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Performance Measures Reflecting Competitiveness and Productivity Improvement In The NPI Workplace Challenge Programme A Dissertation by Conrad Sebego Post Graduate Diploma-Project & Programme Management ID Number: 720914 5792 081 Submitted in partial fulfilment of the requirements for the degree of MASTER OF COMMERCE in PROJECT MANAGEMENT at CRANEFIELD COLLEGE OF PROJECT AND PROGRAMME MANAGEMENT Supervisor: Dr L.J. Botha Date: March 2006

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Page 1: Cranefield Mcom_Dissertation'final_rev'3

Performance Measures Reflecting Competitiveness and Productivity Improvement In

The NPI Workplace Challenge Programme

A Dissertation by

Conrad Sebego

Post Graduate Diploma-Project & Programme Management

ID Number: 720914 5792 081

Submitted in partial fulfilment of the requirements for the degree of

MASTER OF COMMERCE

in

PROJECT MANAGEMENT

at

CRANEFIELD COLLEGE OF PROJECT AND PROGRAMME

MANAGEMENT

Supervisor: Dr L.J. Botha

Date: March 2006

Page 2: Cranefield Mcom_Dissertation'final_rev'3

Abstract

i

ABSTRACT

Author: Conrad, Sebego; Post Graduate Diploma Project &

Programmme Management

Degree: Master of Commerce

Title: Performance Measures Reflecting Competitiveness

and Productivity Improvement in the NPI Workplace

Challenge Programme

Institution: Cranefield Graduate School of Management

Supervisor: Dr L.J. Botha

Date: March 2006

Key Words: National Productivity Institute, Workplace Challenge,

world-class organisations, best operating practice, quality,

speed, cost effectiveness, productivity improvement,

customer focus, teamwork, continuous learning, waste

elimination, value addition.

The National Productivity Institute (NPI) is a tripartite organisation dedicated to

the development and enhancement of South Africa’s productive capacity. The

Workplace Challenge (WPC) Programme within the NPI is a supply-side

initiative of the Department of Trade & Industry (DTI) established to meet the

competitive challenges presented by South Africa’s re-entry into the global

market. It aims to encourage government, business and labour to participate in a

consultative process, to improve the performance of local industry.

The programme seeks to enhance productivity and competitiveness through:

Collaboration between employers and workers;

Improving workplace practices (best operating practices and world-class

competitiveness);

Sharing and disseminating processes and lessons.

A number of companies from contrasting sectors are grouped together based on

locality to form a cluster.

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Abstract

i

i

According to Womack, Jones and Roos (1991: pre-frontis page), the companies

apply the principles of lean production that include:

Teamwork

Communication

Efficient use of resources and elimination of waste

Continuous improvement

The research focused within the WPC programme to further identify what factors

need to be considered in order to develop uniform measurements for quality,

speed, cost and morale. The factors were analysed individually and an

understanding of how they relate to each other was drawn. This led to a minimum

acceptable standard of what variables to measure under the different dimensions

of quality, cost, speed and morale. If the measurements are similar, they can be

aggregated per each dimension of QSCM across the company, cluster, regional

and national levels to provide a valid and reliable indication of what improvement

is taking place due to the implementation of the WPC programme.

The research was initiated so as to find ways of making the quality, speed, cost

and morale measurements the same across the different companies, clusters,

regions and nationally. Once that was achieved, the reporting to the Department of

Trade and Industry would give a common indication in terms of overall

improvement due to the implementation of the Workplace Challenge Programme.

Numerous performance frameworks were evaluated for suitability after

determining “why” and “what” to measure. The frameworks assisted with the

“how”. This approach takes full cognisance of the fact that defining what a

performance measurement system constitutes is not as straightforward, as the role

of the measurement system should be considered from the outset.

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Declaration

ii

i

DECLARATION

I, the undersigned, hereby declare that this dissertation is my own unaided work.

It is being submitted in partial fulfilment of the requirements for the degree of

Master of Commerce in Project Management at Cranefield Graduate School of

Management

It has not been previously submitted for any degree or any examination at any

other university or institute.

Signed:………………………………

Date: 17th

March 2006

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Acknowledgements

iv

ACKNOWLEDGEMENTS

I would like to acknowledge the leadership of the National Productivity Institute

for allowing me to identify a significant job related topic to base the dissertation

upon.

Further to this, I would like to thank Mr David Scorey (National Programme

Manager: Workplace Challenge) for allowing me the substantial time required to

fully understand the real issues about the research topic and lead to practical

implementation. The support and readiness to engage in fruitful discussions from

all the Workplace Challenge Programme employees, has been phenomenal and it

is a privilege to work with such incredible individuals with vast amount of

experience.

My best regards to the representatives and leadership of the ten WPC-Phase III

companies that agreed to engage in discussions and contributed to the topic as part

of the survey in order to gather qualitative data about the topic.

Many thanks to Dr Dudley Jackson (Programme Head: Supporting National

Strategic Initiatives) for being available to act as a sounding board in order to

guide the study in the right direction and helped to inject the motivation to

complete the dissertation.

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Table of Contents

v

TABLE OF CONTENTS

PAGE

ABSTRACT i

DECLARATION iii

ACKNOWLEDGEMENTS iv

TABLE OF CONTENTS v

CHAPTER 1

SCOPE OF THE RESEARCH

1.1 Introduction and background 1

1.2 The research process 5

1.2.1 The research problem 6

1.2.2 The research question 7

1.2.3 Investigative questions 7

1.3 Research design and methodology 8

1.4 Research constraints 12

1.5 Chapter and content analysis 13

1.6 Key research objectives 13

1.7 Conclusion on the scope of the research 14

CHAPTER 2

LITERATURE RESEARCH

2.1 Definition of terms and concepts 15

2.1.1 Productivity 15

2.1.2 Competitiveness 19

2.1.3 Performance measurement 28

2.2 Conclusion on literature research 62

CHAPTER 3

RESEARCH DESIGN

3.1 Introduction of issues and relevance 64

3.2 Research theory 64

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Table of Contents

vi

3.3 Theoretical framework and validation techniques 65

3.4 Conclusion on research issues 67

CHAPTER 4

DATA COLLECTION METHODOLOGY

4.1 Introduction on methodology 68

4.2 Justification for the concepts 71

4.3 Research procedures 72

4.4 Ethical considerations 73

4.5 Conclusion on methodology 73

CHAPTER 5

ANALYSIS AND INTERPRETATION OF DATA

5.1 Introduction to analysis 74

5.2 Subjects and issues 74

5.3 Categorisation of data 76

5.4 Patterns of data for each research issue 77

5.5 Synthesis and generalisation 77

5.6 Conclusion on analysis 80

CHAPTER 6

OVERALL CONCLUSIONS AND RECOMMENDATIONS

6.1 Introduction to conclusions 81

6.2 Conclusions about the research problem 83

6.3 Conclusions about the research question 83

6.4 Implications for theory 85

6.5 Limitations of research 85

6.6 Further research 85

CHAPTER 7

IMPLEMENTATION GUIDELINES

7.1 Introduction 87

7.2 Applicability within the Workplace Challenge programme 94

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Table of Contents

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i

BIBLIOGRAPHY 97

ACRONYMS 100

LIST OF TABLES

Table 1 Guideline for measurement reference and method 30

Table 2 Performance measure record sheet 33

Table 3 Framework for operations strategy 44

Table 4 Competitive attributes 60

Table 5 List of interviewed companies 69

Table 6 Intended impact of the WPC intervention 76

Table 7 Utilisation of measurements in WPC companies 77

Table 8 Implementation schedule 94

Table 9 Calculation of performance indicators 96

LIST OF FIGURES

Figure 1 Workplace Challenge Programme Organisation Structure 3

Figure 2 The question hierarchy 5

Figure 3 World-class manufacturing structure 21

Figure 4 The basic model of competitive strategy 25

Figure 5 The basic model of the dynamic approach 26

Figure 6 Importance of performance measures in Japan 35

Figure 7 The performance chain of the firm 52

Figure 8 How activities drive customer revenues 54

Figure 9 Estimating activity revenues 54

Figure 10 Ease of implementation versus quality of measurement 57

Figure 11 Mid-1980’s model of manufacturing firm 59

Figure 12 General customer requirements 61

Figure 13 Descriptors of research 65

Figure 14 WPC impact framework 67

Figure 15 WPC broad based outcomes 72

Figure 16 Project portfolios and process portfolios in the value chain 88

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Table of Contents

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ii

Figure 17 Organisational improvement model 91

Figure 18 The changing significance of the balanced scorecard 92

APPENDIX 1:

Source of evidence-Interviews with the ten WPC companies 101

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Chapter 1 Scope of the Research

1

CHAPTER 1

SCOPE OF THE RESEARCH

“Count what is countable, measure what is measurable, and what is not measurable, make

measurable.” by: Galileo Galilei (1564-1642) as quoted by Kaydos (1999:20)

1.1 INTRODUCTION AND BACKGROUND

The National Productivity Institute is tasked by the Department of Trade and

Industry with managing the Workplace Challenge Programme which aims to

improve productivity and competitiveness through:

Collaboration between employers and workers;

Improving workplace practices (best operating practices and world-class

competitiveness);

Sharing and disseminating processes and lessons.

The Workplace Challenge programme was initiated by a Theory of Constraints

workshop, to identify core problems affecting productivity and wealth creation in

South Africa, during January 1995. The importance of constructive labour

relations at the workplace to improve productivity and competitiveness was

initiated as one of the core issues.

The Workplace Challenge began as a joint initiative between Nedlac and the NPI,

managed by a sub-committee of Nedlac’s Trade and Industry Chamber

comprising business, labour and the dti, Department of Labour, NPI and the

Nedlac secretariat.

The first phase of the Workplace Challenge, between October 1995 and June

1997, was a series of workshops funded by the NPI. This consisted of 9 two-day

provincial workshops, chaired by Nedlac, comprising presentations from

stakeholders and workplace change consultants, followed by discussions on

constraints preventing productivity and growth in sectors and workplaces. The

discussions and findings were published during 1997.

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Chapter 1 Scope of the Research

2

During November 1997 to July 1999, the Workplace Challenge sub-committee of

Nedlac’s Trade and Industry Chamber (business, labour, the dti, Department of

Labour, NPI and the Nedlac secretariat) appointed Labour Market Alternatives

(LMA) and the IDC to jointly manage the Workplace Challenge programme.

From August 1999 to December 2002, additional expenditure of R1.3 million

allowed the Plastics sector and Capital Equipment sector to complete

implementation. Expenditure of R18.8 million allowed a further nine sectors

(Clothing, Footwear KwaZulu Natal, Footwear Cape, Automotive, Furniture,

Stainless Steel, Fruit Packing, Textiles and Fish Processing) comprising 53

companies employing 21 690 people to complete implementation by December

2002. In summary, a total of eleven sectors comprising 62 companies employing

25 110 people completed implementation.

Following a revised 3-year work-plan submitted to the dti during June 2002

(drafted jointly by the dti and the NPI), the dti agreed to fund the Workplace

Challenge for a further three years. Implementation started during August 2002.

The Workplace Challenge Programme establishes clusters which are made up of a

number of companies from contrasting sectors and grouped according to locality.

This is where the research will be focused.

The Workplace Challenge Joint Committee has 3 members from the DTI and 3

members of NPI including the National Programme Manager.

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Chapter 1 Scope of the Research

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Figure 1 Workplace Challenge Programme Organisation Structure

Source: Workplace Challenge Programme Annual Report 2003-2004:6

The specific outcomes associated with the different components of the Workplace

Challenge are, capacity building, change management process, project

management, facilitation and evaluation.

The best operating practices are implemented at the different companies in the

clusters to be world class and increase the competitiveness of South African

companies. There are currently about 108 companies taking part in the

programme, grouped into 14 manufacturing clusters. The clusters make up 3

regions spread up in KwaZulu Natal, Gauteng & North West Province, Eastern

Cape & Western Cape. The profile of the companies is as follows:

SMME = 29%

Small = 21%

Medium = 37%

Large = 11%

Corporate = 3%

The companies apply the key strategies of best practice organisations by:

Focussing on simultaneous improvement of quality, speed and cost

effectiveness;

Establishing close links with customers and suppliers;

Deputy-Director

General, the DTI

Three DTI

Representative

s

†Three NPI

Representative

s

Chief Executive

Officer, NPI

Workplace Challenge

Joint Committee

†Programme Head: Supporting

National Strategic Initiatives

†Programme Manager:

Workplace Challenge

Panel of Experts +- 108 companies divided into

14 clusters

†Programme Head:

Finance and IT

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Chapter 1 Scope of the Research

4

Driving both linear and non-linear improvement initiatives;

Eliminating all forms of waste and ensuring value flow; and

Implementing leadership practices that promote teamwork, participation,

continuous learning and flexibility.

The research will be focused within the WPC programme to further identify what

factors need to be considered in order to develop uniform measurements for

quality, speed, cost and morale. The factors will be analysed individually and an

understanding of how they relate to each other will also be drawn. This will lead

to a minimum acceptable standard of what variables to measure under the

different dimensions of quality, cost, speed and morale. If the measurements are

the same, they can be aggregated per each dimension of QSCM across the

company, cluster, regional and national levels to provide a valid and reliable

indication of what improvement is taking place due to the implementation of the

WPC programme.

Research limitations and scope:

The mandate and objectives of the Workplace Challenge programme will

not be assessed, it will be taken as is

The key strategies for best operating practice will be used as the reference

for determining world-class performance

It is assumed that all companies are using the dimensions of quality, speed,

cost and morale to measure performance of the mini-business teams,

irrespective of what best operating practice methods they use

It is further assumed that all companies will have substantial measures in

place

The overall company strategies are not linked and integrated with the

objectives of WPC programme

The research will not assess the role of the organisational leadership and

the company strategies

The research will not take the duration of companies on the WPC

programme into account as it is considered immaterial

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Chapter 1 Scope of the Research

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The size of the companies, product variety and industrial sector will be

assessed individually and collectively to understand how they influence

the determination of appropriate measures

An understanding of the relationship between types of measurements and

organisational level will be drawn to determine where the greatest impact

due to WPC implementation is exerted and therefore what kind of

measurements will provide a correct reflection

It will be assumed that all the companies exist for the reason of

maximising wealth from invested resources and as such the goal of the

research will be to understand how WPC programme is assisting them to

become productive and competitive

1.2 THE RESEARCH PROCESS

The problem statement and associated research questions can be approached using

the question hierarchy of Emory and Cooper, (1995) as indicated by the following

figure.

Figure 2 The question hierarchy

Source: The Question hierarchy: Adapted from Emory and Cooper, 1995: 56-59

This approach depicted in Figure 2, assumes the problem statement to be

composed of a hierarchy of questions with a descending level of specificity. The

aim of the adapted question hierarchy is to achieve a focus on the research

problem as a result of increasingly descriptive questions.

Identification of appropriate valid and reliable performance measurements of

companies will be vital for them to correctly quantify the benefits associated with

PROBLEM

STATEMENT

RESEARCH

QUESTION

INVESTIGATIVE

QUESTIONS

The problem, which

has prompted the

research

The single objective

or hypothesis that

best states the

objective of the

research study

Those questions, which

must be answered

satisfactorily to support

the research question

or hypothesis

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Chapter 1 Scope of the Research

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implementation of the WPC. Therefore, companies will know at any time whether

the programme is adding value or not. Appropriate actions can be developed

according to the situation.

The measurements at the company level can be aggregated at the subsequent

levels to obtain a true reflection of the improvements. Appropriate decisions that

inform policy and legislation can be made based on the feedback.

As such, the output of the research will be used to the advantage of both the

stakeholders and the beneficiaries.

The exploratory case study approach will be followed to gain insight and analyse

the situation. Both a qualitative and quantitative methods will be used to collect

research data. Ten companies in the 14 clusters countrywide will be selected to

discuss the topic with them. Further to this, overarching issues will be identified

and a questionnaire will be developed. The questionnaire will be used to collect

both internal and external perspectives. The approach will provide ample

explanation and understanding of the issues.

1.2.1 THE RESEARCH PROBLEM

Researchers get off to a strong start when they begin with an unmistakably clear

statement of the problem. After identifying a research problem, therefore you

must articulate it in such a way that it is carefully phrased and represents the

single goal of the total research effort. (Leedy & Ormrod, 2001:52).

Quality, speed, cost and morale are the dimensions used to measure the efficiency

and effectiveness of the Workplace Challenge Programme intervention at different

levels of the participating manufacturing companies.

There exist disparities between the variables that are being measured under each

dimension at all levels, and as such, the results cannot be aggregated together to

determine an overall score since the variables being measured are not the same.

As such, a clear gap has been created and led to the following problem statement:

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Chapter 1 Scope of the Research

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“Lack of uniform performance measures by companies participating in

Workplace Challenge Programme makes it difficult to determine overall

improvement in competitiveness and productivity resulting from implementation

of the WPC programme.”

The indication for competitiveness and productivity improvement must be based

on uniform substantial measures in order to assist with providing valid and

reliable reporting to the Department of Trade & Industry and hence the

importance of the research.

1.2.2 THE RESEARCH QUESTION

Currently, the situation is such that a majority of the mini-business teams in WPC

participating companies, measure different variables within the dimensions of

QSCM. Therefore, the lack of similar measurements at the company levels would

impede correct reflection of WPC intervention at cluster, region, and national

levels. As a result, this has led to the following question:

“What are the uniform measurement variables within the dimensions of Quality,

Speed, Cost and Morale that would be sufficient to reliably and validly indicate

performance (competitiveness and productivity) of the companies participating in

the WPC Programme?

1.2.3 INVESTIGATIVE QUESTIONS

The aim of this chapter is to identify factors (within the dimensions of QSCM)

that impact directly on WPC, and other aspects that impact on WPC.

