The document discusses concepts and definitions related to performance management. It provides 3 key definitions: 1) Performance management is about synchronizing improvement efforts to create value for customers and economic value for owners. 2) It involves translating plans into results through execution. 3) It is the process of managing an organization's strategy. The document then traces the historical development of performance measurement and management concepts over time.

1. PERFORMANCE MANAGEMENT
CONCEPTS
Management and Industrial System Development Lab
Department of Industrial Engineering – ITS

2. P.T CP INDONESIA PERFORMANCE STATUS
COLDSTORAGE PERFORMANCE STATUS
Business
environment changes
drastically
POULTRY PERFORMANCE STATUS
Management must
make decisions
under turbulent
business
environment
MANAGEMENT TEAM

3. DEFINITION
▪ Performance management is all about
improvement—synchronizing improvement to create
value for and from customers with the result of
economic value creation to stockholders and owners.
▪ Performance management is ‘‘the translation of
plans into results—execution’’
▪ It is the process of managing an organization’s
strategy

4. DEFINITIONS
▪ Performance measure is a metric used to quantify
the efficiency and effectiveness on an action
▪ Performance measurement is the process of
quantifying the efficiency and effectiveness of an
action
▪ Performance measurement system is a set of
structured metrics and procedures to quantify both
effectiveness and efficiency of activities

5. Functional organisation
Specialisation
Scientific Management:
standard labour grade, standard labour
hour/unit, standard material quantity/unit
The development
in that era
Development of transportation and
telecommunication systems
Hierarchical
organisation structure
The invention of steam
engine and steel making
process
Cost/lb, Cost/hour, Cost/ton-mile and inventory
stock-turn are used to measure the efficiency of
internal processes, but are not used to measure the
profitability of the company
Performance
measurement
system
Standard product costs based on standard
labour and material costs are used to measure
the internal processes and managers’
performance
Profit gain is measured from market
transaction
Fra Pacioli ( 15 th century )
Actors
Era
Period
Frederick W. Taylor
Percy Longmuir
Harrington Emerson
G. Charter Harrison
Hamilton Church
G.P. Norton
New England Textile Mills
Andrew Carnegie (Carnegie Steel Company)
Albert Fink (Louisville &Nashville)
Macy, Marshall Field, Sears (Distribution and
retailing)
Artisan Shops
Single Activity organisation
1800
Scientific Management
1880
1900

6. Cheap micro-computer
CIM, FMS
Customers are more
critical
Robotics
Just-In-Time
More producers
compete in the market
Benchmarking
Business Process
Re-engineering
Total Quality Management
Free trade agreements
The requirement of integrated
and audited financial report for
external parties
Product
diversification
Multi-divisional
organisation
Global market is more
competitive
Requirement for more flexible
and reliable manufacturing system
The invention of
high speed process
technology
ROI is used to measure the
performance of unit operations
and the whole organisation
Individual, non-financial performance measures are used in addition
to financial performance measures
ROI is used to measure
divisions and the whole
organisation
Financial accounting based performance measures
Du Pont Powder Co.
(F. Donaldson Brown, Pierre
Du Pont)
Vertically Integration:
Centralised-Departmentalised
enterprises
1900
1920
~Quality: Costs of quality (Feigenbaum, Crossby), Malcolm
Baldrige National Quality Award, European Quality
Award, Six Sigma (Motorola), M. Zairi
~Time: Stalk, Hout, Azzone
~Flexibility: Gerwin, Slack
No significant development of performance
measurement system, traditional performance
measurement system produces distorted,
irrelevant and late information
Du Pont General Motor
(William C. Durrant, Pierre
Du Pont, Alfred P. Sloan)
Multi-divisional
organisation
The use of individual, non-financial
performance measures in addition to
financial measures
Relevance lost
1925
1980
1987

