Amity Business School

Performance Measurement
and
Strategic Information Management
( Continuous Improvement)

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Key Idea
A supply of consistent, accurate, and timely
data across all functional areas of business
provides real-time information for the
evaluation, control, and improvement of
processes, products, and services to meet both
business objectives and rapidly changing
customer needs.
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Information Management
• If you don’t measure results, you can’t tell
success from failure
• If you can’t see success, you can’t reward
it – and if you can’t reward success, you
are probably rewarding failure
• If you can’t recognize failure, you can’t
correct it

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Process Flow

Measures and Indicators

Data

Analysis

Information
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Use of Information and Analysis

Validation
Prediction
Customer Measurements
Requirements
Control

Processes Results
Design
Measurement supports executive performance review and
daily operations and decision making.
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Key Idea
Measurement-managed companies are more
likely to be in the top third of their industry
financially, complete organizational changes
more successfully, reach clear agreement on
strategy among senior managers, enjoy
favorable levels of cooperation and teamwork
among management, undertake greater self-
monitoring of performance by employees, and
have a greater willingness by employees to take
risks.
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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
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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
• Continually refine information sources and their
uses within the organization
• Use sound analytical methods to conduct
analyses and use the results to support strategic
planning and daily decision making

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Leading Practices (2 of 2)
• Involve everyone in measurement activities
and ensure that information is widely visible
• Ensure that data are accurate, reliable, timely,
secure, and confidential
• Ensure that hardware and software systems
are reliable and user-friendly
• Systematically manage organizational
knowledge and identify and share best
practices
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Key Idea
To make decisions that further the
overall organizational goals of meeting,
or exceeding, customer expectations
and making productive use of limited
resources.
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Key Idea (contd….)

Companies need good data and

information about customers and
markets, human resource effectiveness,
supplier performance, product and
service quality, and other key factors, in
addition to traditional financial
performance and accounting measures.
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Baldrige Classification of
Performance Measures
• Customer
• Product and service
• Financial and market
• Human resource
• Organizational effectiveness
• Governance and social responsibility

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Customer Measures
• Customer satisfaction and dissatisfaction
• Customer retention
• Gains and losses of customers and customer
accounts
• Customer complaints and warranty claims.
• Perceived value, loyalty, positive referral, and
customer relationship building
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Product and Service Measures

• Internal quality measurements
• Field performance of products
• Defect levels
• Response times
• Data collected from customers or third parties on
ease of use or other attributes
• Customer surveys on product and service
performance
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Financial and Market Measures

• Revenue
• Return on equity
• Return on investment
• Operating profit
• Pretax profit margin
• Asset utilization
• Earnings per share
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Human Resource Measures

• Employee satisfaction
• Training and development
• Work system performance and effectiveness
• Safety
• Absenteeism
• Turnover
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Organizational Effectiveness Measures

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

Responsibility Measures
• Organizational accountability
• Stakeholder trust
• Ethical behavior
• Regulatory/legal compliance
• Financial and ethics review results
• Community service
• Management stock purchase activity
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Key Idea
Organizations need comparative data,
such as industry averages, best competitor
performance, and world-class
benchmarks to gain an accurate
assessment of performance and know
where they stand relative to competitors
and best practices.
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Purposes of Performance
Measurement Systems
• Providing direction and support for continuous
improvement
• Identifying trends and progress
• Facilitating understanding of cause-and-effect
relationships
• Allowing performance comparison to benchmarks
• Providing a perspective of the past, present, and
future
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Key Idea
In designing a performance measurement system,
organizations must consider how the measures will
support senior executive performance review and
organizational planning to address the overall
health of the organization, and how the measures
will support daily operations and decision making.
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Practical Guidelines
• Fewer is better.
• Link to the key business drivers.
• Include a mix of past, present, and future
• Address the needs of all stakeholders.
• Start at the top and flow down to all levels of
employees
• Combine multiple indexes into a single index
• Change as the environment and strategy
changes
• Have research-based targets or goals
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Linkages to Strategy