The following investigative questions will assist to further understand the problem

as they support the research question:

Are the dimensions of QSCM adequate to measure productivity

improvement in the companies participating in the WPC programme?

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Chapter 1 Scope of the Research

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Is it important that the QSCM measures must be kept uniform across all

levels of implementation?

Is it possible that the QSCM measures can be kept uniform across all

levels of WPC implementation?

Is the quality of QSCM measures more important than the quantity of the

measures?

Is the WPC programme making a bigger impact at the factory floor levels

of the participating companies?

Will the small size of the company increase the impact of WPC

implementation?

Will the product variety affect the quantity of variables to measure under

the dimensions of QSCM?

Will the industrial sector of the company influence determination of the

variables for the dimensions of QSCM?

As such, the investigative questions and the research question will help to

understand “why” to measure and the interpretation of the questionnaire results

will assist to establish as to “what” to measure.

1.3 RESEARCH DESIGN AND METHODOLOGY

Performance measurement is a topic which is often discussed but rarely defined.

Literally, it is the process of quantifying past action, where measurement is the

process of quantification and past action determines current performance.

Organisations achieve their goals, that is, they perform, by satisfying their

customers with greater efficiency and effectiveness than their competitors. The

terms efficiency and effectiveness are used precisely in this context. Effectiveness

refers to the extent to which customer requirements are met, and efficiency is a

measure of how economically the organisation’s resources are utilised when

providing a given level of customer satisfaction. Neely (1998:5).

This is an important distinction because it not only identifies the two fundamental

dimensions of performance, but also highlights the fact that there can be internal

as well as external reasons for pursuing specific courses of action. Take for

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Chapter 1 Scope of the Research

9

example one of the quality-related dimension of performance: product reliability.

In terms of effectiveness, achieving a higher level of product reliability might lead

to greater customer satisfaction. In terms of efficiency, it might reduce the costs

incurred by the business through decreased field failure and warranty claims.

Hence the level of performance a business attains is a function of the efficiency

and effectiveness of the actions it has undertaken, and thus performance

measurements can be defined as the process of quantifying the efficiency and

effectiveness of past action. Once this definition has been established a second

immediately follows, for a performance measure can now be defined as a metric

used to quantify the efficiency and/or effectiveness of a past action.

These three roles of measurement – comply, check and challenge – are

significantly different from and much richer than the traditional view of

measurement as a means of control. They are not based on the assumption that the

behaviour of people can be controlled through measurement. They are founded on

the assumptions that measurement is a tool to be used by people to enhance

business performance and that there are distinct dimensions of business

performance, which need to be measured and managed in different ways.

With regard to the performance measurements that would correctly indicate

impact due to implementation of the WPC programme, the measures would be

attempting to reflect productivity improvement and competitiveness of the

companies. This is in line with the objectives of the programme.

The companies participating in the WPC are not linking or integrating the

objectives of the WPC programme with their overall business strategies. As such,

implementation of WPC is not correctly appraised; this is with exception of only a

few companies. So, the often cited homily: “You can’t manage what you can’t

measure” is applicable to a larger percentage of the companies. The research will

assist with making sure that companies do not measure the wrong things, as things

would go wrong.

According to Yin (2003:20), research design and methodology can be defined as:

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Chapter 1 Scope of the Research

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“The logical sequence that connects the empirical data to a study’s initial

research questions or hypothesis, and ultimately to its conclusion”

An illustrative case study approach will be suitable, as it will assist with

highlighting the best practices adopted by world-class companies. Some of the

more salient aspects of case study research described by Yin (2003:48) as follows:

A case study is an empirical enquiry that investigates a contemporary

phenomenon within its real-life context, especially when the boundaries

between phenomenon and context are not clearly evident.

Case study research aims not only to explore certain phenomena, but also to

understand them in a particular context.

‘How’ and ‘why’ questions are exploratory, and likely to be used in case study

research.

A case study illuminates a decision or set of decisions – why they were taken,

how they were implemented, and with what result.

The case study as a research strategy comprises an all-encompassing method -

with the logic of design incorporating specific approaches to data collection

and data analysis. In this sense, the case study is not either a data collection

tactic or merely a design feature alone, but ‘a comprehensive research

strategy’.

Case study research uses multiple methods for collecting data, which may be

both qualitative and quantitative.

A case study is typically used when contextual conditions are the subject of

research.

According to Hussey & Hussey (1997:66), case studies are often described as

exploratory research used in areas where there are few theories or a deficient body

of knowledge. In addition, the following types of case studies can be identified:

Descriptive case studies: Where the objective is restricted to describing

current practice.

Illustrative case studies: Where the research attempts to illustrate new and

possibly innovative practices adopted by particular companies.

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Chapter 1 Scope of the Research

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Experimental case studies: Where the research examines the difficulties in

implementing new procedures and techniques in an organisation and

evaluating the benefits.

Exploratory case studies: Where the existing theory is used to understand

and explain what is happening.

Ten companies around the country, participating in Workplace Challenge

Programme will be selected randomly to discuss the topic with them and identify

valid overarching themes (using a qualitative method).

The combination of both a qualitative and quantitative results would assist to

determine reliable and valid performance indicators, which would be independent

of industrial sector, company size, and product types. The measurement approach

has to take into consideration the different and NPI approved best operating

practice methods such as: MDWT, 20 Keys, TRACC and BICIT.

According to Leedy et al (2001:108), one common practice is to present an

informed consent form that describes the nature of the research project, as well as

the nature of one’s participation in it. Such a form should contain the following

information:

A brief description of the nature of the study

A description of what participation will involve, in terms of activities and

duration

A statement indicating that participation is voluntary and can be

terminated at any time without penalty

A list of any potential risk and/or discomfort that participants may

encounter

The guarantee that all responses will remain confidential and anonymous

The researcher’s name, plus information about how the researcher can be

contacted

An individual or office that participants can contact, should they have

questions or concerns about the study

An offer to provide detailed information about the study (e.g. summary of

findings) upon its completion

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Chapter 1 Scope of the Research

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A place for the participant to sign and date the letter, indicating agreement

to participate

The balanced scorecard (BSC) will be used to categorise especially quantitative

data (which will be collected via open ended interviews) into meaningful groups

based on the 4 perspectives, i.e. financial, customer, business processes, learning

and growth. The output will give a clear idea about where respondents suggest

that more emphasis in terms of the company performance indicators need to be

exerted.

The quantitative data collected via questionnaires together with other supportive

data will give a direction about what variables to measure under the dimensions of

quality, speed, cost and morale. Once the variables are established, a weighted

scale with criteria will be developed. This will be guided at a higher level by the

data categorisation from the preceding paragraph.

1.4 RESEARCH CONSTRAINTS

Limitations:

Sensitive quantitative data that will be collected, as part of the research, will

unfortunately not be published as it might compromise the organisation’s

competitive status.

Delimitations:

The research will only focus on the NPI’s Workplace Challenge

Programme.

The research will not assess the current organisational strategy

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Chapter 1 Scope of the Research

13

1.5 CHAPTER AND CONTENT ANALYSIS

1.6 KEY RESEARCH OBJECTIVES

To contribute towards alleviating some of the challenges through the research,

gain relevant and up to date information about the current situation and

develop possible solutions, thereby adding value to the organisation

o To determine robust performance measures that would provide a true

reflection of WPC impact and help with reporting correctly to the DTI

o The set of performance measures will provide critical feedback that the

NPI can act upon and diagnose to increase the success of the WPC

programme

o The intention to define uniform measurements will influence

companies to make sure that they deliver with regard to making sure

that WPC is appropriately implemented and be allocated the correct

priority

The research is such that, it is practical and if facilitated through this

dissertation, it will be beneficial

To demonstrate that the research builds on ideas developed by others

Chapter 1: Scope of Research

Chapter 2: Literature Research

Chapter 4: Data Collection

Methodology

Chapter 5: Analysis and

Interpretation of Data

Chapter 6: Overall

Conclusions and Implications

Chapter 7: Implementation

Guidelines

Bibliography

Acronyms

Appendix 1

Chapter 3: Research Design

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Chapter 1 Scope of the Research

14

1.7 CONCLUSION ON THE SCOPE OF THE RESEARCH

“Measurement is the first step that leads to control and eventually to improvement. If you can’t

measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you

can’t control it, you can’t improve it.” By H. James Harrington as quoted by Kaydos (1999:3)

The need to have uniform performance measures due to the implementation of

the Workplace Challenge Programme is critical to the project managers, the

beneficiaries and the funder. In the attempt to determine what those measures

should be, many factors have to be considered, i.e. those that are relating to the

dimensions of productivity improvement and those that are impacting

universally on the problem. All these factors have been identified via the well

defined research process, the questionnaires will be based upon them, the

collected data will be interpreted and inferences will be made from the surveyed

population. The research constraints are outlined, a brief report content analysis

is provided and the research objectives are discussed. The next chapter will

provide supportive and relevant literature research regarding the topic.

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Chapter 2 Literature Research

15

CHAPTER 2

LITERATURE RESEARCH

2.1 DEFINITION OF TERMS AND CONCEPTS

2.1.1 PRODUCTIVITY

There are some common misunderstandings about productivity. It is not a

measure of production although many students of economics and many

businessmen have failed to comprehend the difference between productivity and

production. It is not a measure of costs, although it is one component of cost. It

does not measure the cost of a resource, but it is a measure of the relationship

between quantity of resources used and quantity (or value in constant terms) of

output.

It is not precisely a measure of efficiency, although it is often a good indicator of

the efficiency with which some resource is being used. The basic arithmetic of

productivity is very simple—it is a ratio of some measure of output to some

measure of input. One output measure, for example, with which every car owner

is familiar, is miles per gallon of gasoline. This measure is used not as a gauge of

the efficiency of the gasoline but as an indicator of the efficiency of the car’s

performance.

Illustrated here is one of the first principles of a productivity ratio. It does not

necessarily represent the efficiency of the specific resource used in the input

measure but rather the combined effect of a number of factors. Thus, miles per

gallon of gasoline is a ratio which reflects the size and efficiency of the engine,

speed, road conditions, traffic and traffic lights and other factors as well as the

efficiency of the gasoline itself.

These observations are also true, in varying degree, of company productivity

ratios which relate output to any one of the inputs such as labour, capital or

material. Each ratio is influenced by the volume and quality of the other inputs

employed and how effectively they are used. Output per man-hour, output per unit

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of capital, and output per unit of labour plus capital are all influenced by the

volume of capital equipment, its stage of technological development, the quality

and availability of materials, the scale of operations and rate of capacity

utilisation, organisation and workflow, and other factors—as well as the very

important contribution of the skill and attitude of the workforce, including

management.

It is very important to recognise this interplay of factors which may affect the rate

of productivity. If the rate of increase in output per unit of some resource, any

resource, appears to be lagging behind the industry’s performance or behind some

expected standard, the causes of that lag are usually not found in the ratio.

Confusion about the meaning of productivity often arises because different

measures are possible and because different compilers or users often claim that

there is only one “true” measure (their own, naturally) and the others are

somehow inferior or of secondary importance.

Various types of ratios in use at the plant level are often called productivity ratios.

These include operating ratios, performance ratios, labour ratios, and so on. They

often fail to meet one important criterion of a productivity ratio, namely, that the

output and the input be expressed in constant terms over the selected time period.

It is not likely that any firm will have in its accounting records the kind of detail

needed for absolutely precise measurements of productivity, nor is a firm likely to

engage in the expense of setting up and maintaining such records. But that is not

necessary. The measurements obtained, for the establishment or for entire

industries, need not have the penny precision of a balance sheet. What is

important is that the measures yield a reasonably accurate picture of what is

taking place and that the user not to be misled by small, fractional and

insignificant differences in performance.

We define productivity as the ratio of output to inputs of labour and other

resources, in real terms. Productivity increases as output grows faster than the

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inputs use in the production process. Changes in productivity are of great

importance at all levels – national, industrial, company, and personal.

At national level, productivity is a major element of economic growth and

progress. At the national level, productivity growth also provides a proportionate

offset to increases in wage rates and other input prices, thereby reducing the rate

of inflation of output prices.

At the industry level, above-average productivity growth leads to relative declines

in costs and prices. In both domestic and international markets, this increases the

competitiveness of the firms of the progressive industries, which consequently

tend to grow faster than average.

At the level of the company, productivity is fundamental to profitability and

survival. Companies with higher productivity than the industry average, tend to

have higher profit margins. Moreover, if productivity is growing faster than that

of competitors, the margins will rise.

At the personal level, increasing productivity in all of one’s activities is an

important aspect of self-fulfilment. To the individual, as a member of a firm or

other organisation, it serves as a key to advancement since it helps increase the

productivity of the organisation. In the last analysis, the productivity advance of

the nation, with all its attendant benefits, depends on the increasing productivity

of all of us as individuals and of the organisations in which we work. Christopher

& Thor (1993: 1-1.3).

Greenberg (1973:1) is of the opinion that there are some common

misunderstandings about productivity. It is not a measure of production although

many students of economics and many businessmen have failed to comprehend

the difference between productivity and production. It is not a measure of costs,

although it is one component of cost. It does not measure the cost of a resource,

but it is a measure of the relationship between quantity of resources used and

quantity (or value in constant terms) of output. It is not precisely a measure of

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efficiency, although it is often a good indicator of the efficiency with which some

resource is being used.

Christopher et al (1993:1-1.5) indicates the following, for an organisation unit or

firm, the quantity of goods and services produced depends on (and is function of)

the quantity of labour and other resource inputs used in production and on the

efficiency with which they are used, i.e., their productivity. This is also true of

aggregations of firms up to the levels of the industry and the national economy.

This theory implies, of course, that the production of individual firms can be

increased and the whole economy can grow by increasing the quantity of labour

and other inputs used, and/or by increasing productivity. For the firm that

increases productivity relative to competitors, less input and less cost will be

required per unit of output.

The ratio of output to input at a point in time has no meaning. Rather, productivity

ratios are meaningful only in measuring changes over time, or differences among

plants or firms producing the same range of goods and services or among the

same industries in different countries.

The ratio of output to all associated inputs has been called “total productivity”; in

contrast to the “partial productivity” measures, it reveals advances in overall

productive efficiency – the same output with lowered total input.

It is true that labour cost is the major factor cost of the national product and of

“value added” in most industries. Partly for this reason, “output per labour-hour”

measures have been widely used as indicators of changes in productive efficiency.

But these measures are biased to the extent that capital per labour-hour has not

remained constant. As a matter of fact, real capital stocks and inputs – in the

economy and in most industries – have increased faster than labour input. Thus,

some part of the increase in output per labour-hour has reflected the substitution

of capital for labour. In many cases, measures of output per labour-hour may not

be seriously misleading, but when the goal is to measure changes in productive

efficiency, it is better to attempt to deal with all inputs. The total productivity

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index, as a measure of the efficiency of the business as a whole, is the key

measure.

Productivity is obviously very important to any business. However, low

productivity is only a symptom of process quality. Consequently, quality is what

should be emphasised when trying to improve performance, not productivity.

Productivity is used as a cross-check on total process performance.

Measuring productivity is a complex subject by itself, especially when trying to

develop measures which combine labour and capital components. However,

because productivity is the result of high process quality, all that is needed for

improving performance is an index that will reliably indicate which direction

productivity is moving.

2.1.2 COMPETITIVENESS

The manufacturing game today has changed from one in which the field is defined

by national boundaries to one in which there are no boundaries. The market today

is the world. Companies who want to compete successfully are striving to become

world class manufacturers. Giffi, Roth & Seal (1990:6).

Few references to or uses of the term world class in the context of manufacturing

can be found prior to 1986. Until then, manufacturing excellence was the most

common way to refer to the goal of achieving superior manufacturing capabilities.

Each of the more recent books on manufacturing has its own definition of world

class manufacturing. Hayes et al (1988: 24-25), identify these attributes of world

class manufacturers:

Becoming the best competitor. “Being better than almost every other

company in your industry in at least one aspect of manufacturing.”

Growing more rapidly and being more profitable than competitors.

“World class companies can measure their superior performance by

observing how their products do in the marketplace and by observing their

cashbox.”

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Hiring and retaining the best people. “Having workers and managers

who are so skilled and effective that other companies are continually

seeking to attract them away from your organisation.”

Developing a top-notch engineering staff. “Being so expert in the design

and manufacture of production equipment that equipment suppliers are

continually seeking one’s advice about possible modifications to their

equipment, one’s suggestions for new equipment, and one’s agreement to

be a test site for one of their pilot models.”

Being able to respond quickly and decisively to changing market

conditions. “Being more nimble than one’s competitors in responding to

market shifts or pricing changes, and in getting new products out into the

market faster than they can.

Adopting a product and process engineering approach which

maximises the performance of both. “Intertwining the design of a new

product so closely with the design of its manufacturing process that when

competitors ‘reverse engineer’ the product they find that they cannot

produce a comparable one in their own factories without major retooling

and redesign expenses.”

Continually improving facilities, support systems, and skills that were

considered to be “optimal” or “state-of-the-art” when first

introduced, so that “they increasingly surpass their initial capabilities.

This emphasis on continual improvement is the ultimate test of a world

class organisation.”

Huge & Anderson (1988:24-25) also identify “lower cost, higher quality, better

service and more flexibility than competitors” as the factors behind the success of

leading Japanese companies both in Japan and in the U.S.

“Today there is wide agreement…that continual improvement in quality, cost lead

time, and customer service is possible, realistic and necessary,” and that “one

more primary goal, improved flexibility, is also part of the package.” With

agreement on the goals, the management challenge is reduced to speeding up the

pace of improvement, as indicated by Schonberger (1986:2).

