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
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