PRODUCTIVITY MANAGEMENT AND

RE-ENGINEERING

Unit – 1I
SYSTEMS APPROACH TO
PRODUCTIVITY MEASUREMENT

Dr. P. Malliga ,
Professor
Department of Industrial Engineering
College of Engineering
Anna University
PO-P Model cont…

Objectives of Productivity Measurement

• Any model of productivity measurement should basically
translate the objectives of productivity measurement into a
measurable index. Formulation of objectives of
measurement is the first step.
• Productivity measurement should provide a measure of
productivity of organization as a system (or its sub-
systems) in accomplishing objectives as compared to its
potential.
• The productivity measure should be meaningful,
understandable, even intuitively, and should be able to
convey a message of status of productivity in the
organization.
cont…
PO-P Model cont…

 It should help in identification of the areas with low

productivity with a view to improve the Productivity and
enhance the degree of accountability.

 Itshould help project the inter-relationship of sub-systems (or

sub-subsystems) and the performance objectives, so that
resources can be deployed more effectively in order to
enhance the system’s overall productivity.

 It should provide data and indices for comparison of

performance of different periods.

 It should project the ‘net’ performance of the system

‘normalized’ for the impact of the external environment in
which the system operates.
Cont….
Management by objectives (MBO) and
Productivity Measurement cont…

 MBO associate organizational objectives with positions

occupied by managers, and the future plans of the
company, a process in which members of complex
organizations, working in conjunction with one another,
identify common goals and co-ordinate their efforts toward
achieving them.
Management by objectives (MBO) and
Productivity Measurement cont…

 Themajor common elements under various concepts of

MBO (also referred to by some as Management by
Results or Goals Management or Management or
Management by Objectives and Results) can be seen as:

 Establishing key performance areas

 Establishing performance objectives
 Review, monitoring and control
Establishing Key Performance Areas
(KPA’s) in MBO
 Key Effectiveness Areas or Key Result areas, KPA’s are those
areas of a job where a high performance is required.

 McConkey defines these as those highly selected areas of a

manager’s job in which he must achieve a higher level of
performance.

 These are the high priority, critical or target areas which require
attention, monitoring and control so as to achieve the overall
goals.

 Generally KPA’s are associate in terms of quantifiable outputs

and they are ranked as per the importance.
Establishing Performance Objectives in
MBO
 Performance Objectives are directly linked to KPA’s.
It is a set of statements which specifies the task for
accomplishment.

 The objectives are required to be clear, concise,

accurate and consistent with overall policies of the
organization.

 Reddin recommends that the objectives must reflect

the manager’s and his subordinate’s level of
experience, training, skill, capability and motivation.
Review, Monitoring and Control in
MBO

 This is the third element in an MBO program. Various

authors have used differing terminology but essentially
conveying the same message.

 Humble recommends systematic performance review to

measure and discuss progress towards results and potential
review to identify persons with potential for advancement.

 Review and control in MBO is an important function not

only to bring about improvements, or in setting appropriate
objectives for future but also for measuring individual
performance.
MBO and PO-P cont….

The PO-P methodology draws upon the concepts of MBO in

the following aspects

 MBO lays stress on performance. MBO emphasizes on the

establishment of KPA’s for setting the objectives.

 PO-P adopts this concept and considers, identification of

KPA’S as an important step.

 Setting of performance objectives in KPA’s is the central

exercise in MBO. It is also equally true in PO-P.

 Performance objectives in MBO serve the purpose of

targets for performance measurement, appraisals of
individuals responsible for accomplishment etc.
MBO and PO-P cont….

 Principal objective of MBO is to bring about improvement

in the performance of the organization through review and
monitoring of the performance of individual mangers
against performance objectives set for them.

 In PO-P as well, the central approach concerns

identification of sub- systems which are low in
performance so that steps could be taken to improve upon
their effectiveness.

 In PO-P, the performance objectives are synonymous to

the terminology of output/resource as perceived in the
conventional concepts of productivity measurement.
System Approach and PO-P …Cont

 The concept of productivity in the context of system

approach is the measure of the overall efficiency of the
system.

 The PO-P methodology assumes the following

characteristics.

◦ productivity measurement aims to capture the

performance of a system (or a sub-system).
◦ It is primarily designed to satisfy the internal
managerial requirements of the organization.
◦ The sub-systems (as well as the sub-subsystems)
have interdependency and work for a set of goals.
◦ The performance is to be measured with respect to
these goals or performance objectives .
System Approach and PO-P …Cont

◦ The measurement model takes into account all the

performance objectives of a system.

◦ The acquisition of inputs and processing efficiencies are

only means to achieve ends.

◦ Emphasis is on objectives that are processing

efficiencies are only means to achieve ends.

◦ The relative importance of sub of sub-systems is

recognized and incorporated in the model.
Performance Objectives-Productivity(PO-P):
The Concept Cont ….

 Productivity under the PO-P concept is the system

productivity.
 The outputs are the performances of the system (and
its sub-systems).
 These include the tangibles as well as the intangibles
covering such areas as goods produced, services
rendered, organizational goals and values.
 Also included are performance objectives as service to
community, contribution to human habitat, participation
in societal welfare so as to provide a specified
satisfaction to all members of society who have a stake
in the organization.
Performance Objectives-Productivity (PO-P)
….cont

 Productivity
Productivity as an index of a system (or sub-systems)
performance indicates the extent of actual
accomplishment of performance objectives in relation
to the attainable level in a given external environment.

