Daniel and Burn (1997) - A_framework Proactive Performance Measurement

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    A framework for proactiveperformance measurement

    system introductionRobin C. Daniels and N.D. Burns

    The Morris Institute, Loughborough University, Loughborough, UK

    Introduction

    As the drive to become world-class has progressed and intensified there hasbeen recognition that, if manufacturing is to be used as a competitiveweapon[1], then the shopfloor and the production cell will have key roles to playin the development, or survival, of many Western companies. The pivotalposition of the cell leader or line manager in the implementat ion of novelstrategies and tools has been recognized for some time[2]. Despite this, oftenlittle guidance is offered to the cell leader in terms of maximizing the results ofthe continuous improvement which is seen as essential to shopfloor andoperations management. This is true especially where the management andleadership of people are concerned. Well-known tools ofkaizensuch as poke-a-yoke, single-minute exchange-of-die (SMED) and the fishbone diagram, arerelatively easy to implement and can result in large savings in a short space of

    time. However, many companies which have started out along the route ofkaizenfind that, once the shopfloor re-layouts have been completed, the C-shaped lines are in place and everything has been fool-proofed (or mistake-proofed), they then reach a watershed[3]. Ifkaizen, or TQM, is initiated withoutreal attention to the more fundamental and sometimes abstract elements ofthe organization, then only superficial and, therefore, short-term improvementsare achieved. Applying kaizenas an overlay on the existing culture represents asystematic lip-service to the philosophy which will often put paid to any futureculture shift[4].

    For companies which strive to become world-class and yet maintain theirexisting management accounting systems, this risk is particularly acute. Theuse of exclusively financial performance measures is now widely recognized asconflicting with the most fundamental aims of modern business[5]. Focus on theneeds of the market and the customer is increasingly seen as the prime driverfor successful manufactur ing, and nowhere is the sup plier closer to thecustomer than on the shopfloor, especially in a just-in-time (JIT) environment.The research underlying this paper took place in an automotive componentmanufacturer in the UK which supplies several domestic and European carmanufacturers. The cellular manufacture and JIT systems in place formed thebackdrop for the establishment of a cell-generated performance measurementsystem which was devised and run by the cell operators, under the facilitativeguidance of the researcher. The customer knowledge and appreciation of cell

    International Journal of Operations

    & Production Management, Vol. 17

    No. 1, 1997, pp. 100-116. MCB

    University Press, 0144-3577

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    requirements led to a robust system which directed the team in its kaizenactivities and led to substantial improvements in the cell-generated measures aswell as of the existing productivity-based bonus system[6].

    In order to br ing th is about, however, the cell leader (who was also theresearcher) found that commitment to the new system and real bottom-up,enthusiasm for kaizenactivities could be brought about only through devolvingmuch responsibility to the operators and t ruly empowering them[3]. It is thispushing down of responsibility from the middle/line manager or cell leader tothe shopfloor which is often a stumbling-block to fundamental culture shift onthe shopfloor[7]. The traditional role of the supervisor, as director and autocrat,has long been outdated[8], and, while many companies recognize this, little

    practical guidance is offered in terms of ways in which the supervisor can stopdirecting and sta rt to facilitate. The research methodology and findingspresented here can be developed to form a framework to guide shopfloormanagement in the introduction and sustaining of self-regulating kaizenteams.

    Res earch methodology and findingsThe research took the form of an in-depth case study which was divided intotwo stages:

    Stage 1. Analysis of the existing performance measurement system froman operational viewpoint.

    Stage 2. The development of a cell-generated system to drive and directcell kaizenactivities.

    Stage 1 consisted of the application of two methods of analysis:

    (1) Questionnaires designed using pair comparison and semi-structuredinterviews were used to determine the perceptions of and att itudestowards the existing performance measurement system of a cross-section of the production function. Those questioned represented alllevels of the function, from cell operators to production director, and sofacilitated the testing of the extent of goal congruence in terms ofperformance-driver identification, continuous improvement andunderstanding of system dynamics.

    (2) Those assumptions identified were tested with reference to historicaldata and statistical analysis.

