Four Methods For Business Process Performance Analysis Business Essay

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The previous 3 Chapter described some basic knowledge and concepts. These basic knowledge and concepts can help us better understand the problems to be solved in this thesis, i.e. how enterprises analyze and evaluate the performance of its running business processes in order to support the strategic decision-making and to meet the future development of enterprises.

Different stakeholders of enterprise have different criteria on performance of business processes. For senior management of enterprise and customers, what they care about is, whether the business processes achieve the desired objectives, such as whether the business processes can enhance efficiency, save costs or get better customer's satisfaction; while junior management of enterprise or participants concern more about the rationality and operability of business processes.

In this chapter we will discuss four methods for business process performance analysis, they are: Product Lifecycle Analysis, BCG Growth-Share Matrix Analysis, Balanced Scorecard and Key Performance Indicators.

4.1. Product Lifecycle Analysis

In the 60s of 20th century R. Vernon proposed the theory of Product Lifecycle (PLC). Today Product Lifecycle has been developed into a well-known marketing analysis instrument. We adopt this instrument in the paper, because the process-oriented mode of enterprises' operation. In this operating mode, each product corresponds to a business process. Normally, an enterprise should produce several products, accordingly should also run several different business processes. The performance of a product in the market reflects the effectiveness of the corresponding business process in the enterprise and its contribution to the enterprise.

Figure 4. Product lifecycle

4.1.1. Stages of Product Lifecycle

Enterprises cannot expect that its products/services are always popular in the market. Sales and profitability of products/services in the market always change over time. This change has experienced the whole periods of birth, growth, maturity and decline (the same as biological life process). So we called it "product lifecycle". Typical product life cycle is generally divided into four phases: introduction stage, growth stage, maturity stage and decline stage. (See figure 4.1, ref. [Reid&Bojanic2005], p. 284-293)

Introduction Stage

Introduction stage start once new products/services are introduced into market. Customers do not know the products/services very well at this time. Except a few customers, who pursue novelty, almost nobody actually buy the products/services. At this stage batch of production is small, manufacturing and advertising costs are high, price of product is higher, quantity of sales is very limited, company is usually not profitable.

Growth Stage

After the introduction stage sales gradually grow. Then it enters the growth stage. This is the demand growth stage, demand and sales increased rapidly, production costs decline dramatically and profits increase rapidly.

Maturity Stage

After growth stage, with the increasing of sales of the products/services market becomes saturated. Products/services then enter the maturity stage. At this time, sales growth is slowdown, increased competition led to higher advertising costs and lower profits again.

Decline Stage

With the development of technology, the emergence of new products and substitute products, the changing of consumption habits of customers, sales and profits of existing products / services continually decline. Products/services then enter into decline stage. At this time, enterprises with higher costs will gradually stop the non-profitable production. The life cycle of these products/services also is completed and finally removed from the market.

4.1.2. Estimation of the Stage of Product Lifecycle

Correctly estimate that a product at which stage of the product lifecycle is crucial for enterprises to develop its marketing strategy. There are two kinds most common methods for enterprises to estimate the stage of product lifecycle:


The method is based on the changing records of product lifecycle of previous similar products, to estimate that present product at what stage of its lifecycle. For example, we supposed to judge on the color TV set market, and then we can use the data of similar products, such as black and white TV set, for comparative analysis and discriminant.

Growth rate

Sales growth rate In general, the sales growth rate at introduction stage is less than 10%, sales growth rate at growth stage is higher than 10%, the sales growth rate at maturity stage will return to around 0.1% -10%, the sales growth rate at decline stage is negative.

Popularity rate It is at introduction stage, when the popularity rate is less than 5%. Popularity rate of growth stage is 5%-50%; popularity rate of maturity is more than 50%; it enters the decline stage, when the popularity rate is above 90% (See table 4.1).

Table 4. Penetration method of PLC - stage estimation

4.1.3. Summary with Examples

Introduction stage is the start of success of a product. However, after many new products are put into the market, some of them are washed out even not yet enter the growth stage. Enterprises should according the characteristics of growth stage

develop different strategies. To the business process of this product enterprise could adopt either continuous improvement process (CIP) or business process reengineering (BPR). It depends entirely on the enterprise's own targets and capabilities. Those well-funded and more aggressive companies prefer to adopt business process reengineering; while those moderate enterprises tend to take the continuous improvement process to promote their existing product.

