CHAPTER 8

Performance Measurement and

Strategic Information
Management
Information Management

 If you don’t measure results, you can’t tell success

from failure
 If you can’t recognize failure, you can’t correct it
Process Flow

Measures and Indicators

Data

Analysis

Information
3
Benefits of Information Management

 Understand customers and customer satisfaction

 Provide feedback to workers
 Reduce costs through better planning
Leading Practices

 Use comparative information and data to improve overall performance and

competitive position
 Use sound analytical methods to conduct analyses and use the results to support
strategic planning and daily decision making
 Involve everyone in measurement activities and ensure that information is widely
visible
 Ensure that data are accurate, reliable, timely, secure, and confidential
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 success—the organization’s people and
infrastructure. Key measures might include intellectual assets, employee satisfaction,
market innovation, and skills development.
Baldrige Classification of
Performance Measures

• Customer-focused outcomes
• Product and service outcomes
• Financial and market outcomes
• Human resource outcomes
Customer Measures

 Customer satisfaction and dissatisfaction

 Customer retention
 Gains and losses of customers and customer
accounts
 Customer complaints and warranty claims.
Product and Service Measures

• Internal quality measurements

• Field performance of products
• Defect levels
• Response times
• 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
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
Purposes of Performance Measurement Systems

• Providing direction and support for

continuous improvement
• Identifying trends and progress
• Facilitating understanding of cause-and-
effect relationships
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
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?
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
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
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
• Internal failure
• External failure
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
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?
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.
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 organization’s 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
 THANK YOU

MADELAINE DE VERA
CARL TUNGOL FERNANDEZ
JOHN REGINALD ALCANTARA