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Chapter 8Chapter 8Chapter 8Chapter 8

Performance Performance Measurement Measurement and Strategic and Strategic Information Information ManagementManagement

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Information ManagementInformation Management

If you don’t measure results, you can’t tell success from failure

If you can’t see success, you can’t reward it – and if you can’t reward success, you are probably rewarding failure

If you can’t recognize failure, you can’t correct it

Process FlowProcess Flow

Measures and Indicators

Data

Analysis

Information

Benefits of Information Benefits of Information ManagementManagement

Understand customers and customer Understand customers and customer satisfaction satisfaction

Provide feedback to workersProvide feedback to workers Establish a basis for Establish a basis for

reward/recognitionreward/recognition Assess progress and the need for Assess progress and the need for

corrective actioncorrective action Reduce costs through better planningReduce costs through better planning

Three Levels of Quality Three Levels of Quality Info.Info.

Individual levelIndividual level– ControlControl

Process levelProcess level– DiagnosisDiagnosis

Organizational levelOrganizational level– PlanningPlanning

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Leading Practices Leading Practices (1 of 2)(1 of 2)

Develop a set of performance indicators that Develop a set of performance indicators that reflect customer requirementsreflect customer requirements and key and key business driversbusiness drivers

Use comparative informationUse comparative information and data to and data to improve overall performance and improve overall performance and competitive positioncompetitive position

Continually refineContinually refine information sources and information sources and their uses within the organization their uses within the organization

Use sound analytical methodsUse sound analytical methods to conduct to conduct analyses and use the results to support analyses and use the results to support strategic planning and daily decision makingstrategic planning and daily decision making

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Leading Practices Leading Practices (2 of 2)(2 of 2)

Involve everyoneInvolve everyone in measurement in measurement activities and ensure that information is activities and ensure that information is widely visiblewidely visible

Ensure that data are Ensure that data are accurate, reliable, accurate, reliable, timelytimely, secure, and confidential, secure, and confidential

Ensure that Ensure that hardware and software hardware and software systemssystems are are reliable and user-friendlyreliable and user-friendly

Systematically manage organizational Systematically manage organizational knowledge and identify and knowledge and identify and share best share best practicespractices

CapitalExpendi-

tures

The Dashboard of The Dashboard of Old Performance Old Performance MeasuresMeasures

The Dashboard of The Dashboard of Old Performance Old Performance MeasuresMeasures

Sales

Costs

Assets

Liabilities

Cash flow

DebtProfitability

Training

The Dashboard of New The Dashboard of New Performance MeasuresPerformance MeasuresThe Dashboard of New The Dashboard of New Performance MeasuresPerformance Measures

CustomerRetention

Costs

Sales

EmployeeRetention

CycleTime

ReferralRates

QualityCustomerSatisfac-

tion

DefectRates Profitability

Cash-flow

CapitalExpendi-

tures

Assets

Debt

Liabilities

Balanced ScorecardBalanced Scorecard

1.1. Financial perspectiveFinancial perspective

2.2. Internal (processes) Internal (processes) perspectiveperspective

3.3. Customer perspectiveCustomer perspective

4.4. Innovation and learning Innovation and learning perspectiveperspective

Key IdeaKey IdeaThe Balanced ScorecardThe Balanced Scorecard

A good balanced scorecard contains both leading and lagging measures and indicators. Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.

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Baldrige Classification of Baldrige Classification of Performance MeasuresPerformance Measures

CustomerCustomer Product and serviceProduct and service Financial and market Financial and market Human resourceHuman resource Organizational effectivenessOrganizational effectiveness Governance and social Governance and social

responsibilityresponsibility

Customer MeasuresCustomer Measures

Customer satisfaction and dissatisfactionCustomer satisfaction and dissatisfaction Customer retentionCustomer retention Gains and losses of customers and Gains and losses of customers and

customer accountscustomer accounts Customer complaints and warranty Customer complaints and warranty

claims.claims. Perceived value, loyalty, positive referral, Perceived value, loyalty, positive referral,

and customer relationship building and customer relationship building

Product and Service Product and Service MeasuresMeasures

Internal quality measurementsInternal quality measurements Field performance of productsField performance of products Defect levelsDefect levels Response timesResponse times Data collected from customers or third Data collected from customers or third

parties on ease of use or other parties on ease of use or other attributesattributes

Customer surveys on product and Customer surveys on product and service performanceservice performance

Financial and Market Financial and Market MeasuresMeasures

RevenueRevenue Return on equityReturn on equity Return on investmentReturn on investment Operating profitOperating profit Pretax profit marginPretax profit margin Asset utilizationAsset utilization Earnings per shareEarnings per share

Human Resource Human Resource MeasuresMeasures

Employee satisfactionEmployee satisfaction Training and developmentTraining and development Work system performance and Work system performance and

effectivenesseffectiveness SafetySafety AbsenteeismAbsenteeism TurnoverTurnover

Organizational Organizational Effectiveness MeasuresEffectiveness Measures

Cycle timesCycle times Production flexibilityProduction flexibility Lead times and setup timesLead times and setup times Time to marketTime to market Product/process yieldsProduct/process yields Delivery performanceDelivery performance Cost efficiencyCost efficiency ProductivityProductivity

Governance and Social Governance and Social Responsibility Measures Responsibility Measures

Organizational accountabilityOrganizational accountability Stakeholder trustStakeholder trust Ethical behaviorEthical behavior Regulatory/legal complianceRegulatory/legal compliance Financial and ethics review resultsFinancial and ethics review results Community serviceCommunity service Management stock purchase activityManagement stock purchase activity

Key IdeaKey IdeaThe Role of Comparative DataThe Role of Comparative Data

Organizations need comparative data, such as industry averages, best competitor performance, and world-class benchmarks to gain an accurate assessment of performance and know where they stand relative to competitors and best practices.

