Management focus change and product cost performance in the field of operations management
A case study on the relation between management focus change and performance and the impact of product characteristics.
This study is concerned with the benefits of implementing performance management and control systems in the field of operations. More specifically, what is the impact of ‘management focus on performance’ on the performance of an organization? Performance in this research is defined as fixed product cost performance, as well as performance in terms of capacity utilization. On top, also the influence of product complexity and product maturity on this relation is investigated, as performance is dependent on the type of product that differ in terms of product and process characteristics.
This research is performed at DSM Protective Materials, the global supplier of Dyneema® material in the performance material industry. Management focus changed towards a high performance driven organization. A change in direction, goals and performance measurements have been implemented due to top down pressure on performance. Performance dashboards have been implemented in order to monitor and steer performance fact-based. Capacity utilization and fixed cost absorption became key focus areas.
Different multiple regression analyses are performed to analyze whether a statistically significant relationship is present between management focus (independent variable) and product cost performance as well as throughput performance (dependent variables), both being defined as key performance indicators. On top, also the impact of product complexity and product maturity on this relationship is investigated. Production performance data as well as financial data is used as input of the model, for a period of 3 years (2016-2019). The regression analysis is performed in different steps. First of all, the main relationship is investigated. As a second step, the model is extended to test the moderator impact of two moderator variables on the main relationship; product maturity and product complexity.
Main findings & relevance
Results of the regression analyses show a significant performance improvement in terms of fixed unit costs when management focus changes from a low performance driven organization towards a fact-based performance driven organization with top down pressure on performance and performance goals, measures and dashboards in place. The results also show a significant positive impact on performance when performance is defined as production throughput instead of fixed product unit costs. By this, it adds evidence to existing theory regarding the benefits of performance management and control systems. Specifically for this study is the fact that the research is done in an operations setting. Very specific for this type of environment is the influence of product complexity and maturity, as product characteristics, on performance improvement. Therefore, this study adds some new knowledge regarding the moderator impact of product complexity and product maturity on the relationship between management focus and performance. Results show that the impact of management focus on performance improvement is stronger for low complex products. Regarding product maturity, this study shows significant but conflicting results, depending which performance indicator is chosen. An interesting finding is that the way ‘management focus on performance’ (meaning performance driven management and the implementation of goals, performance measurements and dashboards), influence performance is influenced by product characteristics in terms of complexity and maturity. Practically, this means that depending on the level of complexity and maturity, different performance targets should be defined. Looking to the role of Operations Control on production site level, it is key to support the implementation of the performance management and control system and make sure the right performance measurements are in place to monitor and steer performance. Finance can bring performance insights to the management table in order to stimulate fact-based decisions and consequently steer performance in the right direction. This study shows the value of a fact-based performance driven organization in terms of realization of performance improvement.
Ir. Denise Diederen RC studeerde in 2019 af aan de Universiteit van Maastricht (EMFC) en won de tweede prijs van de VRC Scriptieprijs 2019. Denise werkt als Operations Controller bij DSM