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Enterpriseperformance

measurement

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Enterprise performancemeasurement

Asbjrn RolstadsT he Norwegian University of Science and Technology, Trondheim,

Norway

IntroductionDuring the last ten years, we have experienced a high degree of pressure on themanufacturing industry to improve its competitiveness. Several internationaltrends justify the strong focus on competitive issues:

globalisation;

customer orientation;

process orientation;

high productivity.

Globalisation includes two aspects: markets and manufacturing (Rolstads,1995).

Products are produced for a global market. Trade barriers have been torndown, and competitive companies today regard the world as their market. They

are competing in an international arena. To survive they must be worldchampion. The days of the national championships are gone.Manufacturing is also becoming global. Enterprises are moving in a

multinational direction. Their production units are spread all over the world.They are located where the total conditions for operation are most favourable.The same is true for design, product development, technology development,and other crucial business processes in the enterprise. The modern enterprisewill regard its customers and suppliers as part of its own company byestablishing strategic alliances. Some have started to talk about the virtualenterprise.

Globalisation is a very important development trend for industry. Thevirtual enterprise is, in part, a response to this. This means that the enterpriseis run as one single unit but that the various parts of the enterprise may begeographically distributed.

The virtual enterprise is no doubt a technology that many believe in.Kurihara discusses next generation manufacturing enterprises and mentionssupport for the virtual enterprise as key characteristic number one (Kuriharaetal.,1996).

The strong Japanese focus on quality as a competitive factor, has led thewhole world to focus on customer satisfaction. This means excellence in allrespects. It involves zero defects, short delivery times, customization, and lowcosts amongst others. Every part of the company is focused on the customer. All

International Journal of Operations& Production Management,

Vol. 18 No. 9/10, 1998, pp. 989-999,MCBUniversity Press, 0144-3577


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employees are trained to think customer satisfaction. The global situation withthe virtual or extended enterprise, extends the customer satisfaction approachbeyond the customer. It actually includes suppliers, vendors, financialinstitutions, and even owners. To have the best suppliers is considered an asset.

There is therefore an open competition in the marketplace not only forcustomers, but also for suppliers and owners. The stakeholders model (Bredrup,1995) clearly explains this situation.

The third major trend is process-oriented thinking (Harrington, 1991). Ascompetition becomes global, it also becomes fiercer. To stay competitive is acontinuous race. Industry must continuously improve itself. There is no time tolean back and take a break.

This environment has led industries to focus on their core activities. Non-coreactivities are outsourced. The core activities are refined and rationalised. Thecompany tries to strengthen its competitive advantage in this way.

The process-oriented approach identifies the business processes of thecompany. Each process is examined and reengineered to be as competitive aspossible. The most commonly used buzzword for this is business process re-engineering.

However, when re-engineering the business process, it becomes necessary tocompare it with other similar processes to learn and improve. Such benchmarkingis perhaps the most promising technique for productivity improvement.

The fourth trend is high productivity. The classical definition of productivityis the ratio between output and input. It is the product of efficiency and

effectiveness (Sink and Tuttle, 1989) where efficiency expresses the utilization ofresources. Many enterprises look at this as a cost-cutting exercise. It has led toa number of buzzwords like lean manufacturing and agile manufacturing.

Several studies have thrown light over the competitive balance betweenenterprises in various geographical regions. One example is the MIT studyMade in Amer icathat focuses on the competitiveness of US industry comparedwith Japan and Europe (Dertouzozet al., 1989). Even more famous is probablythe work of Porter documented in three books (Porter, 1980; 1985; 1990)addressing both the national and international levels. Other significant workcould also be mentioned, like Hayes and Wheelwrights Restor ing OurCompeti ti ve Edge(Hayes and Wheelwright, 1984), and Sink and Tuttles bookson measurement techniques (Sink, 1985; Sink and Tuttle, 1989).

Performance measurementThe classical approach to performance measurement can best be described bythe Sink and Tuttle model (Sink, 1985; Sink and Tuttle, 1989). The model claimsthat the performance of an organizational system is a complex interrelationshipbetween the following seven performance criteria:

(1) Effectiveness which involves doing the right things, at the right time,with the right quality, etc. Defining the criterion as a ratio, effectivenesscan be defined as actual output/expected output. Figure 1 illustrates this.