Key business drivers Strategies and

(key success factors) action plans

Measures and indicators

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Key Idea
The things an organization needs to do well to
accomplish its vision are often called key
business drivers or key success factors. They
represent things that separate an organization
from its competition and define strengths to
exploit or weaknesses to correct.
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Process-Level Measurements
• Does the measurement support our mission?
• Will the measurement be used to manage
change?
• 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?
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Key Idea
Good measures and indicators are
actionable; that is, they provide the
basis for decisions at the level at
which they are applied.
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Measurements & Continuous Improvement ( contd.)

Two Segments of measure

•  Leading Measures
– Projections of what is likely to happen and the
measures driving the behaviors and improvements
•  Lagging measures
– Results of what has already happened and would
provide opportunities for analysis and correction
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Measurements &
Continuous Improvement ( contd.)
Performance excellence Model
Encourages grouping of performance measure
into following five sets
1.      Customer
2.      Financial and Market
3.      Human resources
4.      Supplier & partnership performance
5.      Organizational Effectiveness
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Measurements of quality
(Products & Processes)
Cost of Quality model
Traditional Model
– Conformance costs
• Prevention cost
• Appraisal
– Non Conformance
• Internal
• External failures
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Measurements of quality
(Products & Processes)
Challenges
Quality costs do not appear in the accounting
ledger
There is a considerable time delay between costs
and results
Accounting rules do not put quality on the credit
side
Numerous estimates to be made
There are considerable hidden costs
Behavior of cost elements during implementation of
TQM
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Limitations of Cost of Quality Model

– Does not resolve quality problem
– Communication of COQ does not simulate cost reduction
– Report does not specify action
– Do not capture all costs
– COQ is of little use for evaluating quality programme
– Some important costs are eliminated and not reflected
– Delays between cost and effect
– Subjected at times to judgments and estimates
– Tendency to be short term
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Concept of ‘Return to quality’

(ROQ) model

Examples of training &

Development
Introduction of prevention for Market
Returns
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Measurements &
Continuous Improvement
• Market Driven Quality Model
Three Major Components
– Setting of Initiatives
– A system of quality measurement
– Process Reviews
Target;Central objective is around defect elimination
(SIX- SIGMA)Key
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Measurements &
Continuous Improvement
Quality Measures in a Benchmarked Co.
•Customer Related – Percent Shipping, Warehouse
Errors, Return Cycle Time
•Product Quality Measures – PPM defects
(internal/external), Life test results
•Process Quality Measures – Cycle Time, Rework at
various stages, Final Yield
•Supplier Performance Measures – PPM defective,
Purity Level, Test Results
•Organizational Effectiveness Measures – Cost of
Conformance, Cost of non-conformance & COQ
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Business Performance Measures & Indicators Perceived Value

Overall satisfaction
Complaints
Customer Gains & Losses of Customer
Customer awards & satisfaction

Return of equity
Financial Return of Investment
Operating profit
Earnings per share
Business Financial &
Performance Market
Market Market share
% new product sales

Absenteeism
Turn over
Human Training effectiveness
Grievances
Resource Suggestion Rates
Employee Satisfaction

Quality & Delivery Defects & errors

Supplier & Partner Price & cost saving Productivity
Cycle time
Regulatory & legal compliance
New product introductions
Organizational Community Service
Safety
Effectives Environment
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Closing of Gaps
…. Between final output & the expectations and needs of the
customers.
• Addressed through either continuous improvement,
breakthroughs, or a combination of both
• Application of the two, not only relevant to quality improvements
but also to general management
• Concept of “ fool-proofing” or POKAYOKE.

