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Journal of Manufacturing Technology Management
Lean and performance measurement
Sanjay Bhasin
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Sanjay Bhasin, (2008),"Lean and performance measurement", Journal of Manufacturing Technology
Management, Vol. 19 Iss 5 pp. 670 - 684
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http://dx.doi.org/10.1108/17410380810877311
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Sanjay Bhasin, Peter Burcher, (2006),"Lean viewed as a philosophy", Journal of Manufacturing Technology
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Rosemary R. Fullerton, William F. Wempe, (2009),"Lean manufacturing, non-financial performance
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Lean and performance
measurement
Sanjay Bhasin
Prison Service College, Stretton-under-Fosse, UK
Abstract
Purpose – Ostensibly, less than 10 per cent of UK organisations accomplish successful lean
implementations. A refined system to the one offered by the balanced scorecard is needed. The purpose
of this paper is to propose a robust system that not only focuses on the intangible and intellectual assets
but also embraces various time horizons and the interests of multiple stakeholders.
Design/methodology/approach – The dynamic multi-dimensional performance (DMP) framework
has been adapted which enables organisations to successfully gauge, in a holistic approach, whether
lean has in fact proven successful in their respective organisations.
Findings – The DMP framework embracing five dimension proves to be more robust than its
predecessors and stresses the need to utilise a smaller set of multidimensional metrics which are
closely aligned to an organisation’s strategies.
Research limitations/implications – Intangible assets have become the major source for
competitive advantage. Tangible assets accounted for a book value of less than 20 per cent of
companies’ market values in 2000. Organisations need to promote a portfolio of measures directed at
both the internal and external environments.
Practical implications – Despite the popularity of the balanced scorecard, it has recently proven
inadequate in certain circumstances. The proposal enables managers to bridge the gap between the
real and aspired performance.
Originality/value – The DMP model presented in this paper has generic appeal and can be applied
to quite disparate organisations. It provides a good barometer for multiple time horizons and facilitates
the examination of a wider view of organisational success.
Keywords Lean production, Performance measurement, Balanced scorecard
Paper type Research paper
Introduction
This paper examines the need for organisations to adopt a more holistic and
comprehensive approach to performance measurement. The balanced scorecard
(Kaplan and Norton, 1992, 1993) established the momentum for this viewpoint;
predecessors (Bond, 1999; Wade, 1997; Maltz et al., 2003) coupled with the work of
Dimancescu et al. (1997) provide the foundation for the subsequent analysis. Lean
benefits are not always obvious when traditional accounting methodology is utilized
(Pullin, 2002; Arora, 2002). Essentially, by managing and improving processes,
alongside customer and employee relations, the financial perspective would improve
accordingly.
Significance of a performance measurement system
Numerous factors have contributed to the debate concerning performance
measurement systems; the literature indicates that:
. Traditional accounting systems allocated overheads on the basis of direct labour
(Neely et al., 2005). This may have been appropriate in the 1960s as direct labour
The current issue and full text archive of this journal is available at
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JMTM
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Received December 2006
Revised April 2007
Accepted October 2007
Journal of Manufacturing Technology
Management
Vol. 19 No. 5, 2008
pp. 670-684
q Emerald Group Publishing Limited
1741-038X
DOI 10.1108/17410380810877311
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often constituted in excess of 50 per cent of the cost of goods sold. In the 1990s,
it rarely constituted more than 5 per cent of the cost of goods sold.
. The increased level of global competition concentrating on service, flexibility,
customisation and innovation (Womack and Jones, 2005).
. Varying external demands whereby customers expect both high levels of service
and that firms operate in identifiable ways. Ford, for example, demand that their
accredited suppliers introduce a scheme known as quality operating system
which essentially is a performance measurement process (Neely, 1999).
Traditional metrics have not worked and the major inadequacies can be easily
condensed from the literature; namely:
. traditional accounting measures are not suited for strategic decisions (Kaplan
and Norton, 2005);
. traditional metrics are historical and hard to correlate (Lawson et al., 2003);
. they provide little information on the root problems (Malone and Sinnett, 2005);
. the connection between financial and non-financial measures is fragile (Marshall
and Heffes, 2004);
. little attention is paid to cross-functional processes as opposed to functional ones
(Frigo, 2003);
. intangible assets are awarded modest attention (Lawson et al., 2003; Shah and
Ward, 2003);
. they largely ignore value creation (Bicheno, 2004; Womack and Jones, 2005);
. often there are too many measures (Smith, 1998);
. they encourage managers to minimise the variances rather than actively seeking
to improve continually (Womack and Jones, 2005); and
. very rarely can we aggregate from operational to strategic levels (Yeniyurt, 2003;
Maltz et al., 2003).
