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The Changing Basis of Performance Measurement By Dr. Abhijeet K. Digalwar Birla Institute of Technology and Science, Pilani
Dec 2, 2009
A.K.Digalwar, BITS Pilani
1
To Know the world-class performance, measurement is important Because If you can not measure it, you can not manage it and then You can not improve upon.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
2
Background In Recent year, performance measures have become paramount important as they are the prerequisite for continuous improvement of any organization. Performance measures are mainly used to compare the performance of different organizations, plants, departments, teams and individuals, and to assess employees. For the achievement of goals and objectives of companies performance measures are used to evaluate, control and continuously improve production processes. Dec 2, 2009
A.K.Digalwar, BITS Pilani
3
Phases The first phase began in the late 1880s and went through the 1980s. • • • • • •
profit Return on Investment Return on sales Price variances Sales per employee Productivity etc.
The second phase started in the late 1980s as a result of changes in the world market.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
4
Limitations of traditional performance measures
Based on accounting system. Mainly financial measures. Intended for middle and high managers. Neglected at the shop floor. Lagging metrics. Have a fixed format.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
5
Limitations of traditional performance measures (Contd.) Intended mainly for monitoring performance. Not applicable for JIT, TQM,CIM etc. Hinders continuous improvement.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
6
Time -based performance measurement systems
Time based measurement systems have been developed to help companies control and improve their operations.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
7
Time -based performance measurement systems It is easy to measure It is easy for everyone to understand It facilitates comparisons between workshops
(independent of cost structure) In operative manufacturing, there is approximately a linear relationship between time and cost
Dec 2, 2009
A.K.Digalwar, BITS Pilani
8
Time -based performance measurement systems (Contd.) 1.
2. 3.
New product development includes: time from idea to market, rate of new product introduction and percentage first competitor to market. Decision making includes: decision cycle time, time lost waiting for decisions. Processing and production includes: value added as percentage of total elapsed time, uptime yield, inventory turnover and cycle time(per major phase of main sequence).
Dec 2, 2009
A.K.Digalwar, BITS Pilani
9
Time -based performance measurement systems (Contd.) 4.
Customer service includes: response time, quoted lead time, percentage deliveries of time, and time from customer’s recognition of need to delivery.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
10
Time -based performance measurement systems (Contd.) The main disadvantage of these performance
measures is that they solely concentrate on time and neglect other operational performance measures such as cost, quality, delivery etc. Without controlling and improving these operational measures companies will not be able to compress time.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
11
Modern performance measurement systems Activity Based Costing Sink and Tuttle Framework Performance Measurement Matrix SMART System Performance Measurement Questionnaire Balanced Scorecard The Performance Prism
Dec 2, 2009
A.K.Digalwar, BITS Pilani
12
Activity Based Costing ABC is concerned with the cost of activities within a
company and their relationships to the manufacture of specific products rather than on functional base (Hill, 1995). Analyse the indirect costs within a company and to discover the activities that cause those costs. Such activities are called cost-drivers and can be used to apply overheads to specific product ABC results in a more accurate identification of costs than traditional cost allocation.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
13
Limitations of ABC The claim that ABC provides more accurate
product costs has never been proven (Neely et al, 1997). An improved cost accounting system will not entirely solve the problem with financial measures. Other measures than cost are needed to gauge adequately manufacturing performance relative to a competitive strategy (White, 1996). Dec 2, 2009
A.K.Digalwar, BITS Pilani
14
Sink and Tuttle Framework The performance of an organization is a complex interrelationship between seven performance criteria Effectiveness, which involves doing the right things, at the right time, with the right quality. In practice, effectiveness is expressed as a ratio of actual output to expected output. Efficiency, defined as a ratio of resources expected to be consumed to resources actually consumed. Quality, where quality is an extremely wide concept. To make the term more tangible, quality is measured at several checkpoints. Dec 2, 2009
A.K.Digalwar, BITS Pilani
15
Sink and Tuttle Framework Contd…. Productivity- which is defined as the
traditional ratio of output to input. Quality of work life- which is an essential contribution to a well performing system. Innovation- which is a key element in sustaining and improving performance. Profitability/budgetability- which represents the ultimate goal for any organization.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
16
Limitations of Sink and Tuttle Framework It does not consider the need for flexibility. it does not consider the customer
perspective.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
17
The Performance Measurement Matrix proposed in the late 80’s by Keegan et al
(1989), integrates four different classes of business performance:
Dec 2, 2009
cost and non-cost internal and external
A.K.Digalwar, BITS Pilani
18
The Performance Measurement Matrix
Dec 2, 2009
-Repeat buyers -Customer complaints -Market share
-Competitive cost position -Relative R&D expenditure
-Design Cycle -Percent on time delivery -New products
-Design cost -Material cost -Manufacturing cost
A.K.Digalwar, BITS Pilani
19
Limitations of Performance Measurement Matrix
The matrix is not as well packed and does not make explicit links between the different dimensions of business performance
Dec 2, 2009
A.K.Digalwar, BITS Pilani
20
SMART System The Strategic Measurement Analysis and
Reporting Technique (SMART). Developed by Wang Laboratories, Inc.(1989). The SMART system represented by a fourlevel pyramid of objectives.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
21
Four-level pyramid of objectives and measures Corporate vision or Strategy management assigns a corporate portfolio role to each business unit and allocate resources to support them.