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Giffi et al (1990:8) is of the idea that world class manufacturers, then are those

that are able to create high-valued products and earn a superior return over the

long run through the application of competitive strategies. World class

manufacturers today are applying concepts designed to demolish the obsolete

methods, systems, and cultures of the past that have impeded their competitive

progress. In their place, these manufacturers are building a more effective

competitive structure, using improved tools, materials and techniques, on a solid

foundation of human resources, organisational development and cultural

understanding. The result in each case is an organisation capable of competing on

a global basis.

Figure 3 World-class manufacturing structure

Source: Giffi et al (1990:9)

World class manufacturers, regardless of industry or size, operate within a

framework as seen in Figure 3. At its centre, the framework highlights quality and

the customer. A commitment to quality and the customer affects every aspect of

the organisation:

Management Approach

Management

Approach

Manufacturing

Strategy

Manufacturing

Capabilities

Performance

Measurement Human

Assets

Organisation Technology

QUALITY &

CUSTOMER

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Manufacturing Strategy

Manufacturing Capabilities

Performance Measurement

Organisation

Human Resources

Technology

According to Giffi et al (1990:12), world class manufacturers are changing their

performance measurement system to encourage manufacturing excellence.

Performance measurement systems in the future will be tailored to a company’s

strategic action programs. Traditional cost accounting systems at leading

manufacturers will be dismantled and replaced with performance management

systems.

Accounting systems in the future will be reshaped to enable manufacturers to

examine the activities that drive costs rather than the departments that collect

costs. Cost drivers that have a direct influence on operational performance will be

identified and managed. Overhead will not be equally spread over all

manufacturing work centres, based upon changes in direct labour input, but will

be directly traceable and accountable to individual cost drivers. Costs will be

segregated into value-added and non value-added categories. Non value-added

costs are those that can be eliminated without detriment to the product or service.

Target costs that are not based upon internally generated cost standards, but rather

upon externally defined competitive costs, will be developed. Performance

systems will be expanded to include the critical non-financial or operational

measures of performance. Time-based measures of performance such as

manufacturing cycle time, setup time, on time delivery, engineering cycle time,

and order processing cycle time are important barometers and regular measures of

performance. Quality measures will be expanded to include not only

manufacturing quality but quality in all functional areas of the enterprise.

Customer feedback and performance ratings are an integral part of the enterprise

wide system of world class competitors. This quality integration will have to be a

common part of the performance measurement systems of all contenders.

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Giffi et al (1990:62) indicates that being a world class manufacturer demands

significant cultural and behavioural changes at all levels of the company.

Management must be able to manage by fact and have the information that taps

into customer satisfaction. Companies must use measurement systems to identify

customer needs, expectations and satisfaction and to measure internal and external

customers’ attitudes. Methods such as QFD and Taguchi are powerful in

determining measurable requirements. Other important measures are the level of

service quality delivered and gaps between customer expectations and the service

delivered.

As noted by Giffi et al (1990:102), American manufacturers are beginning to

understand the strategic advantage created by time-based capabilities. Time-based

competitive capabilities have been increasing in importance. This theme has been

echoed by numerous researchers over the last several years. While conformance

and performance quality remain the primary focus of U.S. manufacturers, time

and service continue to increase in importance.

Competitive advantage grows fundamentally out of the value a firm is able to

create for its buyers. It may take the form of prices lower than competitors’ for

equivalent benefits or the provision of unique benefits that more than offset a

premium price. Competitive advantage is hardly a new subject. In one way of

another, many books about business deal directly or indirectly with it. The control

of cost has long been of concern, as has differentiation and segmentation. This

topic cuts across many disciplines, because marketing, production, control,

finance and many other activities in a firm have a role in competitive advantage.

Similarly, a long tradition of research in business policy and in industrial

economics bears on this subject. However, competitive advantage cannot be truly

understood without combining all these disciplines into a holistic view of the

entire firm.

Pumpin (1991:23) is of the opinion that value potential is one of the three

cornerstones of dynamic growth: dynamic companies exploit value potential.

Value potential requires a certain favourable combination of circumstances as

evidenced by, for example, a number of ‘undermanaged companies’ or a number

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of capital investors. This combination may be found within the company, or it

could be in the market or elsewhere in the company’s environment. It may not be

an obvious combination yet.

Value potential is something which a company can develop through its business

activities to its own advantage and that of all its stakeholders.

Value potential can therefore be defined as a favourable combination of

circumstances in the environment or market or within the company that is either

still latent or already recognisable. This potential is then exploited through

company activities for the benefit of all stakeholders. However, obvious potential

of this kind is usually of little interest because it is bound to be noticed and

harnessed by other companies as well. For example, there is doubtless great

potential in the market for personal computers, but in practice this is only open to

PC firms which are already established. Less conspicuous, latent potential benefit

is much more interesting. Henry Ford recognised the latent demand for low-priced

motor cars at the beginning of this century, and immediately developed a product

– famous Model T – with which to tap the market potential. It is worth noting in

this context that, in a large market, value potential may often arise in the form of

market niches.

Classic, market-oriented management theory focuses on the relationship between

the company and the market as shown on Figure 4. The company is perceived as a

productive social system which provides goods or services for a third party – the

market. This is also true in strategic theory, where the competitive dimension is

taken into account. One of the main objectives of ‘competitive strategy’ is to

achieve superiority over the competition by creating the right emphasis. Pumpin

(1991: 24).

This model inevitably places great weight on market potential. To put is simply,

the company must concentrate on markets with considerable potential and offer

these markets products which are better than those of the competition.

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Figure 4 The basic model of competitive strategy

Source: Pumpin (1991:24)

‘Value potential’ should therefore be thought of as a generic term, including

market potential as just one type of potential among many others. Figure 5 shows

the broader base of this approach compared with the classic management

approach of Figure 4. The principles of corporate dynamism differ from classic

competitive strategy and should be seen as a complete corporate concept. Nor

would the more common expression ‘profit potential’ be appropriate to the

concept. In the end, of course, any company trying to be dynamic is also trying to

increase its own profits, but instead of working entirely to the advantage of its

shareholders it must increase benefits for all its stakeholders at once. It must

achieve a balance which will avoid conflicts and give higher value to all its

stakeholders, including its investors.

Company

Competition

Market

potential

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Figure 5 The basic model of the dynamic approach

Source: Pumpin (1991:26)

‘Strategic excellence positions’ is where companies consciously develop selected

skills which give them superiority over the competition and hence above-average

results over the long term. Here the focus is on the company’s skills, in contrast

with value potential, where the focus falls on a grouping in the environment or the

market, or possibly within the company. It is often necessary to build up strategic

excellence positions in order to exploit long-running value potential.

Only limited growth can be achieved by ‘dynamic behaviour’ and hectic activity.

It is crucial to dynamic growth that the company’s activities should be directed

towards areas where yields are high. In other words, dynamic growth can only be

sustained when the company’s activities generate high value.

Virtually every company report or management book you pick up today makes the

point that people are the most valuable asset in the company. It is a

straightforward thesis: after all, it is people – executives and workers – who

perform the activities of the company. If they do not do their jobs well, then the

company’s existence is threatened. It is quite natural that the importance of the

workforce should be highlighted.

Financial

potential

External human

potential

Market

potential

Balance

sheet

potential

Company

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Pumpin (1991:133) is of the view that, actual practice, however, is quite different,

and not only in static companies. A great many very successful, dynamic, firms

have a cold, authoritarian atmosphere. Superficial observation might even seem to

support the theory that many major successes have only been possible thanks to

an almost tyrannical entrepreneur. Some industrial pioneers, such as Rockerfeller

and Ford, have been extremely domineering. Contradictory examples, however,

such as Thomas Watson Jr, Bob Hewlett and Gottlieb Duttweiler, immediately

spring to mind.

So, corporate dynamism can be achieved, temporarily at least, without an

orientation towards people. In the long term, though, an authoritarian attitude is

sure to lead to a dead end. For long-term corporate dynamism, management must

reflect the needs of the people.

Pumpin (1991:162) further indicates that, dynamic companies motivate their

employees in every possible way. Management is a crucial element in dynamic

development. The culture is oriented to expansion, speed, productivity and risk-

taking. The management of static companies is content to pay lip service to

motivation. What culture they have is dominated by bureaucracy and cost

awareness. They neglect the time factor.

According to Greenberg (1973:17), the influence of material costs can be removed

by using a measure of output called value added, which is the difference between

total cost or value and value of materials purchased. It reflects cost of labour,

capital depreciation, taxes and profit mark-up. The value component mark-up may

be affected by factors quite unrelated to the production process. Some

commodities are produced and sold to “round out” a line of merchandise; the

price on a given day, month, or year may be determined more by competitive

factors than by production costs.

Customer expectation:

Quality

Speed

Cost

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The benefit of World Class performance lies in providing the cost, quality, and

service advantages that sets the organisation apart from its competitors. This is

only possible if effective measurement techniques and systems, capable of

providing accurate performance data are in place. Measurement can be a complex

issue, so let’s just consider some principles before embarking upon explanation of

the levels.

Measurement is both the way to discover the facts about what is actually

happening, and the means of exercising a degree of control over the results.

Control has several elements, each of which is commonplace to most

organisations as indicated by Drennan et al (1999:78):

Post-facto control, where what has been done is reported on and analysed

to ensure the mistakes of the past are not repeated.

Operational control, in which steps are taken to ensure that known or

anticipated problems do not occur.

Design control, in which the preparation of plan scenarios is done in such

a way as to ensure that the eventual results are confined within planned

parameters.

The three are listed in the order of frequency in which they are found in most

organisations. Measurement plays a key role in each of these elements and in the

pursuit of world class performance, none more than in design control. The first

two elements contain a subsidiary process that requires that a mistake must first

be made before it can be corrected. Design control, on the other hand, takes place

before any tangible evidence is available. Adequate design control means getting

it right the first time (a frequently-used synonym for productivity) and helping the

organisation achieve the desired organisational result quicker than its competitors.

2.1.3 PERFORMANCE MEASUREMENT

According to Nash (1983:2), the theme of managing corporate performance is

how the executive begins with the idea of an enterprise, shapes its image, creates

its climate, sets its goals, motivates its people, and measures individual

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performance. The leitmotif is achievement, the achievement of goals from the

corporate through the divisional and functional down to the individual. It is a

vertical integration of achievement linking organisational levels through the use of

organisational behaviour tools: strategy, climate, goal setting, incentives, and

performance appraisal.

According to Drucker (as quoted by Nash, 1983:3), believes that there are three

major tasks of management: to decide the purpose and mission of the institution,

to make work productive, and to manage social impacts and responsibilities.

Amongst others, the task of management is to make work productive and the

worker achieving. Business enterprise (or any other institution) has only one true

resource: man. It performs by making human resource productive. It accomplishes

its performance through work.

The major responsibilities of executives are to plan the work of the organisation

and to be sure that the organisation achieves the plan. The business of

management, put plainly, is organisational performance. Admittedly this is an

oversimplification – not because it contains contradictions or exceptions but

because it does not go far enough. Management must do more than plan, execute,

and review quantitative corporate results in order to be successful. It must do the

same for its image and climate, for line and staff, for business units and functional

departments. It must understand the psychology of goal setting and performance

appraisal at the individual level and must be able to involve its human resources

through a process of true participation. Successful management is holistic

management. Each decision or action is taken with insight into its effect on the

other parts of the corporate body.

Performance remains one of the classic problems of management: how to get

people in the organisation to achieve its goals. The problem is enduring and

timeless, as old as management itself.

The word: perform means to do, to accomplish. The act of performing means to

carry out a goal or responsibility. Performance is the thing done.

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Performance is the pure essence of management, independent of time, place or

type of business. To manage is synonymous with to perform. Management is

independent of ownership, rank or power. It is objective function and ought to be

grounded in the responsibility for performance. Drucker (1973:455).

Few books link strategy to image, climate, goal setting, performance appraisal,

and participatory management. Planning should be viewed as a long-range

strategy for corporate effectiveness, but in fact it is not. According to Beer (as

quoted by Nash 1983:11), both specialists in the field and management seem to

lack the strategic perspective.

Standardisation of concepts and a common understanding of what they signify are

very important if we are to have a system of information by means of which firms

can compare themselves with each other, with the industry and with other

industries. Greenberg (1973:1).

Kaydos (1999:17) recommends the possible measurement reference and

measurement method as shown in the following table:

Table 1 Guideline for measurement reference and method

METHOD

REFERENCE Direct Indirect

Standardised Measure of physical

parameters and countable

items

Determining physical

measures by effects--

deriving a planet’s weight

from its effect on

another’s orbit

Relative Measures derived from

countable items –

complaints/sale,

defects/car, inventory

turns

Measures of qualities and

abstract attributes—

satisfaction, morale,

helpfulness, kindness,

honesty

Source: Kaydos (1999:17)

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The standardised-indirect combination is interesting, because at first glance, it

seems to be an impossible combination. However, scientists commonly use

indirect techniques to measure physical parameters with magnitudes that stretch

the imagination

The techniques that must be used depend on what you need to know or measure.

If you have a piece of pipe about fifty feet long and need to know if it is longer

than another piece 1000 miles away, a standardised measure is needed (although

you could use a relative measure by sending a very long fax!). However, if the

pieces are about two feet long and in the same room, all you have to do is hold

them side-by-side to determine which is longer.

The choice of the measurement technique to use should be based on the following

factors:

What questions must be answered?

What techniques are feasible for producing the measure?

What is the most economical and reliable method of making the

measurement?

Highly accurate, standardised measures are simply not necessary for the practical

application of performance measures in the typical business environment.

It cannot be proven, but I believe anything can be measured to a useful degree,

especially in a business environment. If something can’t be measured directly, it

must have an effect, which can be measured. If a process has no intended effect, it

is clearly not worth measuring in the first place. More specifically, any production

process can be measured if what it is supposed to accomplish and how it works

are understood. As a minimum, every process must have at least one customer

whose satisfaction can be determined. How far beyond this point measurement

can be taken depends on the process and other factors. Kaydos (1999: 17).

The real question is not whether something can be measured, but whether it is

worth the effort and money to do it. It may require some creative thinking and

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changes in the way things are done in order to acquire the necessary data, but

these are not insurmountable barriers.

Kaydos (1999:29) is of the opinion that simple measures such as units produced

per hour, shipments per labour dollar, dollars of billings per employee day, and

equipment utilisation will usually suffice.

There are many ways to look at productivity and more than one measure of

productivity may be required to provide a complete picture of what is happening

from a total company perspective. It would be nice if only one measure was

needed, but the laws of complexity and control make that impossible.

A more meaningful approach to measuring productivity is to concentrate on

separate processes or functions. Here, the outputs are fewer in number and their

relative value should not be difficult to determine. Separate productivity and

quality measures of each function could be developed which would be more

meaningful and more sensitive to change. For the purposes of monitoring and

improving performance, productivity measurement efforts should be concentrated

on individual processes producing a narrow range of products. If the productivity

of the parts is taken care of, the whole will take care of itself. However, aggregate

productivity measures should also be used to verify the whole is reflecting the

parts.

Critics of traditional performance measures point out that they are historical in

focus; that they encourage short-termism; and that they often result in local

optimisation. Measures such as machine or labour utilisation encourage

supervisors to keep machines and people busy producing products, even when

there is no market demand. In extreme cases, local efficiencies can seem

remarkable, but the business can be left to write off vast quantities of obsolete

inventory.

It is easy to underestimate how hard it is to design good performance measures,

and there are many examples that illustrate the dysfunctional behaviour that can

result. To avoid this, the designers of measures must consider during the design

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process the behaviours a measure will encourage once it has been implemented.

A useful framework for doing this is provided by the performance record sheet as

depicted in the following table. This encapsulates the awkward questions

designers of measures need to ask themselves when deciding which measure to

implement.

Table 2 Performance measure record sheet

Source: Neely (1998:36)

Here are the questions to answer when completing the performance measure

record sheet as indicated by Neely (1998:35):

Box 1-Measure

What should the measure be called?

Does the title explain what the measure is?

Does it explain why the measure is important?

Is it a title that everyone will understand?

Box 2-Purpose

Why is the measuring being introduced?

What is the aim of the measure?

What behaviours should the measure encourage?

Box 3-Target

What level of performance is desirable?

How long will it take to reach this level of performance

How does this level of performance compare with the competition?

Measure Purpose Target Formula Frequency Who measures? Source of data Who acts on the data? What do they do? Notes

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How good is the competition currently?

How fast is the competition improving?

Box 4-Formula

How can this dimension of performance be measured?

Can the formula be defined in mathematical terms?

Is the formula clear?

Does the formula explain exactly what data are required?

What behaviour will the formula induce?

Are there any other behaviours that the formula should induce?

Is the scale being used appropriate?

How accurate will the data generated be?

Are the data accurate enough?

If an average is used how much data will be lost?

Is the loss of data acceptable?

Would it be better to measure the spread of performance?

Box 5-Frequency

How often should this measure be made?

How often should this measure be reported?

Box 6-Who to measure?

Who, by name, is actually responsible for making this measure?

Box 7-Source of data

Where will the data to make this measure come from?

Box 8-Who acts on the data?

Who, by name, is actually responsible for ensuring that performance along

this dimension improves?

Box 9-What do they do?

What actions will they take to ensure performance along this dimensions

improves?

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For most organisations, perhaps the most serious problem is that their measures

are rarely aligned and integrated, either with each other or with the business’s

strategy.

Organisations which are tops in their industry, stellar financial performers and

adept change leaders distinguish themselves by the following characteristics:

having agreed-upon measures that managers understand; balancing financial and

non-financial measurement; linking strategic measures to operational ones;

updating their strategic scorecard regularly; and clearly communicating measures

and progress to all employees. Lingle & Schiemann (1996:56-62).

As shown in Figure 6, the Japanese ranked delivery speed and after-sales service

last on their list of competitive priorities, a similar position held in the U.S. and

European companies.