The main purpose of the enterprises that at the growth stage is as far as possible to maintain the high marketing growth rate. Therefore, enterprises can choose continuous improvement process to improve quality of product, increase variety, and improve the style and packaging, to meet the needs of the market.

Mature products are ideal products for enterprise. They are the main source of profits for enterprises. Therefore, trying to extend the maturity stage of this product is the company's main task. Continuous improvement process can then help companies to develop new usage of products, to improve features, quality and shape of products, which will meet the constantly changing consumer's demand.

At the decline stage the product traps in trouble. Costs much higher than competitors. Customers complain about the product. Business process reengineering is the only way out for the enterprise. It becomes the key to the survival of enterprise.

Instance: IBM's BPR

IBM as the world largest IT industry enterprises, from its founding at the early 20th century to the late 80s, has been always leading the trend of times. By 1991, IBM had 400,000 employees worldwide, operations in 150 countries around the world, keep ahead of international market. As the high profits returns of IT industry Market and the trend of economic globalization, many suppliers swarm into this branch. IT industry has become buy's market. IBM's core business-- computer host machine-based business model has been already out of fashion (at the decline stage of the product lifecycle). In addition with the large size of the company's organization, arrogant attitude, lack of efficiency and flexibility, finally, both the market share and corporate image of IBM drop down. In 1993, IBM's loss was up to 80 billion U.S. dollars and had to file for bankruptcy protection. In order to rise again IBM implemented business process reengineering. In early 1994 the company made a re-adjustment of its strategic goals (See figure 4.2).

Figure 4. Example of IBM's BPR

IBM remained in the organization's integrity and the advantages of its scale. The company changed the original pyramid formed organizational structure into flat structure. According to the advantage of human resources, products and comprehensive technologies, IBM recombined the existing departments into three professional teams. There three professional teams were project-oriented, and they cooperated with each other dynamically.

IBM has changed the self-concerned product-oriented thinking. Instead, relying on research and technology supporting to develop branch leading solutions. On the market development strategy company based on the tradition advantage to reposition its products. IBM repositioned itself as an information technology services company that provided hardware, software and comprehensive IT solutions. IBM fully opened its original software- and hardware systems and transformed itself into e-commerce enterprise.

On the market positioning, IBM used its rich industry experience, advanced expertise and strong financial advantage to keep the traditional big customers.

IBM through mergers and acquisitions (M&A) continuously improved its technical service system. IBM has acquired Lotus (owned advanced groupware systems) and Tivoli (with leading complex computer network management software systems), etc. It greatly accelerates its transition from IT hardware manufacturer to full-service firm. Company introduced Customer Relationship Management System (CRM) to improve its service and support, thereby to win customer's trust and loyalty.

Through its sustained efforts, IBM began restore profitability since the end of 1994. In 1997 IBM created a turnover of 78.5 billion U.S. dollars. Its service-oriented marketing strategy began to bear fruit too. In 1996, revenue from its service increased by 28% over 1995. (ref. [Wang2005])

4.2. BCG Growth-Share Matrix Analysis

As a supplement to Product-Lifecycle (PLC) methods, BCG Growth-Share Matrix is one of the most popular methods to develop corporate's strategy. This method was developed by Boston Consulting Group (BCG) in the early 70s of the last century.

4.2.1. Introduction of BCG Growth-Share Matrix

According BCG Growth-Share Matrix enterprise organizes its business processes into different Strategic Business Unit (SBU). Each SBU is marked in a two dimensional matrix diagram. Thereby, showing us which SBU provides high potential returns and which SBU is organizational resources funnel. On this basis decide how to manage a portfolio of different business units (business processes) and how to allocate resources among those business units (see figure 4.2, ref. [Paley2001], p.35 - 42). The market growth rate on vertical axis represents the annual growth rate of one business unit in the market. The market share on horizontal axis demonstrates the market share of this business unit. The matrix is divided into four grids and each grid represents a category of business units, they are "question mark", "start", "cash cow" and "thin dog". Different business types have different characteristics and requirements. Enterprise will adopt different strategies, to ensure that eliminates non-promising "thin dog" products and maintains a rational combination of "question mark", "Star," "cash cow" products.

