1. Performance Measurement and Strategic Information Management
Chapter 8
Performance
Measurement
and Strategic
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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

3. 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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4. Process Flow Information Analysis Data Measures and Indicators
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5. Use of Information and Analysis
Validation
Prediction
Customer
Requirements
Measurements
Control
Processes
Results
Design
Measurement supports executive performance review and daily operations and decision making.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

6. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

7. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

8. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

9. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

10. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

11. Balanced Scorecard Financial perspective Internal 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.
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.
Customer perspective
Focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business.
Innovation and learning perspective
Directs 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

12. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

13. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

14. 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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15. 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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16. 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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17. Human Resource Measures
Employee satisfaction
Training and development
Work system performance and effectiveness
Safety
Absenteeism
Turnover
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18. Organizational Effectiveness Measures
Cycle times
Production flexibility
Lead times and setup times
Time to market
Product/process yields
Delivery performance
Cost efficiency
Productivity
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

19. 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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20. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

21. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

22. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

23. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

24. Linkages to Strategy Measures and indicators
Key business drivers (key success factors)
Strategies and action plans
Measures and indicators
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

25. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

26. 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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27. Key Idea
Good measures and indicators are actionable; that is, they provide the basis for decisions at the level at which they are applied.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

28. Common Process Quality Measures
Nonconformities (defects) per unit
Errors per opportunity
Dpmo – defects per million opportunities
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

29. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

30. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

31. Key Idea
Organizations need a process for transforming data, usually in some integrated fashion, into information that top management can understand and work with.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

32. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

33. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

34. Quality Cost Classification
Prevention
Appraisal
Internal failure
External failure
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

35. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

36. Quality Cost Management Tools
Cost indexes
Pareto analysis
Sampling and work measurement
Activity-based costing
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

37. 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
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

38. Key Idea
Data used for planning and decision making need to be reliable, accurate, secure, and accessible to those who need them.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

39. 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?
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

40. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

41. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

42. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

43. 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.
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing

44. 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, Analysis, and Review of Organizational Performance
a. Performance Measurement
b. Performance Analysis and Review
4.2 Information and Knowledge Management
a. Data and Information Availability
b. Organizational Knowledge Management
c. Data, Information, and Knowledge Quality
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, © 2008 Thomson Higher Education Publishing