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Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Management Metrics
“If you can’t measure it, you can’t manage it”
Fred Smith, Founder & CEO
FedEx
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Purposes of Metrics
Clarify strategic prioritiesSpecify value proposition
Outline specific goalsObtain employee buy-in
Receive feedbackModify tactics
Link to performance appraisal systemTie individual performance to metrics for the company, the
team and the individual.
Harmonize individual objectives, departmental goals and companywide strategy.
Define Business ModelDefine Business Model
Communicate StrategyCommunicate Strategy
Align ObjectivesAlign Objectives
Track PerformanceTrack Performance
Increase AccountabilityIncrease Accountability
Managers can use metrics to evaluate a business’s progress in the following areas:Examples
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Challenges to Specifying Metrics for Online Businesses
Companies’ strategies change rapidly.
Online measurement is resource intensive.– Development of systems to capture data can require significant
capital investment and human resources.– Data mining is often needed to make data usable.– The amount of Information generated can overwhelm managers.
Online metrics are still evolving.– There is little agreement on which measures are appropriate.– Some metrics are ambiguous (e.g., amount of time spent at site).– Data capture is subject to manipulation.
“Hard” measures are needed for investment community, but “soft” measures are often the best early indicators of site performance.
Some reasons why many online businesses do not take a systematic approach to developing and applying metrics:
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
“A firm can be profitable, yet strategically bankrupt….”
Michael Porter
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
The Balanced-Scorecard Strategy In Operational Terms
Financial
To succeed financially, how should we appear to our
shareholders?
Internal Business Process
To satisfy our shareholders and customers, what businesses
must we excel at?
Customer
To achieve our vision, how should we appear to our
customers?
Learning and Growth
To achieve our vision, how will we sustain our ability to change
and improve?
Visionand
Strategy
Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.
The “Balanced Scorecard” was developed in response to managers’ tendency to focus too heavily on short-term financial performance.
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
The Balanced Scorecard – Typical Measures
Internal Business Process
Innovation: perceived innovativeness, percent of sales from new products. Operations:
order processing, cycle time, delivery time, number of errors.
Post-sale service: returns, warranty processing, response
time, payment processing.
Customer
Market share, customer acquisition, customer satisfaction, customer
profitability.
Learning and Growth
Employee: selection, training, retention, satisfaction.
Information systems: timeliness, accuracy, data utility.
Motivation: personal and company goal alignment.
Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.
Financial
Revenue, revenue growth, gross margins, operating
income, net margin, earnings per share, cash flow.
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
The Performance Dashboard
FinancialMetrics
FinancialMetrics
Steps of Strategy
CustomerInterface
CustomerInterface
Branding andImplementationBranding and
Implementation
Performance Dashboard
BusinessModel
BusinessModel
Branding andImplementation
Metrics
Branding andImplementation
Metrics
CustomerInterface and
OutcomeMetrics
CustomerInterface and
OutcomeMetrics
BusinessModel Metrics
BusinessModel Metrics
EvaluationEvaluation
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Introducing the Performance Dashboard
FinancialFinancial
Steps of Strategy:
Customer Interface
Customer Interface
Implementation and Branding
Implementation and Branding
Performance Dashboard:
Areas Addressed:
Size of market opportunity
Attractiveness of target segments
Competitive landscape
Customer acquisition
Changes in customer behavior
Site experience and usability
Branding
Technology infrastructure
Internal organization
Relationship with suppliers and partners
Fulfillment capability
Revenue
Profit
Cost
Balance sheet
Implementation and Branding
Implementation and Branding CustomerCustomerBusiness ModelBusiness Model
Business ModelBusiness Model
Uniqueness of value proposition
Attractiveness of offering
Firm capabilities relative to competition
Sustainability of competitive position
EvaluationEvaluation
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Blueprint to the Performance Dashboard
Step One: Articulate Business Strategy
Step One: Articulate Business Strategy
Step Two: Translate
Strategy Into Desired
Outcomes
Step Two: Translate
Strategy Into Desired
Outcomes
Step Three: Devise Metrics
Step Three: Devise Metrics
Step Four: Link Metrics to Leading
and Lagging Indicators
Step Four: Link Metrics to Leading
and Lagging Indicators
Step Five: Calculate
Current and Target
Performance
Step Five: Calculate
Current and Target
Performance
Def
ine
goal
s an
d va
lue
prop
ositi
onD
efin
e go
als
and
valu
e pr
opos
ition
Market Opportunity•Opportunity size?•Competitive environment?