Figure 4. BCG growth-share matrix

Market growth rate of a product can also be calculated by amount or volume of sales. Time period can be 1 - 3 years or even longer. Market share of a product can be calculated by absolute market share or relative market share. The basic formulas are as following:


Take 10% for market growth rate and 20% for market share as the standard boundary between high and low; thereby the coordinates map is divided into four quadrants. And then enterprise marks all its business units (products) on the corresponding position (center of a circle) in the coordinates chart according their market growth rates and market shares. After positioning, draw every business unit as a circle with specific size, which will accord the annual amount of sales of this business unit. Finally, all the circles are labeled in alphabetical order. The mapping result is dividing all products into 4 categories.

4.2.2. Categories and Countermeasures

To the different characters of enterprise's products, which in the 4 quadrants of BCG Growth - Share Matrix, we can take corresponding strategic response.

Cash Cows

"Cash Cows" represents the products that have slow market growth rate and large market share. These products are in the maturity stage of the product lifecycle. The financial characteristics of "Cash Cows" are: large volume/amount of sales, high products' margin, low debt ratio. "Cash Cows" bring enterprise large amount of cash and require little investment. The cash, which generate by "Cash Cows", could be used to invest in other business units, such as "Stars" products.

To the mature "Cash Cows", enterprise should adopt Continuous Improvement Process (CIP) strategy to maintain its market share and to generate a steady stream of cash flow; to the "Cash Cows" in unsatisfactory situation, enterprise should take the harvest strategy to extract cash from them, shorten their life cycle, and accelerate them into decline stage.


"Stars" represent the business units that have fast market growth rate and large market share. These products are in the growth stage of the product lifecycle. "Stars" may generate cash, but because the market is growing rapidly they require a lot of investment to maintain their lead in the market. If successful, a "star "will become a "cash cow".

To "stars" enterprise is recommended by CIP strategy; thereby expand scales of business units, aims at long-term interests of enterprise to increase market share and strengthen the competitive position

Question Marks

"Question marks" represent the business units that have high market growth rate and small market share. These products are in the introduction stage of the product lifecycle. "Question mark" product contains uncertainties. It may be new products and has not yet widely accepted by customers. If well promoted, it may also become "star" product. But there are some "question marks", due to the problems of the products themselves or small market demand, sell not well. To this kind of uncertain "question marks" enterprise should carefully investigate before making any decisions.

To the "question marks" products enterprise should adopt selective strategies. To those "question marks", which have potential become "stars", enterprise is recommended to adopt CIP strategy to increase their market share. To those "question marks" with unsatisfactory market prospection, enterprise prefers adopt BPR strategy to reform the nature and performance of products fundamentally.

Thin Dogs

"Thin dogs" represent the business units that have slow market growth rate and small market share. These products are in the decline stage of the product lifecycle. The financial characteristics of "thin dogs" products are: Low profit margin, high debt ratios, in the preservation or loss status and cannot generate revenues for enterprise. These products usually are out-of-date or no-development-worth.

To "thin dogs" products the enterprise should adopt BPR strategy. First of all, eliminate those products / business units that have extreme low sales growth rate and market share. Secondly, transfer the remaining resources to other products/business units. Thirdly,

consolidate products series. It would be best to combine the "thin dogs" with other business units and to unify the management.

4.2.2. Summaries

In the previous two sections of the fourth chapter we introduced product lifecycle analysis (PLC) and BCG growth-share matrix analysis. There are similarities in the both methods. Both of them are very intuitive methods, and both of them through the performance of products in the market reflect the corresponding performance of business process in enterprise.

However, there are many factors that affect the performance of a business process. Only according to the data in market sometimes could not accurately reflect whether a business process success or not. For examples, the business processes, which have good marketing performance, not certainly realize the maximized profits for enterprise. Some products own the high market share, but low profit margins. Some business processes require high investment and occupy a lot of resources, but their return on investment (ROI) is not the highest. Large amount of money and resources are used on such kind of business processes means that the loss of opportunity costs. Some of the business processes even though under ideal conditions in all aspects, simply because of the breaking up of cash flow, which leads to that enterprise traps in the crisis of liquidity shortage.

