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Achieveing Organizational Excellence Through the Performance Measurement System

  • ID: 40824
  • Report
  • May 1998
  • 71 pages
  • American Productivity & Quality Center, APQC
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For years, companies have faced the arduous task of measuring performance.
In this age of increased competitive markets and corporate goals that mandate
increased revenue and profits, the notion of performance measurement has
generated enormous interest. In the same respect, performance measurement has
experienced great skepticism as well. The problem is that there is no single recipe or methodology that will ensure success in implementing a performance measurement system. Organizations have piloted and used a wide variety of systems, both informal and formal, but struggle with selecting the system that works just right for them.

Much of what is currently known about measurement is based on individual case
studies, practitioner recollections, and anecdotal evidence. Historically, performance measurement has meant measuring tangible things such as return on investment (ROI), cash flow, and cost of sales. In recent years, attention
and focus have shifted toward measuring intangibles such as quality, customer
satisfaction, and safety. In light of this transition, companies began investigating ways of incorporating both financial and nonfinancial performance in an effort to achieve optimal organizational well-being. Companies are trying to demystify the whole idea of measurement, using modern methodologies such as the balanced scorecard and corporate dashboards.

Now, organizations are viewing performance measurement as a task for which all
employees are accountable. The performance measurement system is increasingly
being used as a business management model on which leading organizations are
basing business decisions. Organizations influence employees to embrace measurement and become involved in the goals and results it yields. As organizations have sought to become more customer-focused, implemention of performance measurement systems, particularly their nonfinancial aspects, has become the focal point by which companies maintain a competitive advantage in the marketplace.

This study sought to identify innovative and proven practices in the development and deployment of corporate performance measures. In 1997 they conducted a subsequent measurement study entitled Enabling Success in Corporate Performance Measurement. The study was designed to expand
upon the research begun in the 1995 CPM study. The participating organizations extended the study focus to include the areas of predictive measurement, employee buy-in, and data gathering and reporting methodologies.

In further pursuit of best practices in this area, in June 1998 , with subject
matter experts Clyde Boysen and Sam Shake of LeaderShift International
Incorporated (LII), conducted a third groundbreaking consortium benchmarking
study in the area of performance measurement. This study, Performance Measurement: Achieving Organizational Excellence through the Measurement System, took a four-month-long look at leading practices in performance measurement. It revealed interesting practices of leading organizations, such as how companies are integrating measurement goals with corporate strategic objectives and goal-setting. It also focused heavily on the collaborative uses of financial and nonfinancial measures to achieve organizational goals.

KEY Findings

In-depth interviews and discussions with each of the benchmarking partners,
coupled with the subsequent quantitative analysis of partner data, led to rich and compelling findings regarding how leading companies develop, implement,
communicate, and measure performance measurement systems. The findings within
each study focus area are presented below: Section 1: Alignment and Commitment

1. Leadership involvement and measurement training are critical to the successful implementation of a performance measurement system.

2. Successful performance measurement systems are well integrated and have strong, clear alignment with the organization’s annual strategic planning process.

Section 2: Performance Measurement

3. Effective performance measurement systems delineate cause and effect through
direct linkage to organizational assessment and compensation processes.

4. The most successful performance measurement programs are decentralized and have a formal process to “roll up” local data into the corporate measurement system.

5. Communication and education are two of the most meaningful and essential
variables affecting the success of performance measurement initiatives.

6. Performance measurement systems employ a variety of technologies, most
“homegrown,” to provide accessible and useable information.

7. Leading organizations create a strong interdependence between their measurement
system and other quality monitoring and management systems.

8. Best-practice companies tie management incentives to bottom-line results
measurements-most have a connection to variable compensation.

9. The use of routinely generated, real-time, online performance information makes measures actionable and drives change throughout the organization.

10. Measures and goals must be reviewed, revised, and raised to keep the system
current and effective.

The remaining report sections will cover each of these key findings in detail,
referencing demonstrated practices from the benchmarking partners to support these observations.

Benchmarking Methodology

Consortium benchmarking methodology was developed in 1993 and serves as one of the premier methods for successful benchmarking in the world. It is a powerful tool for identifying best and innovative practices and for facilitating the actual transfer of these practices. This four-phased approach is presented below.

Phase 1: Plan

The planning phase began in June 1998 with an extensive review of secondary literature to identify organizations possessing innovative performance measurement programs and practices. Based on the results of secondary research and input from LeaderShift International Incorporated, the study team developed a list of best-practice candidates. The team approached these organizations and asked them to complete screening interviews prior to the kickoff meeting.

