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CHAPTER 12
Measurement and Knowledge Management
For Performance Excellence
Teaching Notes
This chapter develops facets of measurement and knowledge management. These concepts may
be somewhat difficult for students to grasp, at first. This may especially be true if there are
accounting or finance majors in the class, or practicing accountants in a seminar. Some of the
measurement concepts presented in this chapter may disagree with the “conventional” views of
traditional accountants and many economists. The concept of accounting for measuring quality
with a “balanced scorecard” or a “knowledge management” approach may be new or strange to
them. Key objectives are:
• To focus on the role of measurement as the act of quantifying the performance
dimensions of products, services, processes, and other business activities and the use of
• To develop an appreciation for the balanced scorecard concept that includes the four
perspectives of: financial, internal, customer, and innovation and learning perspectives,
and typically contains leading and lagging measures that are linked through logical cause-
and-effect relationships.
Measurement and Knowledge Management for Performance Excellence 2
• To understand the purposes of a performance measurement system including providing a
perspective of the past, present, and future; identifying trends and progress; facilitating
• To develop further understanding of the importance of performance measures and
indicators used by senior leaders. Effective performance measures should be aligned with
business strategy and should be driven by internal and external factors that shape an
organization’s operating environment.
• To appreciate the need for strategic and process measures to be aligned in order to drive
strategic goals through the organization. ERP – Enterprise Resource Planning –
systems provide an infrastructure for managing information across the enterprise.
• To learn how analysis, which refers to an examination of facts and data to provide a basis
for effective decisions, can be used effectively by managers. It is particularly important to
• To introduce the concept of comparative data, which refer to industry averages,
competitor performance, world-class benchmarks, or performance measures of other
organizations with similar product offerings. Comparative data are needed because an
organization needs to know where it stands relative to competitors and to best practices;
• To learn that the quality of information can be improved by capturing data only once, and
as close to the origin of the data as possible; eliminating human error by capturing data
electronically where possible; using a single database whenever feasible; eliminating all
unnecessary handling of data by intermediaries, such as data entry clerks; placing
Measurement and Knowledge Management for Performance Excellence 3
accountability on the creators of data and information; ensuring proper training; and
defining targets and measures of data quality.
• To define and provide examples of several tools and concepts used to improve the
capture and dissemination of knowledge within organizations, including:
o Knowledge management, which is the process of identifying, capturing, organizing,
and using knowledge assets to create and sustain competitive advantage.
ANSWERS TO QUALITY IN PRACTICE KEY ISSUES
Using the Balanced Scorecard at the United States Postal Service
1. The Voice of the Employee supports improved internal processes (Voice of the
Business), and the Voice of the Business supports customer satisfaction (Voice of the
Customer). One of the first areas of emphasis was the “Voice of the Employee,” which
focused on providing a safe and secure workplace in response to instances of violence
and poor employee relations. A second major initiative, the “Voice of the Business,”
focused on the “Breakthrough Productivity Initiative,” while the third area, the “Voice of
the Customer,” focused on providing timely, reliable delivery. In their balanced
scorecard work, Kaplan and Norton advocated a well-connected mapping that leads from
an organization’s main strategy to the four perspectives of the balanced scorecard:
Financial, Customer, Internal Process, and Learning and Growth. Each element works to
Measurement and Knowledge Management for Performance Excellence 4
2. Despite significant strides in improving performance, most customers would agree that
there is additional room for improvement in customer service by the USPS. This could
Knowledge Management at Conoco-Phillips
1. Conoco-Phillips’ strategic motivation for introduction of knowledge sharing in 2004 was
to promote functional excellence, better leverage knowledge across the organization, and
ensure that the next generation of technicians and engineers had access to the critical
knowledge they needed to do their jobs.
The Knowledge Architecture Model supports the strategic motivation of functional
excellence under the Enhanced Knowledge Library. There, we find that Documented
2. Conoco Phillips provides support for its KM system in the form of personnel and budget.
They structured KM using a three-tiered support model:
1. The knowledge sharing team is responsible for enterprise KM process, tools, and
templates,
2. IT partners provide infrastructure support and some SharePoint site maintenance
Measurement and Knowledge Management for Performance Excellence 5
3. External consultants maintain SharePoint sites and provide customization and KM
expertise.
