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Designing the Lean Enterprise Performance Measurement System - Thesis

Designing the Lean Enterprise Performance Measurement System - Thesis

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Designing the Lean Enterprise Performance Measurement System
by
VIKRAM MAHIDHARBachelor of Engineering, Chemical EngineeringUniversity of Pune, India, 1998Master in Business AdministrationBoston University, 2002Submitted to the Engineering Systems Division in partial fulfillment of the requirementsfor the degree ofMaster of Science in Engineering Systems
at the
Massachusetts Institute of Technology
September 2005© 2005 Vikram Mahidhar, All rights reserved.The author hereby grants MIT the permission to reproduce and to distribute publicly paper andelectronic copies of the thesis document in whole or in part.Signatureof Author:Engineering Systems Division
August 15, 2005Certified by:
Prof. Deborah NightingaleProfessor of the Practice of Aeronautics & Astronautics nd EngineeringSystemsDivisionThesis Supervisor
Accepted by:
Richard de NeufvilleProfessor of Engineering SystemsChair, Engineering Systems Division Education Committee
 
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Designing the Lean Enterprise Performance Measurement System
by
VIKRAM MAHIDHAR
Submitted to the Engineering Systems Divisionon August
17
th 2005 in partial fulfillment of the
requirements for the degree of Master of Science in Engineering Systems
Abstract
The research containedin this thesis explores design attributes of theenterprise performancemeasurement system required for thetransformation to the lean enterprise and its management.
Arguments are madefrom the literature that successful deployment ofthe lean practices, across
three different stages of the evolutionof lean thinking, requires a supporting performancemeasurementsystem. The increasein scope of lean practicesat each stage of the evolutionincreases the complexity in achievingsynchronization across the enterprise subsystems.Theresearchpresents various attributes of the performance measurementsystem required at eachstage and further derives thethree key attributes for the design of the lean enterpriseperformancemeasurement system.These three attributes are: enterprise level stakeholdervalue measures, thecausal relationships across performancemeasures at each level, and Uniform and consistentsetof performance measures.A detailed case study of an aerospaceand defense business of a multi-industry corporation whichhas embarkedon a journey towards creating a lean enterpriseis presented. It highlights severalchallenges in the transformation fromthe perspective of performance measurement. Thekeychallenges identifiedare: First, disconnect between the performancemeasurement for the leanpracticesand regular business practices hinder the adoptionof lean practices. This disconnectexists due to the existenceof both legacy performance measures and the new measures.Second,lack ofunderstanding of the cause-effect relationship betweenperformance measures acrossdifferent enterprise levels poses difficultyevaluating the impact of lean related efforts. Third,useof non-uniformperformance measures across various enterprisesubsystems leads to non-leanbehavior.The theory underlying performance measurementis reviewed including the widely-acceptedperformancemeasurement frameworkssuggested for the designof enterprise performancemeasurement system. Analysisof these frameworksreveals that none of the existingframeworkscompletelycapture the desired attributesfor the lean enterpriseperformance measurement
system.To designthe lean enterprise performancemeasurement system, this research suggestsaconceptual designthat explicates the use of various tools and techniquesto address the critical
attributes.To identify stakeholder value measures thisdesign demonstrates the use ofstakeholdervalue analysis. Use ofsystem dynamics modelingand structural equation modelingis suggestedto establish, validateand evolve the cause-effectrelationships betweenperformance
measures. And, to maintain the uniform set of measuresthe creation of measures dictionary is
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