Performance Measures

1. Measuring and improving performance
1.1 Performance measurement
The activity of measuring and assessing the various aspects of a process or whole operation s performance. Performance here is defined as the degree to which an operation fulfils the five performance objectives at any point in time, in order to satisfy its customers. A polar diagram can be used to see how well the 5 dimensions of performance of the operation meet requirements of the market. It is unlikely that for any operation a single measure of performance will adequately reflect the whole of a performance objective. Usually operations have to collect a whole bundle of partial measures of performance.
What factors to include as performance measures?

The five generic performance objectives quality, speed, dependability, flexibility and cost can be broken down into more detailed measures, or they can be aggregated into composite measures. The more aggregated performance measures have greater strategic relevance. The more detailed performance measures are usually monitored more closely and more often. In practice, most organizations will choose to use performance targets from throughout the range.

What are the most important performance measures?

One problem to devise performance measurement system is to achieve some balance between having a few key measures on one hand, or, on the other hand, having many detailed measures. Broadly, a compromise is reached by making sure that there is a clear link between the operation s overall strategy, the key performance indicators (KPIs) that reflect strategic objectives, and the bundle of detailed measures that are used to flesh out each key performance indicator.
What detailed measures to use?

The five performance objectives quality, speed, dependability, flexibility and cost are really composites of many smaller measures. All of these measures individually give a partial view of the operation s cost performance, and each of them does give a perspective on the cost performance of an operation that could be useful either to identify areas for improvement or to monitor the extent of improvement.

encourages companies to take decisions in the interests of the whole organization rather than sub-optimizing around narrow measures. . at the same time it restricts the number of measures and focus especially on those seen to be essential. It presents an overall picture of the organization s performance in a single report.The balanced scorecard approach The balanced scorecard attempts to bring together the elements that reflect a business s strategic position. and by being comprehensive in the measures of performance it uses.

it has to be compared against some performance standard to make it meaningful. Non-competitive benchmarking . 1.a comparison between operations or parts of operations which are within the same total organization. E. Competitor performance standards. and (b) there is probably another operation somewhere that has developeda better way of doing things. Competitive benchmarking . compare its own performance in terms of performance objectives quality. which compare current performance against competitors performance. It s based on the idea that (a) problems in managing processes are almost certainly shared by processes elsewhere. Practice benchmarking . which compare performance now against performance sometime in the past.a comparison between an organization s operations practices and those adopted by another operation. Absolute performance standards.3 Benchmarking Benchmarking is the process of learning from others and involves comparing one s own performance or methods against other comparable operations (obtaining competitor performance standards). which compare current performance againstits theoretically perfect state. External benchmarking . with organizations do not compete directly in the same markets.2 Setting target performance After identified each partial measure. Performance benchmarking . flexibility and cost against other organizations performance in the same dimensions.g. Types of benchmarking y y Internal benchmarking . Strategic target standards.g. speed.a comparison directly between competitors in the same.a comparison between the levels of achieved performance in different operations. markets. y y y y Criticism of Benchmarking y y y y Information may be inaccurate What works for one company doesn t necessarily work for another Stifle innovative thinking Homogenises market . a manufacturer with several factories benchmarks each factory against the others.g. There are four types of performance standard commonly used: y y y y Historical standards. dependability. which compare current performance against some desired level of performance. a large retail store might compare its systems and procedures for controlling stock levels with a department store.a comparison between an operation and other operations which are part of a different organization. E. or similar.1.