    Calculation of correlation coefficient provided quantitative evidence to supportthe initial qualitative evidence. The findings of stage 1 were not untypical, andshortfalls of the existing system included the following:

    lack of correlation between identified production drivers;

    different interpretations of driver interactions and cause and effectrelationships, vertically and horizontally, through the organization;

    lack of ownership of the measures employed on the part of shopflooroperators;

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    lack of relevance of measures to world-class attributes and to thecustomer; and

    minimal drive and direction for kaizenactivities on the shopfloor as aresult[9].

    These initial findings served to direct the stage 2 research towards thedevelopment of a system which would reverse the negative aspects identified.The principal objective of this system would be to drive and direct thecontinuous improvements of the research group. Once the group had decided onappropriate measures with associated goals and t imescales, then the methodsand frequencies of data collection and recording were finalized.

    As the research group was established, so an adjacent cell with s imilarcharacteristics, in terms of product and customer, was identified as the controlgroup. The control group was allowed to continue operating as before, withkaizendirected from above and aimed at short-term technical problems. In thisway a direct contrast between the two groups was made possible as time wenton. Methodological triangulation was employed using questionnaires, interviewand participant observation, augmented by historical, statistical analysis.

    Driver definitionThe first task of the research group was to define its operating parameterswhich would be drawn by the measures of performance selected. Under thefacilitative guidance of the researcher, and through careful consideration ofcustomer requirements, the research group decided on the following initial (andprovisional) measures documented in Table I.

    Some considerable time was spent by the research group on the definition ofthese measures. A sample calculation of each illustrates those definitions:

    Multiskilling

    Example: there are 24 individual jobs on the cell. Each person knows apercentage of these 24 jobs; so, if Joe knows 14 jobs, then his rating is15/24 = 62.5 per cent. For week 1, if:

    Joe knows 15/24 = 62.5 per cent;Simon knows 10/24 = 41.6 per cent; andThomas knows 12/24 = 50 per cent

    Measure Frequency Goal (%) Timescale (weeks)

    Multi-skilling Weekly 75 20

    Quality (scrap and final rejects) Weekly 0 20

    Complete deliveries Weekly 100 20

    Tool and plant downtime Weekly 0 20

    Table I.Research groupperformance measures

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    then:percentage of multiskilling = (62.5 + 41.6 + 50) / 3

    = 51.4 per cent.

    These measures were not arrived at through any statistical or Pareto analysisof existing cell performance (although some such measures were introducedduring a later refinement process), but were based on the intuitive skills andexperience of the group. It was felt that these measures best reflected the areasof weakness of cell operat ion at the time and the demands of the customer.However, it should be appreciated that the suitability of the measures chosen, aswell as their associated goals, were secondary in impor tance to the processthrough which the group had gone in selecting them. The concern of theresearch was not with the selection of world-class or even good performancemeasures, but rather with the method of selection, the recording and use of themeasures selected, and the behavioural factors involved.

    Effects on kaizen and performance

    The measures put in place by the cell began immediately to drive kaizenin away that the existing measures had failed to do. In some cases (a quality problemfor example) action had to be taken immediately; in others, trends in measuresbegan to appear after a period of time (in tool and plant downtime, for example).

    In terms of the new measures, performance began to improve markedlywithin the two weeks of commencement. Over the period of stage 2 (40 weeks)reject levels fell considerably (zero defects achieved for two consecutive months)and downtime began to show a gradual reduction as underlying problems wereexposed and addressed. Also training began to show tangible benefits in terms

    .

    .

    .

    .

    Scrap and final rejects

    Complete deliveries

    Tool and plant downtime

    Final weekly rejects

    Weekly rejects

    Total weekly production volume

    Weekly percentage of scrapped parts :

    Weight of scrap parts producedWeight of coil steel used

    Number of assemblies required by customer

    Number of assemblies shipped

    Total plant and tool downtime

    Total labour hours

    100

    100

    100

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    of labour flexibility and in increasing awareness of quality problems within thecell. Table II gives a summary of the levels of improvement over the first 40weeks of activity.