Objectives for each Business Units Objectives are defined in market and financial terms.
Objectives for each Business Operating System More tangible operating objectives and priorities can be defined for each BOS.
Department Level BOS objectives are represented by more specific operational criteria. Dec 2, 2009
A.K.Digalwar, BITS Pilani
22
The Performance Pyramid
Objectives
The Vision Measures Market Measures
Financial Business Measures Units
Customer Flexibility Satisfaction Productivity Quality
Delivery
Process time
Business Operating Units
Cost
Departments and Work Centres
Operations
Dec 2, 2009
A.K.Digalwar, BITS Pilani
23
Performance Measurement Questionnaire (PMQ) Dixon et.al. (1990) developed the Performance
Measurement Questionnaire (PMQ) to help managers identify the improvement needs of their organization. To determine the extent to which the existing performance measures support improvements. To establish an agenda for performance measure improvements. It consist of four parts. Dec 2, 2009
A.K.Digalwar, BITS Pilani
24
Four Parts of PMQ Part I - Provides general data to be used to classify the respondents. Part II – Assesses the companies competitive priorities and PMS It consist of items labeled as “Improvement areas”. Part III – Similar to part II except the focus is on performance measures. Part IV – The questionnaire asks the respondents to provide performance measures that best evaluate their own performance and any other general comments.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
25
Evaluation of PMQ Alignment Analysis
To investigate in general terms how well a company’s actions and measures complement its strategy. Congruence Analysis To provide a detailed understanding of how well the measurement system supports an organization’s action and strategy. Consensus Analysis Carried out by grouping the data by management level or by functional group. This analysis shows the effect of communication. Confusion Analysis To determine the extent of consensus ( Standard deviation) regarding each improvement area and performance measures.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
26
Limitations of PMQ Ghalayini et al (1997) argue that it cannot be considered as a comprehensive integrated measurement system and does not take into account continuous improvement.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
27
THE PERFORMANCE PRISM Organized into five perspective Stakeholder satisfaction – Which are the stakeholders and what do they want and need. Strategies – What are the strategies we require to ensure the wants and needs of our stakeholders. Processes – What are the processes we have to put in place in order to allow our strategies to be delivered. Capabilities – What are the capabilities we require to operate our processes. Stakeholder contributions – What do we want and need from stakeholders to maintain and develop those capabilities. Dec 2, 2009
A.K.Digalwar, BITS Pilani
28
THE PERFORMANCE PRISM Contd… Much more comprehensive view of different
stakeholders (e.g. investors, customers, employees, regulators and suppliers) Neely et al (2001) argues that the common belief that performance measures should be strictly derived from strategy is incorrect. It is the wants and needs from stakeholders that first must be considered. Then, the strategies can be formulated. Thus, it is not possible to form a proper strategy before the stakeholders have been clearly identified.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
29
THE PERFORMANCE PRISM Contd… Stakeholders satisfaction:
Investors, customers, Intermediaries, Employees, Regulators,Communities, Suppliers. Strategies: Corporate, business unit, Brands/ products/ services.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
30
THE PERFORMANCE PRISM Contd… Processes:
Develop products services, Generate demand, fulfill demand, Plan and manage enterprise. Capabilities: People, practices, Technology, Infrastructure: Stakeholders contribution. Dec 2, 2009
A.K.Digalwar, BITS Pilani
31
Stakeholder satisfaction
Strategies
Processes Capabilities Infrastructure. Performance Prism
Dec 2, 2009
A.K.Digalwar, BITS Pilani
32
Limitations of Performance Prism The performance prism extends beyond
performance measurement, but tells little about how the performance measures is going to be realized. Attention has been placed on the process of finding the right strategies that the development of a PMS should be based on, but little concentration is given on the process of the actual design of a PMS. Dec 2, 2009
A.K.Digalwar, BITS Pilani
33
Balanced Scorecard Kaplan and Norton (1992) developed a framework
‘Balanced Scorecard’ for strategic, operational and financial measures. It complements the financial measures with operational measures on customer satisfaction, internal processes and the organization’s innovation and improvement activities. Allows manager to look at the business from four important perspectives:
Dec 2, 2009
Customer perspective Internal perspective Innovation and learning perspective Financial perspective A.K.Digalwar, BITS Pilani
34
Balanced Scorecard (Contd.) It provides answer to four basic questions • • • •
How do customers see us? What must we excel at? Can we continue to improve and create value? How do we look to shareholders?
