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An Overview of Performance Measurement

An Overview of Performance Measurement. Overview. Purpose of performance measurement Attributes of a good measurement system Frequent problems with performance measurement. Purpose of Performance Measurement.

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An Overview of Performance Measurement

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  1. An Overview of Performance Measurement

  2. Overview • Purpose of performance measurement • Attributes of a good measurement system • Frequent problems with performance measurement

  3. Purpose of Performance Measurement • “.. “to motivate behavior leading to continuous improvement in customer satisfaction, flexibility, and productivity.” (Lynch and Cross) • In other words: (1) Are functions doing the right things? And (2) Are they doing them well?

  4. Management Provide focus and assess progress toward results goal Primarily results measures Step in for out of bounds and milestone reviews Team Gauge progress toward achieving process goal Primarily process measures Uses measures for continuous improvement Creates own measures Team Measures (Meyer)

  5. Creating Process Measures (Meyer) • Define customer expectations • Map the process • Define critical components • Check relevancy over time • Agree on measures with management • Track critical objectives

  6. Frequent Problems with Performance Measures • Measures in different functions do not consistently support the intended strategy (fragmentation). • Cross-functional activities not evaluated as such. • Customer satisfaction totally ignored and only a portion of expectations are met. • Measures used for punishment rather than to promote learning.

  7. Problems (cont.) • Most yardsticks overlook key non-financial performance indicators.

  8. A Good System Will: • Measure what’s important to customers • Motivate operations to continuously improve • Identify and eliminate waste • Shift focus from vertical silos to responsive horizontal business processes • Accelerate organizational learning • Build a consensus for change • Focus efforts

  9. Problems from Traditional Accounting Measures • Pricing errors • Improper make versus buy decisions • Irrelevant and untimely variances • Misallocation of capital and resources • Non-productive expensive vouchering • Misidentification of cause and effect relationships • Improper design incentives

  10. Major Business Processes • Sales order processing • Procurement • Production • Distribution and shipping • Installation and/ or after-sales service • Order fulfillment (macro) • New product introduction

  11. Results knowledge Progress knowledge Visible Longitudinal Graphical Statistical Clearly defined Simple Valid Reliable Complete Balanced Systems view Customer requirement Participative Dynamic Individual Group Organizational Timely Relevant Attributes of a Good Measurement System(Altyn Clark)

  12. Effective Reporting(Lynch and Cross, Measure Up!) • Simple, consistent format • Balanced profile • Measure and manage over time • Control limits to account for normal variation • Focus on continuous improvement • Show relationship between upline and core process measures

  13. How Many Measures? • Limiting the number of measures to between four and seven at any particular level allows people to remember all and to focus on priorities • Generally the problem is not having enough measures, rather selecting those that are pivotal for success

  14. Measurement System Self-Assessment (Brown) • Overall approach to measurement • Specific types of measures (customer, employee, financial, operational, supplier, product/service quality, safety/environmental/responsibility) • Reporting and analyzing data

  15. Baldrige Performance Areas (1998) • Customer-related (eg. relative to competitors, by market segments) • Operational (product/service quality, cycle time) • Supplier and partner (quality) • Financial and market-related (ROI, asset utilization, margins, profitability, market share, growth) • Human resources (well-being, suggestion rates, courses completed, cross-training)

  16. What does it mean to measure? • “..measuring is the assignment of numerals to objects or events according to rules…. We actually measure indicants of the properties of objects.”(Kerlinger)

  17. What Quantum Physics tells us about Measurement • Principle of Uncertainty (Measurement is to make what was indeterminant, determinant. We can’t measure all properties exactly.)

  18. What Quantum Physics tells us about Measurement (cont) • Principle of Contextualism “… the type of observation we use evokes one or the other of the underlying possibilities. What we see is what we look for…. The physicist acts as a midwife to reality….. His interventions evoke one face of reality’s rich, underlying potential.”(Zohar) The observer is not separate from the observed, as was assumed from Cartesian, Newtonian science.

  19. Business Processes • The horizontal work flow through business processes until outputs reach the customer should be the focus of measurement.

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