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

2. 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

3. Process Flow
Measurement
Data
Analysis
Information

4. 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.

5. 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

6. 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

7. 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.

8. 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?

9. 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

10. 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

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

12. 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

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

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

15. 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

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

17. 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?

18. 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

19. 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

20. Quality Cost Classification
Prevention
Appraisal
Internal failure
External failure

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

22. 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

23. 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?

24. 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

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

26. 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