Importance of Management by Fact Key Idea

•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
A supply of consistent, accurate, and timely data across
all functional areas of business provides real-time
information for the evaluation, control, and
improvement of processes, products, and services to
meet both business objectives and rapidly changing
customer needs.

Key Definitions
•Data are simply representations of facts that come from some type of measurement process.
•Measurement is the act of quantifying the performance dimensions of products, services, processes, and other
business activities.
•Measures and indicators refer to the numerical results obtained from measurement.
•Information is derived from the analysis of data and measurements and expressed in the context of a business or
organization.

Key Measurement and Information Management Practices for Performance Excellence

•Select, collect, align, and integrate data and information for tracking daily operations and for tracking overall
organizational performance, including progress relative to strategic objectives and action plans, and using data
and information to support organizational decision making and innovation.
•Select and ensure the effective use of comparative data and information.
•Review organizational performance and capabilities using effective methods of analysis to assess organizational
success, competitive performance, and progress relative to strategic objectives and action plans, and using these
reviews to assess the organization's ability to respond rapidly to changing organizational needs and challenges.
•Translate organizational review findings into priorities for continuous and breakthrough improvement and into
opportunities for innovation, and deploy them to work group and functional-level operations to support for
decision making
•Make needed data and information available and accessible to the workforce, suppliers, partners, collaborators,
and customers as needed.
•Ensure that hardware and software are reliable, secure, and user-friendly, and that information systems support
the continued availability of data and information in the event of an emergency.
•Ensure that organizational data, information, and knowledge are accurate, reliable, timely, secure, and
confidential.
•Manage organizational knowledge to accomplish the collection and transfer of workforce knowledge; knowledge
from and to customers and other stakeholders; rapid identification, sharing, and implementation of best practices;
and the assembly and transfer of relevant knowledge for use in strategic planning.
•Keep performance measurement systems, hardware, and software current with business needs and directions, and
changes in the organizational or external environment.

Reasons for Good Measures

• To lead the entire organization in a particular direction; that is, to drive strategies and organizational change.
•To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans.
•To operate the processes that make the organization work and continuously improve.
Key Idea Three Levels of Measurement
Measurement-managed companies are more likely to be in the top third of •Individual: real-time information for
their industry financially, complete organizational changes more feedback and process control
successfully, reach clear agreement on strategy among senior managers, •Process: understand whether
enjoy favorable levels of cooperation and teamwork among management, processes are accomplishing their
undertake greater self-monitoring of performance by employees, and have objectives, whether they are using
a greater willingness by employees to take risks. resources effectively, and where
improvement might be necessary.
•Organization: basis for strategic
planning and design of products,
Key Idea services, and processes.
To make decisions that further the overall organizational goals of
meeting, or exceeding, customer expectations and making productive use
of limited resources, companies need good data and information about
customers and markets, human resource effectiveness, supplier
performance, product and service quality, and other key factors, in
addition to traditional financial performance and accounting measures.
Balanced Scorecard
•Financial perspective
-profitability, revenue growth, return
Key Idea on investment, economic value added
A good balanced scorecard contains both leading and lagging measures (EVA), and shareholder value
and indicators. Lagging measures (outcomes) tell what has happened; • Internal perspective
leading measures (performance drivers) predict what will happen. -quality levels, productivity, cycle
time, and cost.
•Customer perspective
-service levels, satisfaction ratings,
Baldrige Classification of Product Outcomes
• Internal quality measurements
Customer Outcomes
•Customer satisfaction and
and repeat business
Performance Measures
•Product outcomes
•Field performance of products dissatisfaction •Innovation and learning perspective
•Defect levels •Customer retention
•Customer outcomes •Response times •Gains and losses of customers and -intellectual assets, employee
•Financial and market outcomes •Data collected from customers or third customer accounts
•Workforce outcomes parties on ease of use or other attributes •Customer complaints and warranty satisfaction, market innovation, and
•Process effectiveness outcomes
•Customer surveys on product and service
performance
claims.
•Perceived value, loyalty, positive skills development
•Leadership outcomes referral, and customer relationship
building

