Progress in Performance Management: Marc Helmold Warda Samara

Management for Professionals
Marc Helmold
Warda Samara
Progress in
Performance
Management
Industry Insights and Case Studies
on Principles, Application Tools,
and Practice
More information about this series at http://www.springer.com/series/10101
Marc Helmold • Warda Samara
Progress in Performance
Management
Industry Insights and Case Studies
on Principles, Application Tools,
and Practice
Marc Helmold Warda Samara
IUBH IUBH
Berlin, Germany Berlin, Germany
ISSN 2192-8096 ISSN 2192-810X (electronic)

ISBN 978-3-030-20533-1 ISBN 978-3-030-20534-8 (eBook)
https://doi.org/10.1007/978-3-030-20534-8
# Springer Nature Switzerland AG 2019

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With many little strokes a large tree is felled
(Japanese proverb)
About the Book
The book Progress in Performance Management—Industry and Case Studies on

Principles, Application Tools and Practice outlines how organizations and
enterprises will achieve excellence in performance management in a systematic,
professional and effective way, thus securing long-term competitive advantages. The
book has several unique selling propositions (USPs). It is written by two experts in
performance management from industry and from academia. The book has many
practical examples and cases of performance excellence. Included are here the
practical experiences of the authors Prof. Helmold (M.B.A.) and Warda Samara
(M.L.M.) from exposures to international organizations. Performance excellence is
outlined by explaining concepts and tools along the value chain of organizations.
The book is a very good symbiosis of theoretical frameworks existing and the
application in the producing industry, the service sector and the public sector. The
tools, industry examples and cases of the book show many best practices and have
therefore significant relevance to industry and academia.
Performance management (PM) must be an integral part of any organization or
enterprise. PM activities integrate the performance measurement, performance man-
agement and the permanent performance improvement. The key questions to this
are: “What is performance management? How can I measure performance? Where
do I measure performance? How is your performance measured externally? How do
I improve my performance across the value chain?
PM is therefore described as an applied, systematic and structured approach of the
successful management of enterprises, systems, processes, employees, departments
and organizations to ensure that goals and objectives are being reached efficiently
and effectively. The book is targeting practitioners at managerial and staff level, who
contribute directly or indirectly to the value chain like procurement, operations,
marketing, sales, human resources and finance or quality management. Secondly,
lecturers and professors will be able to enhance their teaching and research. Finally,
students at bachelor’s and master’s levels in business, engineering or other
disciplines will get in-depth insights into performance management. The book
contains many practical examples and case studies.
Chapter 1 outlines the existing gap in industry and academia in PM to look at PM
from a more holistic viewpoint across the entire value chain with primary (procure-
ment, operations and marketing) and secondary functions (finance, HR, IT) and find
suitable frameworks for professional and practice-oriented international
vii
viii About the Book
negotiations. Although the market offers several books in PM, practitioners and
academics stress that these books are limited to organizational performance or
financial performance.
Chapter 2 displays how PM must be part of the corporate strategy. Strategy
phases contain the strategic analysis, choice and implementation. It is important
that PM is properly executed in line with the long-term aspiration and intent of the
organization.
Chapter 3 shows the pitfalls of quantitative and qualitative methodologies in
PM. In many cases, it is recommendable not to rely on either quantitative or
qualitative approaches as both methodologies have weaknesses in terms of data
reliability.
Chapters 4, 5 and 6 focus on the primary value chain functions like procurement,
operations, marketing and sales.
Chapter 4 outlines the upstream value chain or supply side. As organizations are
increasingly shifting non-core activities to suppliers (outsourcing), it is important
that the supply side is managed well performance wise.
In Chap. 5, PM tools in operations are explained. 5S, the elimination of waste and
the focus on value-adding processes are the key success factor for performance
excellence. The chapter ends with the description of lean principles.
PM in marketing and sales is illustrated in Chap. 6 (downstream). This function is
the interface between customers and the demand side; therefore, it is a key activity to
understand customer requirements, which can be transmitted into the organization.
Chapter 7 shows PM excellence models and concepts like the balanced score card
(BSC), quality management systems (QMS), the European Foundation for Quality
Management (EFQM), the Baldrige excellence model (BEM) or the performance to
excellence model (P2EM).
Chapter 8 illustrates important tools that are of practical relevance like macro
(PESTEL analysis) and micro (Porter´s five forces) analyses. PM tools can be used
effectively in industry and service sectors as part of improving performance.
Chapter 9 concentrates on PM in complex projects. Project management has
certain characteristics and is often executed in cross-functional teams. Projects are
time-limited and unique, so that PM plays a significant role in this context.
Chapter 10 outlines financial PM including ratios and financial tools like the P &
L account, the cash flow statement or the balance sheet. This section gives
recommendations for organizations which face financial stress.
Chapter 11 illustrates PM in non-government and non-profit organizations. The
final case study shows how performance can look like in public organizations.
Chapter 12 outlines PM in the area of the support function human resources (HR).
HR has the responsibility to create an environment in which employees and
managers can develop superior performance.
Chapter 13 describes PM in the light of industry 4.0 and artificial intelligence
(AI). The fourth industrial revolution and AI technologies have severe impacts on
global value chains, which necessitates applying specific PM aspects.
Chapter 14 is the last chapter. It describes PM in different cultures and in the
context of international environments.
About the Book ix
The book Progress in Performance Management—Industry and Case Studies on

Principles provides readers a holistic and pragmatic approach towards performance
management throughout the value chain. The book outlines how performance
management can be utilized in the optimum way and as concept to achieve a
competitive advantage and superior performance. It draws from a large number of
best practices, case studies and examples from industry. In this context, performance
management plays a fundamental role in any organization and must focus on
primary functions, such as supply, operations and sales, and secondary functions
like finance, human resources or information systems. Best practices and cases could
be derived from the experts themselves with broad industry experience, from
industry experts and from research. This book about best-in-class performance
excellence is the ideal guide for any organization to achieve competitive advantages
across all company functions and to emphasize value-adding activities.
Berlin and Hiroshima Marc Helmold

Freiburg and Palestine Warda Samara
Acknowledgements
In today’s world, people, enterprise, organizations or countries are competing with

each other and striving for excellence in performance. The book Progress in
Performance Management—Industry and Case Studies on Principles, Application
Tools and Practice has been written by two authors with different but complemen-
tary backgrounds in performance management in international organizations.
The knowledge and experience of the two authors helped to create a unique book
in performance management with numerous unique selling propositions (USPs).
Prof. Helmold had several top management positions in leading companies in
Germany, the Czech Republic, Japan and China. Currently, he teaches performance
management, supply chain management and negotiations in the international context
at the IUBH University in Berlin and other universities in the UK and China. He also
supports companies in supply, performance or project management. Warda Samara
acts as a performance management consultant in non-government (NGO) and
government excellence projects. The collaboration of different personalities with
their individual strengths has led to a unique book, which can be at present regarded
as one of the most advanced books in this field.
The book would not have been possible without the implicit and indirect support
of practitioners, academics and students at doctoral and master’s levels. For practical
relevance, the authors appreciate the input from professionals in many industries and
from public organizations. Additionally, many of the impulses come from students
of the IUBH university campus studies in Berlin. The authors hope that the book will
also contribute to understand other countries and cultures in a better way, as they are
convinced that diversity and intercultural experience in enterprises is a key success
factor in a highly competitive environment. We would like to thank our colleagues,
students and friends for giving us the impulse to write this book with many USPs.
Finally, the authors would like to thank Springer International, especially
Dr. Prashanth Mahagaonkar and Ruth Milewski, for the professional and smooth
completion of this project.
Berlin, April 2019
Marc Helmold
Warda Samara
xi
Contents
1 Performance Management (PM) Over the Entire Value Chain . . . . 1

1.1 PM Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 PM Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 PM in the Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 The QCDT-Plus Alpha Concept in Performance Management . . 7
1.4.1 Quality Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4.2 Cost Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4.3 Delivery Objectives . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4.4 Technology Objectives . . . . . . . . . . . . . . . . . . . . . . . 12
1.4.5 Alpha Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.5 Performance Management in the International Context . . . . . . . 13
1.6 Case Study: PM Audit of the Berliner Verkehrsgesellschaft
(BVG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2 PM as Integral Part of the Corporate Strategy . . . . . . . . . . . . . . . . 25
2.1 Definition of Strategic Management . . . . . . . . . . . . . . . . . . . . . 25
2.2 Strategic Triangle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3 Strategic Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.4 Strategic Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.5 Strategic Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.5.1 Assessment of Suitability, Acceptability
and Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.5.2 Suitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.5.3 Acceptability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.5.4 Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.6 Strategic Pyramid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.6.1 Mission and Vision . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.6.2 Goals and Objectives . . . . . . . . . . . . . . . . . . . . . . . . 33
2.6.3 Core Competencies . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.6.4 Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.6.5 Strategic Architecture and Infrastructure . . . . . . . . . . . 34
2.6.6 Control and Execution (Actual Versus Plan) . . . . . . . . 34
xiii
xiv Contents
2.7 Strategies Must Focus on Performance . . . . . . . . . . . . . . . . . . . 35

2.8 Case Study: Siemens Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 36
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3 Excellence in PM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 Quantitative and Qualitative Performance Indicators . . . . . . . . . 39
3.1.1 Quantitative Research . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1.2 Qualitative Research . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.2 Definition of Key Performance Indicators . . . . . . . . . . . . . . . . . 40
3.3 Definition of Objective Key Results . . . . . . . . . . . . . . . . . . . . . 41
3.4 Case Study: Quantitative and Qualitative Data in Bombardier . . 41
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4 PM in the Upstream Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1 PM in the Upstream Value Chain . . . . . . . . . . . . . . . . . . . . . . . 51
4.2 Concentration on Core Competencies . . . . . . . . . . . . . . . . . . . . 52
4.3 Phases in Supply Management . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.4 PM in the Upstream Value Chain: Supply Networks . . . . . . . . . 54
4.4.1 Raw Material Suppliers . . . . . . . . . . . . . . . . . . . . . . . 55
4.4.2 Components and Parts Suppliers . . . . . . . . . . . . . . . . 56
4.4.3 Systems Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.4.4 Integrated and Keiretsu Suppliers . . . . . . . . . . . . . . . 57
4.4.5 Supplier and Commodity Segmentation . . . . . . . . . . . 58
4.5 Strategic PM in the Upstream Value Chain . . . . . . . . . . . . . . . . 58
4.5.1 Strategic Supplier Management and Segmentation . . . 58
4.5.2 Value and Competitive Advantage of Supplier
Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.6 Supply Management Process . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.7 Case Study: Supply Blockchains at Mercedes-Benz . . . . . . . . . . 64
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5 PM in Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.1 Definition of Operations Management . . . . . . . . . . . . . . . . . . . 67
5.2 Optimizing Performance Through Lean Production . . . . . . . . . . 68
5.2.1 Value Adding Activities and Waste . . . . . . . . . . . . . . 68
5.2.2 Ishikawa Diagramme to Identify Waste . . . . . . . . . . . 69
5.2.3 Advantages and Disadvantages . . . . . . . . . . . . . . . . . 70
5.2.4 5S-System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5.3 Seven Types of Waste in Operations . . . . . . . . . . . . . . . . . . . . 73
5.3.1 Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.3.2 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
5.3.3 Motion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.3.4 Waiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5.3.5 Overproduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5.3.6 Over-Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
5.3.7 Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Contents xv
5.4 Principles of a Just-in-Time Production System . . . . . . . . . . . . . 78

5.4.1 Zero-Defect Principle . . . . . . . . . . . . . . . . . . . . . . . . 81
5.4.2 Pull Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.4.3 Flow Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
5.4.4 Tact Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.5 Innovation Versus Kaizen . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.6 Andon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
5.7 Poka Yoke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.8 Gemba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.9 Shadow Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
5.10 Health, Safety and Environment . . . . . . . . . . . . . . . . . . . . . . . . 87
5.11 Case Study: Porsche Using Lean Principles . . . . . . . . . . . . . . . 88
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
6 PM in the Downstream Value Chain . . . . . . . . . . . . . . . . . . . . . . . . 91
6.1 Managing Performance in the Downstream . . . . . . . . . . . . . . . . 91
6.2 Marketing Mix (7 Ps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
6.3 Incoterms 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
6.4 Vendor-Managed Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
6.5 Efficient Consumer Response . . . . . . . . . . . . . . . . . . . . . . . . . 95
6.6 Enterprise Resource Planning System . . . . . . . . . . . . . . . . . . . . 95
6.7 Case Study: Airbus and AirSupply . . . . . . . . . . . . . . . . . . . . . . 95
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7 PM Models and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
7.1 Balance Score Card (BSC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
7.2 Quality Management Systems (QMS) . . . . . . . . . . . . . . . . . . . . 103
7.3 European Foundation of Quality Management (EFQM) . . . . . . . 104
7.3.1 Concept of the EFQM . . . . . . . . . . . . . . . . . . . . . . . . 104
7.3.2 Continuous Process . . . . . . . . . . . . . . . . . . . . . . . . . 106
7.3.3 Self-Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
7.3.4 Application of the EFQM model . . . . . . . . . . . . . . . . 106
7.4 Baldrige Excellence Model (BEM) . . . . . . . . . . . . . . . . . . . . . . 106
7.5 Business PM Improvement Resource Model (BPIR) . . . . . . . . . 107
7.6 Performance Management to Excellence Model (PM2E) . . . . . . 108
7.7 Case Study: EFQM by BMW . . . . . . . . . . . . . . . . . . . . . . . . . 110
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
8 Tools in PM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
8.1 PESTEL Analysis (Environmental Forces) . . . . . . . . . . . . . . . . 111
8.1.1 Categories of the Model . . . . . . . . . . . . . . . . . . . . . . 111
8.1.2 Benefits of the Model . . . . . . . . . . . . . . . . . . . . . . . . 113
8.2 Porter’s Five Forces (Industry Analysis) . . . . . . . . . . . . . . . . . . 114
8.2.1 Benefits of the Model . . . . . . . . . . . . . . . . . . . . . . . . 114
8.2.2 Competitive Rivalry . . . . . . . . . . . . . . . . . . . . . . . . . 114
8.2.3 Bargaining Power of Suppliers . . . . . . . . . . . . . . . . . 114
8.2.4 Bargaining Power of Buyers . . . . . . . . . . . . . . . . . . . 115
xvi Contents
8.2.5 Threat of Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . 115

8.2.6 Threat of New Entrants . . . . . . . . . . . . . . . . . . . . . . . 115
8.3 SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
8.4 Risk and Opportunity Analysis (ROP) . . . . . . . . . . . . . . . . . . . 116
8.5 Margin Enhancement Plan Analysis (MEP) . . . . . . . . . . . . . . . 117
8.6 5F Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
8.7 Critical Success Factors (CSF) . . . . . . . . . . . . . . . . . . . . . . . . . 118
8.8 The 7S Model by McKinsey . . . . . . . . . . . . . . . . . . . . . . . . . . 118
8.9 Recommendations of Ideal Tools in Negotiations . . . . . . . . . . . 119
8.10 Case Study: Lufthansa Industry Analysis . . . . . . . . . . . . . . . . . 120
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
9 PM in Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
9.1 Definition und Characteristics of Projects . . . . . . . . . . . . . . . . . 123
9.2 Critical Success Criteria for Projects . . . . . . . . . . . . . . . . . . . . . 126
9.2.1 Key Criteria in Projects . . . . . . . . . . . . . . . . . . . . . . . 126
9.2.2 Integration Management . . . . . . . . . . . . . . . . . . . . . . 126
9.2.3 Performance Management . . . . . . . . . . . . . . . . . . . . . 126
9.2.4 Time Management . . . . . . . . . . . . . . . . . . . . . . . . . . 126
9.2.5 Cost Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
9.2.6 Quality Management . . . . . . . . . . . . . . . . . . . . . . . . 127
9.2.7 People Management . . . . . . . . . . . . . . . . . . . . . . . . . 127
9.2.8 Communication Management . . . . . . . . . . . . . . . . . . 127
9.2.9 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
9.2.10 Procurement Management . . . . . . . . . . . . . . . . . . . . . 127
9.3 Recommendations for Project Negotiations . . . . . . . . . . . . . . . . 128
9.4 Case Study: CRRC Investing in US Factory . . . . . . . . . . . . . . . 128
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
10 Financial PM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
10.1 Financial PM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
10.1.1 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
10.1.2 P & L Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
10.1.3 Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . 132
10.2 Financial Ratios in PM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
10.3 Financial Crisis and Symptoms . . . . . . . . . . . . . . . . . . . . . . . . 134
10.4 Restructuring and Financial Turnaround Actions . . . . . . . . . . . . 136
10.4.1 Definition of Restructuring . . . . . . . . . . . . . . . . . . . . 136
10.4.2 Strategic Restructuring . . . . . . . . . . . . . . . . . . . . . . . 137
10.4.3 Structural Restructuring . . . . . . . . . . . . . . . . . . . . . . 138
10.5 Balance Sheet, Profit and Loss and Cash Situation . . . . . . . . . . 139
10.5.1 PM Actions Affecting the Balance Sheet . . . . . . . . . . 139
10.5.2 Negotiations Affecting the Profitability:
P & L Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
10.5.3 PM Actions Affecting the Cash Situation . . . . . . . . . . 143
Contents xvii
10.6 Recommendations for the Turnaround . . . . . . . . . . . . . . . . . . . 143

10.6.1 Strategic Turnaround and Restructuring . . . . . . . . . . . 143
10.6.2 Involve a Specialist . . . . . . . . . . . . . . . . . . . . . . . . . 145
10.6.3 Taking All Financing Options Available . . . . . . . . . . 145
10.6.4 Liquidation of Unnecessary Assets . . . . . . . . . . . . . . 146
10.6.5 End Non-essential Relationships . . . . . . . . . . . . . . . . 146
10.6.6 Case Study: Tesla Financial PM . . . . . . . . . . . . . . . . 146
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
11 PM in NGO and NPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
11.1 PM in NGOs and NPOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
11.1.1 Definition of NPOs and NGOs . . . . . . . . . . . . . . . . . 149
11.1.2 Characteristics and Objectives of NPOs . . . . . . . . . . . 150
11.1.3 Characteristics and Objectives of NGOs . . . . . . . . . . . 151
11.2 Case Study: Bürgeramt to Excellence (Bü2E) . . . . . . . . . . . . . . 151
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
12 PM in Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
12.1 PM Functional Elements Human Resources . . . . . . . . . . . . . . . 155
12.2 Leadership and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 155
12.3 Increasing PM in Human Resources . . . . . . . . . . . . . . . . . . . . . 157
12.4 Case Study: Google Employee PM Reviews . . . . . . . . . . . . . . . 158
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
13 Industry 4.0 and Artificial Intelligence (AI) in PM . . . . . . . . . . . . . 161
13.1 Industry 4.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
13.2 Artificial Intelligence (AI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
13.3 Case Study: Amazon Using AI . . . . . . . . . . . . . . . . . . . . . . . . 162
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
14 PM in Different Cultures and Internationalization . . . . . . . . . . . . . 165
14.1 Negotiations in Different Cultures . . . . . . . . . . . . . . . . . . . . . . 165
14.2 Hofstede’s Cultural Dimensions Theory . . . . . . . . . . . . . . . . . . 167
14.2.1 Power Distance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
14.2.2 Individualism vs. Collectivism . . . . . . . . . . . . . . . . . 169
14.2.3 Masculinity vs. Femininity . . . . . . . . . . . . . . . . . . . . 169
14.2.4 Uncertainty Avoidance . . . . . . . . . . . . . . . . . . . . . . . 170
14.2.5 Long-Term Orientation . . . . . . . . . . . . . . . . . . . . . . . 170
14.2.6 Indulgence vs. Restraint . . . . . . . . . . . . . . . . . . . . . . 170
14.3 Edward Hall’s Culture Model . . . . . . . . . . . . . . . . . . . . . . . . . 171
14.3.1 Proxemics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
14.3.2 Monochromic Time vs. Polychromic Time . . . . . . . . . 171
14.3.3 High-Context Cultures vs. Low-Context Cultures . . . . 172
14.4 Internationalization Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 174
14.4.1 Possibilities of Internationalization . . . . . . . . . . . . . . . 174
14.4.2 Direct Exports or Imports . . . . . . . . . . . . . . . . . . . . . 174
xviii Contents
14.4.3 Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

14.4.4 Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
14.4.5 Third-Party Sourcing . . . . . . . . . . . . . . . . . . . . . . . . 175
14.4.6 Investments and Partnering . . . . . . . . . . . . . . . . . . . . 175
14.4.7 Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
14.4.8 International Procurement Office (IPO) . . . . . . . . . . . 175
14.4.9 Own Company with Sales and Production
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
14.4.10 Case Study: Jokey Group’s Global Procurement to
Excellence Initiative . . . . . . . . . . . . . . . . . . . . . . . . . 177
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
About the Authors
Marc Helmold is Professor at the International Univer-

sity of Applied Sciences (IUBH) at the campus in
Berlin. He teaches bachelor’s, master’s and M.B.A. in
performance management, supply management, general
management, strategic management and supply chain
management. From 1997 until 2017, he had several
positions in top management in the automotive and
railway industry. From 2013 until 2016, he was the
General Manager of Bombardier Transportation in
China and led the sourcing and spare parts sales
activities. Since 2016, he is Professor at the IUBH and
has his own consultancy. In this capacity, he improves
companies in performance.
Warda Samara Founder and Director General of

Logica Center for Consulting based in Palestine since
2012 working together with several partner
organizations in the UK, Germany, Belgium, Jordan
and Kuwait. She is a consultant and development expert
with several local and international organizations like
the Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) and Rural Women Association
via Arab Fund Foundation for Social and Economic
Development. From 2006 to 2012, she had different
positions in leading organizations in Palestine, like
World Bank via Ministry of Education, and she gives
workshops in designing and improving projects in social
and economic development.
xix
List of Figures
Fig. 1.1 Performance management cycle. Source: Author’s own figure . . . 2

Fig. 1.2 Performance excellence. Source: Author’s own figure . . . . . . . . . . . . 4
Fig. 1.3 Value chain: input–transformation–output. Source: Author’s
own figure ............................................................... 5
Fig. 1.4 Value chain model. Source: Compiled by the Author, adopted
from Slack, Chambers, Harland, Harrison, and Johnston (1995) . . . 6
Fig. 1.5 Q-C-D-T-plus alpha concept. Source: Author’s own figure . . . . 8
Fig. 1.6 Objectives in the Q-C-D-T-plus alpha concept. Source:
Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fig. 1.7 CSR objectives. Source: Author’s own figure . .. . .. . .. . .. . .. . .. .. . . 13
Fig. 1.8 Exports from Germany. Source: Statistical federal office in
Germany. Pressemitteilung Nr.039 vom 8. Februar 2018:
Deutsche Exporte im Jahr 2017: +6.3% zum Jahr 2016.
Exporte und Importe erreichen neue Rekordwerte.
https://www.destatis.de/DE/PresseService/Presse/Pressemitteilungen/
2018/02/PD18_039_51.html ............................................. 15
Fig. 1.9 Imports to Germany. Source: Statistical federal office in
Germany. Pressemitteilung Nr.039 vom 8. Februar 2018:
Deutsche Exporte im Jahr 2017: +6.3% zum Jahr 2016.
Exporte und Importe erreichen neue Rekordwerte.
https://www.destatis.de/DE/PresseService/Presse/Pressemitteilungen/
2018/02/PD18_039_51.html ............................................. 16
Fig. 1.10 Make or buy strategies. Source: Author’s own figure . . . . . . . . . . . . . 16
Fig. 1.11 The value chain functions. Source: Author’s own figure . . . . . . . . . . 18
Fig. 1.12 International business transactions. Source: Author’s own
figure, adopted from Dathe and Helmold (2018) . . . . . . . . . . . . . . . . . . 19
Fig. 1.13 General Manager, Dr. Helmold, and General Manager Mr. Li.
Source: Marc Helmold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fig. 1.14 Performance audit steps. Source: Author’s own figure . . . . . . . . . . . . 22
Fig. 1.15 Radar chart: PM audit of the BVG. Source: Author’s own
figure . . . . .. . . .. . . . .. . . .. . . . .. . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . . 22
Fig. 1.16 Audit results of the BVG performance evaluation.
Source: Author’s own figure . . . . . . . . .. . . . . . . . .. . . . . . . .. . . . . . . . .. . . . . . 23
xxi
xxii List of Figures
Fig. 2.1 Strategic triangle. Source: Compiled, by the Author, adopted

from Johnson and Scholes (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fig. 2.2 Generic strategies. Source: Author’s own figure, adopted from
Porter (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Fig. 2.3 Strategic Clock from Bowman. Source: Author’s own figure,
adopted from Johnson and Scholes (1997) . . . . . . . . . . . . . . . . . . . . . . . . . 29
Fig. 2.4 Strategic pyramid. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . 32
Fig. 2.5 Generic strategies. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . 35
Fig. 3.1 NCG ratio of supplier XYZ. Source: Author’s own figure . .. . .. . . 42
Fig. 3.2 Qualitative RCA and interventionist approach. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Fig. 3.3 Quantitative and qualitative analysis with AR. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Fig. 3.4 Root cause analysis (RCA) including action research (AR).
Source: Author’s own figure . . . . . . . . .. . . . . . . . .. . . . . . . .. . . . . . . . .. . . . . . 46
Fig. 3.5 Result of analysis. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . 47
Fig. 3.6 Summary of analysis. Source: Author’s own figure . . . . . . . . . . . . . . . 48
Fig. 4.1 PM in supply management and procurement. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Fig. 4.2 Supply management process. Source: Author’s own figure . . . . . . . 54
Fig. 4.3 Supply pyramid. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . 56
Fig. 4.4 Supply strategies (preferred and alternative suppliers). Source:
Fig. 4.5 Supplier and commodity strategies. Source: Compiled by
Author, adopted from Eyholzer et al. (2002) . . . . . . . . . . . . . . . . . . . . . . . 59
Fig. 4.6 Supply strategy management process. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Fig. 5.1 Operations management as part of the value chain. Source:
Fig. 5.2 7R principle in operations management. Source: Author’s own
figure, adopted from Helmold and Terry (2017) . . . . . . . . . . . . . . . . . . . 68
Fig. 5.3 Value add and waste. Source: Author’s own figure, adopted
from Helmold and Terry (2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Fig. 5.4 Actions for value add and waste. Source: Author’s own figure . . . . 70
Fig. 5.5 Ishikawa diagramme. Source: Author’s own figure . . . . . . . . . . . . . . . 70
Fig. 5.6 Ishikawa diagramme with waste and value add. Source:
Fig. 5.7 5S-system. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Fig. 5.8 Transportation. Source: Author’s own figure . .. . .. . .. . .. . .. . .. . . .. . 74
Fig. 5.9 Inventory. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Fig. 5.10 Motion. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Fig. 5.11 Waiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Fig. 5.12 Overproduction. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . 77
List of Figures xxiii
Fig. 5.13 Over-processing. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . 77

Fig. 5.14 Defects. Source: Author’s own figure .. . . .. . . .. . . .. . .. . . .. . . .. . . .. . . 78
Fig. 5.15 TIMWOOD checklist. Source: Author’s own figure . . . . . . . . . . . . . . 79
Fig. 5.16 Just-in-Time (JIT) principles. Source: Author’s own figure,
adopted from Helmold and Terry (2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Fig. 5.17 Types of flows in operations. Source: Author’s own figure . . . . . . . 83
Fig. 5.18 Tact time and other ratios. Source: Author’s own figure . . . . . . . . . . 84
Fig. 5.19 Innovation versus Kaizen. Source: Author’s own figure, adopted
from Helmold (2010) . . .. . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . 85
Fig. 5.20 Andon. Source: Marc Helmold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Fig. 5.21 Shadow board. Source: Marc Helmold. Shadow board.
Mitsubishi Shinkanzen production in Osaka . . . . . . . . . . . . . . . . . . . . . . . 88
Fig. 5.22 Health, safety and environment. Source: Marc Helmold . . . . . . . . . . 89
Fig. 6.1 Marketing and sales in the downstream value chain. Source:
Fig. 6.2 Marketing mix. Source: Author’s own figure, adopted from
Helmold, Dathe, and Hummel, 2019 . . .. . .. . .. . . .. . .. . .. . .. . . .. . .. . . 93
Fig. 6.3 Downstream supply chain of Airbus. Source: Author’s own
figure, adopted from SupplyOn (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Fig. 6.4 AirSupply. Source: Author’s own figure, adopted from
SupplyOn (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Fig. 7.1 Balance score card (BSC). Source: Author’s own figure . . . . . . . . . . 100
Fig. 7.2 Logic behind the BSC. Source: Author’s own figure . . . . . . . . . . . . . . 102
Fig. 7.3 EFQM model. Source: Author’s own figure, adjusted from
the EFQM model (EFQM, 2019) . . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. . .. . 108
Fig. 7.4 PM2E excellence model by Dr. Marc Helmold. Source:
Fig. 8.1 PESTEL analysis. Source: Compiled by the Author, adopted
from Johnson and Scholes (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Fig. 8.2 Industry analysis. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . 115
Fig. 8.3 SWOT analysis. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . 116
Fig. 8.4 ROP. Source: Author’s own figure . . .. . . . . .. . . . . . .. . . . . . .. . . . . .. . . . . 117
Fig. 8.5 Seven S model by McKinsey. Source: Author’s own figure . . . . . . 119
Fig. 8.6 Lufthansa industry analysis. Source: Author’s own figure . . . . . . . . 120
Fig. 9.1 Project phases. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . 125
Fig. 9.2 Project organization. Source: Author’s own figure . . . . . . . . . . . . . . . . 125
Fig. 10.1 Balance sheet. Source: Author’s own figure. Marc Helmold . . . . . 132
Fig. 10.2 P & L account (Helmold, 2019). Source: Author’s own figure . . . . 133
Fig. 10.3 Financial PM ratios. Source: Author’s own figure . . . . . . . . . . . . . . . . . 134
Fig. 10.4 Phases to financial insolvency. Source: Helmold et al. (2019),
adapted from Müller’s four phases model. Müller (1986) . . . . . . . . 136
Fig. 10.5 Restructuring ways for financial turnaround. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
xxiv List of Figures
Fig. 10.6 Balance sheet. Source: Author’s own figure . . . . . . . . . . . . . . . . . . . . . . . 141

Fig. 10.7 P & L account with improvement actions. Source: Author’s
own figure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Fig. 10.8 Profit improvements. Source: Author’s own figure . . . . . . . . . . . . . . . . 143
Fig. 11.1 Performance evaluation of the Bürgeramt. Source:
Samara (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Fig. 12.1 Tasks in human resources. Source: Author’s own figure . . . . . . . . . . 156
Fig. 12.2 Leadership styles according to Tannenbaum and Schmidt.
Source: Marc Helmold, adjusted from Tannenbaum and
Schmidt . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 157
Fig. 13.1 Industry 4.0 evolution. Source: Compiled figure by the Author,
adopted from Helmold and Terry (2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Fig. 14.1 Strategic approach for intercultural negotiations . . . . . . . . . . . . . . . . . . . 166
Fig. 14.2 Schein’s three levels of culture (interpretation by Dathe).
Source: Dathe and Helmold (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Fig. 14.3 Hall’s concept for interpersonal distance (horizontal). Source:
Compiled by the Author, adopted from Dathe and Helmold
(2018) . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . . .. . . . .. . . . . 172
Fig. 14.4 Internationalization strategies. Source: Own source by the
Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Fig. 14.5 Ann Sun and Dr. Marc Helmold in Japan, Tokyo. Source:
Marc Helmold . . .. . . .. . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . 177
List of Tables
Table 1.1 Quality management systems (QMS) .. .. . .. .. . .. .. . .. .. . .. .. . .. .. . 10

Table 1.2 The 10 most impacting trends in international trade . . . . . . . . . . . . . 20
Table 1.3 Audit types and categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Table 2.1 Elements in the strategic analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Table 6.1 International commercial terms 2010
(Incoterms) . . . . .. . . . .. . . . .. . . . .. . . . .. . . . .. . . . .. . . . . .. . . . .. . . . .. . . . .. . . 94
Table 8.1 Risks and opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Table 8.2 Action to improve productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Table 8.3 The 5F concept for successful negotiations . . . . . . . . . . . . . . . . . . . . . . . 118
Table 8.4 Recommendations and summary of tools for
negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Table 9.1 Project criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Table 9.2 Negotiations in project management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Table 10.1 Cost reduction initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Table 10.2 Revenue increase initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Table 14.1 The importance of context: communication with
the Brits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
xxv
List of Acronyms and Abbreviations
AR Action research
BSC Balanced score card
BME Bundesverband Materialwirtschaft, Einkauf und Logistik
BT Bombardier Transportation
BVG Berliner Verkehrsbetriebe
CIF Cost, insurance, freight
EFQM European Foundation for Quality Management
FAS Free alongside ship
FOB Free on board
IPO International Procurement Organization
ISO International Standardization Organization
IUBH International University Bad Honnef
JIT Just in time
JV Joint venture
MB Mercedes-Benz
M.B.A. Master of Business Administration
MEP Margin enhancement plan
NCG Non-conformity goods
NGO Non-government organization
NPO Non-profit organization
OET Offer evaluation tool
PESTEL Political, economic, social, technological, environmental, legal aspects
PM2E Performance management to excellence
PO Purchase order
PROF Professor
QCD Quality, cost, delivery
QCDT Quality, cost, delivery, technology
QMS Quality management system
RFQ Request for quotation
ROP Risks and opportunities
SCM Supply chain management
SME Small and medium-sized enterprises
SWOT Strengths, Weaknesses, Opportunities, Threats
xxvii
xxviii List of Acronyms and Abbreviations
TÜV Technischer Überwachungsverein

USP Unique selling proposition
VMI Vendor-managed inventory
VW Volkswagen
WFOE Wholly foreign owned enterprise
WTO World Trade Organization
ZomA Zone of mutual agreement
A-6 Negotiation concept by Dr. Marc Helmold
3R Retention, related sales and referrals
5S Seiri, Seiton, Seiso, Seiketsu, Shitsuke
7P Product, price, place, promotion, physical evidence, people, process
Performance Management (PM) Over
the Entire Value Chain 1
Marc Helmold and Warda Samara
Logic will get you from A to B. Imagination will take you

everywhere.
Albert Einstein (1879–1955)
1.1 PM Definition
Performance management (PM) is a subject which is an integral part of any

enterprise and organization. Performance management integrates performance mea-
surement, management and performance improvement as illustrated in the perfor-
mance management cycle in Fig. 1.1. PM is a basic and efficient methodology. It
portrays the administration of enterprises, processes, HR, divisions and associations
to ensure that objectives and destinations are being reached. The objectives and
destinations are obtained from client’s desires which are the bases of the key mission
and vision in an endeavour. Performance measurement and the administration must
be executed over the whole value chain and applies to all functions and department.
PM reaches from the upstream value chain over the operation to the downstream
supply chain management. Performance management involves defining what effec-
tive performance looks like, as developing the tools and procedures necessary to
measure performance. The overall goal of performance management is to ensure
that the organization and all of its subsystems (processes, departments, teams,
employees, etc.) are working together in an optimum fashion to achieve the results
desired by the organization.
Performance management can be done externally (e.g. measurement by
customers, by shareholders or analysts, measurement of supply base) and internally
(management of organization). PM must include the entire value chain and all
elements including USCM, Operations, DSCM and support functions like finance,
logistics, human resources (HR) or information technology (IT). Purely financial PM
is not successful, so that all stakeholders and functions have to integrate and
# Springer Nature Switzerland AG 2019 1

M. Helmold, W. Samara, Progress in Performance Management, Management for
Professionals, https://doi.org/10.1007/978-3-030-20534-8_1
2 1 Performance Management (PM) Over the Entire Value Chain
Fig. 1.1 Performance

management cycle. Source:
Author’s own figure
Performance Performance
Improvement Measurement
Performance
Management
collaborate in order to achieve the excellent performance. The key questions related
to performance management are:
– What is performance management?

– Where do I measure performance?
– What do I measure?
– How can I measure performance?
– When do I measure performance?
– How can I improve the performance?
Enterprises must aim for PM excellence. Permanent measurement and

improvements are crucial activities by top management. PM is a core activity and
must be pursued by all departments. In addition, there are certain characteristics of
PM that can be described as follows:
1. PM has to be executed over the entire value chain from the upstream over the
operation to the downstream supply chain management.
2. PM is a structural and systematic approach in enterprises and organizations.
3. PM must be coordinated and implemented by top management.
4. PM deals with enterprises, processes, employees, departments and
organizations.
5. PM is using tools, mechanics and procedures necessary to measure performance
(BSC, Audits or EFQM).
6. PM goals and objectives to perform efficiently and effectively.
7. PM goals are relevant to customer and stakeholder expectations.
8. PM goals and objectives are derived from customer’s (and stakeholder)
expectations which are the bases of the strategic mission and vision.
1.2 PM Excellence 3
9. PM uses qualitative and quantitative measurables and key performance

indicators (KPI).
10. PM strives for excellence and permanent improvements.
1.2 PM Excellence
Performance excellence can be defined as achieving and maintaining outstanding

and superior levels of performance that meet and exceed the expectations of the
stakeholders (Helmold, 2019). There are a huge number of stakeholders for any
business or enterprise, and to be assessed as excellent, these enterprises have to be
achieving an outstanding level of performance for all of their different stakeholders:
employees, customers, shareholders, owners and the wider community. To achieve
sustained and superior levels of excellence, it is mandatory for enterprises and
organizations to permanently assess the situation and to strive for improvement by
initiating continuous improvement programmes like the Toyota production system
or excellence models.
Excellence model allows the management of enterprises and organizations to
understand the cause and effect relationships between what their organization does
(actual performance), the enablers and the results it achieves in comparison to set
objectives (plan). The model comprises three integrated components. Fundamental
excellence concepts underlie principles that form the foundation for achieving
sustainable excellence in any organization. These principles can be described as:
Adding value for customers

Creating a sustainable future
Harnessing creativity and innovation
Managing with agility
Developing organizational capability
Leading with vision, inspiration and integrity
Succeeding through the talent of people
Sustaining outstanding results
The goal of any excellence initiative and programme must therefore be to achieve
world-class excellence as illustrated in Fig. 1.2. The system, developed by Dr. Marc
Helmold, is similar to the German school grading system (1 ¼ very good, 5 ¼ failed).
Companies usually start as so-called laggards (Level 5) (Helmold, 2019). A laggard
can be defined as organization that falls behind similar companies in the same
industry. The next level is a ‘standard’ performance (Level 4). Standard means in
this context that enterprises have an average performance level in a certain sector.
The next level is ‘maturity’ in performance including some best practices (Level 3).
After the maturity organizations will achieve the ‘industry excellence’ (Level 2)
level. In this level, performance is outstanding within the industry. The last and
highest level is the world-class excellence level, in which organizations are
benchmarks in terms of excellence on a global scale (Level 1) (Helmold, 2019).
Word class
excellence (1)
Industry
excellence (2)
Industry maturity and
best practice (3)
Industry
standard (4)
Industry
laggard (5)
Fig. 1.2 Performance excellence. Source: Author’s own figure
1.3 PM in the Value Chain
Performance measurement and management must be pursued throughout the value

chain and in all business transactions. The value chain contains inputs, the transfor-
mation and outputs as illustrated in Fig. 1.1. Inputs are used up in the process of
creating goods or services. To distinguish between these, input resources are usually
classified as:
Transformed resources
Transforming resources
Transformed resources are those elements that are transformed throughout the
operation and organization to produce the goods or services that are its outputs. Cars
are transforming components into final vehicles, or goods are used to produce
consumer goods. Transforming resources are everything that are used to perform
the transformation process. Machines, knowledge or personnel are transforming
elements in this context. Many people think of operations as being mainly about
the transformation of materials or components into finished products, as when
limestone and sand are transformed into glass or an automobile is assembled from
its various parts. But all organizations that produce goods or services transform
resources: many are concerned mainly with the transformation of information
(e.g. consultancy firms or accountants) or the transformation of customers
(e.g. hairdressing or hospitals). The two types of transforming resource are staff
(the people involved directly in the transformation process or supporting it) and
facilities (land, buildings, machines and equipment). The staff involved in the
transformation process includes both people who are directly employed by the
1.3 PM in the Value Chain 5
organization and those contracted to supply services to it. A transformation process

is any activity or group of activities that takes one or more inputs, transforms and
adds value to them and provides outputs for customers or clients. Where the inputs
are raw materials, it is relatively easy to identify the transformation involved, as
when milk is transformed into cheese and butter. Where the inputs are information or
people, the nature of the transformation may be less obvious. For example, a hospital
transforms ill patients (the input) into healthy patients (the output). The transforma-
tion processes include:
Changes in the physical characteristics of materials or customers

Changes in the location of materials, information or customers
Changes in the ownership of materials or information
Storage or accommodation of materials, information or customers
Changes in the purpose or form of information
Changes in the physiological or psychological state of customers
Many transformation processes produce both goods and services. For example, a
restaurant provides a service, but also produces goods such as food and drinks.
Transformation processes may result in some undesirable outputs (such as nuclear
waste in the example above) as well as the goods and services they are designed to
deliver. An important aspect of operations management in some organizations is
minimizing the environmental impact of waste over the entire life cycle of their
products, up to the point of final disposal. Protecting the health and safety of
employees and of the local community is thus also the responsibility of operations
management. Outputs are the result of the input resources and the transformation
(Helmold, Dathe, & Hummel, 2019). The output types are tangible elements like
products or intangible elements like knowledge or services that will describe the
special requirements in performance management in the service industry. The input–
transformation–output model can therefore be regarded in relation to the key
functions of an enterprise including input, procurement; transformation, operations;
and output, marketing as illustrated in Fig. 1.3. Input factors come from in many
companies and suppliers, so that this part can be named as procurement. The
Input-transformation-output
Supply Demand
side side
Input Transformation Output
Information
technology
Finance and (IT)
accounting
Human
resources Support functions
Fig. 1.3 Value chain: input–transformation–output. Source: Author’s own figure

Tier 3 Tier 2 Tier 1 Tier 1 Tier 2
Supplir
Value chain model
Supplier Supplier
Supplier Customer
Supplier Customer
Supplier Supplier Customer
Services
Customer
Supplier Operations
Supplier Customer
Supplier Products Customer
Supplier
Supplier Customer
Supplier
Supplier
Supplier
Value Chain or Supply Chain Management (SCM)
Upstream Supply Chain Management or Supply Side Downstream Supply Chain Management or Demand Side
Fig. 1.4 Value chain model. Source: Compiled by the Author, adopted from Slack, Chambers,
Harland, Harrison, and Johnston (1995)
transformation is done in the operations or production department, so that the output

to customers is realized via the marketing department (Obrien, 2016). Figure 1.3
shows that the production management transforms inputs (labour, capital, equip-
ment, land, buildings, materials and information) into outputs (goods or services)
that provide added value to customers. Figure 1.3 summarizes the transformation
process and where performance management take place (Helmold et al., 2019). All
areas in this process and value chain are critical elements to produce goods and
services that meet customer needs to add value. It does not matter whether the
organization is a for-profit company, a non-profit organization (religious
organizations, hospitals, etc.) or a government agency. All organizations must strive
to maximize the quality of their input–transformation–output processes and the
associated performance management with stakeholders to satisfy customer needs.
The value chain contains performance management in all phases and across
function as outlined by many authors. People literally negotiate everywhere and
any time. Figure 1.4 illustrates performance management in the input, transformation
and output phase. Input performance management is often performance management
with raw material or component supplying companies. Moreover, input performance
management is also linked to the recruitment of staff or bargaining with banks and
investors in order to receive financial elements and investments for operating the
company. In production, there are many discussions about budgets, quality gates and
delivery times that must be negotiated. As the last phase of the value chain,
companies need to execute performance management with customers on elements
like quality, cost, delivery or technical measures. Besides the three primary functions
procurement, production and marketing, secondary functions also get involved into
1.4 The QCDT-Plus Alpha Concept in Performance Management 7
the negotiation process. The human resource department will negotiate with poten-
tial employees in job interviews or with workers council and unions. Other
departments like the finance department or IT department must be involved in
investors, bank or frame contract performance management with IT service
providers. Finally, interactions with auditors, consultants or other stakeholders
require performance management in the value chain (Helmold et al., 2019).
Authors like Schranner, Orbrien or Helmold stress that successful performance
management underlie generic guidelines. The three authors have these principles in
common (Helmold et al., 2019; Obrien, 2016; Schranner, 2009). In parallel to
specific skills (schlagfertig), the elements of successful performance management
are shown below:
Effectiveness (Quality of Results)

Efficiency of Negotiation Process (Time Management)
Climate of Performance management (Relationship)
Relative Power Balance (Equality)
Understanding (Communication)
Mutual Benefits (Fairness)
Formulation of Objectives (Clarity)
Outcome related (Value Claiming or Creating)
1.4 The QCDT-Plus Alpha Concept in Performance

Management
Performance management aims to build a high-performance culture in enterprises.