Figure 6 Importance of performance measures in Japan

Source: Giffi et al (1990:103)

SPEED

SERVICE

PRODUCT FLEXIBILITY

VOLUME FLEXIBILITY

DELIVERY

CONFORMANCE

PRICE

PERFORMANCE

Decrease Increase

Change in Importance Since 1984

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For productivity measurement, physical measures, properly weighted remain

significantly more accurate than dollar-value measures (even when adjusted or

“real”) can ever be. Purely value-based productivity measures can be useful, but

in the basic simplified plant-level productivity measurement approaches, physical

measures predominate. One caution about measurement: No firm should set up an

elaborate productivity analysis system for its current operations and anticipate

substantial improvement unless the firm is one of the very few who have

revolutionised their operations to become truly world-class, with a flexible output

pattern, sound and interactive manager-foreman-employee relationships, ability to

change rapidly as needed, and effective, customer oriented systems. Christopher

et al (1993:3-3.1)

Giffi et al (1990:183) is of the opinion that, the prevailing literature on non-

financial performance measurement in manufacturing identifies productivity, time

and quality metrics as the non-financial drivers of manufacturing performance.

Although productivity measurement is among the most traditional measures of

manufacturing performance, it provides a great deal of information about what

determines performance success (Giffi et al, 1990:184). According to Eli Goldratt

in his book “The Goal”, a manufacturing decision is productive only if it:

Increases throughput (the rate at which money is generated through

sales).

Decreases inventory (things we buy which we intend to sell).

Decreases operating expense (money spent to convert inventory into

throughput).

A decision is productive if all three manufacturing performance criteria are

satisfied simultaneously and no tradeoffs have been permitted.

Christopher et al (1993:3-4.1) is of the opinion that, it is no longer news that some

production managers are able to lower the cost, raise the quality and improve on

the delivery of their products all at the same time, even while increasing the

flexibility of their production processes. The reason this is so is that these firms

understand that high cost, low quality, poor delivery and limited flexibility are

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really a single problem, not four separate ones. They are manifestations of waste.

If waste, defined as anything which adds cost without adding value, is eliminated

in an appropriate way, then all four criteria will be improved simultaneously.

It must be stressed: Quality is defined as performance to the standards of the

customer. “Productivity” is not just the measurement of hourly workers’ unit

production as has been the case in the past. Productive work is the aggregate,

efficient use of all resources, including the knowledge and creativity of

management and professional personnel. The result of the work must be services

of goods of sufficient quality and at acceptable prices to induce customers to buy.

A surplus or profit must be produced to sustain future operations of the enterprise.

Christopher et al (1993:1-7.4).

“The relentless pursuit of excellence is not only demanded by our customers; it is

the best method to improve costs as well”

According to Kobayashi (1990:2), zero economic growth means the growth of

some companies balances out reductions in other companies and small differences

in the internal workings of companies add up over the long term to suddenly

appear as large differences in financial performance. When the economy changes,

companies that are improving their methodologies will find that their advantages

have compounded themselves into a long-term difference in financial

performance.

The first step in obtaining this comparative advantage is to thoroughly examine

yourself in contrast to your competitors. The revolutionary spirit is born through

understanding how your company’s progress and rate of improvement compare to

those of other similar companies or factories around the world. Such a comparison

will make the strategies for short, middle and long-term enhancements clear,

make goals and objectives easily discernable, and generate the desire for quality

and thoroughness.

The value of continuous improvement as a journey that never ends is signified by

Kobayashi (1990:3) that companies that are at the top are often plagued by

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complacency. Their attitude is why try harder if they are already number one.

Employees are often unaware of the continuous efforts needed to maintain that

position. Position and market share are not the only factors you must compare to

those of competitor firms – quality levels, productivity, costs and other measures

important to the market will determine the relative positions of the enterprises in

the future. You must also carefully analyse these and take action to improve in all

areas.

An enterprise’s ability to remain profitable corresponds to its ability to adapt

manufacturing processes to current demands. It is necessary, therefore, to have

some criteria by which to evaluate this ability to adapt. Moreover, the evaluation

procedure must be explicit enough for improvement activity themes to become

discernible. The evaluation procedure is worthless if after its completion the

managers or staff don’t know what needs to be improved or how to go about it.

Adaptability to change requires more than merely infusing capital into the

operations. It is the ability for management and staff to maintain balance in the

face of unrest and a changing environment.

In evaluating adaptability, be aware of all levels of management and staff in the

factory and evaluate how well they can cooperate in bringing about change.

According to Kobayashi (1990:4), improving manufacturing quality means

constantly seeking ways to manufacture better quality goods faster and less

expensively, as well as more safely. Successful firms constantly seek methods and

programs to achieve these basic, universal manufacturing goals.

The process of attaining these primary goals is similar to climbing a mountain.

The first step is to evaluate where you are in relation to where you wish to be.

Next you must plan your method and your route. The quickest way to reach the

top might be to hang a rope and struggle directly up the face. However, this solo

method lacks any support system for those who follow you – they have to struggle

nearly as hard as you do. Only by building steps can the entire organisation

conquer the mountain. Of course, it is impossible to build the staircase all at once

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– it takes time. But only by going through the full (though time-consuming)

process can you ensure that everyone will eventually reach the summit.

In the manufacturing environment, the “rock climbing” method of getting to the

top is short-term and tentative. With a sudden change in conditions, the company

may fall without any secured program to give it support. But when the company

has set steps, known to management and staff, everyone can work and climb

together to corporate success.

Christopher et al (1993:1-8.1) indicates that Joseph M. Juran from the Juran

Institute has studied the results attained by both the Baldrige winners and other

leading companies. The strategies used by these companies follow a common

pattern so closely as to establish a cause-and-effect relationship. In my judgement,

the strategy followed by the successful companies show us a road map that, if

followed, leads to world class quality. First, let us notice that all of these leaders

have achieved stunning results with respect to quality. There have been numerous

cases in which these companies have demonstrated the following in only a few

years:

The time to provide customer service was reduced by an order of

magnitude.

Defect levels were reduced by an order of magnitude.

Productivity was doubled through quality improvement.

Costs were cut by 50 percent, again through quality improvement.

Those are indeed stunning results.

The importance of involving the workers and making them to own the

improvement initiatives is highlighted by Kobayashi (1990:195). Even if a plant

manager devises hundreds of ways to improve productivity in the factory, the

workers cannot get enthusiastic about productivity enhancement when they don’t

feel that their individual efforts are contributing to increases in productivity and

are noticed and appreciated. To optimise the productivity of the factory and use

the resources of your workers to the fullest, you must make an easily understood

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efficiency evaluation or efficiency control system that shows the employees the

effects of their efforts.

An efficiency control system compares the standard through-time for a process

with the actual through-time and reports the efficiency rating as a percentage

ratio. A proper efficiency control system enables you to achieve efficiency-related

goals. You can readily obtain important data such as how many units can be

produced in one hour or in one labour-hour, how many minutes it takes to make

one unit, what effects different improvements actually have on the system, and so

on.

Although it’s possible to give production workers a rough estimate of their impact

on the company by reporting sales levels of the products they are manufacturing

and the effect of those sales levels on the company’s financial performance, most

factory workers aren’t so interested in that end of the business.

Production workers usually want a more direct measurement of their improvement

efforts than some number that comes from the sales department. They need a

system that shows the direct effects of their own efforts; otherwise they will lose

all motivation to improve the factory. The efficiency control system is one

successful method for giving direct feedback to the workers about the results of

their efforts.

Kobayashi (1990:204) describes the success indicators in terms of the dimension

of quality as follows:

Efficiency improvements are always achieved

Workloads and standard labour hours are always up to date and can be

used for production scheduling

Workers in the level-five factory have the ability to consistently meet efficiency

enhancement goals. The workloads on the various equipment are easily balanced

through standard labour hour and cycle time data, production scheduling is done

on an individual machine basis, and production levels have been balanced through

an understanding of labour levels.

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According to Kobayashi (1990:185), the dream of the factory manager is to

consistently be able to make schedule without periods of wild confusion or of

idleness. Unfortunately, today’s diversified product lines, advanced

manufacturing technologies, shortened cycle time, and fluctuating demand levels

make this ideal difficult to attain. Production scheduling is not the simple matter

that it was in the past when the manager could merely tell the workers to process

the material that sat on the shelf waiting for them.

The production scheduling system of the past, using ledger books to try to control

completion schedules, did not adequately control the intermediate activities on the

production floor. The result was confusion and delayed deliveries.

Here are the performance criteria for a factory that has achieved a world-class

level as indicated by Kobayashi (1990:194):

All deliveries are made on time, with no last-minute chaos.

The level-five factory can produce the right amount of the right product at just the

right time with the right amount of effort.

Defects – the greatest enemy of efficiency and on-time deliveries – have

been eradicated.

Workers are all cross-trained so the production manager can freely

redistribute the work force in response to shifts in the market.

Suppliers have been developed so that they can deliver just the right

product in just the right amount at just the right time.

Inventory is low.

Quality is high.

The factory is now able to meet the demands of the consumer in terms of quality

and delivery schedules, without late deliveries and without having to scramble.

Small group activities (SGA’s) play a pivotal role in improving the manufacturing

quality of the factory. Uniting the workforce in active SGA’s gives the company

competitive strength gained through management of objectives. Small group

activities are the tools for fully utilising the resources of the first-line workers.

Using these tools, the wisdom and the experience of the “hands-on” experts can

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be applied to solve the problems and achieve the goals that relate to the

manufacturing floor itself, simultaneously improving morale and resolving human

relations issues. Through active SGA’s the workers on the floor can effectively

manage themselves to greater productivity and efficiency.

The purpose of SGA’s is to empower the workers themselves to contribute their

own intellectual resources toward the success of the factory. While SGA’s

naturally increase the capabilities of the workforce and improve performance

toward mutual worker/management objectives, the power and abilities of SGA

groups are far greater than the sum of the abilities of the individual members. The

result of true SGA activity is improvement of the workplace itself and value-

added manufacturing. Kobayashi (1990:37).

In the view of Kobayashi (1990:163-164), a fundamental principle of

improvement in the workplace is that to find lasting success improvements must

originate from the workplace and be executed in the workplace. Many companies

assign all equipment modification activities to outside parties rather than to the

workers themselves. In such situations the modifications often become

complicated, costly, and plagued with delays. Once finally completed, they do not

fulfil the original intent of the modifications at all. Many companies emphasise

programs that encourage first-line workers to develop ideas for improvement, but

the best companies also foster in their employees the ability to execute those

improvement ideas. Ideas conceived by the workers should also be executed by

the workers.

Improvements for the future are firmly rooted in experience from the past. This

does not imply that improvements are always done the same way every time; a

system that was successful under one set of circumstances might need

considerable alteration before it can be applied to a different set of circumstances.

Nevertheless, if the workers have the Improvement Corner as a place to build

improvement equipment and to see model ideas that have been successful in other

areas, their improvement proposals will be far better. The improvement will be

made more quickly, less expensively, and with less trial-and-error. The results

will be a greater savings in money.

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According to Kobayashi (1990:162), the level-five factory worker is able to say,

“Without all of this unnecessary movement, my job has certainly become easier –

the work seems to do itself.” There is no noticeable waste in the factory, and

morale has improved significantly because all the workers realise that the ideas

they and their fellow employees submitted eliminated wasted steps and

bothersome processes, allowing the real work to progress easily. These workers

all feel a sense of mutual gratitude. There has been outstanding progress in

productivity, quality and lead times and the factory is truly world class.

Competitive advantage is at the heart of a firm’s performance in competitive

markets. After several decades of vigorous expansion and prosperity, however,

many firms lost sight of competitive advantage in their scramble for growth and

pursuit of diversification. Today the importance of competitive advantage could

hardly be greater. Firms throughout the world face slower growth, as well as

domestic and global competitors that are no longer acting as if the expanding pie

were big enough for all. (Porter, 1985:xv).

According to Drennan et al (1999:78), the principal requirements of measurement

are that it should be appropriate, accurate and objective:

Appropriate: If the measure is achieved (actual against standard or

objective), the organisation will have achieved the organisational result it

wants.

Accurate: The measure is believable and preferably quantifiable. While

complete accuracy is a possibility there is usually a trade-off between

accuracy and speedy reporting. The rule-of-thumb is that a measurement

be sufficiently accurate to engender the right response in time to effect a

better organisational result.

Objective: The final requirement is that the measure be objective. The

presence of subjectivity inevitably raises dissent with the outcome of the

measure, which may in turn lead to ambivalent or ineffectual responses to

actual problem situation.

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At the heart of every organisation are the operations that actually make goods and

provide services. To put it simply, the operations describe what the organisation

does. When you talk about an organisation’s performance, you are describing how

well it does its operations. To improve performance, you have to improve the

operations. This seems obvious. But managers often ignore this simple truth and

try to find quick fixes that don’t involve any effort. Always remember that you

can do great deals with the finances, spend a fortune on marketing, have the best

working conditions, use the latest technology – but if your operations are no good

you might as well shut the door and go home. In brief, the only real way of

improving the performance of your organisation is by doing the operations better.

Waters (1999:48).

Waters (1999:51) indicates that there are many places you can look for

improvements in operations. The operations strategy defines the overall policies

for operations and gives the framework for lower decisions. Medium-term tactical

decisions consider the layout of facilities, process design, capacity planning,

production planning, make/buy decisions, quality assurance, maintenance plans,

recruiting and so on. Short-term operational decisions include resource

scheduling, inventory control, reliability and purchasing. Operations managers

make decisions at all levels, and it is just unfortunate that low-level decisions are

called operational decisions. So, operations managers make strategic, tactical and

operational decisions about operations.

Table 3 Framework for operations strategy

Decision type Typical operations management

decisions

Strategic decisions

Business What business are we in?

Product What products do we make?

Process How do we make the products?

Location Where do we make products?

Capacity How big are the facilities?

Quality management How good are the goods?

Tactical decisions

Layout How are the operations arranged?

Organisation What is the best structure?

Product planning When should we introduce a new

product?

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Quality assurance How is planned quality achieved?

Logistics How should the supply chain be

organised?

Maintenance How should we maintain and replace

equipment?

Staffing Which people do we employ?

Technology What level is best for planned

production?

Make/buy Is it better to make or buy materials?

Operational decisions

Scheduling When should we do each task?

Staffing Who will do the scheduled operations?

Inventory How do we organise the stocks?

Reliability How can we improve equipment

reliability?

Maintenance When do we schedule maintenance

periods?

Quality control Are products reaching designed

quality?

Job design What is the best way to do operations?

Work measurements How long will operations take?

Source: Waters (1999:51)

In reality, the differences between strategic, tactical and operational decisions are

not this clear. Quality, for example, is a strategic issue when you plan a

competitive strategy, tactical when you choose the best ways to measure quality

and operational when you test products; inventory is a strategic issue when you

decide whether to build a new distribution centre, tactical when you decide how

much to invest in stock and operational when you decide how much to order this

week.

The importance of financial measures such as profitability and return on

investment are referred to by Waters (1999:54). Good financial performance

comes from good operations which can be measured more directly using measures

such as productivity, utilisation and efficiency.

Your competitors are always trying to gain an advantage, and an effective way of

doing this is by increasing their productivity. You then have to match their

improvement simply to stay in business. So the benefits of higher productivity

include:

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Long-term survival;

Lower costs;

Less waste of resources;

Higher profits, wages, real income, etc;

Targets for continually improving operations;

Comparisons between operations;

Measures of management competence.

In reality there are four ways of increasing productivity:

i. Improve effectiveness – with better decisions;

ii. Improve efficiency – with a process that gives more output for the same

inputs;

iii. Improve the process – getting higher quality, fewer accidents or less

disruption;

iv. Improve motivation – getting better results from the workforce

A balanced scorecard has been preceded by a number of ideas which resemble it

in various respects and this is referred to by Olve et al (1999:146). If anything,

however, the fact that numerous companies are already using TQM and similar

methods should make it easier to go further and establish a more highly co-

ordinated form of management control in which we believe the balanced

scorecard should be used.

Thus, improving measures of performance has long been an important aspect of

new developments in production management, market research and human –

resources management. Measures used for financial control have also been

refined.

According to Olve et al (1999:147), the notable difference is the balance, the

comprehensive view, and the approach to the future. Successful efforts to reduce

waiting periods or defects in quality show the value of temporarily focusing on

specific measures. But at today’s companies the total picture is also important.

Determining what is right in the long run is not a matter to be left to a single

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executive acting alone; it calls for discussion. To that end there is a need to

describe the business in a way sufficiently informative and clear to be useful to a

substantial number of people. The balanced scorecard concept can help us by

showing:

How both financial and other assets are being managed

Both how others see us and how we see ourselves

Both stocks and flows

Both the short and long run

The comprehensive view brings out these trade-offs. The value of the balanced

scorecard concept is not in the key ratios themselves but in the discussion which

the method entails. And this discussion is essential. While a few senior executives

may feel that they understand the trade-offs referred to above, today it is not

enough that only these few do. Many others at the company should also be

discussing the current state and desired future of the business, and for that purpose

the balanced-scorecard concept is a good tool. The reason for involving more

people is that what they do may turn out to be of strategic importance for the

company!

The criteria for determining what measures to use are referred to by Olve et al

(1999:189):

Measures should be unambiguous and defined uniformly throughout the

company.

Taken together, the measures used should sufficiently cover the aspects of

the business which are included in strategies and critical success factors.

The measures used in the different perspectives should be clearly

connected. A scorecard may be said to portray the business as it is, or as

we would like it to be. The picture should be interpreted as a coherent and

convincing report which clearly shows how the efforts described in the

lower portion of the card are logically justifiable for successfully attaining

the criteria in the upper portion.

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Measures should be useful for setting goals which are considered realistic

by those responsible for achieving them.

