Evaluation and Control

1. Evaluation and Control

2. 1 2 3 4 5 Does No perform- Take Determine Establish Measure ance match corrective what to predetermined performance. stand- action. measure. standards. ards? Yes STOP Evaluation and Control Process The purpose of evaluation and control is to monitor performance and provide feedback for taking corrective action, as needed.

3. Determine What to Measure • What gets measured gets produced--so measure behaviors or outcomes you expect • Outcomes (end result of behaviors) vs behaviors • Measure corporate performance (ROI, ROE, EPS, shareholder value) • A company might, for example, measure quantity (e.g., dollar amount of sales); quality (e.g., customer satisfaction scores); cost (e.g., cost per square foot); timeliness (e.g., average turnaround to process customer orders); etc. • Ask the following: • Is the measurement important? • How will the measurement be tracked? • Do employees understand the measurement? • Is the measurement stated in positive terms (shoot for a goal rather than count mistakes)?

4. Establish Standards • Usually allow a tolerance level (70% - 80% - 90%) • Sometimes use benchmarks - compare against best in class (see next OH).

5. Steps in the Benchmarking Process 1. Identify area/process to be examined. 2. Find behavioral and output measures of the area or process and obtain measurements. 3. Select a set of competitors and best-in-class companies against which to benchmark. 4. Calculate differences between company’s performance measurements and those of the best-in-class and determine why the differences exist. 5. Develop tactical programs for closing performance gaps. 6. Implement the programs, measure the results, and compare results with those of the best-in-class companies.

6. Problems in Measuring Performance • Short-term orientation • Goal displacement • Behavior substitution • Suboptimization