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Chapter 8

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

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Chapter 8

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  1. 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 Measures and Indicators Data Analysis Information

  4. 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

  5. Three Levels of Quality Info. • Individual level • Control • Process level • Diagnosis • Organizational level • Planning

  6. 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

  7. 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

  8. The Dashboard of Old Performance Measures Costs Capital Expendi- tures Cash flow Sales Assets Profitability Debt Liabilities

  9. The Dashboard of New Performance Measures Training Costs Profitability Defect Rates Sales Customer Retention Assets Cycle Time Cash- flow Employee Retention Debt Quality Customer Satisfac- tion Referral Rates Capital Expendi- tures Liabilities

  10. Balanced Scorecard • Financial perspective • Internal (processes) perspective • Customer perspective • Innovation and learning perspective

  11. Key IdeaThe Balanced Scorecard 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.

  12. Baldrige Classification of Performance Measures • Customer • Product and service • Financial and market • Human resource • Organizational effectiveness • Governance and social responsibility

  13. 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

  14. 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

  15. Financial and Market Measures • Revenue • Return on equity • Return on investment • Operating profit • Pretax profit margin • Asset utilization • Earnings per share

  16. Human Resource Measures • Employee satisfaction • Training and development • Work system performance and effectiveness • Safety • Absenteeism • Turnover

  17. Organizational Effectiveness Measures • Cycle times • Production flexibility • Lead times and setup times • Time to market • Product/process yields • Delivery performance • Cost efficiency • Productivity

  18. 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

  19. Key IdeaThe Role of Comparative Data 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.

  20. Key IdeaDesigning Effective PM Systems 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.

  21. Practical Guidelines • Fewer is better—measure vital few. • 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

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

  23. Key IdeaLinking Measures to Strategy The things an organization needs to do well to accomplish its vision are often called key business driversor key success factors. They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct.

  24. Effective Measures • Simple • Measurable • Actionable • Related • Timely

  25. Common Process Quality Measures • Nonconformities (defects) per unit • Errors per opportunity • Dpmo – defects per million opportunities

  26. Identifying and Selecting Process 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

  27. 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

  28. Key IdeaAnalyzing and Using Performance Data Organizations need a process for transforming data, usually in some integrated fashion, into information that top management can understand and work with.

  29. 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

  30. 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?

  31. Key IdeaData Accessibility and Security In many companies, business information is only accessible to top managers and others on a need-to-know basis. In TQ-focused companies, business information is accessible to everyone.

  32. Knowledge Management • The process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage • Explicit knowledgeincludes information stored in documents or other forms of media. • Tacit knowledgeis information that is formed around intangible factors resulting from an individual’s experience, and is personal and content-specific.

  33. Key IdeaKnowledge Management Knowledge assetsrefer to the accumulated intellectual resources that an organization possesses, including information, ideas, learning, understanding, memory, insights, cognitive and technical skills, and capabilities.

  34. Knowledge Management Knowledge management involves the process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage. Knowledge management differs from information management

  35. 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.

  36. Measurement and Information Management in the Baldrige Award Criteria The Measurement, Analysis, and Knowledge ManagementCategory 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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