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(2) Efficiency.This is an input- and transformation process-question,defined as resource expected to be consumed/resources actuallyconsumed, as shown in Figure 2.

(3) Quality, where quality is an extremely wide concept. To make thingsmore tangible, quality could be measured at five or six checkpoints, asFigure 3 shows.

Figure 1.Operational definition of

effectiveness

Upstreamsystem

InputTransformation

ProcessOutput

Downstreamsystem

Effectiveness

A.O.E.O.

Upstreamsystem

InputTransformation

ProcessOutput

Downstreamsystem

Efficiency

R.E.CR.A.C


efficiency

Quality managementprocess: Q6

TransformationValue addingprocess: Q3

Organizationalsystem

OutputsQ4

InputsQ2

Upstreamsystems: Q1

Downstreamsystems: Q5

Customers,Suppliers,Providers

Customers

Figure 3.The six quality

checkpoints


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(4) Productivity, which is the traditional ratio of output/input. For anillustration, see Figure 4.

(5) Quality of work l ife, which is an essential contribution to a well-performing system.

(6) Innovation, which is a key element in sustaining and improvingperformance.

(7) Profitability/budgetability, which represents the ultimate goal for anyorganization.

Figure 5 shows how Sink and Tuttle view the interrelationship between the sevenperformance criteria. The focus must first be on effectiveness, i.e. what are theright things to do. Then it is time to start aiming for efficiency and quality. If thesethree concepts are in place, the result is very likely to be a productiveorganization. Quality of work life and innovation are viewed as moderators to theequation; they can both increase and decrease performance. Maintaining highperformance in these areas, the short-term result is often profitability for profitorganizations and budgetability for non-profit organizations. This againsupports the long-term outcomes of excellence, survival, and growth.

A more recent work done in the TOPP project looks at performance as theintegration of three dimensions as depicted in Figure 6 (Moseng and Bredrup,1993):

(1) Efficiency.

(2) Effectiveness.(3) Adaptability.

The two first dimensions are the same as those used by Sink and Tuttle (1989).The third expresses to which extent the company is prepared for future changes.

TOPP was a research program carried out in Norway (1992-1996) studyingproductivity issues in Norwegian manufacturing industry. TOPP has


productivity

Upstreamsystem

InputTransformation

ProcessOutput

Downstreamsystem

Productivity

Actual

Expected

Figure 5.The interrelationshipbetween the sevenperformance criteria

Upstreamsystem

InputTransformation

ProcessOutput

Downstreamsystem

Profitability/budgetability


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developed two sets of methodologies for measuring productivity in a company(Moseng and Bredrup, 1993):

(1) Self-audit based on a questionnaire answered by the companies.

(2) External audit performed by experts analysing the companies.

There are some similarities between TOPP and the methodology usedfor awards like Malcolm Baldrige, Deming, and the European Quality Award.However, TOPP focuses on more aspects concerning the competitiveness of thewhole company, while the awards mentioned have their main focus on quality.

The self-audit uses a questionnaire which is answered by each company. Itconsists of three parts:

Par t 1 . Facts about the company, products, cost, finance, manpower,capacities, production, etc.

Par t 2. Overall evaluation of different functions and system variables.This part is answered confidentially by 20 individuals in the company.

Part 3. Detailed evaluation of primary and support functions and systemvariables (products, facilities, personnel, etc.). This part is answered byspecialist groups in the company. Management is represented in allgroups.

The scale of assessments comprises an interval from 1 to 7 with 7 as bestpractice.

The external audit is done using external experts. An expert team analysesthe company and scores indicators on the scale from 1 to 7 with 7 still as bestpractice. The company is analysed in two ways:

(1) Company-level using indicators focusing on the overall performance ofthe whole enterprise.

(2) Company split-up, using indicators focusing on limited areas of thecompany.

The company-level analysis is split into four sets of indicators as shown inFigure 7.

Within each area a number of items has been identified. For each item up toten indicators are given. Each indicator is supported by a checklist of key

Figure 6.Performance model

from TOPP

EFFICIENCY

EFFECTIVENESS

ABILITY TOCHANGE


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questions. The expert team scores on each indicator, based on this list. Thescores are weighed together depending on their importance, and one keyindicator is given for the item. This may be aggregated to an area indicator, butthis is only done for the company-level approach.

