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29 From Measuring Performance Relevance of the Private- to Improving Performance Sector Lessons The private sector's collection and review of performance The private-sector performance measurement lessons measures beginning in the 1950s led to the eventual develop- include: ment of "quality" systems in the 1980s. The "Total Quality Management" concepts developed by W. Edwards Deming Organizations that are highly experienced in evolving gen- resulted in large part by a rigorous review of performance erations of performance metrics have learned that they data. As the source of failure to achieve targets was analyzed soon grow dissatisfied with static, lagging indicators that systematically, then "continuous improvement" developed. measure only past performance. Such measures may be all The continuous improvement processes took the form of organizations initially have, but they quickly prove inad- Total Quality Management, International Standards Organi- equate to provide insight into future performance; zation (ISO) processes, Six Sigma, the Baldrige process, or the Current performance measurement is heavily invested in Japanese Kaizen process. measuring customer satisfaction and system performance As noted earlier, measurement systems that are not tied to from the customer perspective; some consequence or action tend to atrophy. Those systems Leading indicators that provide insight into likely future that are tied to consequences have contributed to continuous performance are strongly desired; improvement efforts. Performance measures must be part of an ongoing sys- Metrics necessary for continuous improvement fall into tem that has its own architecture, data system rules, and two categories--those to measure customer satisfaction in grammar and a control process that keeps it accurate, its various forms and those to measure the processes that current, and relevant; create the products the customers use. When customers are Successful measurement systems overcome a contradic- dissatisfied, investigation occurs into the organizational per- tion. They must be high-level and simple while allowing formance that led to the dissatisfaction. granularity to drill down into processes if the high-level Therefore, many modern performance measurement sys- measures indicate a breakdown in performance; tems include both quantitative and qualitative measures.13 Private companies struggle to get good performance data The quantified measures will be based on process, outcome, from within their own organizations, which only further or financial measurements, while the qualitative ones will be highlights the challenge of getting consistent data from based upon the perceived satisfaction of customers, employ- public and private sources for a set of national freight per- ees, and other stakeholders. Employee satisfaction and cus- formance measures; tomer satisfaction are the most common qualitative key per- Modern private-sector performance measures are used to formance measures.14 drive organizational strategy; Performance measurement systems that become integral to an organization tend to drive "continuous improvement" efforts, while systems that are not integral tend to atrophy. Endnotes 6 Porter, The Importance of Being Strategic, p. 5. 7 Eccles, Robert G. The Performance Measurement Manifesto 1991 (Harvard 1 Drucker, Peter. The Information Executives Truly Need (Harvard Business Business Review, 1991). In Harvard Business Review on Measuring Corporate Review, Jan./Feb. 1992). In Harvard Business Review on Measuring Corporate Performance, 1998, pp. 2545. Performance, Harvard Business School Press, Boston, Mass., 1998, pp. 124. 8 Kaplan, Robert S., and David P. Norton. The Balanced Scorecard Measures 2 Frigo, M. L. Strategy-Focused Performance Measures, Strategic Finance, Sept. that Drive Performance (Harvard Business Review, Feb. 1992). In Harvard 2002. Business Review on Measuring Corporate Performance, Harvard Business 3 Porter, Michael. The Importance of Being Strategic, Balanced Scorecard Re- School Press, Boston, Mass., 1998. port, March/April 2002, p. 9. 9 Eccles, The Performance Measurement Manifesto, pp. 2545. 4 Frigo, Strategy-Focused Performance Measures, accessed at http://www.all- 10 Eccles, The Performance Measurement Manifesto, pp. 2545. 11 Eccles, The Performance Measurement Manifesto, pp. 2545. html, Feb. 14, 2011. 12 Brue, Greg. Six Sigma for Managers, McGraw-Hill, 2002, pp. 3661. 5 Wade, David, and Ronald Recardo. Corporate Performance Management, 13 Wade and Recardo, Corporate Performance Management, p. 12. Butterworth Heinemann, Burlington, Mass., 2001, p 2. 14 Wade and Recardo, Corporate Performance Management, p. 13.