The knowledge sharing team is responsible for overseeing networks of excellence. The
team is comprised of seven full-time equivalent (FTE) employees led by a director of
3. Conoco-Phillips assesses and tracks impact and return on investment of KM in a unique
way. In the first four years, employees were encouraged to submit success stories based
on their experiences using the networks of excellence. As part of the submission process,
they were asked to provide details on measurable gains, such as cost savings, reduced
ANSWERS TO REVIEW QUESTIONS
1. Table 12.1 summarizes nine measurement and knowledge management practices for
2. Considerable value lies in using objective data to support strategic planning and daily
operating decisions in organizations. Organizations need performance measures for three
reasons:
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• To lead the entire organization in a particular direction; that is, to drive strategies and
organizational change
3. Robert Kaplan and David Norton of the Harvard Business School in response to the
limitations of traditional accounting measures coined the term “balanced scorecard.” Its
purpose is “to translate strategy into measures that uniquely communicate your vision to
the organization.” Their version of the balanced scorecard consists of four perspectives:
• Financial Perspective: Measures the ultimate results that the business
provides to its shareholders. This includes profitability, revenue growth,
return on investment, economic value added (EVA), and shareholder value.
• Internal Perspective: Focuses attention on the performance of the key internal
4. A good balanced scorecard contains both leading and lagging measures and indicators.
Lagging measures (outcomes) tell what has happened; leading measures (performance
drivers) predict what will happen. For example, customer survey results about recent
5. The key categories of results measures for the Malcolm Baldrige Criteria are divided into
five sets:
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• Product and process outcomes
• Customer-focused outcomes
Product Outcomes Measures and indicators of product and service performance that
have strong correlation with customer satisfaction and decisions relative to future
purchases and relationships are important for organizations to track. They might include
internal quality measurements, field performance of products, defect levels, service
errors, response times, data collected from customers or third parties on ease of use or
other attributes, and customer surveys on product and service performance.
Process Outcomes Measures and indicators of process effectiveness and efficiency might
include work system performance that demonstrates improved cost savings or higher
productivity by using internal and/or external resources; reduced emission levels, waste
Customer Outcomes Relevant measures and indicators of an organization’s performance
as viewed by customers include direct measures of customer satisfaction and
dissatisfaction, customer retention, gains and losses of customers and customer accounts,
customer complaints and warranty claims. Other indicators of customer satisfaction
include measures of perceived value, loyalty, positive referral, and customer relationship
building. Service quality measures often revolve around the dimensions of reliability,
assurance, tangibles, empathy, and responsiveness that we discussed in Chapter 3.
Workforce outcomes Workforce-focused outcomes show how well the organization has
Measurement and Knowledge Management for Performance Excellence 8
organizations monitor these issues. They might include measures of regulatory/legal
compliance, results of oversight audits, and financial and ethics review results.
Leadership outcomes also include measures of social responsibility and community
service, such as volunteer hours and presentations to educational or civic groups, and
6. The issues that organizations must consider in selecting measures and indicators are that
1) an organization must align its measurement system to its vision and strategy; and, 2) it
must select meaningful measurements.
7. Many organizations make two fundamental mistakes: (1) not measuring key
characteristics critical to company performance or customer satisfaction, and (2) taking
8. It is important to link performance measures to strategy. A balanced scorecard approach
can help to identify the right measures by aligning them with the organization’s vision
and strategy. This provides a means of setting targets and allocating resources for short-
term planning, communicating strategies, aligning departmental and personal goals to
strategies, linking rewards to performance, and supplying feedback for organizational
learning.
Effective performance measures that are aligned with business strategy are driven by
factors that determine what is important to the success of the business. These include:
1. the nature of a company’s products and services
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4. organizational culture; its purpose, mission, and vision
5. capabilities and core competencies, such as facilities and technologies
6. supplier and partnering relationships
9. Enterprise Resource Planning (ERP)—systems are software packages that integrate
organizational information systems and provide an infrastructure for managing
information across the enterprise. The role of ERP in performance measurement is to
10. As the business environment changes, old measures can become obsolete or new
measures might be needed. An outdated measurement system wastes resources, hinders
strategic deployment and often rewards the wrong behaviors. Thus, a periodic audit of an
organization’s measurement system is important.