To assess the enterprise's business processes more comprehensively and thoroughly, we will present a detailed introduction of balanced scorecard (BSC) and key performance indicators (KPI) in the latter two sections of the fourth chapter. These two methods could be viewed as technical support to the concrete applications of product lifecycle analysis (PLC) and BCG growth-share matrix analysis.

4.3. Balanced Scorecard Analysis

Balanced scorecard (BSC) is a completely new organizational performance management system, which was invented by Drs. Robert Kaplan (Harvard Business School) and David Norton¼ˆNolan Norton Institute) in 1992. It was used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. Balanced scorecard mainly through maps, cards, tables achieves strategic planning of enterprises/organizations.

Organization's common vision and strategy is the core of balanced scorecard. Vision is an overall statement of how the organization wants to be perceived over the long-term. Strategy is an expression of what an organization must do to realize its visions, goals or objectives. It is usually developed by the top level of the organization, and executed by the low level of the organization. Under the guidance of integration and balance philosophy, balanced scorecard transforms the company's vision and strategy into a series of specific objectives (something must be done to execute the strategy) of subordinate departments at four perspectives/dimensions: financial, customer, internal processes and leaning & growth, which corresponding to four scorecards (see figure 4.4, ref. [Kaplan&Norton1996], p.43 - 47 ).

Figure 4. Balanced scorecard

Then according to objectives of each perspective develops a corresponding performance indicator (a way of monitoring and tracking the process of strategic objectives) sets. Finally, set down concrete evaluating rules, i.e. defines target values (an expected level of performance or improvement required in the future) and compare them with actual values. Assess the deviations between targets values and actual values and feedback the results. The management of corporate will according to these results amends the original objectives and target values to ensure that the corporate's strategy is implemented smoothly and properly.

Cause & Effect Relationship

Balanced scorecard emphasizes especially on the description of the cause & effect relationship behind the corporation's strategy. It establishes a measurement system from four perspective of enterprise (customer, internal business, learning & growth and finance). These four perspectives are interrelated and influence each other. Implementation of the objectives of the other three perspectives ultimately ensures the realization of financial perspectives. Furthermore, BSC clearly defines the cause & effect relationship between various objectives. Through the development of this causal & effect relationship, BSC formulates an organization's strategic map, which composes of concrete goals of organization (see figure 4.5, source: [Johnson&Beiman2007] p. 44).

Figure 4. Strategic map with cause & effect relationship

Generally, improving performance of the objectives in the learning & growth perspective enables the enterprise to improve the objectives in internal process perspective, which in turn enables the enterprise to create desirable results in the customer and financial perspective.

The introduction of the balanced scorecard eliminates the defects that enterprises previously only concern about the financial indicators of their assessment system. If enterprises concern only about their financial indicators, they will be blinded by short-term behavior and internal interests, and ignore the long-term interests and some intangible assets, such as staff training and development, customer relationship development and maintenance, etc.

4.3.1. Learning & Growth Perspective

The goal of leaning & growth perspective is to answer the question "how will we sustain our ability to change and improve?" Learning & growth perspective is the basis and motivation of the other three perspectives of balanced scorecard. To face with intensive global competition, enterprise's present technology and capability could not ensure the realization of goals in the future. Reduce the investment in learning & growth perspective can increase the short-term financial income, but the resulting negative impact will prevent the further development of enterprise. Enterprise can design its own indicators sets according to concrete objectives of learning & growth perspective: "How to increase the skills and ability of staff? How to promote the capacity of enterprise's information system? How to improve the mechanisms of stimulation, authorization and cooperation? " ([Kaplan&Norton1996], p.126 - 146)

Table 4. Learning & growth perspective

As table 4.2 shown, indicators that used to evaluate the stills and abilities of staff are employee's satisfaction, employee's retention rate, employee's productivity, the frequency of staff training and so on. Indicators that used to assess the information capacity of enterprise are, for examples, information coverage rate, information system reflection time, ratio of the currently obtainable information to the expected information, etc. Indicators that used to assess the mechanisms of stimulation, authorization and cooperation in enterprise are the number of proposals from staff, the number of adopted proposals, and the level of collaboration between individuals and their departments.

