U3 Drivers of Operational Performance Flashcards
Whether a business thrives or fails is based on?
the companies’ ability to correctly and accurately identify, define, track, and influence their production efficiency and quality performance.
All of these aspects are linked to ?
the operational activities of the organization.
Executives and line-of-business management are under pressure to make?
more decisive and timely decisions in order to improve operational efficiencies and therefore improve the overall performance of the business and meet strategic goals.
In this context, organizations are focusing on?
obtaining solutions which address specific business pressures that drive operational performance.
These include the need to:
-Improve executive visibility to operational drivers.
-Replace ‘intuitive’ decisions with ‘fact-based’ decisions.
-Gain an understanding of operational performance drivers.
Improve executive visibility to operational drivers.
There is no doubt that organizations can do better than just an entry-level of maturity. Companies are successful when operational data is applied within a time frame, since that can affect performance improvement.
Replace ‘intuitive’ decisions with ‘fact-based’ decisions.
However, some studies have revealed that many operational decisions are still based on the so-called ‘gut-feel’ approach, since there is no immediate and relevant information after the occurrence of business events.
Gain an understanding of operational performance drivers.
There are many operational ‘moving parts’ within the organization.
In this section we will learn how operational activities and process can be measured and how they can become part of an overall performance management framework. Additionally, we will touch on some practical aspects of performance measurement implementation.
Operational managers are increasingly demanding ————————– into day-to-day metrics in order to align operational business activity with corporate objectives. This means they must————————————————–and act upon operational performance drivers which can ————————multiple times throughout the business day or week.
visibility
gather, track, analyze,
change
The Five Operations Performance Objectives
A wealth of literature about operations management and its components exists. In order to?
help structure the different performance relevant aspects in the context of operational activities,
five operations performance objectives are usually utilized:
quality
depend
ability
speed
cost
flexibility
Although this provides a helpful initial framework to analyze the whole subject of?
performance measurement, there are several aspects about these five objectives to make note of. The first is that all of the objectives have supplemental goals and are multidimensional.
For example,
‘quality’ does not simply refer to conforming to specifications.
Quality also includes ?
a number of other dimensions, such as how well a product performs additional features next to its primary functions,
how reliable and technically durable it is, how easy it is to service the product,
how the look and feel of the product is perceived by the customers, and how the value for money viewpoint is.
Likewise ‘speed’ can refer to?
the time taken to generate quotes, the time to answer quotes, the frequency with which deliveries can be made, the time to manufacture a product, or the time to develop and invent a new product.
‘Dependability’ can mean the adherence to?
a plan or set schedule, but may also refer to the delivery performance (i.e. the question of whether the products are delivered in full and always on time).
It can also include:
the general ability to meet promises.
Probably the most multidimensional objective is ‘———————’; there are various definitions for what it is supposed to include. It can be distinguished between range flexibility and ————————-. ————-flexibility focuses on the ability to cope with a wide range of ——————.
flexibility
response flexibility
Range
requirements
Response flexibility on the other hand means
?
the ability to adapt to changes quickly.
In addition to these two general characteristics of flexibility, it can include?
the ability to cope with varying incoming materials, differences in output quality, the adaptability to new or modified products.
With regards to production, it may also encompass?
adaptability to new delivery schedules, adjustments of output volume, and different product and\/or resource mixes.
Without going into further detail, the following table provides :
an overview of the five operations performance objectives
and their sub-dimensions.
Multiple Dimensions of the Five Operations Performance Objectives
table
table
table
table
There are two additional points which add to?
the complexity and multidimensional nature of operational performance measures.
The first point is that?
the five operations performance objectives trade off with one another,
but the extent of these trade-offs depends very much on context-specific characteristics and timing.
For example,
high quality has to be weighed against potential additional costs and tighter delivery is only possible when investing in additional resources.
Operations managers constantly try to improve?
the five operations performance objects and constantly have to mitigate the trade-offs between the different perspectives.
The second point deals with the fact that?
there are internal as well external reasons for the operations performance objectives.
Speed includes?
a quicker response to customer needs and capital being tied up for a shorter period of time in the form of inventories and work in progress.
Like a big jigsaw puzzle, the challenge for operations managers is to decide on?
which of the five objectives they wish to focus their main attention to and how changing this dimension will affect the other dimensions.
The second point deals with the fact that?
there are internal as well external reasons for the operations performance objectives.
For example,
higher quality may result in fewer mistakes, hence less rework, higher customer satisfaction, and ultimately less costs.
After introducing the main five operations performance objectives and the challenges which come with them, we will now focus on?
how operational performance drivers can be analyzed and how this could be implemented in an organization.
We will also learn about how operational performance measures can be linked to overall performance targets.
Performance drivers will generally include:
==A leading indicator or early warning system which reports existing situations will lead to a poor result if not addressed accordingly.
==A performance metric which is associated with a preceding step in a value stream.
