Integrated Performance Measurement System

Successful performance management depends upon the effective design and use of performance measurement. Organizations succeed when their business units and support functions work together to achieve a common goal. A well designed performance measurement system (PMsS), across business functions, is a cornerstone for the achievement of continuously improved performance at every level. The primary objective of an integrated performance measurement system (IPMsS) is to avoid the usual problems associated with data fragmentation, such as excessive cost and reduced reliability of gathering data on business performance.

Instead of gathering data and using it for a single purpose, a performance measurement system should be constructed so that data is gathered once from one source and than used in multiple places or for multiple purposes. This concept is illustrated in Fig. 6.9.

Therefore, designers of performance measurement systems need to take care to avoid data fragmentation and redundancy and secure a reliable and complete data base that will provide a platform for effective performance management.

Performance measurement - systematic data collection where accuracy is more important than precision - gives a comprehensive insight into activities and is to be utilized by employees and managers alike, in order to improve their performance. Performance measurement should be applied to every business process and function. There are no sustainable performance improvements without an adequate performance measurement system that should confirm, or otherwise, progress in meeting the objectives. The following questions can be used as a guide to determine performance measurements for each performance aspect and dimension that is to be monitored:

• What performance aspect or dimension has to be monitored?

• How can performance indicators be defined?

• Who will analyze and report on performance?

• To who are the reports are to be sent for comment and feedback?

With these questions answered, the performance measurement system can be developed by building upon the organizational structure already established by an EEMS, which is focused on energy cost centers (Fig. 6.2) and the people who work there. The above questions emphasize that the measurement is not just a technical issue but also necessarily involves people who will use data in order to manage the various performance aspects in the company.

For instance, quality management requires measuring customer satisfaction, rework and rejects. Production management requires measuring labor productivity, throughput quantities and cycle time. Environmental management requires measuring environmental impacts and regulatory compliance. Energy management requires measuring efficiency of resource use, including materials, energy and water at the point of use. Strategic performance management requires keeping an eye on competitors, new technological development, political and societal changes, and so on, Ultimately, everything comes down to the definition of appropriate performance indicators and the adequacy of the applied performance measurements.

An example of integrated performance measurement is provided by Table 6.2.

Table 6.2 is not and cannot be complete, because for any particular business it would have specific entries even under the same titles. But it demonstrates the approach to defining performance measurement which is the first step toward integrated performance management.

Performance measurement is where all the performance management systems ultimately meet each other. The IPMsS must be aligned with the performance improvement strategy, and if so it will influence behavior and encourage and enable implementation of the strategy. The essence of continuous improvement is to seek constantly ways in which products and processes can be made better. If additional improvement initiatives are to be endorsed, it would require upgrades of existing IPMsS, and not the introduction of a new one! As organizations grow in size, scope and complexity, integrated performance measurement systems become more and more important as effective providers of data and information on business performance.

Figure 6.9 Fragmented and Integrated Performance Measurement
Table 6.2 A sample metrics for integrated performance measurement*

Performance aspect

What needs to be measured

Why

Where and how often

Performance indicator

I

Operational performance management

Production output

• All types of products (P) or semi-products

• Raw material (RM)

• To assess capacity utilization (C);

• To be used for other performance indicators;

At all cost centers (CC), per day or per shift

SP

Energy efficiency

All energy types, including water (E)

• Increase efficiency at the point of use;

• Reduce environmental impacts

At all cost centers (CC), per day or per shift

PI = E

Material productivity

• Good products or semi-products

• Increase efficiency at the point of use;

• Reduce environmental impacts

At all cost centers (CC), per day or per shift

RM

Labor productivity

Good products or semi-products per shift (Sh)

• To improve operational planning;

At all cost centers (CC), per day or per shift

Sh

Machine productivity

• Number of cycles per shift (NC);

• To improve capacity utilization;

• To avoid idling and holding;

At all cost centers (CC), per day or per shift

NC

Time productivity

Time required for completion of an operation (T);

• To improve operational planning;

At all cost centers (CC), per day or per shift

PI = T

• Rejects (RJ);

• Reduce environmental impacts;

At all cost centers (CC), per day or per shift

PI = T

Customer satisfaction

• Returned products

• Warranty calls (WC);

• Reduce environmental impacts;

• To improve service;

Customer service centers, continuously

PI = NC PI = RP PI = WC

{continued overleaf)

{continued overleaf)

Table 6.2 (continued)

Performance aspect

What needs to be measured

Where and how often

Performance indicator

Environmental compliance

• Hazardous waste (HW);

• Waste minimization;

• Environmental compliance;

• Emission trading;

• Social responsibility;

• Customers' goodwill;

At all cost centers (CC), per day or per shift

PI = AE PI = GHG PI = SW PI = HW

Cost effectiveness

All costs (TC) associated to an activity

(Ci);

• Increase efficiency of resources use at the point of use;

• Activity based costing;

• Product costing;

At all cost centers (CC), per day or per shift

Ci

Strategic performance management

Margins in a product

• Price of product (Pr);

• Relative importance of a product in products mix;

• Shell we drop a product from the mix?

For all products, monthly

Overall profitability

• Total annual revenue (TAR);

• Shareholders' satisfaction;

• Are we doing the right things?

• Are we doing the things in the right way?

For the business, quarterly

Market share

• Our annual revenue from the product (ARPM);

• Number of new entrants (NE);

• Is there a threat from new entrants?

• How we compare across the markets?

In a market or a jurisdiction, annually

Innovations

Number of new products per year (NP);

Are we innovative at all?

How do we compare with competitors?

For the business, annually

Table 6.2 (continued)

New

• Investments in

Is a new

Globally and in

technological

R&D in new

technology

particular

advancements

fields (R&D);

emerging?

markets where

• New ventures

Are new

the company

in these fields

products being

operates,

(NV);

accepted?

annually and

• Change in

How this affects

exploratory

market

our products

capitalization of

line?

NV;

Is there a new

• Annual sales of

threat?

new products

Is there a new

from NVs

opportunity?

(ASNP);

Political changes

• New

Does it affect

Globally and in

international

our supply

particular

treaties signed

chain?

jurisdictions

• New local

Does it affect

where the

legislation

our technology?

company

enacted;

Does it affect

operates,

our products?

annually and

Does it affect

exploratory

our customers?

*At the level of each cost centers responsibilities for performance must be assigned, together with performance targets and reporting lines and frequencies.

*At the level of each cost centers responsibilities for performance must be assigned, together with performance targets and reporting lines and frequencies.

Establishment of such a performance measurement system will initially require substantial resources in order to develop the knowledge and skill base needed to implement and use the performance measurements properly. But once such a system is established successfully, it provides a basis for systematic performance management across business functions enabling performance improvement in terms of quality, customer satisfaction, cost reduction, ultimately improving the profitability of the business.

A critical factor for the effectiveness of an integrated performance measurement system, as with the EEMS, is a company's ability to learn, to adjust and to capture the implicit knowledge that exists within the company. However, what is even more important for strategic management is to identify the pieces of relevant knowledge from the business environment that would shed light on the medium-term issues affecting business performance and which would support the preparation of adequate response strategies and polices.

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