4.3.2. Internal Process Perspective

The goal of internal process perspective is to solve the problem "what business process should we excel at to satisfy our shareholders and customers?" Internal processes of enterprise/organization are the sum of all business activities, which transform inputs of row materials, information and human resources into outputs of products and services. Additionally, in order to achieve objectives of customer and financial perspectives, excellent internal processes is also necessary. Internal process perspective of balanced scorecard reflects the enterprise's internal efficiency. It focuses on those processes, decisions and activities, which enable enterprise to achieve better performances or have important affection on customers' satisfaction. Then the objectives of this perspective should be: promote innovative capability of enterprise, improve process efficiency, and optimize after-sales service process. (See table 4.3, ref. [Kaplan&Norton1996], p.92 - 125)

Enterprises should have the ability to discover new or potential requirements of customers, and then create products and services to meet the needs of customers. Indicators that used to evaluate the innovative capability of enterprise are, for examples, break-even time (BET), new products rate, process development cost ratio, etc. BET calculate the whole time requires of a now product developing process (from developing, marketing, profits generating, until repayment of the developing costs). The rate of new products can represent by the proportion of new products sales in the total sales. Process development cost ratio can represent by the ratio of consumed developing costs to enterprise's operating profits.

Indicators that used to assess the efficiency of enterprise's business processes are, for examples, turnaround time, manufacturing cycle effectiveness (MCE= processing time/ throughput time), quality of products/services, costs of products/services, etc. Throughput time includes effective time (processing time) and invalid time (storage time, waiting time, transportation time, inspection time).

Table 4. Internal process perspective

Indicators that used to evaluate the performance of after-sales process are, for examples, enterprise's response time on fault (time period from the customers' request submitting to the problem completely resolving), 1st time resolve rate (e.g. the rate of customers, whose problems are solved by only one call), customer payment time (e.g. time period from products/services delivery to the completion of payment), etc.

4.3.3. Customer Perspective

The goal of customer perspective is to solve the problem "how should we appear to our customers?" The level of customers' satisfaction is the key to the enterprise's success. Therefore, the activities of modern enterprises must take the customers' value as start point, target customers and target market oriented, focus on meeting the needs and preferences of core customers. Customers are most concerned about nothing more than in five areas: time, quality, performance, service and cost. Enterprises should establish clear objectives for the five areas, and then refine those objectives into concrete indicators. Objectives of balanced scorecard in customer perspectives can be further broken down into three categories: pursuit of excellent business operating, providing leading products and services, establishing intimate customer relationship. Then according to these specific objectives to establish a set of indicators, such as, market share, customer retention rate, rate of new customers, customer satisfaction, profit margins obtained from the customers, delivery on time rate, product return rate, and number of contract cancellation, etc. (See table 4.4, ref. [Kaplan&Norton1996], p.63 - 91)

Table 4. Customer perspective

4.3.4. Financial Perspective

The goal of financial perspective is to solve the problem "how should we appear to our shareholders?" The performances of other three perspectives in balanced scorecard are finally reflected by the indicators of financial perspective. Objectives of financial perspective may divide into following categories, i.e. increasing operating income, rationalizing the structure of income, continuous cost reduction, and improving capital utilization/investment strategy, etc. (See table 4.5, ref. [Kaplan&Norton1996], p.47 - 62)

Financial indicators are traditional indicators, which used to evaluate enterprise's performance. Financial indicators for evaluation of operating income are, for examples, sales volume, sales amount, profits margin, and amount of profits. Financial indicators for reduction of costs are, for examples, the total cost, unit cost of a product/service, and administrative costs, etc. Financial indicators that used to evaluate the capital utilization or investment strategies are, for examples, return on investment (ROI), asset-liability ratio, cash flow, return on assets, etc. Financial data is an important factor in effective management of enterprises; therefore, financial indicators are the priority targets for most of the administrators in enterprises/organizations.

