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October 08, 2008

Traditional Performance Measurement

TPM- Traditional Performance Measurement

BSC- Balance ScoreCard

What is TPM, to me it is simply a comparison between  Present (NOW) and the Past (BEFORE) or an arbitrary projected figure. This is known as a paired comparison. Why is it that we need to compare? Well, like everything we do, we would like to compare it with somone or something else to see if we are doing better or worse. It may be our exam result, we would compare this year's grades with previous's. We want to see if we improved or became worse at something. As production or any services is concerned, a comparison between now and the past can give indication whether the Curent Practices fares better or worse than the previous ones. This allows manger to decide whether a new technology is functioning well, whether a new employee is performing as expected, or on the company level, did the revenue increase as we thought  it would, and if not , why not? This links in with the Deming's idea of natural variation and the search for a special cause (Theory of Profound Knowledge (Deming, 1992)). I remeber when I worked in retail, industry, the store manager would check our daily, weekly and monthy sales volume and determine if we met the target or not. Usually the target is an arbitrary figure . This figure is usually adjusted depending on season if it's a yearly target (summer people would do more shopping than in winter) , on days of the week if it's a weekly target (apparently it used to be the case that shops are opened for longer on Wedneday so our target for Wednesday is usually higher than othe weekdays, but then the Wednesday shop open hours became the same as other weekday but our target for Wednesday still remained higher. I used to wonder why no-body changed it since we never meet our target on Wednesdays!!).

Obvious advantage with the TPM approach is that it is simple and straightforward. It can be done quickly and any period (week, month, year) of performance can be evaluated quickly be simply comparing it to another period of interest.

Some disavantages with this approach
1. As I implied in my little story as a shop keeper =) TPM after a while may become just a procedure without any meaning to go along with the numbers.

Some of the other disavantages suggested by Paul are
1. Paired comparison provides no context to the management data (i.e. historical data, operational data, human resource data e.t.c) , we do not know whether an observation is simply a natural variation or a special case caused by other things (since TPM does not measure other thing, we have no way of knowing what kind of things are those "other things").
2. Overemphasis on financial data - a point I explained in the above
3. laggin measurement- this part I am not sure exactly... something about measuring what is the the past but not the future...

Given the short-comings of the TPM approach, one can understand how other approaches such as the BSC complement and improve the management of performance measurements . Mainly the idea is that business decisions cannot be based on figures and numbers alone, the amount of output or size of revenue does not provide a complete picture of organisational performance. Certainly, the shareholders and investors may be pleased that their stock prices are increasing, but it may be a result of many possible causes (i.e. booming economy, focus on short-term gains, sell-off of a potentially profitable business unit), this does not mean the business will continue to grow into the future. On the other hand, if management has Knowledge of the four BSC perspectives (customer needs, internal process, learning capability, and fincancial data) , it can predict the future trends in consumer tastes and allocate resources to add value of its product and services to the consumers accordingly.

As I am writing up this entry I am reminded by a SONY personal digital assistant (PDA) that I bought years ago. At the time Sony was in the business of making PDA to cater the needs of businessman, students, and anybody who has a keen interest in digital portable diary. It was one of the market leaders at the time, making PDAs that had more functionality than its competitors. However, as the technology progressed, people are begining to integrate various technology products into one simple solution,  for example, mobile phones with in-built camera. At that time , some people speculated the inevitable integration of mobile phone, digital camera, and PDA's but others were more reserved about that speculation because of technological barriers. Some companies were able to see the shift in consumer trend and began investing in the 3 in 1 solution. Simplicity, it seemed, was going to be the next idea. Sony however, continued making PDAs that comes with more and more functionality and lesser and lesser user friendly. Eventually, Sony stopped its PDA production due to dwindling sales. I can still remember seeing a picture of the final and last generation of SONY PDA which looked a a huge rectangle metal box with lots of little keyboard button. the review I read championed the functionalities but rated poorly for it's ease of use and staggering ticket price.

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