In order to apply the balanced score card to work, companies should articulate goals for time, quality, and performance and service and then translate these goals into specific measures. Dec 2, 2009
A.K.Digalwar, BITS Pilani
35
Financial Perspective Goals Measures
Customer perspective Goals
Internal business perspective Goals Measures
Measures
Innovation and learning Goals
Measures
The Balanced Scorecard Dec 2, 2009
A.K.Digalwar, BITS Pilani
36
ECIs Balanced Scorecard Financial Perspective Goals Survive Succeed Prosper
Dec 2, 2009
Customer Perspective
Measures
Goals
Cash flow Quarterly sales growth and operating income by division. Increase market share
New products Responsive supply Preferred supplier Customer partnership
A.K.Digalwar, BITS Pilani
Measures Percent of sales from new products Percent of sales from proprietary products On time deliver (defined by customer) Share of key accounts purchases Ranking by key accounts Number of cooperative engineering efforts
37
ECIs Balanced Scorecard Internal Business Perspective Goals Technology capability Manufacturin g excellence Design productivity New product introduction
Dec 2, 2009
Measures
Innovation and Learning Perspective Goals
Manufacturing geometry Cycle time Unit cost Yield Silicon efficiency Engineering efficiency Actual introduction schedule vs. plan
Technology leadership Manufacturing learning Product focus Time to market
A.K.Digalwar, BITS Pilani
Measures Time to develop next generation Process time to maturity Percent of products that equal 80% sales New product introduction vs. competition
38
Balanced Scorecard for Educational Institute
Dec 2, 2009
A.K.Digalwar, BITS Pilani
39
Customer Perspective •Percentage of students with a job offer after graduation •Number of companies recruiting on campus •Average starting salaries of graduates • Accreditation •Professional exam-passing rate •External ranking or ratings in the press •Student satisfaction survey •Offering frequency of required courses
Dec 2, 2009
A.K.Digalwar, BITS Pilani
40
Internal Business Perspective •Distribution of grades awarded •student competency evaluation • faculty-to-student ratio •Educational expenses per student •Average class or laboratory size compared to other institutions •Number of faculty in the specialized area • Number of other institutes offering the same program
Dec 2, 2009
A.K.Digalwar, BITS Pilani
41
Innovation and Learning Perspective •Number of faculty presentations at conferences •Number of faculty publications •Number of seminars attended by faculty •Number of courses incorporating new technology •Number of teaching innovation projects •Number of curriculum revisions in last five years •Number of new courses offered in last five years •Number of firms involved in joint activities Dec 2, 2009
A.K.Digalwar, BITS Pilani
42
Financial Perspective •Annual giving to the department •Amount of external grants •Level of student enrollment
Dec 2, 2009
A.K.Digalwar, BITS Pilani
43
Balanced Scorecard (Contd.) Balanced scorecard is very popular
performance measurement system. More than 40% of the largest businesses in the USA had adopted the balanced scorecard by the end of 2005. Over 50 percent of surveyed firms’ world wide had adopted the balanced scorecard by the middle of 2006.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
44
Balanced Scorecard (Contd.) Features It summarizes in one management report many of seemingly disparate elements of a company’s competitive agenda. It limits the number of measures to avoid information overload. prevents sub-optimization by forcing senior managers to consider all operational measures at the same time. Dec 2, 2009
A.K.Digalwar, BITS Pilani
45
Limitations of Existing PMS SMART system does not provide any mechanism to identify key
performance indicators for quality, cycle time, cost and delivery. It does not integrate the concept of continuous improvement. PMQ also does not take into account the concept of continuous improvement. Balanced Scorecard fails to adequately highlights the contributions that company employees and suppliers make to help the company achieve its objectives. It fails to identify the role of community in defining the environment within which the company works. There is no clear provision for very long term measures. They are mainly constructed as monitoring and controlling tools rather than improvement tools. They are not dynamic systems, they do not allow any systematic revision of critical areas, performance measures, historical data, decisions and outcome.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