 Productivity Policy
A set of overall objectives and directions of an
organization with regard to productivity. expressed in
formal statements by the top Management.
Performance Objectives-Productivity (PO-P)
….cont

 Productivity Planning
All activities of the overall management function that
determine the sub-systems (and sub-systems), Key
performance Areas, performance objectives,
responsibility and the implementation programs of the
improvement plans within the directions of productivity
policy.

 Productivity Monitoring & control

Operational techniques and activities that are used to
determine the state of productivity and to take necessary
steps to fulfill requirements of productivity policy.
Performance Objectives-Productivity
(PO-P) cont….

 Productivity Evaluation
All activities related to analysis and assessment of results
of productivity measurement for drawing up a systematic
program for improvement in productivity.

 Productivity Improvement Programs

A set of structured action plans with clearly identified
resources, responsibilities and strategies integrated
towards betterment of productivity within the parameters
of productivity policy.
Performance Objectives-Productivity(PO-P)
cont….
 Productivity Management
All activities of overall management which determine
productivity policy, productivity planning, productivity
Audit. Productivity Monitoring and Control, Productivity
Evaluation, Organizational structure, procedures, processes
and resources to implement productivity Improvement
programs and productivity policy.

 Productivity Measurement
Planned and systematic activities that are used to assess and
quantify the status of productivity at a specified period of
time.

 Productivity Audit
A set of predetermined standards, check points and measures
to carry out a deductive and comparative analysis for
evaluation of status of productivity measurements system.
PO-P : the Model
 Under PO-P approach productivity index for the system is
built up in stages from the productivity indices of the
sub-systems constituting the system. Productivity index of
a sub-system is in turn, built up from the productivity
indices of the Key performance Areas (KPA’s) of that sub-
system.
Let,
u = the sub-system
v = the KPA
y = the Performance Objective (PO)
w= the Weightage factor
PO-P: The Methodology
Productivity measurement by PO-P approach consists of the
following steps:

 Identification of sub-systems

 Identification of KPA’s in each of the sub-systems

 Setting of performance objectives

 Ranking and weighting of sub-systems , KPA’s and

performance objectives

 Determination of objectivated output

 Calculation of productivity index and identification of sub

systems, KPA’s with low performance
Identification of sub-systems
 Identification of sub-systems as the first step and a major
exercise. Burns and stalker suggest that a system has five
basic characteristics.

(1) a central objective and measure of performance.

(2) its environment
(3) its resources
(4) its components
(5) its management

 An organization as a system can have functional sub-
systems, such as a production sub-system, a marketing sub-
system etc. as well as management sub-systems such as
production control sub-system, management information
sub-system, personnel management sub-system.
Identification of sub-systems contd.
 A typical industrial organization engaged in
manufacturing and marketing of engineering goods can
be considered to operate as a system with the following
sub-systems

 A typical industrial organization engaged in

manufacturing and marketing of engineering goods can
be considered to operate as a system with the following
sub-systems:

1. Production sub-system,
2. Marketing sub-system
3. Financial (Accounting) sub-system
4. Technology sub-system
5. HRD sub-system
6. Materials sub-systems
7. Goals and values sub-system.
Production sub-system
A production sub-system is meant to produce marketable
goods in right quantity, right quality ay minimum cost and
in right time.

 The sub-system uses several resources , including men ,

materials and capital.

 The raw materials, as inputs, flow between a large number

of facilities to get transformed to finished goods.

 Other inputs used are the energy, technology etc.

 The production sub-system is ,therefore, seen to interact

very largely with marketing, materials, technology and
goals and values sub-systems.
Identification of key performance areas
(KPA’s)
 Quality, such as revenue/production levels,
 Quality, such as customer satisfaction , product quality,
 Timeliness, such as scheduling and customer demands,
 Cost, such as cost of services and manufacturing cost levels

Cost

Quantity KPA Quality

Timeliness

while identifying KPA’s, two more considerations are vital.

 Firstly , identified KPA’s should be those which are associated with the sub-system
effectively.
KPA’s of Production Sub-system
Man power Utilization
Assets Utilization
Materials Utilization
Schedule Completion
Quality of Production
Production Planning and Control
KPA’s of Marketing Sub-system

Sales
Market Research
Product Strategy
Sales Promotion and Publicity
KPA’s of Financial Sub-system

 Accounts Receivable
 Accounts Payable
 Costing and Budgetary control
 Taxation
KPA’s of HRD Sub-system
 Industrial Relations
 Personnel Administration
 Training and Development

KPA’s of Materials Sub-system

• Purchase Management
• Stores Management
• Inventory Control
KPA’s of Goals and Values Sub-system
Financial Goals
Investor Satisfaction
Employee Satisfaction
Customer Satisfaction
Supplier Satisfaction
Social Goals
Setting of Performance Objectives
 Key activity under PO-P approach

 Begins with overall business objectives

-To minimize losses and maximize profits
-To perpetuate business

 Selection of performance objectives are based on

attributes recommended

 Performance Objectives of sub-system

 Quantification of Qualitative Performance Objectives

Ranking and Weighting of Sub-
systems, KPA’s and PO’s
 KPA’s of SS and PO’s of KPA are not equal in
importance so SSs KPA’s and PO’s are ranked and
weightage assigned to identify their relative importance.

 Method of direct scaling

 Setting Hierarchy and Weights from T to B
 Setting Hierarchy and Weights from B to T
 Method of Paired Comparisons
Objectivated output
It is the optimal level of output, which is
possible to be attained by system under the
given constraints of inputs resources and a set of
Performance Objectives.

PO-P lays stress on comparison of actual

Performance with targeted performance.