Comparing Performance Measurement: Service Industries vs Manufacturing

This report critically examines the differences in performance measurement between the service and manufacturing industries. It begins by defining performance management and then explores key performance indicators (KPIs) used in both sectors. The report highlights the distinct approaches to performance measurement, comparing KPIs like Total Quality Management and Capacity Utilization in manufacturing with Employee Satisfaction Score and Return on Equity in the service industry. It also addresses the challenges in measuring service performance, such as simultaneity and intangibility. Furthermore, the report differentiates between financial and non-financial performance management, discussing factors like primary focus and reporting. The conclusion emphasizes the importance of measuring performance effectively and the role of various KPIs in assessing overall performance, supported by references to academic sources and industry resources.

Performance
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Critically discussion that how performance measurement in service industries are different
from manufacturing by comparing KPI’s....................................................................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Performance management can be defined as a process in which companies make sure that
their set of activities can help them to accomplish goals DeNisi & Murphy, (2017). This study
will show several different key performance indicators which are being used by service and
manufacturing industry.
MAIN BODY
Critically discussion that how performance measurement in service industries are different from
manufacturing by comparing KPI’s
Performance measurement: Performance management refers a process in which
employees and managers work together in order to plan, monitor and review employee’s work
objectives. It can also be said that it is a continuous process of planning and reviewing
performance of employees in order to make them know their actual position in the company.
With the help of key performance indicators, companies of manufacturing and service can
measure their performance.
Comparison of KPI’s in service Vs: Performance indicators are one of the main tool which
allows companies of service and manufacturing industry in measuring effectiveness of
performance Nawaz, Hussain & Khattak, (2018). It also makes them able to see that who are
hard working and have potential to improve productivity of an organization. Some key
performance indicators which can be used in manufacturing industry include:
Total quality management: TQM is one of the main tools or key performance indicator
which often being used by manufacturing companies. With the help of this tool, companies of
manufacturing industry can analyse quality of their products and management them accordingly.
This indicator can help them out in increasing productivity by managing continuous quality.
Capacity utilization: This tool or KPI is being used in production line in order to see that
how much capacity are being actually used and it shows that the higher the company use the
better its performance is. By maximizing expensive assets like equipments and building,
company can improve performance and manage sell by production centre Manufacturing KPI’s
to Improve Production Performance, (2020).
1

Overall operating efficiency (OOE): It is also one of the important and popular key indicator
performance tool which often being used by manufacturing industry. One of the main reasons of
using this tool is it has on standard time as well as off standard time. By increasing % of this
company can add value and improve performance Pereira, Natalya & Slesarenko, (2020).
Whereas, as compare to manufacturing, service industry also makes an effective use of
some key performance indicators which allow them to manage inventory, manage quality of
products, manage performance of employees and others. For different measurement, different
indicators are available. Some KPI’s are discussed below:
Employees’ satisfaction score: It is one of the main key performance indicators which
allow companies of service sector in analysing or measuring satisfaction level of employees.
Service sector is the one who’s main focus on satisfaction of customers and employees rather
making profit. By measuring satisfaction level of employees, they can identify needs of
employees and accordingly they can provide motivation to them. It helps them out in retaining
employees within the company for the long run. It also improves their image and increase loyalty
among employees which cooperate company in accomplishing their goals.
Return on equity: It is a financial key performance indicator which helps service industry
in identifying their financial condition. By knowing financial condition, they can make changes
in other strategies and can make investment decision KPI’s Examples of Service Industry,
(2018). This KPI measure net income of service sector companies against each unit of
shareholder equity. This ratio also helps companies in measuring their profitability and
efficiency as well.
Problems in measuring performance in service industry: In the context of measuring
performance, it can be said that there are several factors create barriers in the path of the success.
Service sector face some problems in measuring performance such as:
Simultaneity: It is one of the main problems which occur because services are being offered and
received at the same time or within 1 hour so, they find difficulties to capture and measure. In
this context, it is also stated by given an example that services which people receive from hotels
or restaurants cannot be saved for the future analysis Wu, Qomariyah & Liao, (2018).
Intangibility: It is other main problem which means people cannot feel and touch quality
of services which are being provided in services sector. For example: A holiday maker and
2

tourism industry cannot make sure the quality of their services as well as value of the holiday
meant to them.
.
Differentiate between financial and non-financial factors within performance management
There are mainly 2 types of measurement which both service and manufacturing industry
can do and use such as:
Financial performance management: It refers ways in which company manages and identify
financial results across an organization. Some financial measurement include: operating
expenses ratio, asset turnover ratio, interest expense etc. It makes companies able to know that
where they are or how is their financial position.
Non-financial performance management: It refers quantitative measures which can be
measured in non-financial terms. It includes: profit margin, return on asset, performance of
employees, customers satisfaction etc.
Key considerations: There are some factors which need to be considered by companies at the
time of measuring performance in order to make it successful. Some things which shows
differences between financial and non-financial performance indicators such as:
Primary focus: The main focus of companies in financial performance measurement is on
gaining short term success factors. Some factors on which companies focus include: profit and
cash flow Omran & et.al. (2019). On the other hand, in non-financial, the main focus is on all
factors which can support companies to meet their goals and long term success. For example:
employees’ and customers’ satisfaction, quality of products and services.
Reports: There are some reports are being made in both financial and non-financial
performance indicators or measurement which can help shareholders in making investment
decision. For example: in financial, profit and loss account, balance sheet etc. On the other hand,
in non-financial, companies make customers’ satisfaction score report and overall growth of
employees on the basis of performance.
CONCLUSION
From the above assignment, it can be concluded that measuring performance of the
company played a vital role. It has shown different tools or key performance indicators with
which help, companies measure effectiveness of overall performance. It has also discussed
differences between financial and non-financial factors in performance management.
3

REFERENCES
Books and Journals:
DeNisi, A. S., & Murphy, K. R. (2017). Performance appraisal and performance management:
100 years of progress?. Journal of Applied Psychology. 102(3). 421.
Nawaz, R., Hussain, I., & Khattak, S. B. (2018). Key Performance Indicators Identification and
Prioritization for Environmental Sustainability in the Cement Manufacturing Industry in
Pakistan Using Analytical Hierarchy Process. JOURNAL OF ENGINEERING AND
APPLIED SCIENCES. 37(2). 95-101.
Omran, M. & et.al. (2019). Non-financial performance measures disclosure, quality strategy, and
organizational financial performance: a mediating model. Total Quality Management &
Business Excellence. 1-24.
Pereira, J. P., Natalya, E., & Slesarenko, I. (2020, February). The Analysis of Competency
Model for a Performance Appraisal System in the Management of Food Service
Industry. In International Conference on Information Technology & Systems (pp. 162-
171). Springer, Cham.
Wu, W. Y., Qomariyah, A., Sa, N. T. T., & Liao, Y. (2018). The integration between service
value and service recovery in the hospitality industry: an application of QFD and
ANP. International Journal of Hospitality Management. 75. 48-57.
[Online].
Manufacturing KPI’s to Improve Production Performance. 2020. Available through:
<https://www.rhythmsystems.com/blog/21-production-kpi-examples-to-improve-manufacturing-
performance>
KPI’s Examples of Service Industry. 2018. Available through: <
https://www.executestrategy.net/blog/kpi-examples>
4

5