Chapter 8

Performance Measurement
and Strategic Information
Management
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Information Management
If you dont measure results, you cant tell
success from failure
If you cant see success, you cant reward it
and if you cant reward success, you are
probably rewarding failure
If you cant recognize failure,
you cant correct it

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Process Flow
Measurement

Data

Analysis

Information
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Use of Information and Analysis

Validation
Customer
Requirements

Prediction

Measurements
Control

Design

Processes

Results

Measurement supports executive performance review

and daily operations and decision making.
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Benefits of
Information Management
Understand customers and customer
satisfaction
Provide feedback to workers
Establish a basis for reward/recognition
Assess progress and the need for corrective
action
Reduce costs through better planning
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Empirical Survey Results

Measurement-management companies are
more likely to:

be in top third of industry financially

complete organizational changes successfully
reach clear agreement on strategy
enjoy favorable cooperation and teamwork
have more employee empowerment
have a greater willingness to take risks

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Example: Federal Express

We measure everything.
Thenwe prioritize what
processes are key to the
company.
Most data collection systems are
automated, making it fast and
easy.
Seeks internal measures that are
predictors for external measures.
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Example: Ritz-Carlton
We only measure what we must.
But, we make sure that what we
measure is important to our
customers.
50% marketing and financial data;
50% quality-related productivity data.
Cost of quality is top priority. Are
improvements important to
customers, providing a good return,
and done quickly?
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Leading Practices (1 of 2)
Develop a set of performance indicators that
reflect customer requirements and key
business drivers
Use comparative information and data to
improve overall performance and
competitive position
Involve everyone in measurement activities
and ensure that information is widely
visible
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Leading Practices (2 of 2)
Ensure that data are reliable and accessible
to all who need them
Use sound analytical methods to conduct
analyses and use the results to support
strategic planning and daily decision making
Continually refine information sources and
their uses within the organization
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Balanced Scorecard
1.
2.
3.
4.

Financial perspective
Internal perspective
Customer perspective
Innovation and learning perspective
Leading
measures

Lagging
measures

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Key Types of Business

Performance Measures
Customer satisfaction measures
Financial and market performance
measures
Human resource measures
Supplier and partner performance
measures
Company-specific measures
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Example: Wainwright Industries

Safety
Internal customer satisfaction
External customer satisfaction
Six sigma quality (manufacturing
defects)
Business performance
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Common Quality Measures

Nonconformities (defects) per unit
Errors per opportunity
Defects per million opportunities
(dpmo)

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Importance of Comparative Data

Comparative data: industry averages,
best competitor performance, worldclass benchmarks
Helps recognize the need for
improvement
Provides motivation to seek
improvement
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Linkages to Strategy
Key business drivers
(key success factors)

Strategies and
action plans

Measures and indicators

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Process-Level Measurements
Does the measurement support our mission?
Will the measurement be used to manage
change; that is, actionable?
Is it important to our customers?
Is it effective in measuring performance?
Is it effective in forecasting results?
Is it easy to understand and simple?
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Creating Effective
Performance Measures
Identify all customers and their requirements
and expectations
Define work processes
Define value-adding activities and process
outputs
Develop measures for each key process
Evaluate measures for their usefulness
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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The Cost of Quality (COQ)

COQ the cost of avoiding poor quality,
or incurred as a result of poor quality
Translates defects, errors, etc. into the
language of management $$$
Provides a basis for identifying
improvement opportunities and success
of improvement programs
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Quality Cost Classification

Prevention
Appraisal
Internal failure
External failure

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Quality Cost Management Tools

Cost indexes
Pareto analysis
Sampling and work measurement
Activity-based costing

THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Return on Quality (ROQ)

ROQ measure of revenue gains against
costs associated with quality efforts
Principles
Quality is an investment
Quality efforts must be made financially
accountable
It is possible to spend too much on quality
Not all quality expenditures are equally valid
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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Managing Data and Information

Validity Does the indicator measure
what it says it does?
Reliability How well does an
indicator consistently measure the
true value of the characteristic?
Accessibility Do the right people
have access to the data?
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Analysis

Statistical summaries and charts

Trends over time
Comparisons with key benchmarks
Aggregate summaries and indexes
Cause-and-effect linkages and
correlations (interlinking)
Data mining
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

Basic

Advanced
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Interlinking
Quantitative modeling of cause and effect
relationships between external and internal
performance criteria
customer
satisfaction
rating

*
*

**

time on hold (telephone)

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Information and Analysis

in the Baldrige Award Criteria
The Information and Analysis Category examines an
organizations information management and
performance measurement systems and how the
organization analyzes performance data and
information.
4.1 Measurement and Analysis of Organizational
Performance
a. Performance Measurement
b. Performance Analysis
4.2 Information Management
a. Data Availability
b. Hardware and Software Quality
THE MANAGEMENT AND CONTROL OF QUALITY, 5e, 2002 South-Western/Thomson LearningTM

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