Download - Materi#2 performance management concepts
PERFORMANCE MANAGEMENT CONCEPTS
Management and Industrial System Development Lab
Department of Industrial Engineering – ITS
MANAGEMENT TEAM
Business environment changes
drasticallyP.T CP INDONESIA PERFORMANCE STATUS
POULTRY PERFORMANCE STATUSCOLDSTORAGE PERFORMANCE STATUS
Management must make decisionsunder turbulent
business environment
DEFINITION ▪ Performance management is all about improvement
—synchronizing improvement to create value for and from customers with the result of economic value creation to stockholders and owners.
▪ Performance management is ‘‘the translation of plans into results—execution’’
▪ It is the process of managing an organization’s strategy
▪ Performance measure is a metric used to quantify the efficiency and effectiveness on an action
▪ Performance measurement is the process of quantifying the efficiency and effectiveness of an action
▪ Performance measurement system is a set of structured metrics and procedures to quantify both effectiveness and efficiency of activities
DEFINITIONS
1800 1880 1900
Fra Pacioli ( 15 th century )New England Textile Mills
Andrew Carnegie (Carnegie Steel Company)
Albert Fink (Louisville &Nashville)
Macy, Marshall Field, Sears (Distribution and retailing)
Frederick W. TaylorPercy Longmuir
Harrington EmersonG. Charter Harrison
Hamilton ChurchG.P. Norton
Functional organisation
Specialisation
Scientific Management: standard labour grade, standard labour
hour/unit, standard material quantity/unit
Development of transportation and
telecommunication systems
Hierarchical
organisation structure
The invention of steam
engine and steel making process
Profit gain is measured from market transaction
Cost/lb, Cost/hour, Cost/ton-mile and inventorystock-turn are used to measure the efficiency ofinternal processes, but are not used to measure the
profitability of the companyStandard product costs based on standard
labour and material costs are used to measure the internal processes and managers’
performance
Period
Era
Actors
Artisan Shops Single Activity organisation Scientific Management
Performance
measurement
system
The development
in that era
1925 1980 19871900 1920
The requirement of integratedand audited financial report for
external partiesProduct
diversification
Multi-divisional
organisation
The invention of
high speed process
technology
Cheap micro-computer
Robotics
CIM, FMS
Just-In-Time
Total Quality Management
Customers are more
critical
More producers
compete in the market
Free trade agreements
Global market is more
competitive
Requirement for more flexibleand reliable manufacturing system
Benchmarking
Business Process
Re-engineering
ROI is used to measure the performance of unit operationsand the whole organisation
ROI is used to measure
divisions and the whole
organisation Financial accounting based performance measures
Individual, non-financial performance measures are used in additionto financial performance measures
Multi-divisional
organisation Relevance lost
The use of individual, non-financial
performance measures in addition to
financial measures
Du Pont Powder Co.(F. Donaldson Brown, PierreDu Pont)
Du Pont General Motor(William C. Durrant, Pierre
Du Pont, Alfred P. Sloan)
~Quality: Costs of quality (Feigenbaum, Crossby), Malcolm Baldrige National Quality Award, European Quality Award, Six Sigma (Motorola), M. Zairi~Time: Stalk, Hout, Azzone~Flexibility: Gerwin, Slack
No significant development of performancemeasurement system, traditional performance
measurement system produces distorted,irrelevant and late information
Vertically Integration: Centralised-Departmentalised
enterprises
1987 1990 1996 Future
ABC and Throughput
Accounting
Cost accounting improvement New performance measurement systems Future performance
measurement systems
Activity-based Costing andThroughput Accounting
Integrated performance measurement system
Lean Manufacturing
Franchising
Extended Enterprises
Agile Manufacturing
?
