Transcript The Scope and Language of Operations Management

Chapter 8
Performance
Measurement
and Strategic
Information
Management
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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.
Information Management
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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
Use of Information and
Analysis
Validation
Customer
Requirements
Prediction
Measurements
Control
Processes
Results
Design
Measurement supports executive performance review
and daily operations and decision making.
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 selfmonitoring of performance by employees, and
have a greater willingness by employees to take
risks.
Benefits of Information
Management
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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
Leading Practices
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(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
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(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.
Balanced Scorecard
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Financial perspective
Internal perspective
Customer perspective
Innovation and learning
perspective
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.
Baldrige Classification of
Performance Measures
Customer
 Product and service
 Financial and market
 Human resource
 Organizational effectiveness
 Governance and social responsibility
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Customer Measures
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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
Product and Service
Measures
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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
Financial and Market
Measures
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Revenue
Return on equity
Return on investment
Operating profit
Pretax profit margin
Asset utilization
Earnings per share
Human Resource Measures
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Employee satisfaction
Training and development
Work system performance and
effectiveness
Safety
Absenteeism
Turnover
Organizational Effectiveness
Measures
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Cycle times
Production flexibility
Lead times and setup times
Time to market
Product/process yields
Delivery performance
Cost efficiency
Productivity
Governance and Social
Responsibility Measures
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Organizational accountability
Stakeholder trust
Ethical behavior
Regulatory/legal compliance
Financial and ethics review results
Community service
Management stock purchase activity
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.
Purposes of Performance
Measurement Systems
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Providing direction and support for
continuous improvement
Identifying trends and progress
Facilitating understanding of cause-andeffect relationships
Allowing performance comparison to
benchmarks
Providing a perspective of the past, present,
and future
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.
Practical Guidelines
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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
Linkages to Strategy
Key business drivers
(key success factors)
Strategies and
action plans
Measures and indicators
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.
Process-Level
Measurements
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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?
Key Idea
Good measures and indicators are
actionable; that is, they provide the basis
for decisions at the level at which they are
applied.
Common Process Quality
Measures
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Nonconformities (defects) per unit
Errors per opportunity
Dpmo – defects per million
opportunities
Creating Effective Performance
Measures
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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
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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
Key Idea
Organizations need a process for
transforming data, usually in some
integrated fashion, into information that
top management can understand and
work with.
Interlinking
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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
The Cost of Quality (COQ)
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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
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 labordependent, with labor often accounting
for up to 75 percent of total costs.
Quality Cost Management
Tools
Cost indexes
 Pareto analysis
 Sampling and work measurement
 Activity-based costing
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Return on Quality (ROQ)
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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
Managing Data and
Information
Validity – Does the indicator
measure what it says it does?
 Reliability – How well does an
indicator consistently measure the
“true value” of the characteristic?
 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 TQfocused companies, business information
is accessible to everyone.
Knowledge Management
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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 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.
Internal Benchmarking
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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.
Measurement and Information
Management in the Baldrige
Award Criteria
The 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 and Analysis of Organizational Performance
a. Performance Measurement
b. Performance Analysis
4.2 Information and Knowledge Management
a. Data and Information Availability
b. Organizational Knowledge
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