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Abstract
The primary force changing the environment of business in the past couple of decades is global competition. Owing to some political and economic forces, a global trade has increased considerably. Many companies in industrial countries have focused their strategies on the global market. Also, an increasing number of companies from less developed countries that have switched to an open market system and free competition consider the international market as the fastest way to grow [1].
This global competition had a devastating impact on some industries such as auto, steel, and conSl,lmer electronics. However, on the positive side, the globalization has opened new market and” opportunities. It has led to creating a larger arena but much tougher games in which only the best can succeed. To gain an upper hand in this tough game, many companies have focused on technological developments and innovations.
Improvement in product and process technologies is a main strategic focus in many companies. The rate of technological development is increasing exponentially. The development in some areas such as information technology, telecommunication and biotechnology are considered revolutionary and are expected to have a major economic impact. Technological development and global competition have combined forces to destabilize the environment, resulting in many threats as well as opportunities.
According to Goetch and Davis [2] to make companies prosper in this environment, they have to be innovative, fast, effective and efficient in finding the solutions to many current problems, which are no longer matter of traditional management and engineering methodology, but instead, matters of critically important new management and engineering topics such as:
• Managing to assure total company productivity, rather than only that of the factory direct workers.
• Managing to make the business person, the scientist, and the engineer a sum rather than a difference.
• Managing to approach product consumerism positively rather than negatively.
• Managing to confront the necessity for energy and materials conservation and waste reduction and improved resources utilization.
• Managing in international term rather than only as national managements looking outwards to other markets.
Focusing on customer needs has become the key driver, which in turn has led to increasing importance of quality products and services, speed of design and delivery, flexibility of the operations system, continuous improvement of the processes, and involvement and empowering of the employees [I]. To give these changes a chance to succeed, top management has to develop a set of effective performance measures that will guide and
monitor the progress of the company.
1.2 The Need for Performance Measurement
The ability to measure improvement in an endeavor is critically dependent on establishing valid methods of measuring performance. Tracking progress towards an established goal serves to influence behavior by providing continual feed back, and it require reliable and consistent metric. As firms become more complex, global and fast paced relaying on experience and intuition alone is increasingly problematic tools of communicating, that
leads to [3]:
~ Eliminating barriers.
~ Understanding the relationship within the organization planning.
~ Measuring processes and responding to suggestions for improvement from customer, suppliers and employment.
Traditional performance measurement is defined as the process of quantifying effectiveness and efficiency of action [4]. In other words, measuring performance means transferring the complex reality of performance into a sequence of limited symbols that can be communicated and reproduced under similar circumstances. In modem business management, performance measurement goes well beyond just quantification and accounting. It is supposed to contribute much more to business management and performance improvement in the various industries. From the management perspective, performance measurement provides necessary information of management feed back for decision makers and managers. It plays important role of monitoring performance, enhancing motivation and improving communications. Further more, performance measurement provides an approach to identify the success and potential management strategies, and facilitating understanding of progress and position. Hence, it assists in directing management attention, revising business goals and re-engineering business process. Sinclair and lairi [5] discussed the importance of measurement along the
following dimensions:
• Plan nine. Control. and Evaluation. The process of analyzing measurement in order to make decision is known as evaluation. According to Euske [6]The measurement process is central to the operation of an effective and efficient planning control, or evaluating system .
• Manaeine Chanee. Performance measurement must support management initiatives including Total Quality Management (TQM). Total quality organization measures more processes and outcomes than non TQ organizations, and the primary requirement is to integrate measures vertically (across levels) and horizontally (across functions) .
• Communication. Measurement is required to reduce emotionalism and increase the constructive problem solving, increase influence, monitor progress,and give and reinforce behavior. Juran[7] suggests that ”vague terminology is unable to provide precise communication. It becomes necessary to say it in numbers” .
• Resource Allocation. Measurement helps an organization direct its resource to the most attractive improvement activities; measurement also provides a direct stimulus to action.
• Motivation. Performance measurement can profoundly affect the motivation of individuals.
• Lone Term Focus. Managers are often criticized for excessive focus on short¬term results. Appropriate performance measurement can ensure that mangers adopt a long-term perspective.
• Performance. Perhaps the only really valid, reason for measuring performance is to support and enhance improvement. If measurement is not a part of continuous improvement, then the critical linkage between performance and evaluation is broken.