The TOPP methodology has also been applied in the EUREKA projectTIME GUIDE which aims at developing software products for processassessment, process benchmarking, and gaming. It also includes building aEuropean benchmarking database for identification of benchmarking partners.

Further the TOPP methodology has been revised and forms, together withother research results, a baseline for a new EU ESPRIT research project called

ENAPS (Strandhagen and Rolstads, 1995).ENAPS is a European network. The end result is an operational network withcapabilities and competence to perform benchmarking and performancemeasurement. The network has nodes in most EU countries referred to as agents.

The research team comprises a set of partners from five different countries.These partners will develop the necessary tools. Essential here is thedevelopment of a benchmarking database. The actual benchmark is performedby agents. The agents may be consultants or research organizations. They willapproach industry and will do data collection using the ENAPS methodology.

The data are fed into the database, from which the agents can retrieveinformation for comparison.

The concept of agents is fundamental in ENAPS and is the main vehicle to

operate the network.Agents have the following commitment:

Serve as national node and point of contact.

Apply methods and tools to do local performance studies.

Engage experts where necessary.

Be involved in development of network.

Serve as pilot company for benchmarking and studies if appropriate.

Act as advisers and help in quality assurance.

Figure 7.Company level-analysisareas

ECONOMY EXTERNALRELATIONS

INTERNALRELATIONS

ABILITY TOCHANGE

1. PROFITABILITY

2. CASH FLOW

3. FINANCIALSTABILITY

1. MARKET

2. BOUNDARYCONDITIONS

3. EXTERNALRESOURCES

1. COST-EFFECTIVEUSE OFRESOURCES

2.WORKENVIRONMENT

1. STRATEGICAWARENESS

2. CONDITIONSFOR CHANGE


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The ENAPS network is intended to play a critical role in helping Europeanindustry, government, and educational leaders appreciate and prepare for thisreality based on business processes engineering by:

providing a platform for interaction and collaboration across nationalboundaries within Europe through a permanent network focused onadvancing the understanding of performance for mutual benefit;

researching best practices in performance and their causes, such as theuse of supplier/customer contract relationships, self-managed teams,concurrent engineering, supply, chain management, etc;

stimulating regional strategies by which governments can begin

developing an infrastructure that will attract networks of businesses; educating key players that productivity is the ratio between value added

in the entire enterprise and the cost of resources consumed, rather thanthe narrow definition of output per man-hour, and that the key issue inthis respect is engineering or re-engineering of business processes;

enhancing the blue collar human capital through appropriate training;

shaping educational curricula for university students and professionalsto prepare them for working in cross-cultural, process and team-orientedenvironments that stress collaboration within and between companiesrather than the old adversarial, win-lose model of business.

Enterprise modellingIn order to do performance measurement, an enterprise model is needed. Anumber of modelling tools already exists, like CIMOSA (Kosanke, 1991), IDEF0,SADT, and the GRAI method (Marcotte, 1990).

In this context the TOPP and the ENAPS models will be briefly described.The TOPP model is based on theoretical work carried out in the ESPRIT projectFOF Factory of the Future, and this model will therefore also be described(Falsteret al., 1991).

The FOF conceptual model is intended to design/redesign or test aproduction system. In applying the model, some information is given as input.

This basically includes the products to be delivered and the resources that thecompany has available.

Both may be inadequately, insufficiently or only partly defined. They may allbe changed or modified in the process of designing or redesigning themanufacturing system.

The company exists to satisfy a requirement for products from its customers.This demand pattern is also assumed to be one of the basic input data of themanufacturing system. Finally, the company may operate different workinghours on different resources. The operating hours are another set of basic inputdata, of the same type as demand.

All these input data can be categorised into either design choices (DCs). Indesigning/redesigning the system, the various design choices are changed to


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split into primary and support processes. In addition development processeshave been added.

The ENAPS model follows to a certain degree the same approach. It is basedon a business model developed in the EU AMBITE project (Browne and

Jackson, 1995). This model shows four business processes:

(1) Customer service.

(2) Obtaining customer commitment.

(3) Order fulfilment.(4) Product development.

In addition there are two secondary processes:

(1) Support processes.

(2) Evolution processes.

Figure 10 shows the ENAPS generic framework with the six processes and theassociated function. One function may belong to more than one process.

Performance is measured at three levels of performance indicators:

(1) Enterprise level.

(2) Process level.

(3) Function level.