Table 4. Financial perspective

To the different strategy units in one enterprise, because of the different stages of product lifecycle they are staying at¼Œ their financial indicators are also different with each other. For the strategy units at growth stage of product lifecycle, their financial indicators are mainly by income growth, such as, revenue growth rate, target market growth rate, customer groups growth rates, regional sales growth rate and so on. Strategy units at the maturity stage of product lifecycle usually adopt profitability related financial indicators, e.g. recurrent revenue, gross margin, return on capital, and return on investment, etc. Strategy units at decline stage of product lifecycle concern more about their cash flow, and their financial indicators normally are e.g. return on investment, operating income, economic value added, etc.

4.3.5. Establish Mathematical Model

Balanced scorecard transforms the visions and strategy into tangible objectives and measurable indicators. Different companies / organizations can according to their own specific characteristics and requires choose or develop their own measure indicators sets. (ref. Appendix F).

In addition, only quantitative indicators can be examined, therefore evaluation indicators must be quantified. Quantitative criteria are various, as table 4.6 shown, there are, absolute value, index, percentage, ratio, rank order, rating scale and so on. The statistics values of indicators come from various resources. Among them, mostly are extracted from the operating date of various departments (e.g. The value of asset-liability ratio comes from balance sheet of finance department). Organizations/enterprises can also obtain the value of indicators by means of survey and interview (e.g. survey on the brand awareness of one product) and so on.

Table 4. Form of indicators

Balanced Scorecard involves four sets of performance evaluation indicators (financial, customer, internal business processes, learning and growing). According to Kaplan's view, the appropriate number of indicators is 20-25. Among them, 5 financial indicators, 5 from the customer point of view, 8-10 indicators for internal process, and 5 indicators for learning and growth. To evaluate the performance of the business¼Œenterprises must be synthetically consider the factors of the four dimensions. That will concern a problem of weight distribution. More complex is that not only distributes the weights between different perspectives, but also distributes weights between the different indicators in the perspectives.

To assess the performance of enterprise's business processes, we need combine the balanced scorecard with some statistical and/or mathematical methods, and thereby form mathematical model.

Pi: Performance Rate in Perspective Scale

O: Performance Rate in Organization Scale

S: Standard Performance Rate

Iai.j: Actual Value of Indicators

Iti.j: Target Value of Indicators

W1i: Weight of Perspectives

W2i.j: Weight of Indicators

i Є {No. of Perspectives in Organization}

j Є {No. of Indicators in Perspective}

Step 1:


Step 2:


Step 3:

In the above mathematical model¼Œstep 1 is used to calculate the performance rate of the 4 perspectives in organization¼Œi.e. use the target values of indicators in every perspective to divide the actual values of those indicators, and get the performance rate of indicators. Then the performance rate of indicators multiplied by the corresponding weights of indicators¼Œand get weighted performance rate of indicators. Finally, add all weighted performance rate of indicators together, and get the performance rate of perspective (Pi).

In step 2, performance rate of perspectives from Step 1 multiplied by the corresponding weights of perspectives, and get weighted performance rate of perspectives. Then add all weighted performance rate of perspectives together¼Œand get the performance rate of organization (O).

In step 3, compare the performance rate of organization (O), which was concluded from step2, with the predetermined Standard performance rate of organization (S). If O>S, It indicates that the effect of enterprise's operating is quite satisfied. To this kind of enterprise, it is recommended to adopt continuous improvement process; Otherwise¼Œit indicate that the deviation between the effects of enterprise's operating and the desired effect is too much. In this situation it is recommended to adopt business process reengineering.

In this mathematical model, we predefine a standard performance rate of organization (S) and two weights (W1 represents the weight of performance rate of perspectives; W2 of represents the weight of performance rate of indicators). Additionally, we need to decide the target value of each indicator. That may basis on the experiences of the operators or may reference the various industrial and commercial standards (e.g. ISO series, IAS, etc.), Laws and regulations (e.g. HGB, GAAP, etc.), and industry benchmarking. We can also define some standard performance rate of perspectives (P) in the mathematical model. Then we can use them to compare with those performance rates of perspectives (Pi) ¼Œthereby to evaluate the performance of each concrete perspective.


Following we will use a simple example to verify this mathematical model.

Table 4. Example of weighted balanced scorecard

As Table 4.7 shown, all target values and actual values have been already presented, and at the same time, the values of W1 and W2 are assigned.

