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Data, like hay, is usually dry And piled in stacks and measured by
the bit.
And how like the needle information is.
It always has a point and it needs an eye.
Thomas F. Gilbert
Mission, Vision, & Values
Key Success Factors& Core Competencies
Performance Metrics
Metric LevelsFor Metrics
Tactics
•What the organization Is•What the future goals are•What the organization stands for
•What the organization needs to focus upon to beat the competition and achieve its strategic vision
• Determine the Family of Measures•A balanced scorecard•Past Present Future
•Desired annual long term levels for each metric•SBU Process Team Individual
•Activities implemented to achieve goalsS
trate
gic
Measu
rem
ent
Model
InnovationProductionPost SaleService
Role of Objectives• Strategy is a set of linked objectives
• Objectives are the interim goals
• Metrics assess goal attainment
RevenueGrowth
CostReduction
AssetUtilization
MarketShare
RetentionSatisfactionAcquisition
SatisfactionRetention
Productivity
Financial Customer Internal Learning/
Processes Growth
Strategy
Considerations in Choosing Metrics
• Specificity (Specific versus General)
• Productivity Level (Optimization versus Maximization)
• Closeness Goals (Descriptive, Behavioral, Accomplishment, or Organizational Effectiveness)
Considerations in Choosing Metrics
• Decision Focus (Judgmental versus Nonjudgmental)
• Perceptual Focus (Process versus Outcome)
• Reference (Absolute versus Relative)
• Number (Singular, Multiple, or Family of Measures)
• Strategy is a set of hypotheses about cause and effect
• Measurement systems should make relationships (hypotheses) among objectives explicit so they can be managed and validated.
Considerations in Choosing Metrics
Cause and Effect Relationship
ROCE
CustomerLoyalty
On-TimeDelivery
ProcessQuality
ProcessCycle Time
EmployeeSkills
Cause-and-Effect Relationships
Financial
Customer
InternalBusinessProcess
Learning andGrowth
Causal RelationshipsIf Then
Employees are paid well They will be more satisfied
Employees are more satisfied They will be more productive
Employees are moreproductive
There will be fewer bugs inprograms
There are fewer bugs in theprograms
The quality of the product willbe higher
When the quality of theproduct is higher
Customers will be moresatisfied
Customers are satisfied Sales will increase
If sales increase Revenues will increase
A Metric Can Be BOTHA Lag and Lead
Indicator• Track performance through a linked chain
of cause and effect relationships
• Lag measure of earlier efforts
• Lead indicator of future performance
Setting The Level of Metrics
• Based on past performance
• Benchmarking o other companies
• Stretch goals
• Pilot testing
Analyzing the Data• Analysis of Data
–Level of performance
–Trend of performance
–Variability in performance.
• Strategically linked to key success factors AND the mission, vision, values
• Focused on past, present AND future• Linked to needs of ALL stakeholders
(customers, shareholders, employees)• Multidimensional • Vital Few versus trivial many• Clustered into overall indices of performance• Flexible to meet changing business needs
Characteristics
Effective Metrics
• TOO MUCH DATA!!!!• Not causally linked to
success factors• Short Term focus• Lack of specificity and detail• Measuring A while hoping
for B– Courtesy versus competency– Behavior versus Results– Outcome versus process
Problems With Metrics
CustomerSatisfactionTangiblesReliabilityResponsivenessAssurancesEmpathyCustomer Value
MissionVision
StrategyGoals
Metrics
FinancialPerformanceEconomic Value AddedProfitsMarket ValueROI
Products, ServicesQualityQuantityPriceValueInnovation
ProcessPerformanceProductivityCycle timeSafetyReworkCost of Quality
SupplierPerformanceArrival TimelinessService QualityPrice/Value
EmployeeSatisfactionSurveysAbsenteeismTurnoverGrievancesIllness/Accidents
Strategically- Based Family of Measures
FinancialTo succeed
financial, howshould we appear to
our shareholders
Learning & GrowthTo achieve our vision,
how will we sustainour ability to change
and improve?
Internal BusinessProcesses
To satisfy ourshareholders andcustomers what
business processesmust we excel at?
CustomerTo achieve out vision, how should we appear
to our customers?
VisionAnd
Strategy
Key Characteristics:Financial Measures• Includes a few key overall financial
measures
• Balanced mix of short and long term measures
• Includes financial data on our major competitors
• Aggregated into summary financial measures– Economic Value Added (EVA)
– Return on Assets (ROA)
Strategic Themes:Financial Measures
• Revenue growth and mix
• Cost reduction/ productivity improvement
• Asset utilization/ investment strategy
• Shareholder value
Economic Value Added (EVA)
• Measure of financial performance based on a company’s profits adjusted for the cost of capital.
• Historical Focus
• Capital is money tied up in equipment, buildings as well as investments in training, research and development.
• A company can operate a profit but actually operate at a loss when one includes the cost of capital!!!!
Economic Value Added makes managers act like shareholders. It’s the true
corporate faith of he 1990s
William Smithburg,Quaker Oaks CEO
Market Value-Added(MVA)
• The Total Capital a Company Has Invested Since Inception Divided by the Market Value of the Company’s Equity & DebtCoca Cola
General Electric
Wal-Mart
Merck
Microsoft
Activity Based Costing(ABC)
• Measures true financial performance• Tracks direct and indirect costs
associated with producing a product. – Machine down times– Cost of inventory– Cost of rework and scrap
• Allocates costs to specific processes
Key Characteristics:Process Measures• Includes a few key common operational
measures– Value added per employee– Cycle time
• Directly related to key components customers care about
• Allows company to prevent, rather than react to, problems
Common Process Measures• Value added per employee
• Cycle time
• Variability
• Down Time
• Bottlenecks
• Number of Process Steps
Key CharacteristicsProduct/Service • Relates to specific attributes
of the product or service.
• It is not the way an item is produced but what it actually does when received by the customer.
Key Characteristics:Supplier Metrics• Includes a few key common operational measure
• Process measures directly related to key components organizational units care about
• Allow company to prevent, rather than react to, problems
Key Characteristics:Customer Metrics
• Linked to key organizational “drivers”
• Focus on Product and Process
• Include hard and soft measures
• Includes Customer satisfaction index
Key Characteristics Customers• Product/Service
Attributes
• Customer Relationship
• Image and Reputation
Market Share
CustomerRetention
CustomerProfitability
CustomerAcquisition
CustomerSatisfaction
Core Measures -- Customers
Customer Satisfaction Metrics
• Timeliness of Service
• Consistency of Products/Services
• Guarantees
• Reliability
• Customer Satisfaction Surveys
• Mystery Customer Surveys
Key Characteristics Learning and Growth
• Employee Satisfaction
• Employee Retention
• Employee Productivity
Key Characteristics: Employee Metrics• Linked to key organizational “drivers”
• Focus on present and future
• Include hard and soft measures
• Includes employee satisfaction index (ESI)– Surveys– focus groups– stress index– Appeals for layoffs
Employee Metrics• Absenteeism
• Turnover
• Cost Per Hire
• Employee Satisfaction
• Grievances
• Cost of Labor
• Work Stoppages
Key Learnings:Measurement
System • Tightly linked to key successful factors– Differentiate self from competitors
– Make important decisions
• Measurement system was built with a plan rather than merely evolving
• Mostly consistent across organizational units– Facilitates benchmarking
• Balanced across metric areas
Key Learnings:
Metrics• An effective scorecard is more
than a collection of financial and non-financial measures
Tells a coherent story Mix of lag and lead metrics Provides a path to link metrics
BACK to financial performance
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