In total there are 117 indicators which fall under the following eight headings:(number of indicators in parentheses):

(1) Accounts (13).

(2) Product development (20).

(3) Marketing and sales (22).

(4) Planning and production (20).

Figure 9.The TOPP businessprocess

TOPP BUSINESS PROCESSES

PRIMARY PROCESSES SUPPORT PROCESSES DEVELOPMENT PROCESSES

1. Sales and marketing2. Procurement3. Technological planning4. Design and engineering5. Production planning and control6. Production and assembly

7. Distribution8. Order processing9. Invoicing and reimbursement

10. Strategic management11. Financial management12. Personnel administration13. Information management14. Maintenance15 Internal control of health,

environment, and safety

16. Continuous improvement17. Market development18. Product development19. Technology development20. Human resource development21. Supplier development

22. Development of externalrelations


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(5) Customer service (8).

(6) Purchasing (11).

(7) Personnel (16).

(8) Other (7).

References

Bredrup, H. (1995), Perf ormance Measurement in a Changing Competi ti ve Indu stri alEnvir onment: Breaking t he Financial Paradigm, University of Trondheim.

Browne, J. and Jackson, S. (1995),AMBIT E: Advanced Manufactur ing Business ImplementationTool for EUROPE, CIMRU, University of Galway.

Dertouzos, M.L., Lester, R.K., Solow, R. M. and the MIT Commission on Industrial Productivity(1989),Made in America: Regaining the Productive Edge, The MIT Press, Cambridge, MA.

Falster, P., Rolstads, A. and Wortmann, H. (1991),FOF Production Theory, WP2 Report: Designof a Conceptual Model, Trondheim.

Figure 10.The ENAPS genericframework

ENAPSBUSINESS PROCESS

BUSINESSPROCESSES

SECONDARYPROCESSES

CUSTOMER SERVICE SUPPORT

OBTAINING CUSTOMERCOMMITMENT

ORDER FULFILMENT

PRODUCT DEVELOPMENT

EVOLUTION

After sales-service Product take back

Market development Marketing and sales Tendering

Distribution and outbound logistics Invoicing and payment Manufacturing and assembly Order processing Procurement and inbound logistics Production planning and control

Co-engineering Process engineering and design Product engineering and design Product research

Maintenance Financial management Human resource management Information management Internal control health, environment, safety

Continuous business process improvement Development of external relations Human resource development Product research Production technology research Strategic planning Supplier base development


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Harrington, H.J. (1991), Business Process Improvement: T he Breakthr ough Strat egy for TotalQuali ty, Productivit y and Competi ti veness, McGraw-Hill, New York, NY.

Hayes, R.H. and Wheelwright, S.C. (1984),Restori ng Our Competit ive Edge: Competing throughManufacturing, John Wiley & Sons, Boston, MA.

Kosanke, K. (1991), The European approach for an open system architecture for CIM,Comput ing and Control Journal, Vol. 2 No. 3.

Kurihara, T., Bunce, P. and Jordan, J. (1996), Next generation manufacturing systems in the IMSprogram, in Okino, Tamura, and Fujii (Eds), Advances in Production M anagement Systems,IFIP WG5.7, pp. 17-22.

Marcotte, F. and FOF (1990),Organizational/Decisional View, FOF/GRAI/200.Moseng, B. and Bredrup, H. (1993), A methodology for industrial studies of productivity

performance,Production Planning and Control, Vol. 4 No. 3.

Porter, M.E. (1980),Competiti ve Strategy: Techniques for A nalyzing Industr ies and Competi tors,Free Press, New York, NY.Porter, M.E. (1985),Competi ti ve Advantage: Creating and Sustaining Super ior Performance, Free

Press, New York, NY.Porter, M.E. (1990),The Competit ive Advantages of Nati ons, Macmillan, London.Rolstads, A. (1995), The future role of IT,Business Technology International, pp. 6-9.Sink, D.S. (1985),Productivity Management: Planning, M easurement, and Evaluation, Control,

and Improvement, John Wiley & Sons, New York, NY.Sink, S. and Tuttle, T. (1989),Planning and Measurement in your Organization of the Future,

Industrial Engineering and Management Press, Norcross, GA.Strandhagen, J.O. and Rolstads, A. (1995), ENAPS A Eur opean Network f or Advanced

Productivi ty Studies, SINTEF, Trondheim.

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