Materi#3 modern performance model

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Materi#3 modern performance model

  1. 1. NEW MODEL OF PERFORMANCE MEASUREMENT SYSTEM Management and Industrial System Development Lab Department of Industrial Engineering – ITS
  2. 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. 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. 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. 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. 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. 7. NEW MODELS OF PERFORMANCE MEASUREMENT SYSTEM • Performance Measurement Questionnaire • SMART System • Balanced Scorecard • Cambridge Model • Integrated Performance Measurement System •PRISM
  8. 8. PERFORMANCE MEASUREMENT QUESTIONNAIRES (Dixon, Nanni, and Vollmann)
  9. 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. 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. 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. 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. 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. 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
  15. 15. PERFORMANCE MEASUREMENT QUESTIONNAIRES ANALYSIS
  16. 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. 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. 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. 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)
  20. 20. PERFORMANCE MEASUREMENT QUESTIONNAIRES (Dixon, Nanni, and Vollmann)
  21. 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. 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
  23. 23. INTEGRATED PERFORMANCE MEASUREMENT SYSTEM (Centre for Strategic Manufacturing)
  24. 24. IPMS BUSINESS STRUCTURE The Business Business Units Business Processes Activities
  25. 25. The Business Business Units Business Processes Activities
  26. 26. Business Units Stakeholders External Monitor Objectives Measures Business Unit Classification, RONA, ROI, Performance Measures Classification
  27. 27. 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
  28. 28. “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 ?”
  29. 29. 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
  30. 30. 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
  31. 31. 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
  32. 32. 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
  33. 33. 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
  34. 34. 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
  35. 35. 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
  36. 36. 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                  
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40. 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.
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. 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
  45. 45. 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
  46. 46. 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
  47. 47. Performance Review PT. X - Overall performance is good - Take home pay growth and Cash flow coverage need improvement - Set up improvement programmes
  48. 48. 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)
  49. 49. EXERCISE 1. Define your strategy 2. Develop the strategy map 3. Identify the KPIs (Use Appendix !)
  50. 50. PERFORMANCE PRISM FRAMEWORK (1)
  51. 51. PERFORMANCE PRISM FRAMEWORK (2)
  52. 52. PERFORMANCE PRISM FRAMEWORK (3)

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