46
Need for New Model It should have a clearly defined set of improvement
areas and associated performance measures that are related to company strategy and objectives. The system should be dynamic systems, the system should allow any systematic revision of critical areas, performance measures, historical data, decisions and outcome. It should links the areas of improvement and performance measurement to the factory shop-floor. Contd Dec 2, 2009
A.K.Digalwar, BITS Pilani
47
Need for New Model It should use as an improvement tool rather
than just a monitoring and controlling tool.
It should have visibility and a scoreboard for
people to monitor their own performance levels.
It should provide feedback for driving the
improvement efforts
Contd.. Dec 2, 2009
A.K.Digalwar, BITS Pilani
48
Need for New Model Ensures customer requirements. Provides standards for establishing comparison. Highlights quality problems and determine which areas
require priority attention. Justifies the use of resources. They have no fixed format (Depends on needs) Helps in achieving continuous improvement
Dec 2, 2009
A.K.Digalwar, BITS Pilani
49
Conclusion If Indian corporations implement modern performance measurement systems like balanced scorecard along with world-class operations then corporate not only view their performance through customers’ eyes but also gain guaranteed winning strategy.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
50
THANK YOU
Dec 2, 2009
A.K.Digalwar, BITS Pilani
51
Dec 2, 2009
A.K.Digalwar, BITS Pilani
1
To Know the world-class performance, measurement is important Because If you can not measure it, you can not manage it and then You can not improve upon.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
2
Background In Recent year, performance measures have become paramount important as they are the prerequisite for continuous improvement of any organization. Performance measures are mainly used to compare the performance of different organizations, plants, departments, teams and individuals, and to assess employees. For the achievement of goals and objectives of companies performance measures are used to evaluate, control and continuously improve production processes. Dec 2, 2009
A.K.Digalwar, BITS Pilani
3
Phases The first phase began in the late 1880s and went through the 1980s. • • • • • •
profit Return on Investment Return on sales Price variances Sales per employee Productivity etc.
The second phase started in the late 1980s as a result of changes in the world market.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
4
Limitations of traditional performance measures
Based on accounting system. Mainly financial measures. Intended for middle and high managers. Neglected at the shop floor. Lagging metrics. Have a fixed format.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
5
Limitations of traditional performance measures (Contd.) Intended mainly for monitoring performance. Not applicable for JIT, TQM,CIM etc. Hinders continuous improvement.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
6
Time -based performance measurement systems
Time based measurement systems have been developed to help companies control and improve their operations.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
7
Time -based performance measurement systems It is easy to measure It is easy for everyone to understand It facilitates comparisons between workshops
(independent of cost structure) In operative manufacturing, there is approximately a linear relationship between time and cost
Dec 2, 2009
A.K.Digalwar, BITS Pilani
8
Time -based performance measurement systems (Contd.) 1.
2. 3.
New product development includes: time from idea to market, rate of new product introduction and percentage first competitor to market. Decision making includes: decision cycle time, time lost waiting for decisions. Processing and production includes: value added as percentage of total elapsed time, uptime yield, inventory turnover and cycle time(per major phase of main sequence).
Dec 2, 2009
A.K.Digalwar, BITS Pilani
9
Time -based performance measurement systems (Contd.) 4.
