THE CONCEPTUAL FRAMEWORK OF A KNOWLEDGE-BASED ... - …

393

Wibisono & Khan —The Conceptual Framework of a Knowledge-Based Performance Management System

Gadjah Mada International Journal of BusinessSeptember-December 2010, Vol. 12, No. 3, pp. 393–414

Dermawan WibisonoSchool of Business and Management, Institute of Technology Bandung (ITB)

Mohammed K. KhanSchool of Engineering, Design and Technology, University of Bradford, England (UK)

Designing a Performance Management System (PMS) is anintegral part of management control systems. This paper presents ahybrid framework for the design of a PMS for the Indonesiancontext, and the tailor-made design is expected to overcome theshortcomings of earlier models. The present hybrid PMS modelseeks to improve the earlier research models using the followingnovel approaches: (1) implementation of a Knowledge-Based (KB)expert system, (2) Gauging Absences of Prerequisite (GAP) analy-sis, and (3) Analytical Hierarchy Process (AHP) methodology in anintegrated KBPMS. The paper shows that the present hybrid (KB-AHP-GAP) approach to developing a PMS model is a realisticmethodology. The combination of the KB-AHP-GAP approachallows detailed benchmarking of the PMS existing in an Indonesiancompany. Furthermore, this approach can assist in identifying andprioritising the key decisions that need to be executed to overcomethe existing PMS shortcomings.symbiotic strategic alliances. Con-versely, affiliate firms prefer competitive strategic alliances withcompetitors when they are not dependent on the parent firm.

THE CONCEPTUAL FRAMEWORK OF AKNOWLEDGE-BASED PERFORMANCE

MANAGEMET SYSTEM

Keywords: analytical hierarchy process (AHP); expert system; GAP analysis;knowledge-based (KB); performance management system (PMS)

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Gadjah Mada International Journal of Business, September-December 2010, Vol. 12, No. 3

Introduction

Companies nowadays realize thatthe need for accurate and comprehen-sive information on their activities isof crucial importance. This is because,as Sousa et al. (2005), Gosselin (2005)and Medori and Steeple (2000) haveindicated, firms need to have a numberof critical components in order to beclassified as World Class Manufactur-ers (WCM); one of the ingredients ishaving an appropriate PerformanceManagement System (PMS). Through-out the 1990s, various novel frame-works were derived by organizationsto select and implement measures, suchas SMART (Cross and Lynch 1989),Performance Measurement Question-naire (PMQ) (Dixon et al. 1990), Per-formance for World Class Manufac-turing (PWCM) (Maskell 1991), VitalSigns (Hronec 1993), the BalancedScorecard (BSC) (Kaplan and Norton1996) and the Performance Prism(Neely et al. 2002). However, as Zairiand Letza (1994) have observed, re-search on the area of performancemanagement has not yielded solid find-ings, and this in fact remains a chal-lenge. Neely and Bourne (2000) sup-port this argument through their re-search findings, showing that approxi-mately 90 percent of managers fail toimplement and deliver their organiza-tions’ strategies by the performancemanagement applied. They argue thatthis failure is mainly due to the busi-

ness performance itself being a multi-faceted concept that needs a differenttype of PMS. Furthermore, as noted bySellenheim (1991) and Ljungberg(1994), methods for developing andimplementing detailed measures,adapted to the environment of a spe-cific company, are seldom describedin details. In addition, the difference invision and mission relates to the exist-ence of a firm in the nation in which thecompany is a state-owned or privatecompany.

Summarized in the Table 1 are theprevious frameworks of PMS and theproposed model that tries to fulfil somegaps left by those frameworks. FromTable 1, it can be seen that several gapsstill exist which require improvementin the PMS model, including the imple-mentation of knowledge-based ap-proach, the support by software tomake decision-making, and the imple-mentation of Analytical HierarchyApproach (AHP).

It has been known among expertsin the area of performance manage-ment system that BSC is the mostpopular approach around the worldalthough some critiques on the ap-proach still prevail. The second ap-proach, which is also popular for Indo-nesian companies, is MBNQA bywhich some countries like Singapore,Australia, and Europe have modifiedand adapted into their country specificsettings.