1.3 Ddections of Traditional Performance Measures
The popular traditional performance measures in most companies are primarily financial and are based on the accounting systems. Most of the current accountings concepts and practice are the same used in the 1920s. They have not changed much; while the business environment, goals, and performance measures environments have changed significantly [I]. Many authors have discussed the limitations of traditional performance measures and traditional management accounting system. Ghalayini and Noble [8], and Monochehri [I] summarize the eight most commonly cited limitations, as follow:
1.3.1 Traditional Manae:ement Accountine: Systems
The most significant limitation of traditional performance measures is that they are based on traditional management accounting systems that where initially developed for the purpose of attributing the total costs of operating textile mills, railroads, steel mills, and retails stores to specific products, departments, and activities. During this period labor was the major cost driver that management accounting systems emphasized and other costs were de-emphasize by putting them together in one overhead category. However, today the average labor cost component rarely exceed 12 per cent while overhead is usually 50-55 per cent of the manufacturing cost. Since in this case overhead is allocated based on the minor cost element of direct labor this allocation approach is not valid.
1.3.2 Lack of Relevance
Financial reports are often not relevant for strategic or operational control. Most accounting reports are not directly related to the business strategy. Today’s business has to trace perfonnance in customer satisfaction, quality, speed, flexibility, and innovation. Typical accounting system do not measures and report such strategic goals. The same is true for operational control as well. Management has to go beyond accounting reports.
1.3.3 Impediment to Proeress
The cost accounting mentality and focus impedes product and process improvement by focusing on inappropriate perfonnance measures and presenting misleading infonnation. Accounting reports typically emphasize labor costs very heavily; and any product improvement or process innovation has to be justified based on labor cost savings.
1.3.4 Relevance to Practice
Traditional perfonnance measures try to quantify perfonnance and other improvement efforts in financial tenns. Yet, most improvements efforts are difficult to quantify in dollars (i.e. lead time reduction, adherence to delivery schedule, customer satisfaction and product quality). In addition, operators find typical financial reports difficult to understand which leads to frustration and dissatisfaction. As a result, traditional perfonnance measures are often ignored in practice at the factory shop floor level.
1.3.5 Inflexible
Traditional financial reports are inflexibile in that they have a predetennined fonnat which is used across all departments. However, even departments within the same company have their own characteristics and priorities. Thus, perfonnance measures that are used in one department may not be relevant for others.
1.3.6 Expensive
The preparation of traditional financial reports requires an extensive amount of data which is usually expensive to obtain.
1.3.7 Continuous Improvement
Fisher [9] argues that setting standards for perfonnance measures in general conflicts with continuous improvement. Worker my hesitate to perfonn to their maximum if they realize that the standard for upcoming periods may be revised upward by current results.
1.3.8 Customer Requirements and Manaeement Requirements
Maskell [10] argues that traditional performance measures are no longer useful since in order to meet customer requirements of higher quality products, shorter lead time and lower cost management have given shop floor operators more responsibility and authority in their work. Consequently, traditional financial reports used by middle managers do not reflect a more autonomous management approach.
1.4 Problem Description
Neely et al. [II] have argued that despite the widespread interest in the topic of performance measurement, little detailed attention has been paid to the question of how managers can decide which performance measures they should adapt. While Ghalayini and Noble [8] argued that companies used performance measurement systems to ensure that they are achieving continuous improvement in their operations in .order to sustain a competitive edge, increase market share and increase profits. To aid them in achieving continuous improvement, managers need tools to help them setting specific goals to achieve during a predetermined time horizon.
Medori and Steeple [12] explained that the problem in selecting non-financial measures can be overcome by utilization performance measurement trameworks. There have been a number of frameworks that have been promulgated. Ghalayini and Noble [8] explained that researchers have developed integrated performance measurement systems in order to give an overall view of companies’ performance and guard against sub optimization. These systems have their relative benefits and limitations. In summary the following are their limitations:
• They are mainly constructed as monitoring and controlling tool rather than improvement tools. Thus, they do not explicitly consider the integration of continuous improvement.
• They do not provide any mechanism for specifying which objective should be met in a specific time horizon.
• They are not dynamic systems. They do not allow any systematic revision of critical areas, performance indicators, historical data, decision and outcomes.
• They do not look ahead to predicting, achieving and improving future performance.
They are only concerned with present performance.
• Although some of them stress the importance of global optimization versus local optimization, they do not provide any mechanism to achieve this, especially at the operational level.
• Most of these systems do not stress the importance of time as a strategic performance indicator.
• None of the systems provides a specific tool that could be used to model, control,
monitor and improve the activities at the factory shop floor.
Bititici, Carrie and Mc Devitt [13] explained that the research data revealed two critical considerations with respect to the structure of performance measurement systems: integrity and deployment. Intee:ritv: refers to the ability of the performnace meausrement system to promote integration between various areas of business. Deplovment: of business objectives and polices throughout the hierarchical structure of the organization.
