1. NEW MODEL OF
PERFORMANCE MEASUREMENT SYSTEM
Management and Industrial System Development Lab
Department of Industrial Engineering – ITS
2. TRADITIONAL
PERFORMANCE MEASUREMENT SYSTEM:
Lack of relevance
Lagging metrics
Short-termism
Inflexible
Does not foster improvement
Cost distortion
Traditional performance measurement systems
produce information that are too late, too
aggregate, and too distorted to be relevant for
managers planning and control decisions (Kaplan and
Johnson)
3. PERFORMANCE MEASUREMENTS FOR
WORLD-CLASS MANUFACTURING
(BRIAN MASKELL)
▪ Are directly related to the manufacturing strategy
▪ Primarily use non-financial measures
▪ Vary between locations
▪ Change over time as needs change
▪ Are simple and easy to use
▪ Provide fast feedback to operators and managers
▪ Are intended to foster improvement rather than just
monitor performance
4. FINANCIAL AND NON-FINANCIAL
MEASURES (BRIAN MASKELL)
Financial Measure
Non Financial Measures
▪ Needed for external
reporting
▪ Relevant, clear, focused
(measures of flexibility,
and the ability to
achieve quality
objectives, schedule
position, and reduce
inventory, for example
can help a company
achieve significant
improvement goals).
▪ Not needed for internal
reporting
▪ Irrelevant
▪ Misleading and
confusing
5. CHARACTERISTICS OF AN EFFECTIVE
MEASUREMENT SYSTEM:
GENERAL INSTRUMENT CORPORATION
▪ Meaningful and performance traceable to the financial
statements (everything linked to the bottom line)
▪ Clear, easy to understand
▪ Visible and shared with all employees
▪ Used to drive the continuous improvement process
▪ Performance objectives must reflect process
maps, competitive analysis, and benchmark studies
▪ Heavy use of ratios and time-based metrics including
velocity of processes and responsiveness
▪ The basis of incentive compensation.
6. PERFORMANCE CRITERIA SYSTEM
(Shlomo Globerson)
• P.C must be derived from the company’s objective
• They make it possible to compare organisations which
are in the same business
• Their purpose is clear
• Data collection and calculation method are clearly defined
• Ratio P.C are preferred to absolute numbers
• P.C should be under the control of the evaluated
organisational unit
• Objective P.C are preferred to subjective P.C
• The value of P.C must be the same for the same
performance
7. NEW MODELS OF
PERFORMANCE MEASUREMENT SYSTEM
• Performance Measurement Questionnaire
• SMART System
• Balanced
Scorecard
• Cambridge Model
• Integrated Performance Measurement System
•PRISM
9. PMQ
▪ This approach uses a performance measurement
questionnaire (PMQ) for evaluating and developing
the measures already in use in an organisation.
▪ This is based on the premise that measures should
appraise, reinforce and reward improvements in
performance.
▪ Managers need an effective process for designing
measures which they can use to meet their unique
and evolving needs.
10. PMQ STRUCTURE
PART 1
PART 2
▪ Asks respondents to
score the importance of
specific improvement
areas for the business
and to score how
effectively the current
performance measures
gauge improvement
▪ Asks respondents to score
specific performance
measures on the extent
to which they believe that
achieving excellence on
the measure is important
for the long term health
of the company and the
extent to which they
believe that the company
places emphasis on that
measure
11. Questionnaire I :
Questionnaire II :
Questionnaire III :
Questionnaire IV :
• management level and manufacturing affiliation
of the respondents to examine the degree of
consensus among managerial levels and functional
areas
• the relative degree of importance of improvement
area
• to the extent the current performance measures
support or inhibit the improvement in the area
• the degree of importance of achieving excellence in
performance factors or measures for the long-run health
of the company
• the company current emphasises on performance measures
• the most important measures against which respondents’
individual performance should be judged
12. GENERIC IMPROVEMENT AREAS
•QUALITY
•DIRECT COST REDUCTION
•LABOUR EFFICIENCY
•OVERHEAD COST REDUCTION
•MACHINE EFFICIENCY
•INVENTORY MANAGEMENT
•NEW PRODUCT INTRODUCTION
•JOB RESPONSIBILITIES
•VOLUME FLEXIBILITY
•PERFORMANCE MEASUREMENT
•PRODUCT MIX FLEXIBILITY
•CUSTOMER SATISFACTION
•PRODUCT TECHNOLOGY
•ENVIRONMENTAL CONTROL
•PROCESS TECHNOLOGY
•MANUFACTURING STRATEGY
•MANUFACTURING THROUGHPUT TIMES
•PROCUREMENT PRACTICES
•INTEGRATION WITH SUPPLIERS
•OFFSHORE MANUFACTURING
•INTEGRATION WITH CUSTOMERS
•CIM
•INFORMATION SYSTEMS
•EDUCATION AND TRAINING
13. EXAMPLE OF QUESTIONNAIRE II
How Much Long-Run
Improvement Is Required?
