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sETTIng THE dIRECTIon 241
performance measurement

At a day-to-day level, the direction of improvement will be determined partly by
whether the current performance of an operation is judged to be good, bad or indif-
ferent, so some kind of performance measurement is a prerequisite for directing
improvement. Traditionally, performance measurement has been seen as a means of
quantifying the efficiency and effectiveness of action.
Performance measurement, as we are treating it in this chapter, concerns four generic
issues:
1 What factors to include as performance targets
2 Which are the most important
3 How to measure them
4 On what basis to compare actual against target performance

What factors to include as performance targets
In operations performance measurement there has been a steady broadening in the
scope of what is measured. First, it was a matter of persuading the business that because
the operations function was responsible for more than cost and productivity, it should
therefore measure more than cost and productivity. For example:
‘A … major cause of companies getting into trouble with manufacturing is the tendency
for many managements to accept simplistic notions in evaluating performance of their
manufacturing facilities… the general tendency in many companies is to evaluate manufac-
turing primarily on the basis of cost and efficiency. There are many more criteria to judge
performance.’ 4
After this, it was a matter of broadening out the scope of measurement to include exter-
nal as well as internal, long-term as well as short-term and ‘soft’ as well as ‘hard’ meas-
ures. The best-known manifestation of this trend is the ‘Balanced Scorecard’ approach
taken by Kaplan and Norton.

The degree of aggregation of performance targets
From an operations perspective, an obvious starting point for deciding which per-
formance targets to adopt is to use the five generic performance objectives: quality,
speed, dependability, flexibility and cost. Of course, these can be broken down fur-
ther into more detailed performance targets since each performance objective, as we
have mentioned before, is in reality a cluster of separate aspects of performance. Con-
versely, they can be aggregated with composite performance targets. Broad aspects of
performance, such as ‘customer satisfaction’, ‘operations agility’ or ‘productivity’, can
give a higher-level picture of both what is required by the market and what perfor-
mance the operation is achieving. These broad targets may be further aggregated into
even broader aims, such as ‘achieve market objectives’ or ‘achieve financial objectives’,
or even ‘achieve overall strategic objectives’. This idea is illustrated in Figure 7.4. The
more aggregated performance targets have greater strategic relevance in so much as
they help to draw a picture of the overall performance of the business, although by
doing so they necessarily include many influences outside those that operations strat-
egy would normally address. The more detailed performance targets are usually moni-
tored more closely and more often, and although they provide only a very limited

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