Such an audit should examine whether the measures are aligned with the organization’s
11. Analysis refers to an examination of facts and data to provide a basis for effective
decisions. Examples of possible analyses include the following:
• Examining trends and changes in measures and indicators using charts and graphs
• Calculating a variety of statistical measures such as means, proportions, and standard
deviations
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13. Comparative data refer to industry averages, competitor performance, world-class
benchmarks, or performance measures of other organizations with similar product
offerings. The use of comparative data is important to all organizations. Comparative
data are needed because an organization needs to know where it stands relative to
14. Managers should review performance results for several reasons:
• To assess organizational success and performance relative to competitors
15. Some important issues related to managing information resources are that organizations
must ensure that both data and information and the hardware and software systems that
16. Knowledge management is important in modern organizations because process
improvement requires new knowledge to result in better processes and procedures.
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17. Knowledge assets refer to the accumulated intellectual resources that an organization
possesses, including information, ideas, learning, understanding, memory, insights,
cognitive and technical skills, and capabilities. Knowledge assets consist of two types:
explicit knowledge and tacit knowledge. Explicit knowledge includes information stored
18. High-performance organizations use many different mechanisms to share and transfer
knowledge. For example, these include use of a team-oriented approach to transfer
knowledge, which is accomplished using various tools, technologies, and processes to fill
needs or gaps identified through proactive research.
Other organizations identify and transfer best practices within the organization using
Measurement and Knowledge Management for Performance Excellence 12
ANSWERS TO DISCUSSION QUESTIONS
1. The answers to this question could provoke a lively debate in a class. If the philosophy is
held that “quality is everybody’s job,” then a process owner must be found to follow up
on both process improvements and individual performer empowerment and
2. The measurements listed can be classified under the following perspectives of the
balanced scorecard:
a. On-time delivery — Customer perspective
b. Next product generation —Innovation and learning perspective
c. Manufacturing yield — Internal perspective
d. Engineering efficiency — Internal perspective
3. SWOT (strengths, weaknesses, opportunities, and threats) analysis might be used to
identify measures in a balanced scorecard by concentrating on the strategic issues that the
company faces and how can those be measured and improved. For example, if surveys
Measurement and Knowledge Management for Performance Excellence 13
4. Without going into all of the problems of what is wrong with course and instructor
evaluations, it can be said that at least four major flaws are common in most systems, as
well-intended as they may be: a) they typically lack customer (student) input and
customer focus; b) they are too general and fail to take into account the mission or
5. A number of measures might be discussed in answer to this question. For example, “Time
to market” is a statistic that many businesses have concerns about. Statistics indicate that
it takes an average of about five years for the typical student to obtain an undergraduate
6. Answers will vary, depending on the experience and interests of the students in
fraternities or student organizations. However, some obvious categories of financial
7. In the cheese-making process, customer requirements of full weight, wholesomeness
(lack of contamination, excessive chemical additives, or inferior content, such as
excessive water), smell and taste might all be customer related measures that could be
interlinked with internal measures.
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8. This question refers to the IBM Rochester questions that are asked about process
measures. To answer these questions, the following sources would have to be consulted:
• Mission support: refer to strategic plan and trace through action plans to the
measure.
• Management of change: determine if similar measures have resulted in change in
the past.
9. Statistics or quantitative methods can have numerous applications in analyzing
performance data. They include the “7 Tools,” mentioned earlier, which can be used for
graphical analysis of day to day performance, up to very powerful techniques, such as
10. For a hospital’s strategic priorities of:
Patient accessibility
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For all of these priorities, the measures that might be used are dependent on how each
priority is defined. For example, patient accessibility may refer to doctors, staff, or
medical testing procedures or facilities within the hospital. Relating to facilities, patient
PROJECTS. ETC.
1. Answers will vary, depending on the experience and interests of the students. For
example, an airline might measure revenue passenger miles and market share at the
2. The answers will vary here, depending on students’ choice of restaurants from which they
gather data. Note that many of the internal performance characteristics that relate to the
pizza restaurant example in the body of the chapter would also apply to other restaurants,
regardless of type.
ANSWERS TO CASE QUESTIONS
Case I: Coyote Community College1
During the 1998/99 planning cycle, the Leadership Team developed its first balanced
scorecard, which they called the LEARNing Board since the measures included on it