Performance Measurement and Information Management

Chapter 8
Performance
Measurement
and Information
Management
MANAGING FOR QUALITY AND PERFORMANCE EXCELLENCE, 7e, 2008 Thomson Higher Education Publishing 1
Key Idea
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.
Information Management
If you dont measure results, you cant tell
success from failure
If you cant see success, you cant reward
it and if you cant reward success, you
are probably rewarding failure
If you cant recognize failure, you cant
correct it
Process Flow
Measures and
Indicators
Data
Analysis
Information
Use of Information and
Analysis
Validation
Prediction
Customer Measurements
Requirements
Control
Processes Results
Design
Measurement supports executive performance review

and daily operations and decision making.
Key Idea
Measurement-managed companies are more

likely to be in the top third of their industry
financially, complete organizational changes
more successfully, reach clear agreement on
strategy among senior managers, enjoy
favorable levels of cooperation and teamwork
among management, undertake greater self-
monitoring of performance by employees,
and have a greater willingness by employees
to take risks.
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
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
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
Key Idea
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
1. Financial perspective
Measures the ultimate results that the business provides to its shareholders. They include
profitability, revenue growth, return on investment, economic value added (EVA), and shareholder
value.
2. Internal perspective
Focuses attention on the performance of the key internal processes that drive the business. They
include such measures as quality levels, productivity, cycle time, and cost.
3. Customer perspective
Focuses on customer needs and satisfaction as well as market share. This includes service
levels, satisfaction ratings, and repeat business.
4. Innovation and learning perspective
Directs attention to the basis of a future successthe organizations people and infrastructure.
Key measures might include intellectual assets, employee satisfaction, market innovation, and
skills development.
Key Idea
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.
Baldrige Classification of
Performance Measures
Customer-focused outcomes
Product and service outcomes
Financial and market outcomes
Human resource outcomes
Organizational effectiveness outcomes
Governance and social responsibility
outcomes
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
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
Financial and Market
Measures
Revenue
Return on equity
Return on investment
Operating profit
Pretax profit margin
Asset utilization
Earnings per share
Human Resource Measures
Employee satisfaction
Training and development
Work system performance and effectiveness
Safety
Absenteeism
Turnover
Organizational Effectiveness
Measures
Cycle times
Production flexibility
Lead times and setup times
Time to market
Product/process yields
Delivery performance
Cost efficiency
Productivity
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
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.
Purposes of Performance
Measurement Systems
Providing direction and support for
continuous improvement
Identifying trends and progress
Facilitating understanding of cause-and-effect
relationships
Allowing performance comparison to
benchmarks
Providing a perspective of the past, present,
and future
Key Idea
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.
Practical Guidelines
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
Linkages to Strategy
Key business Strategies and

drivers (key action plans
success factors)
Measures and
indicators
Key Idea
The things an organization needs to do well

to accomplish its vision are often called key
business drivers or key success factors.
They represent things that separate an
organization from its competition and
define strengths to exploit or weaknesses
to correct.
Process-Level Measurements
Does the measurement support our mission?
Will the measurement be used to manage change?
Is it important to our customers?
Is it effective in measuring performance?
Is it effective in forecasting results?
Is it easy to understand and simple?
Are the data easy/cost-efficient to collect?
Does the measurement have validity, integrity, and
timeliness?
Does the measure have an owner?
Key Idea
Good measures and indicators are

actionable; that is, they provide the basis
for decisions at the level at which they are
applied.
Common Process Quality
Measures
Nonconformities (defects) per unit

Errors per opportunity
Dpmo defects per million opportunities
Creating Effective
Performance 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
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
Key Idea
Organizations need a process for

transforming data, usually in some
integrated fashion, into information that
top management can understand and
work with.
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
The Cost of Quality (COQ)
COQ the cost of avoiding poor quality,
or incurred as a result of poor quality
Translates defects, errors, etc. into the
language of management $$$
Provides a basis for identifying
improvement opportunities and success
of improvement programs
Quality Cost Classification
Prevention
Appraisal
Internalfailure
External failure
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.
Quality Cost Management
Tools
Cost indexes
Pareto analysis
Sampling and work measurement
Activity-based costing
Return on Quality (ROQ)
ROQ measure of revenue gains against
costs associated with quality efforts
Principles
Quality is an investment
Quality efforts must be made financially
accountable
It is possible to spend too much on quality
Not all quality expenditures are equally valid
Key Idea
Data used for planning and decision

making need to be reliable, accurate,
secure, and accessible to those who
need them.
Managing Data and Information
Data Reliability How well does an

indicator consistently measure the true
value of the characteristic?
Data Accessibility Do the right people
have access to the data?
Key Idea
In many companies, business information

is only accessible to top managers and
others on a need-to-know basis. In high-
performing companies, business
information is accessible to everyone.
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
individuals experience, and is personal and
content-specific.
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.
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.
Measurement and
Information Management in
the Baldrige Award Criteria
The Measurement, Analysis, and Knowledge Management
Category examines an organizations information management
and performance measurement systems and how the
organization analyzes performance data and information.
4.1 Measurement, Analysis, and Review of Organizational
Performance
a. Performance Measurement
b. Performance Analysis and Review
4.2 Information and Knowledge Management
a. Data and Information Availability
b. Organizational Knowledge Management
c. Data, Information, and Knowledge Quality

Performance Measurement and Information Management

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Chapter 8

A supply of consistent, accurate, and

Measurement supports executive performance review

Measurement-managed companies are more

A good balanced scorecard contains both

Customer satisfaction and dissatisfaction

In designing a performance measurement

Key business Strategies and

The things an organization needs to do well

Good measures and indicators are

Nonconformities (defects) per unit

Identify all customers and their requirements

Organizations need a process for

In manufacturing, quality costs are

Data used for planning and decision

Data Reliability How well does an

In many companies, business information

Knowledge assets refer to the accumulated

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