    As can be seen from Table II, labour efficiency, the prime driver under theexisting system, improved by an average of 17 per cent (or 12 per cent in realterms) over the ten months of activity. This result is particularly significantsince it provides evidence of the benefit of an approach where the factorsunderlying efficiency gains are the focus rather than efficiency itself. This resultillustrates another finding of the research, namely that signs of improvementrelating to a particular project often began to appear during the planning phasebefore the physical changes were made. Subsequent investigation showed that

    such premature improvement was driven by the improved understanding ofthe problem at hand brought about through the attention paid to it by the groupand by the generally increased motivation and communication within the cell.So it was that the cumulative effects of improvements related to all the newmeasures were manifested in the substantive gains in overall productivity andefficiency. This finding is also important since it demonstrates the benefits oflocalized, direct and contingent measu res in dr iving higher-level derivedmeasures.

    The centrepiece of the groups activity on the cell was the cell kaizenboardwhich was used to record the daily data and for displaying the master graphsfor each measure.

    Figure 1 shows an example of a graph developed and used by the researchgroup.

    Training had been identified by the research group as a core need to improveinternal communication, encourage teamwork and increase efficiency. However,while all of these aspects did show improvement, it proved very difficult to linktraining and skill levels explicitly, to these changes. What wasdemonstrated,however, was that the time allowed for training and other kaizenactivitiescorrelated strongly with labour efficiency, as Figure 2 shows.

    Performance Performance

    Measure at week 5 at week 40 Improvement

    Multi-skilling 25 46 84

    Scrap 14 6 57

    Final rejects 1 0 100

    Complete deliveries 100 100 0

    Tool and plant downtime 8 5 38

    Labour efficiency 69 81 17

    Table II.Research groupperformance (aspercentages)at weeks 5 and 40

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    Through ongoing interviews and the use of questionnaires with groupmembers it was found that the fall in labour efficiency or LPI was closelyassociated with reduction in motivation and commitment to the changeprogramme on the part of cell members when the cell leader was changed andthe time allowed for training and general kaizenwas severely reduced.

    Meanwhile the control group failed to make progress in relation to any of theexisting measures (as had been the case prior to the start of the research) andmorale in the cell was deteriorating as the research group became increasinglymotivated. Table III provides a summary of control group performance in termsof the four common measures applied to each group, albeit from differingperspectives.

    Figure 1 .Percentage scrapproduced for cell X forweeks 41-80 (inclusive)

    Figure 2 .Relationship between

    cell LPI (includingkaizenhours) and the

    percentage of totalhours booked to kaizen

    for cell X for weeks 1-40(inclusive)

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    It was from the findings of stage 2, in particular, and from the experience ofthe researcher that the framework for the implementation of such a system wasdeveloped.

    Before discussing the philosophical basis of the framework, and theframework itself, the importance of cell management is worthy of mention. Therole of supervisory management is a crucial one and the findings relating to thisare of key importance.

    The importance of cell management

    As has been shown (Figure 2), the attitude of cell managers/leaders towardskaizenis crucial to the success or failure of the endeavour. Many of the pointscovered thus far raise many issues relating to the changing role of shopfloorsupervision and training and continuing education for supervisors. Most

    important is the need for supervisors and cell leaders who have the confidenceto delegate and devolve responsibility downwards. For those who prefer todirect rather than to facilitate, the shift away from an authoritative evenpaternalistic culture may prove to be impossible without additional supportand training. The final part of the paper will cover two salient aspects of theframework presented: the balance required between the choice of the correctmeasure and the need to maintain the commitment and motivation of the team;and the importance of the choice of initial project. Finally, some requirements interms of cell leader characteristics are listed. These requirements originate fromquestionnaire surveys of the research g roup which included elements ofupward appraisal.

    Before discussing the framework it is necessary to outline the philosophical

    basis of the model. The underlying argument is based principally aroundcontingency (as opposed to configurationalist) theory and the view that changeshould be driven by the internal and external forces pertinent to the business atthe time.

    A contingent approach to driving improvementContingency theory as applied to the design of organizations is based aroundthe view that the characteristics of management structure and control should becontingent on the task in hand, the people involved and the sur rounding

    Performance at Performance atMeasure week 5 week 40 Improvement

    Scrap 24 32 (33)

    Final rejects 14 11 21

    Complete deliveries 78 72 (8)

    Labour efficiency 59 64 8

    Table III.Control groupperformance at weeks5 and 40 (as percentages)

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    environment[10]. This is in contrast to the classical and human relations

    approaches which Bennis[11] defined as organizations without people and

    people without organizations respectively.