Here we suppose the standard performance rate of organization S= 50%. We can apply the previous functions and get the following results.

Step 1:

Step 2:

Step 3:

The results obtained are: the performance rate of financial perspective is 78.5%, the performance rate of customer perspective is 80.5%, the performance rate of internal process perspective is 71.8%, the performance rate of learning & growth perspective is 85.5%. The performance rate of organization is 78.16% and it is higher than the standard performance rate of organization (S=50%). Finally, we conclude that the organization is running well, although there is potential for improvement. Continuous improvement process is recommended to this organization.


In most cases, the higher actual value of indicator represents the better performance of this indicator (e.g. market share). To achieve the performance rate we should use the target value of indicator to divide the actual value of indicator (Iai.j / Iti.j). But there some cases are on the contrary. The higher actual value of indicator represents the worse performance of that indicator (e.g. the rate of customer complaints). Under these circumstances, the original function should be adjusted to (Iti.j / Iai.j).

If the calculated performance rate is too high (more than 100%) or too low (less than 20%), then we need to consider that the predetermined target values of indicator may be inappropriate, and need to be revised.

4.4. Key Performance Indicator Analysis

Although with the assistance of balanced scorecard organization can effectively evaluate its operating performance, but in the procedure too many indicators may lead to its scattered focus and the waste of organization's time, financial- and human resources. That requires the organization to concentrate there its resource on some key performance indicators (KPI).

Key performance indicator analysis is a method, which use a number of quantifiable, measurable indicators to access the business process of organization/enterprise. Before the implementation of this approach¼Œfirst of all, the organization/enterprise should develop its vision and strategy. Then enterprise's vision and strategy is divided into several specific key result areas (KRA). Finally, define a set of key performance indicators (KPI) for each specific key result areas to measure their performance. (ref. [Parmenter2009], p. 4 - 7)

Each KPA covers several KPIs. KRA and KPI is effective tool to decompose the organization/enterprise's strategic goals into operational objectives. It is the foundation for enterprise performance management. Therefore, establishing a set of explicit and practical KPI-system becomes the key of the success on the enterprise performance management (ref. Appendix G).

As table 4.8 shown, key result areas (KRA) are a group of business fields that are indispensable for the organization/enterprise to ensure the realization of its strategies and plans, e.g. financing, customer service, corporation's culture, resource integration, etc. Different organizations should base on their industry characteristics, development stages, internal state determine their own KRA.

Table 4. List of key result areas

Fish Bone Graph Method

Organization/enterprise can by fish bone graph method change its vision and strategy to the specific objectives of KRAs and the corresponding KPIs. As Figure 4.7 shown, the head part of fish represents the enterprise's vision and strategy, the backbone of the fish bone is on behalf of KRA (such as, areas of brand or innovation, etc.), the terminals of backbones represent the KPIs within KRA (e.g. new customer rate for the area of sales capacity).

Figure 4. Fish bone graph of KPI structure

4.4.1. KPI Evaluation System

The KPI Evaluation System described in the paper is an imaginary system, and it does not exist in our real life yet. This idea of the author is mainly derived from the system theory, and at the same time, it also references the model of workflow management system and business process management system.

The purpose of establishing a KPI Evaluation System is to use it to assess the exiting various business processes of the organization/enterprise, and according to the evaluation result propose the suggestion for the further improvement of the business processes. Therefore, this KPI Evaluation System supposed to be composed of these several parts (see figure 4.6): system input and output, system environment, system core.

Figure 4. KPI evaluation system

KPI Evaluation System Core is composed of an application process interface (API), a KPI library, a rules base, a reference models base, and a repository. Users can by API directly invoke the existing KPI reference models to assess their business processes. In these reference models there are already some specific sets of KPIs and evaluation methods (functions and rules), which can be directly used to measure some kinds of general business process. To utilize the reference models, users need only assign the value to all variables in the reference models and adjust the parameters of the reference models to the appropriate level. Users can also by API establish their own KPI evaluation models, i.e. select specific indicators from KPI Library, and select functions and rules from Rules Base. Additionally, users can define their own KPIs and evaluation rules too.