395


Tab

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ign o

f PM

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amew

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inct

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396

Gadjah Mada International Journal of Business, September-December 2010, Vol. 12, No. 3B

SC

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or

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lass

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form

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t M

odel

; B

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war

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fro

m T

abe

1

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In Indonesia, some companies stilladopt this technique 100 percent as theoriginal, and hence are faced with dif-ficulties implementing it mostly be-cause of qualitative questions to beanswered while only a few experts canhelp the firms. These two global per-spectives are potentially implementedbut need further adjustments and im-provisations, such as issues regardingwhich performance indicators to beused, how the benchmarking processis done, and how these approaches canbe suitable for non-profit organiza-tions. This evidence basically provesthat performance management systemneeds a contextual approach. For in-stance, Indonesian firms may have dif-ferent cultures and business mecha-nisms from Western or Japanese com-panies. For certain companies, such asthe state-owned enterprises, they haveresponsibilities for not only makingprofit but also contributing to the de-velopment of social welfare. There-fore, the different backgrounds pos-sessed by the Indonesian companiesclearly require a tailor-made approachof PMS which is more workable in theIndonesian environment. This paperpurports to answer the need, and pre-sents a novel approach to the design ofPMS through the application of Knowl-edge-Based (KB) expert system thathas not been carried out in the past.

The KB approach is selected basedon the following rationales. Firstly, alarge number of performance variablesare usually involved in the successfulimplementation of PMS and the rela-tionships among them are quite com-

plex. Secondly, the priorities for im-proving performance variables needsupporting tools to keep the validityand consistency of decision-making.Thirdly, the benchmarking process infiguring a company’s competitivenessalso has to be facilitated by appropri-ate tools. These circumstances renderthe selection of the proper methodol-ogy and its implementation being quitea challenging task for practitioners inthe industry.

The KB system is applied to makethe PMS valid, consistent, and practi-cal for implementation (Wibisono2003). Firstly, the KB system applica-tion is not only based on the theoreticalbasis, but also on the feedback frompractitioners in Indonesia, such as fromPT Telkom, PT Pupuk Kaltim Group,PT Angkasa Pura II, PT Pindad, PTPertamina, and many others. To thosebig companies, it is extremely compli-cated to implement PM without thesupport of KB system since the appli-cation of KB system provides the op-portunity to interact with users in anappropriate manner and to assist in thedecision-making process. Secondly, thetedious and cumbersome calculationsinvolved in performance variable for-mulas and the benchmarking processcan be easily and accurately incorpo-rated within the rule-based expert sys-tem structure. Thirdly, by incorporat-ing the explanatory features, the KBsystem can be harnessed as a learningdevice for all members of the organi-zation. These features of KB system,coupled with the analysis of qualita-tive features of PMS through embed-

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ded Gauging Absence of Prerequisite(GAP) analysis and Analytic Hierar-chy Process (AHP) approaches, willmake the hybrid KBPMS model ofKB-AHP-GAP analyses a real, practi-cal and effective decision-making toolfor practitioners.

The Conceptual Frameworksof PMS

The previous section has surveyeda number of PMS frameworks, intro-duced their benefits as well as limita-tions. Compared to the previous frame-works, the proposed KBPMS model inthis study is new in a number of keyways, thanks to the use of an interac-tive methodology regarding the KBsystem as a decision-making tool. Theimplementation of GAP analysis to-gether with the AHP approach in anintegrated KBPMS model covers allorganizational levels, and provides theexact analysis of the present PMSagainst a benchmark.

In developing the PMS, previousresearchers began by identifying thecharacteristics of ‘reliable’ measure-ment systems, for which some providethe characteristics explicitly while oth-ers imply them by criticizing the finan-cial performance measurements [seefor examples: Dixon et al. (1990),Maskell (1991), Medori (1998) andLetza (1997)]. Even though there aresome differences in terminologies andscopes of the characteristics proposedby these studies, they can be condensedinto a set of general principles as sum-marized below. These principles are

utilized as the basic thoughts for de-veloping the PMS in this study:

