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Journal of Manufacturing Technology Management Lean and performance measurement Sanjay Bhasin Article information: To cite this document: Sanjay Bhasin, (2008),"Lean and performance measurement", Journal of Manufacturing Technology Management, Vol. 19 Iss 5 pp. 670 - 684 Permanent link to this document: http://dx.doi.org/10.1108/17410380810877311 Downloaded on: 08 April 2015, At: 00:19 (PT) References: this document contains references to 48 other documents. To copy this document: permissions@emeraldinsight.com The fulltext of this document has been downloaded 5458 times since 2008* Users who downloaded this article also downloaded: Peter Hines, Matthias Holweg, Nick Rich, (2004),"Learning to evolve: A review of contemporary lean thinking", International Journal of Operations & Production Management, Vol. 24 Iss 10 pp. 994-1011 http://dx.doi.org/10.1108/01443570410558049 Sanjay Bhasin, Peter Burcher, (2006),"Lean viewed as a philosophy", Journal of Manufacturing Technology Management, Vol. 17 Iss 1 pp. 56-72 http://dx.doi.org/10.1108/17410380610639506 Rosemary R. Fullerton, William F. Wempe, (2009),"Lean manufacturing, non-financial performance measures, and financial performance", International Journal of Operations & Production Management, Vol. 29 Iss 3 pp. 214-240 http://dx.doi.org/10.1108/01443570910938970 Access to this document was granted through an Emerald subscription provided by 194288 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download. D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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 www.emeraldinsight.com/1741-038X.htm JMTM 19,5 670 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 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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 Lean and performance measurement 671 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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, JMTM 19,5 672 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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). Lean and performance measurement 673 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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: JMTM 19,5 674 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) . 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. Lean and performance measurement 675 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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: JMTM 19,5 676 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) (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 Lean and performance measurement 677 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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; JMTM 19,5 678 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) (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. Lean and performance measurement 679 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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 JMTM 19,5 680 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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 Lean and performance measurement 681 D ow nl oa de d by U ni ve rs ity o f M on ta na A t 0 0: 19 0 8 A pr il 20 15 (P T) 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. . 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