Measurement must be an easy, uncomplicated process, and it is must be

possible to use the measurements in different systems like the company’s

intranet and data warehouse, for example.

It is often emphasised that we should seek a proper balance between performance

drivers and outcome measures – in other words, between measures which describe

what we do and the effects achieved.

It may at first seem preferable to be able to measure outcomes rather than

performance or its drivers. Therefore the scorecard should probably contain an

appropriate number of drivers. It ay also prove easier to agree on drivers, since

these have to do with something immediate and tangible. The mix of drivers and

outcomes should probably vary among the different perspectives. In general, the

more long-term perspectives, particularly the growth and learning perspective, are

likely to include more drivers.

Olve et al (1999:191) identified and recommends the following possible measures

in each perspective as provided by Norton & Kaplan (1996a):

Measures suggested for the financial perspective include market shares for

certain customer groups and capacity utilisation for physical facilities –

although these are measures which we may find more often in the

customer or business-process perspective.

The probability of various customer segments is one of the measures

suggested for the customer perspective – but these may of course be useful

also as part of the financial perspective.

Among possible measures suggested for the business-process perspective

is the share of sales provided by new products – we have encountered this

measure more frequently in the development perspective, but here it is

described as a measure of the innovation process in a company where this

factor is critical.

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Competence and process-improvement time (how long it takes to reduce

costs, rejects, etc by one-half) are mentioned as measures for the learning

and growth perspective – we might expect to find them more often in the

business process perspective.

These examples show that discussing cause-and-effect relationships is very

important. Competencies and capability of improving are factors with longer-term

effects than the share of new products, which in turn is an indicator of the outlook

for future profits. Such reasoning justifies the choice of perspective for these

measures. To agree on cause-and-effect relationships, preferably as shown in

simple graphs, is of course quite valuable, and we have emphasised above how

they can be used for simulation purposes.

When relationships among measures are made clear, and are discussed by many

people, a basis for learning is also created. It may be possible to establish

mathematically the strength of the relationships and the length of time it will take

before the effects become more apparent. For example, studies may reveal that

satisfied customers pay their bills more promptly. In that case, treating customers

well will prove directly profitable even in the short run, while perhaps also raising

hopes of new business in the long run.

The importance of identifying specific properties in performance measures is

referred to by Meyer (2002:6). Ideally, the performance measures of choice would

meet the following requirements:

Parsimony

Predictive ability

Pervasiveness

Stability

Applicability to compensation

The requirements of ideal performance measurement are very stringent, far more

stringent than the requirements of the balanced scorecard.

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Rarely if ever do we find performance measures meeting these common-sense

requirements. Meyer (2002:7) gives the following reasons:

Firms are swamped with measures, and the problem of too many measures

is, if anything, getting worse, the balanced scorecard withstanding. It is

commonplace for firms to have fifty to sixty top-level measures, both

financial and non-financial. Many firms, I am sure, have even more top

level measures.

Our ability to create and disseminate measures has outpaced, at least for

now, our ability to separate the few non-financial measures containing

information about future financial performance from the many that do not.

To be sure, research studies show that a myriad of non-financial measures

such as customer and employee satisfaction affect financial performance,

but their impact is modest, often firm and industry-specific, ad

discoverable only after the fact.

Few non-financial measures pervade the organisation. It is easier to find

financial measures that pervade the organisation, but keep in mind that

many firms have struggled unsuccessively to drive measures of

shareholder value from the top to the bottom of the organisation.

Performance measures, non-financial measures especially, never stand

still. With use they lose variance, sometimes rapidly, and hence the

capacity to discriminate good from bad performance. This is the use-it-

and-lose-it principle in performance measurement. Managers respond by

continually shuffling the measures.

Compensating people for performance on multiple measures is extremely

difficult. Paying people on a single measure creates enough dysfunctions.

Paying them on many creates more. The problem is combining dissimilar

measures into an overall evaluation of performance and hence

compensation. If measures are combined formulaically, people will game

the formula. If measures are combined subjectively, people will not

understand the connection between measured performance and their

compensation.

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Meyer (2002:8) indicates that there is still more fundamental reason for the gap

between ideal performance measurement and performance measurement as it is.

The modern conception of performance, which is the economic conception of

performance, renders the performance of the firm not entirely measurable. The

modern conception of performance is future cash flows – “cash flows still to

come” – discounted to present value. In other words, we think of the firm as assets

capable of generating current and future cash flows. Future cash flows, by

definition, cannot be measured. Nor can we measure the long-term viability and

efficiency of the firm in the absence of which cash flows will dwindle or vanish.

What we can and do measure are current cash flows (financial performance)

potential predictors of future cash flows (non-financial measures), and proxies for

future cash flows (share prices). All of these are imperfect. They are, at best,

second-best measures. Note the paradox that is at the heart of efforts to improve

performance measurement: knowing that most measures are second best compels

us to search for better measures that are inevitably second best.

According to Meyer (2002:9), to search intelligently for better, albeit second-best,

performance measures, we may have to rethink the firm and the relevant units for

measuring performance. Right now, we think of firms as black boxes: investment

flows into the firm, activities take place, products are made and sold to customers

as a result of these activities, and an income statement, balance sheet, and market

valuation of the firm follow. Since financial results – the income statement,

balance sheet, and market valuation – accrue to the firm as a whole or, internally,

to large chunks of the firm called business units, we look for drivers of financial

performance, that is, non-financial measures describing internal processes,

products, and customers, at the level of the entire firm or its business units. The

problem with the black-box approach to the firm and performance measurement is

that it masks differences within firms and their business units: so many processes

take place, so many products are produced, and so many customers are served by

that firm – or business unit-level performance measures – which I’ll call aggregate

measures – conceal important sources of variation.

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The rethinking of the firm and of the relevant units for measuring performance

begins by asking where the performance of the firm comes from. The

performance of the firm originates in what the firm does, in its activities or

routines. These activities give rise to costs, but they also generate revenues in

excess of costs to the extent that the firm’s products and services add value for

customers. These cash flows and the expectation of future cash flows in turn give

rise to the valuation of the firm in capital markets. The causal chain running from

activities to costs to revenues to the valuation of the firm in capital markets is

shown in Figure 7. This ‘performance chain’ is an extension of Michael Porter’s

idea of the value chain that incorporates costs.

Figure 7 The performance chain of the firm

Source: Meyer (2002:10)

The performance chain carries some immediate implications for performance

measurement. First, the units in the performance chain bear little resemblance to

the units on a typical organisation chart. There are three principal units: the firm,

the customer and the activity. By contrast, the units displayed on an organisation

chart are typically the firm, the business units, functional units and work groups

within business and functional units. Many activities take place within business

units, functional units, and work groups, and many customers are served, directly

or indirectly, by each of them. The performance chain thus raises two questions:

should firms be partitioned into units, such as activities that are much smaller than

the units shown on organisation charts, and how should performance be measured

on these smaller units?

Activities Costs Value added

for customers

Revenue

net of costs

Long-term

revenues/Valuat

ion of firm by

capital markets

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Second, the performance chain shows that activities incur costs and customer

supply revenues – and that revenues and costs are usually joined at the level of the

firm. This raises the question of whether costs can be assigned to customers and,

correspondingly, whether revenues can be assigned can be assigned to activities

so that revenues and costs can be compared for individual customers and

activities. It is not uncommon for firms to assign costs to customers and then

compare revenues to costs customer by customer. This is sometimes called

customer profitability analysis.

Once costs are assigned to customers, revenues can be assigned to activities, in

other words, it is also possible to compare revenues to costs activity by activity.

This is called activity-based profitability analysis or ABPA. The possibility of

assigning revenues and costs to individual customers and activities is one of the

several reasons why it may be better for performance measures to follow the

performance chain than to follow the organisation chart – while you can always

assign costs to the units shown on an organisation chart, you cannot easily assign

revenues to units smaller than your profit centres or strategic business units.

The aspect where the firm can cut costs without impairing revenues and ill afford

to cut costs because revenues will be impaired is illustrated by Meyer (2002:113).

This aspect is especially crucial in the context of global management, since

success in the global marketplace often requires driving unit costs downward

relentlessly.

If there were simple ways to cut costs without impairing revenues, much of the

performance-measurement problem would disappear, and many of the tough

choices facing managers would be easier. But there are no simple solutions.

Separating costs that should be managed aggressively from costs that must be

tolerated because they are incurred by critical revenue drivers can be very

difficult. A new approach to performance measurement called activity-based

profitability analysis (ABPA) is founded on a simple premise: if you understand

the activities in which the firm engages, their costs, and the revenues that result

from them, then you have a powerful tool for measuring and improving the

performance of the firm.

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Figure 8 How activities drive customer revenues

Source: Meyer (2002:116)

Figure 9 Estimating activity revenues

Source: Meyer (2002:116)

ABPA is based on the elemental conception of the firm that defines the

performance of a firm as what the firm does, its activities, and the measure of

performance as the revenues generated by these activities less the cost of

performing them. ABPA is derived from an established performance measurement

technique, activity-based costing (ABC). It is also based on a success story, the

success many firms have had in managing costs using ABC. ABPA maps almost

Customer revenues

Activity

Activity

Activity

Activity

Activity

Activities add value

for customer

Customer supplies

revenues

Activity

Activity

Activity

Activity

Activity

Activities drive costs

Customer profitability =

customer revenues minus

activity costs

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everything the firm does onto bottom-line results, avoiding many of the problems

associated with measures of non-financial performance.

Some simple examples illustrate where it is important to separate cost drivers

from revenue drivers and where it is not. Consider first a product whose value to

the customer depends entirely on physical specifications such as capacity,

reliability, and speed – in other words, a product whose value depends on its

functionality or performance for the customer, not its economic performance.

The upshot is that cost drivers can be separated from revenue drivers when two

conditions are obtained as referred to by Meyer (2002:121): (1) products or

services are made to physical specifications, and (2) these specifications capture

performance for the customer and hence drive revenues. When both of these

conditions prevail, costs can be reduced so long as specifications are maintained

or improved (e.g. DRAMs). But only rarely are both of these conditions present.

For many products and services, are no specifications (an extreme case is

psychotherapy). For others, the activities that drive costs are in effect

specifications that may or may not add value for the customer and hence drive

revenues – in other words, activities and specifications cannot be distinguished.

(e.g. airline journeys). The more commodity-like he product and the less the

significance of ongoing customer relationships, the easier it is to separate cost

drivers from revenue drivers. The reverse is also true: the less commodity-like the

product and the greater the significance of customer relationships, the more

difficult it is to separate the two.

Meyer (2002:135) is of the opinion that ABC is capable of distinguishing cost

drivers from revenue drivers if three conditions are met: (1) if the costs of

activities are known, (2) if the revenues generated by each customer are known,

and (3) if the activities performed for each customer are known. The first

condition, of course, is met by ABC, which estimates activity costs. The second

condition depends on the firm – firms that cultivate long-term customer

relationships will often track revenues for individual customers, whereas firms

engaging in one-off transactions or selling in mass markets generally will not. The

third condition obtains far less frequently. Few firms, retail firms especially, will

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track the activities performed for individual customers due to the systems

requirements imposed by having to monitor the frequency with which many

different kinds of activities are performed for many thousands of customers.

Activity-based costing in the context of ABPA raises the question of who bears

the cost of inefficiency and this aspect is illustrated by Meyer (2002:138). ABC is

principally a costing tool: it is normally used to identify costs and either reduce or

eliminate those which are unnecessary. When doing ABC, it is not unusual to

discover that unit costs vary substantially within a firm. Indeed, the larger the firm

and the more diverse its businesses, the greater the variation in costs across its

units. From the perspective of costing, variation is helpful because it pinpoints

outliers where costs can be reduced easily. From the perspective of customer

profitability or ABPA, however, this variation poses the question of whether

customers should bear the cost of inefficiency.

Meyer (2002:141) is of the opinion that ABPA implements the elemental

conception of the firm by reducing the firm to its activities and the costs,

customers and revenues associated with them. ABPA, in other words, is a method

of partitioning the firm analytically, activity by activity and customer by

customer. Partitioning a firm analytically, by activities and customers, rather than

organisationally following lines of authority, offers substantial advantages for

performance measurement and performance improvement. You do not have to

worry about modelling relationships of non-financial and financial measures into

an overall appraisal of performance. And you need not worry that your cost-

cutting initiatives will exact an untoward toll on revenues. ABPA relieves these

worries because it makes the financial consequences of what you do transparent,

or as transparent as hey can be made. The strength of ABPA is that it makes sense

conceptually and thus promises to clean up many of the problems inherent in

other approaches to performance measurement. ABPA promises to facilitate

learning in organisations and simplifies people’s compensation. But ABPA is not

without limitations. The drivers of non-financial outcomes not captured for

individual customers cannot be easily estimated by ABPA. Nor can ABPA

estimate the revenue consequences of executive and staff activities performed on

behalf of all customers.

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Figure 10 Ease of implementation versus quality of measurement

Source: Meyer (2002:165)

According to Meyer (2002:164), ABPA is superior to financial measurement and

the balanced scorecard with respect to the alignment of measures with the

profitability objectives of the firm, its treatment of performance drivers, the way it

compensates people, and the opportunities for organisational learning. In short,

the ABPA advantage is completeness of performance measurement: ABPA

completes the connection between the activities performed by the firm and the

firm’s financial performance. The advantage of financial measurement, by

contrast, is ease of implementation, which will be decisive in many instances.

Financial measures are widely understood, most are governed by accounting

conventions, and most are comparable both within and across firms. The balanced

scorecard falls between ABPA and financial measures on both dimensions.

Scorecard measures are more complete than financial measures but less complete

than the measures generated by ABPA, and balanced scorecards are somewhat

more difficult to implement than financial measures when used to gauge progress

toward strategic objectives and, nearly impossible to implement satisfactorily

when they are used to compensate people.

Financial

measurement

Balanced

Scorecard

ABPA

Favoured by: complex

service firms; moderate

levels of uncertainty

Favoured by: six single-product,

single-customer, or commodity

firms, low levels of uncertainty

Ease of

implementation

Completeness of

measurement

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The conditions governing the choice of performance measures can follow from

ABPA’s decisive advantage (which, of course is not costless):

“ABPA locates and finds opportunities for profit in differences in customer

valuation of the activities performed by the firm”

Meyer (2002:168) indicates that the profitability of an activity, transaction, or

product can be assessed for the entire customer base of a firm or for segments of

its customers. The profitability of customers is then the profitability of their

products and transactions, that is, revenues less the costs of providing these

products and transactions. Since people’s performance can be appraised and

rewarded against customer profitability targets, ABPA not only allows firms to

identify which actions are profitable and which are unprofitable, but also allows

firms to reward people for doing what is profitable and for improving the

profitability of what they do. ABPA, though complicated, is thus a powerful tool

for aligning people’s behaviour with the financial objectives of the firm.

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Figure 11 Mid-1980’s model of manufacturing firm

Source: Meyer (2002:175)

By the mid-1980’s, the buffers and management layers surrounding the firm’s

“technical core” had largely disappeared, and core production activities were

directly exposed to several kinds of external pressures including just-in-time

delivery of materials, which reduced inventories nearly to zero; continuous

improvement, which sought to reduce costs by reducing cycle times; and the

quality revolution and mass customisation, which drove customer preferences

directly into the production process. These developments, shown in Figure 11,

Production Core

Exposed to uncertainty/variability in supply,

customer preferences, and internal processes;

balances costs against revenue drivers (“cost of

quality”)

Customers

Sales

Demand buffer (finished goods inventory)

Supply buffer (raw material inventory)

Purchasing

Suppliers

Quality/

Customer-in →

revenue

drivers

Continuous

improvement

→ cost drivers

Just-in-time →

cost drivers

Managers

sparse

→ = information flow

= core unit

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forced manufacturing firms to focus on costs and revenue drivers simultaneously,

just as ABPA focuses on the relationship of costs to revenues.

Porter (as quoted by Brown, 1996:61) argues that a firm must seek to be either a

low-cost or differentiated player – a firm can do both but if it does, Porter

suggests, it runs the risk of being out-performed by a more focused player.

However, in the 1990’s a firm might have to compete on both low cost and

provide differentiation features (for which it cannot charge premium prices) at the

same time. In the 1990’s and beyond, other equally important competitive

attributes are integral as shown in the following table.

Table 4 Competitive attributes

Product quality

Process quality

Delivery speed

Delivery reliability

Flexibility – in terms of range, volumes and mix of outputs

Rapid product innovation

Source: Brown (1996:61)

Brown (1996:63) indicates that although production/operation’ contribution will

vary according to specific markets, there are general improvements that any

manufacturing company can make in order to be competitive. Ferdows et al (as

quoted by Brown (1996:63)) attempt to unravel a step-by-step generic guide that

any manufacturing change should follow:

First, high quality must be produced.

Then delivery reliability must be achieved.

Then production costs must be lowered.

Then production flexibility must increase.

Although this four-step process is most suited to high volume, relatively standard

products, the need to improve quality, enhance delivery performance and reduce

costs is important in any manufacturing firm. This certainly seems to have been

the process model for Japanese success; quality became the first priority and other

equally important factors then followed. This indicates that improvement in

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competitive areas will come over a period of time, rather than as a result of any

quick-fix cost-cutting solutions.

In the view of Schonberger and Knod (1997:13), though customers’ requirements

can be stated in great detail, the number of persistent general wants appears to be

small, and they seem to apply universally. Regardless of type of business, internal

and external customers generally have these six basic requirements:

High levels of quality

A high degree of flexibility

High levels of service

Low cost

Quick response (speed)

Little or no variability

These six requirements are part of the foundation of a well-conceived operations

management system. Inasmuch as they apply to internal as well as external

customers, the requirements have a unifying effect, that is, they permit each

employee along the chains of customers to have a common, small set of goals.