1. A PMS should relate the perfor-mance of shop floor to companystrategy.

2. A PMS should consist of a set ofwell-defined and measurable crite-ria. Even though previous studiesimplemented a vast array of vari-ables, there is a general agreementas to how to choose the ‘appropri-ate’ variables as summarized be-low:

a. The chosen performance vari-ables must be easily understoodand represent the system theytry to measure.

b. The ‘KISS’ (Keep It Simple Stu-pid) principle should be applied.Simple should also represent a‘comprehensive’ measurementof the right thing. This rein-forces the need for identifyingkey technical indicators and theimportance of comprehensivesummary measures.

c. In choosing performance vari-ables, care should be given toavoid two particular problems:‘false alarm’ and ‘gap’.Schmenner and Vollmann(1994) define the term ‘falsealarm’ to be the use of wrongmeasures to motivate manag-ers, so they spend time improv-ing something that has few posi-tive consequences to the com-pany, and perhaps even involvesome harmful consequences.The term ‘gap’ refers to a fail-

399


ure to include a necessary mea-sure so that something impor-tant for the company stays ne-glected.

3. The standard of performance foreach criterion is very important. Itshould be complemented by proce-dures to compare actual perfor-mance achieved to the standard pro-vided.

4. A PMS should foster improvementrather than just monitor perfor-mance. The system should focus onhow the company is currently per-forming, and indicate where it needsimprovement. Manufacturing per-formance management as a mea-sure of progress needs to have areference state against which man-agement is evaluated.

5. A PMS should provide informa-tion on a timely basis. The aimshould be to provide feedback asclose to the event as possible. Re-porting ‘on a timely basis’ usuallymeans ‘when feasible.’ Timelinessis essential in the application ofPMS since competition amongcompanies is a dynamic environ-ment. Long report lead times ren-der useful information obsolete,which greatly reduces its value as abasis for corrective actions. In gen-eral, the greater the delay of re-ported information, the higher isthe cost.

Referring to these principles ofdeveloping the PMS and consideringthe steps of designing a PMS, there arethree salient stages that we go through

in the development of the KBPMSModel: (1) Basic Information, (2) Coreof Performance Management, and (3)Performance Management Mecha-nisms. Within these three features ofthe conceptual model, the KB expertsystem is harnessed as the foundation,as depicted in Figure 1 and describedin details in the following sections.

Stage 1

Figure 1 shows that in the BasicInformation stage, there are three ma-jor sets of information that need to beconsidered: (1) Company EnvironmentInformation, (2) Financial and Mar-ket Information and (3) Product orService Information. The objective ofthe Company Environment In-formation is to position the area inwhich the company is currently com-peting.

The reasons for considering thecompany’s Financial and Market In-formation is that financial performanceindicates how the firm is presentlymanaged with respect to efficiencyand effectiveness financially (Kaplanand Norton 1996). While Market Sharereflects how competitive thecompany’s products and services are,it also provides an indication of cus-tomer satisfaction vis-a-vis its com-petitors (Centre for Business Perfor-mance 1999).

Since the Product and ServiceInformation is a backbone of thecompany’s competitiveness, the infor-mation on the products and services isabsolutely crucial. For all intents and

400


Figure 1. The Conceptual Framework of a PMS

Bus

ines

sR

esu

lt

Performance Management Systems

Performance

Variables AHP Bench-

mark

Inte

rna

lPro

cese

s

Re

sour

ces

Cap

abil

ities

Lin

kage

Wei

ght

Inte

rnal

l

Ext

erna

l

Strategy

Objectives

Mission

Vision

Company Environment Information

Financial & market Information

Product &S ervices Information

Basic Info.

Cor

eof

PM

Mechanism of PM

KN

OW

LE

DG

E-

BA

SED

Evaluation Diagnosis

Measurement Action

STAGE 1

STAGE 2

STAGE 3

Source: Wibisono (2003)

401


purposes, it is this aspect of the com-pany that the customer receives.

Stage 2

In the Core of Performance Ma-nagement aspect, there are severalimportant pieces of information thatneed to be considered, such as com-pany statements, performance vari-ables, the linkages among performancevariables, the weight of each variablerelative to the company’s performance,and the performance standard of eachvariable.