Performance must therefore be permanently measured and compared with the plans
in each category (actuals versus plans; German: Soll-Ist-Vergleich). Besides finan-
cial performance indicators like profitability, revenues, earnings, shareholder value
or dividends, it is important to measure and manage other significant performance
indicators (Helmold & Terry, 2016a). The main goal of performance management is
to ensure that the organization as a system and its subsystems work together in an
integrated fashion for accomplishing optimum results or outcomes. These perfor-
mance indicators are combined in the following groups:
Quality performance indicators

Cost and financial performance indicators
Delivery performance indicators
Technology performance indicators
Alpha and other performance indicators
The elements like quality, cost, delivery and technical aspects (Q-C-D-T) as
illustrated in Fig. 1.2 (Helmold & Terry, 2016b). Within this classification, the
Fig. 1.5 Q-C-D-T-plus alpha

concept. Source: Author’s
own figure
Technology Quality
+ alpha
Cost &
Delivery
(Finance)
most important objectives can be defined for negotiations. If, in addition, there are
other goals of interest for one or more negotiation sides, one speaks of the alpha
(Q-C-D-T + α). Alpha is the first Greek letter α in the Greek alphabet and covers any
aspect, which is not in the first four categories like quality, cost, delivery or technical
items (Helmold et al., 2019). Alpha elements can be ethical requirements that the
supplier must meet in order to be able to sell goods and services to a customer. Other
aspects may be personnel elements, staff training or the introduction of special
information systems for connectivity (Helmold & Terry, 2016a) (Fig. 1.5).
For the seller, it is important to take into account the most important purchasing
trends and the necessary requirements. In a survey with purchasing managers and
decision-makers in supplier management, five important trends could be identified
(Helmold & Terry, 2016a). These trends are:
• Centralization
• Internationalization
• Rotation principle
• Digitization (e.g. online auctions)
• Strategic supplier management (Fig. 1.6)
The rotation in purchasing is intentionally very high. Many a buyer does not spend
more than 2 years at his post. Then he changes the category and suppliers with whom
he has business connections. Because otherwise he could build an emotional bond
with the supplier, and maybe not just look at the price. However, distribution on the
supplier side often relies on this emotional bond.
Design to cost 0-KM defects

Options & changes Field defects
Value engineering Service defects
Price-value analysis Warranty cases
Cost reduction ideas Non-conformities
Value stream mapping Bonus/Malus system
T Development cost QM-system

Q
+ alpha
D Duty cost & logistics Annual Price increase
C
Transport & packaging Escalation/deescalation
Storage and handling Recurring cost
Transport Insurance Payment terms
Incoterms 2010 Non-recurring cost
Customs fees Service cost
VMI or Stock Productivity
Fig. 1.6 Objectives in the Q-C-D-T-plus alpha concept. Source: Author’s own figure
1.4.1 Quality Objectives
Quality objectives are a fundamental part in PM as stated by many authors (Helmold

et al., 2019). The agreed elements must be integrated into contracts and quality
agreements. Usually, company distinguishes between delivery quality (0-km
defects), field defects and warranty issues or quality in the after service. Bigger
companies often use quality agreements covering these elements as part of the
contract (Helmold et al., 2019).
Delivery quality (0-km quality): The delivery quality describes the quality and state
of goods at receipt by the supplying company. Companies are normally obliged
by law or contracts to have sample checks of raw materials, goods or components
that are delivered.
Field quality: If the components have been received and assembled into a machine,
system, automobile, train or plane, the companies will be used by customers and
be in the field. Detection and repair of field defects are more expensive as the
components are usually integrated into a system (e.g. car, train, plane or machine)
and need to be disassembled and to be returned to the maker.
Quality management systems: A quality management system (QMS) is defined as a
formalized system that documents processes, procedures and responsibilities for
achieving quality policies and objectives. A quality management system (QMS)
is a collection of business processes focused on consistently meeting customer
Table 1.1 Quality Quality management system Description

management systems
VDA 6.1 Automotive industry
(QMS)
IATF 16949 Automotive industry
IRIS Railway industry
EN 9100 Aerospace industry
ISO 13485 Medical industry
TL 9000 Telecommunications industry
Source: Author’s own table
requirements and enhancing their satisfaction. It is aligned with an organization’s

purpose and strategic direction (ISO 9001:2015). It is expressed as the organiza-
tional goals and aspirations, policies, processes, documented information and
resources needed to implement and maintain. Table 1.1 shows some example
which all base on the ISO 9001 standard. ISO stands for the International
Organization for Standardization, so that a quality management system has
validity throughout the world.
Other quality objectives: Other quality objectives can consist of problem-solving
tools and response times, non-conformity handling or other related issues to
quality.
1.4.2 Cost Objectives
Costs objectives comprise all costs that are involved in the process of acquiring a
product or service (Helmold & Terry, 2016a). Besides direct costs (purchase cost)
there are indirect costs involved (qualification, set-up of machine). This concept of
considering direct and indirect cost is the concept of total cost of ownership (TCO).
TCO is a financial estimate intended to help buyers and owners determine the direct
and indirect costs of a product or system. It is a management accounting concept that
can be used in full cost accounting or even ecological economics where it includes
social costs. TCO covers obvious costs like recurring and non-recurring costs and
hidden costs that may occur for qualification, storage, warranty or any other process
which is connected to the procurement of goods.
Recurring cost: Recurring cost is the cost for one component. The recurring cost can
also be described as piece price.
Non-recurring cost: Non-recurring costs are costs that occur only once or twice and
not repeatedly. This can be an investment like a machine or an agreed develop-
ment fee that is paid once before delivery of goods.
Escalation: Escalation is annual price increases caused by inflationary elements like
labour cost increase, pay rise, higher energy cost or increased cost of raw
materials.
Productivity: Productivity is cost reductions, often annually applied, due to

increased efficiency and improved processes.
Payment terms: Payment terms have significant impact on the cash situation of any
company. These are the payments terms that the seller and the buyer have agreed
on, such as cost, amount, delivery, payment method and when the payment is
expected or due. Payment terms will affect the cash situation and can be
negotiated to 30, 60, 90 or 120 days (Helmold & Terry, 2016a).
Qualification cost: Qualification cost occurs when a new supplier is identified and
made ready for future deliveries. Qualification costs are assessed as part of the
TCO principle and usually added to the business case and piece price. Qualifica-
tion costs contain teaching for understanding, audits, product approvals, commu-
nication of customer specific requirements, specification, translation and
processes.
1.4.3 Delivery Objectives
Delivery and logistics costs include the costs of holding goods in inventory (capital
costs, warehousing, depreciation, insurance, taxation and obsolescence) and are
commonly expressed as a share of the inventory value. Labour costs involve the
physical handling of goods, including tasks such as packaging and labelling. Logis-
tics cost can make up to 50% of the actual cost of a component in international trade
(Helmold et al., 2019). International commercial terms are usually used in
negotiations to allocate the responsibilities of maker and customer (Helmold et al.,
2019). New concepts are used like vendor-managed inventory (VMI) in which
suppliers and makers own the inventory before delivery to the customer.
Packaging: Packaging cost is a significant factor in pricing a product. Different

packaging materials are used in manufacturing industry for various products such
as glass, wrappers, laminates, cartoon boxes, polythene, thermocol, cans, bags,
papers and so on. Packaging is an integral part of the materials supply chain and
negotiations.
Transport and logistics cost: Transport costs include all costs for moving goods
between location of the manufacturers to the customers and clients. Transport
costs include intermodal transport including transport by trucks, ships, railway or
planes. In addition, there are also intra-company movements which include
handling, movement by forklifts or by workers.
Logistics concept cost: Logistics concepts like an advanced warehouse, consignment
stock or a VMI are concepts that are important for negotiations. Vendor-managed
inventory (VMI) has become a widely used tool for supply chain performance
improvement.
Vendor-managed Inventory (VMI) is a theory inspired by integration in supply chain
management regarding systems dynamics. In recent years, various partnerships
like vendor-managed inventory (VMI) approach have been used in inventory

management as a method to cope with the bullwhip effect. In the traditional
inventory management, a retailer (sometimes called buyer) makes his own
decisions regarding the order size, while in VMI, a retailer shares his inventory
data with a vendor (sometimes called supplier) such that the vendor is the
decision-maker who determines the order size for both. Thus, the vendor is
responsible for the retailer’s ordering cost, while the retailer has to pay for his
own holding cost. This policy can prevent stocking undesired inventories and
hence can lead to an overall cost reduction. Moreover, the bullwhip effect is also
reduced by employing the VMI approach in buyer–supplier cooperation.
Customs cost: Customs duty is a tax imposed on imports and exports of goods. The
rates of customs duties are either specific or on ad valorem basis, that is, it is based
on the value of goods.
1.4.4 Technology Objectives
Projects and the purchase of components or goods often include technical aspects,
which need to be part of negotiations. Technical criteria are often negotiated in an
early state and can cause additional cost if not considered thoroughly. Engineering
objectives contain engineering expenses, cost for patents and cost for development,
technical changes, features or engineering budget items (Helmold et al., 2019).
Development and design cost: Development and design costs contain all costs that
are necessary to develop a component or project. Normally, it is estimated in
man-hours or design budget. Man-hours are the hours/days of engineers that are
required for the development of a specified project. The days and hours are
multiplied with an hourly fee of one engineer.
Development services: Development projects and design often involve third parties,
specialists, special devices, engineering programmes, testing or patents, which
are part of the technology objectives in negotiations.
Technical changes: Engineering change can be caused by an immature design or
customers’ requests and impact the technology cost and budget.
Technical options: Technical options can be part of negotiations and are usually
customer requests. Options normally lead to higher functional requirements and
increase the engineering and technical cost.
Design-to-cost initiatives and cost reduction initiatives: Design-to-cost (DTC), as
part of cost management techniques, describes a systematic approach to
controlling the costs of product development and manufacturing. DTC is often
combined with cost reduction ideas of a product without harming or affecting the
functional tasks of the product.
1.5 Performance Management in the International Context 13
Fig. 1.7 CSR objectives.

Source: Author’s own figure Compliance
with laws
Anticorruption Environment
CSR
Labour Intellectual
conditions property
1.4.5 Alpha Objectives
Alpha objectives are all objectives which are not in the Q-C-D-T categories. Alpha
objectives contain mostly ethical or people objectives by the customer.
Ethics objectives: Business ethics and corporate social responsibility (CSR) include
norms and values that corporate social responsibility (CSR) is a business model
that helps a company to be socially accountable to itself, its stakeholders and the
organization. It contains the general norms and values of a company that
companies want to act on, in particular through acting responsibly towards
society. The company translates these principles to employees and other interests
such as suppliers. Ethics policies are often aimed at respecting human rights,
creating sound and safe working conditions, protecting the environment and
promoting sustainable development (Helmold, 2010).
Competency Goals: Competency goals include the skills of employees through a
systematic and structured corporate culture of lifelong learning. Other alpha
goals: Alpha goals are multifaceted and can be developed for negotiation from
a variety of negotiating parties’ motives (Helmold, 2010) (Fig. 1.7).
1.5 Performance Management in the International Context
International trade has changed our world drastically over the last couple of
centuries. In this entry, we begin by analysing available data on historical trade
patterns around the world and then move on to discuss more recent data, outlining
trade patterns from the last couple of decades. In the last section, we turn to analyse
empirical evidence regarding the determinants and consequences of international
trade.
From a historical perspective, international trade has grown remarkably in the last
couple of centuries. After a long period characterized by persistently low interna-
tional trade, over the course of the nineteenth century, technological advances
triggered a period of marked growth in world trade (the ‘first wave of globalization’).
This process of growth stopped and was eventually reversed in the interwar period,
but since the Second World War international trade started growing again, and in the
last decades, trade expansion has been faster than ever before. Today, the sum of
exports and imports across nations is higher than 50% of global production. At the
turn of the nineteenth century, this figure was below 10%.
In the last couple of decades, transport and communication costs have decreased
across the world, and preferential trade agreements have become more and more
common, particularly among developing countries. In fact, trade among developing
nations (often referred to as South–South trade) more than tripled in the period
1980–2011.
Within the context of globalization, stronger links between some of the world’s
most rapidly growing economies could be seen in 2017 and 2018 as outlined in the
report of the World Trade Organization (WTO) (WTO, 2018). Global trade in goods
and services continued growing above trend in 2017 and 2018 as the World Trade
Organization outlined (Miles, 2018; WTO, 2018). The total amount of good and
services exceeded US$6700 billion in 2017. The forecast for 2018 sees a slight
increase in international trade of goods and services. Over 70% of merchandise
exports are manufactured goods. The top three merchandise traders in 2017 were
China, the USA and Germany in 2017. The top three traders accounted for mer-
chandise exports totalling almost US$5300 billion. Besides merchandising trade,
services are getting more and more important in international business transactions
across borders (WTO, 2017). In 2017, the USA, the UK and Germany were the top
three commercial services exporters while the USA, China and Germany were the
top three importers. The combined commercial services exports of the USA, the UK
and Germany totalled about US$1400 billion in 2017 (Figs. 1.8 and 1.9).
Performance management in an international context is more important than ever
for companies in Germany, considering the trade balance in Germany (Federal
Statistical Office, 2018; Dathe & Helmold, 2018). In addition, the authors Dathe
and Helmold state that internationalization will continue, especially in countries such
as China, Japan or South Korea (Dathe & Helmold, 2018). Looking at imports and
exports in the years 2016 and 2017, one can see that Germany was export champion
in both years. In 2017, goods and goods valued at more than 1279 billion euros were
exported from Germany to other countries (Federal Statistical Office, 2018). The
most important countries for export are the USA, France, the People’s Republic of
China, the Netherlands and the UK (Federal Statistical Office, 2018). In contrast,
goods and goods worth 1034 billion euros were imported. Here again, besides Italy,
the USA, France, the People’s Republic of China and the Netherlands are among the
first five countries. As the Federal Statistical Office (Federal Statistical Office, 2018)
further reports on the basis of preliminary results, German exports were 6.3% higher
in 2017 and imports 8.3% higher than in 2016. In 2017, the highest levels in 2016
were exceeded, when goods worth 1203.8 billion euros were exported and goods
The five most important internaƟonal

trading partners for Germany
Exports in 2017 (in billion Euro)
UNITED
84.4
8
KINGDOM
NETHERLANDS 85.9
PR CHINA 86.2
FRANCE 105.2
U.S.A. 111.5
0 20 40 60 80 100 120
Fig. 1.8 Exports from Germany. Source: Statistical federal office in Germany. Pressemitteilung
Nr.039 vom 8. Februar 2018: Deutsche Exporte im Jahr 2017: +6.3% zum Jahr 2016. Exporte und
Importe erreichen neue Rekordwerte. https://www.destatis.de/DE/PresseService/Presse/
Pressemitteilungen/2018/02/PD18_039_51.html
worth 954.9 billion euros were imported. The foreign trade balance ended in 2017
with a surplus of more than 244.9 billion euros. In 2016, the balance in the foreign
trade balance of 248.9 billion euros had reached its highest level in the history of
Germany. In 2016, the German current account had a balance of 259.3 billion euros.
The foreign trade balance closed in December 2017 with a surplus of 18.2 billion
euros. Adjusted for the calendar and seasonally adjusted, the foreign trade surplus in
December 2017 was 21.4 billion euros (Federal Statistical
Figure 1.10 shows the possibilities of internationalization through own or foreign
resources (Dathe & Helmold, 2018). In this sense, resources are buildings, machines
or installations. If a company decides to produce within its own resources outside the
borders of Germany, this is called international in-house production. Outsourcing
and the purchase of products or services from suppliers is referred to as global
sourcing or international outsourcing (Dathe & Helmold, 2018).
Performance management in the international context is getting more and more
important for companies that produce goods and services. Fierce competition, the
ongoing liberalization and trade agreements between countries force enterprises to
enter new and foreign markets across the globe (Helmold et al., 2019). International
trade has changed our world drastically over the last couple of centuries. In this
entry, we begin by analysing available data on historical trade patterns around the
world and then move on to discuss more recent data, outlining trade patterns from
The five most important internaƟonal

trading partners for Germany
Imports in 2017 (in billion Euro)
UNITED
55.8
KINGDOM
U.S.A. 61.1
1
FRANCE 64.2
4
NETHERLANDS 91.4
PR CHINA 100.5
0 20 40 60 80 100 120
Fig. 1.9 Imports to Germany. Source: Statistical federal office in Germany. Pressemitteilung
Nr.039 vom 8. Februar 2018: Deutsche Exporte im Jahr 2017: +6.3% zum Jahr 2016. Exporte
und Importe erreichen neue Rekordwerte. https://www.destatis.de/DE/PresseService/Presse/
Pressemitteilungen/2018/02/PD18_039_51.html
Domestic International
Own resources & assets Not own resources & assests
(Buildings, Machines, Equipment)
locations locations
Non core competencies
Offshoring or intern.
National or domestic Buy
outsourcing strategy
outsourcing
Global sourcing
(Buildings, Machines, Equipment)
Core competencies
Offshore operations
National or domestic Make
operations International or global strategy
operations
Fig. 1.10 Make or buy strategies. Source: Author’s own figure

the last couple of decades. From a historical perspective, international trade has
grown remarkably in the last couple of centuries. After a long period characterized
by persistently low international trade, over the course of the nineteenth century,
technological advances triggered a period of marked growth in world trade (the ‘first
wave of globalization’). This process of growth stopped and was eventually reversed
in the interwar period, but since the Second World War international trade started
growing again, and in the last decades trade expansion has been faster than ever
before.
In the last couple of decades, transport and communication costs have decreased
across the world, and preferential trade agreements have become more and more
common, particularly among developing countries.
Free international trade is often seen as desirable because it allows countries to
specialize, in order to produce goods that they are relatively efficient at producing,
while importing other goods. This is the essence of the comparative advantage
argument supporting gains from trade: exchange allows countries to ‘do what they
do best, and import the rest’.
In 2016, Germany maintained its position as the world’s third largest exporter of
goods (behind China, USA) and third largest importer (behind USA, China).
Germany’s share of world trade (exports and imports of goods in USD) rose to
7.44% (2015: 7.16%). With a share of 11.52% in global trade, the USA was in first
place again for the first time since 2012, just ahead of China (11.45%). The WTO
states that Germany is one of the most open countries in terms of international trade
(WTO, 2018). With a high degree of openness, characterized by imports plus exports
in relation to the gross domestic product (GDP) of 84.8%, Germany is the ‘most
open’ economy of the biggest seven economies (G7 countries) and is becoming
increasingly integrated into global and international value chains (WTO, 2018). As
Germany is highly integrated into global value chains and international trade,
employment in Germany depends on liberal and open markets. According to the
WTO, nearly 30% of jobs in Germany are directly or indirectly linked to interna-
tional trade (WTO, 2018), another good example of growing international trade and
global trade dependencies in China (WTO, 2018). China, in particular, has become
increasingly important as a trading partner for Germany. Between 2000 (1.6%) and
2016 (6.3%), German exports to China nearly quadrupled (WTO, 2018). This means
that in 2016 China was the second most important market for German exporters
outside Europe, behind the USA (8.9%). China’s share of German imports also rose
significantly in the same period: from 3.5% (2000) to 9.9% (2016). China is thus the
most important supplier for the German economy outside Europe (ahead of the USA,
which has share of 6.1%). Internationalization strategies are part of the corporate
strategies and will impact performance management in the international context
(Slack, Brandon-Jones, & Johnston, 2013). Slack et al. stress that internationaliza-
tion strategies can be pursued with own or not own resources as highlighted in
Fig. 1.2 (Helmold et al., 2019). These choices are referred to as ‘make or buy
strategy’ (Slack et al., 2013). If own resources and assets are involved, Slack et al.
talk about ‘international operations’. If companies are not using their own resources
and fixed assets, Slack et al. describe this as ‘buy strategy’. International operations
The value chain
Supply side Purchasing Operations Marketing & Demand side

(Suppliers) Management Management Sales (Customers)
Fig. 1.11 The value chain functions. Source: Author’s own figure
(make strategy) are those selected where companies have a competitive advantage
due to superior quality, efficient production, patents, knowledge or any other
aspects. Alternatively, companies decide to use not own resources and assets,
where they do not have a competitive advantage (non-core competencies) (Helmold,
2019; Johnson & Scholes, 1997).
International performance management engages stakeholders and representatives
from different cultural backgrounds (Helmold et al., 2019). If both negotiating
parties have knowledge about the culture of the other side in international
relationships, the performance management can start immediately without intercul-
tural expertise (Helmold et al., 2019). On condition that both or one party has little or
no knowledge about customs, culture and specifics, it is recommended by many
authors to acquire expertise through an expert and trainer (Helmold et al., 2019).
Figure 1.11 displays the options in terms of cultural knowledge of my own organi-
zation (we, knowledge of the culture of the other party) and the other party of the
culture of my organization (they, knowledge of my organization and my culture)
(Helmold et al., 2019) (Fig. 1.12).
Figure 1.13 shows the general managers of the Chinese aluminium maker Midas,
Mr. Li, and the general manager of Bombardier Transportation in China,
Dr. Helmold. The Bombardier Transportation group has long played a key role in
developing China’s urban mass transit and advanced rail networks (Bombardier
Transportation, 2018). Presently, Bombardier is actively transferring our industry-
leading technology and proven management expertise through joint ventures and
wholly foreign owned enterprises. Bombardier Transportation works with several
Chinese partners to provide the country’s major cities with state-of-the-art rail
solutions and services, from metro cars to very high-speed trains (Bombardier,
2018). More than 4000 employees work at four joint ventures and seven wholly
Fig. 1.12 International business transactions. Source: Author’s own figure, adopted from Dathe
and Helmold (2018)
Fig. 1.13 General Manager, Dr. Helmold, and General Manager Mr. Li. Source: Marc Helmold
Table 1.2 The 10 most impacting trends in international trade

Trend No. Description of trend
Trend 1 Liberalization of cross-border trade and increasing trade agreements
(e.g. trade agreements of European Union (EU) with Canada or South Korea)
Trend 2 Growth of emerging markets and intertrade (e.g. China, India, Brazil, Asia
countries and African countries)
Trend 3 Digitalization of international supply chains by standardized tools and supply
chain solutions
Trend 4 Transfer of technologies, specialization in manufacturing areas and division
of labour among countries
Trend 5 Concentration on core competencies and international or national
outsourcing of components to best cost countries (e.g. China or India)
Trend 6 Outsourcing of non-core competencies in service sector to countries like
Indonesia or the Philippines (share service centres)
Trend 7 Emphasis on intercultural skills and awareness by internationally acting
companies
Trend 8 Focus on sustainable energies and awareness of companies to protect
environment
Trend 8 Integrating corporate social responsibility (CSR) and business ethics into
company culture across borders
Trend 9 Importance of international trade leads to cross-country recruitment and
talent creation including intercultural and performance management skills
Trend 10 Blockchain technology and new technologies introduction in international
trade and trade relationships
Helmold et al.
(2019)
foreign owned enterprises in Bombardier Transportation in China, as well as at

several offices in major cities like Beijing, Shanghai, Guangzhou and Hong Kong. In
rail transportation, Bombardier has a long-standing presence in China, which
generated orders for over 5000 rail cars and more than 560 electric locomotives
until 2018 (Bombardier, 2018). In aerospace, Bombardier aerospace accounts for
one-third of the business jet fleet in China with over 100 aircraft. Six airlines operate
47 Bombardier commercial aircraft in Greater China (Bombardier, 2018). Several
authors observe major international trends that are changing the nature of cross-
border trade and intercultural relationships (Helmold et al., 2019). Table 1.2 shows
the major ten trends in international trade (Helmold et al., 2019).
1.6 Case Study: PM Audit of the Berliner Verkehrsgesellschaft

(BVG)
Audits can be described as a systematic and structured performance evaluation and

assessment of a system, process or product or any other area by internal or external
auditors. The aim of an audit is to evaluate and approve or disapprove the assessed
1.6 Case Study: PM Audit of the Berliner Verkehrsgesellschaft (BVG) 21
Table 1.3 Audit types and categories

Audit type Description
Systems Evaluation of the (quality management) system of organizations by external
audit certification agencies (TÜV, DEKRA)
Examples: DIN EN ISO 9001:2015, TS 16949, International Railway Industry
Standard (IRIS) or IATF 16949
Process Evaluation of a (manufacturing or service) process to qualify or disqualify a
audit process-oriented example of a product or service by assessing a reference process
from supply side, incoming material to the dispatch (also from other customers)
Examples: VDA 6.3, SEAP (Railway)
Product Planning and execution of the assessment of a finished product to be delivered to
audit the customer. The audit consists of checking the specification, drawings, capacity
and other important aspects and normally involves the trial run of the entire
manufacturing process (e.g. 300 parts, run at rate)
Examples: VDA 6.5, Part Production Approval Process (PPAP), Production
Approval Process (PAP)
Control Control audits aim to control the progress of previously conducted audits
Audit
Other Any other audits in areas like safety, health, environment, tax and financials
Audits Examples: 5S audits, tax audits, environmental audits (ISO 14001), IT audits (ISO
27001), financial audits or health, safety and environment (HSE) audits
area by standardized criteria and questions, to define areas for actions and to ensure
the sustainable implementation of the actions and improvement areas.
Assessment criteria in audits are based on customer and stakeholder expectations.
Audits can be clustered in systems, process, product, control and special audits as
shown in Table 1.3.
In the following case study, an audit was conducted to evaluate performance of
the Berliner Verkehrsbetriebe (BVG). The Berliner Verkehrsbetriebe (German:
‘Berlin Transport Company’) is the main public transport company of Berlin, the
capital city of Germany. It manages the city’s metro (U-Bahn) underground railway,
tram, bus and ferry networks. The generally used abbreviation, BVG, has been
retained from the company’s original name, Berliner Verkehrs Aktiengesellschaft
(Berlin Transport Corporation). The BVG has around 15,000 employees in Berlin.
The audit was conducted in four steps as outlined in Fig. 1.14. The audit was done by
approximately 70 M.B.A. and master students in groups of four to six people in
summer 2018 and repeated in the same year in autumn. In step 1, every audit must
start with systematic analysis definition of standardized performance criteria. In step
2, it is important to carry out the evaluation of each category and criteria based on
audit norm and standard. In step 3, auditors will identify deficiencies and deviations
from norm and standard. And finally, the auditors will establish a list of actions
(action and improvement plans) and improvements, which will help the organization
to achieve performance excellence.
In step 1, 10 categories of stakeholders’ importance were identified. These can be
seen in the radar chart in Fig. 1.15. The evaluated categories were:
Systematic Evaluation of
Identification
analysis each category Establishment
of deficiencies
definition of and criteria of action plans
and deviations
standardised based on audit and
from norm
performance norm and improvements
and standard
criteria standard
Fig. 1.14 Performance audit steps. Source: Author’s own figure
PM & M audit – Radar chart

1. Design and apperance Evaluation
10. General visibility and 10 2. Quality performance

service of staff Very good 10
of trains
5
9. Cost performance
3. Other aspects Not satisfactory 5
e.g. day, monthly tickets (8) Action
0 e.g. safety, fire protection (7)
Totally unsatisfactory
8. Other Features 4. Customer relationship Immediate Action
0
e.g. internet, WiFi management
7. Reliability 5. Appearance of stations

and service in stations
6. Punctuality
Fig. 1.15 Radar chart: PM audit of the BVG. Source: Author’s own figure
1. Design and appearance

2. Quality performance of trains and vehicles
3. Security and other aspects in stations and vehicles
4. BVG customer relationship management
5. Appearance of service areas and stations
6. Punctuality
7. Reliability
8. Other features like WiFi or Internet access
9. Cost performance
10. Visibility of staff
References 23
BVG evaluaƟon by iubh M.B.A. students SS 2018

1. Design and apperance (10)
10. General visibility and 2. Quality performance

service of staff of trains (9)
9. Cost performance e.g. 3. Other aspects

day, monthly tickets (8)
e.g. safety, fire protection (7)
8. Other Features 4. Customer relationship

e.g. internet, WiFi management (6)
7. Reliability (10) 5. Appearance of stations

and service in stations
6. Punctuality (8)
Fig. 1.16 Audit results of the BVG performance evaluation. Source: Author’s own figure
In step 2, the auditors evaluated the performance in each category based on their
experience and based on customer feedback. Evaluation was from very good
(10 points) to very unsatisfactory (0 points).
Figure 1.16 shows the average result from summer 2018. The BVG achieved
77 out of 100 possible points, which can be considered as average. In certain
categories (design, appearance, reliability), the BVG overachieves; in other areas
(safety, security, Internet and visibility of staff), it underachieves performance
excellence. As a consequence, the auditors established a plan with actions for
sustainable improvement (Helmold, 2019).
References
Bombardier Transportation. (2018). Bombardier hompage China. www.bombardier.com
Dathe, T., & Helmold, M. (2018). Erfolg im Chinageschäft. Handlungsempfehlungen für kleine und
mittlere Unternehmen (KMU). Wiesbaden: Springer.
Federal Statistical Office. (2018). https://www.destatis.de/DE/Home/_inhalt.html
Helmold, M. (2010). Best-in-class Lieferantenmanagement in der Automobilindustrie. Aachen:
Shaker.
Helmold, M. (2019). Performance measurement and management script (WS 2019/2020). Iubh
University.
Helmold, M., & Terry, B. (2016a). Lieferantenmanagement 2030. Wiesbaden: Springer Gabler.
Helmold, M., & Terry, B. (2016b). Global sourcing and supply management excellence in China.
Singapore: Springer.
Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen – Best-in-Class
Empfehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer.
Johnson, G., & Scholes, K. (1997). Exploring corporate strategy. Text and cases (4th ed.). London:
Prentice Hall.
Miles, T. (2018). WTO outlook indicator: Global trade growth to stay above-trend. Reuters Online
Article. Retrieved January 28, 2019, from https://www.reuters.com/article/us-trade-wto/wto-
outlook-indicator-global-tradegrowth-to-stay-above-trend-idUSKBN1FW0UP
Obrien, J. (2016). Negotiations for procurement professionals (2nd ed.). Croyden: Kogan Page.
Schranner, M. (2009). Verhandeln im Grenzbereich. Strategien und Taktiken für schwierige Fälle.
8. Auflage. München: Econ.
Slack, N., Chambers, S., Harland, C., Harrison, A., & Johnston, R. (1995). Operations manage-
ment. London: Pitman Publishing.
Slack, N., Brandon-Jones, A., & Johnston, R. (2013). Operations management (7th ed.). London:
Pearson Publishing.
WTO. (2017). www.wto.org
WTO. (2018). Highlights of the world trade 2017. Retrieved January 29, 2019, from https://www.
wto.org/english/res_e/statis_e/wts2018_e/wts2018chapter02_e.pdf
PM as Integral Part of the Corporate
Strategy 2
When you’re dying of thirst, it is too late to think about

digging a well.
Japanese say
2.1 Definition of Strategic Management
Performance management is an integral part of the corporate strategy (Helmold,

Dathe, & Hummel, 2019). Strategic management is a frameworks way to deal with
recognizing and making the important changes and estimating the organization’s
execution as it pushes towards its vision.
It is an administration framework that links strategic planning and decision-
making with the everyday business of operational administration. Strategic manage-
ment when it is done well is important for an organization’s long-term success,
which is making companies able to compete in a hostile and competitive environ-
ment (Johnson & Scholes, 1997). Translation of strategic management plans into
practice is the most important aspect of the planning itself in any organization.
Strategic plans can include actions like entering new markets, global sourcing,
make-or-buy strategies, deployment of new products or services, centralization or
decentralization of activities or aligning leadership and resources as outlined by
various authors (Helmold et al., 2019; Johnson & Scholes, 1997; Mintzberg, Quinn,
& Ghoshal, 1995; Porter, 1980). Porter is best known for his strategic frameworks
and concepts in his paper, which was published in 1980 (Porter, 1980). The five
forces model has five elements that can be utilized to assess the attractiveness and
competitive situation of the industry. Moreover, the generic strategies differentiation
and cost leadership are a good method to define in which direction a company should
go to increase profitability and to acquire a competitive advantage (Helmold et al.,
2019; Porter, 1980, 1985). Chapter 10 outlines the tools which have been derived
from authors like Porter. Mintzberg et al. (1995) define strategy as ‘the plan, which is

26 2 PM as Integral Part of the Corporate Strategy
a direction, a guide, or a course of action into the future. A pattern, which points to
consistency of behaviour over time. A position, which places specific products in
particular markets. A perspective, which refers to the fundamental manner of
accomplishing goals. A ploy, which is a specific manoeuvre intended to outwit
competitors’. Mintzberg provides five definitions of strategy, plan, ploy, pattern,
position and perspective (Mintzberg et al., 1995). Firstly, strategy is always a plan. A
plan integrates intended actions and activities based on previous assessment of the
situation. Secondly, as plan, a strategy can be a ploy too, really just a specific
manoeuvre intended to outwit an opponent or competitor. If strategies can be
intended (whether as general plans or specific ploys), they can also be realized. In
other words, defining strategy as plan is not sufficient; we also need a definition that
encompasses the resulting behaviour. Thirdly, strategy is a pattern. The definitions
of strategy as plan and pattern can be quite independent of one another. Plans may go
unrealized, while patterns may appear without preconception. Plans are intended
strategy, whereas patterns are the realized strategy. Fourthly, strategy is a perspec-
tive. A perspective is not just of a chosen position, but consists of an ingrained way
of perceiving the world (Mintzberg et al., 1995).
2.2 Strategic Triangle
The process of strategic management process is an approach with three steps as

outlined in Fig. 3.2 (strategic triangle) (Johnson & Scholes, 1997). The three steps
are (1) the strategic analysis, (2) the strategic choice and (3) the strategic implemen-
tation and will be described in the following sections (Johnson & Scholes, 1997)
(Fig. 2.1).
Fig. 2.1 Strategic triangle.

