Chapter 4 Using Information for Performance Measurement and ...

Using Information

Performance Measurement &
Control

Andrea Barnes

Dhruv Patel

Richard Rorrer

Ron Wilson

Chapter 4

MBA 629

03/30/04

Information


The communication or reception of
intelligence or knowledge

Cybernetics


A field of study devoted to the study of
information and its use in feedback
processes

Feedback is information about actual
events or outcomes that can be compared
with expectations or standards

Organizational Information
Flows

Managers collect information to understand
the business environment and climate

Managers inform employees about markets
and the activities resources are devoted to

Managers communicate business strategy

Managers communicate plans, goals, and
milestones

Managers communicate to external
constituencies

Organizational Process Model

Inputs

Process

Outputs

Standard
(Ex Ante
)

Feedback (Variance Information)




Standards and feedback help gain control of a cybernetic
process


Standards are formal performance expectations
-

Ex ante
standards are set in advance


Feedback is the return of variance information from output to the
input or process stages to enable adjustments when needed



Inputs, Process, Outputs

Input Measures


•
Number of labor
hours

•
Number of
components meeting
specification

•
Number of staff
assigned to a job

•
Labor and material
dollars

•
Cost of components

Process Measures


•
On time delivery
achieved

•
Order completion
time

•
Set up time

•
Cost of prototyping
new parts

•
Cost of backorder
handling

•
Cost of rework

Output Measures


•
Number of new
products introduced

•
Number of orders
processed

•
Sales dollars
derived from new
products

•
Cost per order
processed

•
Cost per unit

Focus of measurement efforts

To ensure that the valuable inputs gained
from the Organizational Process Model are
put to use, managers must focus on either
the transformation process or the outputs
being produced.

Managers must understand the nature of the
desired outputs before deciding their focal
point


Four Criteria

Focal Point Decision

Technical Feasibility of Monitoring and
Measurement

Understanding Cause and Effect

Cost

Desired Level of Innovation


Technical Feasibility of
Monitoring and Measurement

Monitor processes directly only when they
can be observed in action

Monitor outputs directly only when
accurate measurement is possible.

This applies to both services and
production processes

Understanding Cause and
Effect

If the manager does not understand the
cause and effect relationship between
transformation and outcomes, monitoring
processes is not feasible for control

When the relationship between cause and
effect is unclear, monitoring outcomes is
preferred.

Cost

Monitoring outputs is less time
consuming than monitoring processes

All things being equal, a manager will
choose to monitor outputs to conserve
time

Exception: When the cost of not
monitoring a process is prohibitively high

-

NASA monitoring the launch process
of a space vehicle


Desired Level of Innovation

To minimize innovation, managers focus on
process and not outputs

–
Assembly line work, fast food restaurants

–
Risks include employee apathy and job
dissatisfaction

To maximize innovation, managers focus on
outputs and not process

–
Research groups, marketing groups

–
Risks are wasting resources and damage to
company reputation

When All Else Fails

Cases exist where monitoring processes
and outputs are not feasible

Monitoring of inputs becomes the control

–
Forest rangers, religious field leaders

–
Consistency of inputs are controlled
through training and indoctrination

Determining Factors to Control

Control Inputs

•
It is impossible to
monitor
processes/outputs

•
Cost of input high
relative to value of
outputs

•
Quality and/or safety is
important


Control Processes

•
Processes can be
observed and/or
measured

•
Cost of measuring and
monitoring process is
low

•
Standardization is
critical for safety and/or
quality

•
Cause and effect
relationships are
understood

•
Proprietary processes
of process
enhancements can
result in strategic
advantage

Control Outputs

•
Outputs can be
observed and/or
measured

•
Cost of measuring
and/or monitoring
outputs is low

•
Cause and effect
relationships may not
be well understood

•
Freedom to innovate
is desired


Uses of Information

Decision Making

Control

Signaling

Education and Learning

External Communication

Decision Making

Information improves the decision
process

–
Planning is the process of setting goals
for the business

–
The plan is the road map for the
business

–
Coordination is necessary to integrate
different parts of the business to
achieve the plan

Control

Information is used as feedback to ensure
alignment of inputs, processes, and
outputs

Information allows evaluation of
employees

–
Ex post evaluation of performance
compares actual efforts to outcomes
relevant to expectations

Information allows motivation of
employees

–
Extrinsic motivation

–
Intrinsic motivation

Signaling

Information signals management direction
to employees

–
Preferences

–
Values

–
Types of opportunities


Education and Learning

Information is used to train personnel to
better understand the internal and external
environment

–
Economics of the business

–
Revenue, cost, and performance drivers

Information supports organizational
learning

External Communication

Information is used to communicate with
External Constituencies

–
Capital providers

–
Providers of goods and services

–
Customers

–
Community action groups