Since company statements suchas the company’s strategy, vision, mis-sion, and objectives determine the fu-ture direction, it is therefore importantto explore whether the company notonly has these statements but also com-municates them to all employees at alllevels. All company statements shouldbecome a ‘compass’ for guidance indetermining performance variables.This is based on the argument that allperformance variables used in the PMShave to be aligned with the company’sstrategy, vision, mission, and objec-tives (Kaplan and Norton 1996).

From Figure 1, it can be seen thatthere are three different groups of com-pany performance variables related tothe management responsibility: (1)Business Results, (2) Internal Pro-cesses, and (3) Resource Capabilities.Each of these three groups consists ofseveral performance variables. Themost critical aspect in this stage is todetermine which performance vari-ables are most appropriate to the com-

pany. Within the company’s environ-ment, managers can lead the companyto become a competitive weapon withoutstanding achievements of one ormore of performance measures. How-ever, managers need to know: Whatmust we be especially good at: quality,lead times, cycle times, productivity,delivery, product flexibility, volumeflexibility, minimum changing sched-ules, rework levels or other measures?Choosing just a single variable willmisrepresent the overall company per-formance, whereas using all the pos-sible variables may represent the realperformance but will be very complex.In many cases, performance againstsome variables may be adequately rep-resented by the measurements of oth-ers (Hayes and Pissano 1996). It isimpossible to measure every aspect ofthe company because measurementsystems incur real costs, both obviousand covert. Therefore, choosing sev-eral key variables that most representperformance is a critical step in devel-oping the key performance indicators.

Referring again to Figure 1, theAHP is embedded in the system fordetermining quantitative and qualita-tive linkage patterns among perfor-mance variables in the Business Re-sults, Internal Processes and ResourceCapabilities. These linkages are im-portant to determine the cause andeffect among performance variablesin the different levels and to know theimprovement priority that should betaken among performance variables inthe same level.

402


The essence of Benchmarking isto encourage continuous learning andto lift the organization to a highercompetitive level. Benchmarking isnot a means of winning at any cost, buta legitimate, systematic, overt and ethi-cal process of bringing about effectivecompetitiveness (Zairi 1998). It is con-cerned more with finding out ideas onmanaging processes, and therebyachieving superior performance ratherthan gathering sensitive informationon costs, pricing, and effectiveness(Zairi 1998):

• It is a good strategic planningmethod, and sets credible targetsthat can be achieved.

• It exposes the organization to con-temporary practices by instigatinga continuous learning process, andthus can assist in the developmentof cultures based on change andcontinuous improvement.

• It is an extremely sound methodol-ogy for people education, involve-ment and empowerment, and inoptimizing their creative potentialsin the area of innovativeness.

• It has increased general awarenessof costs and performance of prod-ucts and services in relation to thoseof competitors.

• It is a powerful methodology fordeveloping winning strategies, anda precise way of measuring gaps inperformance

Stage 3

Figure 1 also depicts the Mecha-nisms of Performance Management

aspect, comprised of four main steps:(1) Measurement, (2) Evaluation, (3)Diagnosis and (4) Action.

Performance Measurement hasbeen implemented by companies. How-ever, Performance Measurement of-ten becomes a routine activity withoutany determined strategy for the re-quired follow-up actions. The resultsof performance measurement tends togive an insight into the area where theactual performance is worse than ex-pected; however, it does not give in-sights into why the actual performancediffers from the expected, nor does itinform on how one can improve theactual performance. It is apparent thatperformance measurement does notautomatically give an answer to thequestion, “how good the actual perfor-mance is,” neither does it give sugges-tions to where performance improve-ment is possible (Stoop 1996). Perfor-mance measurement, thus, is a startingpoint for further analysis. Often inpractice, qualitative explanations aregiven which might explain the perfor-mance deviations. Although these ex-planations may sound very reasonable,they are usually very subjective andbased on intuitive feelings (Kaplanand Norton 1996).

