Computers in Industry
journal homepage: www.elsevier.com/locate/compind
A R T I C L E I N F O
A B S T R A C T
Article history:
Received 20 December 2007
Received in revised form 26 June 2008
Accepted 7 September 2008
Available online 28 November 2008
Performance measurement systems (PMS) are tools widely used by enterprises for managing and making
strategy-based decisions. A PMS denes a group of strategic objectives and associated performance
indicators (KPIs) that provide information as to whether the upstream objectives are being reached or
not, but with no further information about the causes. Up to now, if an objective is not being reached
managers do not have further information regarding the causes; in terms of accurate information they are
limited to the associated KPI. However, regarding the decisions to be made: What would they be based
on? How and where to dig to nd cause-effect relationships? And, even more difcult: How to make it
objective? This study presents a unique proposal able to objectively not based neither on experience nor
subjective judgments identify and quantify relationships between performance elements dened
within a PMS, offering additional information to managers to make cross-enterprise decisions. Finally,
the paper presents the main results obtained from applying the proposal to a real world enterprise and
future research lines.
2008 Elsevier B.V. All rights reserved.
Keywords:
Decision making
Performance measurement
Relationships
Information analysis
1. Introduction
For some time ago, enterprises have been using performance
measurement systems (PMS) to try to measure their performance
and as a management tool. Using the methodology inherent to their
own PMS, analysts dene performance indicators that the enterprise
think are the most appropriate for reecting performance. It is
intended that the process of obtaining the results from these
performance indicators will be adequate in terms of costs (resources
and time). However, at this point in time, all the effort invested is
neither totally repaid nor well-used by the management. This is due
to the fact that the performance indicators are used, almost
exclusively, for measuring (with higher or lower success) the
degree of accomplishment of the dened objectives based on the
expected results. Performance indicators may additionally provide
very important information regarding the existing relationships
between them that allow the re-planning of the objectives they are
associated to, as well as improvement of the decision-making
process. Some of the most evident relationships are handled almost
unconsciously by enterprises. Furthermore, some PMS, such as the
Balanced Scorecard [1], establish some relationships when dening
105
Objective programming.
Scoring models.
Hierarchical techniques.
Deployment techniques.
106
107
108
109
Table 1
KPIs of the PMS.
Financial perspective
PF1
Net benet (sales)
PF2
Turnover increment
PF3
Costs of structure
PF4
Financial indebtedness
PF5
Final stock of cloths per campaign
Customer perspective
PC1
Customer average order
PC2
Number of customers that ask for repetition/number of total customers
PC3
Number of repeating requests per model and customer/number of customers that ask for repetition
PC4
Percentage of annulled models
PC5
Efcacy of the model
PC6
Global efcacy of each collection per intermediary
PC7
Average order per intermediary
PC8
Number of new customers captured
PC9
Number of orders per week (sales speed)
PC10
Increment of customers
PC11
Number of captured customers that are already customers of other enterprise of the organisation/number of new customers
PC12
Number of non-accomplished orders/total number of orders
PC13
Number of customers that make a claim/total number of customers
PC14
Number of claims per model and customer/total number of customers that make a claim
PC15
Increment of incidences occurred between the last two years
PC16
Average reaction time to one customers claim
Internal perspective
PP1
Stock variability
PP2
Percentage of return item per model
PP3
Percentage of customer acceptation
PP4
Total number of exited models/total number of produced models
PP5
Number of clothes with deviations respect to the standard scaled
PP6
Customer accomplishment degree
PP7
Deviation between the order date and the reception date
PP8
Total number of innovative clothes/total number of produced clothes
PP9
Number of innovative successful clothes/total number of innovative clothes
PP10
Number of re-processed clothes/total number of clothes
PP11
Number of customers buying a determined style/total number of customers
PP12
Number of annulled catalogues/total number of catalogues
Learning and growth perspective
PA1
Number of critical processes totally documented/total number of critical processes
PA2
Number of critical processes controlled by the follow-up tool/total number of critical processes
PA3
Number of yearly training hours/number of yearly work hours
PA4
Hours needed of real training (detected by the enterprise)/hours needed of theoretical training (that employees think they should have)
PA5
Number of established inter-areas work/communication protocols/number of essential processes
PA6
Establishment of inter-areas work/communication protocols (Yes/No)
PA7
Number of inter-areas personnel interchanges/number of areas susceptible of interchange within the enterprise
PA8
Development of an inceptive plan (Yes/No)
PA9
Number of employees that know exactly the objective to be reached/total number of employees
110
111
Table 2
BDKPIs of the study.