Effective performance measurement systems
Undeniably, there are certain guidelines organisations need to contemplate in their
efforts to implement an effective performance measurement system. Frequently,
organisations use generic measures with little consideration of their relevance. Thechallenge is choosing the right measures for the appropriate level of the organisation
(Booth, 1996). If inappropriately planned, the measures can run counter to the strategy
and encourage the wrong type of behaviour. This theme is pursued (Allio, 2006),
whereby different measures at various stages of an organisation are encouraged. In the
early stages of a high-technology business, for instance, managers focus on reliability,
speed and efficiency. In the growth stages, the key measure may be market share.
Alternatively, in the mature industries, price, production cost and capacity utilisation
may have a greater authority. Whereas, in an aging industry, the respective cash flow
metrics often begin to take precedence.
Whilst some metrics are more relevant at certain times, the system requirements of
respective measures is equally critical; an impatient organisation concentrating only
on the corporate level measures is doomed to fail in its attempt to formulate a
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performance measurement system. There exist three classes of performance measures
(Tangen, 2005). The lowest class resemble the traditional measures concentrating on
finance whereas the next level instigates a more balanced view. The highest level,
whilst utilising the prevailing information technology, looks for causal relationships
across the organisation. Consequently, companies need to embrace measures that
facilitate balancing external pressures, i.e. customer satisfaction, in conjunction with
internal pressures, i.e. employee satisfaction. In isolation, an internal measure may
intimate that a company is performing well whilst the external measures depict poor
performance; shrinking the defect rates may be in line with internal strategy, yet the
company could be viewed negatively by the market resulting in a deterioration of its
share price.
Likewise, it is vital to measure what is important to the enterprise. The measures
need to focus on the key strategies such as cash flow or growth; accordingly, the
organisation can take action. The problem many organisations fail to conquer is
translating qualitative targets into quantitative metrics. The relationship between the
qualitative and quantitative measures has not been fully explored. Work by the
“Stockholm School of Economics” (Neely, 1999) identified a significant positive
correlation between customer satisfaction and financial performance; the report states
that an annual one-point increase in customer satisfaction resulted in a net present
value of $7.48 million over five years for a typical firm is Sweden. The evidence (Allio,
2006) unfortunately suggests that many organisations find this lateral translation
difficult to organize.
Importantly, the challenge for many organisations remains the need to achieve a
cultural shift since the focus needs to be firmly on targets. Empowerment is necessary
since metrics staff view as irrelevant, unrealistic or inappropriate will be
counterproductive (Marshall and Heffes, 2004; Amaratunga et al., 2000).
Organisations seem content to introduce new measures of performance, but rarely
do they delete obsolete ones (Lawson et al., 2003). An evaluation of the measures
against different criteria that is important to the organisation is necessary (Tangen,
2005). However, the evaluation of KPIs can be time consuming (Malone and Sinnett,
2005); the average KPI evaluation took 11 months to complete.
An explicit prerequisite is the need to align the metrics with strategy. There is
ample evidence (Arora, 2002; Frigo, 2003) showing that good solid metrics can facilitate
the implementation of a strategy, whereas poor or distorted ones actually obstruct
implementation (Neely et al., 2005). Whilst the measures utilised need to match the
strategy, care needs to be taken regards the levels of strategy concerned; for instance,
at the strategic level it is necessary to ensure that the metrics reinforce the enterprise’s
strategy, match the culture, and are consistent with the existing recognition and
reward systems. However, at the tactical level, it would be appropriate to analyse
whether all the relevant aspects have been covered such as perception and performance
indicators and that measures relate to both long- and short-term objectives.
In this context, policy deployment (or Hoshin) has become an acceptable method to
communicate quality and productivity goals throughout a lean organisation. It is used
by Toyota and leading western organisations such as Intel and Ford (Cowley and
Domb, 1997). The principle suggests that by communicating common objectives the
organisation can secure commitment. The main stages (Cowley and Domb, 1997) look
at the current state, the changes necessary and the vision or future state. Consequently,
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a vision of 10 per cent growth, will accompany the action needed, i.e. reduction in lead
time; the method to achieve this may, for instance, involve that all cells are to be on a
JIT system by the end of the year. Moreover, Hoshin proposes that those who
implement the plan need to design it too. Specific ongoing checks are initiated to ensure
that local plans add up to the overall plans.