Performance Evaluation is theassessment of a possible situation incomparison with plans and/or stan-dard previously set as a target. Thereare two ways to set a performancetarget: internal and external standards.The first target could be to monitorinternal competitiveness in terms ofcontinuous improvement. The most

403


important thing in deciding an internaltarget is that it should be realistic andchallenging; if there is no drive forimprovement, people will not easilythink of ways to improve their perfor-mances (Hayes and Pissano 1996). Theinternal benchmark could be conductedbased on the comparison to the bestprevious performance, the technicalstandard, the other departments in thecompany, the average in a certain pe-riod, or the last period’s performance.The external target is predicated on thebenchmarking of best practices in asimilar industry, industrybenchmarking, or current competitors.This target is pivotal since the imple-mentation based merely on internaltargets can be meaningless if, overtime, the competitors are getting fur-ther ahead.

Performance Diagnosis is definedas the process of finding causes ofperformance deviations and explain-ing the achieved performance. Diag-nosing the performance is importantbecause to some extent, managementoften claims to know the causes forperformance deviations (Wibisono1998). They can offer numerous ex-planations for the observed gap be-tween the actual performance and theperformance target. According toStoop (1996), the danger of qualitativeexplanations regarding the deviationsof performance is that it is possiblethat the presumed causes are not all thecauses that explain the observed per-formance gap. In this case, there areother causes that have not been deter-mined yet. For this reason, it is impor-

tant to have knowledge of the linkagesamong different performance vari-ables. Secondly, if the result of thediagnosis produces veritable causes,one can use this information to rein-force the intuition. Thirdly, due to allkinds of changes in the shop floor or itsenvironment, there is a danger thatproblems are solved only by using pastexperiences whereas new factors mayhave arisen.

Action Plan is concerned withidentifying actions that need to takeplace if performance proves to be ei-ther satisfactory or unsatisfactory.There are two different aspects for theimprovement of actions: strategic andtechnical issues (Skinner 1996). Thestrategic aspect is dealing with deci-sion-making in the higher level of man-agement and in the long-term policy,especially in the policy of improve-ment resources. For instance, if it isfound that inadequate resources arethwarting the company, the need fornew resource capabilities is imminent.

The Conceptual Model of theHybrid KBPMS

The hybrid PMS Framework in-troduced in Section 2 can be visualizedfrom strategic and operational struc-tures, as graphed in Figure 2. Figure 2is a clearer interpretation of how thehybrid PMS framework has been actu-ally developed as a hybrid KBPMSexpert system model.

Surely, there are links among per-formance measures at one level withthose at other levels. Company perfor-

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mance in the Business Result Perspec-tive (Level 1), for example, is influ-enced by the performance in the Inter-nal Processes Perspective (Level 2).Performance in Level 2 is affected byperformance in Level 3 (ResourceCapability Perspective). It can be ob-served that the company’s profitabil-ity is influenced by product quality,while the product quality per se willincrease if the employer possessesexcellent capabilities. Hence, there isan inter-relation (across and below) offactors that affect the performance of acompany, which should be taken intoaccount in the KBPMS model. Thefollowing description elaborates onFigure 2.

Level 0 – Company Environment. TheCompany Environment Module (Level0) determines the particular environ-ment in which the company is operat-

ing. Since different company environ-ments require different performancestandards and improvement strategies,it is therefore a crucial stage to identifyand map the company’s environmentto ensure that the performance diagno-sis is valid, reliable and factual. Theinformation needed in this module is:the type of industry, the number ofemployees, the age of company, theage of industry, competitors and busi-ness life cycle.

The industry information is ben-eficial to classifying a firm into a cer-tain group of appropriate benchmarksbased on the products or services pro-duced. This classification is based onthe reasoning that a certain type ofindustry has its own competitive pri-orities and special performance stan-dard. In this module, the types of in-dustries and their respective products

Figure 2. Showing the Hybrid KBPMS Model Framework

Strategic Part

Operational Part

Human resources Technology and Infrastructure

Organisation

LEVEL 0 Company environment

LEVEL 1 . Business Result

Financial Performance Non Financial Performance

LEVEL 2. Internal Process

Innovation Operations Marketing After Sales Service

LEVEL 3. Resource Capabilities

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are based upon definitions and classi-fications proposed by Willmot andMcCarthy (2001).