    It has long been recognized that the complexity of organizational design

    precludes the universal applicability of more prescriptive approaches[12,13] and

    that taking a broader view of the world (including outside influences such as the

    customer and market) will yield more and not less robust organizational

    designs. Contingency theory provides the facility to identify (and sometimes to

    quantify) internal and external forces at work and the resulting forms towards

    which the organization will be pulled[14,15].

    In the field of performance measurement research there has also been a shiftaway from the prescriptive and highly formalized management accounting

    systems towards a more balanced approach which also takes account of

    internal and external forces through the application of non-financial, as well as

    financial, measures[16]. The profile of such a p erformance measurement

    system will be contingent on the situation of the organization including its

    history, internal politics and management style. Research has shown also,

    however, that by taking the decision process to a point as close to the customer

    as possible, and, at the same time, minimizing the inter-hierarchical interference

    in new measure development, it is possible rapidly to develop and implement

    new measures which largely are unencumbered by internal political or

    historical forces[17].

    Such measures will override (in terms of behavioural consequence and,therefore, actions) existing highly formalized and prescriptive performance

    measurement systems.

    As stated previously, the aim of the research underlying this paper was not

    to define an absolute list of world-class performance criteria. Rather it was to

    examine the process of developing a new system and a set of measures by

    shopfloor workers which were contingent on their situation and which would

    drive improvement activities. A framework for the implementation of a cell-

    based performance measurement system, therefore, should be constructed on

    the premiss that the measures chosen, and at a deeper level the system

    configuration and operation defined, are contingent on the needs of the cell, the

    goals of the business and, most importantly, the needs of the customer. The

    requirements of suppliers to the subject company also are becomingincreasingly important with the increase in inter-company kanbansystems andother, wider, issues of supply chain management[18].

    Performance measures, therefore, are contingent on the relative character-

    istics and strengths of:

    customer requirements;

    internal requirements; and

    supplier requirements.

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    Customer requirements are vital to the definition of the framework for all otherrequirement categories. All requirements, therefore, will provide direction anddrive towards improvements to the cell which are relevant to the customerrequirements.

    The action research described previously succeeded in generating anddriving a demonstrable culture shift in the cell. This shift was driven ostensiblyby injecting into the system, which at the time was driven purely by labourefficiency, a set of measures which would institutionalize the requirements ofthe customer into the culture of the cell. This shift in emphasis is illustrated asfollows.

    Optimizing the measure-driven cycleIt is apparent that in a given performance measurement system there arevarious cause-and-effect relationships in place which are driven by the systemand which ensure that the measures employed become self-fulfilling (i.e. you getwhat you measure). The link between cause and effect in this case is thebehavioural consequence both of the measure and of the system as a whole.Using this principle it is possible to map the progress of cause and effectrelationships through a cycle. Figure 3 shows a measure-driven cycle for acompany operating under a traditional accounting-driven system, such as wasthe subject company of this research.

    Figure 3 illustrates the essence of the introverted measure-driven cycle inwhich the behavioural implications of non-customer-focused measures drive

    the culture of the shopfloor away from world-class performance criteria and therequirements of the customer.

    Through the development of a cell-based performance measurement systemit becomes possible to incorporate those customer needs into the cycle. Again,behavioural implications link cause-and-effect relationships, but this time thecycle becomes proactive and dynamic. Once the culture has moved far enoughaway from the introverted initial state, then the customer becomes the focus andnon-financial measu res increasingly drive the shopfloor along the path ofcontinual improvement. Figure 4 illustrates this change of focus.

    While the above clearly focuses on the individual cell the model could be used

    also to represent an entire organization where world-class performance criteria,and therefore customer requirements, define the business and manufacturing

    strategies; research at this level is ongoing. In such a case the measures areadapted to be relevant to each hierarchical level, while a clear link betweenstrategy and the shopfloor is assured through a definition of strategy in terms

    of direct measures of service to the customer. Such goal congruence[19] meansthat the benefits of local autonomy can be maximized and cell-based

    entrepreneurial flair (or deviance from the norm) will not detract from thecentral mission of the organization. Such a characteristic is defined by Peters

    and Waterman[20] who discuss the loose-tight properties of then successful

    companies such as 3M.