Figure 12 General customer requirements

Source: Schonberger et al (1997:13)

According to Schonberger et al (1997:14), it is important not to view the

requirements in Figure 12 as potential tradeoffs. Customers don’t. As customers,

we do not want to settle for just high quality or just low costs, or for increased

flexibility, or just quicker response. We require that all these needs to be met.

Quality

Flexibility

Service

Costs

Response times

Variability

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From the provider’s standpoint, excelling in all six basic needs is a considerable

challenge. Though no trade-off candidates, they do need to be priority ordered. If

competitors are beating the company on speed, then quick response becomes a

high-priority objective. Later on, the main issue may shift toward flexibility, but

not at the expense of speed. Customers want and expect ever better performance

in the direction of the arrows in Figure 12. Recognising this, superior

organisations commit themselves to continuous improvement.

2.2 CONCLUSION ON LITERATURE RESEARCH

It is very important to recognise the interplay of factors which may affect the rate

of productivity. The total productivity index, as a measure of the efficiency of the

business as a whole, is the key measure.

Companies who want to compete successfully are striving to become world class

manufacturers. Competitive advantage grows fundamentally out of the value a

firm is able to create for its buyers. It may take the form of prices lower than

competitors’ for equivalent benefits or the provision of unique benefits that more

than offset a premium price. However, competitive advantage cannot be truly

understood without combining all these disciplines into a holistic view of the

entire firm.

Highly accurate, standardised measures are simply not necessary for the practical

application of performance measures in the typical business environment.

Measures such as machine or labour utilisation encourage supervisors to keep

machines and people busy producing products, even when there is no market

demand. In extreme cases, local efficiencies can seem remarkable, but the

business can be left to write off vast quantities of obsolete inventory. Purely

value-based productivity measures can be useful, but in the basic simplified plant-

level productivity measurement approaches, physical measures predominate.

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Criteria for determining appropriate productivity improvement measures were

explored fully and will provide a solid foundation upon which to base the

recommendations.

The emerging ways of increasing productivity are as follows:

Improve effectiveness

Improve process efficiency and flexibility

Improve the product efficiency

Improve motivation

The next chapter will look at the process of research design in detail.

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CHAPTER 3

RESEARCH DESIGN

3.1 INTRODUCTION OF ISSUES AND RELEVANCE

The Workplace Challenge programme is aimed at continuously improving the

performance of manufacturing companies that participates in it. In the past,

outcomes such as: number of jobs created, turnover, market size, etc. have been

used to assess the impact of the programme. These have been found not to be easy

to make an inference about whether they reflect the correct impact of the WPC

programme.

The manufacturing companies participating in the Workplace Challenge

programme have been capturing performance of their teams by using the QSCM

factors. These factors have not been assessed in terms of adequacy and

completeness. It is also noted that the variables within QSCM dimensions are not

common at team and company levels. As such, it becomes difficult to report

correct improvement due to intervention of the Workplace Challenge programme.

The outcome of this research will be used to provide a clear and practical

guideline for implementation of properly designed performance measurements in

order to report productivity improvement resulting from the WPC programme.

3.2 RESEARCH THEORY

According to Cooper and Schindler (2003:146), the important essentials of

research design are:

The design is an activity- and time-based plan

The design is always based on the research questions

The design guides the selection of sources and types of information

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The design is a framework for specifying the relationships among the

study’s variables

The design outlines procedures for every research activity

A number of different design approaches exist but, unfortunately, no simple

classification system defines all the variations that must be considered as

contained in the following table.

Figure 13 Descriptors of research

Category Options

The degree to which the research

question has been crystallised

Exploratory study

Formal study

The method of data collection Monitoring

Interrogation/communication

The power of the researcher to produce

effects in the variables under study

Experimental

Ex post facto

The purpose of the study Descriptive

Causal

The time dimension Cross-sectional

Longitudinal

The topical scope-breadth and depth-of

the study

Case

Statistical study

The research environment Field setting

Laboratory research

Simulation

The participants’ perceptions of

research activity

Actual routine

Modified routine

Source: Cooper et al (2003:147)

The descriptors that are applicable to this research are highlighted in bold.

3.3 THEORETICAL FRAMEWORK AND VALIDATION TECHNIQUES

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In contrast to exploratory studies more formalised studies are typically structured

with clearly stated hypotheses or investigative questions as referred to by Cooper

et al (2003:161). Formal studies serve a variety of research objectives:

Descriptions of phenomena or characteristics associated with a subject

population (the who, what, when, where, and how of a topic)

Estimates of the proportions of a population that have these characteristics

Discovery of associations among different variables

The third objective is sometimes labelled correlational study, a subset of

descriptive study.

There are several stages through which a company goes, once they become part of

the Workplace Challenge initiative. These are segmented into the following four

stages:

Nurturing (buy-in to the Workplace Challenge process);

Orientation (diagnostics, appointment of plan-level committees,

development of individual company implementation plans, collaborative

structures, and capacity building);

Implementation (implementation of the improvement plans through

collaborative structures, quarterly milestone workshops and monthly

cluster networking meetings);

Diffusion (sharing of information and diffusion of lessons learnt to other

firms and industry sectors, promotional efforts concentrate on changing

attitudes by using video testimonies).

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Figure 14 WPC impact framework

Source: Original work of the author

The author is of the idea that one of the most important criteria to apply in

capturing WPC impact is that it must be easy to make inferences on selected

measures in relation to the WPC objectives as depicted in Figure 14. Even though

there is impact on the method/process aspect and financial aspect of a company,

the former is difficult to quantify (see the last paragraph of page 88 with regard to

further research) and the latter is only a lagging indicator, therefore it should not

be too emphasised.

3.4 CONCLUSION ON RESEARCH ISSUES

This chapter has helped to establish the research design descriptors that are

applicable to this research topic. Thus, the specification for the methods and

procedures for the collection, measurement, and analysis of data are in place. The

design will help to provide the correct framework to investigate the relationship

between the outcome of WPC impact measurements and overall performance of

companies participating in it. The next chapter deals with data collection

methodology.

WPC change

management

process

Lead to company

performance

improvement and

competitiveness

Expected outcomes in

terms of:

Employee satisfaction

Customer satisfaction

Determine appropriate performance measures to

capture valid WPC impact

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CHAPTER 4

DATA COLLECTION METHODOLOGY

4.1 INTRODUCTION ON METHODOLOGY

According to Neely (1998:7), in the United States the National Academy of

Engineering asserted: “World-class manufacturers recognise the importance of

metrics in helping to define goals and performance expectations for the

organisation. They adopt or develop appropriate metrics to interpret and describe

quantitatively the criteria used to measure the effectiveness of the manufacturing

system and its many interrelated components”

Doyle Wilson of Austin, Texas, had been building homes for fifteen years before

he got serious about quality. “In October of 1991 I just got disgusted. Such a large

part of my business was waiting and rework, with expensive warranty claims and

friction with customers, that I knew there must be a better way. Then I stumbled

across the quality movement”

He read Carl Sewell’s book on car dealing, Customers for Life, and decided to test

his claims by buying a car at Sewell’s Dallas dealership. (“I thought that if even a

car dealer could make a customer feel good, it should be easy for a

homebuilder!”). His purchase was such a positive experience that he asked Sewell

for advice on quality in home building and was told to red the works of W.

Edwards Deming.

Doyle Wilson is the archetypical Texan and never does things halfway. By

February of 1992 he had launched a wall-to-wall Total Quality Management

campaign at Doyle Wilson Homebuilder. Over the next three years he personally

taught his workforce the principles of TQM, began to collect and analyse

enormous amounts of data on every aspect of his business, got rid of individual

sales commissions (“which destroy quality consciousness”), eliminated the

traditional “builder bonus” for his construction superintendents (who were

qualifying for the “on-time completion” bonus by making side deals with

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customers on a “to-be-done-later” list), reduced his contractor corps by two

thirds, and required the remaining contractors to attend (and pay for) his monthly

quality seminars.

Customer surveys showed a steady rise in satisfaction with the homebuilding

experience and sales grew steadily even in a flat market as Wilson took sales from

his competitors. In 1995, Doyle Wilson Homebuilder won the National Housing

Quality Award (often called the Baldrige Award for quality of the construction

industry), and Wilson set a goal of winning the Baldrige Award itself by 1998.

Yet he was not satisfied.

The study was initiated so as to find ways of making the quality, speed, cost and

morale measurements the same across the different companies, clusters, regions

and nationally. Once that is achieved, the reporting to the Department of Trade

and Industry would give a common indication in terms of overall improvement

due to the implementation of the Workplace Challenge Programme.

The following companies were visited as part of the study amongst other things,

basically to tap their brains with regard to the topic as to how such a uniform

mechanism for reporting can be achieved.

Table 5 List of interviewed companies

Company Name Contact Person Picture

Alvern Cables Mr Bongani Dunywa

Somta Tools Mr Imdren Naidoo &

Ms Bongi Zondi

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Ramsey Engineering Mr Marlin Govender

Shatterprufe Neave

Plant

Mr Mandla Msizi & Mr

Roger Dublanq

Vlok Pottery Ms Saras Ramcherita

LUK Clutches Mr Arno Vosloo

Magnador Mr Peter Bresler Jnr

Mandalay Coatings Mr Galiem Jacobs &

Mr Alvin Beukes

Bondtech Laminators Mr Mark Schnider &

Mr Jack Bodington

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Roto Label Mr Roy Clarke

Source: Original work of the author

As can be seen in the table above, 10 companies were visited in the week of 25th

to 29th

October 2004 and engaged in discussions about the topic. The interviews

were held in an informal manner as there wasn’t any specific list of questions that

they had to answer. Most companies preferred to take me to 1 or 2 of their green

areas and request the team leaders to explain the measurements at that level. As

such, only few companies chose to have a quick company tour and hold the

discussions about overall business performance. They are: Somta Tools,

Shatterprufe Neave Plant, Roto Label and to some extent, Magnador.

4.2 JUSTIFICATION FOR THE CONCEPTS

The following diagram is used to generate a common ground upon which to

understand the characteristics associated with the research from the perspective of

the author.

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Figure 15 WPC broad based outcomes

Source: Original work of the author

Manufacturing companies at different stages/levels of manufacturing capability

join the Workplace Challenge Programme with the objective of improving their

productivity and competitiveness. After the two years period of participating in

WPC and implementing best operating practice principles, the following broad set

of outcomes can be realised:

Improve

No change

Decline

Thus the reason to determine optimal measurement attributes within the

dimensions of Quality, Speed, Cost and Morale. Those attributes would be made

common for all WPC companies. The companies can choose to have more

performance measurement variables on top of the prescribed set of attributes.

4.3 RESEARCH PROCEDURES

According to Yin (2003:20), a research design can be defined as: “The logical

sequence that connects the empirical data to a study’s initial research question and

ultimately, to its conclusions”. According to Hussey & Hussey (1997:54),

“methodology refers to the overall approach to the research process, from the

1st Company

2nd

Company

Nth Company

Workplace Challenge

Programme

Improve

No change

Decline

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theoretical underpinning to the collection and analysis of data”. This directly maps

to the two main research paradigms, i.e. quantitative and qualitative research.

An illustrative case study approach is selected to establish a common

understanding with regard to the topic, i.e. gather data from a small number of

samples and make sure that the validity is high and derive meaning.

4.4 ETHICAL CONSIDERATIONS

According to Cooper et al (2003:135), ethics are norms or standards of behaviour

that guide moral choices about our behaviour and relationships with others. Ethics

differ from legal constraints, in which generally accepted standards have defined

penalties that are universally enforced. The goal of ethics in research is to ensure

that no one is harmed or suffers adverse consequences from research activities.

As research is designed, several ethical considerations must be balanced:

Protect the rights of the participant or subject.

Ensure the sponsor receives ethically conducted and reported research.

Follow ethical standards when designing research.

Protect the safety of the researcher and team.

Ensure the research team follows the design.

All the people who contributed towards data collection and assisted in discussions

will be acknowledged in the dissertation. Prior to that, a letter would be sent to

them informing them and asking for their consent to be quoted on the dissertation.

4.5 CONCLUSION ON METHODOLOGY

The lack of common understanding regarding productivity improvement and

performance measurement amongst the WPC companies led to a qualitative

approach instead of a quantitative method for data collection. This means, that,

agreement on the dimensions suggested will take a bit longer and varied

understanding could prevail. The next chapter will provide analysis and

interpretation of data.

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CHAPTER 5

ANALYSIS AND INTERPRETATION OF DATA

5.1 INTRODUCTION TO ANALYSIS

The improvement experienced by the companies can easily be attributed to where

WPC intervention is genuinely making a difference. As such, it becomes difficult

if not impossible to accredit WPC with company performances such as: sales

increase, new jobs created, increased market share, improved turnover, etc as it

was in the past. As such, this requires appropriate performance variables to be

defined to be able to make inferences for both instances of when there is lack of

performance and improved performances due to implementation of WPC.

5.2 SUBJECTS AND ISSUES

Here’s a summary of discrete extracts from the company discussions to highlight

critical issues arising from the discussions:

Ramsay Engineering: “The major challenge at the team levels is making

cost measurements uniform, as such they have numerous cost criteria.”

Vlok Pottery: “The quality and cost measurements include numerous

criteria and these are complicated by the different processes for making

pottery.”

Somta Tools: “All the teams measure the same attributes on QSCM.

Company wide performance is achieved by aggregating the scores for

each attribute as such goal alignment of the teams and that of the

organisation does not become a challenge.”

Roto Label: “Based on the measurements that are available, daily multi-

departmental short meetings are held for 30 minutes to improve the

efficiency of the production lines.”

Shatterprufe: “The overall Neave Plant business performance is derived

from the teams, and since they are uniform, it does not present a difficulty

to have these measurements aligned. The overview results provide a

summary for Quality, Speed and Cost.”

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Magnador: “Each of the 7 departments, measure their own performance

based upon what is important to them. The measurements are aligned to

the mission of the company.”

Mandalay Coatings: “Their measurements are relatively straight forward

and since they have only one team, the performance of the team forms the

basis for the overall business performance.”

Alvern Cables: “The QSCM measurements of the 12 teams are presented

at the business level as they are. This is due to the different measurements

undertaken by the teams especially for speed of production.”

Somta Tools: “Efficiency ratio, goal = 1.4, target is 1.1 It was agreed

here that these need to be interpreted in a simple way so that the teams

can understand it.”

It is evident that some companies such as: Shutterprufe, Roto Label and Somta

Tools have some established measures which can be aggregated throughout the

company. Companies have challenges with too many variables to measure under

the dimensions of QSCM.

The emerging issues that will be considered in formulating the universal

performance measures for the companies in the WPC programme are:

Type of processing (start-stop versus ongoing)

Customer interaction (made to order versus stock holding)

Level of mechanisation

Type of operation (job shop versus batch)

Seasonal effect

Product diversity

Literacy and numeracy level of education of the workforce

Attributes such as cost of production (Cost), efficiency (Speed), and waste

(Quality) were identified as important to any business and that they can be derived

from the green area performance measures. These attributes depend largely on the

morale aspect of the employees. The companies identified numerous factors that

they use to determine the morale of their employees such as (arranged by

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popularity): attendance, number of innovative suggestions, safety, and employee

satisfaction index.

5.3 CATEGORISATION OF DATA

The data can be clustered into the following meaningful groups as weighed up

from the summaries:

Table 6 Intended impact of the WPC intervention

Perspective Emphasis

Financial results Low

Customer satisfaction Low

Business processes Low to Medium

Learning & Growth Medium to High

Source: Original work of the author

The emphasis during the discussions was on the learning and growth

opportunities, the ability to change the employees’ attitude and behaviour in order

to achieve better results. Once the minds of the people are focused and convinced

as to why they should implement WPC, then the impact on the rest of the

dimensions would take place by virtue of having motivated employees, clear team

objectives and goals, clearly defined individual roles, increased teamwork, and

improved communications between management and employees.

The balanced scorecard enables an organisation to link its long-term strategy with

short-term actions, and moves away from relying solely on short-term financial

measures as indicators of performance. It complements the financial perspective

by adding value three additional ones: the customer, learning and growth, and

internal business process perspectives as can be seen in Table 6 above. All four are

indicators of performance. However, the financial perspective is a lagging

indicator, since organisational improvements may take some time to manifest in

financial rewards. The other three are adjudged leading indicators of performance,

since organisational improvements are immediately evident.

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5.4 PATTERNS OF DATA FOR EACH RESEARCH ISSUE

It became evident during the discussions that most companies do not align the

green area measurements with the overall business objectives. As such, measuring

performance of the companies is currently achieved via different channels. A

better way to integrate WPC into the company strategies is needed to present a

cohesive picture all the time.

WPC provides intervention at the productivity tier of the companies that are

participating in the programme. Inferences about other aspects of the companies

will not provide a true reflection of the WPC impact. Therefore, in order for

companies to become world-class, they must: reduce waste, reduce the cost of

production, and increase the quantity of products. For this to happen, they must

have motivated employees. The opposite is also true, that for any company to

achieve reduced cost of production, better quality and increased volume, they

must have motivated employees. The following table provides a summary of

measurements which are currently generated and comparison with deemed

importance and utilisation at the different organisational levels:

Table 7 Utilisation of measurements in WPC companies Type of measurement

Level of organisation Hard Soft

Management × √

Factory floor √ √

Source: Original work of the author

5.5 SYNTHESIS AND GENERALISATION

To establish priorities, the relative impact or importance of quality problems must

be determined. For internal quality problems, measuring the frequency of

occurrence is not sufficient. The best measure is costs. It is not very difficult to

estimate the cost of rework, scrap, downtime, idle time, or inventory. Determining

the cost of queue or delay time is a less tangible problem, but for a specific

process, it is possible to identify the effects of such delays.