The information about companyage, industry age, and competitors iscrucial to positioning the company rela-tive to the competitors and the industryage itself. This information is the start-ing point for mapping the current sta-tus or circumstances relative to thecompetitors such that the improve-ment programs can be determined.

Business life cycle influences thecompany in determining its companystrategy. The most practical approachin monitoring the stage of the life cycleof a company can be conducted throughmonitoring its investment activities ina certain period. Kaplan and Norton(1996) classify the industry life cyclebased on the investment activities.

Level 1 - Business Perspective. Thislevel covers the first strategic part ofthe KBPMS model. Financial and non-financial objectives serve as the foci ofall businesses in the world. Profit maxi-mization, the maximization of returnon capital, the maximization of share-holder wealth, the fulfillment of gov-ernment regulations, customer satis-faction, survival and growth are someof the most important objectives of afirm. It is therefore crucial to considerthese business parameters in any PMS.In the KBPMS model, The BusinessPerspective Module assesses thecompany’s financial and non-finan-cial performances through specific per-formance criteria. The financial and

non-financial performances serve asthe foci for the objectives and mea-sures of Internal Processes Perspec-tive.

Level 2 - Internal Processes Perspec-tive. Internal processes have been afocus of improvement in competitive-ness for a long time. Even traditionalPMS systems are usually focused oncontrolling and improving existing de-partments which are not only sepa-rated from the operational activities ofother departments, but also have norelationship with the other programs(Neely and Bourne 2000). Since aninternal process represents the effec-tiveness and efficiency of internal op-erations performance, it is thus impor-tant to manage the performance rigor-ously. Four of the most important per-formance parameters in the InternalProcess Perspective to be assessed areInnovation, Operations, Marketing andPost-Sales Services, with each aspectconsisting of several performance sub-variables.

Level 3 – Resource Capability Per-spective. An organization must alsoinvest in human resources, technologyand infrastructure, and improve its or-ganizational practices if they are toachieve ambitious long-term financialgrowth objectives and other non-fi-nancial performances. In the proposedKBPMS model, this infrastructure islabelled as the Resource CapabilityPerspective. There are three main cat-egories of resources to be assessed:Human Resources, Technology and

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Infrastructure, and Organization,within which there are a number ofsub-categories.

The discussion above has de-scribed in details the KBMPS modeland its structure. The following sec-tion describes the GAP and AHP as-pects, which are imbedded in the hy-brid KBPMS.

The Gauging Absences ofPrerequisites (GAP)Methodology

The assessment of company per-formance in the Hybrid KBPMS modelis conducted through sequential ques-tions that measure both qualitative andquantitative information on the com-pany performance in each level basedon the Gauging Absences of Prerequi-sites (GAP) analysis. GAP analysis isused to determine the disparity be-tween the essential or desirable pre-requisites and what actually exists inthe organization within each moduleof the KBPMS model. This analysis isutilized to identify likely problem ar-eas, which must be addressed by themanagement if an effective implemen-tation is to be accomplished. Themechanism of GAP analysis is carriedout through the responses of the usersto the questions provided in the hybridKBPMS model. The problems high-lighted for each negative reply is cat-egorized under the following headingsin descending order of importance(Kochhar et al. 1991).

Category 1: This indicates a seriousproblem, which should

and can be resolved inthe short run, and the reso-lution of the problem isquite likely to provide realshort-term benefits

Category 2: This indicates a seriousproblem which is likelyto have prerequisites, andis thus better dealt withas part of an appropriateand logical improvementand implementation plan

Category 3: This is not a serious prob-lem, but can be dealt withright now. If resolved, itis likely to yield short-term benefits

Category 4: This is not a serious prob-lem. Although it could bedealt with right now, it isunlikely to yield short-term benefits. Therefore,it should only be dealtwith if it is a prerequisitefor other things

Category 5: This is not really a goodor bad point itself; thequestions associated withthis category are prima-rily asked to identify cer-tain situations in the en-vironment which, uponsubsequent probing bysucceeding questions,may well reveal problems

When the users select the requ-ired topic, they will be presented witha description of the selected GAP analy-sis topic, such as the high level Finan-cial and Non-Financial Information

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issues (Table 2). After the introduc-tion screen, the users will be directedthrough the questions (which in es-sence are the rules developed for theKB expert system) in a stepwise man-ner (Table 3). Depending upon theusers’ responses to a particular ques-tion, different questions may be askedsubsequently. The users have beenprovided with the facility to see the

explanations (additional KB) createdto assist in deciding on the answer forthe question.

