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KPP202Lecture 10

04/10/201104/10/2011

Mohammed Salloum

Synopsisy

• What is performance measurement (PM)?

• A historical perspective

• The Balanced Scorecard (BSC)The Balanced Scorecard (BSC)

• Keeping it real

• Hoshin Kanri

Volvo Construction EquipmentMohammed Salloum, Finance and Business Control2

BeehiveBeehive

Group up (2-4 individuals per group).p p ( p g p)

Discuss the question below for a couple of minutes.

W it d th d i iti thWrite down the answers and prioritize among them.

Wh i f ?What is performance?


What is PM?What is PM?

P fPerformance:

The potential for future successful implementation of actions in order to reach the objectives and targets. Lebas (1995)j g ( )


Why should we measure?y

242 cm ? cm



Performance measure - a metric used to quantify the efficiency and/or effectiveness of an action.



P fPerformance Measurement

System

Performance measurement system (PMS) - the set of metrics used to quantify both the efficiency and effectiveness ofused to quantify both the efficiency and effectiveness of actions.



P fPerformance Measurement

System

Performance measurement the process of quantifying thePerformance measurement - the process of quantifying the efficiency and/or effectiveness of action.



Performance management - the process in which performance is managed in line with its corporate and functional strategies and objectives.


BeehiveBeehive




What are the benefits for companies to ?measure?



f fThe most frequent mentioned reasons for implementing measurement systems are:

M it i f f• Monitoring of performance

• Identification of areas in need of attention

E h i ti ti• Enhancing motivation

• Improving communication

• Strengthening accountability• Strengthening accountability

• Alignment between actions and strategy

• Strategy implementation• Strategy implementation

• Challenge the validity of the strategy


A historical perspectivep pPhase I

Frederick Taylor & Scientific Management The DuPont Model Detachment ownership & management Introduction of the tableau de bordIntroduction of the tableau de bord


A historical perspectivep p

Frederick Taylor and Scientific Management

- Management was responsible of devising the most efficient method of performing workI ffi i d t t i di id l k- Increase efficiency and output per individual worker

- Methods of working via analysis of existing work Methods monitored through closely monitored metrics- Methods monitored through closely monitored metrics



Th D P t M d l The DuPont Model


A historical perspectivep pPhase II

H man Relations Mo ement Human Relations Movement Hawthorne Studies Hierarchy of needs



Hawthorne Studies

“The famous experiments at Western Electric's Hawthorne plant became acknowledged as groundbreaking and provided new scientific foundations for management” (Smith 1998)management (Smith, 1998)

- Conducted between the years 1927-1932E i d d ti it l t d t k diti- Examined productivity correlated to work conditions

- Financial incentives not the only performance driver, work conditions and performance closely correlated B l t i i ff ti f l d d i- Benevolent supervision, affection for employees and group dynamics



Hierarchy of needs

- Needs trigger motivation- Motivation triggers performancegg p


A historical perspectivep pPhase III

Gl b li ti Globalisation Delta between book value and market value Western management practices under fire



Toyota

- The unquestioned position of the American management style became challenged

- Japanese goods were superior in both quality, variety and competitively priced

- Effectiveness became equally important to efficiency



Unconventional measures

Fi i l t i d i d f ti t f ill d il d t- Financial metrics derived from accounting systems for mills and railroads etc. - New measures focus on operational aspects that are useful for everyday decision

making


BeehiveBeehive




Wh h ld i ?What should companies measure?


The Balanced Scorecard (BSC)

•How do we look to our shareholders? (financial perspective)

•What must we excel at? (internal•What must we excel at? (internal business perspective)

•How do our customers see us? (the customer perspective)customer perspective)

•How can we continue to improve and create value? (innovation and learning perspective)perspective)

• The BSC is the most cited and implemented performance measurement system



• Type I BSC: a specific multidimensional framework forType I BSC: a specific multidimensional framework for strategic performance measurement that combines financial and non-financial strategic measures.