Perspectives
BDKPIs
Principal component 1
Principal component 2
Principal component 3
Financial
Customer
Internal
Learning & growth
PF1, PF2
PC1, PC8, PC9, PC10
PP1
PF3
PC15
PP3, PP8, PP9
PA2, PA3, PA8
PF5
PC12, PC13, PC16
PP8, PP9, PP10
PL1, PL3, PL4, PL6, PL7
The results obtained concluded that the same BDKPIs were placed
again in the area of maximum variance explained, and therefore
the nal BDKPIs of the study are those presented in Table 2.
An important fact is that, from a total of 42 KPIs at the beginning
of the study, the analysis has identied relationships between 24
KPIs (the BDKPIs showed in Table 2). This is a rst important result
for managers, as the analysis allows them to establish new
relationships between indicators as well as to either demonstrate
or reject other suspected, based on experience, relationships.
At this point, PLS models are applied to quantify the relationships between the identied BDKPIs. In this regression models, it is
necessary to set what is/are the cause-effect variable/s and what is/
are the effect variable/s. Enterprise managers and analysts agreed
on the next general models:
General model 1:
Explicative (cause) variables: PF2, PP8, PP9, PP1, PC8, PC9, PC10,
PA3.
Effect variables: PF1, PF5, PC15, PP3.
General model 2:
Explicative (cause) variables: PA1, PA3, PA4, PA6, PA7.
Effect variables: PF3, PF5, PC12, PP9.
General model 3:
Explicative (cause) variables: PC3, PC7, PC9.
Effect variables: PF1, PP1.
PLS1 models and PLS2 models were conducted for all these
three general models, carrying out 13 totals PLS models, and
obtaining important results that were analysed both individually
and conjointly to have a global picture of the differing quantication of these cause-effect variables. Thus, all the relevant
relationships, those with a high regression coefcient, were taken
into account for drawing the Graphic of BDKPIs relationships,
which is shown in the next phase.
5.4. Phase 4. Presentation and analysis of results
With all the analysis carried out in the previous phases, it is
possible to build the correspondent Graphic of BDKPIs relationships (Fig. 5).
From this graphic of BDKPIs it is possible to set cause-effect
relationships between different BDKPIs, which are also quantied
in both sense and magnitude. From the results obtained in the last
phase, only those strong relationships between BDKPIs are
represented in the graph. However, inside this category of strong
relationship, two subcategories are represented in the graph with
very strong (continuous line) and strong (discontinuous line).
At this point, the projection of this Graphic of BDKPIs
relationships is carried out, by substituting each BDKPI by its
correspondent objective/strategy in the PMS (Fig. 6).
This Graphic of projections deployment shows the projection
upstream of the previous graphic of BDKPIs relationships. Analysts
can now establish cause-effect relationships between the main
strategic performance elements of the PMS: the objectives and the
strategies.
112
Table 3
Relationships for the effect objective FO1.
Objective
effect
FO1
PO1 ( )
LO3 (+)
LO1 ( )
CS1.3 (+)
CS1.4 (+)
PS3.2 (+)
LS3.1 ( )
CBDKPI
PP1
PL3
PL1
PC3
PC7
PP9
PL4
area that have been or could be applied in this ambit, and having
probed the research opportunity, QRPMS was dened to offer a
solid, complementary and efcient framework to organizations to
improve their management. QRPMS can be applied to any
organization that has a PMS that assures traceability between
their performance elements (objectives, strategies and KPIs),
applying different techniques for identifying (principal component
analysis or structural equation model) and quantifying (partial
least squares) the exiting relationships between KPIs.
Among the main characteristics of QRPMS are the following:
Conrmation of a priori, and based on experience, some intuited
relationships, quantifying them in sense and magnitude.