Source: Compiled, by the
Author, adopted from Johnson
and Scholes (1997) Strategic
analysis
Strategic
triangle
Strategic Strategic
implementation choice
2.3 Strategic Analysis 27
2.3 Strategic Analysis
The strategic analysis of an organization is about understanding the strategic position

of the organization. It requires loads of various abilities in business and in leadership
in order to investigate what changes are occurring in the environment and how they
might affect the organization and how it conducts its business (Johnson & Scholes,
1997). The existing competencies and resources of the organization need to be
assessed to determine if there are any opportunities to be gained from these and to
determine if they need to be enhanced in order to pursue strategic objectives and
goals (Johnson & Scholes, 1997). The major stakeholders which influence the
organization and the opinions or viewpoints must be taken into account as the
purpose of all of the strategic analysis is to define the potential future direction of
the organization. The purpose of this phase (strategic analysis) is to create a suitable
starting position and to understand the key influences on the present and future state
of the organization and what opportunities are afforded by the environment and the
competencies of the organization (Johnson & Scholes, 1997). Assessing the strategic
position consists of evaluating the following elements as shown in Table 2.1.
Since strategy is concerned with the position a business takes in relation to its
environment, an understanding of the environment’s effects on an organization is of
central importance to the strategic analysis. The historical and environmental effects
on the business must be considered, as well as the present effects and the expected
changes in environmental variables. The analysis of the environment can be done via
the macro- and micro-analysis (PESTEL, Porters 5 Forces). Additionally, strengths,
weaknesses, opportunities and threats complete the assessment of the environment.
This step is a major task because the range of environmental variables is so great.
Another area of the strategic analysis is the evaluation of the strategic capability of
an organization and where it is able to achieve a competitive advantage. Considering
the resource areas of a business such as its physical plant, its management, its
financial structure and its products may identify these strengths and weaknesses
(Johnson & Scholes, 1997).
The expectations of stakeholders are important because they will affect what will
be seen as acceptable in terms of the strategies advanced by management.
Stakeholders can be defined as people or groups inside or outside the organization
Table 2.1 Elements in the strategic analysis

Strategic analysis of elements Strategic tool
Environment (e.g. markets, regulations, political impacts) PESTEL analysis (macro)
Industry and competition (e.g. rivalry in industry) Industry analysis (micro)
Internal strengths and weaknesses, external threats and opportunities SWOT analysis (internal)
Cultures and beliefs Cultural analysis
Strategic capabilities and competencies Benchmarking
Expectation of stakeholders Stakeholder analysis
Source: Author’s own table, adopted from Johnson and Scholes (1997)
who have an interest in the activities of the organization. A typical list of

stakeholders for a large company would include shareholders, banks, employees,
managers, customers, suppliers, government and society. Culture affects the inter-
pretation of the environmental and resource influences (Johnson & Scholes, 1997).
2.4 Strategic Choice
Strategic choice typically follows strategic analysis. Strategic choice involves a

whole process through which a decision is taken to choose a particular option
from various alternatives. There can be various methods through which the final
choice can be selected upon. Managers and decision-makers keep both the external
and internal environment in mind before narrowing it down to one. It is based upon
the following three elements: first, the generation of strategic options, e.g. growth,
acquisition, diversification or concentration; second, the evaluation of the options to
assess their relative merits and feasibility; and third, the selection of the strategy or
option that the organization will pursue. There could be more than one strategy
chosen, but there is a chance of an inherent danger or disadvantage to any choice
made. Although there are techniques for evaluating specific options, the selection is
often subjective and likely to be influenced by the values of managers and other
groups with an interest in the organization (Fig. 2.2).
Bowman’s Strategic Clock is a model that explores the options for strategic
positioning—i.e. how a product should be positioned to give it the most competitive
position in the market (Johnson & Scholes, 1997). The purpose of Bowman’s
Strategic Clock is to illustrate that a business will have a variety of options of how
to position a product based on two dimensions—price and perceived value (Johnson
& Scholes, 1997).
Cost focus Differentiation focus

Braod scope
Cost leadership Differentiation

Narrow scope
Cost leadership Differentiation
Fig. 2.2 Generic strategies. Source: Author’s own figure, adopted from Porter (1985)
2.5 Strategic Implementation 29
high
4. Differen a on
3. Hybrid 5. Target differen a on
2. Low price 6. Difficult to realise

Customer
percep on
1. Does not make sense 7. Does not make sense
8. Does not make sense

low
low high
Price
Fig. 2.3 Strategic Clock from Bowman. Source: Author’s own figure, adopted from Johnson and
Scholes (1997)
Recommendation: The authors recommend striving for a strategy, which is

focused on customer perceived added value. The extended value (in terms of Q-C-
D-plus alpha) will automatically lead to a situation in which the price and value
elements will be increased too. Thus, the negotiators can base their negotiation on an
extended scope (Helmold et al., 2019; Johnson & Scholes, 1997) (Fig. 2.3).
2.5 Strategic Implementation
2.5.1 Assessment of Suitability, Acceptability and Feasibility
Strategic implementation is concerned with the translation of the selected strategy

into action (Johnson & Scholes, 1997). The ways in which strategies are
implemented are described as the strategic architecture or framework of the organi-
zation (Johnson & Scholes, 1997). Successful implementation of the chosen strategy
will be dependent on several factors such as stakeholder’s expectations, the
employees, the company culture, the will to change and the cooperation within the
organization. These elements and how the management and employees work
together to adopt the new plan will decide about how successful the strategy
implementation is. The available skills and/or the ability to develop new skills
when required for the planned change and issues like the structural reorganization
and resulting cultural disturbance would also affect success. Resource availability
and planning for the utilization of such resources need to be addressed as part of the
implementation plan. The entire process necessitates the management of strategic
change and will concern handling both hard and soft factors of the organization,
i.e. structure and systems and culture and motivation.
Implementing a strategy has three elements.
• Organizational structure and layout: Where and how the organization is split into
European, US and Asian divisions? How autonomous should divisions be? What
parenting style should be applied?
• Resources: Enabling an organization’s resources should support the chosen
strategy: What are the appropriate human and non-human resources? What assets
need to be acquired?
• Change management: Most strategic planning and implementation will involve
change, so managing change, in particular employees’ fears and resistance, is
crucial.
Johnson and Scholes argue that for a strategy to be successful it must satisfy three
criteria (Johnson & Scholes, 1997). These criteria can be applied to any strategy
decision such as the competitive strategies, growth strategies or development
strategies:
1. Suitability—whether the options are adequate responses to the firm’s assessment

of its strategic position
2. Acceptability—considers whether the options meet and are consistent with the
firm’s objectives and are acceptable to the stakeholders
3. Feasibility—assesses whether the organization has the resources it needs to carry
out the strategy
2.5.2 Suitability
Suitability is a useful criterion for screening strategies, asking the following

questions about strategic options:
• Does the strategy exploit the company strengths, such as providing work for
skilled craftsmen or environmental opportunities, e.g. helping to establish the
organization in new growth sectors of the market?
• How far does the strategy overcome the difficulties identified in the analysis? For
example, is the strategy likely to improve the organization’s competitive position,
solve the company’s liquidity problems or decrease dependence on a particular
supplier?
• Does the option fit in with the organization’s purposes? For example, would the
strategy achieve profit targets or growth expectations, or would it retain control
for an owner–manager?
2.5.3 Acceptability
Acceptability is essentially about assessing risk and return and is strongly related to
expectations of stakeholders. The issue of ‘acceptable to whom?’ thus requires the
2.6 Strategic Pyramid 31
analysis to be thought through carefully. Some of the questions that will help identify
the likely consequences of any strategy are as follows:
• How will the strategy impact shareholder wealth? Assessing this could involve
calculations relating to profitability, e.g. net present value (NPV).
• How will the organization perform in profitability terms? The parallel in the
public sector would be cost/benefit assessment.
• How will the financial risk (e.g. liquidity) change?
• What effect will it have on capital structure (gearing or share ownership)?
• Will the function of any department, group or individual change significantly?
• Will the organization’s relationship with outside stakeholders, e.g. suppliers,
government, unions, customers, need to change?
• Will the strategy be acceptable in the organization’s environment, e.g. higher
levels of noise?
2.5.4 Feasibility
Assesses whether the organization has the resources it needs to carry out the strategy.
Factors that should be considered can be summarized under the M-word model.
• Machinery. What demands will the strategy make on production? Do we have

sufficient spare capacity? Do we need new production systems to give lower cost/
better quality/more flexibility/etc.?
• Management. Is existing management sufficiently skilled to carry out the
strategy?
• Money. How much finance is needed and when? Can we raise this? Is the cash
flow feasible?
• Manpower. What demands will the strategy make on human resources? How
many employees are needed, what skills will they need and when do we need
them? Do we already have the right people or is there a gap? Can the gap be filled
by recruitment, retraining, etc.?
• Markets. Is our existing brand name strong enough for the strategy to work? Will
new brand names have to be established? What market share is needed for
success—how quickly can this be achieved?
• Materials. What demands will the strategy make on our relationships with
suppliers? Are changes in quality needed?
• Make-up. Is the existing organizational structure adequate or will it need to be
changed?
2.6 Strategic Pyramid
A useful tool for the translation of the corporate strategy and strategic objectives into
negotiations is the strategic pyramid (Johnson & Scholes, 1997). Strategy in this
context is the long-term positioning as well as the decision of the enterprise, which
Mission
Vision
Goals (generic)
ObjecƟves (specific)
Core competencies
Performance strategies
Strategic and performance architecture
Performance control, measurement & execuƟon
Fig. 2.4 Strategic pyramid. Source: Author’s own figure
business fields and which strategies to choose. Strategy is therefore ‘the fundamen-
tal, long-term direction of 3–5 years and organization of a company in order to gain
competitive advantages in a changing environment through the use of resources and
competences and to realize the long-term goals of the stakeholders’ (Johnson &
Scholes, 1997). This chapter outlines the elements of the strategic pyramid with
examples of the start-up and consultancy firm MaHeLeanCon, which was founded
by Prof. Dr. Marc Helmold in 2016 (Fig. 2.4).
2.6.1 Mission and Vision
The mission or mission statement of an enterprise is the long-term purpose of the

company and the strategic direction (Johnson & Scholes, 1997). Example: Be fit and
healthy. The vision or strategic intent describes more specifically what an organiza-
tion aims to achieve and the long-term aspirations (Johnson & Scholes, 1997).
Example: Run the Berlin marathon in 3 years from now.
The example of the mission and vision of the start-up of Dr. Marc Helmold
(MaHeLeanCon): Creating value through consulting small and medium-sized
enterprises (SMEs) from Germany, China, Asia Pacific and Japan with the aim to
support them in entering the Asian market or vice versa in Germany and to design
and implement them successfully. In addition, companies are prepared and
supported in process improvements and in negotiations with customers or suppliers.
In particular, successful negotiations with business partners from various countries
in the international context, taking into account cultural elements, are one of the
mainstays of the enterprise and mission. Vision: The vision or the strategic intent can
be defined as follows: acquisition and support of 10–15 customers (SMEs) in the
areas of market entry, negotiations and process improvements as well as generation
of turnover of up to 500,000 € over the next 4–5 years (Helmold et al., 2019).
2.6 Strategic Pyramid 33
2.6.2 Goals and Objectives
The mission and vision are followed by generic goals and specific objectives.
Generic goals are not quantified, and more general but specific objectives are
quantified and specific (Helmold et al., 2019). The strategists Johnson and Scholes
distinguish in longer-term and generic (English: Goals) as well as shorter and
quantified objectives (English: Objectives) for the company (Johnson & Scholes,
1997). Quantified goals can include sales, financial, quality, logistics, cost and alpha
goals. Goal example: Lose weight, get healthy, reach BMI index. Objectives exam-
ple: Lose 10 kg by the end of the year, reach BMI index of xyz.
The goals and objectives based on the example of MaHeLeanCon look like this.
Generic goals: Acquisition of projects and subprojects by three (few) key customers
over the next 3–5 years. Subproject A: Supporting an SME entering the Chinese
market through consulting and sales activities. Turnover of 150,000 €. over the next
3–5 years. First acquisition of projects by SMEs. Subproject B: Process improvement
of a global company with the acquisition of subprojects in the field of the upstream
value chain (upstream supply chain management) and supplier quality. Subproject C:
Negotiation training and workshops over the next 3 years. Generation of a competence
centre for negotiations and conflict management. Cooperation with at least five SMEs
and creation of a concept of excellence for buyers and sellers. In addition, other goals
include successfully conducting five to ten negotiation training courses and
conducting intercultural workshops for SMEs and MNC (Helmold et al., 2019).
2.6.3 Core Competencies
The next level in the strategic pyramid is the identification of core competencies.
Core competences are those competences which allow companies to gain a superior
or competitive advantage and that are very difficult for your competitors to emulate
(Johnson & Scholes, 1997). These describe the resources, skills, knowledge or any
other feature that lead to a competitive advantage. Core competencies must be
perceived by customers and clients. Example: Talent and experience in running,
knowledge of previous plans to lose weight.
In the example of MaHeLeanCon, these competences are an extensive and
worldwide network, the many years of experience and the expertise in the respective
fields. As part of the alignment, companies must conduct a detailed analysis of their
core competencies. Johnson and Scholes define core competencies as a competitive
advantage over competitors through which companies can differentiate and differ-
entiate (Dathe & Helmold, 2018; Helmold, Dathe, & Büsch, 2017; Johnson &
Scholes, 1997).
2.6.4 Strategies
After defining mission, vision, goals and core competencies, the elements must be
translated into strategic objectives and key performance indicators (KPI). The long-
term implementation of these elements is defined as the formulation of strategic

objectives and important for the negotiations (Helmold et al., 2019). In
implementing the strategic goals, negotiations will take effect. Exercise three times
per week, associate with a running group to lose 12 kg of weight.
Using MaHeLeanCon as an example, these focus on the agreements on hourly
rates and expenses with customers, but also on the scope, time and quality of
consultancy and services.
2.6.5 Strategic Architecture and Infrastructure
In addition to buildings, machines, plants, offices, resources or employees, the

infrastructure in the sense of strategic management also includes knowledge and
innovations of the company that ensure long-term success (Helmold et al., 2019).
This requires facilities, buildings, factories or offices that represent the strategic
infrastructure. In addition, however, other success criteria such as resources, knowl-
edge, experts, name recognition, network or innovations are of central importance.
Example: In the case of MaHeLeanCon, there are offices in Berlin and Munich, as
well as the construction of an office in China is being considered. Currently, the
company concept refers to a few customers who want to have the expert knowledge
and tools of the consulting firm. Especially in areas such as value chain management,
supplier management or intercultural management, MaHeLeanCon has secured
several unique selling points with an international network of experts.
2.6.6 Control and Execution (Actual Versus Plan)
The final element of the strategic pyramid is the performance control (control and
execution) and a target-performance comparison. A suitable tool for this step is the
balance score card (BSC) or an action plan. The instrument of the BSC was already
developed in 1992 by the professors Norton and Kaplan. The BSC is an instrument
in strategic management and includes four categories (Johnson & Scholes, 1997):
1. Customer satisfaction
2. Financial category
3. Internal processes and improvements
4. Learning organization
In practice, it seems that companies are adapting or expanding the original

four dimensions to their specific needs (Johnson & Scholes, 1997). Example:
Establishing process and key performance indicators (KPI) of monitoring
improvements and successful execution of strategy. Creating scorecard and checking
running time, sequence, weight and other elements on a daily basis.
2.7 Strategies Must Focus on Performance 35
In the MaHeLeanCon consulting, there are a total of five categories based on the
model of Norton and Kaplan, but include customer-specific aspects for the success of
MaHeLeanCon. The five categories are:
1. Customer satisfaction and scope of orders (repeat orders)

2. Quality and achievement goals (degree of completion in time, costs and
resources)
3. Cost and financial goals (sales targets, savings, process costs, costs and benefits)
4. Resource targets (days, number of employees, costs of employees)
5. Internal improvement goals (faster access to customers, improved financial ratios)
2.7 Strategies Must Focus on Performance
Porter postulated three generic or broad alternative strategies which may be pursued
as a response to the competitive pressures. They are termed generic strategies
because they are broadly applicable to any industry or business. They are differenti-
ation, cost leadership and focus. A focus strategy may be further defined as cost
focus, differentiation focus or cost and differentiation focus.
A differentiation strategy may be based on actual unique product features or the
perception thereof, conveyed through the use of advertising and marketing tactics, in
the eyes of customers. Obviously, the product or service feature must be one the
customer needs or desires. Moreover, such enhanced features and designs or adver-
tising and marketing will increase costs, and customers must be price-insensitive—
willing to pay for the differentiated product or service. This willingness to pay for the
differentiated product of service is what provides the company relief from competi-
tive pressure, cost pressure specifically. Firms pursuing a cost leadership strategy
must make lower production and distribution costs their priority (Fig. 2.5).
Braod scope
Differentiation
Cost leadership
(value add)
Scope
Performance
Narrow scope
Differentiation
Cost leadership
(value add)
Low High
Source of performance advantage
Fig. 2.5 Generic strategies. Source: Author’s own figure

By keeping their cost lower than those of their competitors, firms using cost
leadership can still price their products up to the level of their competitors and still
maintain higher gross profit margins. Alternatively, these firms can price their
products lower than those of their competitors in the hope of achieving greater
market share and sales volume at the expense of gross profit margins. A focus
strategy is based on a particular market, customer, product or geographic. A focus
strategy is a concentrated, narrowly focused niche strategy, which targets a specific
segment or market.
2.8 Case Study: Siemens Strategy
The company Siemens has outlined its mission, vision, goals, strategic objectives, core
values and cultural specifics in its strategy outline ‘Siemens, vision 2020’ (Siemens,
2019). The president and CEO Joe Kaeser outlines the key elements of the Siemens
strategy for the coming years. He stresses that with the positioning along the electrifi-
cation value chain, Siemens has know-how that extends from power generation to
power transmission, power distribution and smart grid to the efficient application of
electrical energy. And with the outstanding strengths in automation, Kaeser confirms
that Siemens is well equipped for the future and the age of digitalization. The Siemens
vision 2020 defines an entrepreneurial concept that will enable the enterprise to
consistently occupy attractive growth fields, sustainably strengthen our core business
and outpace our competitors in efficiency and performance. All goals are focused on a
long-term success (Siemens, 2019). The mission of Siemens can be defined as ‘We
make real what matters, by setting the benchmark, in the way we electrify, automate
and digitalize the world around us. Ingenuity drives us and what we create is yours.
Together we deliver’ (Siemens, 2019).
References
Dathe, T., & Helmold, M. (2018). Erfolg im Chinageschäft. Handlungsempfehlungen für kleine und
mittlere Unternehmen (KMU). Wiesbaden: Springer.
Helmold, M., Dathe, T., & Büsch, M. (2017, May 4). Praxisbericht aus der Bahnindustrie –
Bombardier Transportation. Veränderte Anforderungen durch Global Sourcing. Beschaffung
aktuell. Retrieved May 17, 2018, from https://beschaffung-aktuell.industrie.de/einkauf/
veraenderte-anforderungen-durch-global-sourcing/
Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen – Best-in-Class
Prentice Hall.
Mintzberg, H., Quinn, J. B., & Ghoshal, S. (1995). The strategy process (Rev. European ed.).
London: Prentice Hall.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors.
New York: Free Press.
References 37
Porter, M. E. (1985). Competitive advantage. Creating and sustaining superior performance.

Siemens. (2019). Siemens. Vision 2020. We make real what matters. Strategy. Retrieved February
26, 2019, from https://www.siemens.com/annual/14/en/download/pdf/Siemens_AR2014_
Vision2020.pdf
Excellence in PM
3
Marc Helmold
Anyone can achieve it; you just have to apply it yourself.

Richard Templar 2009
3.1 Quantitative and Qualitative Performance Indicators
3.1.1 Quantitative Research
Quantitative research methods are research methods dealing with numbers and
anything that is measurable in a systematic way of investigation of phenomena
and their relationships. It is used to answer questions on relationships within
measurable variables with an intention to explain, predict and control a phenome-
non. An entire quantitative study usually ends with confirmation or disconfirmation
of the hypothesis tested. Researchers using the quantitative method identify one or a
few variables that they intend to use in their research work and proceed with data
collection related to those variables. Examples of quantitative research are:
Research that consists of the percentage amounts of all the elements that make up
Earth’s atmosphere.
Survey that concludes that the average patient has to wait two hours in the waiting
room of a certain doctor before being selected.
An experiment in which group x was given two tablets of aspirin a day and group
y was given two tablets of a placebo a day where each participant is randomly
assigned to one or other of the groups. The numerical factors such as two tablets,
per cent of elements and the time of waiting make the situations and results
quantitative.
In finance, quantitative research into the stock market is used to develop models to
price complex trades, and develop algorithms to exploit investment hypotheses,
as seen in quantitative hedge funds or trading strategy indices.

40 3 Excellence in PM
The most common sources of quantitative data include:
Surveys, whether conducted online, by phone or in person. These rely on the same
questions being asked in the same way to a large number of people.
Observations, which may involve either counting the number of times that a
particular phenomenon occurs, such as how often a particular word is used in
interviews, or coding observational data to translate it into numbers.
Secondary data, such as company accounts.
3.1.2 Qualitative Research
Qualitative research is any which does not involve numbers or numerical data. It
often involves words or language, but may also use pictures or photographs and
observations. Almost any phenomenon can be examined in a qualitative way, and it is
often the preferred method of investigation in the UK and the rest of Europe; US
studies tend to use quantitative methods, although this distinction is by no means
absolute. Qualitative research is primarily exploratory research. It is used to gain an
understanding of underlying reasons, opinions and motivations. It provides insights
into the problem or helps to develop ideas or hypotheses for potential quantitative
research. Qualitative research is also used to uncover trends in thought and opinions
and dive deeper into the problem. Qualitative data collection methods vary using
unstructured or semi-structured techniques. Some common methods include focus
groups (group discussions), individual interviews and participation/observations.
The sample size is typically small, and respondents are selected to fulfil a given quota.
Qualitative analysis results in rich data that gives an in-depth picture, and it is
particularly useful for exploring how and why things have happened.
Although qualitative data is much more general than quantitative, there are still a
number of common techniques for gathering it. These include:
Interviews, which may be structured, semi-structured or unstructured

Focus groups and case studies, which involve multiple participants discussing an issue
‘Postcards’, or small-scale written questionnaires that ask, for example, three or four
focused questions of participants but allow them space to write in their own words
Secondary data, including diaries, written accounts of past events and company
reports
Observations, which may be on-site, or under ‘laboratory conditions’, for example,
where participants are asked to role-play a situation to show what they might do.
3.2 Definition of Key Performance Indicators
Key performance indicators (KPI) are a set of quantifiable measures that a company
uses to gauge its performance over time. These metrics are used to determine a
company’s progress in achieving its strategic and operational goals and also to
3.4 Case Study: Quantitative and Qualitative Data in Bombardier 41
compare a company’s finances and performance against other businesses within its
industry. A key performance indicator (KPI) is a measure of your performance
against key business objectives. High-level KPIs may focus on the overall perfor-
mance of the enterprise, while low-level KPIs may focus on processes or employees
in departments such as sales, marketing or a call centre.
3.3 Definition of Objective Key Results
The objective key results (OKR) system is a performance tool that sets,
communicates and monitors goals in an organization so that all employees work
together in one direction. The development of OKRs is generally attributed to Andy
Grove the ‘Father of OKRs’, who introduced the approach to Intel during his tenure
there and documented this in his 1983 book High output management. Objectives
and key results (OKRs) is a popular leadership process for setting, communicating
and monitoring quarterly goals and results in organizations. The goal of OKRs is to
connect company, team and personal objectives in a hierarchical way to measurable
results, making all employees work together in one unified direction. By using the
SMART-objective methodology. OKRs consist of a list of three to five high-level
objectives. Under each objective then usually three to five key measurable results are
listed. Each key result has a progress indicator or score of 0–100% or 0 to 1.0 that
shows its achievement. The advantages can be outlined as follows:
Goal-focused company alignment: align with your leadership team on top priorities
and highest leverage activities each quarter.
Fit objectives into company vision, mission and values to motivate your company
with purpose.
Visibility into company, department and individual progress, wins and road blocked
areas.
3.4 Case Study: Quantitative and Qualitative Data

in Bombardier
Bombardier Transportation (BT) has outsourced more than 80% of its value adding
activities to domestic and international supply networks. The category ‘supplier
quality performance’ receives therefore special focus. In 2012, Bombardier could
not deliver finished trains to the end customer in Europe allegedly due to defective
parts of the supplier XYZ from China. The managers and operational members of the
project who were responsible for profit and loss were extremely worried about
possible penalties from the end customer. For projects of this scope, delays in
delivery may cause penalties to the extent of several million EUR. During the root
cause investigation process, it became evident that a purely quantitative and numeri-
cal approach may not fully reveal the truth of the phenomena, as outlined by
Remenyi, Williams, Money and Swartz (2003) or Yin (2009). Thus, the qualitative
approach was more suitable for this kind of analysis. Quantitative KPI are not only
used by Bombardier, but also by other companies to measure supplier quality and
delivery performance. These supplier performance data hypothetically contribute to
good or bad supplier relationships between the customer and the supplier; however,
without appropriate interpretation and harmonization, such data may not indicate the
phenomena properly (Yin, 2009). The case study is representative of the weaknesses
of such systems, since all companies evaluate the quality performance of suppliers in
a standardized way on a monthly basis. All Bombardier suppliers are evaluated in
terms of delivery to the site and rate of NCGs in relation to the total quantity of goods
supplied, as shown in Fig. 3.1 (Bombardier, 2012: January to June 2012 NCG).
Every 6 months, management is informed about the performance of each individual
supplier. For example, if a supplier delivered 1000 goods within 6 months without any
non-conformity, his NCG percentage is zero. If he delivers 100 non-conforming parts,
his NCG percentage is 10. There are standard ways to determine whether a part is
NCG:
Deliveries: 34 units
1000 units
NCG%:
3.4%
Business Supplier
critical performance
NCG ratio (%) Results Status

> 0%-1.0% Targets achieved
> 1.0%-1.9% Targets partially achieved,

action plan necessary
> 1.9%-unlimited Business critical, escalation

neceassary
Fig. 3.1 NCG ratio of supplier XYZ. Source: Author’s own figure
non-conforming or faulty. Quantitative evaluation is used to highlight whether a

supplier is business-critical to Bombardier following actions such as escalation,
re-sourcing or out phasing. These actions directly impact the supplier, since all
deliveries have to be stopped and future orders are terminated. A report published
in December 2012 urged Bombardier’s top management to carry out immediate
action regarding supplier C due to bad quality performance and the presence of
non-conforming parts in the production process in a site in Europe. Supplier XYZ’s
NCG ratio exceeded the 2.0% limit (3.4% between June and December 2012).
According to the report (including statistics), 34 out of 1000 delivered parts were
non-conforming (i.e. NCG percentage ratio of 3.4%). The data triggered an immediate
escalation process within Bombardier, involving order suspension by other sites. These
actions affected the supplier immediately. Management was informed and asked to
develop an action plan and countermeasures. After reviewing the NCG% and data in
more depth, it became clear that there were certain discrepancies which had to be
looked at in more detail. Bombardier and the supplier put a joint task force in place to
analyse the data. The task force found out that the data were based on the subjective
judgement of only a few functions. Moreover, there were no criticality levels (one bad
screw may cause a standstill). It revealed the weakness of using only one criterion
(NCG%) to define business-critical aspects. Criteria such as delivery performance or lot
compliance were not included. Additionally, soft factors (cooperation, innovation,
willingness to mitigate, setting up a task force, etc.) were missing. In conclusion, one
can say that in the case of Supplier C, KPI evaluation and determination of NCGs were
not objective. The task force found evidence that certain factors had distorted perfor-
mance data. Furthermore, the data neglected factors such as having a service team
on-site or being an innovation leader in the railway industry. NCG determination was
based on positivistic methodology and judged by specific departments like ‘incoming
quality’, ‘warehouse’, ‘shop order control’, ‘production’ and ‘testing’. Positivist
research only uses quantitative data (Yin, 2009). The relevant skill set comprises
extensive knowledge of mathematics and statistics, and sometimes finance. Members
with the ability to develop mathematical models and proficiency in statistical
analysis were selected for working on the data. In many cases, the above-mentioned
departments were not able to understand the real cause of non-conformity, but
attributed the problem to the supplier. Ultimately, it became clear to both Bombardier
management and the supplier that with such a quantitative KPI analysis as performed
by Bombardier, it was not possible to measure quality performance accurately and that
another approach was needed. The following section will therefore apply qualitative
research to the case, showing more accurate results regarding quality performance.
The supplier and Bombardier revealed that most of the non-conformities were not
caused by the supplier, but by Bombardier internally. After looking into the matter
more closely and carrying out a root cause analysis (RCA) through interviews, the
outcomes were defined. The RCA (see pie chart) shows that the majority of NCGs were
caused by Bombardier members themselves, with only a small percentage caused by
supplier. The interviews revealed the same thing. Indeed, there were weaknesses
inherent in the entire supply chain. Nevertheless, there was no intervention at this
stage. First of all, certain implications and limitations of the qualitative approach had to
be considered. Although the qualitative methodology went further than the quantitative
approach, no interaction ensued (Fig. 3.2).
There were ideas for improvement based on qualitatively determined realities and
evidence, but the system and the phenomena kept the ‘status quo’, since there had
been no intervention. In conclusion, it can be said that the system has shown the
advantages of the qualitative approach. The data material is more accurate and more
objective now that the root cause of NCG has been analysed. The interview approach
provided more realistic results than the quantitative method based on NCG percent-
age. In conclusion, the quantitative data showed not only one root cause but several/
more than one root causes (see RCA below), as displayed in Fig. 3.3. Qualitative and
Root cause analysis (RCA)

Assy. mistake
Intralogistics
Design related
Handling
Supplier related
Part not found in

WH
others
Fig. 3.2 Qualitative RCA and interventionist approach. Source: Author’s own figure
Quantitative
Quantitative Qualitative analysis
Quantitative
Qualitative Action
analysis research
1 2 3
Result: Result: Result:
Fig. 3.3 Quantitative and qualitative analysis with AR. Source: Author’s own figure
narrative systems are more accurate and reflect actual supplier performance (includ-
ing soft factors) in a better way.
As there were several causal factors (not only supplier) within Bombardier which
generated NCG (e.g. intralogistics, warehousing, handling, design section, assem-
bly), it became necessary to develop question techniques to acquire more informa-
tion. In complex situations and research projects, a qualitative research approach
without intervention is considered to be effective, as recommended by Remenyi
et al. (2003). Compared to quantitative methodologies, qualitative methodologies
have certain advantages, as was illustrated in the supplier C case. Non-positivists
argue that purely positivistic approaches frequently fail, as several examples have
shown (Yin, 2009). This school of thought assumes that objects of investigation in
social sciences are social issues—a key concern is that research should acknowledge
and treat people (groups or functions like in the case study) as essentially human in
nature rather than as mere objects. Central to the above mentioned argument is the
fact that human beings have the ability to think, act and influence the world.
Positivist research strategies are unable to provide an understanding of such
human dimensions. In the UK general election in 1992, when the opinion polls
(including the exit polls) predicted a Labour Party victory, the Conservative Party
won instead (Remenyi et al., 2003, p. 92). It almost seems that voters were simply
not willing to tell the truth about how they actually intended to vote. Certain
scientists claim that qualitative research meanwhile represents a more suitable
strategy. Nevertheless, it also has some disadvantages compared with quantitative
methodologies. Remenyi et al. (2003) state that subjectivity may possibly lead to
procedural problems and that replicability is difficult to achieve. Moreover, the bias
of researchers is inherent and unavoidable. Another criticism is that qualitative
research is labour-intensive and expensive compared to quantitative research. Even
though it aims to be in depth, a comprehensive approach to data-gathering limits
scope. Finally, qualitative research is not always well understood by ‘classical’
researchers, as indicated by Remenyi et al. (2003). There is an ongoing debate
among researchers about the suitability and validity of quantitative and qualitative
methods in research (Denzin & Lincoln, 2000). Remenyi et al. (2003, p. 104) outline
characteristics of the quantitative (positivist) and qualitative (non-positivist)
approach. According to Denzin and Lincoln (2000), the key difference between
quantitative and qualitative methodology is flexibility. They state that quantitative
methods are less flexible than qualitative methods. A cross-functional task force,
which is supported by skilled process consultants, has been set up. The task force has
been given three main objectives: (1) to identify the root causes of each individual
NCG regardless of whose fault it was, (2) to describe the NCGs and allocate them to
the causal function and (3) to establish sustainable countermeasures by changing,
adjusting or adopting processes and systems. Even though action research (AR) was
not seriously considered for this study, the Jupiter case shows the potential of AR in
research and managerial practice in SRM. AR is a form of research in which
practitioners reflect systematically on their practice, implementing informed action
to bring about improvement. One widely accepted definition describes it in the
following way: AR is a form of self-reflective enquiry undertaken by participants
in social situations in order to improve the rationality and justice of their own social
or educational practices, their understanding of these practices and the situations in
which the practices are carried out. In the Jupiter case, a cross-functional task force
was set up. At a relatively early stage, certain characteristics relating to the interplay
of the task force members became obvious. All task force members were directly
responsible for making decisions. First of all, the issues to be researched were
determined. Then the enquiry was developed and implemented. The cooperation
and grouping of the individual participants significantly increased collaboration and
enriched working relationships and liaison within the task force. AR and the scope of
the project gave stakeholders the possibility to look beyond the root causes, and thus
they gained a greater understanding of their own practices in handling supplier C
material. In Fig. 3.4, it can be seen that the majority of defects could be eliminated.
The members of the task force were empowered to make informed decisions
about what to change and what not to change. They linked prior knowledge to new
information, learned from experience (even failures), asked questions and systemat-
ically found answers on the topic. With AR it would also be possible for manage-
ment and stakeholders of Jupiter to integrate theory (findings) and practice, increase
teamwork, steer more effectively towards a zero-defect philosophy and improve
discipline among task force members. It was the wish of each member to increase the
predictability of what happened in their functions. The task force acquired knowl-
edge in qualitative research methods beyond a numerical system. The white area in
the pie chart in the summary figure shows the results after intervention into the
processes and systems. About two-thirds of the NCGs could be erased within a short
period of time.
The joint task force has had fundamental implications both for the individual
project and for the general system of supplier performance within Bombardier.
Figure 3.5 shows the three approaches and their respective outcome in the
Root cause analysis (RCA)

Assy. mistake
Intralogistics
Design related
Handling
Supplier related
Part not found in

WH
others
Fig. 3.4 Root cause analysis (RCA) including action research (AR). Source: Author’s own figure
Supplier XYZ case
1 2 3
Quantitative Qualitative Root causes after Qualitative

conducting interviews analysis
analysis analysis
w/o interventionist approach w/ AR
Supplier
caused
Action Research
Intralogistics
Supplier XYZ Supplier XYZ
Task forces
Not found
NCGs NCGs in WH
Handling
Bombardier Bombardier
Design
related
3.4 Case Study: Quantitative and Qualitative Data in Bombardier
Quantitative data only Qualtitative data (interviews)

Assy.
mistake
Fig. 3.5 Result of analysis. Source: Author’s own figure

47
Supplier XYZ case
Quantitative Qualitative Qualitative

Analysis Analysis Analysis
Case study Case study

Interviews Interviews
Interventionist
approach
Supplier Supplier Supplier

Performance Performance Performance
Fig. 3.6 Summary of analysis. Source: Author’s own figure
pie charts. The Jupiter quality performance was judged to be extremely bad using
quantitative methodology (1) however; the qualitative approach without inter-
vention (2) (including interviews and qualitative root causes) still revealed
weaknesses in the quantitative methodology itself. Through potential AR (3) and a
task force which includes external specialists in processes, it was possible to
intervene in and improve the system. In conclusion, one can say that AR offers
suitable features for making improvements with intervention (Remenyi et al., 2003),
as the case has shown.
These principles are the subject of discussion in the next chapter. Reason and
Bradbury (2001) emphasize that AR is a participative process in which experience
and reflection are the essential criteria for intervening in a system. Figure 3.6 shows
the different results from ‘red’ to ‘green’ (cf. traffic lights) relating to the three
approaches. AR has shown that an interventionist approach in a transformative and
improvement cycle significantly has changed the overall performance of the sup-
plier. One important principle has been the continuous reflection by all task force
members and the triggering of improvements through the pluralist structure.
Chapter 10 stresses the need for a joint and collaborative approach in supply
management based on quantitative and qualitative real facts.
References 49
References
Bombardier Transportation. (2012). Business critical suppliers 01/2013. Internal business critical
report.
Denzin, N. K., & Lincoln, Y. S. (Eds.). (2000). Handbook of qualitative research. London: Sage.
Reason, P., & Bradbury, H. (Eds.). (2001). The Sage handbook of action research. Participative
inquiry and practice (1st ed.). London: Sage.
Remenyi, D., Williams, B., Money, A., & Swartz, E. (2003). Doing research in business manage-
ment. An introduction to process and method. London: Sage.
Yin, R. K. (2009). Case study research (4th ed.). London: Sage.
PM in the Upstream Value Chain
4
Marc Helmold
Look deep into nature and then you will understand all better.
4.1 PM in the Upstream Value Chain
Performance in the upstream value chain deals with the management of the supply
side and the purchasing of raw materials, semi-finished and finished parts or
services. Synonyms of purchasing are procurement, acquisition or supply manage-
ment. Supply management plays in this context a crucial role in securing this input
and to manage factors like quality, cost, delivery, technology and alpha elements
(Q-C-D-T-plus alpha). The essential point is here that supply management has to
link all the activities between suppliers, their own organization and the customers in
a timely manner. In recent years, there was a trend for many industries such as
automotive, railway, aerospace and machinery to reduce their own value-adding
activities. As a result, companies were becoming more and more dependent on
supply networks. That gave a crucial role to the supply management function.
Many companies had/have value-adding activities of less than 15%, which means
that 85% of their activities were/are outsourced to third parties. As a consequence,
the function of managing these outside activities, the supply management, has a
crucial role within any organization. The outside value-adding activities are
performed by several suppliers, so-called supplier networks. Supplier networks are
characterized by adding value through producing, finishing or finalizing products,
which the customers are demanding. The rapid increase in supplier activities directly
affects supplier management, as emphasized by Emmett and Crocker (2009). In
recent years, many companies have reduced their value-adding activities and
concentrated on their core competencies. Supply management has therefore become
more important in core and peripheral business areas (Trkman & McCormack, 2009)
and is aimed at managing supply, building resilient supply chains and managing

52 4 PM in the Upstream Value Chain
Supply Demand
side Procurement Operations Marketing
side
(Supply) management (Sales)
Information
technology
Finance and (IT)
accounting
Human
Fig. 4.1 PM in supply management and procurement. Source: Author’s own figure
relationships (Christopher & Peck, 2004). Resilience is based on being able to

anticipate, manage and prevent supply chain disruptions at an early stage. On the
other hand, supply risks have risen due to increased dependency on supplier
networks (Kersten, Hohrath, & Winter, 2008). Although books on supply manage-
ment are available on the topic, there is a need for a more holistic and pragmatic
approach towards supply management (Narasimhan & Talluri, 2009). Several
authors point out that there is a discrepancy between the proactive role of supply
management in complex and global supply networks and the traditional view of how
to deal with suppliers (Aberdeen Group, 2006). Supply management has to integrate
the optimum level and combination of quality, cost and delivery as shown in
Fig. 4.1.
4.2 Concentration on Core Competencies
Many industries are nowadays faced by fierce competition inside and outside
Europe. Globalization and other elements of international trade are influencing the
viewpoint of companies in terms of performance management. This is forcing
manufacturing companies to concentrate on core competencies and to transfer the
production of components, goods and services to external suppliers (Aberdeen
Group, 2006; Harland, Brenchley, & Walker, 2003). The number of value-adding
activities has decreased constantly and now lies between 20% and 30% in this
industry (Dyer, 1996, 2000). Such a development has had a great influence on the
structure of supply chains and supplier relationships. Supply chains (the terms
‘supply chains’ and ‘supply networks’ are used synonymously in the literature)
have become more complex and international, as pointed out by several authors
(Aberdeen Group, 2006; Harland et al., 2003). Christopher and Peck see the level of
complexity increasing in the upstream supply chain management of manufacturing
companies in the European transportation industry, a trend which is characterized by
the growing transfer of activities to suppliers, high numbers of supply chain layers
4.2 Concentration on Core Competencies 53
(tiers) and the ongoing globalization of supply chains (Christopher & Peck, 2004).
As a consequence, vulnerability and risk exposure have risen significantly. The rapid
increase in supplier activities directly affects supplier relationship management
(SRM), as emphasized by Emmett and Crocker (2009). In recent years, many
companies have reduced their value-adding activities and implemented efficiency-
oriented cost reductions, e.g. outsourcing, single sourcing, low-cost country sourc-
ing, platform concepts, lean management and design-to-cost approaches (Aberdeen
Group, 2006; Gürtler & Spinler, 2010). SRM has become more important in core
and peripheral business areas and is aimed at building resilient supply chains.
Resilience is based on being able to anticipate, manage and prevent supply chain
disruptions at an early stage (Christopher & Peck, 2004). On the other hand, supply
risks have risen due to increased dependency on supplier networks (Kersten et al.,
2008). In their research ‘An Empirical Analysis of the Effect of Supply Chain
Disruptions on Long-Run Stock Price’, Hendricks and Singhal (2005) found out
that enterprises without operational slack and redundancies in their supply chains
experience negative stock effects. The authors revealed the tremendous impact of
supply chain disruptions on stock price performance and shareholder value. Supply
disruptions can easily lead to high recovery cost, waste and sharp decreases in sales,
as pointed out in this study. External customers become dissatisfied and internal core
functions (e.g. assembly) are disturbed. In most cases, supply disruptions have
negative impacts on brand image, sales figures and the company’s own financial.
Although literature is already available on the topic, both top management and
academia underline the need for a more holistic approach towards SRM. Several
authors point out that there is a discrepancy between the proactive role of SRM in
complex and global supply networks and the traditional view of how to deal with
suppliers (Aberdeen Group, 2006). Christopher and Peck stress that supply chain
resilience and SRM is a relatively new and still largely unexplored area of manage-
ment (Christopher & Peck, 2004). Supply chain risks have mainly been investigated
on the direct level of tier-one relationships, but consideration has not been fully
extended to sub-suppliers, i.e. tiers one, two, three and beyond (Harland et al., 2003).
This chapter therefore seeks to address these concerns by identifying the phases of
supply management, by outlining performance management tools in the upstream
value chain and by outlining how performance of suppliers must be measured and
managed. Figure 4.2 outlines the six phases of supply management (Helmold &
Terry, 2016). These phases include the strategy, supplier selection, supplier evalua-
tion, supplier development, supplier integration and supplier monitoring and control
(Helmold & Terry, 2016). Prof. Dr-Ing. Dust, Professor at the Technical University
for Quality Management, comes to similar results in his survey ‘Total Supplier
Management’. Hendricks and Singhal (2005) show in their analysis that supply
chain discrepancies can harm the share value of their own company by up to 40%.
Only flat hierarchies, lean competencies and direct accountability through line
responsible people (Japanese ¼ Gemba) lead to an improved communication and
concentration on value-adding activities and core issues. Due to the importance of
the supply chain, it is necessary (Freitag, 2004; Liker, 2004). Thus, it is possible to
synchronize master production and delivery schedules and to have short lead times
Supply management process