Evidence (Bond, 1999; Anthony and Govindarajan, 1998; Teach, 1998) indicates that
often organisations collect a considerable amount of information, but do not have an
effective system for translating this feedback into an effective strategy for action.
Research (Kaplan and Norton, 2005; Neely et al., 2005) forwards that organisations
need to start embracing information technology with greater enthusiasm as part of
their performance measurement. An IT balanced scorecard helps to focus on the causal
relationships and linkages within the organisation and helps managers to add greater
value. The literature is besieged by acronyms such as corporate performance
management, business performance management (BPM) and enterprise performance
management. The benefits are visible as it can automate the collection of data and
production of reports, saving considerable time and allowing managers to analyse
discrepancies and particular issues. With improved IT structures, new measurement
practices that aim to aggregate the operational level metrics into corporate level
measures become possible to implement. However, only 28 per cent of the
organisations undertaking performance measurement had implemented BPM
(Malone and Sinnett, 2005).
Seddon (2004) challenges convention; he argues that while many commentators
acknowledge command and control is failing us, few provide an alternative. His
contention is that the alternative can only be understood when one sees the failings of
command and control by taking the systems view. Seddon (2004) is scathing about
leadership theorists, maintaining leadership is being able to talk about how the work
works with the people who do it. In understanding an organisation as a system, Seddon
(2004) draws on the pioneering work of Ohno though from a service perspective;
arguing that the bureaucracy within public services is creating waste and he proceeds
to recommend the dismantling of the specification and inspection regime.
Performance measures beyond traditional financial analysis
By the end of the twentieth century, intangible assets became the major source of
competitive advantage (Neely et al., 2005). Tangible assets accounted for a book value
of less than 20 per cent of companies’ market values (Kaplan and Norton, 2001). The
problem remains how to quantify intangible assets; frequently intangible assets such
as knowledge affect financial outcomes throughchains of cause and effect linkages
involving several stages. Often, they need to be bundled with other intangible and
tangible assets to demonstrate any creation of value; an example would be a newly
devised growth strategy which requires customer knowledge, training for sales
employees, new databases, new information systems, a new organisational structure
and an incentive compensation program. Concentrating on just one, or all but one, of
the above could cause the new strategy to fail. In simplest terms, manage and improve
processes associated with the customer, employee, supplier and organisational
perspectives, and the financial standpoint will improve accordingly (Tangen, 2005;
Gautreau and Kleiner, 2001; Arora, 2002).
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Early, converts to process management such as Hewlett-Packard, Intel, and
Steelcase saw the role of activity-based costing (ABC) rather than traditional
accounting methodology. Literature summarises (Lawson et al., 2003) the solid
evidence towards an ABC system in concert with a scorecard system yielding
significant results. ABC is known to support improvements in operational efficiencies,
whereas a scorecard system supports a change strategy.
Non-financial measures such as quality, customer satisfaction and innovation have
become increasingly important. Pan Am, IBM, and Xerox initially focussed primarily on
financial indicators which did not display obvious problems until it was too late because
they are mostly lagging indicators such as the ROCE (Gautreau and Kleiner, 2001). Some
(Wade, 1997) propose that the traditional emphasis on profit is short-termism and any
measurement of success should be congruent with company strategy. Financial
measures, undoubtedly, focus on the past and survival in the longer term depends on
customer service (Smith, 1998); this can be measured by factors such as:
. quality;
. cycle time;
. employee skills; and
. productivity.
It is maintained (Pullin, 2002, p. 28) that there are three reasons, “inhibitors”, why
performance can be impaired. The first is variability, i.e. fluctuations in demand,
deliveries and quality wander, people and machines perform inconsistently; secondly
waste and third inflexibility, whereby the company cannot react to changes in demand,
or alter its working practices. In this case, a “technical solution”, (p. 29), is needed, i.e.
value stream mapping (Pullin, 2002). Moreover, a management system is needed to
ensure that the solutions are adhered to. However, coupled with this is an effective
change management policy; without any of these three elements the philosophy breaks
down.