IMPROVEMENT AREAS
Do Current Performance
Measures Support Improvement
GREAT
NONE
SUPPORT
INHIBIT
RELIABILITY OF PRODUCTS IN FIELD
1
2
3
4
5
6
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
1
2
3
4
5
6
7
COMPETITIVENESS OF COMPANY PRICES
1
2
3
4
5
6
7
ABILITY TO MEET PROMISED DELIVERY DATES
1
2
3
4
5
6
7
ABILITY TO SATISFY CUSTOMER REQUESTS
1
2
3
4
5
6
7
7
14. QUESTIONNAIRES III
Relative Importance
to the Company
Emphasis of
Measurement
Performance Factors
Very
Unimportant
Very
Important
No
Emphasis
Major
Emphasis
1
2
3
4
5
6
7
Inventory turnover
1
2
3
4
5
6
7
1
2
3
4
5
6
7
Conformance to specification
1
2
3
4
5
6
7
1
2
3
4
5
6
7
Cost of quality
1
2
3
4
5
6
7
16. • Alignment analysis
– to identify to the extent to which a company’s strategy, actions, and measures
line up with each others
– ranks the importance of the improvement areas and the emphasis on
measurement.
– These rankings can be used to assess fit with strategy and fit between the
importance of improvement and the emphasis placed on measurement
Alignment of Improvement Areas (Actions) with Strategy
Top Quartile
New product introduction
Customer satisfaction
Product technology
Quality
Integration with customers
Manufacturing throughput time
IMPROVEMENT AREAS
Bottom Quartile
Job responsibility
Machine efficiency
Direct cost reduction
Environmental control
Labour efficiency
Offshore manufacturing
17. • Congruence analysis
– to provide a detailed look at how well the measurement system supports an organisation’s actions
and strategy through gap and false alarm signal
– shows the differences between what is considered important to improve and whether the measures
support this improvement.
– They also show which performance measures are important to the company and whether the
company emphasises these measures.
– The term ‘gap’ is used where the business is failing to measure what matters and ‘false alarms’ where
the business is reacting to measures which do not matter.
Importance= high
Support = low
Support = high
Importance = low
Gap = Importance - Support
False Alarm = Importance - Support
18. • Consensus analysis
– to contrast the perceptions between hierarchy levels and across functional
organisations about the importance of improvement area and performance
measures (ranking the means)
– partitions the data between management levels and functions.
– The comparison of results can lead to the identification of communication
problems when the scores do not agree
High
Importance
Low
Division
Plant
Middle
Supervisor
Consensus across management level of Indirect Labour Productivity
19. • Confusion analysis
– to determine the relative extent of consensus in opinions on each improvement
area and performance factor item within a group (ranking the standard
deviations)
– assesses the variation in responses within groups
Top and Bottom Quartiles of Strategies and Ranks of Standard Deviations
Top Quartile
New product introduction
Customer satisfaction
Product technology
Quality
Integration with customers
Manufacturing throughput time
IMPROVEMENT AREAS
(24)
(19)
(23)
(16)
(22)
(21)
Bottom Quartile
Job responsibility
Machine efficiency
Direct cost reduction
Environmental control
Labour efficiency
Offshore manufacturing (2)
(9)
(4)
(5)
(3)
(1)
21. BALANCED SCORECARD
(Kaplan and Norton)
Financial
Perspective
“To achieve our
vision, how should
we appear to our
customers?.”
1
2
3
“To succeed financially,
how should we appear
to our shareholders?.”
Objectives
Measures
Targets
Initiatives
Customer
Perspective
1
2
Internal Business Process
Perspective
3
Objectives
1
Business Strategy
2
3
Objectives
Measures
Measures
Targets
Targets
Initiatives
Initiatives
Learning and Growth
Perspective
1
Objectives
“To achieve our
vision,how will we
sustain our ability to
change and improve”
Measures
Targets
Initiatives
2
3
“To satisfy our
shareholders
and customers,
what business
processes must
we excel at?.”
