PERFORMANCE MANAGEMENT

Why performance management?

1. Performance management should be seen as a conduit for

the proactive achievement of an organisation’s strategic
objectives

2. The first step in managing performance is understanding

what all parts of the organisation are trying to achieve in
relation to these strategic objectives

3. An effective performance management system helps to

‘break down’ the company’s strategic objectives so that they
are clear to those at all levels of the organisation

4. Measuring performance provides a baseline from which to

assess progress towards achieving objectives
Setting the Context

Slack Fig 2.2

Operations Performance Management
Components of a Performance Management
system

System/process
to be measured

As set of A set of
relevant appropriate
measures targets
Appropriate Targets

 Even if we measure everything in sight, we won’t know how well we’re doing if
we don’t know where we want to be!
?
• we work out where we would like to be
• we check that it is possible to get there
• we pick points along the way (measures) so that we know we’re getting there
• we measure, take stock and continue or, if needed, change direction

B
A
Where do the Targets come from?

STRATEGY

DIVN
OBJECTIVES
DEPT
OBJECTIVES
TEAM
OBJECTIVES

TARGETS TARGETS
TARGETS
Relevant measures
process measures
e.g. miles per hour

input measures output measures

e.g. litres e.g. distance
Problems in Performance Measurement

• Too focused on limited areas e.g. finance

• Can have unintended consequences

• Can create information overload

• Can encourage dysfunctional behaviour

Balanced Scorecard

Slack Fig 2.13

The Financial Perspective
 How are we viewed by shareholders?

• Purpose - to represent share holder value

• Describes - the tangible outcomes of the strategy in simple financial terms or

put it another way the economic consequences of good or bad strategy

• Example Measures - could be profit, cost or revenue related

• Change levers - are revenue growth and efficiency (sell more and spend
less)

Efficiency Growth
The Customer Perspective
 How are we viewed by customers?

• Purpose - to represent the customer value proposition

• Describes - what is important to the customer - what makes them come to

you

• Example Measures - satisfaction, retention, market share, etc.

• Change Levers - customer relationship building, performing well on current

business, etc.

QUALITY SELECTION SERVICE BRAND

PRICE AVAILABILITY FUNCTIONALITY PARTNERSHIP

PRODUCT/SERVICE ATTRIBUTES RELATIONSHIP IMAGE

The Internal Perspective

 What must we excel at?

• Purpose - to ensure you are using the correct processes effectively and
efficiently

• Describes – what you do and how you do it or to put in another way what
makes up your core competence

• Example Measures – WIP, design time, change requests, accidents.

• Change levers – TQM, 6 Sigma, CI, etc.

OPERATIONS CUSTOMER INNOVATION REGULATORY
PROCESSES MANAGEMENT PROCESSES PROCESSES
PROCESSES
-SUPPLY -SELECTION -R & D MANAGEMENT -ENVIRONMENT
-ENGINEERING -AQUISITION -MANAGE KNOWLEDGE -HEALTH AND SAFETY
-PRODUCTION -RETENTION -MARKETING -EMPLOYMENT
-DISTRIBUTION -COMMUNITY
The Learning & Growth Perspective

 How can we build capabilities and create value from our

intangible assets?

• Purpose - to ensure you managing your intangibles in the correct way


• Describes - human Capital (skills, talent and know how), Information
Capital (systems and infrastructure) & Organisation Capital (ability to
mobilise and sustain effort)

• Example Measures - training logs, IT fault logging, change initiatives

• Change Levers - training, investing in infrastructure and recruitment

HUMAN CAPITAL INFO CAPITAL ORG CAPITAL

STRATEGIC STRATEGIC STRATEGIC
COMPETENCIES INFORMATION MOBILISATION
Choosing Measures

The truth test Is the measure definitely measuring what it’s meant to measure?

The focus test Is the measure only measuring what it’s meant to measure?

The consistency test Is the measure consistent whenever or whoever measures?

The access test Can the data be readily communicated and easily understood?

The clarity test Is any ambiguity possible in interpretation of the results?

The so what test Can, and will, the data be acted upon?

The timeliness test Can the data be analysed soon enough so that action can be taken?

The cost test Is it going to be worth the cost of collecting and analysing the data?

The gaming test Will the measure encourage any undesirable behaviours?