Customer service includes: response time, quoted lead time, percentage deliveries of time, and time from customer’s recognition of need to delivery.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
10
Time -based performance measurement systems (Contd.) The main disadvantage of these performance
measures is that they solely concentrate on time and neglect other operational performance measures such as cost, quality, delivery etc. Without controlling and improving these operational measures companies will not be able to compress time.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
11
Modern performance measurement systems Activity Based Costing Sink and Tuttle Framework Performance Measurement Matrix SMART System Performance Measurement Questionnaire Balanced Scorecard The Performance Prism
Dec 2, 2009
A.K.Digalwar, BITS Pilani
12
Activity Based Costing ABC is concerned with the cost of activities within a
company and their relationships to the manufacture of specific products rather than on functional base (Hill, 1995). Analyse the indirect costs within a company and to discover the activities that cause those costs. Such activities are called cost-drivers and can be used to apply overheads to specific product ABC results in a more accurate identification of costs than traditional cost allocation.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
13
Limitations of ABC The claim that ABC provides more accurate
product costs has never been proven (Neely et al, 1997). An improved cost accounting system will not entirely solve the problem with financial measures. Other measures than cost are needed to gauge adequately manufacturing performance relative to a competitive strategy (White, 1996). Dec 2, 2009
A.K.Digalwar, BITS Pilani
14
Sink and Tuttle Framework The performance of an organization is a complex interrelationship between seven performance criteria Effectiveness, which involves doing the right things, at the right time, with the right quality. In practice, effectiveness is expressed as a ratio of actual output to expected output. Efficiency, defined as a ratio of resources expected to be consumed to resources actually consumed. Quality, where quality is an extremely wide concept. To make the term more tangible, quality is measured at several checkpoints. Dec 2, 2009
A.K.Digalwar, BITS Pilani
15
Sink and Tuttle Framework Contd…. Productivity- which is defined as the
traditional ratio of output to input. Quality of work life- which is an essential contribution to a well performing system. Innovation- which is a key element in sustaining and improving performance. Profitability/budgetability- which represents the ultimate goal for any organization.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
16
Limitations of Sink and Tuttle Framework It does not consider the need for flexibility. it does not consider the customer
perspective.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
17
The Performance Measurement Matrix proposed in the late 80’s by Keegan et al
(1989), integrates four different classes of business performance:
Dec 2, 2009
cost and non-cost internal and external
A.K.Digalwar, BITS Pilani
18
The Performance Measurement Matrix
Dec 2, 2009
-Repeat buyers -Customer complaints -Market share
-Competitive cost position -Relative R&D expenditure
-Design Cycle -Percent on time delivery -New products
-Design cost -Material cost -Manufacturing cost
A.K.Digalwar, BITS Pilani
19
Limitations of Performance Measurement Matrix
The matrix is not as well packed and does not make explicit links between the different dimensions of business performance
Dec 2, 2009
A.K.Digalwar, BITS Pilani
20
SMART System The Strategic Measurement Analysis and
Reporting Technique (SMART). Developed by Wang Laboratories, Inc.(1989). The SMART system represented by a fourlevel pyramid of objectives.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
21
Four-level pyramid of objectives and measures Corporate vision or Strategy management assigns a corporate portfolio role to each business unit and allocate resources to support them.
Objectives for each Business Units Objectives are defined in market and financial terms.
Objectives for each Business Operating System More tangible operating objectives and priorities can be defined for each BOS.