A summarized result, as shown inTable 4, will be displayed in the end ofeach GAP analysis topic. The resultshown consists of the total number ofquestions asked, the number of goodpoints, the number of bad points (alongwith their Problem Category types),

Table 3. Customer Loyalty Sub-module

Table 2. High Level Issue Financial and Non-Financial Information

High level issue: Financial and Non Financial Information

1. ObjectiveThis module will assess a company's financial and non financial level along specific performance criteria.The financial and non financial objectives serve as the focus for the business objectives and measure thecompany's overall performance.

2. Reasons Every business measures financial and non financial performance since it indicates how the company

runs, survives and competes as well as indicating how the company gives financial and non financialvalue added to the stakeholders (Wibisono 2003)

The non financial performance from the site of government, customer, community are now also play asimportant role

3. Variables to be assessedFour financial ratios (leverage, liquidity, profitability and return on investment) and three non financialparameters (customer, government and community) will be assessed in this module

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comments and recommendations onthe GAP analysis topic. It may benoted that only the negative (BadPoints) are categorized into problemtypes. The reason for this is that theKB system’s main aim is to identifythe missing prerequisites so that theperformance measurement can includethe recommended actions for improve-ment.

The Analytical HierarchyProcess (AHP) Methodology

The selection of the most suitableimprovement priorities is a multi-at-tribute and complex problem. It re-quires the development of tools to ad-dress both qualitative and quantitativeparameters. The AHP methodology isone of the most powerful methodsemployed to deal with these kinds ofproblems (Razmi et al. 1998). Theapplication of the AHP not only pro-vides the tool to weigh the factors, butalso confirms the correctness and in-

tegrity of the comparison of the factorsmade by the users.

AHP has been applied to severaldecision problems, e.g., investmentappraisal, human resources evaluation,project selection, and vendor rating, toname but a few. However, little atten-tion has been given so far to the appli-cation of the AHP to performancemanagement. The steps of implement-ing AHP in this KBPMS model fol-lows the guidance given by Saaty(1980); however, the following listgives an outline of the process:

State the problem,

Identify criteria that influence thebehavior of the problem,

Structure the hierarchy of the crite-ria, sub-criteria, alternatives, and theproperties of alternatives,

Prioritize the primary criteria withrespect to their impacts on the over-all objective called the focus,

State the question for pair-wise com-parison clearly above each matrix,

Table 4. Results Summary for Customer Loyalty Sub-module

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Prioritize the sub-criteria with re-spect to the criteria,

Enter pair-wise comparison judg-ments and force their reciprocals,

Calculate priorities by adding theelements of each column and divid-ing each entry by the total of thecolumn. Average over the rows ofthe resulting matrix and get the pri-ority vector.

Referring to the structure ofKBPMS model as illustrated in Figure2, and considering the steps of imple-mentation of the AHP stated above, theAHP hierarchy embedded within theKBPMS model is shown in Figure 3.

From Figure 3, it can be observedthat the AHP is a three-level hierarchi-cal structured model, which is able toanalyze the given company competi-tiveness based on the focus on theBusiness Result Perspective Perfor-mance. The Business Result Perspec-tive Performance is influenced by thecompany performance in the InternalProcesses Perspective, which consists

of Innovation, Operations, Marketingand Post-Sales Services. The root al-ternatives that should be improved toincrease the performance in the Inter-nal Process Perspective are HumanResources, Technology and Infrastruc-ture, and Organization.

The pair-wise comparisons startfrom Level 2 of the AHP: Innovation(I), Operations Processes (O), Mar-keting (M), and Post-Sales Services(A). Data on these comparisons aretransferred directly from the processof GAP analysis embedded in theKBPMS model. This means that theAHP model decides on which one ofthese four factors (I, O, M, A) shouldbe in the priority of improvement toincrease the company’s competitive-ness in the Business Perspective. Thismodule is designed to determine themost suitable improvement prioritiesof competitiveness for a given circum-stance based on the interactive users’answers to each sub-module, thus as-sisting in the decision-making process.