Therefore, based on the above stated limitations of the existed integrated performance measurement systems, the study identifies the problem that seems to be a lack of an integrated performance measurement system in the manufacturing enterprises. The enterprises are in a need to a performance measurement system that could promote both integrity and deployment, in order to make a global vision of the organization and determine the objectives that could be affected by the organizational performance.
1.5 Study Objectives and Research Methodology
The study aims at investigating the relationship between the organizational performance and the product or service quality. In order to achieve this goal a new integrated performance measurement framework will be constructed that promote a new level of integration by integrate the organizational performance indicators with the product quality measures in order to highlight the business objective for the managers that can directly leads to higher level of product quality. Accordingly, the study objectives will be:
• Examine the organizational need for performance measurement.
• Assess the developed performance measurement tTameworks.
• Classifying the organizational performance levels and product quality measures.
• Constructing a conceptual uamework that integrates the organizational performance to the product quality.
• Framework implementation.
The research methodology will be built on three stages:
• Literature Review: The study will collect the literature review from the published and unpublished resources represented in reports, articles, academic journals, books, and other publications focusing firmly on performance measurement systems.
• Data Collection: The primary data to be used in this study will be collected ITom the historical data stored in Computerized Maintenance Management System (CMMS) database that contains data which represents the global maintenance performance indicators.
• Data Analvsis: Specific methods of data analysis such as descriptive statistics correlation, regression analysis and multivariate analysis will be employed to analyze the data. In this way the statistical relationship amongst the organizational performance indicators and product quality measures will be determined.
1.6 Study Outlines
This study is dividing into six chapters:
• Chapter 1: Introduction
Contains the introduction of the study, discuss the need for performance measurement, explains the defections of traditional performance measures, identify the problem that the research based on, presents the objectives of the study and the research methodology.
• Chapter 2: Foundation and Review of Literature
Contains the concepts and philosophies that will reinforce the study and illustrates the historical development of performance measurement, as well as, presenting the review of literature relevant to perfromance measurement systems and frame works developed since the late 1980’s to the early 2000s.
• Chapter 3: The Strucrture of the Inteerated Oreanizational Performance and Product Oualitv Measures ”lOP PO”
Discuss the performance aspects and the classifications of measures, which lead to the classification of performance indicators in an organization on the horizontal level which includes inputs, transformation processes and outputs and the related different vertical levels, as well as, presenting the product quality measures, and finally illustrate the structure of IOP-PQ that integrate them together.
• Chapter 4: Application of the lOP-PO on Real Case Study
Application of IOP-PQ on real case study; where the implementation methods of the framework on a case study will be illustrated.
• Chapter 5: Results Discussion and Conclusion
Presents the statistical analysis of the collected data and discuss the results obtained.
• Chapter 6: Study Discussion. Conclusion and Future Work
Overview the study objectives and their implementation through the research and presents the conclusion, as well as, present some suggestions for the future work for more efficiency and effectiveness for the framework.
7 • Data Analvsis: Specific methods of data analysis such as descriptive statistics correlation, regression analysis and multivariate analysis will be employed to analyze the data. In this way the statistical relationship amongst the organizational performance indicators and product quality measures will be determined.
1.6 Study Outlines
This study is dividing into six chapters:
• Chapter 1: Introduction
Contains the introduction of the study, discuss the need for performance measurement, explains the defections of traditional performance measures, identify the problem that the research based on, presents the objectives of the study and the research methodology.
• Chapter 2: Foundation and Review of Literature
Contains the concepts and philosophies that will reinforce the study and illustrates the historical development of performance measurement, as well as, presenting the review of literature relevant to perfromance measurement systems and frame works developed since the late 1980’s to the early 2000s.
• Chapter 3: The Strucrture of the Inteerated Oreanizational Performance and Product Oualitv Measures ”lOP PO”
Discuss the performance aspects and the classifications of measures, which lead to the classification of performance indicators in an organization on the horizontal level which includes inputs, transformation processes and outputs and the related different vertical levels, as well as, presenting the product quality measures, and finally illustrate the structure of IOP-PQ that integrate them together.
• Chapter 4: Application of the lOP-PO on Real Case Study
Application of IOP-PQ on real case study; where the implementation methods of the framework on a case study will be illustrated.
• Chapter 5: Results Discussion and Conclusion
Presents the statistical analysis of the collected data and discuss the results obtained.
• Chapter 6: Study Discussion. Conclusion and Future Work
Overview the study objectives and their implementation through the research and presents the conclusion, as well as, present some suggestions for the future work for more efficiency and effectiveness for the framework.