University of Twente Student Theses


Effective performance measurement : first build confidence, then measure?

Tanaydin, Tolga (2009) Effective performance measurement : first build confidence, then measure?

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Abstract:Due to several global trends the pressure on purchasing to improve its performance has increased. The Purchasing Department of the Business unit Surface Radar in the Netherlands (SR Purchasing NL) recognizes its major role in coping with these business challenges and continuously seeks new ways to improve its performance. As a consequence of this and some signals for improvement, SR Purchasing NL identified the need to research the current Performance Measurement System (PMS) to see whether the PMS meets all the requirements in order to be well prepared for the future. The presented report describes this research. The objective is to develop a new PMS with a limited number of Key Performance Indicators (KPIs) to enable easy maintainability. The central question is therefore stated as follows: "What is a good PMS for SR Purchasing NL?" There are several reasons to doubt the performance of the current PMS. We identify that almost half of the KPIs are not providing new insights at all due to several reasons, and in doing so we show that the current PMS only measures the financial performance. We explained that it is dangerous to neglect non-financial measures, because it stimulates purchasers to use short-term strategies rather than investing in long-term strategies. We uncover several other weaknesses of the system, such as the lack of steering possibilities, the lack of confidence of people in the right measures, the lack of commitment of people to the system, and the wrong assumption of focusing on the material flows rather than assessing the overall purchasing performance. Based on these weaknesses, we explain that managers within Thales that are related to SR Purchasing NL do not have the required insights in the current performance of SR Purchasing NL, while the actual performance of SR Purchasing NL is very important for Thales. In order to (re)design the right KPIs and to keep them relevant over time, we show that it is essential for SR Purchasing NL to manage the different and changing perceptions of people on the right KPIs. After all, an appropriate KPI today can become not appropriate tomorrow due to new insights. We manage these perceptions by developing a new methodology, namely the so-called 'MAPP Action Cycle' (shown in Figure 1 on Page iii). The actions taken in this cycle are based on the most recent perceptions of people on the 'Actual Performance Position' (APP) of a company. Intended and emergent goals give sense to these perceptions. The organization can learn from emergent goals that are discovered, translated, and communicated as intended goals. In order to make sense of these different perceptions, a simple performance model is needed. People have to believe that if they accept the performance model as the objective reality, it will add value to the company. After this 'sensemaking process', new knowledge can be created by developing, measuring, and assessing KPIs. This knowledge can be made more valuable by supporting it with dashboards, trend-lines, and so on. The decision makers have to understand this valuable knowledge by including it in their mental models. In doing so, they will recreate their perceptions on the APP of a company. Given the scope of this research, we execute the following two steps of this cycle. First, we evaluate different performance models and develop a customized performance model for SR Purchasing NL, the so-called 'Purchasing-Balanced Scorecard' (P-BSC) (shown in Figure 2 on Page iv). The P-BSC shows the Key Performance Areas (KPAs) for SR Purchasing NL and their interrelations in five dimensions. It shows also that it supports the mission of SR Purchasing NL. We validate the P-BSC by identifying and projecting the intended and emergent goals of SR Purchasing NL into the P-BSC. This step results in a new performance model with a higher validity, more adequate steering possibility, higher acceptability potential by people, and an alignment with the mission of SR Purchasing NL. Second, we evaluate all intended and emergent goals for each KPA of the P-BSC in order to formulate basic strategies. From these basic strategies, we develop the most promising alternative KPIs and evaluate them in order to select the new KPIs for SR Purchasing NL. This step results in sixteen new KPIs (see also in Figure 2), five of which are already collected as data by SR Purchasing NL or orther departments and thus make optimal use of existing data. In order to effectively implement the new PMS, we make some suggestions. First of all, full support is needed from the MT of SR Purchasing NL and the purchasers, after which a project can be started and managed by a project leader. After the other steps of the MAPP Action Cycle have been followed, the implementation can be started and executed in two steps: organizational and technical implementation. Once the PMS is implemented, it must be kept relevant over time with the help of the MAPP Action Cycle. We suggest holding performance reviews four times a year. We estimate that the whole implementation will take five months. Finally, we do some recommendations, such as: focusing on actions, remaining endcustomer oriented, attracting the right people, developing the right culture, creating awareness of all relevant perceptions about the correct working of SR Purchasing NL, making purchasing co-responsible for inventories, providing SR Purchasing NL with the exact needs of After Sales, developing a business model that considers all aspects in the development of Radar- and sensor Systems (Radar Systems) in a balanced manner, and considering offset issues in selecting or developing suppliers.
Item Type:Essay (Master)
Thales Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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