Figure 3 Showing the AHP Structure for KBPMS Model

LEVELS I. Business Result Perspective

II. Internal Processes Perspective

III. Resource

Capability Perspective

Financial and Non Financial Performance

Innovation Operations Processes

Marketing After Sales Service

Human resources

Technology and Infrastructure

Organisations

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The combination between theGAP analysis and the AHP approachneeds a transferred process of scale. It

has been explained earlier that in theGAP analysis, there are five ProblemCategories for each performance con-

Table 5. Results of Simulation for Internal Process Perspective

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Table 6. AHP Results for Internal Process Perspective

dition assessed, while the AHP ap-proach (Saaty 1980) provides nine In-tensity of Importance to be imple-mented for each sub-module level.Thus, the five-level scale of the GAPmethodology needs to be scaled (trans-ferred) to the nine-scale AHP method-ology, and this has been described indetails in Wibisono (2002a, 2002b).

It needs to be reiterated that theKB-GAP analysis provides the prior-ity actions required internally to eachand every sub-module (in terms ofProblem Categories) contained withinthe KBPMS model, whereas the AHPoutputs provide the prioritized actionsbetween (external to) the sub-mod-ules. Accordingly, the users can obtaininformation on which main modules/sub-modules need to be prioritized forimprovement through the AHP meth-odology, and then what precisely needsto be done within each of these identi-fied modules/sub-modules with respectto eliminating the Problem Categoriesthrough the earlier exercise carried outby the KB-GAP aspect of the KBPMSmodel, thereby providing detailed andpractical information for assisting inthe decision-making process.

Table 5 illustrates an example ofsimulation results that have been taken

for the Internal Process Perspective.The table shows that the company stillhas big problems since there are about30 percent category I encountered, in-dicating that these problems need to besolved first before the company will beable to improve other sectors.

From the AHP factor, it can beseen from Table 6 that the companyputs post-sales services as the biggestpriority to improve compared to inno-vation, manufacturing processes, andmarketing.

Conclusion

This paper has described the de-tails of the KBPMS model, which is anovel and improved methodology com-pared to the previous PMS frameworks.The proposed model has introducednew aspects that have not been cov-ered by previous researchers, espe-cially in terms of the implementationof a KB expert system approach, andthe combination of GAP and AHPanalysis in an integrated model, as asupporting decision-making tool.

In the procedures of designingPMS, this study has developed aconceptual model that consists of threestages considered in designing the

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KBPMS: (1) Basic Information, (2)Core of Performance Management and(3) Mechanisms of Performance Ma-nagement. Every stage has several as-pects that play an important role, andthey have been explained in details.

The proposed KBPMS can be vi-sualized from strategic and operationalstructures. In the strategic part, thereare two modules, namely Company En-vironment and Business Result Per-spective. The Company EnvironmentModule determines the particular envi-ronment in which the company oper-ates. The Business Result PerspectiveModule analyses financial and non-fi-nancial performances. In the operationalpart, two modules, i.e., Internal Pro-cess Perspective and Resource Capa-bility Perspective, are developed, andin each module there are sub-modulesand performance variables that havebeen discussed in details.

The proposed KBPMS modelimplements the GAP analysis, thebenchmarking process and the AHP

approach in an integrated performancemanagement system. The process oftranslating Problem Category in theGAP analysis for each assessed per-formance into the Intensity of Impor-tance in the AHP approach is con-ducted through consistent mechanismand weighting processes. The hybridKBPMS model provides a detailedand accurate decision-making tool forthe improvement of the PMS, and ac-cordingly the performance manage-ment in a manufacturing environment.

From the simulation results anddiscussion with practitioners in Indo-nesian companies, it is noted that thismodel is simpler in implementationbecause the detailed model has beenprovided with supporting knowledge-based interactive software. It also canencourage users to increase and under-stand their knowledge related to theircompanies’ performances by updatingstate-of-the-art techniques into the soft-ware provided that could help in thedecision-making.

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