Prototype a Performance Management System for Linking Performance Measurement and Case-based Knowledge

CHUNG-JEN KUO (d917806), SHANG-YUAN YANG (g913841), and AMY TRAPPEY

Department of Industrial Engineering & Engineering Management, National Tsing Hua University, 101 Sec. 2 Kung Fu

Rd., Hsinchu 300, Taiwan, R.O.C.

Abstract

This study integrates both performance measurement and knowledge management to develop a performance

management framework and its prototype system. The framework enables employees to create knowledge relevant to

performance indicators of the enterprise to contribute to competitiveness of the enterprise. Although the framework may

limit the scope of knowledge to case-based knowledge which relates to performance indicators, however, it also provide s a

mechanism to filter knowledge which is irrelevant to an enterprise’s performance by the performance indicators, and

thereby it can ensure both usefulness and cost-effectiveness of the created knowledge for the enterprise. The prototype

based on a semi-conductor company in Taiwan has demonstrated that the integrated performance management system could

assure the conveyance of performance objectives and work plans from high-level managers to low-level labors and can also

facilitate both vertical and horizontal communication and learning in an enterprise.

Keywords: Knowledge management, Performance measurement, Performance management, Performance indicator, Case-

based knowledge

1. Introduction

In an enterprise, both managers and regular employees should set their individual objectives according to entire objectives of the enterprise, and endeavor to achieve the objectives by themselves. That is, “management by objectives”. And the appraisal of performance of specific employee hinges on his/her contribution to objective achievement of the enterprise (Drucker, 1954). Balanced-scorecard (Kaplan and Norton, 1996) is an even more concrete performance measurement method which enables an enterprise to deploy strategies into performance indicators and link upper performance indicators to lower ones based on their cause-and-effect relationship. Nevertheless, neither management by objectives nor performance measurement provides managers and regular employees with answer to the question: “What he/she ought to do? ”, while without answer to the question: “How he/she ought to do? “ to make contribution to the enterprise.

Organization learning (Senge, 1990) stresses that development of creative potential of employee

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enables whole capability of the enterprise. The objective of organization learning is to provide answer to the question: “How he/she ought to do to make contribution to the enterprise?” However, most arguments regarding organizational learning were too ambiguous and do not provide concrete architecture for implementation (Garvin, 1993).

Knowledge management is an overwhelming fad in both the academic community and the business arena in recent years. A considerable researches discussed topics regarding definition of knowledge (Drucker,1998; Kerr,1991; Allee,1997; Davenport&Prusak,1998), level of knowledge (Quinn, et al.,1996; Allee,1997), category of knowledge (Kerr,1991; Nonaka, et al., 1995; Davenport and Prusak, 1998), transfer of knowledge (Nonaka, et al., 1995; Davenport and Prusak, 1998), methodology to implement knowledge management (Davenport and Prusak, 1998), application of information technology (Quinn, et al., 1996; Davenport and Prusak, 1998) and conformation of organizational culture (Drucker, 1998; Nonaka, et al., 1995; Quinn, et al.,1996; Davenport and Prusak, 1998). Few researches discussed the relationship between knowledge and performance indictor in generic enterprises. If knowledge is not limited within certain adequate scope, it may cost the enterprise considerably much to manage the unbounded knowledge it created and stores, hence it may be difficult for the enterprise to make sure if the knowledge it’s managing can really enhance its competition.

This paper discusses performance measurement and knowledge management simultaneously, and our goal is to develop a feasible framework which enables the generic enterprises to undertake performance measurement and knowledge management integrally and cost-effectively.

Fig. 1. The performance management framework

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2. The performance management framework

The performance indicators that an enterprise stresses determine the objectives and behavior of departments and individuals in the enterprise (Goldratt, 1990). The contribution to the enterprise by individual employee depends on how much information and knowledge he/she possesses (Kaplan & Norton, 1996), and employees are the major resources to create and store knowledge for an enterprise (Edvinsson, 1996). Hence, it is essential to competitiveness of the enterprise to develop a framework which enables employees to create knowledge relevant to performance indicators of the enterprise.

The performance management framework we proposed is shown in Fig. 1. There are 3 process aspects in the framework: a) performance measurement b) employee and c) case-based knowledge, while each aspect is supported by corresponding IT system.

Performance measurement

In an enterprise, the performance indicators of each department and employee can be defined by means of balanced scorecard (Kaplan and Norton, 1996), which deploys objectives of top-level manages to indicators of bottom layers causally. The target of each performance indicator can be set considering historical data and plan for the future. Besides, Benchmarking is a persuasive approach to set effective performance target (Camp, 1989).While each employee knows his indicator and objectives, then IT system is needed to provide the employee with target value and actual values of each individual performance indicator so that he/she can monitor his/her performance level and identify the weakness for improvement.

Case-based knowledge

Case-based knowledge in this study means successful improvement experience recorded by an enterprise. The major index of case-based knowledge is performance indicator, it provides employee to query and learn the successful experience that is related to the performance indicator. The secondary index of case-based knowledge is the author of the knowledge. Employee can know who created the knowledge and thus he can learn the tacit knowledge by face to face.