Supply Supplier Supplier Supplier Supplyier Supplier
strategy selection evaluation development integration controlling
Information
technology
Finance and (IT)
accounting
Human
Fig. 4.2 Supply management process. Source: Author’s own figure
of goods and products. Flexibility is important to react quickly on customer

demands. Waste has to be eliminated throughout the entire process.
4.3 Phases in Supply Management
Supply management performance has to be managed through the systematic process

as shown in Fig. 4.2. The supply strategy decides which kind of supplier (strategic or
operational) is needed of each specific category. Based on the strategy, the right
suppliers have to be selected on grounds of the Q-C-D-T-plus alpha and TCO (total
cost of ownership) principles. The next phase is the evaluation, in which perfor-
mance of each supplier is measured. Joint programmes for improvement will be
executed in the supplier development phase to integrate the suppliers more and more
into their own value chain. Finally, supplier controlling is important to secure the
optimum cost base and value-add.
4.4 PM in the Upstream Value Chain: Supply Networks
What is a supply network and why are they so important for companies and business
managers? Supply networks allow us to look at the big picture, giving us a better
understanding of the flow of materials and information (Dust, 2009). Often
organizations focus only on their organization that means what they produce or
provide and not what the end customer receives. Looking at a supply network
enables firms to look at the overall movement of materials and information from
start to end customer, allowing organizations to see the value in creating
partnerships. The value in working together to ensure the best possible value is
provided to the end customer. Supply chain networks describe the flow and move-
ment of materials and information, by linking organizations together to serve the end
4.4 PM in the Upstream Value Chain: Supply Networks 55
customer. Supply networks are networks of suppliers that add value to a process,
product or service. A supply network is a pattern of processes carried out at facility
nodes and over distribution links, which adds value for customers through the
manufacturing and delivery of products. It comprises the general state of business
affairs in which all kinds of material (work-in-progress material as well as finished
components) are transformed and moved between various value-added points to
maximize the value-add for customers. One of the strategic aims in supply manage-
ment is the establishment of resilient supply networks. A resilient supply network
effectively aligns its strategy, operations, management systems, governance struc-
ture and decision-support capabilities so that it can uncover and adjust to continually
changing risks, endure disruptions to its primary earnings drivers and create
advantages over less adaptive competitors. Moreover, it has the capability to respond
rapidly to unforeseen changes, even chaotic disruption. The resilience of a supply
network is the ability to bounce back and, in fact, to bounce forward with speed,
determination and precision. In recent studies, resilience is regarded as the next
phase in the evolution of traditional, place-centric enterprise structures to highly
virtualized, customer-centric structures that enable people to work anytime, any-
where. Resilient supply networks should align their strategy and operations to adapt
to risks that affect their capacities. There are four levels of supply chain resilience.
First is reactive supply chain management. Second is internal supply chain integra-
tion with planned buffers. Then comes collaboration across extended supply chain
networks. Finally, there is a dynamic supply chain adaptation and flexibility. ‘Net-
work’ describes a more complex structure, where organizations can be cross-linked
and there are two-way exchanges between them; ‘chain’ describes a simpler,
sequential set of links (Harland et al., 2003). In order to understand a supply chain
network, we need to understand what a supply chain is. A supply chain is a series of
processes linked together to form a chain. Figure 4.3 shows the hierarchy of supplier
networks from raw material supplier, component/parts suppliers, systems supplier
and module suppliers to the integrated supplier networks. Another definition for
integrated suppliers is ‘keiretsu’ supplier, a definition which comes from the Japa-
nese paradigm of working with suppliers.
4.4.1 Raw Material Suppliers
A raw material supplier produces and supplies materials or substances used in the
primary production or manufacturing of a good (granulate, liquids, steel, aluminium,
etc.). Raw materials are often natural resources such as oil, iron and wood. Before
being used in the manufacturing process, raw materials often are altered or refined
(adding value) to be used in different processes. Raw materials are often referred to
as commodities, which are bought and sold on commodities exchanges around the
world. Raw materials are sold in what is called the factor or commodity markets,
some even at stock exchanges (London Metal Exchange, LME). This is because raw
materials are factors of production along with labour and capital. Raw materials are
so important to the production process that the success of a country’s economy can
High Competence of
Product
Supplier types A-Supplier
Integrated
supplier
Q-C-D-T plus alpha criteria
Module supplier
High Competence of
Process
Sytems supplier
Component / Parts supplier
Raw material supplier
Fig. 4.3 Supply pyramid. Source: Author’s own figure
be determined by the amount of natural resources the country has within its own
borders. A country that has abundant natural resources does not need to import as
many raw materials and has an opportunity to export the materials to other countries.
Raw materials are utilized to make components or parts.
4.4.2 Components and Parts Suppliers
A component or part is a part or simple subassembly, system or subsystem, which

(1) is required to complete or finish an activity, item or job; (2) performs a distinctive
and necessary function in the operation of a system; or (3) is intended to be included
as a part of a finished, packaged and labelled item. Components are usually remov-
able in one piece and are considered indivisible for a particular purpose or use.
Commonly, items of very small or insignificant cost are not considered components.
Component or parts suppliers usually have only capabilities to produce a part
according to a specified drawing (build-to-print). The next layer describes the
systems supplier network and systems supplier.
4.4.3 Systems Suppliers
A systems supplier has the equipment, facilities, methods, competency, capabilities

and resources deployed to design, produce and manage a subsystem for the
customer’s module or integrated suppliers (e.g. subsystem of wheel sets for a
bogie, electrical cabling system for the total electrical system, entertainment system
for the dashboard and audio system). The systems supplier is usually not yet a direct
4.4 PM in the Upstream Value Chain: Supply Networks 57
supplier to the customer (tier-1) as he supplies a subsystem to the module or

integrated supplier network. A module supplier can be the tier-1 supplier to the
end customers, assembling the subsystems and components to a module. A module
supplier can do this based on the specification of the customer’s design or have their
own design capabilities in-house. If the module supplier’s production, logistics and
design systems are linked to the customer’s design, logistics, supply management
procurement and production, the supplier can be defined as integrated (module/
systems) supplier. Many Japanese companies are using well-connected suppliers
(also called keiretsu).
4.4.4 Integrated and Keiretsu Suppliers
The keiretsu supply network (Japanese: integration, order or system of suppliers)

represents a means of mutual security, especially in Japan, and usually includes large
manufacturers and their suppliers of raw materials, systems and components
(Ahmadjian & Lincoln, 2001; Freitag, 2004). Keiretsu networks have received
much attention in the European automotive and transportation sector through the
success of Japanese companies such as Toyota, Hitachi and other conglomerates in
achieving improved customer service, better inventory control and more efficient
overall channel management (Freitag, 2004). Keiretsu, which is a form of Japanese
business network, shares many of the goals of SCM. The concept of keiretsu supply
networks was introduced by Toyota in the mid-1980s (Imai, 1986; Ohno, 1990) and
transferred to affiliates and suppliers outside Japan (Kalkowsky, 2004). Keiretsu
networks often include partial ownership of the respective supplier. Control
relationships between pairs of firms represent a form of bilateral exchange. The
school of keiretsu may lead to broad functional and cultural changes for those
companies which use the system (Freitag, 2004). Keiretsu networks with financial
and commercial connections develop quasi-administrative ties through cross-
shareholding, as stated by Ahmadjian and Lincoln (1997, 2001). Keiretsu networks
have two sides: (1) horizontal relationships based on mutual support and (2) vertical
structures based on asymmetric exchange and control between financial firms and
industrial firms. In various articles and books, Liker explains the Toyota way and the
principles of keiretsu supply networks (Liker, 2004). Many OEMs and their
suppliers have meanwhile adopted this system (Liker & Choi, 2005). For all
suppliers and supplier networks, the ultimate goal is to become A-classified supplier,
the highest of product know-how and the highest competency of process knowledge
and capability. The supplier pyramid is a useful tool for supplier segmentation and
commodity segmentation.
Fig. 4.4 Supply strategies (preferred and alternative suppliers). Source: Author’s own figure
4.4.5 Supplier and Commodity Segmentation
Segmentation in line with the process and product of the supply pyramid is
allocating resources to the creation of value-adding relationships in their own
company. Porsche classifies suppliers into four groups as shown in Fig. 4.4:
1. Preferred Suppliers (A-Supplier)

Supplier with high product, high process competency, value-adding
relationship
2. Alternative Suppliers (B-Supplier)
Supplier with high product, process competency, but with looser relationships
3. Benchmark Suppliers (C-Supplier)
Supplier with medium product, process competency, relationship must be
developed
4. Market Suppliers (D-Supplier)
New suppliers that have no relationship and that want to participate in tenders
4.5 Strategic PM in the Upstream Value Chain
4.5.1 Strategic Supplier Management and Segmentation
Strategic Supplier and Materials Segmentation (Portfolio Analysis)

Strategic supplier and commodity strategies are suitable tool in supply management
to secure supply of standard, leverage, shortage and strategic materials. The combi-
nation of supplier and commodity segmentation has been developed by Eyholzer,
4.5 Strategic PM in the Upstream Value Chain 59
Fig. 4.5 Supplier and commodity strategies. Source: Compiled by Author, adopted from Eyholzer
et al. (2002)
Kuhlmann and Münger (2002) and is a useful tool to define suitable supplier/
material strategies for the combinations as shown in Fig. 4.5.
• Strategic suppliers/materials
• Leverage suppliers/materials
• Shortage suppliers/materials
• Standard suppliers/materials
Strategic Materials/Components
Strategic materials can be defined as special materials which are important and key to
an enterprise’s own production. Siemens and Bombardier Transportation produce
car bodies by themselves; however, aluminium and stainless steel or steel profiles
and extrusions are strategic for the production and quality of the end product.
Leverage Materials/Components
Leverage materials can be defined where the supply side is characterized by many
companies which offer the materials. The automotive industry is characterized by
more than ten to twenty different suppliers, which deliver entertainment products
(polypolistic market).
Shortage Materials/Components
Shortage materials can be defined as materials that are scarce on the market. Scarcity
represents a problem to any supply management organization and needs the right
establishment of strategies.
Standard or Catalogue Materials/Components

Standard materials are materials that can be bought on the market. Often standard
goods are catalogue products like screws, C-parts, etc.
Figure 4.5 defines strategies for the supplier/material combinations. For the leverage
and strategic suppliers with strategic materials, it is recommended to establish long-
term and value-adding partnerships. For the second combination of strategic/lever-
age suppliers and leverage materials, it is suitable to fully exploit the market
potential. For shortage materials, it is recommended to secure supply and availability
by long-term contracts and partnerships. In this context, it is also possible for
companies to vertically integrate (via joint ventures, investments, acquisitions) and
to produce shortage material themselves.
Standard materials with a high extent of competition do not represent a threat to
their own company. Here, it is possible to take advantage of market competition. The
commodity segmentation or category management means to divide the major mate-
rial categories into sub-groups, categories or segments, which are definable, accessi-
ble, actionable and profitable and have a growth potential. The major objective of
categorization or segmentation is the standardization of suppliers and supply process
and to get the optimum benefit by bundling volumes in each category.
4.5.2 Value and Competitive Advantage of Supplier Networks
Supply networks compete as well as individual organizations, and, increasingly, it is

the supply chain that brings competitive advantage to many enterprises. In turn,
according to Porter it can be seen as being the cost leader, the value leader or having
a hybrid strategy; the following table shows the comparison of the three categories.
The cost leading supply management concept is described by Emmett and Crocker
(2009) as lean and the value-focused concept as agile supply networks and supply
chains. In the present, the new school is combining lean and agile aspects and is
called in this context value creating supply concept (Helmold & Terry, 2017). Value
adding can be defined as a multi-stage performance process of the upstream supply
chain management by using and combining all required production factors. Apart
from the strategic role of supply management, there are many operational activities
to secure the supply of products from supply networks. Figure 4.6 shows the
operational tasks of supply management. These tasks consist of operational activities
such as demand and capacity management. Supply management has to make sure
that the suppliers are tooled up to make the necessary quantity of goods required.
These goods have to be ordered, too. Orders have to be placed and goods have to be
called off to arrive on time at the customer. Once the goods arrive, the goods have to
be received and stored. In some areas, suppliers’ products are stored in advanced
warehouses or vendor management inventory (VMI) warehouses.
4.6 Supply Management Process
Apart from the material flow, supply management has to ensure sustainable green
and reverse logistics together with the suppliers. Last but not least, the operational
roles and responsibilities include the cross-functional performance evaluation on a
4.6 Supply Management Process 61
0. (Establish)
5a. Initial organisation 1. Demand
analysis analysis
(Select) (Need)
10. Supply 2. Market

Control analysis
(Review) (Specify)
3.
9. Invoicing Qualification
(Pay) (Evaluate)
9. Processing 4. Request for

of products quotation
(Use) (Enquire)
8b. Supplier 5a. Initial

development analysis
(Improve) (Select)
8a. Delivery 5b. Strategic

and receipt supplier panel
(Receive) (Pool)
6. Final
7. Purchase analysis
order (Select) (Negotiate)
Fig. 4.6 Supply strategy management process. Source: Author’s own figure
Q-C-D-plus alpha basis as highlighted previously. The supply management core

process consists of the procurement and receipt of products and goods. There are
many different definitions on what the supply management process consists of. The
most simplified model divides the supply management process into five steps as
shown below:
Demand is generated, need for demand is defined:
(a) Demand request, demand approval and budgetary information.

(b) Demand request is passed on to supply management.
(c) Supply manager checks demand request with commodity and supplier strategy.
Execute the demand request in line with the supply management

strategy:
(a) Demand request, demand approval and budgetary information.

(b) Demand request is passed on to supply management.
(c) Supply manager checks demand request with commodity and supplier strategy.
Supplier selection in line with supply management strategy:

(a) Request for quotation (RFQ) is sent out to selected suppliers.

(b) Quotations are obtained from suppliers.
(c) Supply manager creates offer evaluation and selects preferred supplier.
(d) Preferred supplier results are shared with demanding function/department.
(e) Supplier is selected based on joint decision based on Q-C-D-E criteria.
Supplier selection and purchase order (PO):
(a) Supplier selection involves further negotiations

(b) Issuing purchase order (PO)
(c) Tracking receipt of goods/products
Purchase order completion (POC):
(a) Receiving goods and confirming quality

(b) Receipt of invoice
(c) Payment in line with invoice
(d) Confirmation of payment
Critics stress that supply management processes have become more complex and
that other aspects or steps such as risk management and supplier development have
to be integrated. Concerning the supply management process of supplying products,
there are several definitions from several authors available (Dust, 2009; Emmett &
Crocker, 2009). Dust (2009) emphasizes that the supply management process must
include a more holistic view and that such process must include an escalation and
risk management layer. Other supply management process models highlight the
different steps from the demand analysis up to the paid invoice for the delivered
products (Emmett & Crocker, 2009). In accordance with the models of the authors
Emmett and Crocker (2009), the following model has been derived including
10 phases (phase 0 to phase 10). Moreover, the process steps of the initial analysis
of the quotations (5a.), delivery/receipt of goods and the processing and usage of
products in their own company (10) have been supplemented by supply improve-
ment measures.
Organization (Establish)
Any supply process must start with the right organization and strategy. Organiza-
tionally all authors stress that the supply department should be the single point of
contact to the suppliers.
Demand Analysis (Needs)

Initial requisition is the process of recognizing the demand. The demand may initiate
from a simple requisition covering a standard product, right through to a complex
project where a more thorough analysis will be performed. In all cases, the need is
what has to be satisfied (Emmett & Crocker, 2009). Many companies use sophisti-
cated demand planning systems, such as ERP, MRP or SCM systems.
4.6 Supply Management Process 63
Market Analysis (Specify)

After determination of a need to buy a certain product, the supply management
process initiates the analysis of who can supply this specific product and thus satisfy
the demand.
Qualification (Evaluate)
Product and service specifications will need to be identified in liaison with the user
(requisitioned). Specifications are a description of what the requisitioned is demand-
ing in terms of fit, form and function. This is therefore a critical stage within the
supply management process as the needs have to be communicated properly. Based
on the right specifications, the supply manager can identify and qualify the right
suppliers for this product or service. Emmett and Crocker (2009) recommend in this
stage to:
• Provide information on available supply

• Provide a supplier appraisal
• Identify risks on suppliers and minimize risks
• Identify risks on products and minimize them
• Qualify suppliers through audits, etc.
• Identify where standardization is possible
Request for Quotation (Enquire)

After qualification and evaluation of suitable suppliers, the enquiry process can start.
The enquiry is also defined as ‘request for quotation (RFQ)’ or ‘tender’. Many
companies have standardized periods for the submission of quotations varying
from 2 weeks to 3 months.
Initial Analysis (Select)

After submission of quotations, the supply management department will evaluate the
quotations in terms of Q-C-D-T-plus alpha. In many cases, the supply management
department draws up a short list of two to three suppliers including a proposal for the
source selection. Such offer evaluation is also standardized in many companies,
applying offer evaluation tools (OET) electronically or in paper form. After the first
screening and short list, the negotiations and discussions with suppliers start.
Negotiations also include the clarification of unclear points.
Final Analysis (Decide)

After clarification of all issues, the supplier is selected in the final selection phase.
Many companies here combine Q-C-D-E-plus alpha criteria in a numeric supplier
selection tool as described before. Some companies also use a Supplier Selection
Board, in which cross-functional departments join the selection process. Moreover,
decisions are normally made by including the supply management department and
the requisitioned jointly. The supply manager should have a veto right as guardian of
the supply management process as recommended by Helmold (2013).
Invoice (Pay)
After final and successful processing of the supplied products, the products can be
paid for in line with the agreed payment terms. Many companies have payment terms
of 30 or 60 days after receipt of goods. Extended payment terms help the company to
improve its cash situation. Cash management is nowadays becoming more and more
important in organizations. In this regard, supply management is a contributor to
profitability of any enterprise. Chinese, South Korean and Japanese companies
sometimes have payment terms exceeding 90 or 120 days.
Purchase Order (Decide)

With the selection of the supplier, the supply management has to issue the purchase
order to the supplier. The purchase order must always reflect the quotation in order to
legally comply. The PO process is the responsibility of the supply management
including the control of delivery, receipt and lead time of products. The PO has to
state aspects such as the price, place and specification criteria of the purchased
product. If the supplier accepts the PO, a contract agreement has been legally
created.
Delivery (Receipt)
The supply management process includes the confirmation of dispatch, transit time
and receipt of goods. In global supply such as China, it is especially important that
the lead time of goods is taken into account. Helmold and Terry (2017) emphasize
the need to have a tool which incorporates important information, in order to make
sure that the goods from China arrive at the requisitioned time. These aspects are:
• Production start of products at suppliers including the assessment of capability

(supplier and product)
• Dispatch of goods
• Delivery of goods including the right mode (goods in transit)
• Arrival of goods at destination port/location (port, airport, train station)
• Customs clearance
• Arrival at customer warehouse
• Delivery to own production process
4.7 Case Study: Supply Blockchains at Mercedes-Benz
In automotive production, global supply chains are becoming increasingly complex

(Rau, 2019). However, it is necessary to pass on contractual obligations to each
member of the supply chain, especially in terms of sustainability and ethical
behaviour (Mercedes-Benz, 2019). In order to make the supply chains transparent,
Mercedes-Benz Cars is developing a blockchain prototype. ‘Blockchain technology
has the potential to fundamentally revolutionize our procurement processes’, says
Wilko Stark, Group Vice President Mercedes-Benz Cars and Purchasing and Sup-
plier Quality. ‘With our blockchain prototype, we are testing one of the many
References 65
possible applications in the first step with the aim of creating more transparency in
the supply chains beyond our direct suppliers’. That’s how it works (Mercedes-
Benz, 2019): A blockchain is a list of records. A decentralized database distributed
among many networked computers. All participants of the blockchain see the same
content. The individual datasets are linked together using encrypted methods.
Blockchain has so far been used primarily for the settlement of financial transactions.
But also the conclusion of contracts can be made transparent by means of
blockchain. The new blockchain prototype used at Mercedes-Benz Cars makes it
possible to transparently map and understand the passing on of the sustainability
standards of Daimler AG across the entire supply chain, in particular, the contractual
obligations relating to working conditions, human rights, environmental protection,
safety, business ethics and compliance. Should one of the sub-suppliers deviate from
this, this will be visible in the blockchain. ‘Passing on contracts to each member of
the supply chain, especially in terms of sustainability and ethical behaviour, is the
prerequisite for working with our suppliers. The blockchain prototype opens up
completely new ways to make purchasing processes simpler and safer’, says Sabine
Angermann, Head of Purchasing and Supplier Quality for Raw Materials and
Strategy, Mercedes-Benz Cars (Rau, 2019).
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PM in Operations
5
Marc Helmold
The key to the Toyota Way and what makes Toyota stand out
is not any of the individual elements. But what is important is
having all the elements together as a system. It must be
practiced every day in a very consistent manner, not in spurts.
Taiichi Ohno (1912–1990)
5.1 Definition of Operations Management
Operations management was previously called production management, clearly

showing its origins in manufacturing. Operations management is the area of man-
agement concerned with designing and controlling the process of production and
redesigning business operations in the production of goods or services. Operations
Management is the transformation of goods and services. It involves the responsi-
bility of ensuring that all company activities and business operations are most
efficient in terms of using as few resources as needed and effective in terms of
meeting customer requirements. It is part of the value chain and in between the
supply side (procurement of goods) and the demand side (Marketing and sales) as
shown in Fig. 5.1. Operations management is primarily concerned with planning,
organizing and supervising in the contexts of production, manufacturing or the
provision of services (Helmold & Terry, 2017).
Operations is concerned with managing an entire production system which is
the process that converts inputs (in the forms of raw material, labour, energy and
resources) into outputs (in the form of goods and/or services), as an asset or delivers a
product or services. Operations produce products, manage quality and create service.
Operation management covers sectors like banking systems, hospitals, companies,
working with suppliers, customers, and using technology. Operations are one of the
major functions in an organization along with supply chains, marketing, finance and
human resources. The operations function requires management of both the strategic

68 5 PM in Operations
Supply Demand
side Procurement Operations Marketing
side
Information
technology
Finance and (IT)
accounting
Human
Fig. 5.1 Operations management as part of the value chain. Source: Author’s own figure
Objectives Criteria
1. Right part • Needed part
2. Right time • Now
3. Right place • Here
4. Right quantity • One piece
5. Right quality • Zero defect
6. Right employee • Qualification
7. Right price • Optimal cost
Fig. 5.2 7R principle in operations management. Source: Author’s own figure, adopted from
Helmold and Terry (2017)
and day-to-day production of goods and services. Operations management involves

the production, planning, organizing, and supervising processes of products or
services and targets to meet customer demands by delivering the right product or
service at the right quality, quantity, time, and place with right people at the right cost.
This principle is called the 7R principle and targets the optimal satisfaction of the goal
in the operations function. The Fig. 5.2 highlights the 7R principle with objectives
and criteria behind the objectives (Helmold & Terry, 2017).
5.2 Optimizing Performance Through Lean Production
5.2.1 Value Adding Activities and Waste
Added value can be defined as products, services, processes and activities, which
generate a certain value to the organisation and enterprise. Value add must be
regarded from the customer viewpoint and is everything for which the customer is
5.2 Optimizing Performance Through Lean Production 69
Hidden Value
waste add
(reduce) (increase)
Obvious
waste
(eliminate)
Fig. 5.3 Value add and waste. Source: Author’s own figure, adopted from Helmold and Terry
(2017)
willing to pay for. It is important that value add is recognised and perceived as value
by the client. Many studies have shown that we only add value to a product for less
than 5–15% of the time, the rest of the time is wasted (Helmold & Terry, 2017). The
opposite is non-adding value or waste as shown in Fig. 5.3. Waste (Japanese: Muda,
無駄) is anything which adds cost or time without adding any value or any activity
which does not satisfy any of the above conditions of value add is a waste or a
non-value adding activity in a process. The focus in operations management must
therefore be in eliminating such activities like waiting time or rework (Liker, 2004;
Ohno, 1990) (Fig. 5.4).
5.2.2 Ishikawa Diagramme to Identify Waste
Ishikawa diagrams (also called fishbone diagrams, herringbone diagrams, cause-

and-effect diagrams, or Fishikawa) are causal diagrammes created by Kaoru
Ishikawa (Japanese: 石川馨 Ishikawa Kaoru, 1915–1989) that show the cause-
effect situation of a specific event. Common uses of the Ishikawa diagram are areas
of design, supply, production and quality defect prevention to identify potential
factors causing an overall effect. Each cause or reason for imperfection is a source of
variation. Causes are usually grouped into major categories to identify and classify
these sources of variation. The target of value-add and quality is shown as the fish’s
head, facing to the right, with the causes extending to the left as fishbones; the ribs
branch off the backbone for major causes, with sub-branches for root-causes, to as
many levels as required (Fig. 5.5).
Category Impact Principle

Value add
• Added value for product
• Customer pays for it Increase
Task • Customer recognizes this
a value add
Hidden waste
• No added value for
Task •
product or service
Task is necessary for Minimize
production
Obvious waste
• No added value for
product or service
Task • Task not necessary for Eliminate
production
Fig. 5.4 Actions for value add and waste. Source: Author’s own figure
Man Material Machine
Value add
(Quality)
Method (Process) Milieu (Environment) Money
Fig. 5.5 Ishikawa diagramme. Source: Author’s own figure
5.2.3 Advantages and Disadvantages
Advantages
– Highly visual brainstorming tool which can spark further examples of root causes
– Quickly identify if the root cause is found multiple times in the same or different
causal tree
– Allows one to see all causes simultaneously
– Good visualization for presenting issues to stakeholders
5.2 Optimizing Performance Through Lean Production 71
Man Material Machine

X missing qualification X defects from suppliers X insufficient maintenance
X insufficient training √ capacity of machine
√ engagement operators
Value add
(Quality)
X Sequence not logical X Insufficient flow X material cost

√ Process description X Distance too long X Work in progress
X Process intransparent X Layout deficiencies X Loss
Method (Process) Milieu (Environment) Money
Fig. 5.6 Ishikawa diagramme with waste and value add. Source: Author’s own figure
Disadvantages
– Complex defects might yield a lot of causes which might become visually
cluttering
– Interrelationships between causes are not easily identifiable (Fig. 5.6)
5.2.4 5S-System
5S is the name of a workplace organization method that uses a list of five Japanese
words: seiri, seiton, seiso, seiketsu, and shitsuke. Transliterated into Roman
Script, they all start with the letter “S”. 5S is used to stabilise, maintain and
improve the safest, best working environment thus supporting sustainable QCD
plus alpha.
5S is a systematic and structured work place optimisation, originally be devel-
oped and used by Toyota. The objective is the identification and elimination of
waste. In simple terms, the five S methodology helps a workplace remove items that
are no longer needed (sort), organize the items to optimize efficiency and flow
(straighten), clean the area in order to more easily identify problems (shine),
implement colour coding and labels to stay consistent with other areas (standardize)
and develop behaviours that keep the workplace organized over the long term
(sustain). 5S is a workplace organization method that uses a list of five Japanese
words:
1. Seiri (整理)
2. Seiton (整頓)
3. Seisō (清掃)
4. Seiketsu (清潔)
5. Shitsuke (躾)
Fig. 5.7 5S-system. Source:

1. Sort
2. Set in
5. Sustain
order
4.
3. Shine
Standardise
These five words can be translated as “Sort”, “Set In order”, “Shine”, “Standard-
ize” and “Sustain”. The 5S-methodology describes how to organize a work space for
efficiency and effectiveness by identifying and storing the items used, maintaining
the area and items, and sustaining the new order. The decision-making process
usually comes from a dialogue about standardization, which builds understanding
among employees of how they should do the work.
In some quarters, 5S has become 6S, the sixth element being safety or self-
discipline (Fig. 5.7).
The advantages of the 5S system are the following:
• Creation of transparent Layout and Processes

• Makes Waste transparent
• Eliminates unnecessary activities
• Improves efficiency
• Increases safety
• Increases employee motivation Simplification of the work environment
• Ensuring that all materials are instantly available
• Ensuring that tools (screw driver, devices)
• Ensuring that required (work procedures, work sequence etc.) information is
instantly available by visualization
• Reduction of waste
The first element in the 5S concept is the sorting (seiri). In this step it is important
to distinguish between necessary and unnecessary things. Things in this context are
materials, components, tools, gauges, information, things and people. Unnecessary
things must disappear. Removing these items which are not used in the working area
may take a reasonable amount of time. Classification of all equipment and materials
by frequency will help to decide if these items can be removed or not. The second
5.3 Seven Types of Waste in Operations 73
step is the setting in order (seiton). The practice of orderly storage so the right item
can be picked efficiently at the right time, easy to access for the operators. Identifi-
cation and allocation of materials, information, tools and necessary things at fixed
and visualised locations is important in this step. In the next and third step (seiso), it
is mandatory to create a clean worksite without garbage, dirt and dust, so problems
can be more easily identified (leaks, spills, excess, damage, etc.). In the fourth step
(seiketsu) standards for a neat, clean, workplace and operations will be set up
through visual management. In the fifth and last stage (shitsuke) it is important to
create the environment, patterns, management style and behaviours that established
standards are executed over the long-term, and making the workplace organization
the key to managing the process for success (Helmold & Terry, 2017).
5.3 Seven Types of Waste in Operations
5.3.1 Transportation
Excess transportation is a significant waste because the time, manpower, energy,

efforts, resources required to move items is something the customer does not care
and does not want to pay (Ohno, 1990).
Examples of wastes of Transport are the transport of product from one functional
area such as pressing, to another area such as welding or the use of material handling
devices to move batches of material from one machine to another within a work cell.
It wastes time because operators are dedicating the available time of the work day to
moving items from one place to another. It wastes energy and resources in that
employee time could be better utilized and because some tools used for transporta-
tion (forklifts, trucks, pallet jacks) consume energy like electricity or propane. Also,
by dedicating machines and operators’ time to waste activities they are no longer free
and available to take on value-added activities. Figure 5.8 shows transportation
waste. Reasons can be insufficient layouts and long distances between individual
operations. The consequences of this waste are the increased time requirements and
the decreased productivity. Decreased productivity will result in higher operating
cost and can harm the profitability of the enterprise (Liker, 2004).
5.3.2 Inventory
Inventory consists of excessive material of finished goods, semi-finished goods

or raw material. Finished goods inventory is generally the most expensive
inventory as it has labour and other overhead attached to it along with the cost of
material consumed during production. In order to reduce this inventory, process
improvements as well as a higher accuracy in forecasting customer requirements is
required. Inventory waste refers to the waste produced by unprocessed inventory.
This includes the waste of storage, the waste of capital tied up in unprocessed
inventory, the waste of transporting the inventory, the containers used to hold
1. Transportation
Definition Possible reasons

• Unnecessary transport of material • Insufficient arrangement of needed material
• Transport is a necessary type of waste and devices
however it should be reduced to a minimum • Physical distance between material delivery
and usage
• Interim storage of material (buffer)
Consequences Examples
• Additional space for transport • Long or additional transport of:
• Blocking of capacity due to additional logistic
effort • Raw material
• Possible damage of products • Finished goods
• Tools and devices
Fig. 5.8 Transportation. Source: Author’s own figure
2. Inventory

• More material than needed according to • Problems regarding planning and logistic
planning in terms of: processes
• Raw material • Bad supplier delivery performance and
• Semi-finished parts quality
• Work in progress (WIP) • High product variety
• Finished goods
• Capital costs • Overfilled warehouses
• Double handling, possible damages based • Overfilled place in production areas
on double handling, rework • Buffer stocks in producton
• Genuine problems won’t be discovered and • Crammed corridors
therefore not solved
• Crammed desks
• Search effort
• Scrap
Fig. 5.9 Inventory. Source: Author’s own figure
inventory, the lighting of the storage space, etc. Moreover, having excess inventory
can hide the original wastes of producing said inventory. The environmental impacts
of inventory waste are packaging, deterioration or damage to work-in-process,
additional materials to replace damaged or obsolete inventory, and the energy to
light, as well as either heat or cool, inventory space. Figure 5.9 displays the
definition, reasons, consequences and examples for inventory. Inventory will have
a negative impact on working capital and on cash flow, so that sophisticated

production planning must focus on the optimum levels of inventory throughout the
value chain and operations (Helmold & Terry, 2017).
5.3.3 Motion
Motion waste is the excessive movement of man, material or machines within the
work space. Motion waste will lead to higher cost as the productivity decreases.
Another problem of motion is the necessity for more time and capacity in operations
than actually required. A proper workflow analysis and value stream mapping help
to minimise this waste. Figure 5.10 outlines the definition, possible reasons,
consequences and examples of this waste.
5.3.4 Waiting
Idle time of operators or other employees in operations and waiting for work to arrive
or to be told what-to-do is a significant waste. Waiting or standstill times must be
avoided as waiting results into reduced efficiency and productivity. Other outcomes
are longer lead times and decreasing engagement and motivation of employees as
illustrated in Fig. 5.11.
3. Motion

• Every type of movement that doesn‘t directly • Inaccurate analysis of all workflows
serve value creation Inappropriate layout
• Insufficient delivery of material and
arrangement of tools
• Decrease of productivity • Long ways between tools, material and
• Increase of lead time and capacity product or machine
• Insufficient ergonomics • Missing material or tools
Fig. 5.10 Motion. Source: Author’s own figure

4. Waiting

• A period in which no activities take place. • Insufficiently synchronised material and information
• The employee is forced to wait and can‘t fulfil any flows
value added activities. During the holding period the • Insufficient line balancing of all processes
product is waiting for processing • Missing material or tools
• Lack of documentation
• Waiting for quality approval
• Reduced productivity • Waiting for material or tools e.g. crane
• Decreasing efficiency • Quality employees are not available
• Increased lead time • Stopped processes due to missing resources
• Increase of capacity (employees, defective machines, IT,...)
• Decreased of employee motivation
Fig. 5.11 Waiting
5.3.5 Overproduction
Overproduction waste is defined as producing too many products too early and in
advance. That means that parts in a big quantity are existing inside operations
management, even though these parts are not needed. Figure 5.12 display possible
reasons such as demand non-transparency or inadequate batch sizes. A consequence
of this waste is that inventory increases drastically and that work-in-progress cost
rise significantly.
5.3.6 Over-Processing
Over-processing is related to all activities and processes in operations, which are

more than the customer really needs. Figure 5.13 highlights possible reasons such as
insufficient technology, bad design, inefficiencies or unawareness of customer
specific requirements. Over-processing refers to any component of the process of
manufacture that is unnecessary. Painting an area that will never be seen or adding
features that will not be used are examples of over-processing. Essentially, it refers to
adding more value than the customer requires. The environmental impact involves
the excess of parts, labour, and raw materials consumed in production. Time, energy,
and emissions are wasted when they are used to produce something that is unneces-
sary in a product; simplification and efficiency reduce these wastes and benefit the
company and the environment.
5. Overproduction

• If more is produced than the internal or • Insufficient transparency of real demand
external customer needs • Production according to supposed optimal
batch sizes
• Instable processes
• Early use of available capacity
• Generation of inventory (warehouse, WIP) • A lot of material in front of machines or
• Additional use of space assembly lines
• Blocking of capacities (machines, • Crowded warehouses
employees)
• Double handling, decrease of product quality
Fig. 5.12 Overproduction. Source: Author’s own figure
6. Overprocessing

• Process weakness in terms of sequence, • Insufficient technology
content, technologies and resources • Not the most efficient procedure for the
process
• Insufficient analysis and design of processes
• Due to process problems the product
requirements in the specification are higher
than required by the customer
• High production costs • High tolerances
• Waste of material • Wrong, faulty and not needed process steps
• Low efficiency • Not optimal utilisation of resources
• High need for resources (employee, • Duplication of efforts
machine, material)
Fig. 5.13 Over-processing. Source: Author’s own figure
5.3.7 Defects
Defects refer to a product deviating from the standards of its design or from the
customer’s expectation. Defective products must be replaced; they require paper-
work and human labour to process it; they might potentially lose customers; the
resources put into the defective product are wasted because the product is not used.
7. Defects
Definition
Possible reasons
• If right first time is not achieved • Lack of machine and tool maintenance
• Insufficiently trained employees
• Product not according to customer
requirements
• Unstable or not standardized processes
• No problem solving process established
• Additional need for material, tools and • Increase of non-conformities
capacity • Retrofitting and repairing defect parts
• Additional space for rework • Increased quantity of scrap
• Increase of quality employees and checks • Supply issues due to bad quality
• Increase of lead time
Fig. 5.14 Defects. Source: Author’s own figure
Moreover, a defective product implies waste at other levels that may have led to the
defect to begin with; making a more efficient production system reduces defects and
increases the resources needed to address them in the first place. Environmental costs
of defects are the raw materials consumed, the defective parts of the product
requiring disposal or recycling (which wastes other resources involved in
repurposing it), and the extra space required and increased energy use involved in
dealing with the defects (Fig. 5.14).
The checklist in Fig. 5.15 is the ideal tool to assess operations in terms of the
seven wastes. It is a proven method for identifying waste in process and activities
(Helmold & Terry, 2017).
5.4 Principles of a Just-in-Time Production System
The key to acquiring and keeping customers is by offering value. To do this, we must
first understand our customers and what they are willing to pay for—this is what we
call “value”. By definition, everything else is waste, diminishing value to the
customer and reducing profitability. Put simply, Lean Thinking (or Toyota Way
トヨタウェイ) is delivering value from the customer’s perspective and eliminating
waste (or muda 無駄).
Lean is a suite of four complementary, interconnected principles, each geared
towards increasing value to the customer by improving efficiency. By applying these
simple principles, any business in any sector can not only provide a better service or
product to their end users, but also make fundamental, sustainable improvements in
profitability. The Toyota Productions system (TPS) has been adopted by many
companies in all sectors on a global scale. The TPS has been applied by many
How many times?
Transport Which routes?
T Empty containers?
How much material is in front of a

Inventory line/machine?
i What is the material range?
Motions of employee within the

Motion workstation: Destination?
m How many times? Routes? Duration? ˛
Waiting for material, devices or

supervisor?
W Waiting All information available? Missing
documents?
Compliance with quality?

o Overproduction Batch size?
5.4 Principles of a Just-in-Time Production System
Proper tools? Proper settings?