==A metric which directly contributes to a key performance indicator. This metric could well be a helpful component when calculating the key performance indicator. For example, a gross margin key performance indicator could be calculated in the following way: sales units multiplied by list price, minus discounts and minus cost-of-good-sold.
A leading indicator or early warning system which reports existing situations will lead to a poor result if not addressed accordingly. For example, ?
customer satisfaction is as a leading indicator for customer retention.
A performance metric which is associated with a preceding step in a value stream. For example,?
if the key performance indicator is on-time-in-full shipments then a performance driver may be manufacturing lead time which impacts the flexibility to respond to customer orders.
iA metric which directly contributes to a key performance indicator. This metric could well be a helpful component when calculating the key performance indicator. For example,?
a gross margin key performance indicator could be calculated in the following way: sales units multiplied by list price, minus discounts and minus cost-of-good-sold.
This calculation is based on the fact that each of these components contributes to gross margin and is also one of its drivers:
image
By definition, performance metrics measure aspects of?
the business process or value stream which directly affect results or outcomes.
For example, ?
if actionable performance drivers are monitored in a timely manner, they can be used to make operational decisions.
Therefore, they will be the driving force for ?
actions which can positively impact business outcomes in the current reporting period.
The following graph shows how?
leading indicators and operational KPIs can be linked with performance metrics.
image
image
image
The creation, management, and continuous review of a performance measurement system (PMS) can be?
a difficult process, particularly when large, complex data volumes are combined with rapidly changing business dynamics.
For example,
projects often involve the integration of data from disparate sources. Furthermore, complex calculations to derive accurate indicators, as well as a host of infrastructure requirements, are needed to deliver the information in a meaningful format (e.g. reports\/dashboards, scorecards, alerts, etc.) and via an effective medium (e.g. desktop PC, website, remote access, email, PDAs, mobile devices, etc.).
A bulk of business and commerce activities and projects are focused on?
the desire to improve customer service, expense management, and sales operations performance.
Therefore, operational performance is rapidly becoming a top priority for?
business intelligence and performance management projects.
As this reflects key business areas, executives are struggling to gain insight into ?
the operational performance driving the business.
This drive towards deeper insight is an ——————————————————– which directly addresses the next most pressing business concern-replacing ———— decisions with ———————- decisions.
internally-focused pressure
‘intuitive’
‘fact-based’
In order to accomplish this, organizations clearly must have?
a firm grip on the actual operational performance drivers as well as the definition and calculation of operational performance measures which will inevitably produce the desired insight and transparency.
There are four key performance metrics which are often used to determine excellent performance:
1Customer satisfaction:
2Customer issue resolution capability:
3Conversion of inquiries to sales leads:
4Sales forecast-to-plan performance:
Customer satisfaction:
This involves collecting data reflecting annual changes in customer satisfaction.
It usually measures the percentage of total customers, whose reported experience with a company, its products, or its services exceeded specified goals.
Sometimes a scoring and rating model is applied to measure customer satisfaction.
Customer issue resolution capability:
This involves collecting data reflecting the average time in which customer issues are resolved. This data also needs to reflect the performance throughout an entire year.
Conversion of inquiries to sales leads:
This involves collecting data reflecting annual changes in the rate at which inquiries are converted to leads. Usually, it is calculated as percentage of sales leads per inquiries.
Sales forecast-to-plan performance:
This involves collecting data reflecting annual changes in the accuracy of sales forecast-to-plan measurement.
This strategy is of utmost importance and happens to be ?
a prime concern of executives when addressing their operational performance initiatives.
Unlike typical strategic business, intelligence initiatives focus on?
trend data which is captured over time (i.e. weeks, months, years) whereas operational performance initiatives relate to areas of the business which experience multiple changes throughout the business day.
However, above all, successful companies are focusing on business ———————. This pertains to the ability to ——————————- activity and performance to the successful attainment of ———————————.
alignment
tie operational
corporate goals
This requires the ability to ?
access,
capture,
integrate,
and analyze operational data quickly.
Process
Successful operational performance and performance management system initiatives depend on?
a combination of specific capabilities and technology enablers.
There are several capabilities which lead companies to achieve?
operational performance excellence.
As business dynamics change, performance management systems must also be?
realigned.
There are several capabilities which lead companies to achieve?
operational performance excellence.
This can be done by?
regularly employing a method for
identifying, incorporating,
and reviewing the performance management system
and framework with relation to operational performance.
The process of updating a performance management system on a continuous basis is extremely important, especially in respect to?
operational performance.
Data required by performance management systems becomes obsolete?
very quickly.
For example,
an online retail company which is presenting a new product-line on its website may set some performance indicators which are initially based on past performance of similar products.
However, after the first few days of activity, results may indicate the need for ?
a new method of presentation or a new sales-approach to be introduced.
Therefore, the performance management system indicators used to measure performance need to be?
altered as well.