Types of data
– Numeric or quantitative
– Categorical or qualitative.
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Continuous Improvement
….Basic Tools
• Flow Charts
• Cause & Effect Diagrams
Fish bone diagrams or Ishikawa Diagrams
• Numeric Data Summarization
• Measures of location
Mean & Median
• Measures of Spread
Standard Deviation, Variance, Range& Percentiles
• Graphic relationship between two variables
Scatter Diagrams
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Tabular & Graphic Summarization of data

Tabular
1.Frequency distribution
2.Proportions
3.Absolute Frequencies
4.Relative frequencies
5.Cumulative Distributions

(The above are used for both qualitative as well as quantitative)

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• Graphic: 
1. Qualitative
1.Tally sheets
2.Location plots
3.Bar charts
4.Paired bar charts
5.Pie charts
6.Pareto diagrams (is a type of chart that contains both bars and a line graph)
2. Quantitative
1. Tally sheets
2. Histograms
3. Stem & leaf
4. Run charts
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Continuous Improvement ……Basic Tools

Seven Steps to Continuous Improvement

(PDCA (plan-do-study-act) or Shewhart Cycle)
• Select a problem and describe it clearly
• Study the present system PLAN
• Identify the possible causes
• Plan and implement a solution DO
• Evaluate Effects CHECK
• Standardize the effective solution ACT
• Reflect on process and develop future plans.
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STATISTICAL PROCESS CONTROL

Statistical process control (SPC) is the
application of statistical methods to the
monitoring and control of a process to
ensure that it operates at its full potential
to produce conforming product.
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Statistical Process Control may be

broadly broken down into three sets of
activities:
• understanding the process;
• understanding the causes of variation;
and
• elimination of the sources of special
cause variation.
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STATISTICAL PROCESS CONTROL (SPC)

Methodology
1. Prepare - Choose the variable or attribute to be
measured
- Determine the basis, size and frequency
of sampling
- Set up the control chart
2. Data Collection
3. Determination of trial control limits
4. Analysis and Interpretation
5. use as a problem solving
6. Use the chart for process capability analysis
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Some World Class Quality Tools & Practices

 Quality Function Deployment – House of

Quality
 FMEA (failure modes and effects analysis) &
DFMEA (Design failure modes and effects
analysis )
 Design of Experiments – DOE
 5 S ( Details of 5S' is as under)
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'5S' is the name of a workplace

organization methodology that uses
a list of five Japanese words which
are seiri, seiton, seiso, seiketsu
and shitsuke.
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Phases of 5S
There are 5 primary phases of 5S:
sorting, straightening, systematic
cleaning, standardizing, and sustaining.
Additionally, there is an additional
phase, safety, that is sometimes
included.
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Sorting (Seiri)
Eliminate all unnecessary tools, parts,
instructions. Go through all tools,
materials, etc., in the plant and work
area. Keep only essential items.
Everything else is stored or discarded.
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Straightening or Setting in Order / stabilize (Seiton)

There should be a place for everything and everything
should be in its place. The place for each item should
be clearly labeled or demarcated. Items should be
arranged in a manner that promotes efficient work flow.
Workers should not have to repetitively bend to access
materials.
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Sweeping or Shining or Cleanliness /

Systematic Cleaning (Seiso)
Keep the workplace tidy and organized. At the end
of each shift, clean the work area and be sure
everything is restored to its place. This makes it
easy to know what goes where and ensures that
everything is where it belongs. A key point is that
maintaining cleanliness should be part of the daily
work - not an occasional activity initiated when
things get too messy.
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Standardizing (Seiketsu)
Work practices should be consistent
and standardized. Everyone should
know exactly what his or her
responsibilities are for adhering to the
first 3 S's
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Sustaining the discipline Or Self Descipline

