Performance measurement will not improve performance by itself. We still need to interpret performance data, to implement corrective actions and more than anything: we need people to change the way that they do things in order to achieve lasting performance improvement. This is again the same as with energy and environmental management, or indeed as with any performance management system.
But many companies do not have the experience, tools or established processes to address complex performance problems or to assess with confidence whether some new performance improvement project will deliver acceptable results. Performance problems can stifle growth, increase costs, reduce productivity, cause customer dissatisfaction and ultimately make a company less competitive.
An energy and environmental performance management system (EEMS) through its measuring, monitoring, controlling and efficient communication structures, as described here, can provide a foundation for the continuous performance improvement of production processes, which is a precondition for competitiveness. Based on these structures and foundations an integrated performance measurement system should be developed enabling combined strategic and operational management aiming at technical mastery, managerial excellence and business profitability and improvement in competitiveness .
An integrated performance management system (IPMS, Fig. 6.10.) provides an infrastructure that supports all management needs and enables the continuous evaluation of business performance. It reduces
Strategic performance management
Figure 6.10 Integrated performance management system
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Strategic performance management
Figure 6.10 Integrated performance management system
redundancy in monitoring and reporting work and related equipment and ensures the seamless integration of data and information across business functions.
Let us emphasize once again what this infrastructure consists of:
1. Organizational provisions such as:
• the conspicuous commitment of top management secured;
• adequate policies in place,
• established cost centers,
• assigned responsibilities and reporting lines,
• training needs assessment carried out,
• motivation and awareness program designed.
2. Current position established and performance improvements targets set.
3. Strategic and operational performance indicators defined.
4. Integrated performance measurement system installed.
5. Implementation action plan approved.
6. Training carried out.
7. People empowered to make decisions and provide initiatives.
8. Pilot run of integrated performance management system (IPMS) kicked off.
9. Internal communication and coordination lines established.
10. Road wide open for continuous performance improvements, organizational learning and discovery of knowledge.
Therefore, integrating critical performance management elements such as a performance measurement system, performance indicators, organizational structures and a culture of continuous improvement, trained and empowered people at all levels and at all business functions and purposeful learning and knowledge discovery procedures, into a comprehensive solution in order to provide a framework for daily monitoring and improvement of business performance makes common sense.
Our case study of a textile factory, which was introduced in Box 6.1 with considerations of operational performance improvement, continues in Box 6.2 with the strategic management response to the threats from the company's technological, business, social and political environment.
Box 6.2: A textile factory - the case continue (from Box 6.1)
Additional issues considered at the same time as the initial customer complaints (see Box 6.1) on quality and delivery, were reflecting more on strategic business concerns. This very case evolved in South East Asia during the second half of the 1990s, when it became apparent that in the textile industry new low-labor cost competitors were arriving. The company recognized that in the medium term it would not be able to compete based only on cheap labor, because cheaper labor was already on offer. Therefore they realized that it was necessary to differentiate their products by increasing the quality and value of services to the customers, in order to remain competitive!
Further, during the economic boom of 1980s, environmental issues were non-issues and nobody paid too much attention to clean production. It was the same with energy. The main focus was on production growth and energy efficiency was not an issue for top management.
However, this situation started to change. At first, new regulations on energy conservation were introduced, which forced the company to act. This was the trigger that brought us to work with the company and as the result an energy management system was implemented by the company. Then, local communities became more sensitive to environmental issues, particularly water pollution and other environmental impacts from the dyeing plant.
Box 6.2: Continued
The customers were expecting better service, because of stronger competition among textile manufacturers. Additionally, some customers started enquiring about the company's environmental management practices, in accordance with their own environmental policy of buying from 'clean'producers.
The company's technology was gradually becoming obsolete as compared to new machines that had higher outputs, lower energy consumption, especially for dyeing machines, and lower water consumption, therefore reducing environmental impacts.
All of these strategic issues and considerations were assessed at the same time as specific operational issues, and were the main reason that the company decided to undertake significant investment in the bar code tracking system and new dyeing machines, as pointed out already. They also decided to extend the already existing energy management system, in keeping with environmental issues and to go for ISO 14000 certification.
This is an example of an integrated consideration of strategic and operational issues and the formulation and implementation of responses to strategic threats and immediate operational problems that have strengthened the company's competitive position as against emerging competition, against societal changes and against customers' increasing demands for quality and environmentally responsible manufacturing.
The example in Box 6.2 shows how integrated performance management transforms conceptual and logical models into a practical working solution that optimizes the use of technical and human resources and enables the capturing the knowledge. Technical excellence achieved through learning by doing and related knowledge creation and innovation, enhanced capability for communication, product quality, work safety and an environmentally sound production, together with low energy costs, were the results achieved in that case study by an integrated approach to improvement of the company's performance.
Additionally, demand for reliable information about the social and environmental performance of companies is increasing. Intensified public concern and mandatory and voluntary reporting obligations, as already described, create additional data requirements for a company's social responsibilities and business and environmental performance (Fig. 6.11). Civil society, customers and investors increasingly expect businesses to demonstrate that they behave in a responsible way. More and more companies
recognize that sound performance measurements and an integrated performance management system can help them to manage the social issues effectively.
However, reporting in itself is just the tip of the performance management 'ice berg' (Fig. 6.12). The main challenge is to know how to design and apply a comprehensive performance management system that will deliver continuous performance improvement, thus realizing a company's strategic objectives, satisfying regulatory requirements and addressing public concerns about environmental issues.
At the bottom of the iceberg, there will always be an effective knowledge base, consisting of internal and, if necessary, external know-how that supports everyday performance management. New knowledge is being created continuously by learning through experience, i.e. organizational learning and the knowledge base is being updated and upgraded.
If we combine the issues of organizational fragmentation, operational and strategic management, organizational learning and business ethics, we acquire another view of integrated performance management. This is shown by Figure 6.13.
An integrated performance management system focuses on optimizing the productivity and profitability of a business as an integrated unit, including the internal and external business aspects and environment, and it requires adequate business strategies (Fig. 6.14). These strategies rely on people who ultimately deliver performance improvement and customer satisfaction and who create value and knowledge, thus contributing to organizational learning.
Deployment of such a strategy will integrate management processes in order to ensure that planning and decisions are done by examining the same databases, assumptions and methodology that include continuous improvement techniques, avoiding gaps but also avoiding overlapping and redundancy.
This will ensure that ALL resource utilization will be measured properly and that the supply and demand side of the business will be managed and coordinated properly. Inefficient utilization of resources
drives costs up and customer service down. Continual improvement of interrelated processes, individual skills and associated management systems is a permanent organizational objective that requires the continuous measurement and evaluation of results and satisfaction. Continuous improvement leads to quality enhancement and cost efficiency, thus improving productivity and improving overall business performance.
The focus is on results - improving competitiveness in the marketplace and improving the overall business performance of the company. The goals of the IPMS are the long-term growth of the business, timely adjustments to a changing world and global marketplace, purposeful learning and discovery of knowledge and continuous 'profit-ability' improvement.
Creating Value for customers and shareholders
Energy and environmental management
Operational cost management
Excellence of human resources
Figure 6.14 A Strategic Approach to Integrated Performance Management
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