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The cost figures that will be developed may only be rough estimates, but if the

same people make them using consistent ground rules, they will be a reliable

indicator of the relative cost of quality problems. They will also probably not be

terribly far off the true costs.

An important consideration in calculating the cost of rework and scrap is where a

problem is discovered in the production process. Every step in a process is

supposed to add value to the product. This increase in value, means that the cost

of a defect found at the end of the process is going to be much greater than finding

the same defect at the beginning of the process. The actual cost of any particular

defect would also depend on the nature of the defect, its severity, and other

product or process variables.

Any quality problem that gets to a customer must have a higher cost than just

correcting the problem. Consequently, for external customers, two quality costs

must be added to determine the true cost of a quality problem:

All the tangible costs of repair or replacement

The less tangible, but higher costs of the impact on the customer

satisfaction—increased selling costs, lost sales, and lost customers

Putting a cost figure on a customer dissatisfaction is not easy to do. In some

situations, it might be zero; in others, a few problems could result in the loss of an

important customer. Specific situations might be easier to quantify, but where a

physical product is concerned, multiplying the actual cost of repair or replacement

by a factor of five to ten is very reasonable. The basis for saying this, is analysis

of quality costs by one authority on the subject, which led him to conclude that the

long term cost of quality is at least six times what anyone can identify as tangible

costs.

For services, there is also rework cost that can be estimated. Costs should be

estimated as closely as possible, but for establishing priorities, what is important

is the relative size of costs or opportunities, not their precise value. If the method

of valuation is consistently applied, a 20% error is not going to make any

significant difference in priorities.

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Costs can be expressed in currency values, but it could take considerable time and

effort t put cost figures on everything, especially if the necessary financial data is

not available. An alternative is to use a weighting scheme and assign points to

quality problems according to their estimated actual costs. For example, assume a

process has four steps and within the process, three different degrees of defect

severity are possible:

1. Minor, requiring less than 10 minutes work to correct

2. Major – requiring an average of one hour to repair

3. Reject – the product must be scrapped

Points could be assigned to each category of defect, but as the product goes

through each process step, the cost of each defect is going to increase because:

More value is added to the product

The time required o correct problems is going to increase

There is a greater probability the repair will not be successful

The specific type of defect and its location on the product could also have a

significant effect on its cost. If so, that would add two more dimensions of

complexity to the matrix. This level of complexity may seem difficult to handle,

but it can be easily accommodated by relational database management systems.

There is no reason to shy away from using the degree of complexity necessary to

reflect what happens in a production process.

As experience is gained and the impact of quality problems becomes better

understood, point weights can be adjusted. Then, when the economics of

production process and the costs of customer dissatisfaction are determined, a cost

per point figure can be calculated based on an estimate of total quality costs and

the total quality points created for the same period.

With goods and services, value and quality costs increase with each successive

step of a process. Performance measures must reflect these cost relationships, but

general rules cannot be applied – it all depends on the production process and the

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customer. Using point weights to establish the cost relativity of quality problems,

is a way to get meaningful performance measures implemented without having to

do an exhaustive study of costs.

5.6 CONCLUSION ON ANALYSIS

It is clear from the discussions that the companies participating in the WPC

programme are at different levels of understanding operational measurement and

integrating the measures from the teams to the overall company performance. The

author argues that it is symptomatic of the lack of solid guidelines that was not

provided when they joined the programme.

One of the most critical aspects that will have to be considered is to address the

integration needed at company level. This should be embedded into the process of

standardising the performance measures across disparate industries and sectors.

Some companies such as Shatterprufe, Somta Tools, Ramsay Engineering and

Toto Label have ‘some established’ measures which have been used for a long

time. These companies could see these guidelines as undermining the “good” job

that they are already doing. It is a different scenario for smaller companies

especially such as Vlok Pottery, Mandalay Coatings, Bondtech and Alvern Cables

which, in the view of the author will be assisted by the guidelines to create a solid

foundation on operational performance reporting and will benefit them the most.

Either way, it is important for the WPC companies to be made aware that they can

continue with the measures that they have in place, as long as they view the

process to standardise the measures as the minimum requirements with credibility.

The measures should be independent of the company size, product types, size of

company, and industrial sector. It is further suggested that the measurements at

the cluster, region and nationally make use of percentages instead of actual units

quantity. The next chapter will look into the overall conclusions and implications.

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CHAPTER 6

OVERALL CONCLUSIONS AND IMPLICATIONS

6.1 INTRODUCTION TO CONCLUSIONS

In a world of perfect measurement, managers would be able to design optimal

performance measurement systems. The measures chosen would meet the

following requirements as indicated by Marshall W. Meyer (Ed. Neely, 2002:52):

There would be relatively few measures to keep track of, perhaps as few as

three financial measures and three non-financial measures. This is a matter

of parsimony. If there are too many measures, cognitive limits will be

exceeded and information will be lost.

The non-financial measures would predict subsequent financial

performance, in other words, the non-financials would serve as leading

performance indicators (and the financials as lagging indicators). Non-

financials not demonstrated to be leading indicators would be sidelined

unless, of course, they were tracked as matters of compliance, ethics, and

security – “most do’s” for the firms.

These measures would pervade the organisation – the same measures

would apply everywhere. Measures pervading the organisation can be

summed from the bottom to the top of the organisation and decomposed

downward, the latter giving managers’ drill-down capability. Measures

pervading the organisation, moreover, permit performance to be compared

across units.

The measurement system would be stable. Measures would evolve slowly

so as to maintain people’s awareness of long-term goals and consistency in

their behaviour.

People would be compensated for performance on these measures, that is,

for performance on both financial measures and the non-financial

measures known to be leading indicators of financial results.

Here are the reasons why such a measurement system does not exist:

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Firms are swamped with measures and the problem of too many measures

if anything is getting worse. It is commonplace for firms to have 50 to 60

top-level measures, both financial and non-financial. The longest list of

top-level measures I have seen contains 117 measures – 17 financial

measures, 17 customer measures, 19 measures of internal process, 35

measures of renewal and development, and 26 human resources measures.

Many firms, I am sure, have even more top-level measures.

Our ability to create and disseminate measures has outpaced, at least for

now, our ability to separate the few non-financial measures containing

information about future financial performance from the many that do not.

Some non-financial measures, such as customer satisfaction properly

measured, have been shown to predict financial performance (Anderson,

Fornell and Lehmann, 1994) but the jury is still out on most measures.

It is very difficult to find financial measures that both predict financial

performance and pervade the organisation. It is somewhat easier to find

financial measures that pervade the organisation, but keep in mind that

firms struggle to drive measures of shareholder value from the top to the

bottom of the organisation.

Performance measures, non-financial measures especially, never stand

still. With use they lose variance, sometimes rapidly and hence the

capacity to discriminate good from bad performance. This is the use-it-

and-lose-it principle in performance measurement. The result is a

continual shuffling of measures.

Compensating people for performance on multiple measures is extremely

difficult. Paying people on a single measure creates enough dysfunctions,

and paying them on many measures creates more. The problem is

combining multiple and often disparate measures into an overall

evaluation of performance and hence compensation. If measures are

combined formulaically, people will game the formula. If measures are

combined subjectively, people will not understand the connection between

measured performance and their compensation.

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6.2 CONCLUSIONS ABOUT THE RESEARCH PROBLEM

It is evident from the literature that the dimensions of quality, speed, cost and

morale (QSCM) provides a sufficient framework upon which to measure

performance improvements and competitiveness of the companies participating in

the Workplace Challenge programme. As such, the measures cannot be

aggregated at a company level to reflect a consistent performance improvement,

refer to first paragraph of page 77. Hence the need to exploit the research question

which in the view of the author is therefore relevant.

6.3 CONCLUSIONS ABOUT THE RESEARCH QUESTION

It is clear from the research findings that companies participating in WPC have

contrasting measurements within the dimensions of QSCM for different teams.

The measures were found to be company specific and not influenced by industrial

sector, product type, product variety, or the size of company.

The emerging ways of increasing productivity are as follows (as was also

indicated in the second paragraph of page 46):

Improve effectiveness

Improve process efficiency

Improve process flexibility

Improve the product efficiency

Improve motivation

The author is of the opinion that it is possible to draw a relation between the

dimensions stated above (with exclusion of the third dimension which still needs

to be defined better on how it will be measured) and the broad WPC objectives

exists in terms of increased employee and customer satisfaction (refer to figure

14).

Here is the relation (in this sequence):

Employee satisfaction is achieved by:

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o improved management decision making (effectiveness), because

WPC change management process encourages consultation of the

floor workers

o involvement and consultation in turn leads to improved

motivation/morale of the workers

Customer satisfaction is achieved by:

o improved product efficiency results in good quality benefits, and

o improved process efficiency results in good delivery and lower

costs

Therefore, the recommended universal performance measurements for the

companies in the WPC programme are as follows:

Morale (Employee Satisfaction Index and Number of implemented

innovations- this is beyond just employee attendance, but actually going

the extra mile and contributing innovative incremental ideas while at

work)

Quality (Defects expressed as a % of total throughput- this variable

includes rework and waste)

Speed (On time delivery of the right quantities- this is beyond just

throughput, efficiency, availability, and the like, as all of them make up

the equation towards fulfilling a customer request)

Cost (Cost of unit production- the aim of this variable is to capture all

costs that contribute towards the production cost of products, both variable

and fixed company costs should be factored into the calculation)

These formulation of the universal measures were guided by the emerging issues

identified during literature research as listed in page 63.

The author’s view is that, this rule of thumb should be followed when reporting

on the measures: “The goal must be to strive for adequate but valid measures

instead of highly accurate but invalid measures.” Therefore, the author argues

that it is better to record estimated values instead of precise values. This will help

the Workplace Challenge programme with reporting reliable and valid

performance of productivity improvements and competitiveness to the

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Department of Trade and Industry. And the aggregation will also be possible at

the company, cluster, regional and national levels.

6.4 IMPLICATIONS FOR THEORY

The recent literature in performance measurements must be tried and tested for

suitability in South African manufacturing companies, specifically with the WPC

programme objectives in mind. This needs to be introduced properly designed

case studies and change processes so as to give objective and extensive appraisal

of theories produced in this document.

6.5 LIMITATIONS OF RESEARCH

The following proved to be limiting the breadth and width of the research:

Lack of time to engage the WPC companies and other experts in the field

about the applicability of the literature findings and interpretation thereof.

The lack of definition and knowledge of performance measurements

amongst companies, this has only been treated anecdotally.

As such, the latter resulted in no quantitative research being undertaken

which could have strengthened the findings and conclusions. This is an

opportunity for future research.

6.6 FURTHER RESEARCH

The next stage of the dissertation will be to pilot the implementation of universal

QSCM variables in selected WPC companies (through a case study approach)

according to the guidelines provided in chapter 7 with adjustments where

necessary. This will include common definition of productivity improvement and

performance measurement. The results will be captured and set as minimum

requirements for all companies participating in the WPC programme.

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As indicated in the first paragraph of 6.2, the QSCM dimensions reflect the

performance of WPC companies adequately. Here are opportunities for follow-up

research:

A new dimension, i.e. process flexibility was found to be predominant in

most of literature and this aspect needs to be integrated in the WPC

measurements as well in order to reflect completeness of the performance

indicators.

The quality dimension needs to be explored further in terms of reporting

correctly based on where the defect occurs in the level of processing and

the extent of the defect through some kind of a weighted matrix.

The assessment of the impact of innovations on the Quality, Cost and

Speed dimensions needs to be investigated fully and a practical

mechanism is needed in this regard.

The next chapter will provide a plan for the implementation guidelines.

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CHAPTER 7

IMPLEMENTATION GUIDELINES

7.1 INTRODUCTION

According to Steyn and Schmikl (2003, 6:3), the Balanced Scorecard Programme

Management (BPSM) system delivers effective and efficient implementation of

strategies for transformation and change, as well as process-related work to satisfy

customers’ requirements in accordance with strategic objectives. Elsewhere in the

text, Wijnen and Kor are quoted as stating that projects and large tasks are unique

assignments that cannot be undertaken by just one department, nor can these can

be undertaken using existing standard procedures or improvisation. The result is

that organizations have to adopt programme management, which effectively and

efficiently provides the required framework for implementation. Projects

concentrate on realizing a single predetermined result, whereas programmes strive

for the achievement of a number of goals. The strategies developed by the

balanced scorecard approach are best implemented following a programme

management approach. This means that the management emphasis is on which

activities are essential to achieve organizational goals and objectives most

effectively and efficiently.

According to Steyn et al (2003, 2:34), when balanced scorecard (BS) guided

formulation and strategy description as well as criteria for measuring

organisational benefits are coupled with programme management (PM), A BSPM

system is created. The system enables integrated and coordinated management of

the organisation’s value chain processes from suppliers to external customers,

including implementation of project portfolios that enhance the effectiveness and

efficiency of the value chain.

At the heart of the BSPM system, is creating high-performance integrated project

and process teams that operate in a coordinated manner across functional

boundaries in the organisation. Outsourced teams, that enhance the organisation’s

capacity, are integrated into high-performance project and process teams. The

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actions and performance of the teams are coordinated and integrated by project

and process managers who maintain a continuous focus on customer’s needs,

irrespective of whether it is external or internal customer. Moreover, the project,

process and programme managers ensure that goals and objectives of the project

deliverables are aligned, and remain aligned, with the strategic objectives of the

organisation. Double-loop learning in team context promotes the innovative

continuous improvement actions so critical for success in both strategy

implementation and operations management. Moreover, double-loop learning

within high-performance teams enables quick response handling of emergent

strategies.

Figure 16 Project portfolios and process portfolios in the value chain

Source: Steyn et al (2003, 1:6)

There are certain key success factors that guide the implementation of a portfolio

of projects. First and foremost, the organization’s vision and mission must be

clearly defined and strategies developed to achieve it. Once the portfolio of

ORGANISATIONAL VALUE CHAIN

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TRANSFORMA

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PROJECTS

PORTFOLIO OF

CONTINUOUS IMPROVEMENT

PROJECTS

PORTFOLIO OF

CAPEX

PROJECTS

MAJOR BENEFIT:

ORGANISATIONAL

EFFECTIVENESS

MAJOR BENEFITS: ORGANISATIONAL

EFFECTIVENESS

AND EFFICIENCY

MAJOR BENEFIT: ORGANISATIONAL

EFFICIENY

PO

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strategies has been established, resultant projects must be prioritized to establish a

sequence of implementation. Efficient implementation requires knowledgeable

and skilled human resources. Once these resources have been selected and

organized into project teams, responsibilities for implementing the individual

projects in the portfolio must be allocated. All stakeholders engaged in

implementation must be assigned appropriate authority. The most important key

factor for success, is to engage maximum support from to leadership, also in the

form of building relationships of trust amongst the stakeholders.

Wijnin and Kor propose the following general criteria for managing strategic

organizational transformation and innovative change (continuous improvement)

programmes:

A tempo criterion, which gives priority to those actions that will speed up

the implementation process

A feasibility criterion, which reports those activities that increase the

probability of programme success. A typical example is new technology

that will enhance value while complying with the cost- benefit analysis

principle.

The efficiency criterion, which compares financial or quality values of

alternative activities, selecting the most beneficial ones.

The flexibility criterion, which is emergent in nature and determines the

extent to which activities can be changed during the life cycle of the

project or the programme. This criterion also determines the ease with

which capacity can be switched from one activity to another, as the

emergent situation may require.

Finally, the goal- orientation criterion, which assesses the relevance of all

the activities in the programme to the goals. This criterion determines that

highest priority be given to those activities making the greatest

contribution to the formulated programme’s goals.

For any strategic transformation and innovative change programme to be

successful, it is imperative that there be highly significant involvement of

executive leadership and to management. The importance of executive

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leadership’s and top management’s role-modelling functions cannot be

overemphasized. Research by Dugan, et al, underlines the significance of top

management support as a factor for achieving project and programme success.

Their findings are very relevant to strategic transformation and innovative change

programmes. They found that top management support is one of the most

profound factors for success over a project’s life cycle, hence the programme

duration. Their research also shows that appointing the appropriate project

manager is a further key factor for success over the project’s life cycle. To achieve

overall success it is imperative that programme and project mangers enjoy

maximum support from executive leadership, top management and functional

management.

In setting up and planning the BSPM-based system process for managing

transformation and change, cognisance must be taken of Lewin’s change model,

Kotter’s eight steps for leading organisational transformation and change, as well

as Connor and Lake’s change strategies. Lewin’s change model of unfreezing old

paradigms and ways of working, changing these, and refreezing the

improvements, provides a high-level holistic framework for transformation and

change. Kotter proposes eight steps to be followed by executive leadership for

leading organisational transformation and change. These steps are essential for

achieving success. Connor and Lake’s change strategies draw attention to four

important generic change strategies that should be focused on, namely: political;

attitudinal; informational and facilitative.

Kotter’s proposed eight steps for leading organisational transformation and

change:

Establish a sense of urgency

Create the guiding coalition

Develop a vision and strategy

Communicate the change vision

Empower broad-based action

Generate short-term wins

Consolidate gains and produce more change

Anchor new approaches in the culture

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An adaptation of Harvey and Brown’s view is shown by the following figure. To

succeed with strategic transformation and change, all three approaches shown

must be strongly supported by leadership – executive leadership in particular.

Figure 17 Organisational improvement model

Source: Steyn et al (2003, 6-14)

The feasibility of these methods will depend on their relationship to existing cost

accounting procedures or on the ability of the firm to modify its accounting

procedures without incurring excessive costs.