Relevance of performance measures to lean success
Companies need to understand how key performance measures can guide and drive a
firm’s execution towards superior results in any area. Frigo (2003) insists that many
mediocre companies focus on performance measures relating to internal processes
without a strong correlation or linkage to the customer needs in their respective
targeted markets. Whilst benchmarking and best practices can yield positive results, if
not careful, the company can be lead in the wrong direction by focusing on the same
processes and practices of the industry, without paying sufficient emphasis on the
customer (Malone and Sinnett, 2005). Companies need to understand how key
performance measures can guide and focus an organisation towards superior results in
their chosen area. In an ideal world, any performance measurement system would
provide an early warning detection system indicating what has happened; diagnose
reasons for the current situation and proceed to indicate what remedial action should
be taken. The objective for any organisation should be to install a system that
endeavours to meet the above criteria.
The proponents of lean (Womack and Jones, 2005; Bicheno, 2004; Liker, 2006)
advocate that lean has the following benefits to offer:
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. shorter cycle time;
. shorter lead times;
. lower WIP;
. faster response time;
. lower cost;
. greater production flexibility;
. higher quality;
. better customer service;
. higher revenue;
. higher throughput; and
. increased profit.
Maskell and Baggaley (2004), dwell on the need to realign the financial goals with those
that lean attempts to accomplish. Maskell and Baggaley (2004) focus on the need to
measure financial progress from a perspective of relevant business issues and the real
cost instead of traditional standard cost methods. Nevertheless, often the benefits of
lean are difficult to quantify (Womack and Jones, 2005). Equally, Joseph Day, CEO of
Freudenberg-NOK in Olexa (2002), is emphatic that $7 million a year is spent on the
execution of lean but this achieves $20 million a year in cost savings. A thorough
evaluation of success statistics is required owing to the number of unsuccessful lean
initiatives. Nonetheless, we need to appreciate that the real benefits of lean are
restricted as Liker (2006, p. 2) summarises “50 per cent of the auto suppliers are talking
Lean, 2 per cent are actually doing it”.
Many have learned that succeeding with certain elements of lean is achievable.
Experience, shows that sustained lean success does not come from targeting
opportunities in a haphazard manner using few of the lean tools. To build a sustainable
lean foundation that consistently yields dramatic company-wide improvements on a
global basis necessitates a roadmap. Performance measures should be chosen enabling
an organisation to gauge whether progress is being made against targets and check
points (milestones).
Correspondingly, it is critical for lean enterprises to deploy early warning systems.
These milestones can either reinforce that progress is being made or signal that
problems need to be solved. Lean is a process focused initiative which makes it
fundamental for the lean journey to have these interim appraisals (Marshall and Heffes,
2004). However, a valid and candid assessment will only be achieved, if a portfolio of
measures is used (Yeniyurt, 2003). This, not only, includes the use of measures
depicting the product portfolio and its life cycle but also using measures of value to the
organisation both internally and externally. Managers can become preoccupied with
internal deadlines and dwell less on the organisation’s marketplace or the behaviour of
competitors. Variation in time and quantity is found in every process from supply
chain demand amplification to the dimensional variation. It remains a great enemy of
lean and every effort needs to be taken to reduce it. Often, organisations will reduce the
impact of the variability in a production system by some combination of inventory,
capacity or time. Accordingly, any assessment of lean needs to accommodate these
metrics.
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A “balanced scorecard” approach for the assessment of lean
More than 60 per cent of organisations claim to be using a scorecard (Kaplan and Norton,
2005). Undoubtedly, the real benefits of lean are difficult to quantify. Faster set-up, shorter
cycle time and better visual management improve the operation of a factory. Lean
philosophy (Standard and Davis, 2000) emphasises total system efficiency. Perhaps, the
best measure to track lean progress is total product cycle time that can be accommodated
in a scorecard approach. Reference is made to Paul Ziplin’s work (Standard andDavis,
2000) which concluded that manufacturing parameters that cause long cycle times also
cause high-production costs; the converse is also valid, whereby factors that cause short
cycle time also lead to lower production costs. The related benefits include shorter lead
time, greater flexibility, lower inventory, better customer service and higher revenues.
Undoubtedly, traditional means of measuring results through accounting methods fail to
incorporate the true valuation of an organisation’s intangible and intellectual assets
(Kaplan and Norton, 1992, 1993); these include high-quality products and services,
motivated and skilled employees, responsive and robust internal processes alongside
satisfied and loyal customers. Research (Lawson et al., 2003; Womack and Jones, 2005)
suggests that the latter are more critical to the long-term future of the organisation.
