A beginner’s guide to Performance Control Systems

(Juran & Godfrey, 1999, p. 4.9) acknowledged that control subjects run to large numbers, but the number of “things” to be controlled is far larger. There is no possibility for upper managers to control huge numbers of control subjects. Instead, they divide up the work of control, using a plan of delegation somewhat as depicted in figure below. This division of work establishes three areas of responsibility for control: control by nonhuman means, control by the work force, and control by the managerial hierarchy.

Figure: The pyramid of control. Making Quality Happen, Juran Institute, Inc.

Various authors have tried to explain control in light of different meanings. (Tannenbaum, 1968, p. 239) referred it as any process in which a person or group of persons or organization of persons determines, i.e., intentionally affects, what another person or group or organization will do.

However, (Ouchi, 1979, p. 833) considers a more simple minded view of organizational control stated in the following two questions: What are the mechanisms through which an organization can be managed so that it moves towards its objective? How can the design of these mechanisms be improved, and what are the limits of each basic design?

(Tannenbaum, 1968, p. 246) noted that variations in control patterns within organizations have important and in some cases quite predictable effects on the reactions, satisfactions and frustrations, feelings of tension, self- actualization, or well-being of members.

(Ouchi, 1979, p. 834) classified that organizations have three control mechanisms:

Market control

Market control system focuses on output target as it is more effective to evaluate the work after it has been completed. In order to use a market control system effectively, there must be a certain level of information and clearly set targets to make it possible to evaluate the output.

Bureaucratic control

The fundamental mechanism of control involves close personal surveillance and direction of subordinate by supervisor. The information necessary for the completion is contained in rule; these may be rules concerning processes to be completed or rules which specify standards of output or quality.

Clan Control

The clan control system is based on cultural values, shared norms, informal relationships and beliefs that coordinate the behaviour to achieve organisational targets.

(Johnson, et al., 2008, p. 10) categorises controls as:

Strategic control

involves monitoring the extent to which the strategy is achieving the objectives and suggesting corrective action.

Operational control

is what managers are involved in for most of their time. It is vital to the success of strategy, but it is not the same as strategic management.

Performance Control Tools

“I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.
If you can not measure it, you can not improve it.” – Lord Kelvin

Benchmarking

(Slack, et al., 2010, p. 611) defined benchmarking as the process of learning from others and involves comparing one’s own performance or methods against other comparable operations. It is a broader issue than setting performance targets, and includes investigating other organizations’ operations practice in order to derive ideas that could contribute to performance improvement. Further, the stressed that Benchmarking is essentially about stimulating creativity in improvement practice.

(Spendolini, 1992) defined benchmarking as continuous, systematic process for evaluating the products, services, and work processes of organizations that are recognized as representing best practices for the purpose of organizational improvement.

(Camp, 1994) on the other hand described benchmarking as the continuous process of measuring products, services, and practices against the company’s toughest competitors or those companies renowned as industry leaders.

Benchmarking is not about imitating another organization. It is or should be more about innovation and improvements than about copying a competitor. Benchmarking should facilitate learning and understanding organizational processes and results.

There are various types of benchmarking, some of them are listed as follows. Organisations can decide to use one or a combination of different types to meet their goals.

1. Internal benchmarking

   is a comparison between operations or parts of operations which are within the same total organization.

2. External benchmarking

   is a comparison between an operation and other operations which are part of a different organization.

3. Non-competitive benchmarking

   is benchmarking against external organizations which do not compete directly in the same markets.

4. Competitive benchmarking

   is a comparison directly between competitors in the same, or similar, markets.

5. Performance benchmarking

   is a comparison between the levels of achieved performance in different operations.

6. Practice benchmarking

   is a comparison between an organization’s operations practices, or way of doing things, and those adopted by another operation.

(Spendolini, 1992) came up with a generic model for benchmarking with the following five steps being involved:

1. Determine what to benchmark.
2. Form a benchmarking team
3. Identify benchmark partners.
4. Collect and analyse benchmark information.
5. Take action (and continue the process)

(Juran & Godfrey, 1999) presented the following 10-step process for conducting a benchmarking investigation consists of the following five essential phases:

1. Planning
2. Analysis
3. Integration
4. Analysis
5. Maturity

Figure: The formal 10-step benchmarking process.

Balanced Scorecard

(Kaplan & Norton, 1992) suggested what you measure is what you get. They introduced the balanced scorecard in 1992 and believed that measurement was as fundamental to managers as it was for scientists. If companies were to improve the management of their intangible assets, they had to integrate the measurement of intangible assets into their management systems. While formulating the balanced scored, they emphasised on the aspect that the Balanced Scorecard does not become a benchmarking exercise. (Kaplan, 2010, p. 19) acknowledged that even high-performing companies succeeded with strategies that were quite different from each other.

 

Figure: Balanced scorecard developed by Kaplan and Norton (1992)

The figure above shows the original structure for the Balanced Scorecard which retains financial metrics as the ultimate outcome measures for company success, but supplements these with metrics from three additional perspectives – customer, internal process, and learning and growth – that we proposed as the drivers for creating long-term shareholder value.

(Lipe & Salterio, 2000) described the balanced scorecard as an integrated set of leading and lagging performance measures designed to capture the organisation’s strategy.

Various authors such as (Johnson, 1980) have argued that companies should focus on improving quality, reducing cycle times, and improving companies’ responsiveness to customers’ demands. Doing these activities well, they believed, would lead naturally to improved financial performance.

However, (Jensen, 2001) stated that Balanced Scorecard theory is flawed because it presents managers with a scorecard which gives no score – that is no single-valued measure how they have performed. Thus managers evaluated with such a system have no way to make principled or purposeful decisions.

(Bloomfield, 2002) noted that automation is essential in order to manage the vast amount of information related to a company’s mission and vision, strategic goals, objectives, perspectives, measures, causal relationships, and initiatives. The alternative is a manual process, which significantly increases the effort and cost of scorecard development and sets back progress in the early stages of the balanced scorecard development, when momentum is critical.