langfield-smith “management control systems (mcs) is the process by which managers ensure that...

BUSINESS PERFORMANCEMANAGEMENT

What Is Management Control System ?

Langfield-Smith

“Management Control Systems (MCS) is the process by which managers ensure that resources are obtained and used effectively and efficiently in the achievement of the organization s objectives . MCS is a system used in an organization which collects and uses information to evaluate the performance of the organizational resources that will eventually influence the behaviour of the organization to implement organizational strategies.

“Langfield-Smith, K (1997), Management control systems and strategy: A critical review, Accounting, Organizations and Society, vol. 22, no. 2, pp. 207-232.”

What Is Business Performance Management ?

Tuomela

“Busniess Performance Management is to understand the concept of performance measurement systems we can say that performance management are known as collections of financial and non-financial performance indicators that managers use to evaluate their own or their unit s performance”

Armseh, H., Salarzehi, H. dan Kord, B. (2010) Business Performance Management- Interdisciplinary Journal of Contemporary Research in Business, October 2010 vol 2, no 6.

Relationship between MCS and BPM

Business Performance Management is a key component and very important in Management Control System

Business Performance Management

Management Control System

Kurniawan, D. (2009) Pengaruh Sistem Pengendalian Manajemen Dan Pembelajaran Organisasi Terhadap Kinerja Pada Pt. Garam (Persero) di Surabaya. Sekolah Tinggi Ilmu Ekonomi:

PERBANAS.

Stages of Business Performance Management

Strategize

Plan

Monitor and

Analyze

Take corrective

action

“BPM Standards Group (2004). Business Performance Management : Industry Framework Document. 27p.”

We identify what the organization wants to achieve

The step constitutes taking timely, appropriate action to change in performance

uncovered during monitoring and analysis.

The influence and benefits of a BPM

implementation become more visible in this step.

We develop a program of action on how to carry out the business strategy

BUSINESS PERFORMANCE MANAGEMENT FRAMEWORK

1. Balanced Scorecard 2. SMART – Strategic Measurement Analysis and Reporting Technique3. Performance Measurement for World Class Manufacturer 4. Performance Measurement Questionnaire5. Performance Criteria System6. Cambridge Performance Measurement Design 7. Integrated Performance Measurement Systems Reference Model8. Quantum Performance Measurement Systems

“Bititci U.S, Dynamics of Performance Measurement Systems, International Journal of Operations and Production Management, Vol 20, no. 6, pp 692-704. “

BALANCE SCORECARD1. The concept of Balanced Scorecard

“Kaplan, R. S, dan Norton, D.P. (1992) Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, January – February.”

Objective: Measures:

Targets: Intiatives:

Each perspective Include:

“Kaplan, R. and D. Norton (1992), “The Balanced Score Card – Measures that drive performance”. Harvard Business Review 70(4), pp: 71-79.”

The goal as a link between measure and strategy

Introduced to the program level strategy to achieve targets goal in perspective

Size is a tool to evaluate impementation of the objective

Numerical values that represent the effectiveness of achieving a specific goal.

BALANCE SCORECARDThe advantage Balanced Scorecard approach :

• Provides a comprehensive overview of the company's performance.

• Balanced score card protects from local optimization.• Help to avoid information overload by keeping only

measures related to strategy.

“Kaplan, R. and D. Norton (1992), “The Balanced Score Card – Measures that drive performance”. Harvard Business Review 70(4), pp: 71-79.”

Strategic Feedback & Learning

Articulating the shared vissionSupplying strategic feedbackFacilitating Strategy review & learning

Communicating & Linking

Communicating & EducatingSetting GoalsLinking reward to

Planning & Target Setting

Setting targetAligning strategic initiativesAllocating resourcesEstablishing milestones

Balance Scorecard

3. Balanced Scorecard as Performance Management System

BALANCE SCORECARD

“Kaplan, R. S. and Norton, D. P. (1996b), Using the Balanced Scorecard as a strategic management system. Harvard Business Review, 77.”

EXAMPLE :

SMARTAlso known as the Performance Pyramid proposed by Cross and Lynch, as a result of dissatisfaction with traditional performance measures such as productivity and financial variances. The goal is to plan the management control system performance indicators designed to define and sustain success

“Ghalayini A.M., Noble J. S., (1996), “The changing basis of performance measurement”, International Journal of Operations & Production Management, Vol. 16 No. 8 1996, p. 63-80.”

Performance Pyramid

The Performance Pyramid (Neely, Bourne, Kennerley, 2000)

EXAMPLE: DHL

“Stefenson, T. (2004) Performance measurement at DHL solutions.Department of Business Administration and Social Sciences Division of Industrial Logistics”

Performance Measurement ForWorld Class Manufacture

(WCM)WCM is an integrated approach is needed to obtain the forces that drive the competitive edge of each operation in the company, which is needed to produce standardized products of international reputation to meet the global requirements effectively.