Department Level BOS objectives are represented by more specific operational criteria. Dec 2, 2009
A.K.Digalwar, BITS Pilani
22
The Performance Pyramid
Objectives
The Vision Measures Market Measures
Financial Business Measures Units
Customer Flexibility Satisfaction Productivity Quality
Delivery
Process time
Business Operating Units
Cost
Departments and Work Centres
Operations
Dec 2, 2009
A.K.Digalwar, BITS Pilani
23
Performance Measurement Questionnaire (PMQ) Dixon et.al. (1990) developed the Performance
Measurement Questionnaire (PMQ) to help managers identify the improvement needs of their organization. To determine the extent to which the existing performance measures support improvements. To establish an agenda for performance measure improvements. It consist of four parts. Dec 2, 2009
A.K.Digalwar, BITS Pilani
24
Four Parts of PMQ Part I - Provides general data to be used to classify the respondents. Part II – Assesses the companies competitive priorities and PMS It consist of items labeled as “Improvement areas”. Part III – Similar to part II except the focus is on performance measures. Part IV – The questionnaire asks the respondents to provide performance measures that best evaluate their own performance and any other general comments.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
25
Evaluation of PMQ Alignment Analysis
To investigate in general terms how well a company’s actions and measures complement its strategy. Congruence Analysis To provide a detailed understanding of how well the measurement system supports an organization’s action and strategy. Consensus Analysis Carried out by grouping the data by management level or by functional group. This analysis shows the effect of communication. Confusion Analysis To determine the extent of consensus ( Standard deviation) regarding each improvement area and performance measures.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
26
Limitations of PMQ Ghalayini et al (1997) argue that it cannot be considered as a comprehensive integrated measurement system and does not take into account continuous improvement.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
27
THE PERFORMANCE PRISM Organized into five perspective Stakeholder satisfaction – Which are the stakeholders and what do they want and need. Strategies – What are the strategies we require to ensure the wants and needs of our stakeholders. Processes – What are the processes we have to put in place in order to allow our strategies to be delivered. Capabilities – What are the capabilities we require to operate our processes. Stakeholder contributions – What do we want and need from stakeholders to maintain and develop those capabilities. Dec 2, 2009
A.K.Digalwar, BITS Pilani
28
THE PERFORMANCE PRISM Contd… Much more comprehensive view of different
stakeholders (e.g. investors, customers, employees, regulators and suppliers) Neely et al (2001) argues that the common belief that performance measures should be strictly derived from strategy is incorrect. It is the wants and needs from stakeholders that first must be considered. Then, the strategies can be formulated. Thus, it is not possible to form a proper strategy before the stakeholders have been clearly identified.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
29
THE PERFORMANCE PRISM Contd… Stakeholders satisfaction:
Investors, customers, Intermediaries, Employees, Regulators,Communities, Suppliers. Strategies: Corporate, business unit, Brands/ products/ services.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
30
THE PERFORMANCE PRISM Contd… Processes:
Develop products services, Generate demand, fulfill demand, Plan and manage enterprise. Capabilities: People, practices, Technology, Infrastructure: Stakeholders contribution. Dec 2, 2009
A.K.Digalwar, BITS Pilani
31
Stakeholder satisfaction
Strategies
Processes Capabilities Infrastructure. Performance Prism
Dec 2, 2009
A.K.Digalwar, BITS Pilani
32
Limitations of Performance Prism The performance prism extends beyond
performance measurement, but tells little about how the performance measures is going to be realized. Attention has been placed on the process of finding the right strategies that the development of a PMS should be based on, but little concentration is given on the process of the actual design of a PMS. Dec 2, 2009
A.K.Digalwar, BITS Pilani
33
Balanced Scorecard Kaplan and Norton (1992) developed a framework
‘Balanced Scorecard’ for strategic, operational and financial measures. It complements the financial measures with operational measures on customer satisfaction, internal processes and the organization’s innovation and improvement activities. Allows manager to look at the business from four important perspectives:
Dec 2, 2009
Customer perspective Internal perspective Innovation and learning perspective Financial perspective A.K.Digalwar, BITS Pilani
34
Balanced Scorecard (Contd.) It provides answer to four basic questions • • • •
How do customers see us? What must we excel at? Can we continue to improve and create value? How do we look to shareholders?