• Type II BSC: Additionally describes strategy by using cause• Type II BSC: Additionally describes strategy by using cause-and-effect relationships.

• Type III BSC: Additionally implements strategy by defining objectives, action plans, results and connecting incentives withBSC.


Keeping it real

• Companies tend to develop their own PMS

• These are integrated to more extensive systems

• Breakthrough ideas are accounted forBreakthrough ideas are accounted for

• Academic gaps reflected in practice

• Utilization rather than design is the current challenge


An example: AB Volvop


An example: Mac TrucksKPI

Productivity

KPI

Delivery Precision

KPI

Direct Runner

Manager

KPI

Labour Efficiency

KPI

Daily throughput V Plan

KPI

Online Quality

Supervisor

KPI KPI KPIKPI

Plan

FAC Incidents

Absenteeism Rework Time

Training Participation

Section Leader KPI

SV’s

KPI

Daily throughput V Plan

KPI

Online Quality

KPI

Labour Efficiency

Section Leader

KPI

Rejected Parts

KPI

Overtime


Principle 10 – The Toyota Way

Principle 10: Develop exceptional people and teams who follow your company’s philosophyyour company s philosophy


Principle 10 part of the VPS foundation

G l i t d tGoal oriented teams

Cross functional workwork

Organizational designdesign

Visualization

Goal oriented teams are the foundation on working with operational as well as development goals

The teams goals are is ali ed and follo ed p on a reg lar basis To sec re team performance de elopment plans• The teams goals are visualized and followed up on a regular basis. To secure team performance, development plans including goals are also set and followed up on individual level

Within the teams actions and improvements are decided on how to reach the goals


Hoshin Kanri

Hoshin means directionHoshin means direction.

Kanri means management.

Together they create the compass.

Hoshin kanri is a method devised to capture and cement pstrategic goals as well as flashes of insight about the future and develop the means to bring these into reality.


Main steps in the Hoshin Kanri Process

Strategic planning• Organization’s present situation• Desired “Future State”Strategic planning Desired Future State • Select “Vision Element” for Breakthrough

Tactical planning and deployment of plan

(Catchball)

• Create plans to improve the vision element• Deploy/Cascade the plan

Implementation of plan • Execute the plan - create activities and actions• Check progress and take action on deviationsand regular review • Check progress and take action on deviations

Annual review • Improve planning• Process and create next year’s plan


CatchballCatchball

•In Hoshin Kanri, each management level’s strategy becomes the objectives of the next level down

•Catchball ensures alignment across process and functional lines. Catchball is a vigorous give-and-take that gets people involved in the strategic focus that motivates them to achieve the targets

•In Catchball, ideas generated at each level of the company are passed up or down to people at other levels for their review and input

•Those receiving an idea “catch” it, modify it (if necessary) to make it relevant h k d h i l l d i l h h l lto the work done at their level, and pass it along to the other levels

This give-and-take dialogue continues until everyone understands and agrees on the objectives, strategies, and action plans of the other levels


Focusing forcesg

B f l k f h d i

After – Shared viewHoshin Kanri

Before – lack of shared view

Shared view about common direction and alignment of goals and measurements is necessary to deliver on Business Objectives


y j

Hoshin Kanri is a system of nested PDCA ycycles

Strategic level

Strategic planning

Strategic level (Annual)

Tactic level (Weekly/Monthly)

Tactic planning and deployment of plan

PlanPlan

Operative level (Daily)

(Catchball)

Implementation of plan and regular review

DoAct DoAct

and regular review

Annual reviewCheck

Check

Annual review


Summaryy

• PM is the process of quantifying efficiency and effectiveness.

• Evolution of PM divided into three phases.

• BSC is the best known PMS.BSC is the best known PMS.

• In reality companies develop PMS after they own needs.

• Hoshin Kanri is a powerful strategic planning tool that enables the involvement of the organisation in the PM process.


Contact details

[email protected]

0737 65 63 88


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