Performance Measurement and Strategic Information Management Chapter 8 Performance Measurement and Strategic Information Management

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

Process Flow Measurement Data Analysis Information

Use of Information and Analysis Customer Requirements Measurements Processes Results Design Control Prediction Validation Measurement supports executive performance review and daily operations and decision making.

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

Empirical Survey Results Measurement-management companies are more likely to: be in top third of industry financially complete organizational changes successfully reach clear agreement on strategy enjoy favorable cooperation and teamwork have more employee empowerment have a greater willingness to take risks

Example: Federal Express “We measure everything. Then…we prioritize what processes are key to the company.” Most data collection systems are automated, making it fast and easy. Seeks internal measures that are predictors for external measures.

Example: Ritz-Carlton “We only measure what we must. But, we make sure that what we measure is important to our customers.” 50% marketing and financial data; 50% quality-related productivity data. Cost of quality is top priority. Are improvements important to customers, providing a good return, and done quickly?

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

Leading Practices (2 of 2) Ensure that data are reliable and accessible to all who need them Use sound analytical methods to conduct analyses and use the results to support strategic planning and daily decision making Continually refine information sources and their uses within the organization

Balanced Scorecard Financial perspective Internal perspective Customer perspective Innovation and learning perspective Leading measures Lagging measures

Key Types of Business Performance Measures Customer satisfaction measures Financial and market performance measures Human resource measures Supplier and partner performance measures Company-specific measures

Example: Wainwright Industries Safety Internal customer satisfaction External customer satisfaction Six sigma quality (manufacturing defects) Business performance

Common Quality Measures Nonconformities (defects) per unit Errors per opportunity Defects per million opportunities (dpmo)

Importance of Comparative Data Comparative data: industry averages, best competitor performance, world-class benchmarks Helps recognize the need for improvement Provides motivation to seek improvement

Linkages to Strategy Measures and indicators Key business drivers (key success factors) Strategies and action plans Measures and indicators

Process-Level Measurements Does the measurement support our mission? Will the measurement be used to manage change; that is, actionable? 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?

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

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

Quality Cost Classification Prevention Appraisal Internal failure External failure

Quality Cost Management Tools Cost indexes Pareto analysis Sampling and work measurement Activity-based costing

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 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?

Analysis Statistical summaries and charts Trends over time Basic Comparisons with key benchmarks Aggregate summaries and indexes Cause-and-effect linkages and correlations (interlinking) Data mining Basic Advanced

Interlinking Quantitative modeling of cause and effect relationships between external and internal performance criteria customer satisfaction rating time on hold (telephone) * * *

Information and Analysis in the Baldrige Award Criteria The Information and Analysis 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 Management a. Data Availability b. Hardware and Software Quality