7. Franchising
Extended Enterprises
Agile Manufacturing
Lean Manufacturing
Integrated performance measurement system
?
Activity-based Costing and
Throughput Accounting
B. Maskell, S. Globerson, J. R. Dixon, A. J. Nanni, T. E. Vollmann,
R. S. Kaplan, D. P. Norton, Wang System, Cambridge Research Group,
Strathclyde Research Group, Loughborough Research Group, Cranfield
Research Group
~R. Cooper
~ Galloway, Waldron
Cost accounting
improvement
1987
Future performance
measurement systems
New performance measurement systems
1990
1996
Future

8. TRADITIONAL
PERFORMANCE MEASUREMENT SYSTEM:






Lack of relevance
Lagging metrics
Short-termism
Inflexible
Does not foster improvement
Cost distortion
Traditional performance measurement systems
produce information that are too late, too aggregate,
and too distorted to be relevant for managers planning
and control decisions (Kaplan and Johnson)

9. STABLE ENVIRONMENT
?
PAST
FUTURE
REAL MEASURES
NOW
PROXY MEASURES
PERFORMANCE
REPORTS

10. TURBULENT ENVIRONMENT
?
PAST
FUTURE
REAL MEASURES
NOW
PROXY MEASURES
PERFORMANCE
REPORTS

11. PERFORMANCE MEASUREMENT
SYSTEM – PITFALLS
1. Most organizations have too many performance
measures
2. Organizations have wrong or inappropriate measures
3. The performance measures are not properly
communicated throughout the organization
4. A lack of alignment
5. A performance measurement system that emphasizes
short-term financial measures creates long-term
problems
6. Executives want a predictive performance measurement
system, rather than one that is just historical. They want
a system that predicts whether they are on course, and if
not, what they have to do to correct and thus achieve the
desired targets

12. PERFORMANCE MANAGEMENT CYCLE
( Closed loop system )
Performance Planning
• Objective/target
setting
• Objective deployment
• Resource bargaining
Performance Improvement
• Area of improvement
• Causal factors
• Action Plan
Performance Accomplishment
• Resource deployment
• Training/coaching
• Continuous
improvement
Performance Measurement
• KPIs
• Structuring
• Prioritising
• Measurement
• Review

13. PERFORMANCE PLANNING
Last year performance
Strategic plan
(Improvement
Programmes)
Business environment
changes
Company
Objectives
Objectives
Setting
Target
Setting
Company
Target
Department
Objectives
Objectives
Deployment
Target
Deployment
Department
Target
Activity Plan
- Routines
- Improvements
Define
Activity
Resources
Bargaining
Resources
Requirement

14. PERFORMANCE ACCOMPLISHMENTS
Activity Plan
- Routines
Improvements
Progress
Reports
Activity Plan
Execution
Resources
Requirement
Resources
Deployment

15. PERFORMANCE MEASUREMENT
Balanced Scorecard
Model
Business Process
Map
Identification of
Key Performance Indicator (KPI)
Corporate, Business Units
Activity Plan
- Routines
Improvements
Identification of
Key Performance Indicator (KPI)
Business Process, Activity
Company
Target
Performance Measuremet
Key Performance
Indicator
Corporate, Business Unit
Key Performance
Indicator
B. Process, Activity
Performance Reports
Corporate, B. Unit,
B.Process, Activity
Performance Review
Department
Target
Performance
Problems

16. PERFORMANCE IMPROVEMENTS
Performance Problems
Identification of
Causal Factors
Setting
Improvement Programmes
Improvement Programmes
- Target
- Schedule
- Resources
- Responsibility

17. Implementation of performance
management leads to
continuous improvement
Performance
management
Performance
management
Performance
management
Performance
management
Better performance

18. BUSINESS SITUATION
Business environment
changes
Managers should :
Understand exactly the nature of the
competition
- Order qualifier criteria
- Order winner criteria
 Know precisely the critical business processes
 Ensure that the critical business processes are
executed properly
Company
performance
management

19. ORDER QUALIFIER AND
ORDER WINNER CRITERIA
▪ Order Qualifier Criteria : the attributes of
products/services which enable them to enter to a
particular market.
▪ All products or services compete in market fulfill
Order Qualifier Criteria, the winner is the one which
also fulfill Order Winner Criteria.
▪ Order Winner Criteria : the attributes of
product/service which make customers to buy that
product/service, not the others.