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THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 1 Chapter 6 Performance Measurement and Strategic Information Management Dr. John V. Padua The Management & Control of Quality, 7e

Chapter 6 Performance Measurement and Strategic Information Management

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THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 1

Chapter 6

Performance Measurement and Strategic Information Management

Dr. John V. Padua

The Management & Control of Quality, 7e

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 2

Key Idea

A supply of consistent, accurate, and timely data across all functional areas of business provides real-time information for the evaluation, control, and improvement of processes, products, and services to meet both business objectives and rapidly changing customer needs.

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 3

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 & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 4

Balanced Scorecard1. Financial perspective

Measures the ultimate results that the business provides to its shareholders. They include profitability, revenue growth, return on investment, economic value added (EVA), and shareholder value.

1. Internal perspective Focuses attention on the performance of the key internal processes that drive the business. They include such measures as quality levels, productivity, cycle time, and cost.

1. Customer perspective Focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business.

1. Innovation and learning perspectiveDirects attention to the basis of a future success—the organization’s people and infrastructure. Key measures might include intellectual assets, employee satisfaction, market innovation, and skills development.

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 5

Key Idea

A good balanced scorecard contains both leading and lagging measures and indicators. Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 6

Product and Service Measures Internal quality measurements Field performance of products Defect levels Response times Data collected from customers or third parties

on ease of use or other attributes Customer surveys on product and service

performance

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Financial and Market Measures

Revenue Return on equity Return on investment Operating profit Pretax profit margin Asset utilization Earnings per share

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 8

Human Resource Measures

Employee satisfaction Training and development Work system performance and effectiveness Safety Absenteeism Turnover

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 9

Organizational Effectiveness Measures

Cycle times Production flexibility Lead times and setup times Time to market Product/process yields Delivery performance Cost efficiency Productivity

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Governance and Social Responsibility Measures

Organizational accountability Stakeholder trust Ethical behavior Regulatory/legal compliance Financial and ethics review results Community service Management stock purchase activity

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Key Idea

The things an organization needs to do well to accomplish its vision are often called key business drivers or key success factors. They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct.

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 12

Common Process Quality Measures

Nonconformities (defects) per unit Errors per opportunity Dpmo – defects per million opportunities

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Analyzing and Using Data

Analysis – an examination of facts and data to provide a basis for effective decisions.

Examples Examining trends and changes in key

performance indicators Making comparisons relative to other business

units, competitor performance, or best-in-class benchmarks

Calculating means, standard deviations, and other statistical measures

Seeking to understand relationships among different performance indicators using sophisticated statistical tools such as correlation and regression analysis

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 14

Interlinking

Quantitative modeling of cause-and-effect relationships between external and internal performance measures

Facilitated by data mining – the process of of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neural networks, and fuzzy logic

THE MANAGEMENT & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 15

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 & CONTROL OF QUALITY, 7e, © 2008 Thomson Higher Education Publishing 16

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

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Key Idea

Data used for planning and decision making need to be reliable, accurate, secure, and accessible to those who need them.

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Managing Data and Information

Data Reliability – How well does an indicator consistently measure the “true value” of the characteristic?

Data Accessibility – Do the right people have access to the data?

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Key Idea

In many companies, business information is only accessible to top managers and others on a need-to-know basis. In high-performing companies, business information is accessible to everyone.

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Knowledge Management

The process of identifying, capturing, organizing, and using knowledge assets to create and sustain competitive advantage Explicit knowledge includes information stored in

documents or other forms of media. Tacit knowledge is information that is formed

around intangible factors resulting from an individual’s experience, and is personal and content-specific.

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Key Idea

Knowledge assets refer to the accumulated intellectual resources that an organization possesses, including information, ideas, learning, understanding, memory, insights, cognitive and technical skills, and capabilities.

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Internal Benchmarking The ability to identify and transfer best

practices within the organization Process:

Identify and collect internal knowledge and best practices

Share and understand those practices Adapt and apply them to new situations and

bringing them up to best-practice performance levels.