Discard of a priori, and based on experience, some intuited
relationships, quantifying them in sense and magnitude.
Objective demonstration of the existence of other important
relationships between performance elements, quantifying them
in sense and magnitude.
Identication of the CBDKPIs, whose monitoring and control will
help to manage the enterprise more efciently, as they will offer
new additional information when associated objectives/strategies
upstream are not being reached. Additionally, managers might cut
costs, as they can focus on closely monitoring only these CBDKPIs,
reducing the number of indicators to be controlled.
Better knowledge about their enterprise, which will directly
affect re-denition activities of the PMS as well as management
in general.
Future research should focus on enriching the proposal by
applying QRPMS to others organizations, as well as to adapt the
framework to inter-enterprises contexts, where the application of
QRPMS can help managers to make better conjointly taken decisions.
References
[1] R.S. Kaplan, D.P. Norton, The balanced scorecard. Measures that drive performance, Harvard Business Review (January/February) (1992) 7179.
[2] D. Itner, D. Larker, Coming up short on nonnancial performance measurement,
Harvard Business Review (November) (2003) 91105.
[3] J.J. Alfaro, PMS IE-GIP, Doctoral Thesis, Universidad Politecnica de Valencia, 2003.
[4] K.A. Merchant, Measuring general managers performances market, accounting
and combination-of-measures systems, Accounting, Auditing and Accountability
19 (6) (2006) 893917.
[5] C. Wolf, P. Harmon, The State of Business Process Management, Business Process
Trends, 2006 June, Accessed 10th March 2007, Available at www.bptrends.com.
[6] H.S. Jagdev, A. Brennan, J. Browne, Strategic Decision Making in Modern
Manufacturing, Springer, New York, 2003.
[7] P. Coughlan, D. Coughlan, Action research: action research for operations management, International Journal of Operation and Productions Management 22 (2)
(2002) 220240.
[8] K.F. Cross, R.L. Lynch, The SMART way to sustain and dene success, National
Productivity Review 8 (1) (1988) 2333.
[9] A.A. Atkinson, J.H. Watherhouse, R.B. Wells, A stakeholder approach to strategic
performance measurement, Sloan Management Review 38 (3) (1997) 2537.
[10] A.D. Neely, C. Adams, P. Crowe, The performance prism in practice, Measuring
Business Excellence 5 (2) (2001) 612.
[11] J.J. Alfaro, A. Ortiz, R.R. Rodriguez, Performance measurement system for enterprise networks, International Journal of Productivity and Performance Management 56 (2007) 305334.
[12] G.J.C. Da Silveira, Improving trade-offs in manufacturing: method and illustration,
International Journal Production Economics 95 (1) (2005) 2738.
[13] P. Suwignjo, U.S. Bititci, A.S. Carrie, Quantitative models for performance measurement system, International Journal of Production Economics 64 (2000) 231241.
[14] T.L. Saaty, The Analytic Hierarchy Process, McGraw-Hill, New York, 1980.
[15] A.D. Youngblood, T.R. Collins, Addressing balanced scorecard trade-off issues
between performance metrics using multi-attribute utility theory, Engineering
Management Journal 15 (1) (2003) 1118.
[16] D. Cardona Siado, A. Garcia, Modelo de Indicadores para el despliegue de la
Estrategia de Calidad, 2005, Accessed 14th June 2007, Available at http://hdl.handle.net/1992/300.
[17] M. Godet, From Anticipation to ActionA Handbook of Strategic Prospective,
UNESCO, Paris, 1993.
[18] K. Bauer, KPI: reduction the correlation way, DM Review (February issue, 2005) 13.
[19] J. Fraser, Beyond KPIs: impacting supply chain performance, Manufacturing
Business Technology (May 2005) 3435.
113
[20] I. Lange, O. Schneider, M. Schnetzler, L. Jones, in: J. Olhager, F. Persson (Eds.), IFIP
International Federation for Information Processing, Volume 246, Advances in
Production Managment Systems, Springer, Boston, 2007, pp. 379386.
[21] J.F. Hair, R.E. Anderson, R.L. Tatham, W.C. Black, Multivariate Data Analysis,
Prentice Hall International Inc., New York, 1995.
