Examples of conceptual frameworks

The Sink and Tuttle framework

The Sink and Tuttle framework is a classical approach to design a PMS (see

Figure 19), which claims that the performance of an organisation is a complex interrelationship between seven performance criteria (Sink and Tuttle, 1989):

1. Effectiveness, which involves doing the right things, at the right time, with the right quality. In practice, effectiveness is expressed as a ratio of actual output to expected output.

2. Efficiency, defined as a ratio of resources expected to be consumed to resources actually consumed.

3. Quality, where quality is an extremely wide concept. To make the term more tangible, quality is measured at several checkpoints.

4. Productivity, which is defined as the traditional ratio of output to input. 5. Quality of work life, which is an essential contribution to a well per-

forming system.

6. Innovation, which is a key element in sustaining and improving per- formance.

7. Profitability/budgetability, which represents the ultimate goal for any organisation.

Upstream

system Input Transormationprocess Output Downstreamsystem 3. Quality 7. Profitability/ Budgetability 1. Effectiveness 2. Efficiency 6. Innovation 5. Quality of worklife 4. Productivity

Figure 19 Definitions of seven performance criteria (Sink and Tuttle, 1989)

has increased during the last two decades. The model is also limited by the fact that it does not consider the customer perspective.

The TOPP performance model

Efficiency

Adaptability Effectiveness

Figure 20 Performance model from TOPP (Rolstadås, 1998)

In addition to the work of Sink and Tuttle (1989), the researchers within the

TOPP project19 _{looked at performance as integration of three dimensions: effi-}

ciency, effectiveness and adaptability, see Figure 20. The first two dimensions

in the TOPP performance model are the same as in the Sink and Tuttle model, while the third expresses to which extent the company is prepared for future changes.

The balanced scorecard

One of the most well known conceptual performance measurement frameworks is the balanced scorecard developed and promoted by Kaplan and Norton

(1992). The balanced scorecard proposes that a company should use a balanced set of measures that allows top managers to take a quick but comprehensive view of the business from four important perspectives, see Figure 21. In turn, these perspectives provides answers to four fundamental questions:

1. How do we look to our shareholders (financial perspective)? 2. What must we excel at (internal business perspective)? 3. How do our customers see us (the customer perspective)?

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

19 _{TOPP was a research program carried out in Norway (1992-1996) studying productivity issues} in Norwegian manufacturing industry.

Goals Measures Financial perspective Goals Measures Internal business perspective Goals Measures Customer perspective Goals Measures Innovation/learning perspective

Figure 21 The balanced scorecard (Kaplan and Norton, 1992)

Evidently, the balanced scorecard includes financial performance measures giving the results of actions already taken. It also complements the financial performance measures with more operational non-financial performance meas- ures, which are considered as drivers of future financial performance. Kaplan and Norton (1992) argue that giving information from four perspectives, the balanced scorecard minimises information overload by limiting the number of measures used. It also forces managers to focus on the handful of measures that are most critical. Further, to use several perspectives also guard against sub- optimisation by compelling senior managers to consider all measures and evaluate whether improvement in one area may have been achieved at the ex- pense of another.

According to Ghalayini et al (1997), the main weakness of this approach is that it is primarily designed to provide senior managers with an overall view of performance. Thus, it is not intended for or applicable at the factory operations level. Further, they also argue that the balanced scorecard is constructed as a monitoring and controlling tool rather than an improvement tools. Furthermore, Neely et al (2000) argue that although the balanced scorecard is a valuable

identified, introduced and ultimately used to manage business. They also con- cluded that the balanced scorecard does not at all consider competitors. The performance measurement matrix

Similar to the balance scorecard but not as an extensive framework is the per- formance measurement matrix, which was proposed in the late 80’s by Keegan

et al (1989), see Figure 22. This framework promotes PMS that integrates four different classes of business performance: cost and non-cost, internal and ex- ternal.

-Repeat buyers -Customer complaints -Market share

-Design cycly

-Percent on time delivery -New products

-Competitive cost position -Relative R&D expenditure

-Design cost -Material cost -Manufacturing cost Non-cost Cost External In tern al

Figure 22 The performance measurement matrix (Keegan et al, 1989)

The performance pyramid

An important requirement of a PMS is that there must be a clear link between the performance measures at the different hierarchical levels in the company, so that each function and department strives towards the same goals. One ex- ample of how this link can be achieved is through the performance pyramid

(i.e. the SMART system), proposed by Cross and Lynch (1992). Such a PMS

starts at the top of the pyramid with the company’s vision. The second level, business units, compromises the company’s key results, objectives and meas-

ures in two ways: reaching short-term targets of cash flow and profitability; and achieving long-term goals of growth and market position (e.g. market, financial). The business operating system bridges the gap between top-level and day-to-day operational measures (e.g. customer satisfaction, flexibility, productivity). Finally, four key performance measures (e.g. quality, delivery, cycle time, waste) are used at departments and workcenters on a daily basis.

Corporate vision Customer satisfaction Market Financial Flexibility Productivity

Quality Delivery Cycle time Waste

Objectives Measures Operations Business units Business operating systems Departments and workcenters Internal effectiveness External effectiveness

Figure 23 The performance pyramid (Cross and Lynch, 1992)

As stated by Ghalayini et al (1997), the main strength of the performance pyramid is its attempt to integrate corporate objectives with operational per- formance indicators. However, this approach does not provide any mechanism to identify key performance indicators, nor does it explicitly integrate the con- cept of continuous improvement.

The performance measurement questionnaire

Another conceptual framework that is often referred to in the performance measurement literature is the performance measurement questionnaire (PMQ)

developed to help managers identify the improvements needs of their organisa- tion, to determine to which extent the existing performance measurers supports improvements and to establish an agenda for performance measure improve- ments (Dixon et al, 1990). The result of the PMQ is evaluated in four types of analysis: alignment, congruence, consensus and confusion.

The PMQ has the advantage of providing a mechanism for identifying the im- provement areas of the company and their associated performance measures. However, Ghalayini et al (1997) argue that it cannot be considered as a com- prehensive integrated measurement system and does not take into account con-

Theory Of Constraints

Many researchers state that there is a need to limit the number of used perform- ance measures in the PMS to avoid information overflow (Jackson, 2000). Goldratt (1990) has developed such an approach named as the Theory Of Con-

straints (TOC). TOC emerged in the mid 1980s as a process of ongoing im-

provement. TOC researchers have focused on production planning and sched- uling methods, but have also been involved in performance measurement.

Within a system, a constraint is defined as anything that limits the sys-