The same proponents of the balanced scorecard argue that scorecard measures can

and should be used to manage strategy, in other words to gauge progress toward

strategic objectives. The scorecard, it is argued, helps translate a firm’s strategic

vision into quantitative measures of success, communicate the vision by setting

goals, and learn from experience by comparing results with expectations. This

ORGANISATIONAL

STRATEGY

Behavioural

Strategy

Structural

Strategy

Technical

Strategy

Change Attitudes &

Values

Change Org

Architecture &

Design

Change Operation &

Methods

New

Behaviours

New

Relationships New Processes

TRANSFORMED ORGANISATION AND IMPROVED PERFORMANCE

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claim is nearly irrefutable: a strategic vision cannot be implemented in any large

organisation until measures and milestones are put in place, and a strategy cannot

be tested until results are compared with expectations. Meyer (2002: 183).

The rows of Figure 18 show the four major categories of scorecard measures –

financial, customer, internal process, learning and innovation – over time. The

columns on which the rows are superimposed represent performance in the four

scorecard categories at different points in time, for example quarterly results in

these categories. Initially, the value of the scorecard was believed to lie in the

columns, in its capacity to capture the performance of the firm in a set of financial

and non-financial measures. This objective has proved elusive, and the columns

shown in Figure 18 have largely disappeared from discourse surrounding the

scorecard. The rows remain. The rhetoric bout transforming strategy into action

notwithstanding, the scorecard has become a device for tracking progress toward

financial and non-financial targets, which are derived intuitively from the firm’s

strategy.

Figure 18 The changing significance of the balanced scorecard

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Source: Meyer (2002: 184)

There is nothing wrong, in principle, with using the balanced scorecard

framework to organise the implementation of strategy provided some hidden

assumptions are recognised. One hidden assumption is this: the strategy of the

firm originates in the vision of senior managers, and choices among strategic

alternatives remain the prerogative of senior management. To be sure, overall

financial targets, capital allocation, and corporate imperatives – the must-dos of

business – will remain senior management prerogatives. Another hidden

assumption is that connections between high-level strategic objectives and

specific measures applied at the operating level can somehow be intuited. The

strategy maps recommended by proponents of the balanced scorecard help to

organise the process of intuiting connections between high-level strategic

objectives and operational measures, to be sure, but the connections are derived

intuitively nonetheless.

Financial performance

Performance for the customer

Internal process performance

Learning and innovation performance

Time

Strategic objective

Strategic objective

Strategic objective

Strategic objective

Performance

of the firm

Performance

of the firm

Performance

of the firm

Ten years ago scorecard measures captured the performance of the firm

Today scorecard measures track progress toward strategic objectives

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The second paragraph of 5.6 (page 80) refers to lack of integration between the

teams and overall company performance. Table 6 on page 76 specify where the

emphasis of the WPC programme is directed in terms of the four Balanced

Scorecard perspectives. The BSC is seen as a tool to clearly define expectations

and outcomes as a result of implementing the WPC programme. The key

performance indicators and key successes indicators can be interlinked to provide

improved integration. From figure 16, the WPC programme is much suited to the

portfolio of continuous improvement projects resulting in effectiveness and

efficiency for the customer. The WPC programme change management process is

summarised by figure 17 with all the three approaches applicable at different

phases of the programme life-cycle.

7.2 APPLICABILITY WITHIN WORKPLACE CHALLENGE

PROGRAMME

A detailed schedule of activities (in sequential order) for implementation of the

universal performance measurement guidelines is as follows:

Table 8 Implementation schedule

ITEM DESCRIPTION PERIOD RESPONSIBLE

1 Communicate new reporting

mechanism with companies

and facilitate implementation

1-09-2005 to 15-

12-2005

WPC Change

Facilitators, WPC

Regional Project

Managers

2 Present the new performance

indicators to DTI and obtain

buy-in

16-01-2006 to 20-

01-2006

WPC Programme

Manager

3 Obtain further modifications.

Entrench the practice within

WPC. Finalise and approve

23-01-2006 to 27-

01-2006

WPC Programme

Manager

4 Obtain performance

measurements from individual

companies during monthly

Starting on 31-04-

2006 and every

month thereafter

WPC Change

Facilitators

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Chapter 7 Implementation Guidelines

95

audits

5 Compile cluster performances

and submit to Programme

Manager on a monthly basis

31-04-2006 to 31-

03-2007

WPC Regional

Project Managers

6 Integrate performance of all

clusters and regions on a

monthly basis

31-04-2006 to 31-

03-2007

WPC Programme

Manager

7 Report periodically to DTI During Joint

Committee

sessions with DTI

and at the end of

the financial year

WPC Programme

Manager

Source: Original work of the author

Here is how the data will be presented:

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96

Table 9 Calculation of performance indicators

Source: Original work of the author

Notes:

a) Improvements are calculated from the comparison between target versus

actual of the different dimensions as determined by the individual

companies.

b) The values are expressed as percentages.

c) Trends are plotted from the reported figures as performance is compared

over a period of time.

d) The company results must be consolidated according to the four

dimensions of quality, speed, cost and morale.

WPC COMPANIES PERFORMANCE MEASUREMENT SYSTEM

DIMENSION VARIABLES

AVERAGE SCORE

PER FACTOR

SCORE BY COMPANY SIZE (TOTAL PER CATEGORY)

Small Medium Large Corporate

Quality

Defects (1st time right quality expressed as % of the total

throughput)

Speed

On-time delivery of the right quantities (comparison between

actual delivery time vs planned delivery time, expressed as %)

Cost

Total production cost (i.e. estimated cost of producing 1

product, expressed as a percentage i.t.o savings/cost reductions from

actual/standard)

Morale

Employee Satisfaction

Index

Aligned goals

Constructive/useful participation

Teamwork

Motivated employees

Number of implemented Innovations

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Acronyms

100

ACRONYMS

ABC: Activity Based Costing

ABPA: Activity Based Profitability Analysis

BICIT: Best In Class Improvement Tools

BOP: Best Operating Practice

BSPM: Balanced Scorecard Programme Management

DTI: Department of Trade and Industry

EID: Enterprise and Industry Development

ESI: Employee Satisfaction Index

IDC: Independent Development Corporation

ISO: International Standards Organisation

JIT: Just In Time

LMA: Labour Market Alternatives

MDWT: Mission Directed Work Teams

NEDLAC: National Economic Development and Labour Council

NPI: National Productivity Institute

PLC: Plant Level Committee

PPM: Parts Per Million

SABS: South African Bureau of Standards

SGA: Small Group Activity

SMME: Small, Micro, and Medium Enterprises

TQM: Total Quality Management

WCM: World Class Manufacturing

WIP: Work-In-Progress

WPC: Workplace Challenge Programme

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APPENDIX 1

INTERVIEWS WITH THE TEN WPC COMPANIES

This chapter provides the details of the discussions with each company.

Alvern Cables (Summary of discussions with Mr Bongani Dunywa on 26 Oct 04,

08:45 – 09:15)

The QSCM measurements of the 12 teams are presented at the business

level as they are. This is due to the different measurements undertaken by

the teams especially for speed of production. They would be very

interested on NPI assistance to formulate a uniform measure for the speed

attribute. The relevance of the study is already being realised to be

important and can make a substantial difference. As such, they show great

interest in the outcome of the study.

Employees are lowly skilled, as such the measurements should be as easy

as possible. They have just enrolled their workers on the Adult Basic

Education & Training programme to increase their literacy and numeracy

skills.

Focus must be on the production environment, build the contribution of

the support functions such as HR, Finance, IT, Logistics, Transport, etc.

around the production function of the organisation at least for the purposes

of the study.

Somta Tools (Summary of discussions with Mr Imdren Naidoo and Ms Bongi

Zondi on 26 Oct 04, 11:30 – 12:20)

All the teams measure the same attributes on QSCM. Company wide

performance is achieved by aggregating the scores for each attribute as

such goal alignment of the teams and that of the organisation does not

become a challenge.

The major part of the discussions was around the company wide

production goals which provided an impetus into the whole topic of

uniform measurements.

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Efficiency ratio, goal = 1.4, target is 1.1 It was agreed here that these need

to be interpreted in a simple way so that the teams can understand it.

Backorders overdue, it is currently at 2 times the capacity levels and

growing. The company have devised plans by prioritising jobs and

focusing on the backorders to get rid of them and then deliver on the

current orders. The Managing Director of the company is involved in this

regard and feedback about leadership of this company is overwhelming

and as such this should only be a temporary measure. Among other things

that they need to do, is to align the goals of the sales department with the

practical capacity possible in the production department.

Output at standard cost. Here the target for the amount of sales required

per week is monitored. They need to measure in actual units for ease of

interpretation.

Right, first time quality. They need to measure in actual units for ease of

interpretation.

Ramsey Engineering (Summary of discussions with Marlin Govender on 26 Oct

04, 12:40 – 13:20)

Busy with transforming their production teams to migrate to a cell

systems/format so that the teams are arranged in such a way that they

produce a final product at the end of the production chain. The company is

busy with building and extending the production capability with new

installations underway.

The major challenge at the team levels is making cost measurements

uniform, as such they have numerous cost criteria.

The company has been able to achieve zero parts per million over a

considerable time period and the next level is to sustain it there especially

with their major customer reducing the scrap target levels from 50 p.p.m.

to 30 p.p.m. The MD of the company spent substantial time recently in

Japan at Toyota City to learn about producing automotive components at

zero defect rates.

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Shatterprufe Neave Plant (Summary of discussions with Mr Mandla Msizi and Mr

Roger Dublanq on 27 Oct 04, 09:00 – 11:20)

The plant level performance is uniform for all the teams.

They measure two criteria for each attribute of QSCM and they have also

added safety as another attribute.

The drive of the company is about increasing the dialogue between the

employees and therefore the emphasis is on the softer aspects in the

production environment.

Innovation is considered to be very important for sustenance of the

business. The Plant Manager is the innovation champion and this

behaviour is cascaded to the rest of the functional managers. The rewards

for innovation are built around the profit sharing scheme where the

bonuses for end-of-year are displayed depending on performance. The

linking was made so as to have longer-term sustainability. The teams

decide how to celebrate innovations and request petty cash from their

manager for such celebrations.

The overall Neave Plant business performance is derived from the teams,

and since they are uniform, it does not present a difficulty to have these

measurements aligned. The overview results provide a summary for

Quality, Speed and Cost.

Here is a summary of the whole system as seen by the Plant Manager Mr

Roger Dublanq: It starts with prediction of the order fulfilment by making

use of the 2 internal measures per attribute, putting a plan in place to

monitor compliance, the plan is derived from known output rates and

comparing with determined targets, as such the company can be forced to

decline orders or prioritise orders and sometimes extra orders present an

opportunity for growth. The criteria for declining orders are clear and well

thought through.

In terms of what other measurements would have an impact if correctly

reported to DTI, he suggested the following: job growth, cost reduction,

employment. They have been able to achieve the following results in real

terms over the period of 1 to 1.5 years since joining WPC: 10-15% in cost

reduction and achieved 7% employment growth.

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The amount of new jobs generated by companies participating in WPC

would be a very good measure especially for convincing politicians to

extend the programme, however it would be difficult to accurately gauge

WPC contribution in that regard. In the same vein, it will be difficult to

make inferences about WPC contribution towards increase in sales and

increase in market share.

Vlok Pottery (Summary of discussions with Ms Saras Ramcherita on 27 Oct 04,

11:40 – 12:15)

They have difficulty in setting targets for producing pottery because they

do not produce based on a specific customer order.

Currently busy with a new way of capturing the output rate, very much

experimental and trying to refine it.

The quality and cost measurements include numerous criteria and these are

complicated by the different processes for making pottery.

The company wide goals are achieved by aggregating the team scores.

LUK Clutches (Summary of discussions with Mr Arno Vosloo on 27 Oct 04,

12:45 – 14:05)

They have 21 teams, of these, 2 are based in Johannesburg (Warehouse

and sales/marketing).

The teams have implemented modules 1, 2, 3 & 8. They will start module

7 in Feb 2005.

The discussions started in the warehouse green area and commenced into

the commercial vehicles clutch assembly green area. In the latter, the

clutch parts are organised around a rotating table timed with about 5

operators each inserting a specific component of the final product, the

clutch is then balanced, each finished clutch is tested for movement of the

parts. It is noted that the testing bench could also damage the clutch if for

example it is wrongly inserted, and such mishaps increase the rate of failed

products.

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The target for scrap for the final product is set at 0.04%. The relation

between the quality targets for the first stage processes and the final

product is not clearly spelt out and this was discussed at length. Their

approach is to set stricter parameters in the initial stages rather than at the

end of assembly of final product. It is apparent that the quality

performance for the whole company is measured separately for each green

area.

Magnador (Summary of discussions with Mr Peter Bresler Jnr. on 28 Oct 04,

09:00 – 11:10)

The introduction of the WPC programme had a positive impact on mind-

shift change and the overall business performance.

Initially, the workers and management were pulling in different directions,

and the first module in the MDWT’s approach, i.e. Goal Alignment helped

to get this right and as such seen to be relevant.

The teams are critical about each other and how the negative actions of

anyone of the teams can affect performance.

Each of the 7 departments, measure their own performance based upon

what is important to them. The measurements are aligned to the mission of

the company, i.e. produce within 5-7 days, install and deliver within 12-15

days.

In terms of innovation, a clear criteria is used and points are awarded to

quantity of ideas (importance = 70%) and quality (importance = 30%).

A profit sharing scheme is in place based on accumulated performance

over the whole year

An accounting package (QuickBooks Pro) was introduced in July to be

able to account accurately for the performance of the company at any time

by generating balance sheet, cash flow and income statements. This would

help to have a better control of especially variable company cost, and

create reliable projections. The company intends to adopt a transparent

approach about decisions regarding finances.

In terms of the process, focus is on the starting point as this represents the

critical link in manufacturing. The output rate is compared to the input rate

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to identify any bottlenecks. The individual team scores are summed up to

generate a company performance.

MDT-3 measurements are as follows:

o Quality: Jobs completed correctly the first time (target = 95%)

o Speed: To deliver on time (target = 90%)

o Cost: Reduce waste (target = R15 000)

o Morale: Attendance, Innovation, Safety (target = 98%)

With regard to the tools and techniques: It is felt that there are too many

modules, they can be reduced by combining a number of them, the cost

can thus be driven down which would be appreciated by smaller

companies, thus enabling the grant to be spread wider, this would be

suitable to especially low skilled workers in the manufacturing industries,

the complex tools can be applied to the high tech/advanced companies

The company contributes towards public outreach by taking people from

the local community and teaching them skills such as welding, grinding,

galvanising, etc. at no cost to the candidates.

Mandalay Coatings (Summary of discussions with Mr Galiem Jacobs and Mr

Alvin Beukes on 28 Oct 04, 11:30 – 12:30)

SABS was impressed with the MDWT implementation and the visual

measurements with production targets; this was highly recommended as a

suitable approach to implement ISO accreditation successfully.

They have established factory and workplace check sheets as part of the

Visual Workplace module and the colleagues are checking on one another

to make sure that measurements are taken down correctly.

Their measurements are relatively straight forward and since they have

only one team, the performance of the team forms the basis for the overall

business performance.

The incentive scheme is put is place to reward acceptable behaviour.

Factors such as absenteeism, job related injuries, wasting paint, etc. leads

to less bonus paid out at the end of the year for the individual.

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Bondtech Laminators (Summary of discussions with Mr Mark Schnider and Mr

Jack Bodington on 28 Oct 04, 13:00 – 14:50)

According to the MD, “WPC implementation helped to rescue the

company from going down”.

WPC provided the opportunity to measure performance of the business,

analyse and dissect the results. This helped the company to assess new

areas for product diversification.

The availability of performance measures has enabled the company to

survive the difficult market conditions that they are faced with, amongst

others: high staff turnover (40%), social issues, sick leave abuse, and

imports from the Far East countries especially China.

On a positive note, they have been able to negotiate with the unions to

financially compensate good workers. This system is based on clear

criteria: i.e. going beyond call of duty, innovation, consistency,

attendance, etc. The idea here is to encourage an optimistic behaviour in

the workplace.

They use the high attrition rates to attract better qualified employees.

Roto LABEL (Summary of discussions with Mr Roy Clarke on 28 Oct 04, 15:00

– 17:00)

The company makes use of PRISM, an online computer program to

monitor plant production performance based on 7 x B200 printing

machines. The following parameters can be measured on any job: machine

setup times, the run, quantity, waste (determined by comparison between

planned input materials versus actual materials used). The system provides

valuable statistics which would otherwise be impossible considering that

they could run as much as 60 different jobs per day.

Factory attributes are as follows:

o Reject rate (includes both internally and customer end)

o Shortages

o Cost (additional raw materials)

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108

Based on the measurements that are available, daily multi-departmental

short meetings are held for 30 minutes to improve the efficiency of the

production lines and follows the following format:

o Identify any problems

o Identify any rejects

o Identify any time lost

o Action items are formulated, prioritised and the improvement is in

line with ISO procedures. These efforts are led by a continuous

improvement officer. They appointed the best industrial

engineering student from Peninsula Technikon for that position.

The gain sharing scheme is put in place to drive the acceptable behaviour

that will be required in order to achieve excellent business results. The

criteria are clearly spelt out and performance is displayed on the factory

floor.

Suggestions for generic measurements include attributes such as:

o Gross profit per 1 Rand spent on salaries (i.e. output minus direct

input)

o Efficiency

o Cost of production

o Output per asset

o The WPC impact on the workers

o Return on money invested by NPI/DTI on WPC

Another suggestion was to measure the benefit of WPC on companies via

a simpler survey, to measure attributes such as:

o Level of knowledge after WPC implementation

o Relationship with superiors/supervisors

o Relationship with co-workers

o Relationship with subordinates

o Knowledge of the business

The surveys should be designed to measure both hard and soft

measurements at management and factory floor levels. Measuring using

percentages would be suitable rather than using actual units.

The input from the factory floor is important as this is where the impact is

being experienced due to WPC implementation.

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109