Overprocessing Proper instructions?
o Proper tolerances?
Which mistakes?
Defects How often does it happen?
d Problem solving system?
Fig. 5.15 TIMWOOD checklist. Source: Author’s own figure

79
OEMs in automotive industry, railway area and other business sectors. Bombardier
Transportation is applying the Bombardier Operations System (BOS), Porsche the
Porsche Production System (PPS) and Daimler the Daimler Production System.
However, it is not always successful, as the activities are only partially introduced
and not rolled out in total. Secondly, lean principles are not synchronized with the
USCM and may thus not show the desired effects and results. It does not make sense
to establish only single lean instruments. It is of the utmost importance and a
fundamental aspect of the lean concept that principles are applied in a total approach
that involves the suppliers. In this respect, it is the crucial role of procurement and
supplier relationship management to transfer this competency to its supply chain.
Inefficiencies throughout the supply chain can thus be identified, waste can be
eliminated and processes can be harmonized in order to strive for continuous
improvements. Continuous improvement (Japanese: Kaizen) means small steps
and is part of the lean philosophy. Data show that the complete transfer of lean
principles to the supply chain can lead to significant cost reduction advantages of up
to 15–50%.
In contrast to the traditional paradigm the objectives of lean production are based
on a reduction of throughput times and the elimination of non-value-adding
activities. These activities are waste or so called “MUDA” (Japanese: 無駄). Both
concepts, the traditional and the lean concept, are directed towards customer satis-
faction. Nevertheless, the lean concept’s foundation is based on the optimal reaction
capability and not based on inventories or waste. Inventories increase the cost of
capital and have negative impacts on the shareholder value, whereas short cycle
times lead to small inventories. Lean manufacturing or lean production, often simply
“lean”, is a systematic method for the elimination of waste (“Muda”) within a
manufacturing system. Lean also takes into account waste created through overbur-
den (“Muri”) and waste created through unevenness in workloads (“Mura”). Work-
ing from the perspective of the client who consumes a product or service, “value” is
any action or process that a customer would be willing to pay for. Essentially, lean is
centered on making obvious what adds value by reducing everything else. Lean
manufacturing is a management philosophy derived mostly from the Toyota Pro-
duction System (TPS) (hence the term Toyotism is also prevalent) and identified as
“lean” only in the 1990s. TPS is renowned for its focus on reduction of the original
Toyota seven wastes to improve overall customer value, but there are varying
perspectives on how this is best achieved. The steady growth of Toyota, from a
small company to the world’s largest automaker, has focused attention on how it has
achieved this success. There are three MU’s including MUDA that support the
elimination of waste within the philosophy of Toyota. In parallel to MUDA (Japa-
nese: 無駄), there are MURA (Japanese: 無ら) and MURI (Japanese ¼ 無理) which
are the ground theory for the TPS. MURA means “in balance”, MURI “overutiliza-
tion”. While certain capacities are too scarce (Bottleneck) there are other resources
significantly below their capacity limits. The main objective of procurement and a
strategic supplier management is to apply the JIT principle to the suppliers. Value
adding activities have to be rolled out to all suppliers from raw material to module
and keiretsu suppliers. The keiretsu supplier is the closest relationship and
5.4 Principles of a Just-in-Time Production System 81
Fig. 5.16 Just-in-Time (JIT)

principles. Source: Author’s Zero defect Tact
own figure, adopted from
Helmold and Terry (2017)
principle principle
Pull Flow
principle Just-in- principle
time (JIT)
production
system
connection to a supplier (Japanese: 系列子会社) Keiretsu is an integration of

suppliers into the own organisation and system, there is in few cases partial owner-
ship involved. There are four pillars for the lean production system. These are the
integral parts of a lean production and JIT system as shown in Fig. 5.16. The four
pillars consist of the flow, the tact, pull and zero-defect principle, which have to be
introduced simultaneously. In the sense of an optimized supply chain, it is a
fundamental activity to implement these four principles towards all areas. Practical
examples by Porsche Consulting show that the introduction of the TPS led to radical
improvements in terms of errors and defects per car (Quality), serial completion time
(Cost and Productivity) and inventory (Logistics and Delivery). The study reveals
that the reduction of defects per car was reduced by 63%. The throughput time could
be improved by more than 53%. This caused a positive situation of inventory by
50% (Freitag, 2004). In the JIT approach, it is important that the right part comes in
the right quantity in the right quality at the right time to the right place as shown in
the 7R principle. This principle focuses on a zero defect as shown in the next figure.
This principle was defined in the previous chapters as part of the objectives. The
principles can be regarded as obtaining the right parts at the right quality and at the
right time. This has to be in line with the right quantity in the right place by the right
people at the right price (Helmold & Terry, 2017).
5.4.1 Zero-Defect Principle
The starting point in Toyota’s success story, Zero Defects is all about identifying
errors or defects as closely as possible to where they occur. By so doing, and by
neither accepting nor passing on defects, issues are resolved quickly and efficiently,
avoiding subsequent re-work and quality issues. The zero-defect principle is a
concept of the Toyota Production System and is aimed at the reduction of defects
through error prevention (Ohno, 1990). It is directed at motivating people to prevent
mistakes by developing a constant, conscious desire to do their job right the first
time. In reality, zero defects are not possible, however, the concept ensures that there
is no waste existing in a project (Helmold & Terry, 2017). Waste refers to all
unproductive processes, tools, employees and so on. Anything that is unproductive
and does not add value to a project should be eliminated, called the process of
elimination of waste. Eliminating waste creates a process of improvement and
correspondingly lowers costs. Common with the zero defects theory is the concept
of “doing it right the first time” to avoid costly and time-consuming fixes later in the
project management process. The concept of zero defects is grounded on four major
elements for implementation in real projects:
• Quality is a state of assurance to requirements. Therefore, zero defects in a project

means fulfilling requirements at that point in time
• Right the first time. Quality should be integrated into the process from the
beginning, rather than solving problems at a later stage
• Quality is measured in financial terms. One needs to judge waste, production and
revenue in terms of budgetary impact
• Performance should be judged by the accepted standards, as close to perfection as
possible
5.4.2 Pull Principle
The pull system is one of the lean manufacturing principles and is used to reduce
waste in the production process. In this type of system, components used in the
manufacturing process are only replaced once they have been consumed so
companies only make enough products to meet customer demand. The opposite
principle is the push system, in which as many products as possible are generated to
be sold via marketing activities. The principles aim to avoid over-production and
stockpiling, thereby saving working capital, by letting demand dictates the rate at
which goods or services are delivered. In this way the customer, or the next step in
the chain, “pulls” value through the process.
5.4.3 Flow Principle
Value should be added in a smooth, uninterrupted flow, from the start to the end of
the production process. The ultimate effect of this principle is that all process steps
are focussed and aligned to adding value, one piece at a time, removing all wasteful
and unnecessary activities from the process. The advantage of a continuous flow in
operations is that it features stability, continuity, balance, and doesn’t waste time (the
non-renewable resource). No time wasted on waiting between steps means time is
being maximized for its capabilities. Operations are not able to introduce a waste-
less process without the continuous flow, as it is the truly ideal process state.
However, the troubles with continuous flow are that it’s very hard to achieve,
process steps aren’t generally balanced, and all process contains inherent waste
activities. When one starts out to achieve continuous flow, many process problems
will appear and come to the surface. Most individuals think this is bad, but it’s
actually a good thing. The optimal process features continuous flow, and any
5.4 Principles of a Just-in-Time Production System 83
OP 1 Pre- OP 2 Assembly 1
assembly
U-type flow
OP 4 Finshing OP 3 Assembly 2
OP 1 Pre- OP 3 Assembly 2
assembly
Zick-zack-type flow
OP 2 Assembly 1 OP 4 Finishing
OP 1 Pre-
assembly OP 2 Assembly 1 OP 3 Assembly 2 OP 4 Finishing Line flow
Fig. 5.17 Types of flows in operations. Source: Author’s own figure
problems that stand in your way from achieving continuous flow are problems that
are now visible and can be rectified. The ideal flow is the one-piece flow as shown in
Fig. 5.17.
5.4.4 Tact Principle
The German word for timing, Tact refers to the rhythm at which goods or services
are produced to meet customer demand. With a consistent, continuous rhythm
providing a heartbeat for your production processes, it is far easier to regulate,
responding flexibly and effortlessly as demand rises or falls. Takt time is defined
as the average time available (time available minus breaks, maintenance or set-up)
divided by the customer requested quantity as shown in Fig. 5.18.
The average time between the start of production of one unit and the start of
production of the next unit, when these production starts are set to match the rate of
customer demand. For example, if a customer wants 15 units with the available time
of 9 min and the steady flow through the production line, the average time between
production starts should be 36 s for one part or unit (9 min multiplied by
60 s ¼ 540 s; 540 s divided by 15 unites requested by the customer ¼ 36 s per
part). In fact, the tact time simply reflects the rate of production needed to match the
demand. In the previous example, whether it takes 4 min or 4 years to produce the
product, the tact time is based on customer demand. If a process or a production line
is unable to produce at tact time, either demand levelling, additional resources, or
process re-engineering is needed to correct the issue (Helmold & Terry, 2017).
Fig. 5.18 Tact time and other

ratios. Source: Author’s own Available produc on me
figure Tact me:
(Customer tact)
Customer demand
Op mum Sum of cycle mes

Manning
level: Customer tact (Takt)
Sum of cycle mes

LBR: x 100 %
(Line balance ra o)
Longest OP x No. OP
Sum of cycle mes

LER: x 100 %
(Line efficiency ra o)
Customer tact (Takt) x No. OP
5.5 Innovation Versus Kaizen
Kaizen (Japanese: 改善) is the concept of small improvements in small steps as

shown in Fig. 5.19 (Ohno, 1990). In contrast to an innovation, which is a top-down-
approach, Kaizen involves all team members. It means improvement and continuing
improvement in personal life, home life, social life, and working life. When applied
to the workplace this philosophy means continuing improvement involving every-
one, i.e. managers and workers alike (Kaizen Institute, 2019). The principles are of
Kaizen are customer knowledge and transparency. Thus, it is possible to improve a
process without major investments. Kaizen in any organization is fundamentally
important for a successful continuous improvement culture and to mark a turning
point in the progression of quality, productivity, and labour-management relations
(Kaizen Institute, 2019).
The figure shows the seven aspects of waste that must be erased. Supplier
activities must have a pro-active or parallel approach, reactive measures should be
avoided. The supply management function has to manage suppliers in such way, that
flawless launches and synchronized process can be established with suppliers.
KAIZEN is the fundamental driver of this philosophy, this means small and gradual
improvements, which prove to be sustainable (Japanese ¼ 改善). Supply manage-
ment has to coordinate these activities as the single point of contact to suppliers, so
that interfacing departments are actively involved in such process. Techniques of
lean production serve here to establish best in class suppliers in terms of quality, cost
and delivery performance (Q-C-D-T plus alpha) as the pyramide shows. High
process and product competencies automatically lead to sophisticated suppliers as
shown below. This applies to raw material, parts, systems, module and keiretsu
suppliers.
5.6 Andon 85
INNOVATION KAIZEN
• Major change • Small steps
• High investment • Low investment
• Entrepreneurial risk • No risk
• Specialized team • Involvement of people
• Long term • Short term
• Management decision • Team decision approved by
management
Innovation KAIZEN
Improvements
Improvements
Time Time
Fig. 5.19 Innovation versus Kaizen. Source: Author’s own figure, adopted from Helmold (2010)
5.6 Andon
Andon (Japanese: アンドン or あんどん or 行灯) is a lean manufacturing tool

referring to a system to notify management, maintenance, and other workers of a
quality or process problem. The centerpiece is a device incorporating signal lights to
indicate which workstation has the problem. The alert can be activated manually by a
worker using a pull cord or button, or may be activated automatically by the
production equipment itself. The system may include a means to stop production
so the issue can be corrected. Some modern alert systems incorporate audio alarms,
text, or other displays. An Andon System is one of the principal elements of the
Jidoka method pioneered by Toyota as part of the TPS and therefore now part of the
lean concept. It gives the worker the ability, and moreover the empowerment, to stop
production when a defect is found, and immediately calls for assistance. Common
reasons for manual activation of the Andon are part shortage, defect created or
found, tool malfunction, or the existence of a safety problem. Work is stopped until a
solution has been found. The alerts may be logged to a database so that they can be
studied as part of a continuous-improvement program. The system typically
indicates where the alert was generated, and may also provide a description of the
trouble. Modern Andon systems can include text, graphics, or audio elements. Audio
alerts may be done with coded tones, music with different tunes corresponding to the
various alerts, or pre-recorded verbal messages. Usage of the word originated within
Fig. 5.20 Andon. Source: Marc Helmold
Japanese manufacturing companies, and in English is a loanword from a Japanese

word for a paper lantern (Fig. 5.20).
5.7 Poka Yoke
Poka-yoke (ポカヨケ) is a Japanese term that means “mistake-proofing”. A poka-

yoke is any mechanism in a lean concept a process that helps an equipment operator
avoids (yokeru) mistakes (poka). Its purpose is to eliminate product defects by
preventing, correcting, or drawing attention to human or other errors as they
occur. The concept was formalized, and the term adopted, by Shigeo Shingo as
part of the TPS. It was originally described as baka-yoke, but as this means “fool-
proofing” (or “idiot proofing”) the name was changed to the milder poka-yoke.
5.8 Gemba
Gemba (現場 also described as gemba) is also a Japanese term meaning “the real
place.” Japanese detectives call the crime scene gemba, and Japanese TV reporters
may refer to themselves as reporting from gemba. In business, gemba refers to the
place where value is created; in manufacturing the gemba is the factory floor. It can
be any “site” such as a construction site, sales floor or where the service provider
interacts directly with the customer. In lean production and supply management, the
idea of gemba is that the problems are visible, and the best improvement ideas will
come from going to the gemba. The gemba walk, much like Management walk
around (MBWA), is an activity that takes management to the front lines to look for
5.10 Health, Safety and Environment 87
waste and opportunities to practice gemba kaizen, or practical shop floor improve-
ment. In quality management, gemba means the manufacturing floor and the idea is
that if a problem occurs, the engineers must go there to understand the full impact of
the problem, gathering data from all sources. Unlike focus groups and surveys,
gemba visits are not scripted or bound by what one wants to ask. Glenn Mazur
introduced this term into quality function and supply management department (QFD,
a quality system for new products where manufacturing has not begun) to mean the
customer's place of business or lifestyle. The idea is that to be customer-driven, one
must go to the customer’s gemba to understand his problems and opportunities,
using all one’s senses to gather and process data.
5.9 Shadow Boards
Shadow boards are specific boards for parts, tools, equipment in operations,
manufacturing or service areas to reduce waste and waiting time.
The aim of the shadow board is to achieve an organized workplace where tools,
supplies and equipment are stored in appropriate locations close to the work area or
work stations. It provides the basis for standardization in the work place. They are a
simple and inexpensive tool which provides tangible efficiencies and cost savings as
well as intangible benefits. Figure 5.21 shows a shadow board for screws in
Mitsubishi Japan. The appropriate storage, allocation and preparation of screws
avoid waiting time and the possibility of errors. The advantages of using shadow
boards include avoiding waste, such as time looking for the appropriate tool or even
having to buy a new one, wasted time in looking for supplies and interchanging tools
between tasks. Shadow boards also provide the ability to quickly gauge the location
of tools and equipment or if they are missing. Shadow boards are used in the sort and
set in order stages of the implementation and operation of a 5S system in a workplace
and kaizen initiatives. Shadow boards can be different sizes and located in many
different areas of a process or plant. The key is that they are appropriately located
and hold all the necessary tools for the area or work station.
5.10 Health, Safety and Environment
Health, safety and environment (HSE) is the concept and paradigm that implements
and secures practical aspects of environmental protection and safety at work. From a
health and safety standpoint, it involves creating organized efforts and procedures
for identifying workplace hazards and reducing accidents and exposure to harmful
situations and substances. It also includes training of personnel in accident preven-
tion, accident response, emergency preparedness, and use of protective clothing and
equipment. From an environmental standpoint, it involves creating a systematic
approach to complying with environmental regulations, such as managing waste or
air emissions all the way to helping operations’ departments reduce the company’s
carbon footprint. Successful HSE programs also include measures to address
Fig. 5.21 Shadow board.

Source: Marc Helmold.
Shadow board. Mitsubishi
Shinkanzen production in
Osaka
ergonomics, air quality, and other aspects of workplace safety that could affect the
health and well-being of employees and the overall community. Figure 5.22 displays
HSE requirements in a Chinese operations environment.
5.11 Case Study: Porsche Using Lean Principles
Companies such as Porsche have understood, that the low value adding activities of
the own organization lead automatically to increasing activities on the supply side
(Freitag, 2004). Porsche was also hampered by antiquated production methods.
5.11 Case Study: Porsche Using Lean Principles 89
Fig. 5.22 Health, safety and environment. Source: Marc Helmold
Some 20% of its parts were delivered 3 or more days too late, for example. In
addition, supply disruptions led to severe problems in the value chain and caused
recalls (Greiml, 2010). The former head of Porsche, Dr. Wendelin Wiedeking, who
had been deeply impressed by what he had seen on visits to Japanese auto firms such
as Toyota, Nissan and Honda, believed that only a radical, “lean manufacturing”
cure would save the company. He flew in teams of the same Japanese consultants
who had helped Toyota and gave them free rein. “A cultural revolution from top to
bottom” is the way he describes what happened next, as the consultants organized
the workforce into teams and one by one eliminated poor practices. Wiedeking made
one now-fabled appearance on the assembly line wielding a circular saw, which he
used to cut down the roof-high racks of spare parts that towered over the production
line. After the lean cure of the own production facilities, Porsche extended the lean
concept to suppliers and established the supplier development department in 2006
(the name of the department is FEL, Finance-Purchasing, Supply Management).
This department is in charge of extending lean principles to the supply networks and
to synchronize production systems. In the following section the concept of lean
supply management will be discussed. Lean principles have:
• To apply lean principles throughout the supply chain

• To integrate suppliers
• To be customer oriented
• To have flat hierarchies
• To establish competencies to core functions
• To apply lean principles to shop floor (Gemba)
• To concentrate only on essential success factors
• To reduce waste
• To continuously improve
• To apply a Pull-system
• To apply a learning organisation
References
Freitag, M. (2004). Toyota. Formel Toyota. Manager Magazine, 12, 12–14.
Greiml, H. (2010). The Toyota recall crisis. Toyota recalls 1.1m vehicles to fix floor mats.
Automotive News, pp. 12–15.
Helmold, M. (2010). Best-in-Class Lieferantenmanagement in der Automobilindustrie. Aachen:
Shaker.
Helmold, M., & Terry, B. (2017). Global sourcing and supply management excellence in China.
Kaizen Institute. (2019). Meaning of Kaizen. Retrieved March 1, 2019, from https://www.kaizen.
com/what-is-kaizen.html
Liker, J. K. (2004). The Toyota way. Madison, WI: McGraw-Hill.
Ohno, T. (1990). Toyota production system. Beyond large scale production. New York: Productiv-
ity Press.
PM in the Downstream Value Chain
6
Marc Helmold
The best way to predict the future is to create it.

Peter Drucker (1909–2005)
6.1 Managing Performance in the Downstream
Marketing (and sales) is the downstream activity in the value chain as illustrated in
Fig. 6.1. Marketing is a continually evolving discipline and as such can be one that
companies find themselves left very much behind the competition if they stand still
for too long. One example of this evolution has been the fundamental changes to the
basic marketing mix. Where once there were 4 Ps to explain the mix, nowadays it is
more commonly accepted that more developed 7 Ps add a much-needed additional
layer of depth to the marketing mix with some theorists going even further.
Product—The product should fit the task consumers want it for, it should work and it
should be what the consumers are expecting to get.
Place—The product should be available from where your target consumer finds it
easiest to shop. This may be high street, mail order or the more current option via
e-commerce or an online shop.
Price—The product should always be seen as representing good value for money.
This does not necessarily mean it should be the cheapest available; one of the
main tenets of the marketing concept is that customers are usually happy to pay a
little more for something that works really well for them.
Promotion—Advertising, PR, sales promotion, personal selling and, in more recent
times, social media are all key communication tools for an organisation. These
tools should be used to put across the organisation’s message to the correct
audiences in the manner they would most like to hear, whether it be informative
or appealing to their emotions.

92 6 PM in the Downstream Value Chain
Supply Demand
side Procurement Operations Marketing side
Information
technology
Finance and (IT)
accounting
Human
Fig. 6.1 Marketing and sales in the downstream value chain. Source: Author’s own figure
6.2 Marketing Mix (7 Ps)
In the late 1970s, it was widely acknowledged by marketers that the marketing mix
should be updated. This led to the creation of the extended marketing mix in 1981 by
Booms and Bitner which added three new elements to the 4 Ps principles. This now
allowed the extended marketing mix to include products that are services and not just
physical things.
People—All companies are reliant on the people who run them from front-line sales
staff to the managing director. Having the right people is essential because they
are as much a part of your business offering as the products/services you are
offering.
Processes—The delivery of your service is usually done with the customer present
so how the service is delivered is once again part of what the consumer is
paying for.
Physical Evidence—Almost all services include some physical elements even if the
bulk of what the consumer is paying for is intangible. For example, a hair salon
would provide their client with a completed hairdo and an insurance company
would give their customers some form of printed material. Even if the material is
not physically printed (in the case of PDFs), they are still receiving a ‘physical
product’ by this definition.
Though in place since the 1980s, the 7 Ps are still widely taught due to their
fundamental logic being sound in the marketing environment and marketers’
abilities to adapt the marketing mix to include changes in communications such as
social media, updates in the places which you can sell a product/service or
customers’ expectations in a constantly changing commercial environment
(Fig. 6.2).
6.3 Incoterms 2010 93
Fig. 6.2 Marketing mix.

Source: Author’s own figure,
adopted from Helmold, Dathe, Product
and Hummel, 2019
Price Place
7Ps
Physical
Promotion
evidence
Process People
6.3 Incoterms 2010
The International Chamber of Commerce (ICC) in Paris has been issuing ‘International
Rules for the Interpretation of Commercial Contract Formulas’ known as Incoterms
(International Commercial Terms) since 1923. The Incoterms rules have become an
essential part of the daily language of international trade. They have been incorporated in
contracts for the sale of goods worldwide and provide rules and guidance to importers,
exporters, lawyers, transporters, insurers and students of international trade. After ICC’s
creation in 1919, one of its first initiatives was to facilitate international trade activities. In
the early 1920s, the world business organization set out to understand the commercial
trade terms used by merchants. This was done through a study that was limited to six
commonly used terms in just 13 countries. The findings were published in 1923,
highlighting disparities in interpretation. To examine the discrepancies identified in the
initial survey, a second study was carried out. This time, the scope was expanded to the
interpretation of trade terms used in more than 30 countries in 1928. Based on the
findings of the studies, the first version of the Incoterms rules was published as a global
standard. The terms included FAS, FOB, C&F, CIF, ex ship and ex quay. Due to World
War II, supplementary revisions of the Incoterms rules were suspended and did not
resume again until the 1950s. The first revision of the Incoterms rules was then issued in
1953. It debuted three new trade terms for non-maritime transport. The new rules
comprised delivered costs paid (DCP), free on rail (FOR) and free on truck (FOT).
The ICC launched the third revision of the Incoterms rules, which dealt with
misinterpretations of the previous version. Two trade terms were added to address
delivery at frontier (DAF) and delivery at destination (DDP). The increased use of air
transportation gave cause for another version of the popular trade terms. This edition
Table 6.1 International commercial terms 2010 (Incoterms)

Abbreviations Description (English/German)
EXW Ex works/Ab Werk
FCA Free carrier/Frei Frachtführer
FAS Free alongside ship/Frei Längsseite Schiff
FOB Free on board/Frei an Bord
CFR Cost and freight/Kosten und Fracht
CIF Cost, insurance and freight/Kosten, Versicherung und Fracht
CPT Carriage paid to/Frachtfrei
CIP Carriage, insurance paid to/Frachtfrei versichert
DAP Delivered at place/Geliefert benannter Ort
DAT Delivered at terminal/Geliefert Terminal
DDP Delivered duty paid/Geliefert verzollt
Source: Author’s own table, adopted from Helmold and Terry (2017)
included the new term FOB airport (free on board airport). This rule aimed to allay
confusion around the term free on board (FOB) by signifying the exact ‘vessel’ used.
With the expansion of carriage of goods in containers and new documentation processes,
came the need for another revision. This edition introduced the trade term FRC (free
carrier named at point), which provided for goods not actually received by the ship’s side
but at a reception point on shore, such as a container yard. The fifth revision simplified
the free carrier term by deleting rules for specific modes of transport (i.e. FOR, free on
rail; FOT, free on truck; and FOB airport, free on board airport). It was considered
sufficient to use the general term FCA (free carrier at named point) instead. Other provi-
sions accounted for increased use of electronic messages. The ‘License, Authorizations
and Formalities’ section of FAS and DEQ Incoterms rules were modified to comply with
the way most customs authorities address the issues of exporter and importer of record.
The Incoterms 2010 is the most current edition of the rules to date. This version
consolidated the D-family of rules, removing delivered at frontier (DAF), delivered ex
ship (DES), delivered ex quay (DEQ) and delivered duty unpaid (DDU) and adding
delivered at terminal (DAT) and delivered at place (DAP). Other modifications included
an increased obligation for buyer and seller to cooperate on information sharing and
changes to accommodate ‘string sales’. To keep pace with the ever-evolving global trade
landscape, the latest update to the trade terms is currently in progress and is set to be
unveiled in 2020. The Incoterms 2020 Drafting Group includes lawyers, traders and
company representatives from around the world. The overall process will take two years
as practical input on what works and what could possibly be improved will be collected
from a range of Incoterms rule users worldwide and studied (Table 6.1).
6.4 Vendor-Managed Inventory
Vendor-managed inventory (VMI) is a supply chain management strategy in which a

supplier manages goods that are located in a customer’s, third party’s or vendor’s
warehouse. The warehouse is usually located close to the customer consumption
6.7 Case Study: Airbus and AirSupply 95
place. The goods can be consigned or non-consigned stock. The consigned stock is
owned by the supplier until the customer consumes it, and the non-consigned stock
is owned by the customer when the customer receives it.
6.5 Efficient Consumer Response
Efficient consumer response (ECR) is a strategy to increase the level of services to

consumers through close cooperation among retailers, wholesalers and manufacturers
by means of electronic data interchange (EDI). ECR is a strategic concept compiled by
a consulting firm Kurt Simon Associates at the request of organizations concerning the
US processed food distribution industry, aiming to recover the competitive strength
for surviving the turbulent time of the industry when discounters emerged in the USA.
By aiming to improve the efficiency of a supply chain as a whole beyond the wall of
retailers, wholesalers and manufacturers, they can consequently gain larger profits
than each of them pursuing their own business goals. Companies who compose the
supply chain can reduce the opportunity loss, inventory level and entire cost, as well as
increase monetary profitability by sharing the purpose of ‘customer satisfaction’.
6.6 Enterprise Resource Planning System
Enterprise resource planning (ERP) manages business processes through an applica-

tion that allows an organization to use a system of integrated applications to manage
the business and automate many support or secondary functions related to technol-
ogy, services and human resources.
ERP software typically integrates all elements of an operation—including prod-
uct planning, development, manufacturing, sales and marketing—in a single data-
base, application and user interface.
6.7 Case Study: Airbus and AirSupply
Airbus SE, formerly Airbus Group SE, is a company based in the Netherlands that is
active in the aerospace and defence industry. The company operates through three
segments: Airbus Commercial Aircraft, Airbus Helicopters and Airbus Defence and
Space. The Airbus Commercial Aircraft segment focuses on the development,
manufacturing, marketing and sale of commercial jet aircraft and aircraft components,
as well as on aircraft conversion and related services. The Airbus Helicopters segment
specializes in the development, manufacturing, marketing and sale of civil and
military helicopters, as well as on the provision of helicopter-related services. The
Airbus Defence and Space segment produces military combat aircraft and training
aircraft, provides defence electronics and global security market solutions and
manufacturers and markets missiles. For the commercial side, more than 75% of the
value creation is done by suppliers. The suppliers are supplying components and
systems, which are assembled to subsystems by Airbus operational sites. These

subassemblies are produced in four different countries and then shipped downstream
to the final assembly as shown in Fig. 6.1. The subassemblies are delivered from
different national sites to the final assembly lines (Fig. 6.3).
Airbus uses the AirSupply system, which integrates ERP systems on the down-
stream side. AirSupply is a single supply chain solution for direct deliveries to Airbus
by its suppliers in the downstream supply chain. The portal is shared by the main
European aerospace companies within the BoostAeroSpace hub. The AirSupply
collaborative hub helps manufacturers and suppliers to gain visibility, as well as
ensure control and integration for critical business processes. This common secured
platform for European aerospace and defence industry players results from the
BoostAeroSpace cooperation led by Airbus, Dassault Aviation, Safran and Thales
as shown in Fig. 6.1. It provides:
One solution for the aerospace community connecting original equipment

manufacturers (OEMs) and suppliers
Standardized supply chain collaboration processes and shared formats for data
exchange
One platform for a single supply chain process collaboration via the Internet (Soft-
ware-as-a-Service provided by SupplyOn (2019), with worldwide service)
(Fig. 6.4).
75 percent external value crea on

Suppliers are supplying
components and system
Subassemblies are produced in
four different countries
Subassemblies are delivered from
different na onal sites to the final
assembly lines
Fig. 6.3 Downstream supply chain of Airbus. Source: Author’s own figure, adopted from
SupplyOn (2019)
Portal Portal Portal Portal Portal Portal
Suppliers Suppliers Suppliers Suppliers

6.7 Case Study: Airbus and AirSupply
AirSupply
Suppliers
Fig. 6.4 AirSupply. Source: Author’s own figure, adopted from SupplyOn (2019)
97
References
Helmold, M., & Terry, B. (2017). Lieferantenmanagement in China. DeGruyter: Berlin.
Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen. Best-in-Class Emp-
fehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer Gabler.
SupplyOn. (2019). www.supplyon.com
PM Models and Concepts
7
Marc Helmold
Not everything that can be counted counts and not everything

that counts can be counted.
7.1 Balance Score Card (BSC)
The balance scorecard (BSC) is a strategic planning and performance management

tool and was first introduced by the accounting academic Dr. Robert Kaplan and
business executive and theorist Dr. David Norton. It was first published in 1992 in a
Harvard Business Review article. Dr. Kaplan and Dr. Norton took previous metric
performance measures and adapted them to include nonfinancial information. The
BSC is the performance metric used in strategic management to identify and improve
various internal functions of a business and their resulting external outcomes. It is
used to measure and provide feedback to organizations. Data collection is crucial to
providing quantitative results, as the information gathered is interpreted by managers
and executives and used to make better decisions for the organization. The BSC
system connects the strategic elements like mission, vision, core values and strategic
objectives with the more operational elements such as performance measures, key
performance indicators, targets and actions (projects that help you reach your
targets) of the enterprise or organization (Norton & Kaplan, 1992, 1996). The
BSC suggests that management views the organization from four perspectives in
order to develop objectives, measures (KPIs), targets and initiatives (actions) relative
to each of these points of view:
Financial: often renamed stewardship or other more appropriate name in the public
sector, this perspective views organizational financial performance and the use of
financial resources.

100 7 PM Models and Concepts
Customer/Stakeholder: this perspective views organizational performance from the

point of view of the customer or other key stakeholders that the organization is
designed to serve.
Internal Process: views organizational performance through the lenses of the quality
and efficiency related to our product or services or other key business processes.
Organizational Capacity (originally called Learning and Growth): views organiza-
tional performance through the lenses of human capital, infrastructure, technol-
ogy, culture and other capacities that are key to breakthrough performance.
Figure 7.1 outlines the BSC including objectives, measurable, targets and actions.
For each objective on the strategy map, at least one measure or key performance
indicator (KPI) will be identified and tracked over time. KPIs indicate progress
towards a desirable outcome. Strategic KPIs monitor the implementation and effec-
tiveness of an organization’s strategies, determine the gap between actual and
targeted performance and determine organization effectiveness and operational
efficiency. The BSC ensures the following areas:
Advantages of the BSC are
It provides an objective way to see if the strategy is working.

It offers a comparison that gauges the degree of performance change over time.
It focuses the employees’ attention on what matters most to success in the
organization.
It allows measurement of accomplishments, not just of the work that is performed.
Financial perspective
Measurables
Objectives
Targets
Actions
Customer Internal business

perspective processes perspective
Measurables
Measurables
Mission
Objectives
Objectives
Targets
Targets
Actions
Actions
Vision
Strategic Strategic
objectives Planning
Organisational
perspective
Measurables
Objectives
Targets
Actions
Fig. 7.1 Balance score card (BSC). Source: Author’s own figure
7.1 Balance Score Card (BSC) 101
It provides a common and simple language for communication by using numeric

indicators.
It helps to reduce intangible uncertainty by applying tangible and hard figures.
It shows clarity of mission, vision and strategy as part of the strategic pyramid.
It is transparent way in cascading down corporate objectives to all areas in the
organization.
It uses customer and stakeholder expectations as focal point and starting point.
It enables permanent and endurable monitoring of performance, objectives and
outcomes.
It ensures a cross-disciplinary and hierarchy traversing communication process.
It enables the integration of performance measures objectives and an appropriate
level.
It displays cause and effect relationships as instrument for functions and
management.
It results in a sustainable action plan and functional action plan, which can be easily
reviewed.
Disadvantages of the BSC are
It is based on historical data from the past and may thus lead to a distorted picture.
It can lead to a lack of long-term commitment and leadership for management due to
short-term objectives (micro-management).
It does not always express the interests of all stakeholders, but of few stakeholders.
It uses only quantitative key performance indicators and the approach may not show
the real world.
It has the danger to overload system with key performance indicators (KPI).
It may have a potential lack of employees’ awareness or a failure to communicate
information to all employees.
It is constructed as management reporting tool rather than improvement tool.
It shows that benchmarking based on KPIs in BSC and specific measures is difficult.
Figure 7.2 outlines the logic between the four perspectives. The balanced score-
card is used to improve the performance by strengthening the organization. The
improvements will lead to a better Q-C-D-plus alpha ratio throughout the organiza-
tion and thus satisfy the customers. As a result, financial performance will be
outstanding. The BSC is used to attain objectives, measurements, initiatives and
goals that result from these four primary functions of a business. Companies can
easily identify factors hindering company performance and outline strategic changes
tracked by future scorecards. With the balanced scorecard, they look at the company
as a whole when viewing company objectives. An organization may use the bal-
anced scorecard to implement strategy mapping to see where value is added within
an organization. A company also utilizes the balanced scorecard to develop strategic
initiatives and strategy objectives.
Cascading a balanced scorecard means to translate the corporate-wide scorecard
(referred to as Tier 1) down to first business units, support units or departments
Fig. 7.2 Logic behind the

BSC. Source: Author’s own
figure
Financial Results Financial perspective
Customer Q-C-D +
Satisfaction alpha Customer perspective
Product and Internal business

Process
Know How
Service
Know How processes
Organisational
Knowledge and Skills
perspective
(Tier 2) and then teams or individuals (Tier 3). The end result should be focused
across all levels of the organization that is consistent. The organization alignment
should be clearly visible through strategy, using the strategy map, performance
measures and targets and initiatives. Scorecards should be used to improve account-
ability through objective and performance measure ownership, and desired
employee behaviours should be incentivized with recognition and rewards.
There are several advantages of the BSC:
1. Better Strategic Planning

The balanced scorecard provides a powerful framework for building and
communicating strategy. The business model is visualized in a strategic map
which helps managers to think about cause-and-effect relationships between the
different strategic objectives. The process of creating a strategy map ensures that
consensus is reached over a set of interrelated strategic objectives. It means that
performance outcomes as well as key enablers or drivers of future performance
are identified to create a complete picture of the strategy.
2. Improved Strategy Communication and Execution
Having a one-page picture of the strategy allows companies to easily commu-
nicate strategy internally and externally. We have known for a long time that a
picture is worth a thousand words. This ‘plan on a page’ facilitates the under-
standing of the strategy and helps to engage staff and external stakeholders in the
delivery and review of the strategy. The thing to remember is that it is difficult for
people to help execute a strategy which they don’t fully understand.
3. Better Alignment of Projects and Initiatives
The balanced scorecard helps organizations map their projects and initiatives to
the different strategic objectives, which in turn ensures that the projects and
initiatives are tightly focused on delivering the most strategic objectives.
4. Better Management Information
The balanced scorecard approach helps organizations design key performance
indicators for their various strategic objectives. This ensures that companies are
7.2 Quality Management Systems (QMS) 103
measuring what actually matters. Research shows that companies with a BSC
approach tend to report higher quality management information and better deci-
sion-making.
5. Improved Performance Reporting
The balanced scorecard can be used to guide the design of performance reports
and dashboards. This ensures that the management reporting focuses on the most
important strategic issues and helps companies monitor the execution of
their plan.
6. Better Organizational Alignment
The balanced scorecard enables companies to better align their organizational
structure with the strategic objectives. In order to execute a plan well, organizations
need to ensure that all business units and support functions are working towards the
same goals. Cascading the balanced scorecard into those units will help to achieve
that and link strategy to operations.
7. Better Process Alignment
Well-implemented balanced scorecards also help to align organizational pro-
cesses such as budgeting, risk management and analytics with the strategic
priorities. This will help to create a truly strategy focused organization.
7.2 Quality Management Systems (QMS)
A quality management system (QMS) is the combination of business processes

focusing on customer satisfaction. A QMS aims to meet customer requirements.
The QMS has a set of guidelines that are defined by a collection of policies,
processes, documented procedures and records. This system defines how a company
will achieve the creation and delivery of the product or service they provide to their
customers. When implemented in your company, the QMS needs to be specific to the
product or service you provide, so it is important to tailor it to your needs. However,
in order to help ensure that you do not miss elements of a good system, some general
guidelines exist in the form of ISO 9001 (Quality Management System—
Requirements), which is intended to help standardize how a QMS is designed.
ISO 9001 is the international standard for quality management systems (QMS),
published by ISO (the International Organization for Standardization). The standard
was most recently updated in 2015 and is referred to as DIN EN ISO 9001:2015. In
order to be released and updated, ISO 9001 had to be agreed upon by a majority of
member countries so that it would become an internationally recognized standard,
which means it is accepted by a majority of countries worldwide.
ISO has a range of standards for quality management systems that are based on
ISO 9001 and adapted to specific sectors and industries. These include:
ISO 13485—Medical devices

ISO 17582—Electoral organizations at all levels of government
ISO 18091—Local government
ISO/TS 22163—Business management system requirements for rail organizations
ISO/TS 29001—Petroleum, petrochemical and natural gas industries

ISO/IEC 90003—Software engineering
ISO 9001 contains eight key principles of quality management which is not
auditable but do form the fundamental characteristics of quality management:
1. Customer focus and customer satisfaction

2. Leadership
3. Involvement of people
4. Process approach
5. A systematic approach to management
6. Continual improvement
7. Factual approach to decision making
8. Mutually beneficial supplier relationship
QMs are accredited by globally applied standards. The advantages of a QMS can
be outlined as follows:
Increasing customer satisfaction by using a globally applied standard and improve-

ment system
Becoming more cost-efficient, increasing credibility and securing competitiveness
Optimizing costs and creating shorter cycle times through effective use of resources
Enhanced customer satisfaction and improved customer loyalty leading to repeat
business
Increased revenue and market share obtained through flexible and fast responses to
market opportunities
Integration and alignment of internal processes which will lead to increased produc-
tivity and results
Ensuring a consistent and streamlined delivery of the products or services requested
by customers
Improved communication, planning and administration processes throughout the
organization
7.3 European Foundation of Quality Management (EFQM)
7.3.1 Concept of the EFQM
The EFQM excellence model is a non-prescriptive business excellence framework

for organizational management, promoted by the European Foundation for Quality
Management (EFQM) and designed to help organizations to become more competi-
tive. Regardless of sector, size, structure or maturity, organizations need to establish
appropriate management systems to be successful. The EFQM excellence model is a
7.3 European Foundation of Quality Management (EFQM) 105
tool to help organizations do this by measuring where they are on the path to
excellence, helping them understand the gaps and promoting solutions. EFQM is
an acronym that stands for the European Foundation for Quality Management.
EFQM was founded in 1988 with the objective to create a platform where
organizations can learn from each other to continuously improve their performance.
Benchmarking with other European organizations will lead to sustainable economic
growth. EFQM wants to open the chance to the organizations to define their current
‘level of excellence’ and where they need to focus on improvement efforts. More-
over, the model helps to ensure that organization decisions incorporate the needs of
all stakeholders and are aligned with the organization’s objectives, which in turn
supports managers and directors in training, sharing ideas and innovating with the
aid of the so-called EFQM model as a common framework. The EFQM model or
EFQM business excellence model is the most popular quality management tool in
Europe, used by more than 30,000 organizations to improve performance. It
supports you to self-assess and reflect. Eighty-four percent of the EFQM members
say that the EFQM model helps to improve their organization (EFQM, 2019). This
quality management model aims at sustainable excellence in which quality, effi-
ciency and sustainability are the key elements. The basis of the EFQM Model
consists of the total quality management (TQM) concept. It consists of a universal
framework of concepts, thus enabling organizations to share information in an
effective way, irrespective of the different sectors, cultures and life stages in which
they are located. Organizations can thus take other organizations as a model, so that
they obtain insights into how far they meet the image of a high-quality organization.
The EFQM model consists of nine criteria that are subdivided into five enablers and
four results: This is the model behind the European Business Excellence Award, an
award process run by the European Foundation for Quality Management (EFQM).
This framework is used as the basis for national business excellence and quality
awards across Europe. The model consists of nine categories:
1. Leadership
2. Policy and strategy
3. People
4. Partnerships and resources
5. Processes
6. Customer results
7. People results
8. Society results
9. Key performance results
The fundamental concepts that underpin the EFQM excellence model are:
Results orientation
Customer focus
Leadership and constancy of purpose
Management by processes and facts
People development and involvement

Continuous learning, innovation and improvement
Partnership development
Corporate social responsibility
7.3.2 Continuous Process
The EFQM model must be read from right to left, as a result of which it becomes
clear that the result areas focus on ‘what can be achieved?’, after which it becomes
clear that these organizational areas focus on ‘how can these results be achieved?’.
The bottom arrow, ‘learning, creativity and innovation’, indicates that measuring,
evaluating and adjusting are not one-off actions but a continuous process. In the
same process organizations complete a step-by-step development.
7.3.3 Self-Assessment
The EFQM model consists of an EFQM assessment that enables an organization to

determine where they are in the quality process. The assessment starts with a review
of the results. This is the underlying principle of this model. To improve results,
measures should be taken in at least one of the organizational areas: the EFQM
model and the assessment. This is represented in five development stages.
7.3.4 Application of the EFQM model
The assessments allow an organization to gain insights into the quality of its current
operational management. Improvements are formulated and these can be
implemented by an organization in stages. The assessment itself consists of five
steps:
• Setting standards for all of the nine key areas

• Determining the current quality of operational management
• Formulating and prioritizing of improvements
• Application and inclusion of improvements in the various (annual) plans
• Actual implementation and monitoring of the remedial actions
7.4 Baldrige Excellence Model (BEM)
This is the model behind the US Malcolm Baldrige National Quality Award, an
award process administered by the American Society for Quality (ASQ) and man-
aged by the National Institute of Science and Technology (NIST), an agency of the
US department of Commerce. This framework is used as the basis for over 70 other
7.5 Business PM Improvement Resource Model (BPIR) 107
national Business Excellence/Quality awards around the world. The model consists
of seven categories
1. Leadership
2. Strategic planning
3. Customer and market focus
4. Measurement, analysis and knowledge management
5. Workforce focus
6. Process management
7. Business results
The core concepts of the Baldrige Criteria for Performance Excellence are:
Visionary leadership
Customer-driven excellence
Organizational and personal learning
Valuing employees and partners
Agility
Focus on the future
Managing for innovation
Management by fact
Social responsibility
Focus on results and creating value
Systems perspective
7.5 Business PM Improvement Resource Model (BPIR)
The Business Performance Improvement Resource (BPIR) model provides an alter-

native, comprehensive and simple way to classify benchmarking and best practice
information within the website. The model classifies information through over
250 business processes. The high-level processes are shown below (changes from
the APQC Process Classification Framework, from which it is based, are shown in
green):
Understand markets and customers

Develop vision and strategy
Design products, processes and services
Market and sell
Produce and deliver for manufacturing-oriented organizations
Produce and deliver for service-orientated organizations
Invoice and service customers
Deliver leadership
Develop and manage human resources

Manage information and knowledge
Manage financial and physical resources
Execute environmental management programme
Manage external relationships
Manage improvement and change
Measures of organizational Performance
7.6 Performance Management to Excellence Model (PM2E)
The PM excellence model by Dr. Helmold focuses on the value chain with its
primary and secondary functions as outlined in Fig. 7.3. Primary functions are
supply, operations and marketing and sales. Secondary or support functions are IT,
HR or finance. The model is process oriented and focuses on 15 categories, where
value is generated. The 15 categories are (Fig. 7.4):
1. Corporate strategy
2. Organizational improvement
3. Supply management
4. Supplier and partnerships
5. Cooperation and collaboration
6. Value chain visibility
7. B2B and B2C collaboration
8. Risk management
9. Demand scheduling and operations
10. Quality performance
11. Learning and growth
Enablers Results
People People
10% results
10% Business
Processes, results
Leadership Strategy products Customer Key
10% 10% and services results performan-
10% 15% ce results
15%
Partnerships Society
& resources results
10% 10%
Innovation, Learning and Improvements
Fig. 7.3 EFQM model. Source: Author’s own figure, adjusted from the EFQM model (EFQM,
2019)
Primary value Value chain PM2E
contributors
Corporate strategy
Supply side Purchasing Operations Marketing & Demand side
OrganisaƟonl improvement
(Suppliers) Management Management Sales (Customers) Supply management
Supplier and partnerships
CooperaƟon and collaboraƟon
Value chain visiblity
B2B and B2C collaboraƟon
Risk management
Demand scheduling & operaƟons
Secondary value
Quality performance
contributors Learning and growth
7.6 Performance Management to Excellence Model (PM2E)
Leadership and management

Global acƟviƟes
DigitalisaƟon and AI
Information Human Finance and Business ConƟneous improvement
systems Legal
resources controlling ethics
Fig. 7.4 PM2E excellence model by Dr. Marc Helmold. Source: Author’s own figure
109
12. Leadership and management

13. Global activities
14. Digitalization and artificial intelligence (AI)
15. Continuous improvement
7.7 Case Study: EFQM by BMW
In 2015, the BMW factory in Regensburg (Germany) won the EFQM excellence
award. Year by year the BMW plant Regensburg could achieve positive results in all
fields by the EFQM assessors (EFQM, 2018). Not only costs are in the target focus
but also other elements like service, quality, people and innovation. The plant agrees
each year on new, increased targets with sustainable improvements. They belong to
the EFQM criteria customer-oriented results, employee-oriented results, society
oriented results and key results. The BMW plant Regensburg’s KPI landscape
combined with necessary enablers is a real achievement which could be developed
over the years with the help of EFQM structures, assessments and feedbacks. It grew
to a perfect interaction between all technologies (quality, logistics and controlling,
paint and body shop, assembly, human resources) that work together with
harmonized targets to reach positive results. In 2010, the Plant Leadership Circle
revised the management process in order to increase its transparency. This is when
the process was given its current structure of two interconnected loops, which mark
the distinction between the long-term perspective and the short-term derivation of
activities over a 1-year period. Each year the strategic and operative excellence is
discussed and finally signed in three-level target agreements that go also down to the
shop floor.
References
EFQM. (2018). www.efqm.com
EFQM. (2019). www.efqm.com
Kaplan, R., & Norton, D. P. (1992). The balanced scorecard (BSC). Measures that drive per-
formance. Harvard Business Review. 01-02/1992.
Kaplan, R., & Norton, D. P. (1996). Using the balanced scorecard as a strategic management
system. Harvard Business Review. 01-02/1996.
Tools in PM
8
Marc Helmold
The will to win, the desire to succeed, the urge to reach your
full potential—these are the keys that will unlock the door to
personal excellence.
Kurt Tucholsky (1890–1935)
8.1 PESTEL Analysis (Environmental Forces)
8.1.1 Categories of the Model
A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is

a framework or tool for strategic analysis and negotiations used to analyse and
monitor the macro-environmental factors that may have a profound impact on an
organization’s performance (Helmold, Dathe, & Hummel, 2019). This tool is espe-
cially useful when starting a new business or entering a foreign market. It is often
used in collaboration with other analytical business tools such as the Porter’s five
forces analysis (Micro analysis) or SWOT analysis to give a clear understanding of a
situation and related internal and external factors. PESTEL is an acronym that stands
for political, economic, social, technological, environmental and legal factors. How-
ever, throughout the years people have expanded the framework with factors such
as demographics, intercultural, ethical, digitalization or ecological elements
resulting in variants such as STEEPLED, DESTEP and SLEPIT. In this book, we
will stick simply to PESTEL since it encompasses the most relevant factors in
general business. Each factor will be part of the negotiation analysis as shown in
Fig. 8.1 (Helmold et al., 2019; Johnson & Scholes, 1997).
8.1.1.1 Political Factors

These factors are all about how and to what degree a government intervenes in the
economy or a certain industry. Basically, all the influences that a government has on

112 8 Tools in PM
Fig. 8.1 PESTEL analysis.

