Performance measurement

Uses of Performance Measurement

1) Monitoring2) Decision Making3) Attention Focus4) Compensation – income is not guaranteed but

dependent on performance5) Implementing strategy

Classification of performance measurement

Customer Product and service Financial and market Human resource Organizational effectiveness Governance and social responsibility Time

Customer Measures

Customer satisfaction and dissatisfaction Customer retention Customer complaints and warranty claims. Perceived value, loyalty, positive

recommendation, and customer relationship building

Product and Service Measures

Internal quality measurements Field performance of products Defect levels Data collected from customers or third parties. 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 Absenteeism Turnover

Organizational Effectiveness Measures Cycle times Production flexibility Lead times and setup times Time to market Delivery performance Cost efficiency Productivity

Governance and Social Responsibility Measures

Organizational liability Stakeholder trust Ethical behavior Regulatory/legal compliance Financial and ethics review results Community service Management stock purchase activity

Time

Time relates to two types of performance measures:

the speed of doing something (average) and

the variability of the process.

Processing time is the time it takes to perform some task.

Queue time is a fancy word for wait time—the time spent waiting.

Models of Organizational Performance

1. Malcolm Baldrige National Quality Award Framework

2. Balanced Scorecard3. Value Chain Model4. Service-Profit Chain Model

Models of Organizational Performance

The first two models provide more of a “big picture” of organizational performance.

The last two provide more detailed frameworks for operations managers.

It is important to understand these big-picture models because operations managers must communicate with all functional areas.

Malcolm National Quality Award Framework

Organizations receive the awards in each of the categories of manufacturing, small business, service, nonprofit education, and health care.

Primary purpose of the program is to provide a framework for performance excellence through self-assessment to understand an organization’s strengths and weaknesses, thereby setting priorities for improvement.

The Balanced Scorecard Model

Consists of four performance perspectives:

1) Financial2) Customer3) Innovation and Learning 4) Internal

The Value Chain Model

Evaluates performance throughout the value chain:

synchronized network of processes including suppliers and inputs,

processes and associated resources, goods and service outputs and outcomes, customers and their market segments, synchronized information and feedback loops,

and management of value chain.

Service-Profit Chain Model

Most applicable to service environments.

Model is based on linkages between internal and external performance,

defines the key performance measurements on which service-based firms should focus.