(Shitsuke)
Maintain and review standards. Once the
previous 4 S's have been established, they
become the new way to operate. Maintain
focus on this new way and do not allow a
gradual decline back to the old ways. While
thinking about the new way, also be thinking
about yet better ways.
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 Policy Deployment
 Taguchi Loss Function (The
Taguchi Loss Function is a graphical
depiction of loss developed by the Japanese
business statistician Genichi Taguchi to
describe a phenomenon affecting the value of
products produced by a company.)
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The Taguchi Loss Function is important

for a number of reasons. Primarily, to
help engineers better understand the
importance of designing for variation. It
was important to the Six Sigma
movement by driving an improved
understanding of the importance of
Variation Management
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 Process & Supplier Capability Evaluation

 Quality Circles
 Self Directed Work-Teams
 Concurrent & Sequential Engineering
 Business Process Re-engineering
 Six-Sigma
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House of Quality or Quality functions deployment

Ishikawa diagrams (also called fishbone diagrams or cause-and-effect diagrams) are

diagrams that show the causes of a certain event.
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Ishikawa /Fishbone diagrams:

Ishikawa diagrams (also called fishbone
diagrams or cause-and-effect diagrams) are
diagrams that show the causes of a certain event.
Common uses of the Ishikawa diagram are
product design and quality defect prevention, to
identify potential factors causing an overall effect.
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The categories typically include:

• People: Anyone involved with the process
• Methods: How the process is performed and the
specific requirements for doing it, such
as policies, procedures, rules, regulations
and laws
• Machines: Any equipment, computers, tools etc.
required to accomplish the job
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•Materials: Raw materials, parts, pens, paper, etc.

used to produce the final product
•Measurements: Data generated from the process
that are used to evaluate its quality
•Environment: The conditions, such as location,
time, temperature, and culture in which
the process operates
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Ishikawa diagram, in fishbone shape, showing factors of Equipment, Process,

People, Materials, Environment and Management, all affecting the overall
problem. Smaller arrows connect the sub-causes to major causes.
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An example to understand house of quality for a vacuum cleaner

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Measuring Satisfaction in a service industry

Measure of progress
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Taguchi Loss Function

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Failure Modes and Effects Analysis

(FMEA)
• Failure Modes and Effects Analysis
(FMEA) is methodology for analyzing
potential reliability problems early in the
development cycle where it is easier to
take actions to overcome these issues,
thereby enhancing reliability through
design.
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Failure Modes and Effects Analysis

(FMEA)
FMEA is used to identify potential
failure modes, determine their
effect on the operation of the
product, and identify actions to
mitigate the failures.
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Failure Modes and Effects Analysis

(FMEA)
A crucial step is anticipating what might
go wrong with a product. While
anticipating every failure mode is not
possible, the development team should
formulate as extensive a list of potential
failure modes as possible.
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Design Failure Modes and Effects Analysis

(DFMEA)
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Types of FMEA's
• There are several types of FMEAs, some
are used much more often than others.
FMEAs should always be done whenever
failures would mean potential harm or
injury to the user of the end item being
designed.
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Types of FMEA's
The types of FMEA are:
•System - focuses on global system functions
•Design - focuses on components and
subsystems
•Process - focuses on manufacturing and
assembly processes
•Service - focuses on service functions
•Software - focuses on software functions
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Benefits of FMEA
• FMEA's provide the engineer with a tool that can
assist in providing reliable, safe, and customer
pleasing products and processes.
Since FMEA help the engineer identify potential
product or process failures, they can use it to:

• Develop product or process requirements that

minimize the likelihood of those failures.
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Benefits of FMEA
•Evaluate the requirements
obtained from the customer or
other participants in the design
process to ensure that those
requirements do not introduce
potential failures.
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Benefits of FMEA
•Identify design characteristics
that contribute to failures and
design them out of the system
or at least minimize the
resulting effects.
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Benefits of FMEA
•Develop methods and
procedures to develop and
test the product/process to
ensure that the failures have
been successfully eliminated.
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Benefits of FMEA
•Track and manage potential
risks in the design. Tracking the
risks contributes to the
development of corporate
memory and the success of
future products as well.
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Benefits of FMEA
•Ensure that any failures that
could occur will not injure or
seriously impact the customer
of the product/process.
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Japanese script

