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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM
Measuring Performance in Operations
3
COLLIER/EVANS
5
1
Describe the types of measures used for decision making
Explain the use of analytics in OM and how internal and external measures are related
Explain how to design a good performance measurement system
Describe four models of organizational performance
LEARNING OUTCOMES
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OM5 | CH3
2
Measurement
Act of quantifying the performance criteria of:
Organizational units
Goods and services
Processes
People
Other business activities
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
3
Measurement
Good measures:
Provide scorecard of performance
Help identify performance gaps
Make accomplishments visible to:
Workforce
Stock market
Other stakeholders
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Types of Performance Measures
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
5
Financial
Customer and market
Quality
Time
Flexibility
Innovation and learning
Productivity and operational efficiency
Sustainability
Financial Measures
Take top priority in for-profit organizations
Traditional financial measures
Revenue including earnings from new goods and services and growth
Return on investment
Operating profit
Pretax profit margin
Asset utilization
Earnings per share and other liquidity measures
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
6
Customer and Market Measures
Customer and market feedback is used by organization to:
Evaluate the customer and stakeholder’s satisfaction
Customer-satisfaction measurement system: Provides a company with customer ratings of specific goods and service features
Indicates the relationship between those ratings and the customer’s likely future buying behavior
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Quality
Measures the degree to which the output of a process meets customer requirements
Goods quality: Relates to the physical performance and characteristics of a good
Service quality: Consistently meeting or exceeding customer expectations and service delivery system performance for all service encounters
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Service Quality
Dimensions
Tangibles
Reliability
Responsiveness
Assurance
Empathy
Every service encounter provides an opportunity for error
Service failures: Errors in service creation and delivery
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
9
Time
Relates to types of performance measures
Speed of doing something
Processing time
Queue time
Variability of the process - Measured by statistics such as:
Standard deviation or mean absolute deviation
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
10
Flexibility
Ability to adapt quickly and effectively to changing requirements
Goods and service design flexibility: Ability to develop a wide range of customized goods and services to:
Meet different or changing customer needs
Volume flexibility: Ability to respond quickly to changes in the volume and type of demand
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
11
Innovation and Learning
Innovation: Ability to create new and unique goods and services that:
Delight customers and create competitive advantage
Learning: Creating, acquiring, and transferring knowledge, and modifying the behavior of employees in:
Response to internal and external change
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
12
Productivity and Operational Efficiency
Productivity: Ratio of the output of a process to the input
Productivity = Quantity of output/Quantity of input
Operational efficiency: Ability to provide goods and services to customers with minimum waste and maximum utilization of resources
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
13
Sustainability
Triple bottom line (TBL or 3BL): Measurement of environmental, social, and economic sustainability
Environmental sustainability measures
Energy consumption
Recycling
Air emissions
Solid and hazardous waste rates
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
14
Sustainability
Triple bottom line (TBL or 3BL)
Social sustainability measures
Consumer and workplace safety
Community relations
Corporate ethics and governance
Economic sustainability measures
Financial audit results
Regulatory compliance
Sanctions and fines
Accomplishment of strategic initiatives
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
15
Business Analytics
Helps operations managers to analyze data more effectively and make better decisions
Applications of business analytics
Visualizing data to examine performance trends
Calculating basic statistical measures
Comparing results relative to other business units, competitors, or best-in-class benchmarks
Using correlation and regression analysis
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
16
Linking Internal and External Measures
Cause-and-effect linkages between key measures of performance explain the impact of operational performance on external results
Interlinking: Quantitative modeling of cause-and-effect relationships between external and internal performance criteria
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
17
3.3 Interlinking Internal and External Performance Measures
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5| CH3
Exhibit
18
Value of a Loyal Customer (VLC)
Quantifies the total revenue or profit each target market customer generates over the buyer’s life cycle
Total market value - Multiplying the VLC times the absolute number of customers gained or lost
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
19
Designing Measurement Systems in Operations
Good performance measures are actionable
Actionable measures: Provide the basis for decisions at the level at which they are applied
Meaningful to the user
Timely
Reflect the way organization generates value to customers
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
20
Models of Organizational Performance
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OM5 | CH3
21
Baldrige performance excellence framework
Balanced scorecard
Value chain model
Service-profit chain model
Baldrige Performance Excellence Framework
Primary purpose of the program - Provide a framework for performance excellence through:
Self-assessment to understand an organization’s strengths and weaknesses
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
22
3.4 Baldrige Model of Organizational Performance
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OM5| CH3
Exhibit
23
The Balanced Scorecard Model
Purpose - Translate strategy into measures that uniquely communicate an organization’s vision
Perspectives
Financial - Value to shareholders
Customer - Customer satisfaction and market growth
Innovation and learning - People and infrastructure
Internal - Processes that drive the business
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
24
3.5 The Balanced Scorecard Performance Categories and Linkages
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5| CH3
Exhibit
25
The Value Chain Model
Evaluates performance throughout the value chain by identifying measures associated with:
Suppliers
Inputs
Value creation processes
Goods and service outputs and outcomes
Customers and market segments
Supporting management processes
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
26
Service-profit Chain Model
Most applicable to service environments
Based on a set of cause and effect linkages between internal and external performance
Defines the key performance measurements on which service-based firms should focus
Theory - Employees driven through the service delivery system, create customer value and drive profitability
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
27
3.7 The Service-Profit Chain Model
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5| CH3
Exhibit
28
Different measures are used to provide scorecard of performance and to identify gaps in performance
Applications of business analytics helps operations managers to arrive at effective decisions
Good performance measures are actionable
First two models of organizational performance are known as big picture
SUMMARY
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Last two models of organizational performance provide more detailed frameworks for operations managers
SUMMARY
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Actionable measures
Customer-satisfaction measurement system
Flexibility
Goods and service design flexibility
Goods quality
Innovation
Interlinking
Learning
Measurement
KEY TERMS
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
Operational efficiency
Processing time
Productivity
Quality
Queue time
Service failures
Service quality
Triple bottom line (TBL or 3BL)
Value of a loyal customer (VLC)
Volume flexibility
KEY TERMS
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
‹#›
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
OM5 | CH3
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