Chapter 8
Performance Measurement
and Strategic Information
Management
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
1
Information Management
• If you don’t measure results, you can’t tell
success from failure
• If you can’t see success, you can’t reward it –
and if you can’t reward success, you are
probably rewarding failure
• If you can’t recognize failure,
you can’t correct it
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
2
Process Flow
Measurement
Data
Analysis
Information
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
3
Use of Information and Analysis
Validation
Customer
Requirements
Prediction
Measurements
Control
Processes
Results
Design
Measurement supports executive performance review
and daily operations and decision making.
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
4
Benefits of
Information Management
• Understand customers and customer
satisfaction
• Provide feedback to workers
• Establish a basis for reward/recognition
• Assess progress and the need for corrective
action
• Reduce costs through better planning
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
5
Empirical Survey Results
• Measurement-management companies are
more likely to:
–
–
–
–
–
–
be in top third of industry financially
complete organizational changes successfully
reach clear agreement on strategy
enjoy favorable cooperation and teamwork
have more employee empowerment
have a greater willingness to take risks
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
6
Example: Federal Express
• “We measure everything.
Then…we prioritize what
processes are key to the
company.”
• Most data collection systems are
automated, making it fast and
easy.
• Seeks internal measures that are
predictors for external measures.
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
7
Example: Ritz-Carlton
• “We only measure what we must.
But, we make sure that what we
measure is important to our
customers.”
• 50% marketing and financial data;
50% quality-related productivity
data.
• Cost of quality is top priority. Are
improvements important to
customers, providing a good return,
and done quickly?
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
8
Leading Practices (1 of 2)
• Develop a set of performance indicators that
reflect customer requirements and key
business drivers
• Use comparative information and data to
improve overall performance and
competitive position
• Involve everyone in measurement activities
and ensure that information is widely
visible
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
9
Leading Practices (2 of 2)
• Ensure that data are reliable and accessible
to all who need them
• Use sound analytical methods to conduct
analyses and use the results to support
strategic planning and daily decision making
• Continually refine information sources and
their uses within the organization
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
10
Balanced Scorecard
1.
2.
3.
4.
Financial perspective
Internal perspective
Customer perspective
Innovation and learning perspective
Leading
measures
Lagging
measures
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
11
Key Types of Business
Performance Measures
• Customer satisfaction measures
• Financial and market performance
measures
• Human resource measures
• Supplier and partner performance
measures
• Company-specific measures
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
12
Example: Wainwright Industries
•
•
•
•
Safety
Internal customer satisfaction
External customer satisfaction
Six sigma quality (manufacturing
defects)
• Business performance
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
13
Common Quality Measures
• Nonconformities (defects) per unit
• Errors per opportunity
• Defects per million opportunities
(dpmo)
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
14
Importance of Comparative Data
• Comparative data: industry averages,
best competitor performance, worldclass benchmarks
• Helps recognize the need for
improvement
• Provides motivation to seek
improvement
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
15
Linkages to Strategy
Key business drivers
(key success factors)
Strategies and
action plans
Measures and indicators
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
16
Process-Level Measurements
• Does the measurement support our mission?
• Will the measurement be used to manage
change; that is, actionable?
• Is it important to our customers?
• Is it effective in measuring performance?
• Is it effective in forecasting results?
• Is it easy to understand and simple?
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
17
Creating Effective
Performance Measures
• Identify all customers and their requirements
and expectations
• Define work processes
• Define value-adding activities and process
outputs
• Develop measures for each key process
• Evaluate measures for their usefulness
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
18
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
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
19
Quality Cost Classification
•
•
•
•
Prevention
Appraisal
Internal failure
External failure
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
20
Quality Cost Management Tools
•
•
•
•
Cost indexes
Pareto analysis
Sampling and work measurement
Activity-based costing
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
21
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
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
22
Managing Data and Information
• Validity – Does the indicator measure
what it says it does?
• Reliability – How well does an
indicator consistently measure the
“true value” of the characteristic?
• Accessibility – Do the right people
have access to the data?
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
23
Analysis
•
•
•
•
•
Statistical summaries and charts
Trends over time
Comparisons with key benchmarks
Aggregate summaries and indexes
Cause-and-effect linkages and
correlations (interlinking)
• Data mining
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
Basic
Advanced
24
Interlinking
• Quantitative modeling of cause and effect
relationships between external and internal
performance criteria
customer
satisfaction
rating
*
*
*
* *
time on hold (telephone)
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
25
Information and Analysis
in the Baldrige Award Criteria
The Information and Analysis Category examines an
organization’s information management and performance
measurement systems and how the organization analyzes
performance data and information.
4.1 Measurement and Analysis of Organizational
Performance
a. Performance Measurement
b. Performance Analysis
4.2 Information Management
a. Data Availability
b. Hardware and Software Quality
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson LearningTM
26