Kaize method of continuous incremental improvement

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Five “S” of KAIZEN

• Good housekeeping- This is
achieved through the five Ss:
• Seiri – tidiness. Separate what is necessary
for the work from what is not. This should
help to simplify work.
• Seiton – orderliness. You can increase
efficiency by making deliberate decisions
with regard to the allocation of materials,
equipment, files, etc.
• Seiso – cleanliness. Everyone should help
to keep things clean, organized, looking
neat and attractive.
• Seiketsu – standardized clean-up. The
regularity and institutionalization of keeping
things clean and organized as part of 'visual
management' is an effective means of
continuous improvement.
• Shitsuke – discipline. Personal
responsibility for living up to the other four
S's can make or break the success of
housekeeping
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Elements of Kaizen
• Kaizen literally means change (kai) to
become good (zen). Key elements of
kaizen are: quality, effort, willingness to
change and communication.
The kaizen attitude supports a continuous
process of incremental improvements
within an organization.
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Elements of Kaizen
The foundation of the kaizen model
consists of five founding elements:
• teamwork
• personal discipline
• improved morale
• quality circles
• suggestions for improvement.
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Elements of Kaizen
From this foundation, three key
aspects of kaizen arise:
• elimination of muda (waste, inefficiency)
• the five-S framework for good
housekeeping and
• standardization.
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Elements of Kaizen

•Through its impact on multiple

functional parts of the
organization, kaizen can
eventually lead to sustainable
profit management.
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Kaizen - When to use it

The organization must reduce and eliminate
muda (waste, inefficiency) on the
production floor as a result of
overproduction, excess inventory, rejected
products, movement, production and
assembly, waiting, transportation, etc.
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What is Kaizen all about

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KAIZEN
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KAIZEN
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Supplier Capability Evaluation

• Supplier evaluation is a term used in
business and refers to the process of
evaluating and approving potential
suppliers by factual and measurable
assessment.
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Supplier Capability Evaluation

•The purpose of supplier
evaluation is to ensure a
portfolio of best in class
suppliers is available for
use.
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•Supplier evaluation is also a

process applied to current
suppliers in order to measure and
monitor their performance for the
purposes of reducing costs,
mitigating risk and driving
continuous improvement
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Process Capability Evaluation

• What is Process capability?
• Process Capability is the strategy to study of capability
or the ability of a process. “Process Capability” study
answers the key questions like , “Is this process capable
enough to meet its objective?”
• It refers to the capability of any process to produce a
defect free product or services when the process is in a
phase of statistical control.
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Process Capability Evaluation

•Process capability study is useful to
appraise the ability of any process to
meet the needed specifications. We
can judge that how capable is the
process in terms of producing output
within the specification limit.
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Process Capability Evaluation

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Phases of Process capability analysis.

There are two methodology of calculating
Process Capability:
1. Based on measuring the variability of
the process directly.
(the inherent variation within a sample)
2. Based on counting the number of
defects produced by the process.
( DMPO or Six sigma )
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ISO 9000 : 2008

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ISO 9000 is a family of standards for

quality management systems.
ISO 9000 is maintained by ISO, the
International Organization for
Standardization and is administered by
accreditation and certification bodies.
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The rules are updated, as the

requirements motivate changes over
time. Some of the requirements in ISO
9001:2008 (which is one of the
standards in the ISO 9000 family)
include:
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•a set of procedures that cover all key processes in the

business;
•monitoring processes to ensure they are effective;
•keeping adequate records;
•checking output for defects, with appropriate and
corrective action where necessary;
•regularly reviewing individual processes and the
quality system itself for effectiveness; and
•facilitating continual improvement
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A company or organization that has

been independently audited and
certified to be in conformance with ISO
9001 may publicly state that it is "ISO
9001 certified" or "ISO 9001 registered".
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Certification to an ISO 9001

standard does not guarantee any
quality of end products and services;
rather, it certifies that formalized
business processes are being
applied.
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Contents of ISO 9001:

ISO 9001:2008 Quality management
systems — Requirements is a
document of approximately 30 pages
which is available from the national
standards organization in each country.
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The Baldrige Model

of Performance
Excellence
A framework for
continuous improvement
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So What is Baldrige Anyway?