Key IdeaKey IdeaDesigning Effective PM SystemsDesigning Effective PM Systems

In designing a performance measurement system, organizations must consider how the measures will support senior executive performance review and organizational planning to address the overall health of the organization, and how the measures will support daily operations and decision making.

Practical GuidelinesPractical Guidelines

Fewer is better—measure vital few. Link to the key business drivers. Include a mix of past, present, and future Address the needs of all stakeholders. Start at the top and flow down to all levels of

employees Combine multiple indexes into a single index Change as the environment and strategy

changes Have research-based targets or goals

Linkages to StrategyLinkages to Strategy

Key business drivers (key success factors)

Strategies and action plans

Measures and indicators

Key IdeaKey IdeaLinking Measures to StrategyLinking Measures to Strategy

The things an organization needs to do well to accomplish its vision are often called key business drivers or key success factors. They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct.

Effective MeasuresEffective Measures

SimpleSimple MeasurableMeasurable ActionableActionable RelatedRelated TimelyTimely

Common Process Quality Common Process Quality MeasuresMeasures

Nonconformities (defects) per unitNonconformities (defects) per unit Errors per opportunityErrors per opportunity Dpmo – defects per million Dpmo – defects per million

opportunitiesopportunities

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Identifying and Selecting Identifying and Selecting Process MeasuresProcess Measures

Identify all customers and their Identify all customers and their requirements and expectationsrequirements and expectations

Define work processesDefine work processes Define value-adding activities and Define value-adding activities and

process outputsprocess outputs Develop measures for each key Develop measures for each key

processprocess Evaluate measures for their usefulnessEvaluate measures for their usefulness

Analyzing and Using DataAnalyzing and Using Data

AnalysisAnalysis – an examination of facts and – an examination of facts and data to provide a basis for effective data to provide a basis for effective decisions.decisions.

ExamplesExamples– Examining trends and changes in key performance Examining trends and changes in key performance

indicatorsindicators– Making comparisons relative to other business units, Making comparisons relative to other business units,

competitor performance, or best-in-class benchmarkscompetitor performance, or best-in-class benchmarks– Calculating means, standard deviations, and other Calculating means, standard deviations, and other

statistical measuresstatistical measures– Seeking to understand relationships among different Seeking to understand relationships among different

performance indicators using sophisticated statistical performance indicators using sophisticated statistical tools such as correlation and regression analysistools such as correlation and regression analysis

Key IdeaKey IdeaAnalyzing and Using Performance DataAnalyzing and Using Performance Data

Organizations need a process for transforming data, usually in some integrated fashion, into information that top management can understand and work with.

InterlinkingInterlinking

Quantitative modeling of cause-and-Quantitative modeling of cause-and-effect relationships between external effect relationships between external and internal performance measuresand internal performance measures

Facilitated by Facilitated by data miningdata mining – the – the process of of searching large process of of searching large databases to find hidden patterns in databases to find hidden patterns in data, using analytical approaches and data, using analytical approaches and technologies such as cluster analysis, technologies such as cluster analysis, neural networks, and fuzzy logicneural networks, and fuzzy logic

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Managing Data and Managing Data and InformationInformation

ValidityValidity – Does the indicator – Does the indicator measure what it says it does?measure what it says it does?

ReliabilityReliability – How well does an – How well does an indicator consistently measure indicator consistently measure the “true value” of the the “true value” of the characteristic?characteristic?

AccessibilityAccessibility – Do the right – Do the right people have access to the data?people have access to the data?

Key IdeaKey IdeaData Accessibility and SecurityData Accessibility and Security

In many companies, business information is only accessible to top managers and others on a need-to-know basis. In TQ-focused companies, business information is accessible to everyone.

Knowledge ManagementKnowledge Management

The process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage– Explicit knowledge includes information

stored in documents or other forms of media.

– Tacit knowledge is information that is formed around intangible factors resulting from an individual’s experience, and is personal and content-specific.

Key IdeaKey IdeaKnowledge ManagementKnowledge Management

Knowledge assets refer to the accumulated intellectual resources that an organization possesses, including information, ideas, learning, understanding, memory, insights, cognitive and technical skills, and capabilities.

Knowledge ManagementKnowledge Management

Knowledge management involves Knowledge management involves the process of identifying, the process of identifying, capturing, organizing, and using capturing, organizing, and using knowledge assets to create and knowledge assets to create and sustain competitive advantage.sustain competitive advantage.

Knowledge management differs Knowledge management differs from information managementfrom information management

Internal BenchmarkingInternal Benchmarking

The ability to identify and transfer best practices within the organization

Process: – Identify and collect internal knowledge

and best practices– Share and understand those practices– Adapt and apply them to new situations

and bringing them up to best-practice performance levels.

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Measurement and Measurement and Information Management in Information Management in the Baldrige Award Criteriathe Baldrige Award CriteriaThe Measurement, Analysis, and Knowledge The Measurement, Analysis, and Knowledge ManagementManagement Category examines an organization’s Category examines an organization’s information management and performance information management and performance measurement systems and how the organization measurement systems and how the organization analyzes performance data and information.analyzes performance data and information.

4.1 Measurement and Analysis of Organizational Performance

a. Performance Measurement b. Performance Analysis

4.2 Information and Knowledge Managementa. Data and Information Availabilityb. Organizational Knowledge