22. CAMBRIDGE MODEL
(Andy Neely)
Part 1
Grouping Products
Part2
Agreeing business
objectives
Part 3
Agreeing performance
measures for the
business objectives
Part 4
Mapping performance
measures and activities
Part 5
Evaluating options
- which of these are
key?
Part 6
Agreeing performance
measures for the key
activities
Part 7
Sign off
Part 8
Implementation
and ongoing
management
29. The Business
Stakeholders
External Monitor
EFQM, Financial Models, RONA and ROI trees, etc.
Objectives
Measures
Stakeholders
Business Units
External Monitor
Business Units Classification, RONA/ROI Tress,
Performance Measures Classifications
Objectives
Measures
Stakeholders
External Monitor
Business Processes
Objectives
Systems Classification,
Performance Measures Classification
Measures
Stakeholders
External Monitor
Objectives
Systems Classification,
Performance Measures Classification
Measures
Activities
30. “To succeed
financially, how
should we
appear to our
shareholders ?”
“To achieve our
vision, how
should we
appear to our
customer?”
Customer
Financial
Internal Business Process
Vision
and
Strategy
“To satisfy our
shareholders
and customer,
what business
processes must
we excel at ?”
Learning and Growth
“To achieve our
vision, how will
we sustain our
ability to
change and
improve ?”
31. Performance Planning PT. X
Last year performance
(Improvement
Programmes):
Strategic plan:
2001Develop Employee PM
Business environment
changes:
- 2000 Local players
- Foreign players
- On Time Delivery (OTD)
Company Objectives:
- Improve OTD
- Develop Employee PM
Department
Objectives :
- Train Employee (HRM)
- Develop PM (Dev. M)
Activity Plan:
- Develop training plan
- Set up project team
Objectives
Setting
Target
Setting
Objectives
Deployment
Target
Deployment
Define
Activity
Resources
Bargaining
Company Target:
- OTD = 100 %
-Employee PM Finish
2001
Department Target :
- Train Emp. Ratio = 25%
-Employee PM Finish
2001
Resources
Requirement:
- No Additional Res. Req.
- Hire 2 programmers
- Hire 1 business analyst
32. Performance Accomplishment PT. X
Activity Plan:
- Develop training plan
- Set up project team
Progress Reports :
- Training report
- Software dev. report
Activity Plan Execution :
- Develop training plan
- Set up project tim
Resources
Requirement:
- No Additional Res. Req.
- Hire 2 programmer
- Hire 1 business analyst
Resources Deployment :
- Allocate 2 programmers and 1
business analyst (additional) to
System Development
Department
33. Performance Measurement PT. X
Balanced Scorecard
Model
Business Process
Map
Identification of
Key Performance Indicator (KPI)
Corporate, Business Units
Activity Plan
- Routines
Improvements
Identification of
Key Performance Indicator (KPI)
Business Process, Activity
Company
Target
Performance Measurement
Key Performance
Indicator
Corporate, Business Unit
Key Performance
Indicator
B. Process, Activity
Performance Reports
Corporate, B.
Unit, B.Process, Activity
Performance Review
Department
Target
Performance
Problems
34. Identification of Key Performance Indicator (KPI)
Corporate, Business Units
ORDER QUALIFIER AND ORDER WINNER CRITERIA
Order qualifier criteria :
• Price
• Modules
• Technology
• Reliability
Order winner criteria :
• Support
• Customization
35. Identification of Key Performance Indicator (KPI)
Corporate, Business Units
STRATEGY OF PT. X
In the period of 1999 to 2004 PT. X provides customized
consulting services in performance management and its
related areas. We adopt customer intimacy strategy to fully
understand our customer requirement and deliver services
beyond their expectation.
