Performance measurement and incentive contracting Super Copy operates a chain of copy centers located throughout North America. Usually located close to college and university campuses, Super Copy provides a variety of services that are organized into six business areas: (1) normal copying, (2) color copying, (3) binding, (4) graphics services (such as posters and business cards), (5) preparing readings packages for university courses (including ob¬ taining copyright permissions), and (6) basic word-processing services.

Super Copy's approach to business is captured in its motto: Provide value to the customer while doing it right and fast. The company's operations man¬ ual explains that market intelligence suggests that success in the copy busi¬ ness depends on (1) providing services that customers value: (2) providing a fast response to a customer request; (3) providing clear copies; (4) providing accurate duplication services (for example, ensure that a readings package is not missing any pages and that its pages are properly aligned); and (5) doing all of the above at a competitive cost.

You have recently been appointed the manager of a Super Copy center lo¬ cated near the campus of a small university (about 1800 students) located in a small town (population about 6000) in a predominantly rural area. You and 27 other center managers report to a regional manager. You are paid a salary and a bonus that depends on the measured performance of the center that you manage.

Each quarter, every center manager negotiates performance targets that reflect local conditions and opportunities with the center manager's regional manager in each of the following areas:

1. Sales for each of the six business areas mentioned above 2. Costs as a percentage of sales in each of the six business areas 3. Product quality as determined by a random audit of output conducted during a surprise visit by a team from the regional office 4. Service as determined by the time required to complete a sample of jobs 64 Chapter 2 chosen by the audit teams (all jobs are logged in and logged out on the computer terminal at the customer service counter)

5. Customer satisfaction as determined by a quarterly survey of faculty and students at the nearby university (approved jointly by the center manager and the center manager's regional manager and is conducted by the re¬ gional manager's staff)

A performance score is computed as follows:

1. A score is determined for each of the five items of performance.

2. The scores on these five items are added to compute a total score.

The center manager's bonus is the percentage of the center manager's salary represented by the total score. The performance score on each of the five items of performance is determined as follows:

1. three points for meeting target, plus or minus 3%

2. two points for missing target by between 3% and 5%

3. one point for missing target by between 5% and 8%

4. four points for exceeding target by between 3% and 5%

5. five points for exceeding target by between 5% and 8%

Performance that varies by more than 8% of target is excluded from the evaluation and is subjected to an immediate investigation by a committee comprised of (1) the center manager, (2) the regional manager, and (3) the re¬ gional controller.

REQUIRED

(a) Evaluate this performance measurement system by indicating why you like, or dislike, each of its relevant features.

(b) As part of your efforts to improve the quality of your products and the ser¬ vices provided to your customers, you have decided to develop a product and service quality monitoring system for your copy center. Suggest what type of system might be useful and why.