There are mainly two sources (system environment) of indicators in the KPI Library, one sources is outside of enterprise, e.g. industry standard, benchmarking; and the other sources is inside of enterprise, i.e. transformed from the vision and strategy of enterprise, step by step and top to bottom. Users can store their self-designed KPI models in repository, in order to invoke again in the future. The inputs of the KPI Evaluation System are various business processes; and the outputs if the KPI Evaluation System are evaluation results and solutions.

KPI Selection

To make the assessment process more reasonable and the result of assessment more accurate, organization/ enterprise need to evaluate and screen the KPIs in advance.

Table 4. KPI selection criteria

Users can accord the importance, duties relativity and measurability to determine, whether the KPIs suit to the evaluation of some business processes. As table 4.9 shown, users can adopt a 5-point scale to divide those criteria into 5 levels. 5 represent the best comment to the usability of a KPI, and 1 represent the worst comment to the usability of a KPI.

Table 4.10 demonstrate that the evaluation process on a group KPIs. There are 7 indicators all together. Among them, the composite score of "consultation responses on-time rate" and "service complaint rate" are lower than 4, thereby eliminated. And the rest 5 indicates are selected.

Table 4. KPI selection matrix

4.4.2. Process Performance Evaluation Matrix

In the following it will with the aid of tables and matrixes to demonstrate a performances evaluation procedure to "onsite service process" of after-sales department.

In table 4.11, it presents the "onsite service process". This is a simple sequence flow, and with only five steps. The output of this process is that the customer's problems are resolved.

Table 4. A simple onsite-service process

After clarifying that to be tested business process, users can set up corresponding KPIs for each step of the process. As table 4.12 shown, the amount and style of KIPs to different steps and outputs are different. But at least there is one KPI to each step, and the upper limit of the amount of KPIs to each step is no more than 4.

Table 4. KPI assigned to onsite- service process

After confirming KPIs of the onsite-service process¼Œthe next is to determine the target values and actual values of KPIs, set up the weight of KPIs (W1) and weight of steps (W2), thereby forms a matrix of values ( reference the 3rd section of the 4th chapter).

Users can build the Matrix from two angles¼Œone is from the output of business process (result). Its advantage is simple and efficient; the other angle is from the steps of the process, its advantage is more detailed and accurate, and can find out the bottleneck of a business process.

Analysis from the View of Process Output

As table 4.13 shown, from the output of service process¼Œusers only need to assess four KPIs, and set up the weights of them. The four values under the item of "Result" on the right side of this table are weighted performance rate of KPIs, which derived by actual values of KPIs dividing their target values and multiplying their weights. The sum of the four weighted performance rate of KPIs is the performance rate of this service process (from output view). The calculated result in this matrix is 72.3, which demonstrate that the implementation of this service process is satisfied.

Table 4. KPI matrix from the views of output

Analysis from the View of Steps

This procedure is more complex than the first one. Beside the target values and actual values of KPI, the users need also set up the weights of each KPI and the weights of each steps of this service process.

Table 4. KPI matrix from the view of steps

As table 4.14 shown, for an example, the 2nd KPI of "Step 2" corresponds with a rectangle. This rectangle is further divided into 4 smaller rectangles¼Œwhich are inserted values. Among them, the value at the upper left ("15") is target value of KPI, the value at the bottom right ("12") is actual value of KPI, the value at the bottom left ("0.3") is weight of KPI, and the value at the upper right("0.12= 0.3Ã-(12/15)") is the weighted performance rate of KPI.

The rectangle, which corresponds with the "Step 2" and the item "Result", is also divided into 4 smaller rectangles. Among them, the value at the upper left ("0.59= 0.27+0.12+0.20") is the performance rate of "Step 2". Use it multiply the weight of "Step 2" ("0.3"), and then get the weighted performance rate of "Step 2" ("17.7%").

Add all five weighted performance rates of steps together¼Œand then get the performance rate of the whole process (76.6%).

By this method organization/enterprise can not only understand the overall running effect of its business processes, but also can conduct further analysis on the details of the business processes, e.g. among all steps¼Œperformance rate of "Step 2" ("0.59") is the lowest¼Œtherefore, this step is likely to be the bottleneck of this onsite-service process. Organization/enterprise can adopt special measures to improve those "bottleneck" steps.