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    Figure 4 .The optimized measure-

    driven cycle

    Figure 3 .The introverted

    measure-driven cycle

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    The theoretical model here outlined, which derives from the results of empiricalresearch[4], underlies the practical framework and guidelines for the successfulimplementat ion of a self-sustaining cell-based performance measu rementsystem.

    A model and guidelines for implementationThe model described in wha t follows is based on t he empirical researchdescribed in this paper and describes a procedure for introducing such a systemelsewhere.

    The cyclical nature of the behavioural implications of performancemeasurement systems as discussed above means that the provision of a

    feedback loop for the continual reappraisal and improvement of measures ismade relatively uncomplicated. The most suitable way to represent thesequence of actions required for the implementa tion of a cell-generatedperformance measurement system is the flowchart. However, it is necessaryfirst to identify two distinct scenarios which the facilitator may encounterregarding the choice of appropriate measures by the team of operators(henceforth referr ed to as the team). It has been shown[4] that whereknowledge of customer requirements is good the team is likely to selectmeasures which are highly congruent with the requirements of the customer(see Figure 5). It may be the case, however, that the appreciation of customer

    Figure 5 .The expertmeasurementframework

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    requirements is insufficient to select valid measures. The question of what isvalid is best answered by the customer, and so direct customer input would befavoured here. The second scenario demands modification to the implemen-tation flowchart, as is illustrated in Figure 6.

    The terms in parentheses at each stage describe the quality of the process atthat point and indicate that sound progress to the next stage is possible. Thesecond scenario (Figure 6) depicts the situation at the other end of thecontinuum where the degree of customer appreciation at best is minimal.

    In this situat ion kaizenactivity is initiated and driven by sub-optimalmeasures while an educational and training input is initiated in order to lead tothe definition of a more suitable set of measures. The initial set is then refined

    after input from the customer and introduced at the measure review (which isinitiated as soon as the refined set is ready). If a review decides that the existingmeasures are still acceptable, then this is fed back into the kaizenactivity. If theset requires modification, the new measures are identified and these are fedeither into the kaizenactivity or into the training entity, as appropriate.

    It is possible to combine the expert and novice measurement frameworks toform a contingent measurement framework (Figure 7) which can be usedwhatever the characteristics of the team in terms of customer appreciation.

    The contingent measu rement framework can be used to formalize thedevelopment of a team at any point along the knowledge continuum by means

    Figure 6 .The novice

    measurementframework

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    of a simple flowchart. Two feedback loops are employed for the input of existingmeasures either back into the kaizenstar ts/restar ts activity box or theidentify measures process box.

    A brief summary of the actions and activities associated with each entity inthe flowchart will clarify the mechanism:

    Identify measures. Information of customer requirements, cell problemsand areas of waste and information arising from the review of any existingmeasures all contribute to an initial definition of measures with associated

    goals and timescales. Kaizen starts/restarts. Improvement activity is triggered by new

    measures.

    Review measures. A periodic activity is needed to ensure the continuedapplication of relevant and rigorous measures. Input to the activity willbe either valid measures () or refined measures (). The output fromthis activity will feed into the kaizenstar ts/restar ts activity, if themeasures are found to be valid, or into the identify measures activity,if some amendment is considered necessary by the team.

    Figure 7 .The contingentmeasurementframework

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    Education and training. The application of team training with customerinput is important in order to improve customer and cell awareness in theteam and to facilitate the identification of valid measures and goals.

    Refine measures. This process differs from the review measuresprocess in t hat it is concerned with t he refinement of sub-optimalmeasures initially chosen by the team. Input from the education andtra ining process will serve to enrich the process and increase thechances of a valid measure or set of measures being defined for input tothe review measures process.