Organizations
In addition to having a process for updating the performance management system related to operational performance, organizational aspects are relevant as well. This also includes?
adopting a process in which the Key Performance Indicators suitable for the respective organization are defined.
In some companies committees are established to handle?
this aspect.
A formal committee enables an organization to develop specialized key performance indicators which address the performance of?
multiple areas of the business.
The most successful committees include a ?
cross-discipline team which encompasses IT, business executives,
and business end users.
More often than not, the key performance indicators associated with operational performance involve?
complex mathematics and formulas integrating information from multiple data sources.
Thus, success can depend on the existence of a formal committee dedicated to ?
understanding this information as well as applying the necessary business rules and metrics to create appropriate key performance indicators.
A formal committee charged with developing and monitoring key performance indicators will look into the following aspects:
1Knowledge management
2Performance management
Knowledge management
To establish a set of operational key performance indicators and a performance-driven culture, —————————————————————————-is required.
clear and effective corporate communication
In addition, information about —————————–performance will help to guide the performance ———————-which should be pursued.
industry-wide
thresholds
Gathering this information should be based on?
peer and competitor performance.
Finally, any performance measurement capability should be accompanied by?
an internal training program which helps all stakeholders to understand and participate in the program.
Numerous organizations are trying to improve efficiency and performance of many day-to-day operational activities, such as ?
customer interactions,
finance and accounting processes, transportation,
sales activity,
manufacturing,
inventory management,
and marketing.
Empirical research shows that most successful companies are improving their time-to-information with the help of?
technologies and services which enable faster delivery of mission-critical information.
Performance management
As stated earlier, business pressure is driving organizations to focus on ?
operational performance with the desire to elevate insight on operational performance to executives.
Hence, many organizations are not only establishing key performance indicators to?
measure the company’s operational performance over time,
but also to obtain comparative capabilities which ensure that performance measures are in alignment across the organization and with its strategy and overall performance metrics.
However, it is not enough to simply define key performance indicators and track them over time. They also need to be?
clearly communicated throughout the organization in order to enable all levels of staff to understand how the indicators relate to performance goals of the group, the company, and how this performance compares to that of competitors’.
This is achieved through the involvement of ?
industry trade associations
and integrating data from industry aggregators
as well as obtaining data from government agencies.
Successful organizations are also more likely to establish ?
KPIs across a wide range of operational areas of the association.
The more operational areas are involved, the more—————————————————————————————————-
improvement will be achieved across all areas of the business.
Based on the previous sections, a focus of operational performance metrics across a variety of operational business areas might include:
=Customer performance:
=Service performance:
=Sales operations:
=Sales plan:
Customer performance:
This includes metrics for customer satisfaction, customer issue resolution speed, customer issue resolution accuracy, and customer retention rate.
Service performance:
This includes metrics for service, such as first-call resolution rates, renewal rates, service level agreement-compliance rates, delivery performance to customers, and product-return rates.
Sales operations:
This includes metrics for new accounts, meetings secured, conversion of enquiries to leads, and calls completed per hour, shift, and day.
Sales plan:
This includes metrics for price-to-purchase order accuracy, purchase order fulfillment ratio, quantity earned (where revenue can be recognized), forecast-to-plan ratio, and total closed contracts (which is cumulative).
Technologies
The time, effort, and resources required to?
generate operational reports and analytic capabilities,
as well as delivering them to the right end users at the right time, is a major factor that inhibits operational performance improvement.
This can come as an unwelcome surprise as business intelligence implementations begin to?
grow in scope from pilot projects to full-production applications encompassing large data sets, and complex calculations and algorithms, as well as diverse, non-technical business users.
Technical ability, or the lack of it among users, naturally pushes the job of report generation to ———————————————-.
the IT department
This does not only lead to additional costs in terms of?
but also?
IT resource utilization,
but also drives up the headcount required to meet the increasing demand for reports and the requests for analytical views.
Automation of data integration, report generation, and alerting can improve?
the speed and ease with which information can be collected, assembled, and delivered to end-users.
Operational performance management capabilities depend on technological disciplines including:
–data management, data integration, and data cleansing
–data modelling and development of business rules
–scorecarding with an eye toward easy access and making information available to a variety of technical and non-technical business stakeholders
–automated alerting to enable stakeholders to learn about performance changes while they occur
At the top list of priorities should be?
‘ease of use for end-users’
and ‘integration capabilities with other applications’.
To achieve excellent quality performance, organizations must prioritize the areas of the business which will ?
benefit most from operational performance management initiatives.
We now understand the concept of performance drivers and what components they consist of. By using ?
performance drivers and metrics we can replace ‘gut-feel’ decisions with ‘fact-based’ ones.
Four key performance metrics were presented in detail, all of them having the customer view in focus:
==customer satisfaction and how it changes over a period of time
==customer issue resolution, which gives an idea of the speed with which customer issues are resolved
==conversion of inquires to sales leads
==sales-forecast-to-plan performance
