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The four levels of performance


A look at various types of business operations – from a sandwich restaurant to a hospital – reveals, that the typical customer evaluates business processes based on four basic levels of performance.

(1) Cost

How efficiently can the business operation deliver goods and / or services?
(More efficient businesses can offer goods and / or services at lower prices)

(2) Variety

Can the business fulfil the specific wishes of their heterogenous customer base?
(Most customers do not care about variety itself, but want their wishes to be met)

(3) Quality

Performance quality = How good is the product and / or service offered?
Conformance quality = Is the product and / or service as good as advertised?

(4) Time / Responsiveness

How fast can the wishes of the customer be fulfilled?

There are trade-offs between the four dimensions of performance, e.g. the fastest service with the highest quality can usually not be offered at the lowest price in comparison to competitors. These trade-offs can be used by businesses to create unique business strategies (e.g. cost leadership) as well as to distinguish themselves from their competitors.

The tools of Operations Management can be used to help businesses to reach decisions about such trade-offs and to evaluate measures to overcome inefficiencies. One way to detect such inefficiencies is to compare your own business with those of your competitors – and especially those competitors, who are positioned on the efficiency frontier with no other company being pareto-dominant on a combination of two out of the four dimensions (e.g. no other company is cheaper and faster or faster and offering more variability).

These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at

1 Comment

  1. […] three most important performance measures of a business process are flow rate / throughput, inventory and flow time. In the following […]

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