No single performance indicator can capture the complexity of an organisation
(Abernathy, 1999; Brown and McDonnell, 1995; Arora, 2002). Indisputably, measuring
organizational success is a continuous challenge for both managers and researchers.
Despite the popularity of the balanced scorecard, it has recently proven inadequate in
certain circumstances. The dynamic multi-dimensional performance (DMP) framework
(Maltz et al., 2003) is multi-dimensional in nature, depicting success as a dynamic,
on-going concept that is judged on various timeframes, and represents multiple
stakeholders. About 12 potential “baseline measures” (Maltz et al., 2003, p. 187) are
advocated across five major success dimensions:
(1) financial;
(2) market;
(3) process;
(4) people; and
(5) future.
Moreover, it is a natural augmentation of the “balanced scorecard” and “success
dimensions” (Shenhar and Dvir, 1996) models. The balanced scorecard utilises
15-20 measures in four dimensions:
(1) customer;
(2) internal;
(3) innovation and learning along with; and
(4) financial.
“Success dimensions” focuses on effectiveness across three organisational levels:
(1) project;
(2) business unit; and
(3) company.
and in four differing time horizons:
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(1) very short;
(2) short;
(3) long; and
(4) very long-time frames.
The key premise is that measuring the success of an organisation using only one time
dimension may be misleading; short-term corporate success, i.e. sales and cash
position, may alter during the following quarter or year. The ability to view the future
and define new needs before competitors and customers are the critical success
measures (Shenhar and Dvir, 1996).
Adaptation of dynamic multi-dimensional performance (DMP) model
for lean
The DMP framework has various characteristics which taken together distinguish it
from other frameworks and addresses certain limitations of previous models. A major
contributory factor is its multi-dimensional perspective, which accordingly offers a
more comprehensive view of what organisational success candidly means. The
“customer” dimension addresses the aspirations of many prominent academics and
practitioners (Allio, 2006); the “process” dimension concentrates on the internal
dynamic management; “people development” recognises the critical role of the firm’s
employees and the “future” dimension is focused on preparing for change whilst
sustaining an organisation’s vitality for years to come.
Moreover, the DMP framework provides an opportunity to examine an organisation’s
performance in multiple time horizons, i.e. the “financial” represents the very short-term,
whereas the “future” looks at the very long-term. The “people” dimension explicitly
acknowledges the critical roles of multiple stakeholders and addresses a major
limitation of the balanced scorecard. Equally, the DMP framework depicts sufficient
flexibility to be used by different organisations in different industries.
The balanced scorecard and the success dimensions models were seen as major
breakthroughs. Nonetheless, from a lean perspective both are prone to limitations.
The balanced scorecard is incomplete (Atkinson et al., 1997), since it fails to:
. emphasize sufficiently the contributions employees and suppliers make towards
assisting an organisation to achieve its objectives;
. recognize the role of the community in monitoring the environment in which the
company works;
. identify performance measures to assess stakeholders contributions (Smith,
1998); and
. distinguish between means and ends which is not very well defined; there exists
no clear provision for very long-term measures.
Moreover, while the “success dimensions” approach provides a framework over very
short- and very long-standing time frames, its primary limitation is that no specific
operational measures are provided for any dimension. Equally, that the constructs
“strategic leverage” and “creating the future” (Strecker, 1999, p. 190), do not easily
translate into quantifiable variables for organisations (Maltz et al., 2003). Moreover, the
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1996 model (Shenhar and Dvir, 1996) whilst has been empirically tested at the strategic
business unit and project levels, it has not been tested at the corporate level.
The lack of focus on an organisation’s human capital is probably the main
weakness of both the balanced scorecard and the success dimensions models (Teach,
1998). Several companies (Strecker, 1999) have noticed the lack of people orientation in
the balanced scorecard; best foods, now part of Unilever, for instance, has been using
the balanced scorecard for years, but felt it necessary to add a fifth dimension “people
development” (Strecker, 1999, p. 190).
The DMP examines various research streams, such as corporate entrepreneurship,
strategy, process, product development, marketing, economics and finance. The five
major dimensions promoted by the DMP model can be adapted to assess the lean
progress in organisations. The relevance of the five dimensions is as follows:
(1) financial measures which symbolize the traditional approach to organisational
success;
(2) customer/market measures manifest the relationship between the organisation
and its customers;
(3) process measures focus on an organisation’s efficiency and improvement;
(4) people development measures proceed to recognise the critical role of
stakeholders in organisational success;, i.e. level of employee skills,
commitment to technological leadership and personnel development; and
(5) preparing for the future measures are expressions of foresight and would act as
an important barometer of whether value is to be created in the future.
