1. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 1 Chapter 8 Performance Measurement and Strategic Information Management

2. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 2 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

3. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 3 Process Flow Measurement - act of quantifying the performance dimensions Data – measure and indicators Analysis Information

4. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 4 Customer Requirements Measurements ProcessesResults Design Control Prediction Validation Use of Information and Analysis Measurement supports executive performance review and daily operations and decision making.

5. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 5 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

6. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 6 Empirical Survey Results Measurement-managed 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

7. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 7 Example: Federal Express “We measure everything. Then…we 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.

8. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 8 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?

9. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 9 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

10. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 10 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

11. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 11 The Balanced Scorecard 1.Financial perspective 2.Internal perspective 3.Customer perspective 4.Innovation and learning perspective Leading measures Lagging measures

12. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 12 Key Types of Business Performance Measures Customer satisfaction Financial and market performance Human resource Supplier and partner performance Organizational effectiveness

13. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 13 Example: Wainwright Industries Safety Internal customer satisfaction External customer satisfaction Six sigma quality (manufacturing defects) Business performance

14. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 14 Common Quality Measures Nonconformities (defects) per unit Errors per opportunity Defects per million opportunities (dpmo)

15. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 15 Importance of Comparative Data Comparative data: industry averages, best competitor performance, world-class benchmarks Helps recognize the need for improvement Provides motivation to seek improvement

16. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 16 Linkages to Strategy Key business drivers (key success factors) Strategies and action plans Measures and indicators

17. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 17 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?

18. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 18 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

19. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 19 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

20. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 20 Quality Cost Classification (1 of 2) Prevention –Quality planning –Process control –Information systems –Training and general management Appraisal –Test and inspection –Instrument maintenance –Process measurement and control

21. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 21 Quality Cost Classification (2 of 2) Internal failure –Scrap and rework –Cost of corrective action –Downgrading –Process failures External failure –Customer complaints and returns –Product recall and warranty claims –Product liability

22. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 22 Quality Cost Management Tools Cost indexes Pareto analysis Sampling and work measurement Activity-based costing

23. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 23 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

24. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 24 Managing Data and Information (1 of 2) Capture data once and as close to the origin as possible Capture electronically if possible Use a single database where possible Accountability Quality

25. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 25 Managing Data and Information (2 of 2) 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?

26. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 26 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 Basic Advanced

27. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 27 Interlinking Quantitative modeling of cause and effect relationships between external and internal performance criteria customer satisfaction rating time on hold (telephone) * * * *

28. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 28 Information and Analysis in the Baldrige Award Criteria (1 of 2) The Information and Analysis Category examines an organization’s information management and performance measurement systems and how the organization analyzes performance data and information.

29. THE MANAGEMENT AND CONTROL OF QUALITY, 5e, © 2002 South-Western/Thomson Learning TM 29 Information and Analysis in the Baldrige Award Criteria (2 of 2) 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