In order to apply the balanced score card to work, companies should articulate goals for time, quality, and performance and service and then translate these goals into specific measures. Dec 2, 2009
A.K.Digalwar, BITS Pilani
35
Financial Perspective Goals Measures
Customer perspective Goals
Internal business perspective Goals Measures
Measures
Innovation and learning Goals
Measures
The Balanced Scorecard Dec 2, 2009
A.K.Digalwar, BITS Pilani
36
ECIs Balanced Scorecard Financial Perspective Goals Survive Succeed Prosper
Dec 2, 2009
Customer Perspective
Measures
Goals
Cash flow Quarterly sales growth and operating income by division. Increase market share
New products Responsive supply Preferred supplier Customer partnership
A.K.Digalwar, BITS Pilani
Measures Percent of sales from new products Percent of sales from proprietary products On time deliver (defined by customer) Share of key accounts purchases Ranking by key accounts Number of cooperative engineering efforts
37
ECIs Balanced Scorecard Internal Business Perspective Goals Technology capability Manufacturin g excellence Design productivity New product introduction
Dec 2, 2009
Measures
Innovation and Learning Perspective Goals
Manufacturing geometry Cycle time Unit cost Yield Silicon efficiency Engineering efficiency Actual introduction schedule vs. plan
Technology leadership Manufacturing learning Product focus Time to market
A.K.Digalwar, BITS Pilani
Measures Time to develop next generation Process time to maturity Percent of products that equal 80% sales New product introduction vs. competition
38
Balanced Scorecard for Educational Institute
Dec 2, 2009
A.K.Digalwar, BITS Pilani
39
Customer Perspective •Percentage of students with a job offer after graduation •Number of companies recruiting on campus •Average starting salaries of graduates • Accreditation •Professional exam-passing rate •External ranking or ratings in the press •Student satisfaction survey •Offering frequency of required courses
Dec 2, 2009
A.K.Digalwar, BITS Pilani
40
Internal Business Perspective •Distribution of grades awarded •student competency evaluation • faculty-to-student ratio •Educational expenses per student •Average class or laboratory size compared to other institutions •Number of faculty in the specialized area • Number of other institutes offering the same program
Dec 2, 2009
A.K.Digalwar, BITS Pilani
41
Innovation and Learning Perspective •Number of faculty presentations at conferences •Number of faculty publications •Number of seminars attended by faculty •Number of courses incorporating new technology •Number of teaching innovation projects •Number of curriculum revisions in last five years •Number of new courses offered in last five years •Number of firms involved in joint activities Dec 2, 2009
A.K.Digalwar, BITS Pilani
42
Financial Perspective •Annual giving to the department •Amount of external grants •Level of student enrollment
Dec 2, 2009
A.K.Digalwar, BITS Pilani
43
Balanced Scorecard (Contd.) Balanced scorecard is very popular
performance measurement system. More than 40% of the largest businesses in the USA had adopted the balanced scorecard by the end of 2005. Over 50 percent of surveyed firms’ world wide had adopted the balanced scorecard by the middle of 2006.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
44
Balanced Scorecard (Contd.) Features It summarizes in one management report many of seemingly disparate elements of a company’s competitive agenda. It limits the number of measures to avoid information overload. prevents sub-optimization by forcing senior managers to consider all operational measures at the same time. Dec 2, 2009
A.K.Digalwar, BITS Pilani
45
Limitations of Existing PMS SMART system does not provide any mechanism to identify key
performance indicators for quality, cycle time, cost and delivery. It does not integrate the concept of continuous improvement. PMQ also does not take into account the concept of continuous improvement. Balanced Scorecard fails to adequately highlights the contributions that company employees and suppliers make to help the company achieve its objectives. It fails to identify the role of community in defining the environment within which the company works. There is no clear provision for very long term measures. They are mainly constructed as monitoring and controlling tools rather than improvement tools. They are not dynamic systems, they do not allow any systematic revision of critical areas, performance measures, historical data, decisions and outcome.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
46
Need for New Model It should have a clearly defined set of improvement
areas and associated performance measures that are related to company strategy and objectives. The system should be dynamic systems, the system should allow any systematic revision of critical areas, performance measures, historical data, decisions and outcome. It should links the areas of improvement and performance measurement to the factory shop-floor. Contd Dec 2, 2009
A.K.Digalwar, BITS Pilani
47
Need for New Model It should use as an improvement tool rather
than just a monitoring and controlling tool.
It should have visibility and a scoreboard for
people to monitor their own performance levels.
It should provide feedback for driving the
improvement efforts
Contd.. Dec 2, 2009
A.K.Digalwar, BITS Pilani
48
Need for New Model Ensures customer requirements. Provides standards for establishing comparison. Highlights quality problems and determine which areas
require priority attention. Justifies the use of resources. They have no fixed format (Depends on needs) Helps in achieving continuous improvement
Dec 2, 2009
A.K.Digalwar, BITS Pilani
49
Conclusion If Indian corporations implement modern performance measurement systems like balanced scorecard along with world-class operations then corporate not only view their performance through customers’ eyes but also gain guaranteed winning strategy.
Dec 2, 2009
A.K.Digalwar, BITS Pilani
50
THANK YOU
Dec 2, 2009
A.K.Digalwar, BITS Pilani
51
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