Source: Compiled by the Political
Author, adopted from Johnson
and Scholes (1997) Legal Economic
Macro analysis
Environmental Social
Technological
a business could be classified here. This can include government policy, political
stability or instability, corruption, foreign trade policy, tax policy, labour law, envi-
ronmental law and trade restrictions. Furthermore, the government may have a
profound impact on a nation’s education system, infrastructure and health regulations.
These are all factors that need to be taken into account when assessing the attractive-
ness of a potential market (Helmold et al., 2019; Johnson & Scholes, 1997).
8.1.1.2 Economic Factors

Economic factors are determinants of a certain economy’s performance. Factors
include economic growth, exchange rates, inflation rates, interest rates, disposable
income of consumers and unemployment rates. These factors may have a direct or
indirect long-term impact on a company, since it affects the purchasing power of
consumers and could possibly change demand/supply models in the economy.
Consequently, it also affects the way companies price their products and services
(Helmold et al., 2019; Johnson & Scholes, 1997).
8.1.1.3 Social Factors

This dimension of the general environment represents the demographic
characteristics, norms, customs and values of the population within which the
organization operates. This includes population trends such as the population growth
rate, age distribution, income distribution, career attitudes, safety emphasis, health
consciousness, lifestyle attitudes and cultural barriers. These factors are especially
important for marketers when targeting certain customers. In addition, it also says
something about the local workforce and its willingness to work under certain
conditions (Helmold et al., 2019; Johnson & Scholes, 1997).
8.1.1.4 Technological Factors

These factors pertain to innovations in technology that may affect the operations of
the industry and the market favourably or unfavourably. This refers to technology
incentives, the level of innovation, automation, research and development (R&D)
activity, technological change and the amount of technological awareness that a
market possesses. These factors may influence decisions to enter or not enter certain
8.1 PESTEL Analysis (Environmental Forces) 113
industries, to launch or not launch certain products or to outsource production

activities abroad. By knowing what is going on technology-wise, you may be able
to prevent your company from spending a lot of money on developing a technology
that would become obsolete very soon due to disruptive technological changes
elsewhere (Helmold et al., 2019; Johnson & Scholes, 1997).
8.1.1.5 Environmental Factors

Environmental factors have come to the forefront only relatively recently. They have
become important due to the increasing scarcity of raw materials, pollution targets
and carbon footprint targets set by governments. These factors include ecological
and environmental aspects such as weather, climate, environmental offsets and
climate change which may especially affect industries such as tourism, farming,
agriculture and insurance. Furthermore, growing awareness of the potential impacts
of climate change is affecting how companies operate and the products they offer.
This has led to many companies getting more and more involved in practices such as
corporate social responsibility (CSR) and sustainability (Helmold et al., 2019;
Johnson & Scholes, 1997).
8.1.1.6 Legal Factors

Although these factors may have some overlap with the political factors, they
include more specific laws such as discrimination laws, antitrust laws, employment
laws, consumer protection laws, copyright and patent laws and health and safety
laws. It is clear that companies need to know what is and what is not legal in order to
trade successfully and ethically. If an organisation trades globally, this becomes
especially tricky since each country has its own set of rules and regulations. In
addition, you want to be aware of any potential changes in legislation and the impact
it may have on your business in the future. Recommended is to have a legal advisor
or attorney to help you with these kinds of things (Helmold et al., 2019; Johnson &
Scholes, 1997).
8.1.2 Benefits of the Model
A PESTEL analysis helps an organization identify the external forces that could
impact their market and analyse how they could directly impact their business. It’s
important when undertaking such an analysis that the factors affecting the organiza-
tion are not just identified but are also assessed—for example, what impact might
they have on the organization? The outcomes of a PESTEL analysis can then be used
to populate the opportunities and threats in an industry and the SWOT analysis
(Helmold et al., 2019; Johnson & Scholes, 1997).
114 8 Tools in PM
8.2 Porter’s Five Forces (Industry Analysis)
8.2.1 Benefits of the Model
Porter’s five forces is a simple but powerful tool for understanding the competitive-
ness of your business environment and for identifying your strategy’s potential
profitability. The tool was created by Harvard Business School professor Michael
E. Porter to analyse an industry’s attractiveness and likely profitability. Since the first
publication in 1979, it has become one of the most popular and highly regarded
business strategy tools (Porter, 1985). Porter recognized that organizations likely
keep a close watch on their rivals, but he encouraged them to look beyond the actions
of their competitors and examine what other factors could impact the business
environment. He identified five forces that make up the competitive environment,
and which can erode your profitability. These are rivalry among competitors,
bargaining power of suppliers, bargaining power of buyers, threat of new entrants
and threat of substitutes (Helmold et al., 2019; Johnson & Scholes, 1997; Porter,
1985).
8.2.2 Competitive Rivalry
This looks at the number and strength of your competitors. How many rivals do you
have? Who are they, and how does the quality of their products and services compare
with yours?
Where rivalry is intense, companies can attract customers with aggressive price
cuts and high-impact marketing campaigns (Porter, 1985). Also, in markets with lots
of rivals, your suppliers and buyers can go elsewhere if they feel that they’re not
getting a good deal from you. On the other hand, where competitive rivalry is
minimal, and no one else is doing what you do, then you’ll likely have tremendous
strength and healthy profits (Helmold et al., 2019; Johnson & Scholes, 1997).
8.2.3 Bargaining Power of Suppliers
This is determined by how easy it is for your suppliers to increase their prices. How
many potential suppliers do you have? How unique is the product or service that they
provide, and how expensive would it be to switch from one supplier to another? The
more you have to choose from, the easier it will be to switch to a cheaper alternative.
But the fewer suppliers there are, and the more you need their help, the stronger their
position and their ability to charge you more. That can impact your profit (Porter,
1985).
8.2 Porter’s Five Forces (Industry Analysis) 115
8.2.4 Bargaining Power of Buyers
Here, you ask yourself how easy it is for buyers to drive your prices down. How
many buyers are there, and how big are their orders? How much would it cost them
to switch from your products and services to those of a rival? Are your buyers strong
enough to dictate terms to you?
When you deal with only a few savvy customers, they have more power, but your
power increases if you have many customers (Porter, 1985).
8.2.5 Threat of Substitutes
This refers to the likelihood of your customers finding a different way of doing what
you do. For example, if you supply a unique software product that automates an
important process, people may substitute it by doing the process manually or by
outsourcing it. A substitution that is easy and cheap to make can weaken your
position and threaten your profitability.
8.2.6 Threat of New Entrants
Your position can be affected by people’s ability to enter your market. So, think
about how easily this could be done. How easy is it to get a foothold in your industry
or market? How much would it cost, and how tightly is your sector regulated?
If it takes little money and effort to enter your market and compete effectively, or
if you have little protection for your key technologies, then rivals can quickly enter
your market and weaken your position. If you have strong and durable barriers to
entry, then you can preserve a favourable position and take fair advantage of it
(Porter, 1985) (Fig. 8.2).
Threat of
subsitutes
Industry analysis
Bargaining
Rivalry amongst Bargaining
power of
competitors power of buyers
suppliers
Micro analysis
Threat of new
entrants
Fig. 8.2 Industry analysis. Source: Author’s own figure

116 8 Tools in PM
Fig. 8.3 SWOT analysis.

Source: Author’s own figure
Strengths Weaknesses
(internal) (internal)
SWOT analysis Internal analysis
Opportunities Threats
(external) (external)
8.3 SWOT Analysis
A SWOT analysis is a high-level strategic planning model that helps organizations

identify where they’re doing well and where they can improve, both from an internal
and external perspective. It is an acronym for strengths, weaknesses, opportunities
and threats as outlined in Fig. 8.3. Organizations usually conduct a SWOT analysis
at the beginning of a negotiation and strategic planning process. Your entire leader-
ship team should be heavily involved, because they should have the ability to look
across your organization and offer insights into your competitive environment
and/or business landscape. When the leadership team offers appropriate
recommendations regarding your strengths, weaknesses, opportunities and threats,
you will end up with a SWOT analysis that has the credibility to be used construc-
tively in the strategic planning process. SWOT analysis is a framework used to
evaluate a company’s competitive position by identifying its strengths, weaknesses,
opportunities and threats. The SWOT analysis is a foundational assessment model
that measures what an organization can and cannot do and its potential opportunities
and threats. Strengths and weaknesses analysis is an ideal tool for investigating
negotiation latitude and location in complex negotiations, as well as individual
processes, products, teams or other objects of observation and for developing
alternative solutions. During the negotiations, it can be used as a proactive tool to
explore negotiating positions during the analysis phase (A-1), strategy selection
(A-2), structure of argumentation (A-3) and actual negotiation (A-4).
8.4 Risk and Opportunity Analysis (ROP)
Monetary risks and opportunities (ROP analysis) Projects often have a multi-year
life cycle from development to delivery to after-service (Helmold & Terry, 2016a).
Each project involves risks and opportunities (ROPs) in connection with project
completion. A risk is a potential event with a negative impact. The event lies in the
8.5 Margin Enhancement Plan Analysis (MEP) 117
Client claim: -500,000 euro

Audit cost: -100,000 euro
Risks Add. production cost: -300,000 euro
(external) Total monetary risks: -800,000 euro
ROP analysis
Global sourcing: +500,000 euro

Opportunities Budget improvements: +250,000 euro
(external) Additional sales: +700,000 euro
Total monetary opps: + 1,450,000 euro
Fig. 8.4 ROP. Source: Author’s own figure
Table 8.1 Risks and opportunities

Risks Opportunities
Additional resources like man-hours and increased Less consumption of resources,
design budgets e.g. material or people
Material cost increases by suppliers Make strategies and global sourcing
Additional customers’ requirements without Implementation of client requests with
contractual adjustments lower budgets
future of the project and jeopardizes or weakens the successful achievement of the
project. These risks belittle the profitability of the project in a monetary sense. The
opportunities, on the other hand, are events that have a positive impact on the project
outcome. In practice, these risks and opportunities are correlated with probability
factors and quantified in monetary terms (Helmold & Terry, 2016b) (Fig. 8.4;
Table 8.1).
8.5 Margin Enhancement Plan Analysis (MEP)
The profitability analysis and project improvement (English: Margin Enhancement

Plan) is the systematic and structured planning and execution of activities that have a
positive effect on the economic situation of the project (Helmold & Terry, 2016a).
These measures ensure the improvement of economic efficiency along the entire
project life cycle and all functions. MEP measures cover all functions from devel-
opment through purchasing to marketing and sales (Helmold & Terry, 2016a)
(Table 8.2).
118 8 Tools in PM
Table 8.2 Action to Faster finalization of milestones in design and production

improve productivity
Global Sourcing or outsourcing strategies
Less quality work and audits
Increased sales prices or increased sales quantity
Additional orders and changes from customers (options)
Table 8.3 The 5F concept English German

for successful negotiations
Firm Fest und entschieden
Factual Faktenbasiert und objektiv
Focused Fokussierend und ehrlich
Forceful Forsch und eindringlich
Faithful Freundlich und wahrheitsgetrau
8.6 5F Concept
The 5F concept describes the attributes for successful negotiations. Negotiations

must be firm and decisive in argumentation. The arguments can be based on a
detailed analysis of the scope of negotiations and negotiators. Arguments must be
fact-based and objective. In addition to this attribute, negotiations must be focused to
achieve a negotiated outcome. This may also include giving in sub points. Nonethe-
less, arguments should be urgently and forcefully put forward in the negotiations.
Finally, negotiations should be friendly and truthful. Table 8.3 shows the German
and English terms of the 5F concept.
8.7 Critical Success Factors (CSF)
When considering strengths and weaknesses, it is important to match these to the

critical success factors (CSFs) in the industry—are our strengths the same as the ones
necessary for success? In particular, if a business can obtain unique resources and
core competencies that meet the CSFs in a market, then this should lead to its success.
8.8 The 7S Model by McKinsey
McKinsey 7s model (see Fig. 8.5) is a tool that analyses firm’s organizational design
by looking at seven key internal elements: strategy, structure, systems, shared
values, style, staff and skills, in order to identify if they are effectively aligned and
allow organization to achieve its objectives. McKinsey 7s model was developed in
1980s by McKinsey consultants Tom Peters, Robert Waterman and Julien Philips
with help from Richard Pascale and Anthony G. Athos. Since the introduction, the
8.9 Recommendations of Ideal Tools in Negotiations 119
Hard S categories
Structure
Strategy Systems
7-S model: McKinsey
Shared
values
Skills Style
Staff
Soft S categories
Fig. 8.5 Seven S model by McKinsey. Source: Author’s own figure
model has been widely used by academics and practitioners and remains one of the
most popular strategic planning tools. It sought to present an emphasis on human
resources (soft S), rather than the traditional mass production tangibles of capital,
infrastructure and equipment, as a key to higher organizational performance. The
goal of the model was to show how seven elements of the company, structure,
strategy, skills, staff, style, systems, and shared values, can be aligned together to
achieve effectiveness in a company. The key point of the model is that all the seven
areas are interconnected and a change in one area requires change in the rest of a firm
for it to function effectively. You can find the McKinsey model, which represents the
connections between seven areas and divides them into ‘soft Ss’ and ‘hard Ss’. The
shape of the model emphasizes interconnectedness of the elements.
8.9 Recommendations of Ideal Tools in Negotiations
This chapter provides recommendations on how to use tools in a targeted manner.

These tools (English: Negotiation Tools) support sounding out an optimal starting
position and thus implement an outcome- and goal-oriented negotiation. Table 8.4
summarizes the tools.
Table 8.4 Recommendati- Usage of classical tools like PESTEL or the industry analysis
ons and summary of tools
Regular identification of strengths and weaknesses (SWOT)
for negotiations
Determination of opportunities and threats
Monetary quantification of risks and opportunities
Proactive plan in negotiations to improve the margin and
profitability via action
Usage of the 5F concept in negotiations
120 8 Tools in PM
8.10 Case Study: Lufthansa Industry Analysis (Fig. 8.6)
The Porter’s five forces that determine the industry structure in airline are:
1. Threat of new entrants in the airline industry—If there is strong threat of new
entrants in the airline industry, then current players will be willing to earn lower
profits to reduce the threats from new players.
2. Bargaining power of buyers of Lufthansa and transportation sector—If the buyers
have strong bargaining power, then they usually tend to drive price down thus
limiting the potential of Lufthansa to earn sustainable profits.
3. Bargaining power of suppliers in airline—If suppliers have strong bargaining
power, then they will extract higher price from Lufthansa. It will impact the
potential of Lufthansa to maintain above average profits in the airline industry.
4. Threat of substitute products and services in the airline sector—If the threat of
substitute is high, then Lufthansa has to either continuously invest into R&D or it
risks losing out to disruptors in the industry.
5. Rivalry among existing players in the airline industry—If competition is intense,
then it becomes difficult for existing players such as Lufthansa to earn sustainable
profits.
The centre target of strategists and pioneers at Lufthansa is to help the organiza-
tion to assemble a supportable upper hand and impede competitive difficulties from
different players in the airline business.
Threat of new
entrants
MEDIUM
Bargaining Rivalry Bargaining

power of amongst power of
suppliers competitors customers
HIGH HIGH HIGH
Threat of
substitutes
HIGH
Fig. 8.6 Lufthansa industry analysis. Source: Author’s own figure

8.10 Case Study: Lufthansa Industry Analysis (Fig. 8.6) 121
Step 1—Defining relevant industry for Lufthansa. For the purpose of this paper,
Lufthansa does mostly its business in the airline industry.
Step 2—Identify the competitors of Lufthansa and group them based on the
segments within the transportation industry.
Step 3—Assess the Porter’s five forces in relation to the airline industry and assess
which forces are strong in airline and which forces are weak.
Step 4—Determine overall transportation industry structure and test analysis for
consistency
Step 5—Analyse recent and future changes in each of the forces in the airline
industry. This can help in predicting the trend in overall transportation sector.
Step 6—Identify aspects of industry structure based on Porter’s five forces that might
be influenced by Lufthansa’s competitors and new entrants in the airline industry.
To achieve above average profits compared to other players in the airline industry
in the long run, Lufthansa needs to develop a sustainable competitive advantage.
Airline industry analysis using Porter’s five forces can help Lufthansa to map the
various forces and identify spaces where Lufthansa can position itself.
By doing industry analysis using Porter’s five forces, Lufthansa can develop four
generic competitive strategies.
The four generic strategies are based on Porter’s five forces analysis of Lufthansa.
Cost Leadership
In cost leadership, Lufthansa can set out to become the low-cost producer in the
airline industry. How it can become cost leader varies based on the transportation
industry forces and structure. In pursuing cost leadership strategy, company name
can assess pursuit of economies of scale, proprietary technology, supply chain
management options, diversification of suppliers, preferential access to raw
materials and other factors.
Differentiation
Lufthansa can also pursue differentiation strategy based on the airline industry
forces. In a differentiation strategy, Lufthansa can seek to be unique in the airline
industry by providing a value proposition that is cherished by customers. Lufthansa
can select one or more attributes in terms of products and services that customers in
the airline value most. The goal is to seek premium price because of differentiation
and uniqueness of the offerings. Industry analysis of airline using Porter’s five forces
can help Lufthansa to avoid spaces that are already overpopulated by the
competitors.
Focus: Cost Focus and Differentiation Focus

The generic strategy of focus rests on the choice of competitive scope within the
airline industry. Lufthansa can select a segment or group of segment and tailor its
strategy to only serve it. Most organizations follow one variant of focus strategy in
real world.
122 8 Tools in PM
The focus strategy has two variants for Lufthansa:
(a) In cost focus, Lufthansa can seek a cost advantage in its chosen segment in the
transportation sector.
(b) In differentiation strategy, company name can differentiate itself in a target
segment in the transportation sector. Both variants of the focus strategy rest
on differences between Lufthansa’s target segment and other segments in the
airline industry.
References
Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen. Best-in-Class
Empfehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer Gabler.
Helmold, M., & Terry, B. (2016a). Lieferantenmanagement 2030. Wiesbaden: Springer.
Helmold, M., & Terry, B. (2016b). Global sourcing and supply management excellence in China.
Prentice Hall.
Porter, M. E. (1985). Competitive advantage. Creating and sustaining superior performance.
PM in Project Management
9
Marc Helmold
We all have dreams. But in order to make dreams come into

reality, it takes an awful lot of determination, dedication, self-
discipline, and effort.
Jesse Owens
9.1 Definition und Characteristics of Projects
A project is a purposeful and mostly unique project, which is subject to constraints on

time, resources, costs and other elements, e.g. the use of personnel, financial means or
operating resources (PM, 2018). Within projects, there are client-determined begin
and completion dates inside which the task must be handled. Complex projects and
task management is not the same as would be expected, as ordinarily several
capacities are included. The functions often comprise project management, design,
production, procurement, quality management, logistics, human resources, finance
and other departments. The term project is derived from the Latin language (Latin:
proiectum, thrown forward). In the seventeenth century, the meaning of ‘construction
project’ as a project definition prevailed in Germany (PM, 2018). Due to their
developing multifaceted nature, ventures place unique requests on project the board
and hence additionally arrangement the executives for both clients and the contractor
and order processor. Frequently, there are a few included groups or offices in complex
tasks. Because of their unpredictability, ventures involve huge arrangements with
clients, providers, banks or different stakeholders. Examples of projects include:
Construction of a railway station in one of the major cities such as Stuttgart,

e.g. Stuttgart 21st
Construction of an airport, e.g. construction and completion of Wiliy-Brandt Airport
BER

124 9 PM in Project Management
Renovation of a museum, e.g. Neues Museum in Berlin

Construction of a high-speed train, e.g. construction of the ICE by Siemens and
Bombardier
Construction and completion of an opera house, e.g. the Elbphilharmonie in
Hamburg
According to the project management manual, projects have certain criteria (PM,
2018). Key criteria for projects can be defined in Table 9.1 as follows. If these
project criteria are not met, there is usually no real project. This does not mean that
methods of project management cannot be put to good use beyond project work.
However, one should not speak of project work in order not to confuse.
Projects always include an organizational structure and a process organization.
The organizational structure forms the hierarchical framework of the project organi-
zation and defines the organizational framework: (1) which tasks are to be managed
by which functional units and sub-departments. By contrast, the process organiza-
tion regulates the processes that take place within this framework (process and
information processes within the project phases). Companies usually have a line
organization or a project matrix organization, whereby in many cases there is a
combination or a hybrid of both forms of organization. Projects usually take place
under pressure of costs, production and performance, so that projects involve
numerous negotiations. For the realization of projects, project teams are formed,
which consist of different functions (PM, 2018). These then take over control and
steering tasks as part of project management (PM, 2018). Projects go through four
phases as shown in Fig. 9.1. Projects start with a feasibility check. If the feasibility is
given, project planning will begin in the next phase. In this context, a project
assignment is recommended in which important key figures such as quality, costs,
Table 9.1 Project criteria

Criteria of
projects Description
Time limit Projects are limited in time, meaning that both the beginning and the end are
defined by dates
Uniqueness Projects are unique; they are not suitable for the reproduction of existing
things (this process management is much better suited)
Resource Projects are equipped with limited resources in terms of budget, people or
scarcity assets
Targets Projects have clearly specified and positively formulated goals and objectives
Organization Projects require their own project management organization including a
project manager
Interdisciplinary Projects work interdisciplinary and cross-departmental, i.e. project
management, purchasing, design, quality
Novelty and risk Projects are breaking new ground. They realize solutions that do not yet exist
in the desired form
Project phases Projects are handled in certain phases and contain project milestones
Negotiations Projects include internal and external negotiations with stakeholders
9.1 Definition und Characteristics of Projects 125
Fig. 9.1 Project phases. Source: Author’s own figure
Fig. 9.2 Project organization. Source: Author’s own figure
time or resources are clearly defined (PM, 2018). After confirmation of all features,
the project can be started in phase three. After successful completion of the project,
the project validation takes place with a target/actual comparison. In particular,
deviations must be negotiated via the supplementary management.
Complex projects are usually carried out in cross-functional and interdisciplinary
project groups, which contain experts from departments like project management,
procurement, production, marketing and sales, quality management, finance and
controlling or other departments as shown in Fig. 9.2 (Helmold, Dathe & Hummel,
2019). Advantages of a project management organization are the following:
Short decision-making through co-allocation.

Representation of all functions.
Operational alignment leads to quick decisions to implement measures.

Project-specific material budgets create transparency about the real purchasing costs
for all products.
Group dynamic advantages through cooperation of all areas (no ‘silencing’ or
autonomous thinking of departments or functions, but joint project thinking).
9.2 Critical Success Criteria for Projects
9.2.1 Key Criteria in Projects
The project management manual defines key criteria and success factors for
controlling and steering projects (PM, 2018). These criteria comprise a total of
nine categories that must be taken into account for the successful completion of
the project.
9.2.2 Integration Management
Integration management in project management describes the processes and pro-

cesses that are required for good coordination and integration of the different
activities of a project. It includes project plan development, project plan implemen-
tation and change management (PM, 2018).
9.2.3 Performance Management
The project scope management deals with the ongoing planning and control of the
progress of the project. As part of the scope management, it is checked at regular
intervals whether the project is within the objectives defined in the project order or
whether there are deviations. Project scope management includes project initiation,
content and scope planning, performance definition, performance verification and
performance review (PM, 2018).
9.2.4 Time Management
Time management in projects has to ensure that a project is completed on schedule

from project start until the final validation (PM, 2018). Time management in projects
contains processes like scheduling, progress control, the scheduling and sequence of
operations and the estimated time for the operation (PM, 2018).
9.2 Critical Success Criteria for Projects 127
9.2.5 Cost Management
Cost management includes the cost and expenses for the approved project (PM,
2018). Objective of this category is that the project is monitored and closed within
the anticipated budgets. Subcategories of the cost management are resource
planning, cost estimations, budgeting and cost control (PM, 2018).
9.2.6 Quality Management
Quality management in projects should ensure that the quality requirements defined
by the client are met or even exceeded. These include quality planning, quality
assurance and quality control (PM, 2018).
9.2.7 People Management
The main task of HR management is to make sure that the people involved in the
project work as efficiently as possible. The following functions and tasks can be
assigned to personnel management: project organization, personnel acquisition and
team development (PM, 2018).
9.2.8 Communication Management
The aim of communication management in the project is to create, collect, dissemi-

nate, store and define all project information in a timely and appropriate manner.
These include the development of an information and reporting system, the distribu-
tion of information, the determination of progress and administrative completion
(PM, 2018).
9.2.9 Risk Management
Risk Management describes all the iterative processes necessary to identify, analyse
and respond to project risks. These include risk identification, risk assessment, risk
mitigating and risk tracking (PM, 2018).
9.2.10 Procurement Management
The knowledge field procurement management includes the procurement of goods

and services outside the organization as well as the associated contract design. This
area includes procurement preparation, quotation preparation, bid solicitation, sup-
plier selection, contract drafting and contract (PM, 2018).
Table 9.2 Negotiations in Recommendations for successful project management

project management
Leadership and management
Social competencies and expert knowledge
Project milestones and objectives through project order
Objectives setting according to SMART aspects
Sustainability in project management
Success control and project validation
Incentive system and career opportunities
Return to line organization after project finalization
Internationality and diversity
Usage of digital tools
9.3 Recommendations for Project Negotiations
Projects with complex objectives need a competent project leader or manager. This
requires both hard (e.g. project management skills) and soft skills (e.g. emotional
intelligence) to convince both internally and externally. In addition to a good and
sustainable relationship with the management, one of the key components of project
managers is to lead a team successfully. Project managers must choose their
employees to have a healthy mix of expertise and social skills. Projects should be
projected by a robust project job in which performance parameters are clearly
defined and scheduled (PM, 2018). Goals must have specific attributes and be
specific, measurable, acceptable, realistic and timed (SMART methodology:
English, specific, measurable, achievable, realistic and timely). Sustainability as
well as a permanent and regular success control completes the SMART goals.
Here an incentive system is recommended, so that employees are sufficiently
motivated by material or immaterial advantages for project success. Internationality
and diversity strengthen project teams and help to successfully implement projects in
an international context. The use of digital media supports networking, especially
across country borders and time zones. Finally, organizations should allow project
members to return to the line function. Table 9.2 summarizes the main
recommendations (PM, 2018).
9.4 Case Study: CRRC Investing in US Factory
The North American Chicago Transit Authority (CTA) announced that it had
awarded the order to build 846 7000-series rail cars to CRRC subsidiary CSR Sifang
America, which had submitted the most competitive bid in terms of cost, quality,
delivery time, design and other project elements. It did not name the other bidders.
The company, formed from the merger of former rivals CNR Corp and China CSR,
won its first US contract in 2014 when CNR was awarded a $567 million deal to
supply subway trains to Boston. Chicago will first place a base order of 400 cars,
References 129
with options to buy the remainder in the coming years, the CTA said. CSR will build
a new $40 million factory in the city, with the aim of seeing the first cars going into
service in 2020. CRRC undertakes design, manufacture, testing, commissioning and
maintenance of locomotives and rolling stock, including electric locomotives,
diesel-electric and diesel-hydraulic locomotives; suburban and regional transport;
trams and light rail vehicles; metro cars and passenger coaches; as well as full line of
rolling stock cars. This Chinese state-owned rail company’s assembly plant that will
produce up to 846 new rail cars for the Chicago Transit Authority. The project will
return CTA rail car manufacturing to Chicago after a 50-year absence, according to
the city. CRRC Sifang will invest $100 million in building a 380,944-square-foot
manufacturing facility on 45 acres in Chicago’s Hegewisch neighbourhood on the
Southeast Side. Production will begin in early 2019. The facility will begin testing
the new car prototype later that year and the cars will hit the rails by 2020.
References
PM. (2018). Retrieved July 7, 2018, from http://www.pm-handbuch.com/begriffe/
Financial PM
10
Marc Helmold
Enable Action by removing barriers.

John Kotter
10.1 Financial PM
Financial performance is a subjective measure of how well a firm can use assets from
its primary mode of business and generate revenues. This term is also used as a
general measure of a firm’s overall financial health over a given period of time and
can be used to compare similar firms across the same industry or to compare
industries. There are many different ways to measure financial performance, but
all measures should be taken in aggregation. Line items such as revenue from
operations, operating income or cash flow from operations can be used, as well as
total unit sales. Furthermore, the analyst or investor may wish to look deeper into
financial statements and seek out margin growth rates or any declining debt.
Financial performance analysis includes analysis and interpretation of financial
statements in such a way that it undertakes full diagnosis of the profitability and
financial soundness of the business. The financial analyst programme provides vital
methodologies of financial analysis.
10.1.1 Balance Sheet
The balance sheet is a financial statement that reports a company’s assets, liabilities
and shareholders’ equity at a specific point in time and provides a basis for comput-
ing rates of return and evaluating its capital structure as shown in Fig. 10.1. It is a
financial statement that provides a snapshot of what a company owns and owes, as
well as the amount invested by shareholders. It is used alongside other important
financial statements such as the income statement and statement of cash flows in

132 10 Financial PM
Fig. 10.1 Balance sheet.

Source: Author’s own figure.
Marc Helmold
Balance sheet
Fixed Equity
assets capital
Current Long-term
assets liabilities
Intangible and Short-term

other assets liabilities
conducting fundamental analysis or calculating financial ratios. It provides an

overview of how well the company is managing assets and liabilities. Analysts can
find information about long-term vs. short-term debt on the balance sheet. They can
also find information about what kind of assets the company owns and what
percentage of assets are financed with liabilities vs. stockholders’ equity.
10.1.2 P & L Statement
The income statement provides a summary of operations for the entire year. The
income statement starts with sales or revenue and ends with net income. Also
referred to as the profit and loss statement, the income statement provides the
gross profit margin, the cost of goods sold, operating profit margin and net profit
margin. It also provides an overview of the number of shares outstanding as well as a
comparison against prior year performance. Figure 10.2 outlines the P & L statement
with a loss (red) or a profit (green).
10.1.3 Cash Flow Statement
The cash flow statement is a combination of both the income statement and the
balance sheet. For certain experts, the income articulation is the most vital monetary
statement since it gives a compromise between total compensation and cash flow.
This is where analysts can see how much the company is spending on stock
repurchases, dividends and capital expenditures. It also provides the source and
uses of cash flow from operations, investing and financing.
Areas of Financial Performance Analysis:
10.2 Financial Ratios in PM 133
Fig. 10.2 P & L account

(Helmold, 2019). Source:
Profit & Loss account
Revenues Material
expenses
Special Salary
revenues expenses
Other
expenses
Loss Profit
Financial analysts often assess the firm’s production and productivity perfor-
mance (total business performance), profitability performance, liquidity perfor-
mance, working capital performance, fixed assets performance, fund flow
performance and social performance. Financial ratios analysis includes:
1. Working capital analysis

2. Financial structure analysis
3. Activity analysis
4. Profitability analysis
10.2 Financial Ratios in PM
Financial PM ratio analysis is the process of investigating the relationship between

various balance sheet, income statement and cash flow statement accounts. Analysts
may use ratios to investigate these relationships across multiple time periods through
what is commonly called a trend analysis or between various alternative target
companies in what is traditionally labelled a cross-section analysis.
Profitability ratios: measure a company’s ability to generate profitable sales from its
assets.
Liquidity ratios: measure a company’s ability to meet its short-term obligations.
Solvency ratios: measure a company’s ability to meet its long-term obligations.
Activity ratios: measure how efficiently a company performs day-to-day tasks,
e.g. collection of receivables.
Other ratios: measure other important elements in financial PM (asset turnover or
growth rate) (Fig. 10.3).
134 10 Financial PM
Fig. 10.3 Financial PM

ratios. Source: Author’s own Profitability
figure
Other Liquidity
ratios ratios
Activity Solvency
ratios ratios
10.3 Financial Crisis and Symptoms
Financial distress or related financial emergency is a term in finance for a situation in

which an organization faces extreme budgetary issues and battles in satisfying
money-related commitments, for example obligations and credit instalments
(Gabler-Wirtschaftslexikon, 2018). The term is utilized to show a condition when
guarantees to loan bosses of a company are broken or respected with trouble. In the
event that money-related misery can’t be relieved, it will ultimately prompt indebt-
edness. Financial distress is typically associated with certain expenses to the organi-
zation. These are known as expenses of financial distress. Financial distress refers to
a condition in which a company cannot meet, or has difficulty paying off, its
financial obligations to its creditors, typically due to high fixed costs, illiquid assets
or revenues sensitive to economic downturns. Recent examples like the company
Jack Wolfskin show that companies must anticipate and prevent a situation, which
puts the company under stress (Handelsblatt, 2017). A financial crisis can be
prevented and involves immediate actions and related negotiations with stakeholders
like banks, employees, suppliers or investors (Helmold, Dathe, & Hummel, 2019). A
company under financial distress can incur costs related to the situation, such as
more expensive financing, opportunity costs of projects and less productive
employees. Employees of a distressed firm usually have lower morale and higher
stress caused by the increased chance of insolvency, which threatens them to be
forced out of their jobs (Helmold et al., 2019). There are often alarm signals
indicating the upcoming crisis as outlined by various authors (Schmuck, 2013;
Müller, 1986). Alarm signals like decreasing revenues, high operating cost and
low profits usually indicate that a company is not in a good financial health situation
(Schmuck, 2013). Struggling to reach profitability targets over a longer period
indicates a business cannot sustain itself from internal funds and needs to raise
capital externally (Helmold et al., 2019). This raises the company’s business risk and
10.3 Financial Crisis and Symptoms 135
significantly lowers its credit rating with banks, lenders, suppliers or investors
(Schmuck, 2013). Limiting access to funds typically leads to liquidity issues and
results often in a company failing as shown in Fig. 13.1 (four phases model of
Müller). Poor sales growth or decline indicates the market is not positively receiving
a company’s products or services based on its business model. When extreme
marketing activities result in no growth, the market may not be satisfied with the
offerings, and the company may close down. Likewise, if a company offers poor
quality in its products or services, consumers start buying from competitors, eventu-
ally forcing a business to close its doors. When debtors take too much time paying
their debts to the company, cash flow may be severely stretched. The business may
be unable to pay its own liabilities. The risk is especially enhanced when a company
has one or two major customers (Helmold et al., 2019). Müller describes four phases
(see Fig. 11.1): a strategic crisis, a profitability crisis, a liquidity crisis and insolvency
(Müller, 1986; Helmold et al., 2019). Müller describes the strategic crisis as threat to
the potential and substance of a company, which occurs due to inadequate strategies
in terms of differentiation, knowledge, innovation or cost advantages (Schmuck,
2013). In this strategic phase, market needs and elements are not fully taken into
account, so that the foundation of the company is gradually weakening (Helmold
et al., 2019). In this situation, the symptoms are weak, the corrective actions are long
term and the need for actions is rather low compared to the following phases (Müller,
1986). The strategic phase is followed by the profitability crisis, which is
characterized by signs of a weak financial performance in terms of revenues, cost,
cash and profitability (Schmuck, 2013). Signs in this phase are stronger, often
resulting in a loss, struggling to achieve targeted financial ratios or
non-achievement of profit targets (Schmuck, 2013). The third phase is the liquidity
crisis, in which a company is not capable of meeting its financial obligations
anymore (Schmuck, 2013). This situation is severe as the cash situation and balance
is not sufficient to pay the debts. As the credit rating decreases in this phase,
companies tend to borrow money with higher interest rates or to prolong payments
to suppliers, employees or banks where possible (Helmold et al., 2019). The last
phase of the model by Müller is insolvency (Müller, 1986). Insolvency is the state of
being unable to pay the money owed, by a person or company, on time. Those
companies in a state of insolvency are said to be insolvent. There are two forms:
cash-flow insolvency and balance-sheet insolvency. Cash-flow insolvency is when a
person or company has enough assets to pay what is owed, but does not have the
appropriate form of payment. For example, a person may own a large house and a
valuable car, but not have enough liquid assets to pay a debt when it falls due. Cash-
flow insolvency can usually be resolved by negotiation. For example, the bill
collector may wait until the car is sold and the debtor agrees to pay a penalty.
Balance-sheet insolvency is when a company does not have enough assets to pay all
of their debts. The person or company might enter bankruptcy, but not necessarily.
Once a loss is accepted by all parties, negotiation is often able to resolve the situation
without bankruptcy. A company that is balance-sheet insolvent may still have
enough cash to pay its next bill on time. However, most laws will not let the
company pay that bill unless it will directly help all their creditors. For example,
136 10 Financial PM
Impacts on acƟons
Phase 1 Phase 2 Phase 3 Phase 4
Long-term Medium-term Short-term
Insolvency
Space for acƟon