The team assimilated this information and distributed it in the form of secondary research to sponsoring organizations during the June 1998 kickoff meeting in Houston, Texas. During the study kickoff meeting, the sponsor organizations solidified the study scope. Each was then asked to vote on which companies they would like to benchmark themselves against. The sponsors also helped develop and modify the data collection tool used in examining innovative companies. Finalizing the data collection tool and piloting it within the sponsor group concluded the planning phase.

Phase 2: Collect

The study team collected data from the five participating benchmarking partners via three separate data collection tools:
- Screening Questionnaire: quantitative questions designed to collect objective
and quantitative data, which are used to determine companies’ candidacy for
hosting visits

S U M M A R Y

Benchmarking Model:
The Four-Phase Methodology

- Detailed Questionnaire: quantitative questions designed to collect objective and
quantitative data and
- Site Visit Discussion Guide: qualitative questions designed to collect qualitative information about targeted aspects of strategic planning implementation.

All five benchmarking partners hosted half-day site visits, allowing sponsors to meet with key personnel and share their performance measurement systems.

Phase 3: Analyze and Report

The project team analyzed data (quantitative and qualitative) collected
from the data collection tool. The analysis concentrated on identifying new and
innovative practices for institutionalizing, communicating, and assessing performance measurement programs. Analysis of participant data formed the basis of the final report.

Analyses of each group (sponsors and partners) were conducted, and
comparisons were made between the groups to identify “gaps” in performance.
On October 8 and 9, 1998, the project team and subject matter experts
presented study findings to sponsor and partner organization representatives during the study’s Knowledge Transfer Session. All organizations participating in the study received a copy of the report, which showcases all key findings, critical success factors, and the primary enablers identified in the research process.

Phase 4: Adapt

Adaptation and improvement from the best practices identified throughout a
consortium study occur after the sponsor company representatives take the study
learnings back to their organizations. staff members are available to help sponsors create action plans appropriate for their organizations based on the learnings.

S U M M A R Y

For the purposes of this report, organizations that use a well-designed, comprehensive, balanced performance measurement system to guide their decisions and actions are considered “best-practice” companies in the area
of performance measurement. The sponsoring organizations represent a continuum of performance measurement systems that range from “under development” to truly best practice.

Prior to founding LII, Boysen was the director of organizational development for Pillsbury Company. His broad experiential background includes positions in manufacturing, quality assurance, research and development, training, and human resources. Additionally, he has provided services to clients in Canada, Chile, Colombia, England, Japan, Mexico, and the United States. Boysen is a frequent speaker in educational, professional, and civic forums. He majored in business communications during his bachelor of arts studies at the University of St. Thomas in St. Paul, Minnesota. Sam Shake is the vice president and managing partner of LeaderShift

International Incorporated. Shake works with clients to train them in the tools used to measure and analyze performance and help them understand which areas of the process must be measured to yield a true indication of performance. He is also a member of the management seminar faculties of Michigan State University and the University of North Florida. Prior to joining LII, Shake was the director of quality for the largest and most profitable business of the Pillsbury Company he helped transform
the organization toward a culture of total quality commitment. Shake also has direct experience in several functions, including operations, manufacturing services, research and development, and quality assurance. He received his undergraduate degree from Indiana State University and his MBA degree from the University of St. Thomas.

Company AND Industry Representation

Of the 21 sponsor companies participating in the Performance Measurement
consortium benchmarking study, one is based in Venezuela, one is based in Italy, two are based in Canada, and 17 are based in the United States. All five of the partner organizations are based in the United States.
Participating companies represent many industries, including retail, chemical,
insurance, utilities, manufacturing, medical and pharmaceutical, telecommunication, transportation, computers, electronics, services, and education.
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Sponsor and Partner Organizations<BR><BR>A listing of the sponsor organizations in this study, as<BR>well as the best-practice (“partner”) organizations that<BR>were benchmarked for their innovation and advancement<BR>in employing their performance measurement systems.<BR><BR>Executive Summary<BR><BR>A bird’s-eye view of the study, presenting the key findings<BR>discovered and the methodology used throughout the<BR>course of the study. The findings are explored in detail in<BR>following sections.<BR><BR>Key Findings<BR><BR>An in-depth look at the 10 key findings of this study.<BR>The findings are supported by quantitative data and<BR>qualitative examples of practices employed by the<BR>partner organizations.<BR><BR>Summary<BR><BR>Gaps and similarities in performance between the sponsor<BR>and partner organizations, as well as the partners’ plans<BR>for their ongoing measurement improvement initiatives.<BR><BR>Partner Organization Profiles<BR><BR>Background information on the partner organizations,<BR>as well as their innovative performance measurement<BR>practices.<BR>
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