One of the main contributing factors in the decision to utilise the DMP framework as a
foundation evolves around the model’s ability to explore the dynamic progression,
representing multiple time horizons. The DMP model builds upon the balanced
scorecard in recognising the importance of establishing cause-and-effect
relationships; if improved operational performance fails to improve financial
performance, this indicates that the chain of cause-and-effect has not been
established correctly and needs revision. This system had been promoted several
years earlier (Hepworth, 1998).
Recent estimates (Silk, 1998), indicate that 60 per cent of the Fortune 1000
companies either currently have or are experimenting with the balanced scorecard
which means that there is considerable scope to utilise the principles of DMP. The
theme of the investigation should focus on the “leading indicators” (Gautreau and
Kleiner, 2001, p. 153) such as cycle time that influence“lagging indicators” (Gautreau
and Kleiner, 2001, p. 153); these are the outcome measures such as profits. In order to
combine the above into the lean philosophy, the overriding consideration remains
value (Rich, 1999; Shah and Ward, 2003; Womack and Jones, 2003).
There are certain key performance factors that the literature does not dispute and
these can be grouped into six categories (Bond, 1999):
(1) quality;
(2) delivery reliability;
(3) customer satisfaction;
(4) cost;
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(5) safety; and
(6) morale.
Wade (1997) implies that the most commonly used measurement categories are:
. financial;
. customer satisfaction;
. employee satisfaction;
. productivity; and
. growth and innovation.
In direct reference to lean, Dimancescu et al. (1997) provide precedence with a
well-crafted score card to be reviewed quarterly by management which embraces the
following measures:
(1) Earnings before tax and interest.
(2) The return on net assets.
(3) Gross sales achieved.
(4) Market share by product groups.
(5) Quality ratings.
(6) Price to product performance ratios.
(7) Delivery performances.
(8) The defect rates on critical products/components.
(9) Health and safety ratios per employee, i.e. accidents; absenteeism; and labour
turnover.
(10) Employee satisfaction ratings.
Conceivable assessment for lean
Accordingly, the performance measures to assess whether an organisation was
successful as a result of adopting lean will espouse the DMP framework embracing the
five dimensions together with the other guidelines offered (Kaplan and Norton, 1992,
1993, 2005; Bond, 1999; Wade, 1997 and Dimancescu et al., 1997). It is proposed that the
following performance categories are used in line with the DMP framework (Maltz et al.,
2003):
. financial;
. customer led indices;
. process;
. people; and
. parameters looking at the organisation’s future prospects.
However, to view lean as a philosophy rather than a process, an area of research for the
author, both technical and cultural viewpoints need addressing. Consequently, Table I
could be used as a template for a business to evaluate the impact lean has had.
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Measurement considerations for organisations on their lean journeys
It is important to recognise that no scorecard can define the best strategy for a company
to adopt; it remains senior management’s responsibility and vision. In an attempt to
automate the system, the financial measures pose little problem as they have been used
effectively for many years. The non-financial measures are difficult to establish (Allio,
2006). The determination of performance measures can prove challenging; it is vital
that managers dwell on the cause and effect relationships in strategy when attempting
to link measurement with strategy.
Financial Profit after interest and tax
Rate of return on capital employed
Current ratio
Earnings per share
Customer/market Market share by product group
measures Customer satisfaction index
Customer retention rate
Service quality
Responsiveness (customer defined)
On-time delivery (customer defined)
Process NPD lead time
Cycle time
Time to market for new products
Quality of new product development and project
management processes
Quality costs
Quality ratings
Defects of critical products/components
Material costs
Manufacturing costs
Labour productivity
Space productivity
Capital efficiency
Raw material inventory
WIP inventory
Finished goods inventory
Stock turnover
People Employee perception surveys
Health and safety per employee:
Accidents
Absenteeism
Labour turnover
Retention of top employees
Quality of professional/technical development
Quality of leadership development
Future Depth and quality of strategic planning
Anticipating future changes
New market development
New technology development
Percentage sales from new products
Table I.