Only 10 percent of effectively formulated strategies
were successfully implemented
36. Identification of Key Performance Indicator (KPI)
Corporate, Business Units
STRATEGY IMPLEMENTATION
CUSTOMER INTIMACY
FULLY UNDERSTAND CUSTOMER
REQUIREMENTS
DELIVER BEYOND EXPECTATION
- MORE THAN WHAT WE PROMISED
- FASTER THAN WHAT WE PROMISED
BUILT IN ORGANIZATION AND
MANAGEMENT SYSTEM
IMPLEMENTED IN DAILY OPERATIONS
and MEASURES THE PERFORMANCE
37. STRATEGIC MAP OF PT.X
COMPANY STRATEGY
FULLY UNDERSTAND CUSTOMER
REQUIREMENTS
DELIVER BEYOND EXPECTATION
- MORE THAN WHAT WE PROMISED
- FASTER THAN WHAT WE PROMISED
FINANCIAL
CASH-FLOW
COVERAGE
ASSET
GROWTH
RETURN
CUSTOMER
PROFIT
GROWTH
COMPLAIN RESOLVED
RATIO
CUSTOMER
REQUEST FULFILLED
RATIO
INTERNAL BUSINESS PROCESS
ON TIME DELIVERY
TRAINED EMPLOYEE
RATIO
LEARNING AND GROWTH
NUMBER OF
INNOVATION
EMPLOYEE
DICIPLINE
EMPLOYEE
TURNOVER
EMPLOYEE PRODUCTIVITY
GROWTH
TAKE HOME PAY
GROWTH
38. Performance Measurement PT. X
KPI
C Company Performance
C Financial
S
Profit Growth
S
Asset Growth
S
Cash-flow coverage
C Customer
S
Return Customer
S
Resolved compalin ratio
S
Fulfilled request ratio
C Internal Business Process
S
On time delivery
S
Number of innovation
S
Employee diciplinary
S Employee productivity growth
C Learning and Growth and Employee Delight
S Trained employee ratio
S
Employee turnover
S
Take Home Pay Growth
STOP
Weight
55%
55%
35%
10%
20%
40%
30%
30%
15%
25%
25%
25%
25%
10%
35%
20%
45%
Target
Unit
100
100%
100%
75%
100
100 %
100 %
100 %
100
11 Month
2
5018 hour
105 %
100
25%
100 %
30%
Achievement
Scoring System
98% Higher Is Better
115% Higher Is Better
33% Higher Is Better
100 Higher Is Better
100 Higher Is Better
100 Higher Is Better
9
3
4999
82
Higher Is Worse
Higher Is Better
Higher Is Better
Higher Is Better
24% Higher Is Better
70.58 Higher Is Better
1.05% Higher Is Better
Score
54.20
53.90
40.25
4.40
20.00
40.00
30.00
30.00
15.58
29.55
30.00
24.91
19.42
4.86
32.94
14.12
1.58
94.65
98.55
98.00
115.00
44.00
100.00
100.00
100.00
100.00
103.87
118.18
120.00
99.62
77.69
48.63
94.12
70.58
3.50
Colour
39. Mobilize change through
Executive leadership
• Mobilization
• Governance process
• Strategic management system
Translate the
Strategy to Operational
Terms
• Balanced Scorecards
B
Make strategy a
Continual process
Strategy
• Strategy maps
S
• Link budget and strategy
C
• Analytics and IS
• Strategic learning
Make strategy
Align the organization Everyone’s everyday
to the strategy
Job
• Corporate role
• Business unit synergies
• Share services synergies
• Strategic awareness
• Personal scorecards
• Balanced paycheck
40. EXAMPLE
North America Marketing and Refining :
• product leadership strategy : brand image and product characteristic
• competitor pursued similar strategy
• NAMR lose competitive advantage
NAMR adopted business strategy
• Revenue Growth Strategy
• Productivity Strategy
41. FINANCIAL PERSPECTIVE
INCREASE ROCE TO 12 %
Revenue Growth Strategy
New Sources of
Non-gasoline
Revenue
• Non-gasoline revenue
and margin
• ROCE
• Net Margin vs Industrty
Increase Customer
Profitability through
Premium Barnds
• Volume vs industry
• Premium Ratio
Productivity Strategy
Become Industry
Cost Leader
• Cash Expense
(Cents per gallon)
vs
Industry
Maximize use of
Existing Assets
• Cash Flow
42. CUSTOMER PERSPECTIVES
ROAD WARRIORS
16 %
Generally higher-income, middle-aged men who drive 25.000 to
50.000 miles a year….. Buy premium gasoline with credit card…
Purchase sandwiches and drinks from convenience store……will
Sometimes wash their cars at the carwash
TRUE BLUES
16 %
Usually men and women with moderate to high incomes who
Are loyal to a brand and sometimes to a particular station…
Frequently buy premium gasoline and pay in cash
GENERATION F3
27 %
Fuel, Food and Fast : Upwordly mobile men and women – half under
25 years of age – who are constantly on the go…..Drive a lot and
snack heavily from the convenience store.
HOMEBODIES
21 %
Usually housewives who shuttle their children around during the day
And use whatever gasoline station is based in town or along their
route or travel
PRICE SHOPPERS
20 %
Generally aren’t loyal to either a brabd or a particular station, and
Rarely buy the premium lone …… frequently on the tight budgets.
