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MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 1
Chapter 8Chapter 8
Performance Measurement and Information Management
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing 2
Key Idea
A supply of consistent, accurate, and timely data across all functional areas of business provides real-time information for the evaluation, control, and improvement of processes, products, and services to meet both business objectives and rapidly changing customer needs.
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Information 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
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Process Flow
Measures and Indicators
Data
Analysis
Information
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CustomerRequirements
Measurements
Processes ResultsDesign
Control
Prediction
Validation
Use of Information and Analysis
Measurement supports executive performance review and daily operations and decision making.
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Key Idea
Measurement-managed companies are more likely to be in the top third of their industry financially, complete organizational changes more successfully, reach clear agreement on strategy among senior managers, enjoy favorable levels of cooperation and teamwork among management, undertake greater self-monitoring of performance by employees, and have a greater willingness by employees to take risks.
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Benefits of Information Management
Understand customers and customer satisfaction
Provide feedback to workers Establish a basis for reward/recognition Assess progress and the need for
corrective action Reduce costs through better planning
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Leading Practices (1 of 2)
Develop a set of performance indicators that reflect customer requirements and key business drivers
Use comparative information and data to improve overall performance and competitive position
Continually refine information sources and their uses within the organization
Use sound analytical methods to conduct analyses and use the results to support strategic planning and daily decision making
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Leading Practices (2 of 2)
Involve everyone in measurement activities and ensure that information is widely visible
Ensure that data are accurate, reliable, timely, secure, and confidential
Ensure that hardware and software systems are reliable and user-friendly
Systematically manage organizational knowledge and identify and share best practices
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Key Idea
To make decisions that further the overall organizational goals of meeting, or exceeding, customer expectations and making productive use of limited resources, companies need good data and information about customers and markets, human resource effectiveness, supplier performance, product and service quality, and other key factors, in addition to traditional financial performance and accounting measures.
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Balanced Scorecard1. Financial perspective
Measures the ultimate results that the business provides to its shareholders. They include profitability, revenue growth, return on investment, economic value added (EVA), and shareholder value.
2. Internal perspective Focuses attention on the performance of the key internal processes that drive the business. They include such measures as quality levels, productivity, cycle time, and cost.
3. Customer perspective Focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business.
4. Innovation and learning perspectiveDirects attention to the basis of a future success—the organization’s people and infrastructure. Key measures might include intellectual assets, employee satisfaction, market innovation, and skills development.
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Key Idea
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 Performance Measures
Customer-focused outcomes Product and service outcomes Financial and market outcomes Human resource outcomes Organizational effectiveness outcomes Governance and social responsibility
outcomes
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Customer Measures
Customer satisfaction and dissatisfaction Customer retention Gains and losses of customers and customer
accounts Customer complaints and warranty claims. Perceived value, loyalty, positive referral, and
customer relationship building
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Product and Service Measures Internal quality measurements Field performance of products Defect levels Response times Data collected from customers or third parties
on ease of use or other attributes Customer surveys on product and service
performance
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Financial and Market Measures
Revenue Return on equity Return on investment Operating profit Pretax profit margin Asset utilization Earnings per share
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Human Resource Measures
Employee satisfaction Training and development Work system performance and effectiveness Safety Absenteeism Turnover
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Organizational Effectiveness Measures
Cycle times Production flexibility Lead times and setup times Time to market Product/process yields Delivery performance Cost efficiency Productivity
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Governance and Social Responsibility Measures
Organizational accountability Stakeholder trust Ethical behavior Regulatory/legal compliance Financial and ethics review results Community service Management stock purchase activity
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Key Idea
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.
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Purposes of Performance Measurement Systems Providing direction and support for
continuous improvement Identifying trends and progress Facilitating understanding of cause-and-effect
relationships Allowing performance comparison to
benchmarks Providing a perspective of the past, present,
and future
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Key Idea
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.
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Practical Guidelines Fewer is better. 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
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Linkages to Strategy
Key business drivers (key success factors)
Strategies and action plans
Measures and indicators
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Key Idea
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.
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Process-Level Measurements
Does the measurement support our mission? Will the measurement be used to manage change? Is it important to our customers? Is it effective in measuring performance? Is it effective in forecasting results? Is it easy to understand and simple? Are the data easy/cost-efficient to collect? Does the measurement have validity, integrity, and
timeliness? Does the measure have an owner?
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Key Idea
Good measures and indicators are actionable; that is, they provide the basis for decisions at the level at which they are applied.
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Common Process Quality Measures
Nonconformities (defects) per unit Errors per opportunity Dpmo – defects per million opportunities
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Creating Effective Performance Measures
Identify all customers and their requirements and expectations
Define work processes Define value-adding activities and process
outputs Develop measures for each key process Evaluate measures for their usefulness
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Analyzing and Using Data Analysis – an examination of facts and data
to provide a basis for effective decisions. Examples
Examining trends and changes in key performance indicators
Making comparisons relative to other business units, competitor performance, or best-in-class benchmarks
Calculating means, standard deviations, and other statistical measures
Seeking to understand relationships among different performance indicators using sophisticated statistical tools such as correlation and regression analysis
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Key Idea
Organizations need a process for transforming data, usually in some integrated fashion, into information that top management can understand and work with.
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Interlinking
Quantitative modeling of cause-and-effect relationships between external and internal performance measures
Facilitated by data mining – the process of of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neural networks, and fuzzy logic
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The Cost of Quality (COQ)
COQ – the cost of avoiding poor quality, or incurred as a result of poor quality
Translates defects, errors, etc. into the “language of management” – $$$
Provides a basis for identifying improvement opportunities and success of improvement programs
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Quality Cost Classification
Prevention Appraisal Internal failure External failure
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Key Idea
In manufacturing, quality costs are primarily product-oriented; for services, however, they are generally labor-dependent, with labor often accounting for up to 75 percent of total costs.
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Quality Cost Management Tools
Cost indexes Pareto analysis Sampling and work measurement Activity-based costing
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Return on Quality (ROQ)
ROQ – measure of revenue gains against costs associated with quality efforts
Principles Quality is an investment Quality efforts must be made financially
accountable It is possible to spend too much on quality Not all quality expenditures are equally valid
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Key Idea
Data used for planning and decision making need to be reliable, accurate, secure, and accessible to those who need them.
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Managing Data and Information
Data Reliability – How well does an indicator consistently measure the “true value” of the characteristic?
Data Accessibility – Do the right people have access to the data?
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Key Idea
In many companies, business information is only accessible to top managers and others on a need-to-know basis. In high-performing companies, business information is accessible to everyone.
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Knowledge 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.
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Key Idea
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.
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Internal 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 Information Management in the Baldrige Award CriteriaThe Measurement, Analysis, and Knowledge Management Category examines an organization’s information management and performance measurement systems and how the organization analyzes performance data and information.
4.1 Measurement, Analysis, and Review of Organizational Performance
a. Performance Measurement b. Performance Analysis and Review
4.2 Information and Knowledge Managementa. Data and Information Availabilityb. Organizational Knowledge Managementc. Data, Information, and Knowledge Quality