Performance template
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Whilst many acknowledge the link between customer and employee satisfaction,
alongside financial performance, a scorecard may not provide guidance regarding the
methodology to improve performance in order to achieve the desired strategic results
(Morgan, 1998). Undeniably, any scorecard needs periodic adjustment to realign
altering strategies or corporate structure; however, this is both time consuming and
expensive. There are also implementation problems; the total development time is one
year for a typical scorecard (Sanger, 1998). Consequently, not all the measures
proposed in the template may be appropriate at any one time. It is promoted (Maltz
et al., 2003) that each company should use the components of the framework in
differing ways and with dissimilar degrees of importance. The appropriate set of
measures depends on the firm’s size, technology, strategy, coupled with the
characteristics of the relevant industry and environment in which the firm operates.
It remains imperative that companies utilise their own version of the scorecard as
the measures used may contrast. Essentially, the adoption of the system proposed
provides no guarantee for success. This is reiterated by Hall (2004, p. 22); that the:
[. . .] differences between the Toyota Production System, as practiced by Toyota and Lean
manufacturing are significant. Two of those are that the TPS emphasises worker
development for problem solving and spends much more time creating standardised work,
which Lean seldom incorporates.
Moreover, he suggests that the Toyota Production System as practiced by Toyota may
not be easily emulated by other organisations owing to the variation by which some
processes are managed and the prevailing culture. If we accept that a process is a sum
of activities moved and directed towards the customer, then any poor performance in a
link in the chain is sufficient to spoil the overall performance. Undoubtedly, the
ramifications of using wrong metrics can be devastating (Silk, 1998).
Similarly, the metrics chosen need to be aligned to the expectations of the
customers. In this context, the system needs to be focused towards continuous
improvement in line with the lean philosophy. It is proposed (Neely et al., 2005) for
continuous improvement there should be a periodic re-evaluation of the
appropriateness of the established performance measurement system in response to
the current competitive environment. Whilst the underpinning assessment of success
needs to espouse the value component it is necessary to utilise generic measures unlike,
for example, market share and profitability that are influenced by numerous external
factors making benchmark comparisons intricate (Sanchez and Perez, 2000). Moreover,
it could be argued that a singular concept such as “value creation”, whilst simple and
easy to accept, falls short in answering the real question as to if an organisation is
creating value today, will it continue to do so in the future. In addition, for many years
academics (Collins and Porras, 1994) have explored the difficulty in defining value.
Undoubtedly, a cocktail of performance measures is required to accurately assess
whether an organisation has been successful as a result of adopting lean. The literature
(Sanger, 1998; Marshall and Heffes, 2004; Tangen, 2005), advocates caution since the
application of the balanced scorecard requires a comprehensive understanding of
the principles involvedand significant commitment towards accepting the new
philosophy. Many (Gautreau and Kleiner, 2001), maintain that the success measures
should not be seen as an end in themselves but as a mechanism to direct future action.
Balanced scorecards should not just be combinations of both financial and non
financial measures, organised into several viewpoints; the most effective scorecards
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are likely to reflect the organisation’s strategy. An acid test would be whether you can
understand the strategy by looking only at the scorecard and the company’s strategy
map. Strategy scorecards in concert with strategy maps provide a logical way to
describe strategy, i.e. if we improve on-time delivery then customer satisfaction will
improve.
Conclusions
The five major success dimensions (Maltz et al., 2003) serve as an integrated
framework for looking at an organisation’s overall performance. A generic appeal is
that it can be applied to quite disparate organisations. It provides a good barometer for
multiple time horizons and facilitates the examination of a wider view of organisational
success. The DMP model is also a response to the earlier work (Collins and Porras,
1994) that critically stated companies that remain too focused on today’s issues are not
preparing for the future. Despite the shortfalls of any balanced scorecard intimated,
these could be alleviated with adequate planning and awareness, especially when
accompanied with the recent developments in software systems.
Equally, it is proposed that the framework, acts as a preamble for future research
which needs to look at various issues to address certain key gaps; namely:
. How to deploy enterprise performance management rather than measurement
systems?
. How do we measure performance across the whole value chain?
. The need to look at the intangible and tangible assets.
. Examine ways to develop dynamic rather than static measurement systems
which take account of organisational changes.
. Owing to their complex structure, the task of aggregate measure development for
the corporate level in multinational corporations is more complicated and needs
to be awarded greater attention.
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Corresponding author
Sanjay Bhasin can be contacted at: sanjay.bhasin@hmps.gsi.gov.uk; s.bhasin@btinternet.com
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