Process Effectiveness Outcomes

Financial and Market Outcomes Workforce Outcomes •Cycle times
•Revenue •Employee satisfaction •Production flexibility
•Return on equity •Training and development •Lead times and setup times
•Return on investment •Work system performance and •Time to market
•Product/process yields
•Operating profit effectiveness
• Pretax profit margin •Safety
•Delivery performance
•Cost efficiency
Purposes of Performance
•Asset utilization •Absenteeism •Productivity Measurement Systems
• Earnings per share •Turnover
•Providing direction and
support for continuous
Leadership Outcomes
•Organizational accountability
Fundamental Management Mistakes improvement
•Stakeholder trust •Not measuring key characteristics critical to • Identifying trends and
•Ethical behavior
•Regulatory/legal/environmental compliance organizational performance or customer behavior, progress
•Financial and ethics review results
•Community service Management stock •Taking irrelevant or inappropriate measurements •Facilitating understanding of
purchase activity
cause-and-effect relationships
•Allowing performance
comparison to benchmarks
Key Idea •Providing a perspective of the
In designing a performance measurement system, organizations must past, present, and future
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.
Practical Guidelines for Measurement
•Fewer is better.
•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
Other Types of Process Measures
•Defect classification
-Critical
-Major
-Minor
•Weighted index
-E.g., FedEx service quality indicator
• Rolled throughput yield (RTY)
- the probability that a unit can pass through a series of process steps without
defects; equivalently, the percentage yield of good parts from a series of
process steps.
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
Interlinking
•Quantitative modeling of cause-and-effect
relationships between external and internal
performance measures
- How product and service quality improvement
correlates with key customer indicators such as
customer satisfaction, customer retention, and
market share
- Financial benefits derived from improvements
in employee safety. Absenteeism, and turnover
- Benefits and costs associated with education and
training
- Relationships between product and service
quality, operational performance indicators, and
overall financial performance
- Profit impacts of customer satisfaction and
retention
- Market share changes as a result of changes in
customer satisfaction
- Impacts of employee satisfaction on customer
satisfaction
Key Idea
Good measures and indicators are
actionable; that is, they provide the basis
for decisions at the level at which they are
applied.
Six Sigma Measurements
-A unit of work is the output of a process
or an individual process step.
- A measure of output quality is defects
per unit (DPU) = Number of defects
discovered/Number of units produced
-Defects per million opportunities (dpmo)
= (Number of defects
discovered)/opportunities for error x
1,000,000
Analyzing and Using Data
Analysis – an examination of facts and data to provide a basis
for effective decisions.
-Examples
•Examining trends and changes in measures and indicators using
charts and graphs
• Calculating a variety of statistical measures such as means,
proportions, and standard deviations
•Applying sophisticated statistical tools such as correlation and
regression analysis to help understand relationships among
different measures
•Comparing results relative to other business units, competitors,
or best-in-class benchmarks
Key Idea
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.
Performance Review
•Data provide the foundation for management review to
- assess organizational success and performance relative to
competitors
-understand how well progress on strategic objectives and action
plans is being achieved
- identify priorities for improvement and opportunities for
innovation for products, services, and processes
The Cost of Quality (COQ) Key Idea
•COQ - the cost of avoiding poor quality, or costs incurred as a result COQ approaches have numerous
of poor quality objectives, but perhaps the most important
- Provides a basis for identifying improvement opportunities and one is to translate quality problems into
success of improvement programs the “language” of upper management-the
language of money.
Quality Cost Classification
- Prevention
Investments made to keep nonconforming products from occurring Key Idea
and reaching the customer Quality costs in different categories are
- Appraisal rarely distributed evenly.
Associated with efforts to ensure conformance to requirements,
generally through measurement and analysis of data to detect
nonconformances Organizations should first attempt to
- Internal failure reduce external failure costs to zero by
Costs of unsatisfactory quality found before the delivery of a product investing in appraisal activities to discover
to the customer the sources of internal failures and take
- External failure corrective action. As quality improves,
Costs incurred after poor-quality products reach the customer failure costs will decrease, and the amount
of appraisal can be reduced with the shift
of emphasis to prevention activities.