~R. Cooper~ Galloway, Waldron
B. Maskell, S. Globerson, J. R. Dixon, A. J. Nanni, T. E. Vollmann,R. S. Kaplan, D. P. Norton, Wang System, Cambridge Research Group, Strathclyde Research Group, Loughborough Research Group, CranfieldResearch Group
Lack of relevance Lagging metrics Short-termism Inflexible Does not foster improvement Cost distortion
Traditional performance measurement systems produce information that are too late, too aggregate,
and too distorted to be relevant for managers planning and control decisions (Kaplan and Johnson)
TRADITIONAL PERFORMANCE MEASUREMENT SYSTEM:
STABLE ENVIRONMENT
NOW
PAST FUTURE
REAL MEASURES PROXY MEASURES
PERFORMANCEREPORTS
?
TURBULENT ENVIRONMENT
NOW
PAST FUTURE
?
REAL MEASURES PROXY MEASURES
PERFORMANCEREPORTS
PERFORMANCE MEASUREMENT SYSTEM – PITFALLS
1. Most organizations have too many performance measures
2. Organizations have wrong or inappropriate measures
3. The performance measures are not properly communicated throughout the organization
4. A lack of alignment
5. A performance measurement system that emphasizes short-term financial measures creates long-term problems
6. Executives want a predictive performance measurement system, rather than one that is just historical. They want a system that predicts whether they are on course, and if not, what they have to do to correct and thus achieve the desired targets
Performance Planning• Objective/target setting• Objective deployment• Resource bargaining
PERFORMANCE MANAGEMENT CYCLE( Closed loop system )
Performance Accomplishment
• Resource deployment• Training/coaching• Continuous
improvementPerformance Measurement
• KPIs• Structuring • Prioritising• Measurement• Review
Performance Improvement• Area of improvement• Causal factors• Action Plan
PERFORMANCE PLANNINGLast year performance
(Improvement Programmes)
Strategic plan
Business environmentchanges
Objectives Setting
Target Setting
Company Objectives
CompanyTarget
Objectives Deployment
Target Deployment
Department Objectives
DepartmentTarget
DefineActivity
Activity Plan- Routines
- Improvements
ResourcesBargaining
ResourcesRequirement
PERFORMANCE ACCOMPLISHMENTS
▪ Activity Plan
▪ - Routines
▪ - Improveme
nts
▪ Resources
▪ Requirement
▪ Activity Plan
▪ Execution
▪ Resources
▪ Deployment
▪ Progress
▪ Reports
Balanced ScorecardModel
Identification of Key Performance Indicator (KPI)
Corporate, Business Units
Key Performance Indicator
Corporate, Business Unit
Performance ReportsCorporate, B. Unit, B.Process, Activity
Activity Plan- Routines
- Improvements
CompanyTarget
DepartmentTarget
Performance Measuremet
Identification of Key Performance Indicator (KPI)
Business Process, Activity
Business ProcessMap
Key Performance Indicator
B. Process, Activity
Performance Review
Performance Problems
PERFORMANCE MEASUREMENT
PERFORMANCE IMPROVEMENTS
▪ Performance Problems ▪ Identification of
▪ Causal Factors
▪ Setting
▪ Improvement Programmes
▪ Improvement Programmes
▪ - Target
▪ - Schedule
▪ - Resources
▪ - Responsibility
Performancemanagement
Performancemanagement
Performancemanagement
Performancemanagement
Better performance
Implementation of performancemanagement leads to
continuous improvement
Managers should :
Understand exactly the nature of the competition - Order qualifier criteria
- Order winner criteria
Know precisely the critical business processes
Ensure that the critical business processes are executed properly
Business environmentchanges
Companyperformancemanagement
BUSINESS SITUATION
ORDER QUALIFIER AND ORDER WINNER CRITERIA
▪ Order Qualifier Criteria : the attributes of products/services which enable them to enter to a particular market.
▪ All products or services compete in market fulfill Order Qualifier Criteria, the winner is the one which also fulfill Order Winner Criteria.
▪ Order Winner Criteria : the attributes of product/service which make customers to buy that product/service, not the others.