Week 8 Notes

Lecture Objectives:

• Be able to apply the basic concepts of organisational productivity measurement
• Understand the basic principle of Kaplan and Norton’s Balanced Scorecard

Productivity Measure

Productivity is a very common measure in BI terms, and it basically is a mathematical function of the outputs over the inputs. The production function is a graph which has all the variations of the inputs and the outputs for those inputs.

Law of diminishing returns

If one input increase the output is increase at a lower rate than the input, or in other words the others grow short relative to the input.

One thing to understand is that moving along the production curve, we are not being more productive, but in fact just getting a corresponding output for an input for the same level of productivity. The only way to become more productive is to shift to a new production function curve.

Production Indices

Using the production function we compare different production indexes over periods of time to see the changes in productivity.

However, keep in mind that without comparison the indices have no sense, in the same way there is no value in comparing across industries, the process has to be the same.

Balanced Scorecard

The aim is to focus on the organization as a whole, because each functions within the organisation has an effect on each other.

BS improves the communication and alignment between functions of the business. It looks at the organisation as whole.

There are four main and original perspective in the BS approach: 

• Financial - to succeed financially, how should we appear to our stakeholders?
• Objectives - write down the objectives to measure financial success
• Measure - the KPIs or target values
• Target - the goals to reach
• Initiatives - what are we going to do in order to reach our goals?
• Customer - To achieve our vision, how should we appear to our customers?
• Core Measures:
• Customer acquisition
• Market share
• Customer retention
• Customer satisfaction
• Internal - To satisfy our shareholders and customers, what business processes should we excel at?
• Learning & Growth - To achieve our vision, how will we sustain our ability to change and improve?

Cause and Effect Relationship

This is very important as here we link the four perspectives, and see how they influence each other. This ensures that we can view the effect on the organization as a whole, allowing SM to see the overall business performance of the oragnizations, and down the hierarchy.