    Using invalid measures to drivekaizenThe contingent measurement framework includes two OK/NOK decision points(indicated by t icks and crosses in Figure 7) where the validity of measures isassessed. The first occurs at the identify measures process and the second atthe review measures process. The case of the invalid (or NOK) measuresdriving the kaizenstarts/restarts activity requires clarification. This situationwill occur only once, at the inception of the system. At this point it is likely thatpar tially (or totally) invalid measures will be selected by the team, especiallywhere appreciation of customer requirements is poor. It is preferable, however,to allow these measures to begin to drive kaizenwhile education and training iscarried out and prior to production of the measure set. There are two mainreasons for this:

    (1) In order to continue the motivation of the team it is preferable tomaintain some momentum in the process and not to introduce a pause inprogress while the imperfections of the measures chosen by the team areanalysed.

    (2) Some measures are better than no measures at all and, particularly incases, where previously there have been no drivers for kaizen, it isinfinitely preferable to demonstrate some practical improvements inthe cell. Team members will usually be keen to start some practicalkaizenand, in the early stages, encouraging this without provisos isimportant for morale and facilitator credibility as well as for thelearning process. In the early stages it is more important to encouragethe generation of ideas, the growth of confidence, enthusiasm and pride

    in the cell and t he improvements carried out than it is to insist onabsolutely valid measures and resulting activities. It is preferable,therefore, in the early stages to allow team members to make sub-optimal decisions and carry out sub-optimal activities than it is toallow only those activities which the cell leader considers to be valid.For the cell leader to select unofficially the team measures in this wayundermines the whole rationale of the approach and represents thekind of lip-service paid to the concept which will be immediatelyobvious to the team.

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    The choice of initial projectThe findings of the research in relation to the choice of initial project reflect, inmany ways, the guidelines offered to TQM practitioners in the 1980s and early1990s[2]:

    The initial project (and indeed all projects) should be as small and asfocused as is possible.

    The initial project should have a high probability of success according tothe parameters defined by the team.

    The results of the project should be widely publicized. Recognition drivescommitment.

    The initial project should be quickly followed by a second to maintainmomentum.

    Role of the cell leaderAs mentioned previously, the role of the cell leader, supervisor or line manageris central to the success of a system such as that described. While it is notpossible to provide an exhaustive list of required capabilities and personalitytraits, the following are valuable:

    When offering guidance and support the cell leader is able to strike abalance between suggestion and direction.

    A good knowledge of the personalities of team members and the ability

    to maximize the contribution of each member are important. Effective liaison with other cells and supply functions is important

    where the teams activities interface with external areas.

    In an organization where a traditional finance-driven performancemeasurement system is in place, with all the behavioural consequenceswhich this may have, the cell leader is able to act as an umbrella or shieldfor his cell. In this way dr ives to increase productivity (seemingly inisolation) are translated by the cell leader into a form relevant to themeasures of the cell and the functioning of the team. In an organizationthat employs a customer-driven performance measurement system inwhich goal congru ence is high, the need for this char acterist ic isreduced.

    As the team develops, the cell leader is able to yield an increasing degreeof control and responsibility to the team. The more mature the teambecomes, the less need it will have of a guide or a parent figure.

    Implications for further researchThe research presented here suggests that through the development of thekaizenteam which is focused on contingent and relevant measures it is possibleto advance the concept of self-managing teamwork in a production cell[21] andthat this will lead to beneficial shifts in culture. What also has been advocated

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    is the need for a degree of control in the cell-generated system. As Mills[22]states: Much of the conceptual and empirical literature has focused on therelationship between external control mechanisms and organisation structure(see also [23,24]). Slocum and Sims[25] have observed that there is a relativedearth of models specifically addressing self-control in organizations, and evenless related to kaizenteams. The research documented here indicates such aframework which has been empirically tested and which points to several areaswhere extensive further research is required not least the changing role offirst-line management. It may be argued that the role of the cell leader is a primefocus in the development of a world-class organization. Performance measure-ment research certa inly has a key part to play in the advancement of such

    companies, and empirical research and t rials which marry up st rategyformulation, information provision and control to the behavioural implicationsof performance measurement continue.

    References

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    4. Daniels, R.C., The behavioural consequences of performance measurement in a cellularmanufactur ing environment: a case study, PhD Thesis, Loughborough University of

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    16. Bhimani, A., Performance measures in UK manufacturing companies: the state of play,Management Accounting, December 1993, pp. 20-21.

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