“Narayan V K (2001), Managing Technology and Innovation for Competitive Advantage, Pearson Education”

Table 1. Key Elements and Performance Criteria of WCM Strategy

World Class Manufacture (WCM)

No Elements Performance Criteria

1 Manufacturing Cycle Time Processing time or processes Transfer time Line time Setup Time

2 Flexibility Number of different Processes Ratio of output to Capacity Number of New Products Training grade supplied into market per year Date of New Product into market Number of levels in material Quick response to Flexibility in product design

goods delivery Flexibility in responding to products volume

“Seyedhosseini, Mohammad and Soloukdar, A. (2011). Review and Discussion of Theories related to Dynamic Model of World Class Manufacturing Strategy. Journal of American Science, 2011”

World Class Manufacture (WCM)

Table 1. Key Elements and Performance Criteria of WCM Strategy

3 Quality Quality of incoming materials Data quality Production Quality Quality cost Preventive Maintenance plans effectiveness

4 Delivery Performance of seller delivery Production Scheduling lost sales Level of customer services

“Seyedhosseini, Mohammad and Soloukdar, A. (2011). Review and Discussion of Theories related to Dynamic Model of World Class Manufacturing Strategy. Journal of American Science, 2011”

World Class Manufacture (WCM)

Table 1. Key Elements and Performance Criteria of WCM Strategy5 Workforce

Management ResponsibilityAssignment Training Workforce Moral Teamwork

6 Cost Ratio of Defects Turn over Value-added analysis Human resource productivity Cost productivity Overhead efficiency

“Seyedhosseini, Mohammad and Soloukdar, A. (2011). Review and Discussion of Theories related

to Dynamic Model of World Class Manufacturing Strategy. Journal of American Science, 2011”

EXAMPLE: Chrysler Group LLC

“Garberding, S. (2010) World Class Manufacturing. Chrysler Group LLC 2010 14 Business Plan ‐November 4, 2009”

Performance MeasurementQuestionnaire

-Dixon et al.-

Presents a performance measurement questionnaire. Questionnaire helps an organization to identify areas for improvement, in order to determine the effectiveness of existing performance calculations and to improve calculation performance.

“Dixon JR, Nanni AJ, Vollmann TE (1990). The New Performance Challenge: Measuring Operations for World-class Competition. Homewood, Ill: Dow Jones-Irwin.”

Example:

“Bourne, M. and Neely, A (2003) Implementing performance measurement systems: a literature review. Int. J. Business Performance Management, Vol. 5, No. 1, 2003”

PERFORMANCE CRITERIA SYSTEM

“Globerson, H (1985) Issue in developing a performance criteria system for an organization, International Jurnal Prod. Res, 1985, vol. 23, no. 4, 639 – 646.”

The main problem of choosing the performance criteria is a decision whether the performance criteria is included in the system. Evaluating the organization performance, every indicator which need improvement or harm is considered a relevant criteria.

DEVELOPMENT & GUIDANCE

“Globerson, H (1985) Issue in developing a performance criteria system for an organization, International Jurnal Prod. Res, 1985, vol. 23, no. 4, 639 – 646.”

• Development• Choosing a set of

performance criteria that suitable

• Measure the perfomance criteria

• Determine the standard of the performance criteria

• Plan a feed back to respond an a gap between the actual and the standard

• Guidance• Rise from an objective of

the companya• Possible to compare

between the same business• The objective is clear• Discussion with stakeholder• The value must be same or

more or less between the same unit of business

TECHNIQUE• Determine the importance of Performance

Criteria– Weighting technique

• Evaluate the Performance Criteria– Work measurement – Analysis of past organizational performance– Benchmarking

“Globerson, H (1985) Issue in developing a performance criteria system for an organization, International Jurnal Prod. Res, 1985, vol. 23, no. 4, 639 – 646.”

The main issue in establish the measurment

• Unit of measurement• Level of Aggregation• Measurement Accuracy

– Static approach– Dynamic approach

• Cross-check mechanism• Data collection analysy approach

“Globerson, H (1985) Issue in developing a performance criteria system for an organization, International Jurnal Prod. Res, 1985, vol. 23, no. 4, 639 – 646.”

Cambridge Performance Measurement Design ProcessPhase in designing the Cambridge Performance Measurement Process Design:

1.Design 2.Development3.Documentation 4.Testing 5.Publication6.Acceptance

“Neely,A; Bourne, M and Kennerley,M (2000) Performance measurement system design: developing and testing a process-based approach. International Journal of Operations

&Production Management, Vol. 20 No. 10, 2000, pp. 1119-1145. MCB University Press.”

Cambridge Performance Measurement Design Process Designing, Implementing, and Updating Performance Measurement System

1.System Design2.Implementation of measures3.Use of the measures4.Obstacles to implementation 5.Updating Process

“Bourne, M.; Mills, J.; Wilcox, M.;Neely, A.; and Platts, K. (2000)Designing, implementing and updating performance measurement systems. International Journal of Operations &Production

Management, Vol. 20 No. 7, 2000, pp. 754-771.”

Integrated Performance Measurement System Reference

Model Integrated Performance Measurement Systems Reference Model is an Integrated Performance Measurement System as an information system that enables the performance management process to work effectively and efficiently. This model highlights two main aspects of the performance measurement system that is Integrity and Deployment

“Bititci, et al. (1998), “Integrated Performance Measurement Systems: a Development Guide”, International Journal of Operations & Production Management, Vol. 17, No. 5-6, pp. 522-534.”

QUANTUM PERFORMANCEMEASUREMENT SYSTEM

It is a performance measurement system, the implementation of corporate strategy promoted and achievement level can be control. This approach was developed in the late 80s and early 90s by the consulting firm Arthur Andersen & Co.

3 categories of performance measures that are the focus QPMS.

1. Costs 2. Quality 3. Time

http://de.wikipedia.org/wiki/Quantum_Performance_Measurement_System)

QUANTUM PERFORMANCEMEASUREMENT SYSTEM

4 elements of valuation models

Driver Catalyst (enabler)

ProcessContinuous improveme

nt

http://de.wikipedia.org/wiki/Quantum_Performance_Measurement_System)

The most widely used modelsBalance ScoreCard

Financial Customer

Internal Business Process

Learning and Growth

“Kaplan, R. S, dan Norton, D.P. (1992) Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, January – February.”