Rojas, T., “A Model for Software Product Quality with a Systemic Focus,” at The 4th World Multiconference on Systemics, Cybernetics and Informatics SCI 2000 and The 6th Intrernational Conference
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on Information Systems, Analysis and Synthesis ISAS 2000, Orlando, FL, July 2000. 5. ISO/IEC 9126, Internacional ISO/IEC, 1991. 6. Humphrey, W., Introduction to Personal Software Process, Addison-Wesley, Massachusetts, 1997. 7. Kaplan, R. and Norton, D., Cuadro de Mando Integral, The Balanced Scorecard, Gestión 2000, 1996.
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8. Olve, N., Roy, J., and Wetter, M., Implantando y Gestionando el Cuadro de Mando Integral, Gestión 2000, 1999. 9. Kaplan, R. and Norton, D., The Strategy-Focused Organization, Harvard Business School Press, 2000. 10. Amat, O., EVA Valor Económico Agregado, Grupo Editorial Norma, Barcelona, Spain 1999.
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