Neeed for acƟons
Liquidity
Profitability Crisis
Strategic crisis
StarƟng crisis
point
weak medium strong

Crisis symptoms
Fig. 10.4 Phases to financial insolvency. Source: Helmold et al. (2019), adapted from Müller’s
four phases model. Müller (1986)
an insolvent farmer may be allowed to hire people to help harvest the crop, because
not harvesting and selling the crop would be even worse for his creditors. In some
jurisdictions, it is illegal under the insolvency laws for a company to continue in
business while insolvent. In others (like the USA with its insolvency law and
Chap. 11 provisions), the business may continue under a declared protective
arrangement while alternative options to achieve recovery are worked out. Increas-
ingly, legislatures have favoured alternatives to winding up companies for good. The
major focus of modern insolvency legislation in many countries and business debt
restructuring practices no longer rests on the liquidation and elimination of insolvent
entities but on the remodelling of the financial and organizational structure of debtors
experiencing a financial crisis so as to permit the rehabilitation and continuation of
their business (Helmold et al., 2019). This is known as restructuring, business
turnaround, financial crisis mitigation or business recovery. Implementing a business
restructuring plan includes various measures and can be described (Fig. 10.4).
10.4 Restructuring and Financial Turnaround Actions
10.4.1 Definition of Restructuring
Restructuring or financial turnaround actions (mitigations) are sets of corporate

activities taken when significantly modifying the debt, operations or structure of a
company as a means of potentially eliminating financial harm and improving the
business. These mitigations require communication and negotiations with all
affected stakeholders as outlined by Helmold et al. (2019). When a company is
having trouble making payments on its debt and financial commitments, it will often
restructure to pay its debts and to improve financial and operational performance
(Helmold et al., 2019). A company restructures its operations or structure by cutting
10.4 Restructuring and Financial Turnaround Actions 137
costs, such as payroll, operations and supplier’s cost, or reducing its size through the
sale of assets. Restructuring is often linked to external experts who help the company
to restructure its operations, performance and financials. Restructuring means to
have the appropriate actions and leads to many discussions and negotiations with
stakeholders like employees, suppliers or customers to fundamentally improve the
financial situation of a company (Schmuck, 2013; Helmold et al., 2019). Due to the
vital significance, restructuring plans must be designed, executed and controlled by
top management (Helmold et al., 2019). Restructuring involves top management and
negotiations with stakeholders (source adapted from Helmold et al., 2019). The four
types of restructuring can be outlined as shown in Fig. 11.2:
• Strategic restructuring
• Structural restructuring
• Restructuring for profit improvements
• Financial restructuring (Fig. 10.5)
10.4.2 Strategic Restructuring
Strategic restructuring is the fundamental change of the structure, business model

and basis of the company. It involves the questioning and reformulation of mission,
vision and long-term strategic objectives. Actions of strategic restructuring often
involve the assessment of existing business models and the redefinition of the
strategic pyramid including mission, vision and strategic objectives (Schmuck,
2013; Helmold et al., 2019). The aim is to gain and secure a sustainable position
at existing or new markets. Actions in this strategic restructure can be the shift into
new business models, expansion into new business regions or entry into new
markets. Actions in restructuring also necessitate the deletion of unfavourable cost
structures and production lines. Moreover, it can include the relocation of existing
manufacturing location to overseas countries. Finally, the concentration on core
competencies, the cancellation of unimportant customer niches and the stoppage
of costly product lines are effective actions in strategic restructuring (Helmold et al.,
2019). Example: Mannesmann AG, a former engineering and steel trading company,
Fig. 10.5 Restructuring

ways for financial turnaround. Strategic Restructuring for
Source: Author’s own figure restructuring profit
improvement
Financial
turnaround
Structural Financial
restructuring restructuring
138 10 Financial PM
had diversified into wireless communication in the 1990s and fixed-line phone
service, redesigning its strategic portfolio and strategy. Mannesmann could hence
increase its value significantly and was later merged with Vodafone (Krahnen &
Schmidt, 2004). Another example are supermarket chains like REWE in Germany,
which entered the other business areas (discount, specialist and deliver service area
or tourism and travel, thus increasing business and wealth) (Rewe, 2015).
10.4.3 Structural Restructuring
Structural restructuring targets the structure of a company and has an impact on

organization and the existing structure. Aligning the organization and realigning
operations lead to more efficient and effective processes (often central, decentral or a
hybrid form) with smoother roles and responsibilities. Structural restructuring is
often pursued from a polycentric management towards a matrix organization and
requires systematic and suitable information systems and controlling structures
(Helmold et al., 2019).
Example: Volvo Truck realigned is organization to a brand-centric organization,
thus improving efficiency and effectiveness (Deal, 2016).
Restructuring for profit improvements targets the revenues and expenses
(Helmold et al., 2019). Actions comprise anything that will increase revenues like
a special sales programme, increased focus on cash cows in sales or deletion of
unprofitable products or services. In addition, the company will take drastic actions
in order to minimize expenses and cost. This is normally all areas of expenses as
shown in Fig. 13.4. Companies are often tackling cost drivers like material, person-
nel or operating cost by global sourcing, outsourcing to shared service centres or the
implementation of lean principles (Helmold et al., 2019). A trend shows that MNC
and SME are concentrating on core competencies and outsourcing products, services
and activities to foreign companies (Helmold et al., 2019).
Example: The Deutsche Bahn (DB) announced a cost reduction programme by
cutting operational cost by 300 million euros from 800 million euros to 500 Million
euros to drastically improve financial performance (Reuters, 2018).
Financial restructuring includes the fundamental improvement of the financial
performance and financial ratios (Schmuck, 2013). Activities include assets
improvements, which can be seen in the balance sheet (see Fig. 13.3), the review
of elements in the profit and loss sheet and cash initiatives. Cash improvements can
be realized through pulling ahead customer payments, advanced revenue income and
as late as possible outflows of payments to employees, suppliers, banks or other
stakeholders (Olfert, 2013, 2015). Late payments to suppliers and other stakeholders
can be negotiated through the agreement of extended payment terms (normally from
30 days to 60 or 90 days).
10.5 Balance Sheet, Profit and Loss and Cash Situation 139
Example: The company Zalando introduced an initiative to extend payment terms

to suppliers to minimum 90 days in order to improve the cash situation (Zalando,
2019).
10.5 Balance Sheet, Profit and Loss and Cash Situation
10.5.1 PM Actions Affecting the Balance Sheet
The balance sheet is a statement of the financial position of a business which states
the assets, liabilities and owner’s equity at a particular point in time. In other words,
the balance sheet illustrates your business’s net worth. The balance sheet may also
have details from previous years so you can do a back-to-back comparison of two
consecutive years. This data will help you track your performance and will identify
ways in which one can build up your finances and see where you need to improve.
One can also use the balance sheet to determine how to meet the financial obligations
and figure out the best ways in which you can use credit to finance the company’s
operations. The balance sheet is the most important of the three main financial
statements used to illustrate the financial health of a business. Figure 11.3 illustrates
the areas of negotiations and how the negotiations influence the situation of the
balance sheet (Olfert, 2013, 2015). A standard company balance sheet has two sides:
assets on the left and financing, which itself has two parts, liabilities and ownership
equity, on the right. The main categories of assets are usually listed first and typically
in order of liquidity. Assets are followed by the liabilities. The difference between
the assets and the liabilities is known as equity or the net assets or the net worth or
capital of the company, and according to the accounting equation, net worth must
equal assets minus liabilities. Another way to look at the balance sheet equation is
that total assets equal liabilities plus owner’s equity. Looking at the equation in this
way shows how assets were financed: either by borrowing money (liability) or by
using the owner’s money (owner’s or shareholders’ equity). Balance sheets are
usually presented with assets in one section and liabilities and net worth in the
other section with the two sections ‘balancing’. In a financial crisis, companies will
sell unnecessary fixed assets like land and real estate, buildings or machines in order
to obtain additional revenues and cash. Investments with a high amount of funding
must be limited to necessary purchases; in some cases, it is possible to lease instead
of purchasing. Secondly, inventories and supplies (assets) must be evaluated.
Inventories must be reduced or fully eliminated, so that any associated cost of
working capital can be reduced. A recommendation in this context is the agreement
of vendor-managed inventories (VMI), in which the suppliers (vendors) take care of
their inventories. Vendor-managed inventory (VMI) is a supply chain management
(SCM) and logistics tool, in which a supplier of goods, usually the manufacturer, is
responsible for optimizing and managing the inventory held by himself or a ware-
house attributor (Helmold & Terry, 2016). VMI requires a communication link,
usually typically electronic data interchange or Internet platforms, which provides
the supplier with the customers’ sales figures and forecasts. Based on forecasts, the
140 10 Financial PM
suppliers keep and own the inventory until the goods are called off by the customer.
The benefits of a vendor-managed inventory system include better inventory accu-
racy, forecasting and service (Helmold & Terry, 2016). Other assists like patents,
intellectual proprietary rights or brand names can be liquidated into cash to help
improve the financial situation. An example is the Ford Motor Company, which
faced financial distress in 2006. Ford had to get a life-saving loan by providing the
rights of the Ford logo to investors to receive money (Vlasic, 2012). The other side
of the balance sheet contains equity capital, which are shares and loans. In this area,
companies have to negotiate with investors on additional investments or shares. The
banks play an important role when negotiating on loan conditions, repayments or
shifting short-term debts into long-term debts (Helmold et al., 2019). In many cases,
companies also pay their invoices from suppliers or salaries later in order to improve
the balance sheet (Helmold et al., 2019) (Fig. 10.6).
10.5.2 Negotiations Affecting the Profitability: P & L Account
The profit and loss account (P & L statement or account) or company statement is a
financial statement that summarizes the revenues, costs and expenses incurred
during a specified period. The P & L account provides information about a
company’s ability or inability to generate profit by increasing revenue, reducing
costs or both. Some refer to the P & L statement as a statement of profit and loss,
income statement, statement of operations, statement of financial results or income,
earnings statement and expense statement. Figure 11.4 shows a P & L account
including revenues (left side) and cost or expenses of the company (right side)
(Olfert, 2015). Revenues contain sales or special revenues from activities that are
not directly linked with the business of the company. Expenses normally include
material expenses, salary expenses and other expenses (Olfert, 2015). The trend to
concentrate on core competencies leads in many organizations to a high portion of
material expenses (Fig. 10.7).
Figure 11.5 outlines the way restructuring is aimed at improving the revenue
situation with a parallel reduction of expenses in order to become profitable (profit in
green). Cost reduction initiatives target elements for which the customer is not
willing to pay. These elements are described as waste and must be eliminated or
reduced. The cost emphasis focuses therefore on the efficiency of the firm’s pro-
cesses. General cost reduction efforts (e.g. lean management, downsizing) do not
necessarily improve efficiency, but quality efforts that reduce costs always
do. Successful programmes tend to increase the productivity of quality efforts by
reducing the input (labour and materials) required to produce a unit of output. These
improvements can be incremental (continuous improvement) or discontinuous (pro-
cess reengineering). In either case, the focus is internal and the goal is to reduce
costs. Customer satisfaction improvements are sought only indirectly, through such
results as increased reliability or lower prices. Cost reduction programmes thus
transfer their savings to the bottom line directly and can be applied to all areas of
the value chain (Fig. 10.8).
10.5
Balance sheet
• Land & real-estate • Common stock
• Buildings • Retained earnings Equity
Fixed • Machines • Acumen
assets • Vehicles
Fixed Equity • Other earnings
capital
• Equipment
assets capital
• Loans payable
• Cash • Notes payable Long-
Current • Money Current Long-term • Bonds payable
•Inventory
term
• Long-term payables
assets •Supplies assets liabiliƟes liabiliƟes
Balance Sheet, Profit and Loss and Cash Situation
Intangible and Short-term • Notes payable

• Trade names Short-
• Accounts payable
Other • Goodwill other assets liabiliƟes • Wages payable term
• Patents
assets • Interest payable liabiliƟes
• Rights
Fig. 10.6 Balance sheet. Source: Author’s own figure

141
142
Profit & Loss account

• Sales programme • Make/buy
• Marketing • Global sourcing Equity
Revenues • Intern. Markets Material • Outsourcing
• Services • Negotiations
capital
Revenues expenses
• Restructuring
• Sale of shares Long-
• Investments stops Special Salary •Reorganisation
Special • Centralisation
• Sale of buildings term
revenues • Sale of fixed assets revenues expenses • Service Centres
• Lease back liabilities
Other • Shared service

• Cost reductions
Short-
Loss
Loss expenses term
Reduce • Travel cost
• Vehicle cost liabilities
10
Fig. 10.7 P & L account with improvement actions. Source: Author’s own figure
Financial PM
10.6 Recommendations for the Turnaround 143
Fig. 10.8 Profit

improvements. Source:
Author’s own figure Profit & Loss account
Increase Reduce
Revenues expenses
Loss Profit
Actions for profitability improvements can contain numerous activities through-

out the value chain of a company. Most effective actions normally occur in the area
of material, design, sales or personnel cost as outlined in Table 11.2 (Table 10.1).
Revenues must be increased by the sales and marketing function through
negotiations with suppliers (Table 10.2).
10.5.3 PM Actions Affecting the Cash Situation
The cash flow statement is a tool which shows the movements of cash and cash
equivalents in and out of the business. Companies must have a good cash situation as
chronic negative cash flows are symptomatic of troubled businesses (Olfert, 2013,
2015). On the sales side, it is recommended to negotiate on advanced and early
payments via marketing and sales management, whereas on the supply side the
procurement function must negotiate standard and longer-term payment terms,
e.g. 60 or 90 days after receipt of goods. In severe cases, it is also possible to
negotiate with banks, investors or employees on later payments of repayments,
dividends or salaries (Helmold et al., 2019). All actions need to be thoroughly
taken into account, including positive and negative effects (Schmuck, 2013).
10.6 Recommendations for the Turnaround
10.6.1 Strategic Turnaround and Restructuring
Restructuring the business offers many advantages to companies to achieve success-

fully a turnaround in financial performance as outlined by Helmold et al. or Schmuck
(Helmold et al., 2019; Schmuck, 2013). A company can face new opportunities by
realigning and restructuring business models and organizations. A restructuring plan
144 10 Financial PM
Table 10.1 Cost reduction initiatives

Cost area Action and area of negotiation Generic strategy
Material and purchase Material cost savings through commercial Commercial savings
cost negotiations
Material and purchase Material cost savings through global Global sourcing
cost sourcing
Material and purchase Material cost savings through economies Economies of scale
cost of scale and bundling
Material and purchase Material cost savings through improved Logistics optimization
cost logistics management
Material and purchase Material cost savings through value Value engineering
cost engineering
Engineering and Engineering offshoring to best cost Outsourcing, offshoring
design cost countries
Engineering and Optimum design and target costing Design-to-cost
design cost
Operational and Lean production services Just-in-Ttme (JIT)
production cost production system
Operational and Shifting production to foreign operations Internationalization
production cost
Operational and Deciding to outsource labour-intensive Make or buy
production cost processes
Operational and Increasing efficiency through machines Automatization
production cost and robots
Personnel cost Reducing total amount and budget of Optimization of work
salaries and wages force
Personnel cost Reducing head count reduction Organizational
alignment
Personnel cost Shifting services to shared service centres Outsourcing, offshoring
Marketing and sales Reducing marketing and advertising cost Advertising
cost
Marketing and sales Optimization of distribution cost Distribution
cost
Marketing and sales Closing unprofitable niche markets Downsizing
cost
Stationaries Suspension of any new orders Elimination
Training cost Eliminating all training cost. Introducing Train-the-trainer
train-the-trainer concept
Energy cost Reducing waste, recycling and disposal Sustainability
cost
Inventories Shifting to inventory to suppliers and VMI
customers
Cost for buildings and Selling buildings and leasing back Lease back
maintenance
Source: Author’s own table, adopted from Helmold et al. (2019)
Table 10.2 Revenue increase initiatives

Revenue increase Action and area of negotiation Strategy
Sales programmes Approaching existing customers Sales promotion
to buy more
Additional products and Adding new products and Value add extension and
services services growth
Adding new products Designing and selling new Diversification
and services products
Entering new markets Moving to foreign markets like International market growth
China
Approaching new target Considering new customer Market growth and customer
groups groups segmentation
Source: Author’s own table, adopted from Helmold et al. (2019)
must incorporate detailed financial ratios, which affect positively balance sheet,
profit and loss account and the cash situation.
An integral part of restructuring is the process to bring in all key stakeholders as
necessary to increase the effectiveness of the turnaround plan (Helmold et al., 2019).
10.6.2 Involve a Specialist
Restructuring necessitates knowledge and the urge of actions which improve the
financial side of the company quickly (Schmuck, 2013). If a company struggles with
debt management issues or serious cash flow pressures of any sort as a business, then
it is strongly recommended by various authors to get external support to get
specialist advice on the most essential subjects at key moments. Impartial expert
advice is always available and for companies in distress, third-party support and
guidance for directors can make a huge difference for the better (Schmuck, 2013).
10.6.3 Taking All Financing Options Available
Even if your company’s credit rating is not great or you’ve been rejected for loans by
mainstream lenders, there are other finance options available that might be able to
help you overcome your funding problems.
Increasingly popular alternative funding solutions include invoice factoring and
discounting, while asset financing and refinancing are other options well worth
considering. Crowdfunding and peer-to-peer lending are also major growth areas
at present, with both markets adding valuable variety to the funding equation for
small companies with big ideas.
146 10 Financial PM
10.6.4 Liquidation of Unnecessary Assets
When your business is facing significant financial problems, then it could be that you
will need to take drastic action. Liquidating assets that are not fundamental to the
way your company operates can help raise cash and open up the prospect of
satisfying creditors and overcoming the worst of your debt-related issues.
It is important to be clear in understanding precisely what is and isn’t essential to
your business in terms of tangible assets. Arriving at decisions on these points will
likely require careful consideration but by liquidating equipment, tools, vehicles,
inventory or property assets, you can give your company a potentially vital lifeline as
you look to climb out of debt and move towards sustainability.
10.6.5 End Non-essential Relationships
The reality is that when your company is under severe financial pressures and one’s
are debts are mounting up, tough decisions have to be made in the longer-term
interests of your business.
It could be that long-serving employees have to be let go and relationships with
trusted suppliers have to end. From the perspective of directors, this can be a difficult
process but, where the alternative is your company going out of business entirely, it
is preferable and advisable to take that kind of tough choices before they are out of
your hands entirely.
10.6.6 Case Study: Tesla Financial PM
For any organization, performance management plays an important role in monitor-

ing and ensuring that the organization meets all of its prescribed goals and targets, as
well as in communicating these achievements effectively to its key external
stakeholders. In the case of Tesla, the company imposes various techniques and
measurement to keep track of the company’s performance, which is primarily based
on productivity. For example, the company measures its manufacturing performance
based on the number of cars produced a day; for the customer service division, it
considers the number of inquiries resolved, emails answered and complaints han-
dled. In addition, Tesla also establishes key performance indicators (KPI) to monitor
its production and inventory and generally assess the success of achieving the goals
within the predetermined duration. In fact, for prospective managers at Tesla Inc.,
familiarity and experience with applying and monitoring KPIs for a particular area
are not just huge advantages but also part of job responsibilities. Tesla’s key
stakeholders include its investors, directors, employees, suppliers, shareholders,
partners, the government, financial institutes and the public. Communicating perfor-
mance to these entities is not limited to disclosing the company’s financial reports
but also informs them about the company’s visions, strategies, targets, milestones,
key issues and major accomplishments.
Tesla Motors Inc. has maintained regular and efficient communication with its
stakeholders. The company publishes its annual report on its website, disclosing key
financial data, the company’s strengths and values, potential risk factors, its
products, services, network and infrastructures and other important information.
The company also communicates with its stakeholders by organizing annual
meetings for its stockholders with webcasts for those who cannot attend in person,
Q&A conference calls to share the company’s quarterly financial results and factory
tours for those who want to have a closer look at the company’s manufacturing and
operations. The company also manages its own blogs and official pages on social
media websites including Facebook and Twitter to keep stakeholders abreast of the
company’s latest developments and achievements.
In case some major crisis happens, the company also responds very promptly to
keep the crisis under control. For example, when a video showing a Tesla Model S
catching fire went viral on YouTube in 2013, Elon Musk, Tesla’s CEO, quickly
shared a post on the company’s blog to explain the reasons behind the accident,
regain customers’ trust in Tesla’s vehicles and reaffirm the company’s potentials
with the investors.
There are various financial data a company can reveal to the public and its
stakeholders, communicating different aspects of its financial performance and
financial viability. As for Tesla, with regard to the market niche of electric vehicles,
all of its vehicle models released so far have remained the best-selling electric car
models around the world. In December 2016, Tesla sold nearly 190,000 electric
vehicles in all markets, making Tesla the second largest global pure electric car
manufacturer across the globe. The forthcoming Tesla Model 3, which is expected to
come out in 2018, promises another successful product for Tesla with more than
400,000 pre-orders through sales on the company website. Tesla conducted its IPO
on NASDAQ exchange in 2010 with an initial price per share of USD 17, and it sold
out more than 13 million shares almost overnight. As of today, its share price
skyrocketed to USD 325, up nearly 20 times compared to its starting price.
As impressive as its increasing trend of its share price and sales revenue, Tesla
Motors Inc.’s financial statement for the year of 2016 showed that the company
experienced a loss of USD 674 million, resulting in negative earnings per share of
USD 4.5. Similarly, its estimated P/E ratio for the year 2017 is USD 42.71.
That these two important ratios are negative might raise serious concerns among
Tesla’s investors. Nonetheless, the company attributed most of its loss to its enor-
mous spending on research and development to achieve its ambitious growth and
production plan, and it expected to recoup these investments soon.
148 10 Financial PM
References
Deal, L. (2016). Volvo Group restructuring to brand-centric organization. Retrieved January
5, 2019, from https://www.successfuldealer.com/volvo-group-restructuring-to-brand-centric-
organization/
Gabler-Wirtschaftslexikon. (2018). Unternehmenskrise. Retrieved May 26, 2018, from https://
wirtschaftslexikon.gabler.de/definition/unternehmungskrise-49331
Handelsblatt. (2017). Handelsblatt. 13.01.2017. Finanzielle Zukunft Gläubiger verschaffen Jack
Wolfskin Luft für Verhandlungen. Die Verhandlungen über die Zukunft Jack Wolfskin haben
begonnen. Um die zu vereinfachen, verzichten die Banken vorerst auf die Rückzahlung von
Krediten. Finanzinvestor Blackstone bangt um die Kontrolle des Unternehmens. Retrieved May
26, 2018, from http://www.handelsblatt.com/unternehmen/handel-konsumgueter/finanzielle-
zukunft-glaeubiger-verschaffen-jack-wolfskin-luft-fuer-verhandlungen/19247752.html?
ticket¼ST-874329-5m5EZ42jWMfXaeA6SVbH-ap2
Helmold, M., & Terry, B. (2016). Liefeantenmanagement 2030. Sicherung der
Wettbewerbsfähigkeit durch Wertschöpfung in globalen und digitalen Märkten. Wiesbaden:
Springer.
Krahnen, J. P., & Schmidt, R. H. (2004). The German financial system. Oxford University Press.
Retrieved January 5, 2019, from https://books.google.de/books?id¼NS_oCwAAQBAJ&
pg¼PA267&lpg¼PA267&dq¼financial+times+mannesmann+diversifying
+telecommunications&source¼bl&ots¼EbK16_LA5U&
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%20mannesmann%20diversifying%20telecommunications&f¼false
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Organisation. Bern: Peter Lang Verlag.
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growth. Rewe corporate communications group. Retrieved January 5, 2019, from https://
www.rewe-group.com/en/newsroom/press-releases/1420
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on new cuts. Retrieved January 5, 2019, from https://www.reuters.com/article/brief-deutsche-
bank-2018-restructuring-c/brief-deutsche-bank-2018-restructuring-costs-to-rise-to-800-mln-
from-500-mln-on-new-cuts-idUSF9N1L900W
Schmuck, M. (2013). Financial distress and turnaround. An empirical analysis of the automotive
supplier industry. Wiesbaden: Springer.
Vlasic, B. (2012). Prized logo is returned to ford. The blue oval is back home. New York Times.
Retrieved January 6, 2019, from https://www.nytimes.com/2012/05/23/business/a-prized-logo-
is-returned-to-ford.html
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January 5, 2019, from https://eprocurement.zalando.com/wp-content/uploads/2017/04/
Zalando-SE-General-Conditions-of-Purchase-for-Indirect-Purchase.pdf
PM in NGO and NPO
11
If you have built castles in the air, your work need not be lost;
that is where they should be. Now put the foundations
under them.
Henry David Thoreau
11.1 PM in NGOs and NPOs
11.1.1 Definition of NPOs and NGOs
Non-profit organizations (NPO) and non-government organizations play an impor-

tant role in today’s society. The terms NPO and NGO (non-government organi-
zation) are also often used interchangeably, but in fact both definitions have different
meanings. The NGO is any non-profit, voluntary citizens’ group which is organized
and registered on local, national or international levels. NGOs are separate from
government and require no government council but normally depend on the govern-
ment for funding or on the international funding especially in the case of developing
countries. The NGO is a citizen-based association that operates independently of
government but under certain rules or regulations set by the state, usually to provide
a beneficial service to the community or serve some social or political purpose. The
World Bank classifies NGOs as either operational NGOs, which are primarily
concerned with development projects, or advocacy NGOs, which are primarily
concerned with promoting a cause (World Bank, 2019). The International Standards
Organization (ISO) is a non-governmental organization. As such, its standards are
voluntary, but many of its member institutes are part of the governmental structures
of their countries, and ISO standards have found their way into many laws. Infor-
mation technology professionals, for example, are probably familiar with the
ISO/IEC 27000 series of standards for IT security management. The NPO, also
defined as non-business entity, not-for-profit or non-profit institution, aims to

150 11 PM in NGO and NPO
advocate and promote a particular social cause. There are numerous NPOs in
Germany listed in Wikipedia (e.g. German association for flag protection—
Wikipedia, 2019). In contrast to enterprises, NPOs are not focusing on maximizing
profits. In economic and business terms, the NPO is an organization that uses its
surpluses and earnings for further activities to achieve the socially grounded
objectives, rather than paying a dividend to its owners and shareholders (Gabler
Wirtschaftslexikon, 2019). Due to the charity focus, NPOs have therefore tax
exempts or advantages, which mean they do not pay the same taxes as companies
(Gabler Wirtschaftslexikon, 2019). NPOs operate in all kinds of environments like in
religious, scientific, research or educational setting areas.
11.1.2 Characteristics and Objectives of NPOs
The key elements of NPOs are accountability, trustworthiness, honesty and openness
to every person who has invested time, money and faith into the organization. As the
NPO is not aiming to maximize profitability and to return dividends to the
shareholders, it is important to have credibility and accountability that money and
funding is used in the right way to fulfil the social purposes of the NPO. Non-profit
organizations are dependent on people, organizations and governments to obtain
support by donors, funders, volunteers, program recipients and the public commu-
nity. Public confidence is a factor in the amount of money that a non-profit organi-
zation is able to raise. The more non-profits focus on their mission, the more public
confidence they will have, and as a result, more money for the organization. NPO
must therefore achieve public confidence. NPOs can be classified as follows
(Wikipedia, 2019):
BINGO (business-friendly international NGO or big international NGO); the Red

Cross is one example of a BINGO.
ENGO (environmental NGO); the World Wildlife Fund is one example of
an ENGO.
GONGO (government-operated NGO), by definition not an NGO but an organi-
zation created by a government to resemble an NGO to further some agenda.
INGO (international NGO); Oxfam is one example of an INGO.
QUANGO (quasi-autonomous NGO), an NGO which may have some governmental
members; the ISO is one example of a QUANGO.
RINGO (religious international NGO); the Catholic Relief Services is one example
of a RINGO.
Other NGO acronyms include DONGO (donor organized NGO), TANGO (tech-
nical assistance NGO) and MANGO (market advocacy NGO).
NPO’s challenges primarily stem from lack of funding. Funding can either come
from within the organization, fundraising, donations, or from the federal govern-
ment. When cutbacks are made from the federal government, the organization
suffers from devolution. This term describes when there is a shift of responsibility
11.2 Case Study: Bürgeramt to Excellence (Bü2E) 151
from a central government to a local, subnational authority. The shift is due to the
loss of funds, therefore resulting in changes of responsibilities in running
programmes. Because of this frequent challenge, management must be innovative
and effective in the pursuit of success.
11.1.3 Characteristics and Objectives of NGOs
The NGOs are non-profit-focused group which are organized on local, national or
international levels. The purpose to establish an NGO normally has the background
to support a social purpose or special idea. NGOs have specific aims:
Empowering community-based organizations (CBOs) and the poor among the rural
communities to use impact monitoring for project management and thus
contributing to the sustainability of their project activities.
Empowering NGOs to further improve the effectiveness, impact and sustainability
of their efforts by identifying best tools for impact monitoring and evaluation and
best practices in the area of savings and credit.
Making social changes more visible in implementing and funding NGOs, thus
improving the development policy work.
Improving public recognition of NGOs and CBOs and their contribution to
development.
11.2 Case Study: Bürgeramt to Excellence (Bü2E)
There are numerous studies that measure the performance of government

organizations towards excellence with regard to private sector institutions. The
vast majority of these studies focus specifically on the features and processes of
government institutions. However, this study aims to analyse the reality of the
Bürgeramt (English: city hall or town hall) as a governmental organization in the
Republic of Germany, an organization which provides various services for German
citizens where some 82.79 million people live according to the 2017 census
(Wikipedia, 2019) and served by these organizations. This study examines the
ability of the Bürgeramt to progress in six areas of excellence referred to by
international standards as compared to the private sector. Furthermore, this study
will refer to the Bürgeramt in city in Germany as a case study throughout in order to
be more specific. There are several important factors that create tremendous pressure
for the public sector, not only due to actual spending but also due to the absence of
strategic leadership and poor performance management practices (Tilly & Smart,
2018). Performance measurement has been a main operator in public sector in recent
years (Greiling, 2005). It is one of the focal portraits of ‘reinventing the government’
movement (Gianakis, 2018). There is some consensus within the relevant literature
that the German public sectors’ organizations can be viewed as a late starter in
performance measurement. This case study was therefore designed, as a response, to
examine the use of performance measurement in German government institutions,

especially those providing services to citizens such as the Bürgeramt. As public
organizations possess a distinct structure combined with a strong capacity, it should
perform to a certain level of excellence according to citizen perspectives. The
question is therefore: ‘What motives public sector organizations in Germany to
strive towards excellence through Performance Measurement?’
The case of the Bürgeramt is a clear gab between the employee’s perspectives and
the client’s perspectives as shown in Fig. 11.1. The perspectives of the employees
vary between excellence and best practices, whereas the clients’ perspectives,
mainly, vary between standard performance. This reflects the optimism of the
employees of Bürgeramt in the German example as they are more satisfied with
the performance of their departments. In particular, the employees are aware of the
plans and the timelines of improving and developing further services in an innova-
tive way. On the other hand, the clients of Bürgeramt are satisfied on a standard level
as they have more expectations from Bürgeramt as a public organization; the
researcher attributes that to the need of the clients of distinct especially with the
prices of the services provided by the public organizations where the clients as
citizens shall be distinguished in providing the service to the non-citizen, since the
citizens are the taxpayer. There is kind of awareness among interviewees of the need
for accountable and transparent public organizations where the employees are highly
committed to the legal frame and the clients are referring to the public organizations
as owned by the public. However, referring to Fig. 11.1 shows that all interviewees
grade the categories of PM between best practice and excellence; the researcher
Fig. 11.1 Performance

evaluation of the Bürgeramt.
Source: Samara (2018)
Excellence 1-2
Best pracƟce 2-3
Standard 3-4
Laggard: 5-6
Quality
1
Accountability 3 Cost
5
Transparency Delivery
InnovaƟon
11.2 Case Study: Bürgeramt to Excellence (Bü2E) 153
attributes that to the fact that Bürgeramt are making real progress in providing their
services on the whole value chain including the input, process and the output.
As a conclusion, the Bürgeramt has the chance to reach the excellence level on all
six PM categories if they manage to overcome the challenges with the IT department
to cope with the future plans that will improve the internal process and delivering the
services to their clients, especially that the staff of Bürgeramt are highly trained to
operate different task professionally. The capacity and the cooperation of the team
can strive towards excellence. Technology can be a tool used for better performance.
However, IT obstacles and the errors that occur at the data centre can create serious
obstacles in implementing and developing new ways to proceed their activities and
programmes. Based on the collected and analysed data in this study, the researcher
decided to provide recommendations depending on practical approach besides the
theoretical approach. Due to the complex internal and external environments of
public organizations, elected officials, members of parliament, managers of
organizations, civil officials and citizens have different expectations and demands
from performance management (Lin & Lee, 2011). Based on the case, there are some
generic recommendations for Bürgeramter in Germany:
Concepts and trainings: The former literature approved that there is different under-
standing of the performance indicator concepts. Moreover, the results of this
study show the lack of knowledge of some interviewees of the main six categories
used to examine in this research. Therefore, there is a need to improve the
definitions through conducting training to ensure that all employees have the
same understanding of the definitions.
Parker and Waller indicate that the PM tools and systems approved its contribution
to the public organizations; as it can detect the weaknesses and act up on the
collected data through the system, it helps to improve the operational level.
Where Sanderson (2001) emphasized that PM can improve the accountability
and transparency through regular performance measurement. Based on that,
Bürgeramt in Freiburg should introduce new PM tools to prepare the office to
strive towards excellence as these research results make evident that Bürgeramt in
Freiburg has the capacity to strive for excellence through using the right tools and
the professional external experts to support the process.
Referring to the Radar, it shows that PM categories specify between excellence and
best practices. This is a clear indicator that Bürgeramt in Freiburg has
implemented successful ideas that should be shared and disseminated to the
other Bürgerämter. This relates to the overall benefit of how to use data resources,
reduce overhead and avoid multiple entries (Becker, 2006). Success of ongoing
projects increases employee and organization performance in general.
The researcher recommended to the Bürgerämter in Germany to implement
Bürgeramt to Excellence Program (Bü-2-E). This term is created by the
researcher and which developed while conducting this research in discussions
with the research’s supervisor; the program aims to prepare Certified Public PM
Experts in Bürgeramt that can strive for organizational excellence through per-
formance measurement.
Referring to Aguinis (2013), facilitating the comparison among similar

organizations to indicate which areas should be addressed to improve, it is a call
for sharing and exchanging the experiences between Bürgerämter in Germany at the
level of operations. The selected offices highlight responsibility, documentation and
modelling of exchange results with other municipalities (Becker, 2006), allowing for
the dynamic exchange of experiences between directors of citizen offices and the
possibility of providing such solutions in other departments as well as where
managers can identify challenges that are often better in the network.
References
Aguinis, H. (2013). Performance management. Edinburgh: Edinburgh Business School.
Becker, J. (2006). Das Bürgerbüro als Integrationspunkt: Stand und Perspektiven der Verzahnung
von Frontoffice und Backoffice in Bürgerbüros von NRW-Kommunen Eine Studie im Auftrag
des Informationsbüros d-NRW. Retrieved from https://www.d-nrw.de/fileadmin/user_upload/d-
NRW_Dateien/Informationsbuero/studie_d-NRW_Front-Backoffice.pdf
Gabler Wirtschaftslexikon. (2019). Non-profit organisation. Retrieved March 7, 2019, from https://
wirtschaftslexikon.gabler.de/definition/nonprofit-organisation-npo-39562
Gianakis, G. (2018). The promise of public sector performance measurement: Anodyne or placebo?
Florida: SPAEF.
Greiling, D. (2005). Performance measurement in the public sector: The German experience.
International Journal of Productivity and Performance Management, 54(7), 551–567.
Lin, J., & Lee, P. (2011). Performance management in public organizations: A complexity per-
spective. IPMN International Public Management Review, 12(2). http://journals.sfu.ca/ipmr/
index.php/ipmr/article/view/103/103
Samara, W. M. K. (2018). Performance excellence in public organisations. Bürgeramt case study.
M.L.M. thesis. Berlin: IUBH.
Sanderson, I. (2001). Performance management, evaluation and learning in ‘modern’ local govern-
ment. https://onlinelibrary.wiley.com/doi/pdf/10.1111/1467-9299.00257
Tilly, C., & Smart, V. (2018). New public sector performance management: Making fiscal consoli-
dation smarter. Discussion Paper. Chartered Institute of Management Accountants. Retrieved
from https://www.cimaglobal.com/Documents/Thought_leadership_docs/New%20public%
20sector%20performance%20management.pdf
Wikipedia. (2019). NGO and NGO. Retrieved March 7, 2019, from https://de.wikipedia.org/w/
index.php?title¼Kategorie:Non-Profit-Organisation&pageuntil¼Fair+Wear+Foundation#mw-
pages
World Bank. (2019). Working with NGOs: A practical guide to operational collaboration between
the World Bank and nongovernmental organizations (English). Retrieved March 7, 2019, from
http://documents.worldbank.org/curated/en/814581468739240860/Working-with-NGOs-a-
practical-guide-to-operational-collaboration-between-the-World-Bank-and-nongovernmental-
organizations
PM in Human Resources
12
You can never cross the ocean until you have the courage to
lose sight of the shore.
Andre Gide (1869–1951)
12.1 PM Functional Elements Human Resources
Human resources (HR) is a support function alongside the value chain and deals with
people, jobs and the organization. Its contribution to the overall strategy and
activities of the company lies in creating the appropriate HR strategy, the organiza-
tional set-up, the designing of individual or group jobs, the interaction with
stakeholders (e.g. unions, workers council), the design of the work environment
and the allocation of working times. Daily job duties of human resources specialists
include preparing or updating employment records related to hiring, transferring,
promoting and terminating; explaining human resources policies, procedures, laws
and standards to new and existing employees; and ensuring new hire paperwork is
completed and processed (Slack et al., 1995, 2013). Human resources managers
plan, direct and coordinate the administrative functions of an organization. They
oversee specialists in their duties, consult with executives on strategic planning and
link a company’s management with its employees. The role of human resources
consists of six tasks as shown in Fig. 12.1.
12.2 Leadership and Management
Leadership is the tool of managers for motivating a group of people or individuals to

act towards achieving a common goal and optimal performance in an organization.
In a business setting, this can mean directing workers and colleagues with a strategy
to meet the company’s needs. Effective leadership is based upon participation,

156 12 PM in Human Resources
Fig. 12.1 Tasks in human

resources. Source: Author’s Understand
own figure organization
design
Contribute to
Design the
human
working
resource
environment
strategy
People, jobs and organisation
Design Act as
individuals and interface to
group Jobs stakeholders
(unions, worker´s council)
Allocate work
times
enablement and engagement. The Tannenbaum and Schmidt Continuum is a simple

model of leadership theory which shows the relationship between the level of
freedom that a manager chooses to give to a team and the level of authority used
by the manager as shown in Fig. 12.1 (Tannenbaum & Schmidt, 1958). The
Tannenbaum and Schmidt Continuum recognizes that the chosen leadership style
depends on a variety of factors, including the leader’s personality and the perceived
qualities of subordinates. It also allows for ‘situational’ factors such as the need for
urgency in leadership and decision-making (Tannenbaum & Schmidt, 1958). The
continuum represents a range of action related to the:
Degree of authority used by the leader or manager