Employee

This system will be designed to provide performance information timely and completely. When the actual performance value is worse than the objective, it prompts employee to improve. According Deming’s management cycle, plan –do –check –action, a employee can improve his/her performance following this process.

A employee who intends to improve his performance can query the related experience and the author in case-based knowledge, refer to the experience and make plan of his own. Once an employee executes his improvement plan and create new knowledge, the enterprise should encourage him/her to

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put his/her explicit knowledge into the database of case-based knowledge. The major index of case-based knowledge is performance indicator and it must be corresponding to the performance indicator database, while the secondary index is the author; it must be corresponding to the human resource database. Except to the document of case-based knowledge, the user can query more information about the author, such as educational background, experience, and research field.

3. Develop prototype of the performance management system

This chapter will develop a system prototype to demonstrate the performance management framework introduced in previous chapter which links both performance indicators and their relevant case-based knowledge. And the empirical case we refer to is a backend business unit of a semiconductor manufacturing company in Taiwan’s science-based industrial park.

Architecture of the system prototype

Fig. 2 illustrates the architecture of prototype of the performance management system, and the architecture is the base for further design of system function and user interface. There are 2 major functions-update and query for performance indicators and case-based management respectively. The dot lines illustrate the relationship between two functions, for example, performance indicator and case-based knowledge are relevant with each other, and the case-based knowledge is relevant with employee data of HR (Human Resource) database.

Fig. 2. Architecture of the performance management system

We build a web-based performance management prototype system by ASP technology which dynamically links the backend Access database of performance indicators and relevant case-based

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knowledge document files. Fig. 3 illustrates how a user logs in the system and the default main page is demonstrated in Fig. 4, user can setup definition of performance indicator (PI), setup linkage relationship of case-based knowledge (CBK) to performance indicators, and query information regarding both performance indicators and their relevant case-based knowledge.

Fig. 3. Log in Fig. 4. Main page

Define the performance indicators and the database

In the organization of our empirical case, they defined the high-level performance indicators which are usually financial category, see upper part of the data in Fig. 5. Then lower level performance indicators are deployed from higher level ones by their cause-effect relationship (Kaplan and Norton, 1996), and Fig. 6 shows how the cause-effect relationship between 2 performance indicators is defined, and how existing case-based knowledge documents are linked to the dedicate performance indicator.

Fig. 5. Definition of performance indicator Fig. 6. Define relationship between performance indicators

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We define each performance indicator by 6 attributes:

(a). PI No.: A sore index to be utilized by application IT system and users.

(b). PI name: A name for user to recognize it’s meaning.

(c). Department: To define the department in the organization who is responsible for result of the performance indicator.

(d). Category: To categorize each performance indicator to 4 categories defines by balanced scorecard, i.e., finance, customer, internal process and learning (Kaplan and Norton, 1996).

(e). Measurement unit: To define measurement used to measure result of the performance indicator.

(f). Type of the target: To define if the value of the PI is “the higher the better” or “the lower the better”.

(g). Relation to upper PI: The define cause-effect relationship to upper performance indicator.

Update and query value of performance indicators

Fig. 7 illustrates how target value and actual value of each performance indicator are updated, and if the actual value is worse than the target, the character color of the PI will turn to red to alarm the one who update the value.

Fig. 8 shows that once an employee of individual department logged in the performance management system, the system shows default initial screen to show the performance indicators of the department he/she belongs to. When the actual value of a performance indicator is worse than its target value, its characters are red to alarm the employee to notice, and he can review the actual value of dedicate performance indicator and compare it with target value.

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Fig. 7. Update value of performance indicators Fig. 8. Query and monitor performance indicators

Monitor a performance indicator and relevant case-based knowledge

In Fig. 8, an employee can click the “detail” icon of dedicate performance indicator, then the system shows its, see Fig. 9, related upper/lower performance indicators and related case-based knowledge documents as well. He/she can open the documents to refer to it content and conceive the idea of improving level of the performance indicator, as indicated in Fig. 10.

Fig. 9. Query detail information of a dedicate performance indicator

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Fig. 10. Query content of a case-based knowledge relevant to a performance indicator

Create the case-based knowledge

Once en employee improved the performance level of dedicate performance indicator, he will be encouraged and/or asked to create a new case-based knowledge to depict his experience and knowledge utilized in his work for improvement. The cased-based knowledge is categorized to several categories, e.g., job completion report, project closing report, excellent improvement proposal, excellent QCC work and prizewinning work internally or externally. Fig. 11 illustrates how a case-based knowledge document (Word file) is added to link to dedicate performance indicators.

Fig. 11. Add a new relevant case-based knowledge to dedicate performance indicators

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4. Discussion

The performance management framework we proposed links both performance measurement and knowledge management. It stressed that rather than unlimited knowledge, case-based knowledge which is relevant to performance indicator will contribute to the enterprise’s overall performance with less vain effort.

The prototype we built demonstrates how an employee in an organization is guided by the performance indicator to focus his work objectives, refers to historical successful empirical by relevant case-based knowledge, and creates new case-based knowledge in the performance management system to contribute performance and knowledge as well to the enterprise.

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