Key Idea
In manufacturing, quality costs are primarily product-oriented; for
services, however, they are generally labor-dependent, with labor
often accounting for up to 75 percent of total costs.
Managing Information
Resources
•Organizations must ensure that
both data and information and
the hardware and software
systems that process them are
-Reliable
- Accurate
- User-friendly
- Secure
- Available to all who need them
in a timely fashion
Key Idea
Knowledge assets refer to the
accumulated intellectual resources
that an organization possesses,
including information, ideas,
learning, understanding, memory,
insights, cognitive and technical
skills, and capabilities.
Return on Quality (ROQ)
ROQ - measure of revenue gains against
Key Idea costs associated with quality efforts
Reliability of a measurement •Principles
refers to how well the - Quality is an investment
measuring instrument-manual - Quality efforts must be made financially
instruments, automated accountable
equipment, or surveys and -It is possible to spend too much on
questionnaires-consistently quality
measures the “true value” of the - Not all quality expenditures are equally
characteristic. valid
Knowledge Management
•The process of identifying, capturing, organizing, and using knowledge assets
to create and sustain competitive advantage
- Explicit knowledge includes information stored in documents or other forms
of media.
- Tacit knowledge is information that is formed around intangible factors
resulting from an individual’s experience, and is personal and content-specific.
Knowledge Management Systems
• Characteristics
- A way of capturing and organizing explicit as well as tacit knowledge of how the
business operates
- A systems-approach to management that facilitates assimilation of new knowledge
into the business system and is oriented toward continuous improvement/innovation
 • Internal benchmarking – the ability to identify and transfer best
Knowledge Transfer
practices within the organization
The transfer of knowledge within
-Rapid knowledge transfer involves the discovery, learning.
organizations and the identification and
Creation, and reuse of knowledge that eventually becomes
sharing of best practices often set high-
intellectual capital-knowledge that can be converted into value
- Aperforming
culture and valuesorganizations apart from the
that support collaborative
and profits.
rest.of knowledge across functions and encourages
sharing
full participation of all employees in the process

Key Idea
Internal benchmarking requires a process: first, identifying and collecting internal knowledge and best practices;
second, sharing and understanding those practices; and third, adapting and applying them to new situations and
bringing them up to best-practice performance levels.

Measurement and Information Management in the Baldrige Criteria

• The Measurement, Analysis, and Knowledge Management Category examines how an organization selects,
gathers, analyzes, manages, and improves its data, information, and knowledge assets, and how it manage
information technology and uses organizational reviews to improve performance.
4.1 Measurement, Analysis, and Improvement of Organizational Performance
a. Performance Measurement
b. Performance Analysis and Review
c. Performance Improvement
4.2 Management of Information, Knowledge, and Information Technology
a. Data, Information, and Knowledge Management
b. Management of Information Resources and Technology

Measurement and Information Management in ISO 9000

• The document and data control requirements require organizations to define a process for ensuring that any critical
information that is required for the performance of a business process is accurate, up-to-date, and effective for its intended
purpose.
• The measurement, analysis, and improvement requirements include:
- Establishing, planning, and implementing measurement, monitoring, and improvement activities
- Monitoring information about customer satisfaction as a performance metric
- Establishing measurement and monitoring methods to assure that product and process requirements are attained
- Acquiring and analyzing data to determine improvement effectiveness
- Promoting continuous improvement using auditing reports, data analysis. And management reviews

Measurement and Information Management in Six Sigma

- Six Sigma emphasizes fact-based decisions and provides organizations with tools to generate measurable
results from Six Sigma projects.
- Six Sigma methodology requires measuring and reporting performance goals, and using performance indicators
to control and sustain improvements.
- Project selection is based on understanding the financial as well as the nonfinancial benefits to the
organization, such as cost savings, increased sales, reduced cycle times, or improved customer satisfaction.