43. SERVICE PROFILE
• Immediate access to a gasoline pump
• Self-payment mechanism at the pump
• Covered area for gasoline pumps
• 100 % availability of product, especially premium grades
• Clean restrooms
• Satisfactory exterior station appearance
• Safe, well-lit station
• Convenience store, stocked with fresh, high-quality merchandises
• Speedy purchase
• Ample parking spaces near convenience store
• Friendly employees
• Availability of minor services
44. CUSTOMER PERSPECTIVES
Win-win Dealer
Relationship
Delight the customer
• Mystery
shopper
rating
• Share of
segment
Basic
• Clean
• Sale
• Quality
• Trusted
brand
Differentiators
Speedy
Purchase
Friendly,
Helpful
employee
Recognize
loyalty
More
Consumer
product
Help develop
Business
skill
45. INTERNAL BUSINESS PROCESS PERSPECTIVES
Two important internal processes :
1. Develop new products and services
2. Generate dealer profits from non-gasoline revenues
Build the franchise
Create
Non-gasoline
Product and
services
• New Product
ROI
• New product
Acceptance
Rate
Increase customer
value
Understand
Customer
Segment
• Share of Target
segment
Best-In-Class
Franchise
Team
• Dealer quality
rating
Achieve operational excellence
Improve
Hardware
performance
Improve
Inventory
management
• Yield gap
• Un-planned
downtime
• Inventory level
• Run-out rate
On Spec
On Time
Industry Cost
Leader
• Perfect Orders • Activity cost
vs
Competitors
Be a good neighbor
Improve
SHE
• Environmental
Incident
• Safety Incident
46. LEARNING AND GROWTH PERSPECTIVES
A motivated and prepared workforce
Climate for action
Competencies
• Aligned
• Personal growth
• Functional excellence
• Leadership skill
• Integrated view
• Personal scorecard
• Employee feedback
• Strategic skill coverage
ratio
Technology
• Process improvement
• Y2K
• System milestone
47. NAMR BALANCED SCORECARD
PERSPECTIVE
FINANCIAL
CUSTOMER
STRATEGIC THEMES
STRATEGIC OBJECTIVES
STRATEGIC MEASURES
Financial Growth
F1 Return On Capital
Employed
F2 Asset utilization
F3 Profitability]
F4 Industry cost leader
F5 Profitable growth
• ROCE
• Cash flow
• Net margin rank
• Fuel cost per gallon
• Volume growth rate
• Premium ratio
• Non-gasoline revenue
and margin
Delight the customer
C1 Continuously delight
targeted customer
• Market share in targeted
market
• Mystery shopper rating
Win-win dealer relations
C2 Build win-win relations
with dealer
• Dealer gross profit growth
• Dealer survey
48. NAMR BALANCED SCORECARD
PERSPECTIVE
STRATEGIC MEASURES
Build the franchise
I1 Innovative products and
services
• New product ROI
• New product acceptance
rate
I2 Best-in-Class Franchise
teams
• Dealer quality score
Competitive supplier
I3 Refinery performance
• Yield gap
• Unplanned down time
I4 Inventory management
• Inventory level
• Runout rate
I5 Industry cost leader
• Activity cost vs competitor
Quality
I6 On spec, on time
• Perfect orders
Good neighbor
LEARNING
AND
GROWTH
STRATEGIC OBJECTIVES
Safe and reliable
INTERNAL
BUSINESS
PROCESS
STRATEGIC THEMES
I7 Improve SHE
• Number of environmental
incidents
• Days away from work rate
Motivated and prepared
workforce
L1 Climate for action
L2 Core competencies
and skills
L3 Access to strategic Inf.
• Employee survey
• Personal BSC
• Strategic Competency av.
• Strategic Inf. availability
49. Performance Review PT. X
- Overall performance is good
- Take home pay growth and Cash flow coverage need improvement
- Set up improvement programmes
50. Performance Improvement PT. X
Performance Problems :
- Take home pay growth
- Cash flow coverage
Identification of Causal Factors :
- Take home pay growth is poor because Cash flow
coverage is poor
- Cash flow coverage is poor because of uncertainty of
payment
Setting Improvement Programmes :
- Improve customer mix ( large company Vs small company )
Improve customer mix :
- Target ( 1 large company 2
small company)
- Schedule (2002)
- Resources ( No additional
resources )
- Responsibility (Partnership
Manager)
51. EXERCISE
1. Define your strategy
2. Develop the strategy map
3. Identify the KPIs
(Use Appendix !)
