Using Information Performance Measurement & Control

1. Using Information Performance Measurement & Control Andrea Barnes Dhruv Patel Richard Rorrer Ron Wilson Chapter 4 MBA 629 03/30/04

2. 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

3. 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

4. Standard (Ex Ante) Process Outputs Feedback (Variance Information) Organizational Process Model Inputs • 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

5. 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

6. 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

7. Four Criteria Focal Point Decision • Technical Feasibility of Monitoring and Measurement • Understanding Cause and Effect • Cost • Desired Level of Innovation

8. 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

9. 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.

10. 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

11. 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

12. 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

13. 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

14. Uses of Information • Decision Making • Control • Signaling • Education and Learning • External Communication

15. 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

16. 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

17. Signaling • Information signals management direction to employees • Preferences • Values • Types of opportunities

18. 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

19. External Communication • Information is used to communicate with External Constituencies • Capital providers • Providers of goods and services • Customers • Community action groups

20. Questions & Answers