Area of freedom available to non-managers
Four main styles of leadership are identified in the Tannenbaum and Schmidt
Continuum of Leadership:
1. TELLS: Leader identifies problems, makes decision and announces to

subordinates; expects implementation.
2. SELLS: Leader still makes decision, but attempts to overcome resistance through
discussion and persuasion.
3. CONSULTS: Leader identifies problem and presents it to the group. Listens to
advice and suggestions before making a decision.
4. JOINS: Leader defines the problem and passes on the solving and decision-
making to the group (which manager is part of) (Fig. 12.2).
12.3 Increasing PM in Human Resources 157
Management-centred leadership Employee-centred leadership
Manager
allows team
Manager asks to develop
group to options and
Manager make decision to decide on
presents within set actions
problem. limits and defined.
Manager Obtains
presents framework.
suggestions,
Manager tentative then makes a
presents ideas decision decision. Joins
Manager and asks subject to
makes questions change Joins
Manager decision and about it
makes sells it to the Consults
decision and employees
informs staff Consults
about it
Consults
Sells
Tells
Participation of employee - Participation of employee +
Fig. 12.2 Leadership styles according to Tannenbaum and Schmidt. Source: Marc Helmold,
adjusted from Tannenbaum and Schmidt
12.3 Increasing PM in Human Resources
Job enrichment, job rotation and job empowerment are three examples of ways
employers try to make jobs more satisfying. Whereas job enlargement adds broader
responsibilities to a position, job enrichment gives the employee more vertical
authority. The objective is to give an employee more personal accountability for
the work that he does. By doing so, the employer hopes that he feels more of a sense
of self-worth from his role in the business.
Empowerment: Employee empowerment creates a working environment in which

the employee assumes or shares ownership of specific tasks and projects. Ideally,
this empowerment increases the employees’ sense of responsibility, enhances
their morale and improves the quality of the work product. Granting more power
creates employees who are more invested in the company and its success.
Enrichment: Job enrichment is a common motivational technique used by
organizations to give an employee greater satisfaction in his work. It means
giving the employees additional responsibilities (e.g. quality checks), previously
reserved for his manager or other higher-ranking positions. In essence, an
enriched job gives the employee more self-management in his duties.
Rotation: A job design technique in which employees are moved between two or
more jobs in a planned manner. The objective is to expose the employees to
different experiences and wider variety of skills to enhance job satisfaction and to
cross-train them.
158 12 PM in Human Resources
12.4 Case Study: Google Employee PM Reviews
When it comes to unprecedented scale of success and growth, one company reigns
supreme: Google. Started as a research project in 1996 by then PhD students Larry
Page and Sergey Brin at Stanford University, Google has become a multinational
technology company with industry leadership in Internet-related services and
products. Between its foundation as a company in 1998 and now, Google has
gone through many transformations (the most recent one of which is its reorganiza-
tion as a holding company named Alphabet Inc.). But one thing remained a constant
at the Internet giant: its commitment to employee satisfaction and engagement.
Google’s commitment to its employees can explain why the company has topped
the Great Place to Work list in 2013 and 2014, and it has remained in the top 5 in the
preceding years. A closer look reveals another important factor in this victory:
Google’s carefully constructed and truly nurturing performance management sys-
tem. Performance reviews are customized to provide great results for Google’s smart
creative. Senior Vice President of People Operations Laszlo Bock provides great
learning about their performance management in his book titled Work Rules.
Googlers first identify a group of peer reviewers for each employee, which also
includes co-workers who are junior to them. Google has abolished numerical ratings
in April 2014, so each Googler is now subjected to a five-point scale ranging from
‘needs improvement’ to ‘superb’. Carried out semi-annually, peer reviewers are
asked to state one thing the reviewer should do more of and one thing that they
can do in a different way. After the feedback cycle, managers come together to take a
look at these peer reviews. The main aim is to prevent bias in feedback by asking
each manager to justify their decisions to each other. Managers are informed about
potential obstacles to objective feedback, one of which is the tendency to overem-
phasize an employee’s most recent performance. By keeping these obstacles in
mind, managers decide on the final evaluation of an employee. Summaries of
these assessments are shared semi-annually and compared to a set of examples to
justify the evaluation. Employees are then informed of their compensation, but
compensation is decided separately from the evaluation taking place during the
reviews. Google keeps pay discussions separate from peer feedback with an aim to
provide the right motivation to their employees, which is to grow and contribute to
Google’s success.
Learnings
A research done by Edward L Deci, a Professor of Psychology at the University of
Rochester, sheds light on the effects that two types of motivation have on achieving
goals. Desi’s research indicate that when someone is motivated using an external
reward such as money, their motivation tended to decrease. By contrast, when they
are motivated by verbal reinforcement and positive feedback, their motivation
increased. This is in line with what Google pursues with its performance manage-
ment. Bock et al. understand the importance of motivating their smart creative with
right initiatives and provide enough freedom for their ideas to flourish and become
the next big thing at Google. The ultimate goal of performance management systems
References 159
should always be retaining talented employees by keeping them fulfilled and

enabling their growth. Google seems to get it right with its carefully thought
performance management. A vital part of why performance management works
well at Google is its transparency. The company keeps performance data of everyone
accessible—including the CEOs Page and Brin. This way, Google manages to
increase credibility and keep employee engagement on track. Apart from quarterly,
semi-annually and annually conducted performance reviews, what Google can
achieve next is enabling continuous feedback between peers. This way, managers
can overcome evaluation bias much more easily as there will be hard proof of
employee’s performance over a given period. By implementing solutions similar
to Imprecise, Google can engage its smart creatives much better by providing them
with complete ownership of their own development.
References
Slack, N., et al. (1995). Operations management. London: Pitman Publishing.
Slack, N., et al. (2013). Operations management. London: Pitman Publishing.
Tannenbaum, R., & Schmidt, W. H. (1958). How to choose a leadership pattern. Harvard Business
Review, 36/1958.
Industry 4.0 and Artificial Intelligence
(AI) in PM 13
Marc Helmold
13.1 Industry 4.0
Industry 4.0 is a name given to the current trend of automation and data exchange
in manufacturing technologies. It includes cyber-physical systems, the Internet of
Things, cloud computing and cognitive computing. Industry 4.0 is commonly
referred to as the fourth industrial revolution. Industry 4.0 fosters what has been
called a ‘smart factory’. Within modular structured smart factories, cyber-physical
systems monitor physical processes, create a virtual copy of the physical world and
make decentralized decisions. Over the Internet of Things, cyber-physical systems
communicate and cooperate with each other and with humans in real time both
internally and across organizational services offered and used by participants of the
value chain. There are four design principles in Industry 4.0. These principles
support companies in identifying and implementing Industry 4.0 scenarios:
Interconnection: The ability of machines, devices, sensors and people to connect and
communicate with each other via the Internet of Things (IoT) or the Internet of
People (IoP).
Information transparency: The transparency afforded by Industry 4.0 technology
provides operators with vast amounts of useful information needed to make
appropriate decisions. Interconnectivity allows operators to collect immense
amounts of data and information from all points in the manufacturing process,
thus aiding functionality and identifying key areas that can benefit from
innovation and improvement.
Technical assistance: First, the ability of assistance systems to support humans by
aggregating and visualizing information comprehensively for making informed
decisions and solving urgent problems on short notice. Second, the ability of
cyber-physical systems to physically support humans by conducting a range of
tasks that are unpleasant, too exhausting or unsafe for their human co-workers.

162 13 Industry 4.0 and Artificial Intelligence (AI) in PM
Fig. 13.1 Industry 4.0 evolution. Source: Compiled figure by the Author, adopted from Helmold
and Terry (2017)
Decentralized decisions: The ability of cyber-physical systems to make decisions on

their own and to perform their tasks as autonomously as possible. Only in the case
of exceptions, interferences, or conflicting goals are tasks delegated to a higher
level (Fig. 13.1).
13.2 Artificial Intelligence (AI)
In the field of computer science, artificial intelligence (AI), sometimes called

machine intelligence, is intelligence demonstrated by machines, in contrast to the
natural intelligence displayed by humans and other animals. Computer science
defines AI research as the study of ‘intelligent agents’: any device that perceives
its environment and takes actions that maximize its chance of successfully achieving
its goals. More specifically, Kaplan and Haenlein define AI as ‘a system’s ability to
correctly interpret external data, to learn from such data, and to use those learnings to
achieve specific goals and tasks through flexible adaptation’. Colloquially, the term
‘artificial intelligence’ is used to describe machines that mimic ‘cognitive’ functions
that humans associate with other human minds, such as ‘learning’ and problem
solving.
13.3 Case Study: Amazon Using AI
Since its earliest days, Amazon has used AI to come up with product
recommendations based on what users already said they liked (Terdiman, 2018).
The algorithms behind those systems have been tweaked again and again over the
years. These days, thanks to machine learning, the recommendations have gotten
more dynamic, says Jeff Wilke, the CEO of Amazon’s worldwide consumer
Reference 163
division. ‘Say there’s a new piece of fashion that comes into the fall season’, he
explains, ‘In the past it might take longer for the algorithms that we use to realize that
people who bought these shoes also bought this top. And with some of the new
techniques we can detect those things earlier, those correlations. And then surface
the new top earlier in the season’.
Other Amazon AI and machine-learning efforts power the Alexa voice assistant,
give users of Amazon Web Services access to cloud-based tools, allow shoppers to
grab items and walk immediately out of Amazon Go stores, guide robots carrying
shelves full of products directly to fulfilment centre workers and much more. And
while the technology is vital to Amazon across most of its businesses, the range of its
applications is still stunning. It’s also a key reason why the company (briefly) hit $1
trillion in market cap and stands every chance of getting back there for the long haul.
A company-wide mantra at Amazon is that every day is ‘Day One’, a humble
contention that for all Jeff Bezos’s brainchild has accomplished, it’s just getting
started. When it comes to AI and machine learning, Sivasubramanian doesn’t just
pull out the standard ‘Day One’ reference. He jokes that ‘it’s Day One, but it’s so
early that we just woke up and haven’t even had a cup of coffee yet’.
Deep inside Amazon’s 855,000-square-foot fulfilment centre in Kent,
Washington, 18 miles south of Seattle, a bunch of orange Amazon robots are
doing a dance. Balanced on top of each of the orange machines is a yellow pod
with nine rows of product-packed shelves on each of four sides. Powered by AI, each
of the robots automatically sprang into action when someone somewhere in the
Pacific Northwest purchased something on Amazon.com, and each is now autono-
mously manoeuvring its way around the others in a bid to get to a station at the edge
of the fenced-off robotic field where a worker will pluck the item in question and put
it on a conveyor belt towards another worker who will box it up (Terdiman, 2018).
At the scale that Amazon processes orders, peak efficiency is essential. Magnified
over millions upon millions of orders a year, even a second or two saved per order
makes a huge bottom-line difference.
For some time, Amazon has used machine learning in its fulfilment centres ‘to
improve our ability to predict what customers are ordering and place it in the right
place’, says Wilke, ‘And also to improve the efficiency and speed with which we get
things to consumers’.
Reference
Terdiman, F. (2018). How AI is helping Amazon to become a trillion-dollar company. Fast
Company. Retrieved March 2, 2019, from https://www.fastcompany.com/90246028/how-ai-
is-helping-amazon-become-a-trillion-dollar-company
PM in Different Cultures
and Internationalization 14
Invite people into life who don’t look or act like you. You
might find they challenge your assumptions and make
you grow.
Melody Hobson
14.1 Negotiations in Different Cultures
Foreign trade has a long history. Yet, the cross-border exchange of goods and
services has significantly intensified in the last decades (Dathe & Helmold, 2018).
The cultural differences add another facet to the complication of negotiations. The
commercial negotiations are complex enough in the same cultural group. Dealing
with business partners with a different cultural background poses an additional
challenge for communication. Caution needs to be taken, in order to avoid culturally
based misunderstanding (Helmold, Dathe, & Hummel, 2019). The overriding ques-
tion in this context is: ‘What are cultures?’
According to Geert Hofstede, social psychologist and culture investigation
researcher, culture is ‘the collective programming of the mind that distinguishes
the members of one group or category of people from others’ (Hofstede, 1991). In
different terms, culture is the remarkable way a gathering of individuals think and
adapt. Without the learning and comprehension for different societies, such distinc-
tion in considering and practices may effortlessly cause clashes in intercultural
communications (Helmold et al., 2019). Although cultures are not limited to national
cultures (e.g. there could be cultural groups based on gender, age groups, etc.), in
this book, we will concentrate on the national cultures to talk about how to bargain
with business negotiations across cultures. Each national culture has its own tradi-
tional philosophy and methods for negotiations which may be unknown or
incomprehensive to outsiders (Helmold et al., 2019). Negotiation participants with
different cultural backgrounds often come with different expectation or even

166 14 PM in Different Cultures and Internationalization
different targets to the meetings. An analysis of the different targets and expectations
at an early stage could be very helpful, before they cause later frustrations and
mislead the negotiation into deadlock (Lanz, 2018). One of the most interesting
aspects of the analysis is how the relationship among the participants should be
established (Liker & Choi, 2004). As culture significantly influences the way people
perceive and react to information during communication, it is an essential aspect that
cannot be ignored when studying international negotiations (Helmold et al., 2019).
Intercultural training has become popular in many countries, as they are believed to
provide the understanding of the mentality and behaviour codes of another culture in
a crash course. In any case, the knowledge of the rules of the game shall have a
positive effect on the outcome of cross-cultural interactions. The following matrix
shows our recommendation on the approach of cultural training for international
negotiations (based on Helmold et al., 2019).
Edgar Schein distinguishes three levels in organizational cultures (see Fig. 14.1)
based on how easily the cultural phenomena could be observed by outsiders who are
not part of the culture (Danziger, 2008):
Artefacts and behaviours. These are the tangible, overt or verbally perceivable
elements, e.g. architecture, languages or ceremonial rituals.
Espoused values. These are the stated values and rules of behaviour in the cultural
group. These are often expressed in the public statements or literature,
e.g. national laws, the ‘family first’ philosophy.
Assumptions or shared tacit assumptions. These are the roots of the culture and the
key to understanding of the culture. However, the tacit assumptions are hard to
recognize even for insiders of the culture, because the assumptions are usually
Fig. 14.1 Strategic approach

for intercultural negotiations
Intercultural Independent
training for "eye-level"
me negotiation
Intercultural
Intercultural
training for
training for
my
both parties
counterpart
14.2 Hofstede’s Cultural Dimensions Theory 167
Artifacts
Architecture, languages and
ceremonial rituals
and behaviors
National laws, the “family

Espoused values
first” philosophy
Equality of all human beings Assumptions
Fig. 14.2 Schein’s three levels of culture (interpretation by Dathe). Source: Dathe and Helmold
(2018)
taken for granted and unconsciously well integrated into their behaviour. For
example in some cultures, it is assumed that every man should be treated equally,
while in others, people are entitled to different levels of privilege based on their
origin (Fig. 14.2).
We may learn the artefacts and behaviours through close observation. It doesn’t
take long for us to find out that in business contacts, the Americans tend to call each
other by the given name, the Germans by the surname and the Chinese by a
combination of the surname and the job title. One of the first things we learn is
how our counterpart greets the business partners: with kisses on the cheeks, a kiss on
the hand, shaking hands, a knock on the shoulder or somehow exotically, with a bow
like in Japan. If we are ready to invest more time with the cultures, we will also get to
know more about the written rules. But how do we deal with the shared tacit
assumptions, as even the cultural insiders are often unconscious of those, because
they simply take the assumptions for granted? Is it possible at all to identify the most
important assumptions in a culture without years of systematic study? The short
answer is, yes. Researchers in the past have developed instruments to describe the
essential features of cultures. In the following sections, we shall shed light on two
culture models—frameworks generated to assess and differentiate cultures.
14.2 Hofstede’s Cultural Dimensions Theory
Geert Hofstede is researcher in the field of organization culture. During his engage-
ment at IBM International between 1967 and 1976, he conducted employee opinion
surveys in IBM subsidiaries in 74 countries. By applying statistical methods, he
analysed the large amount of cross-cultural database (over 100,000 questionnaires)

and aggregated the individual opinions into national cultural groups. As a result, he
developed the culture model VSM (value survey model) with four dimensions
(Hofstede, 1980, 2007). Today, the VSM framework has become a paradigm in
the field of cultural research. Numerous researchers validated this model in various
cultural contexts. The model also finds wide applications in practice for intercultural
communication, as well as international management, marketing and negotiation
(Dathe & Helmold, 2018). In his later work, Hofstede extended the VSM model into
6 dimensions (Hofstede, 1980, 2007; Hofstede, Hofstede, & Minkov, 2010):
Power distance
Individualism vs. collectivism
Masculinity vs. femininity
Uncertainty avoidance
Long-term orientation
Indulgence vs. restraint
14.2.1 Power Distance
The individuals in any cultural group have different levels of influence on society.
The term power distance describes the readiness of the lower ranking individuals to
accept the uneven distribution of power. This cultural dimension shows how much
inequality is expected in a society. Based on the empirical data, a power distance
index (PDI) is generated and the comparison of different cultures allows certain
conclusions (Hofstede, 1980, 2007). In low PDI cultures, the power is distributed
less unequally. This implies that society tends to be democratic and members of
society are less dependent towards the power holders. In business organizations of
lower PDI cultures, managers and subordinates are more likely to maintain a
consultative relationship and less concerned of their status in the organizational
hierarchy. In terms of the negotiation, the decision-maker is likely to take the
objective reasoning of his subordinates into serious consideration. Examples of
low PDI countries are the USA, the UK and Germany (Hofstede, 2007; Helmold
et al., 2019). In high PDI cultures, the social hierarchy tends to be more clearly
visible and the power holders have stronger influence with more centralized power.
Although centralized power often misleads to abuse of their office and corruption,
only few in high PDI cultures will ever question the formal authorities (Chia et al.,
2007; Lee & Oh, 2007). In business organizations, leaders are more likely to dictate
their decisions to the subordinates and questions in public are often understood as
challenge to their personal authority (Hofstede, 2007; Helmold et al., 2019). When
dealing with negotiation partners from a high PDI culture, it is essential to identify
the decision-maker in the first place. Very likely, his subordinates have only limited
influence on the final decision. In the behaviour code of a high PDI culture, it is
important to treat the power holder with distinctively more respect and not to
question or even criticize him in public. Different opinions need to be ‘well
14.2 Hofstede’s Cultural Dimensions Theory 169
packaged’ (Helmold et al., 2019). Examples of high PDI countries are Malaysia,
Saudi Arabia and Japan.
14.2.2 Individualism vs. Collectivism
In a society with strong individualist values, the individuals are encouraged to

pursue their own goals and desires. In business organizations, independent thinking
has a great importance. Members of individualist cultures tend to be more concerned
of their privacy and self-determination (Hofstede, 2007). In the VSM framework,
collectivism is considered the opposite to individualism. Collectivism is
characterized by the identification of individuals with their social groups and the
prioritization of the group over oneself. Conformity and self-sacrifice are
emphasized behaviour codes of collectivist cultural groups (Hofstede, 2007).
Many Asian cultures are considered collectivist and most Western cultures tend to
be individualist. While in individualist organizations tasks are often assigned to
individual persons, they are more likely to be given to a group of people in a
collectivist organization which in turn may lead to more intensive internal commu-
nication and longer time for the fulfilment. Harmony is a very important value in
collective cultures and confrontation needs to be avoided by all efforts. Collectivist
business partners prefer to establish a harmonious and trustful relationship at the
beginning of the negotiation. To accommodate their good will, the individualist
counterparts need to comply with patience. Due to the smaller interpersonal distance
among collectivist individuals, sometimes curious questions during conversation
may appear beyond comfort of the individualists. A smart strategy to deal with such
situations is probably to hide the irritation and choose to answer some ‘safe’
questions, in order not to put the collaborative atmosphere in jeopardy (Helmold
et al., 2019).
14.2.3 Masculinity vs. Femininity
This dimension of culture depicts to which extent a society values achievement or

nurture. In highly masculine cultures, gender roles are distinctive. Men are supposed
to be tough and devoted providers with material success and women are expected to
focus on the maintenance of social solidarity with modesty and caring, nurturing
behaviours. Quality of life is mainly the concern of women. In general, economic
growth has a higher priority over environment protection. Women can be rarely
found in management teams and receive less payment than men for equal work. In
less masculine (feminine) cultures, gender equality is strived for and gender roles
tend to overlap. Material success and quality of life are the concern of both men and
women. Economic growth and environmental issues are equally important and the
conflict between the competing goals needs to be solved through negotiations.
Societies usually exhibit both masculine and feminine characteristics. This cultural
dimension shows if masculinity or femininity overweighs (Hofstede, 2007).
14.2.4 Uncertainty Avoidance
The cultural dimension uncertainty avoidance shows the level of anxiety uncertainty
causes and reflects a society’s tolerance for uncertainty or ambiguity (Hofstede,
2007). In a culture with a high score of uncertainty avoidance, life is often perceived
as hectic. Clear rules and structures are cherished. People prefer to be informed of all
potential risks and tend to seek the help of experts in case of uncertainty. Emotional
behaviours are interpreted as an act of losing control. In negotiations, relevant
influence factors (for instance, the flexibility and tolerance of the business partner
in addition to technical data of the products) are often quantified as far as possible.
Examples of high uncertainty avoidance countries are Germany and Switzerland
(Helmold et al., 2019). Cultures with a low score of uncertainty avoidance are
sometimes described as ‘chaotic’. Life is perceived as easygoing and fewer rules
and instructions are expected. Entrepreneurs potentially take higher risks and the
acceptance for new technologies is higher. In the negotiation, passion is a decision-
relevant factor besides the technical and commercial issues. Examples of high
uncertainty avoidance countries are India and China (Helmold et al., 2019).
14.2.5 Long-Term Orientation
Long-term orientation describes the readiness to invest in one’s own future by

delaying material and/or emotional gratifications. Cultures with long-term orienta-
tion focus on the future and value persistence, perseverance, saving and the ability to
adapt. In the negotiations, the decision-maker tends to take higher risks as invest-
ment in a promising future business relationship. Such kind gestures need to be
recognized and reciprocated. Cultures with short-term orientation focus on the
present and the past, value traditions and are more concerned of fulfilling the
immediate gratifications and social obligations (Helmold et al., 2019).
14.2.6 Indulgence vs. Restraint
This is a relatively new dimension in the VSM framework and describes the level of
subjective happiness and life control. Indulgent societies appreciate natural human
desires leading to subjective happiness. There is less moral discipline and a higher
perceived personal control of life. There are more extroverted personalities and
people tend to be optimistic, have more friends, participate more in sports and are
healthier and happier. Countries with the highest measured indulgence level are
Mexico, Nigeria and Sweden. Restricted societies are less tolerant towards natural
human desires and regulate by means of strict social norms. Professional obligations
are considered more important than private life. There is much moral discipline and
life is essentially driven by the environment. People tend to be introverted, pessi-
mistic and cynical. Having friends and participation in sports seem less important
14.3 Edward Hall’s Culture Model 171
and people feel less happy and less healthy. Countries with the lowest measured
indulgence level are Egypt, Russia, China and India.
14.3 Edward Hall’s Culture Model
The American anthropologist and culture researcher Edward Twitchell Hall Jr. is
best known for the introduction of the following concepts in cross-cultural studies:
Proxemics
Monochromic time vs. polychromic time
High-context cultures vs. low-context cultures
14.3.1 Proxemics
The term proxemics stands for the study of the human use of space and the influence
of population. In his work, Hall describes the interpersonal distance (horizontal) as
invisible circles (see Fig. 6.3) and divides it into the following sections (Hall, 1966):
Intimate distance
Personal distance (for interactions with close friends and family)
Social distance (for interactions among acquaintances) and
public distance (for public speech)
The space within intimate distance and personal distance forms the personal
space which is psychologically regarded as one’s own. By entering someone’s
personal space without being his close friend or family member, one usually causes
uneasiness in communication. On the other hand, significantly exceeding the per-
ceived reasonable distance may be interpreted as lack of trust of even hostility (Hall,
1966) (Fig. 14.3).
According to Hall, the interpersonal distance is variable and can be significantly
influenced by cultural differences (Hall, 1966). In Hall’s proxemics theory, there is a
further important concept ‘territory’. While ‘personal space’ refers to the immediate
space around a person, territory stands for the space and objects a person lays claim
to (e.g. the office). Intrusion in the territory may cause hostile reactions (Hall, 1966).
For international communication, knowledge of the business partner’s perceptions of
personal space and territory is helpful to avoid unnecessary misunderstandings
(Helmold et al., 2019).
14.3.2 Monochromic Time vs. Polychromic Time
In a monochromic culture, people tend to do one thing at a time. In business

organizations, predefined timeline for the assignments is of great importance.
Fig. 14.3 Hall’s concept for

interpersonal distance
Public space
(horizontal). Source:
Compiled by the Author,
adopted from Dathe and Social space
Helmold (2018)
Personal space
Intimate space
Space
Interruptions of job at hand may easily lead to distress of the employees. In addition,
members of a monochromic society tend to follow clear rules and show higher
respect for private properties.
In polychromic cultures, on the contrary, people tend to tackle several tasks at the
same time. Potentially, this leads to more interruptions of the job(s) at hand.
However, the jobs are not considered isolated assignments, but a part of the overall
target. The main focus is the flexibility towards the changing environment, espe-
cially by means of maintaining a good relationship with the stakeholders and the
predefined schedule is only of secondary importance (Hall, 1983).
The different working styles resulting from a different understanding of how time
and relationship shall be of value often lead to irritation and frustration in intercul-
tural collaborations. A necessary step for a successful negotiation is to get to know
the reasons for the business partner’s behaviour and to be prepared to take time till
the mutual understanding is established (Helmold et al., 2019).
14.3.3 High-Context Cultures vs. Low-Context Cultures
Hall uses the terms high-context culture and low-context culture to describe the
importance of context in communication. In a low-context culture, the information is
explicitly stated in the wording of the message. The successful transmission of
information depends on the precision of the verbal statements by the sender of the
message. The personal relationship between the communication partners is
non-substantial (Hall, 1976).
In high-context countries, the transmission of information often involves
non-verbal communication methods, e.g. gesture, facial expression, tone of voice
14.3 Edward Hall’s Culture Model 173
Table 14.1 The importance of context: communication with the Brits

What the British say What the British mean What foreigners understand
I hear what you say I disagree and do not want to He accepts my point of view
discuss it further
With the greatest respect You are an idiot He is listening to me
That’s not bad That’s good. That’s poor
That is a very brave You are insane He thinks I have courage
proposal
Quite good A bit disappointing Quite good
I would suggest. . . Do it or be prepared to justify Think about the idea, but do
yourself what you like
Oh, incidentally/ by the The primary purpose of our That is not very important
way. . . discussion is. . .
I was a bit disappointed I am annoyed that. . . It doesn’t really matter
that. . .
Very interesting That is clearly nonsense They are impressed
I’ll bear it in mind I’ve forgotten it already They will probably do it
I’m sure it’s my fault It’s your fault Why do they think it was their
fault?
You must come for dinner It’s not an invitation, I’m just I will get an invitation soon
being polite
I almost agree I don’t agree at all He’s not far from agreement
I only have a few minor Please rewrite completely He has found a few typos
comments
Could we consider some I don’t like your idea They have not yet decided
other options
Source: www.telegraph.co.uk
or even the silence. The context situation and social norms may also be a part of the
message. A close interpersonal relationship plays an important role in communica-
tion. It usually takes an extended period of time to get to know the unwritten rules to
be able to communicate effectively (Hall, 1976).
The following table shows some amusing situations of context communication
with the Brits to demonstrate the difficulties for the outsiders of the culture
(foreigners) (see Table 14.1).
Japan is regarded as one of the high-context countries. In a Japanese company,
it is possible that sometimes essential company strategies are not discussed
explicitly at formal meetings, but at informal meetings over the lunch table with
chosen participants. Business partners from a high-text culture usually prefer to
solve problems in groups. For a sustainable success in high-context cultures, it is
important to take time to be informed of the social norms of the business partner
and to establish a trustful relationship at the very beginning of the business
transaction.
14.4 Internationalization Strategies
14.4.1 Possibilities of Internationalization
In the present world, globalization is growing and borders are shrinking as outlined
by several authors (Dathe & Helmold, 2018; Grunig & Morschett, 2017).
Companies are taking advantage of that, by internationalizing their businesses on
the sales or supply side as shown in Fig. 6.1 (Helmold et al., 2019). Companies can
thus gain new customers, gain a bigger market share, get an advantage point against
rivals on the demand side or achieve better material or third-party service cost on the
supply side (Helmold et al., 2019). Market entry strategies differentiate a lot between
each other, which makes them hard to compare to each other. Grunig and Morschett
are using the criteria of control, resources, cost, flexibility, partner resources and
knowledge to highlight advantages and disadvantages of each category (Dathe &
Helmold, 2018; Grunig & Morschett, 2017).
14.4.2 Direct Exports or Imports
Direct exporting is selling directly into the market you have chosen using in the first
instance your own resources. Many companies, once they have established a sales
programme, turn to agents and/or distributors to represent them further in that
market. Agents and distributors work closely with you in representing your interests.
They become the face of your company, and thus, it is important that your choice of
agents and distributors is handled in much the same way you would hire a key staff
person.
14.4.3 Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers the rights

to the use of a product or service to another firm. It is a particularly useful strategy if
the purchaser of the licence has a relatively large market share in the market you
want to enter. Licences can be for marketing or production, licensing).
14.4.4 Franchising
Franchising is a typical North American process for rapid market expansion, but it is
gaining traction in other parts of the world. Franchising works well for firms that
have a repeatable business model (e.g. food outlets) that can be easily transferred
into other markets. Two caveats are required when considering using the franchise
model. The first is that your business model should either be very unique or have
strong brand recognition that can be utilized internationally and secondly you may
be creating your future competition in your franchisee.
14.4 Internationalization Strategies 175
14.4.5 Third-Party Sourcing
Third-party sourcing can be described as a supplier (or service provider) who is not
directly controlled by either the seller (first party) or the customer (second party) in
an international business transaction. The third party is considered specialized and
independent from the other two, even if hired by them, because not all control is
vested in that connection. There can be multiple third-party sources with respect to a
given transaction, between the first and second parties. Third parties are specialized
in certain commodities and possess an infrastructure that supports international trade
and purchases beyond borders (international experts, relationships to manufacturers,
warehouses, customs, freight forwarders etc.).
14.4.6 Investments and Partnering
Partnering is almost a necessity when entering foreign markets, and in some parts of
the world (e.g. Asia), it may be required. Partnering can take a variety of forms from
a simple co-marketing arrangement to a sophisticated strategic alliance for
manufacturing. Partnering is a particularly useful strategy in those markets where
the culture, both business and social, is substantively different than your own as local
partners bring local market knowledge, contacts and if chosen wisely customers.
14.4.7 Joint Ventures
A joint venture basically means two or more companies form collaboration to create
a jointly owned enterprise by investing money, know-how and sharing the risk. This
kind of venture can be permanent and the ownership can attain from minor owner-
ship to major ownership. A joint venture has many benefits. First of all, the local
partner would have the local know-how and have the familiarity with the local ways
and market condition. With a joint venture also the risks would be shared, and this
could speed up the process of entering the actual market. Joint ventures are a
particular form of partnership that involves the creation of a third independently
managed company. It is called the 1 + 1 ¼ 3 process. Two companies agree to work
together in a particular market, either geographic or product, and create a third
company to undertake this. Risks and profits are normally shared equally. One
example of a joint venture is the Sony-Ericsson in the cell phone JV.
14.4.8 International Procurement Office (IPO)
International sourcing, and more generally the transfer of parts of the value chain to
foreign countries, is characterized by complex factors such as cultural
heterogeneities, the presence of multiple actors, relationships with different and
distant interlocutors and unfamiliar business rules and behaviours. One significant
Sales Supply
Strategies for internationalisation Own Own
company company
High
Joint
Ownership of assets and resources
Venture
Investment IPO
Franchising
3rd Party
Procurement
Licensing
Export Import
Low
Low Control of business and enterprise High
Fig. 14.4 Internationalization strategies. Source: Own source by the Author
development in the purchasing field is the setting up of international procurement

offices (IPO) by multinational corporations in many parts of the world. The emer-
gence of IPOs is consistent with the trend towards the globalization of business.
Strong cooperation can also be obtained attributing purchasing responsibility to an
IPO belonging to a subsidiary. This solution is adopted by all the sampled companies
(company 7, company 8) owning one or more facilities in the sourcing region. The
main strength of this solution is that, being located inside the facility, the IPO is close
to the supply network and to the production made in the facilities established abroad
(Fig. 14.4).
14.4.9 Own Company with Sales and Production Subsidiary
In this entry mode, the company that wants to enter the new market would put up a
sales and production subsidiary, which means that the company would also produce
and have sales personnel in the target market. This entry mode has high resource
commitment, low flexibility and a higher risk than the other entry modes. The
benefits with a sales and production subsidiary are that the new customers can
clearly see that the company is committing to the new market. This method should
not be used if there is not strong enough belief that the production and sales in the
new market will have long-term potential. The benefits with this method are the local
know-how and connections through the local personnel, the close access to the
14.4 Internationalization Strategies 177
market and the domestic production will not get backlogged with work if the target
market ends up being very profitable. This could be a great method for Company X
for a more long-term strategy, but the start-up costs would be high.
Country agreements, such as the Economic Partnership Agreement between the
EU and Japan, entered into force on 1 February 2019, will increase international
relationships. EU firms already export over €58 billion in goods and €28 billion in
services to Japan every year. In the past, European firms faced trade barriers when
exporting to Japan, which made it hard for them to compete. The trade agreement
with Japan removes these barriers and helps to shape global trade rules in line with
our high standards and shared values. It sends a powerful signal that two of the
world’s biggest economies reject protectionism. In 2013, EU governments instructed
the European Commission to start negotiations with Japan. On 8 December 2017,
the negotiations were finalized. The European Parliament gave its consent in
December 2018, clearing the way for the trade agreement’s conclusion and entry
into force. Figure 14.5 shows Ann Sun, Manager Supply management, and Dr. Marc
Helmold, in Japan, when looking for new suppliers and customers, as part of the
EU–Japan negotiations.
14.4.10 Case Study: Jokey Group’s Global Procurement

to Excellence Initiative
The Jokey Group has completely realigned its group-wide purchasing. The innova-
tive concept developed for this purpose has now been presented with an award by the
Bundesverband Materialwirtschaft, Einkauf und Logistik e.V. (BME) or the Federal
Fig. 14.5 Ann Sun and Dr. Marc Helmold in Japan, Tokyo. Source: Marc Helmold
Materials Management, Purchasing & Logistics Association (BME, 2018). With the
help of the structured change process in purchasing, Jokey has managed to transfer
successive operative resources into strategic initiatives and projects. Further, trans-
parency and quality in purchasing data was successfully increased, sustainably
improving central control of purchasing in the process. Thanks to continuously
developed qualification routes, Jokey purchasers have positioned themselves as
recognized specialists at the intersection of purchasing markets. The web-based
Jokey supplier portal also contributes significantly to raised efficiency levels. It
unites individual elements in the communication workflow between Jokey and its
suppliers, creating more efficiency on both sides. The existing compliance and
sustainability regulations were expanded to include the field of purchasing and
supplemented with a supplier chart. Today, Jokey is also taking advantage of the
opportunities provided by international purchasing markets through targeted devel-
opment of global sourcing. This will guarantee an optimal supply in the long term,
with rising demand forecasts and increasingly volatile prices for raw materials.
Active communication creates company-wide acceptance and the motivation to
quickly make the necessary changes and keep them going in the long run. ‘Jokey
have ultimately only been able to see this through with the help of our many highly-
qualified and highly-motivated purchasing staff’, says Michael Schmidt, Chief
Procurement Officer of the Jokey Group. The BME Innovation Award has been
awarded every year since 1986 by the Bundesverband Materialwirtschaft, Einkauf
und Logistik e.V. The award is given for innovative and sustainable services and
concepts which increase efficiency in purchasing and logistics in the long term,
leading to clear improvements in company results (Jokey, 2018; BME, 2018).
References
BME. (2018). Bundesverband Materialwirtschaft, Einkauf und Logistik. Mittelstandspreis geht an
Jokey. 10.11.2017. Retrieved May 18, 2018, from https://www.bme.de/jokey-group-gewinnt-
den-bme-innovationspreis-2017-2330/
Chia, H.-B., Egri, C., Ralston, D., Fu, P. P., Kuo, M. C., & Lee, C. (2007). Four tigers and a dragon:
Values differences, similarities, and consensus. Asia Pacific Journal of Management, 24,
305–320.
Danziger, N. (2008). The construct validity of Schein’s career anchors orientation inventory.
Emerald Group. Retrieved October 24, 2018, from https://www.emeraldinsight.com/doi/abs/
10.1108/13620430810849506
Dathe & Helmold. (2018). Erfolg im Chinageschäft. Handlungsempfehlungen für kleine und
mittlere Unternehmen (KMU). Springer Wiesbaden.
Grunig, R., & Morschett, D. (2017). Developing international strategies. Heidelberg: Springer.
Hall, E. (1966). The hidden dimension. New York: Garden City.
Hall, E. (1976). Beyond culture. New York: Garden City.
Hall, E. (1983). The dance of life: The other dimension of time. Anchor Books.
Hofstede, G. (1980). Culture’s consequences: International differences in worked-related values.
Beverly Hills: Sage.
Hofstede, G. (1991). Cultures and organizations: Software of the mind. McGraw-Hill Maidenhead.
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24(4), 411–420.
Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software for the
mind, 3. Auflage. McGraw-Hill Books.
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www.jokey.com/en/service-downloads/actualites/jokey-group-wins-bme-innovation-award-
458/
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Management for Professionals

ISSN 2192-8096 ISSN 2192-810X (electronic)

# Springer Nature Switzerland AG 2019

The book Progress in Performance Management—Industry and Case Studies on

The book Progress in Performance Management—Industry and Case Studies on

Berlin and Hiroshima Marc Helmold

In today’s world, people, enterprise, organizations or countries are competing with

1 Performance Management (PM) Over the Entire Value Chain . . . . 1

2.7 Strategies Must Focus on Performance . . . . . . . . . . . . . . . . . . . 35

5.4 Principles of a Just-in-Time Production System . . . . . . . . . . . . . 78

8.2.5 Threat of Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . 115

10.6 Recommendations for the Turnaround . . . . . . . . . . . . . . . . . . . 143

14.4.3 Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Marc Helmold is Professor at the International Univer-

Warda Samara Founder and Director General of

Fig. 1.1 Performance management cycle. Source: Author’s own ﬁgure . . . 2

Fig. 2.1 Strategic triangle. Source: Compiled, by the Author, adopted

Fig. 5.13 Over-processing. Source: Author’s own ﬁgure . . . . . . . . . . . . . . . . . . . . 77

Fig. 10.6 Balance sheet. Source: Author’s own ﬁgure . . . . . . . . . . . . . . . . . . . . . . . 141

Table 1.1 Quality management systems (QMS) .. .. . .. .. . .. .. . .. .. . .. .. . .. .. . 10

TÜV Technischer Überwachungsverein

Logic will get you from A to B. Imagination will take you

Performance management (PM) is a subject which is an integral part of any

# Springer Nature Switzerland AG 2019 1

Fig. 1.1 Performance

– What is performance management?

Enterprises must aim for PM excellence. Permanent measurement and

9. PM uses qualitative and quantitative measurables and key performance

Performance excellence can be deﬁned as achieving and maintaining outstanding

Adding value for customers

Fig. 1.2 Performance excellence. Source: Author’s own ﬁgure

1.3 PM in the Value Chain

Performance measurement and management must be pursued throughout the value

organization and those contracted to supply services to it. A transformation process

Changes in the physical characteristics of materials or customers

Fig. 1.3 Value chain: input–transformation–output. Source: Author’s own ﬁgure

Tier 3 Tier 2 Tier 1 Tier 1 Tier 2

Value Chain or Supply Chain Management (SCM)

transformation is done in the operations or production department, so that the output

Effectiveness (Quality of Results)

1.4 The QCDT-Plus Alpha Concept in Performance

Performance management aims to build a high-performance culture in enterprises.

Quality performance indicators

Fig. 1.5 Q-C-D-T-plus alpha

Design to cost 0-KM defects

T Development cost QM-system

1.4.1 Quality Objectives

Quality objectives are a fundamental part in PM as stated by many authors (Helmold

Table 1.1 Quality Quality management system Description

requirements and enhancing their satisfaction. It is aligned with an organization’s

1.4.2 Cost Objectives

Productivity: Productivity is cost reductions, often annually applied, due to

1.4.3 Delivery Objectives

Packaging: Packaging cost is a signiﬁcant factor in pricing a product. Different

like vendor-managed inventory (VMI) approach have been used in inventory

1.4.4 Technology Objectives

Fig. 1.7 CSR objectives.

1.4.5 Alpha Objectives