[22] J.E. Jackson, A Users Guide to Principal Components, Hoboken, New Jersey, 2003.
[23] P.P.C. Nelson, P.A. Taylor, J.F. MacGregor, Missing data methods in PCA and PLS:
score calculations with incomplete observations, Chemometrics and Intelligent
Laboratory Systems 35 (1993) 4565.
[24] S. Wold, K. Esbensen, P. Geladi, Principal component analysis, Chemometrics and
Intelligent Laboratory Systems 4 (1987) 3752.
[25] P. Geladi, B. Kowalski, Partial least-squares regression: a tutorial, Analytica
Chimica Acta 185 (1986) 132.
[26] H. Martens, M. Martens, Multivariate Analysis of Quality, John Wiley & Sons Ltd.,
New York, 2001.
[27] R. Rodriguez, J.J. Alfaro, A. Ortiz, Relationships among key performance indicators
within the performance measurement system context: literature review, in: PMA
Conference, London, (2006), pp. 689701.
[28] B. Patel, T.J. Chaussalet, P.H. Millard, Balancing the NHS balanced scorecard,
European Journal of Operational Research 185 (2008) 905914.
[29] H.F. Kaiser, The application of electronic computers to factor analysis, Educational
and Psychological Measurement 20 (1960) 141151.
[30] M. Aluja, D. Marineau, Practical Application of the Principal Component Analysis,
Palais, Paris, 1999.
Dr. Raul Rodriguez Rodriguez (Industrial Management
Engineer, MBA, PhD) is a lecturer in Operations
Management and Operations Research at the Polytechnic University of Valencia (UPVL). He has worked in
several projects about performance management,
operations management, supply chain management
and information systems in different activity sectors
such as automotive, retail, consumer goods, ceramic or
textile. Additionally, he is a full member of the CIGIP
(Research Centre on Production Management and
Engineering) at the UPVL, having participated on
several research projects at European level (ECOSELL,
GPM-SME) as well as on national research projects (INPREX, SP7). He lectures in
both graduate and undergraduate courses and his research preferences are on
performance measurement/ management, operations management and decisionmaking sciences. He is a Certied Quality Engineer and a full member of the
American Society for Quality. He has published several papers in books,
international journals and delivered some conferences in these elds.
Dr. Juan Jose Alfaro Saiz is an assistant professor in
Operations Management and Operations Research at the
Polytechnic of Valencia. He is an Engineer in Business
Organization and he received his doctoral degree in
Business Organization at the Polytechnic University of
Valencia in 2003. He is a member of the CIGIP (Research
Centre on Production Management and Engineering). He
has worked as a Researcher in several Spanish Government Projects (CICYT), one ESPRIT Project, V-CHAIN
(Virtual Enterprise for Supply Chain Management),
ECOSELL (Extended Collaborative Selling chain), and
others. He is a teacher in the Polytechnic University of
Valencia. His research interests include performance
measurement systems, supply chain management, integration enterprise and
modelling process business. He has published several papers in books, journals
and conferences in these elds.
Dr. Angel Ortiz Bas is an assistant professor in
Operations Management and Operations Research at
Polytechnic University of Valencia. He is an industrial
engineer and he received his doctoral degree in
Industrial Engineering from the Polytechnic University
of Valencia in 1998. He works as a consultant in several
projects about production management, supply chain
management, information systems and enterprise
modelling and integration in metal mechanic, ceramic
and automotive enterprises. He is a member of the CIGIP
(Research Centre on Production Management and
Engineering). He works as a Researcher in ve Spanish
Government Projects (CICYT) and one ESPRIT Project
and is co-leader of the GROWTH Project, V-CHAIN (Virtual Enterprise for Supply Chain
Management). He is a teacher at the Polytechnic University of Valencia and in the
FORD Spain Industrial Engineer School, and also teaches several Masters courses
(MBA). He is member of the IFAC/IFIP Task Force on Enterprise Integration. His major
research interests are production planning and control, supply chain management,
enterprise integration, information management, business process modelling. He has
published several papers in books, journals and conferences in these elds.