any factors in this zone must be candidates for improvement. therefore. Judging performance against competitors The simplest way is to judge whether the achieved performance of an operation is better than. Improvement priorities Two major influences on the way in which operations decide on their improvement priorities: y y The needs and preferences of customers (shape the importance of operations objectives) The performance and activities of competitors (determining achieved performance) Judging importance to customers y y y Order-winning: The competitive factors that directly and significantly contribute to winning business. medium and weak positions). This can be shown on an importance performance matrix. Qualifying: The competitive factors that have a minimum level of performance (the qualifying level) below which customers are unlikely to consider an operations performance satisfactory. y y y y the appropriate zone competitive factors in this area lie above the lower bound of acceptability and so should be considered satisfactory. to judge the relative importance of its competitive factors. 2. the urgent-action zone these factors are important to customers but performance is below that of competitors. i. nine-point importance scale. an operation will usually need to use a slightly more discriminating scale (divide each criteria into three further points representing strong. the same or worse than that of its competitors.e. . whether the resources devoted to achieving such a performance could be used better elsewhere. Less important: Competitive factors that performance in them does not significantly affect the competitive position of an operation.1 The importance performance matrix The priority for improvement which each competitive factor should be given can be assessed from a comparison of their importance and performance. They must be considered as candidates for immediate improvement. In fact. However. the improve zone lying below the lower bound of acceptability. we can derive a more discriminating nine-point performance scale. The question must be asked. the excess? zone factors in this area are high performing but not important to customers.2.

.2. 3. dependability. Moving on to the next priority for improvement does not mean dropping the previous ones. flexibility. then cost. Approaches to improvement An organization s approach to improving its operation can be characterized as lying somewhere between the two extremes of pure breakthrough improvement and pure continuousimprovement.2 The sandcone Theory The sandcone theory holds that objectives should be prioritized in a particular order. It recommends that improvement should cumulatively emphasize quality. speed.

1 Breakthrough improvement Breakthrough improvement. sees improvement as occurring in a few. incremental improvement steps. 3. albeit at different times.2.1 The differences between breakthrough and continuous improvement It is possible to combine the two. often using collective groupbased problem-solving. infrequent but major and dramatic changes. which is sometimes called innovation-based improvement. Although such changes can be abrupt and volatile. Large and dramatic improvements can be implemented as and when they seem to promise significant improvement steps. It does not focus on radical change but rather attempts to develop a built-in momentum of improvement.2 Continuous improvement Continuous improvement assumes a series of never-ending. but smaller. 3. but between such occasions the operation can continue making its quiet and less spectacular kaizen improvements .3. It is gradual and constant. they often incorporate radical new concepts or technologies which can shift the performance of the operation significantly. This type of improvement is sometimes called kaizen improvement.

Next comes the Check stage where the new implemented solution is evaluated to see whether it has resulted in the expected performance improvement. it is the last point about both cycles that is the most important the cycle starts again. It starts with the Plan stage. establish solution.2. define requirements and set the goal). then Analysis stage (develop problem hypotheses.g. which attempt to describe the nature of information flow and decision making within operations. The improved process needs then to be continually monitored and Controlled to check that the improved level of performance is sustaining. Alternatively. the lessons learned from the trial are formalized before the cycle starts again.2 Improvement Cycle models The idea that improvement can be represented by a literally never-ending process of repeatedly questioning and requisitioning the detailed working of a process or activity. Pareto diagrams. . if the change has not been successful. The DMAIC cycle starts with Defining (identify problems. refine problem to prove it s a problem worth solving. 4. It is only by accepting that in a continuous improvement philosophy these cycles quite literally never stop that improvement becomes part of every person s job. This stage may itself involve a mini-PDCA cycle as the problems of implementation are resolved. which attempt to sort out the important few causes from the trivial many causes. then begin on Improving the process ( develop improvement ideas. Remember though. and measure results). comes the Act stage. identify root causes and validate hypotheses). Finally. for this cycle. This is the implementation stage during which the plan is tried out in the operation. and measure inputs and outputs). Why-why analysis that pursues a formal questioning to find root causes of problems.3. The next step is the Do stage. test. the PDCA cycle and the DMAIC cycle. The PDCA cycle The PDCA cycle model is perhaps the best known of all improvement cycle models. The DMAIC cycle In some ways this cycle is more intuitively obvious than the PDCA cycle in so much as it follows a more experimental approach. E. The techniques of improvement y y y y y Scatter diagrams. which attempt to identify relationships and influences within processes. Flow charts. During this stage the change is consolidated or standardized if it has been successful. which structure the brainstorming that can help to reveal the root causes of problems. which involves an examination of the current method or the problem area being studied. Cause effect diagrams. the next is Measurement stage (gather data.

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