• A measure of system parts and connections
– How good are the parts?
– How good are the connections between the
parts?
• A blueprint for building good, well-connected parts
• A process for determining which parts and which
connections add value and which do
not
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Performance Excellence

• Is the result of continual improvement

driven by customer needs,
expectations, and requirements
• Is the result of getting better and
knowing that you have
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Aim of the
Organization

Goals and Measures

Random Acts of Improvement

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Aligned Acts of Improvement

School
Improvement
Plan

GOALS = Programs
and
processes
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Examples of aligned arrows...

• Requisitions
• Employee Evaluation
• Hiring
• Curriculum (e.g. grade 3 math; hs
American History)
• Effective Instruction Strategies
• School Improvement Plans
 Alignment between SystemsAmity Business School
Student

Classroom

School

District

State
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Performance Excellence
Based upon the following assumptions:
• People want to do the right thing and want
to be successful
• 95% of the problems workers face are the
result of the system- and leadership has a
responsibility to fix the system
• Fixing one part of the system is necessary
but not sufficient for performance
excellence
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Putting Together The Pieces

The 7 Baldrige Categories
• Leadership
• Strategic Planning
• Student/Stakeholder Focus
• Information and Analysis
• Human Resource Focus
• Process Management
• Performance Results
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BALDRIGE CRITERIA
Strategic
‘Above the Line’
Leadership

Student,
Stakeholder & Strategic Planning
Market Strategic
Focus Performance
Results

Process
Human Performance
Process
Resource Results
Management
Focus

Information & Analysis

Operational
CORE VALUES
Adapted from BiE IN
‘Below the Line’ Baldrige Model
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Category 1 - Leadership
• Requires leaders to set and
communicate direction
consistent with stakeholder requirements
– How do leaders set and communicate direction?
– How do leaders monitor progress?
– How do leaders model the use of the principles of
quality management?
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Category 2 - Strategic Planning

• Translates stakeholder needs into goals,
measures and action plans
– How do we develop goals and measures?
– How do we implement the plan?
– How does each individual’s personal goals
and actions support the plan?
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Category 3 - Student & Stakeholder

Focus
• Defines the aim of the district, school or
classroom
– How do we determine student and stakeholder
requirements?
– How do we measure student and stakeholder
satisfaction?
– How do we build positive relationships with
students and stakeholders?
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Category 4 - Information & Analysis

• Provides the foundation for aligned decision
making in all areas of the system
– How do we select and manage information?
– How do we select and use comparative data?
– How do we evaluate and improve information
systems?
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Category 5 - Human Resource Focus

• Examines how the district, school or
classroom enables workers to develop and
utilize their full potential
– How do we ensure collaboration and
teamwork?
– How are workers trained, educated and
evaluated?
– How do we measure and improve employee
morale and well-being?
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Category 6 - Process Management

• Addresses how educational products and
services are designed, implemented and
improved
– How do we design instructional and support
processes?
– How do we continually improve important
processes using Plan, Do, Study, Act?
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Category 7 - Performance Results

• Examines the district, school or classroom
performance in key areas
– What is the level of baseline performance?
– What is our performance over time?
– How do our results compare to similar
districts, departments, schools or classrooms
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The Core Values…

• Learning - Centered • Systems Perspective
Education
• Management By Fact
• Visionary Leadership
• Focus on the Future
• Organizational and
Personal Learning • Public Responsibility &
• Valuing Faculty, Staff and Citizenship
Partners • Agility
• Managing For Innovation • Focus on Results and
Creating Value
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