1. Copyright ©2016 Cengage Learning. All Rights Reserved
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. Describe the types of measures used for decision making
Explain the use of analytics in OM and how internal and external measures are related
Explain how to design a good performance measurement system
Describe four models of organizational performance

3. quantifying the performance criteria of:
Measurement
quantifying the performance criteria of:
Organizational units
Goods and services
Processes
People
Other business activities

4. Why ? - Measurement Good measures: Provide scorecard of performance
Help identify performance gaps
Make accomplishments visible to:
Workforce
Stock market
Other stakeholders

5. What is measured Financial Customer and market Quality Time
Flexibility
Innovation and learning
Productivity and operational efficiency
Sustainability

6. Most important in for-profit organizations
Financial Measures
Most important in for-profit organizations
Traditional financial measures
Revenue
new goods and services
existing goods and services
Operating profit (EBIDTA)
Net profit (E after I D A)
Return on investment (ROI)
Pretax profit margin
Asset utilization
Earnings per share and other liquidity measures

7. Customer and Market Measures
Customer and market feedback is used by to:
Evaluate the customer and stakeholder’s satisfaction
Indicate the customer’s likely future buying behavior.
Value of Loyal Customer (VLC)

8. Quality is defined by customer expectations
Quality measures show how well the output meets customer requirements
Goods quality: Relates to the physical performance and characteristics of a good
Service quality: Consistently meeting or exceeding customer expectations and service delivery system performance for all service encounters

9. Every service encounter provides an opportunity for error
Service Quality
Dimensions
Tangibles –premises, uniforms, vehicles etc
Reliability –dependable & accurate service
Responsiveness –problem solving
Assurance – product knowledge & trust
Empathy – ‘customer care’
Every service encounter provides an opportunity for error
Service failures: Errors in service creation and delivery

10. Moments of Truth
“Have a nice day”
Something extra

11. Relates to types of performance measures
Time
Relates to types of performance measures
Speed of doing something
Processing time
Queue time
Variability of the process - Measured by statistics such as:
Standard deviation or mean absolute deviation

12. Ability to adapt quickly and effectively to changing requirements
Flexibility
Ability to adapt quickly and effectively to changing requirements
Goods and service design flexibility: Ability to develop a wide range of customized goods and services to:
Meet different or changing customer needs
Volume flexibility: Ability to respond quickly to changes in the volume and type of demand

13. Innovation and Learning
Innovation: Ability to create new and unique goods and services that:
Delight customers and create competitive advantage
Learning: Creating, acquiring, and transferring knowledge, and modifying the behavior of employees in:
Response to internal and external change

14. Productivity and Operational Efficiency
Productivity: Ratio of the output of a process to the input
Productivity = Quantity of output/Quantity of input
Operational efficiency: Ability to provide goods and services to customers with minimum waste and maximum utilization of resources

15. Sustainability
Triple bottom line (TBL or 3BL): Measurement of environmental, social, and economic sustainability
Environmental sustainability measures
Energy consumption
Recycling
Air emissions
Solid and hazardous waste rates

16. Triple bottom line (TBL or 3BL)
Sustainability
Triple bottom line (TBL or 3BL)
Social sustainability measures
Consumer and workplace safety
Community relations
Corporate ethics and governance
Economic sustainability measures
Financial audit results
Regulatory compliance
Sanctions and fines
Accomplishment of strategic initiatives

17. Business Analytics
Helps operations managers to analyze data more effectively and make better decisions
Applications of business analytics
Visualizing data to examine performance trends
Calculating basic statistical measures
Comparing results relative to other business units, competitors, or best-in-class benchmarks
Using correlation and regression analysis

18. Linking Internal and External Measures
Cause-and-effect linkages between key measures of performance explain the impact of operational performance on external results
Interlinking: Quantitative modeling of cause-and-effect relationships between external and internal performance criteria

20. Value of a Loyal Customer (VLC)
Quantifies the total revenue or profit each target market customer generates over the buyer’s life cycle
Total market value - Multiplying the VLC times the absolute number of customers gained or lost

21. Calculating VLC
VLC = P*CM*RF*BLC
P = price
CM = contribution (Price – VC)
RF = repurchase frequency (how often / year)
BLC = buyer life cycle (how long a customer?)

22. Repurchase = 12 times /year Customer satisfaction / retention = 90%
HAIRCUTS
Price = $15.00 per cut
Costs
Rent $330/week
Power $50/week
Licenses $20/week
Repurchase = 12 times /year
Customer satisfaction / retention = 90%

23. Designing Measurement Systems in Operations
Good performance measures are actionable
Actionable measures: Provide the basis for decisions at the level at which they are applied
Meaningful to the user
Timely
Reflect the way organization generates value to customers

24. Models of Organizational Performance
Baldrige performance excellence framework
Balanced scorecard
Value chain model
Service-profit chain model

25. Baldrige Performance Excellence Framework
Primary purpose of the program - Provide a framework for performance excellence through:
Self-assessment to understand an organization’s strengths and weaknesses

26. 3.4 Baldrige Model of Organizational Performance

27. The Balanced Scorecard Model
Purpose - Translate strategy into measures that uniquely communicate an organization’s vision
Perspectives
Financial - Value to shareholders
Customer - Customer satisfaction and market growth
Innovation and learning - People and infrastructure
Internal - Processes that drive the business

28. 3.5 The Balanced Scorecard Performance Categories and Linkages

29. The Value Chain Model
Evaluates performance throughout the value chain by identifying measures associated with:
Suppliers
Inputs
Value creation processes
Goods and service outputs and outcomes
Customers and market segments
Supporting management processes

30. Service-profit Chain Model
Most applicable to service environments
Based on a set of cause and effect linkages between internal and external performance
Defines the key performance measurements on which service-based firms should focus
Theory - Employees driven through the service delivery system, create customer value and drive profitability

31. 3.7 The Service-Profit Chain Model