Market Opportunity•Opportunity size?•Competitive environment?
Customer•How to acquire customers?•How will customers change?•The customer experience?
Customer•How to acquire customers?•How will customers change?•The customer experience?
Implementation and Branding
•How to develop brand?•How to go to market?
Implementation and Branding
•How to develop brand?•How to go to market?
Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?
Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?
Market Opportunity•Market size and growth•Average age and income•Competitor concentration
Market Opportunity•Market size and growth•Average age and income•Competitor concentration
Customer•Market share•Purchase/year•Success rate•Service requests/customer
Customer•Market share•Purchase/year•Success rate•Service requests/customer
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Financial•Revenue•Profit•Earnings per share•Debt to equity ratio
Financial•Revenue•Profit•Earnings per share•Debt to equity ratio
•For each metric, determine the metrics that it affects and that affect it
•Map the linked set of metrics, indicating leading and lagging indicators
•Ensure that there is a balance between leading and lagging indicators
•For each metric, determine the metrics that it affects and that affect it
•Map the linked set of metrics, indicating leading and lagging indicators
•Ensure that there is a balance between leading and lagging indicators
Dev
elop
res
ourc
e sy
stem
req
uire
d to
del
iver
the
stra
tegy
Dev
elop
res
ourc
e sy
stem
req
uire
d to
del
iver
the
stra
tegy
•For each metric, calculate current level of performance
•Determine target level required to meet outcomes described in Step 2
•Ensure that targets are consistent with each other
•For each metric, calculate current level of performance
•Determine target level required to meet outcomes described in Step 2
•Ensure that targets are consistent with each other
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs. competition
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs. competition
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Charles Schwab -- Customer Acquisition StageStep 1: Articulate the Business Strategy
“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”
Schwab Learning Center Live Events Principles of Investing Understanding Market
Cycles “Did You Know” Q&A
Schwab Signature Services
Schwab AdvisorSource Options Service Global Investing
Service
Online Chat with Customer Service Representatives
Customer Service via Phone Customer Service via E-mail Customer Service at Branch My Watch List
Margin Loans Money Transfers Automatic
Investing Options Service After Hours
Trading Account
Protection Bill Payment
Overall General Goal
Planner Investor Profile Sample
Investment Plans
Retirement Retirement
Planner IRA Analyzer
Product Offering
Online Investment Process
Get Educated About
Investing
Plan investments
Decide on Investment
Perform Investment
Post Investment Support
Perform Research
Estate Estate Tax and
Probate Calculator Alternatives
ComparisonCollege College PlannerTax Tax Strategies IRS Withholding
Calculator
Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource
ServicesCDs and Money Markets SchwabOne
Annuities Schwab Select
AnnuityLife Insurance Insurance Needs
Calculator
1. Value Proposition
1. Value Proposition
2. Marketspace Offering
2. Marketspace Offering
High-quality Investment Information
High-quality Investment Information
Innovative productsInnovative products
Low priceLow price
Technology LeadershipTechnology Leadership
Superior serviceSuperior service
3. Resource System
3. Resource System
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Schwab Desired Outcome Summary
Martket Opportunity
•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment
Business Model
•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition
Customer Interface and Outcomes
•Lower Customer Acquisition Costs•Transition Customer Base•Outperform Competition on Interface Perceptions
•Customer Satisfaction and Loyalty
Implementation and Branding
•Brand Associations vs. Competition•Best-in-Class IT Infrastructure•Ability to Deliver Brand Promise
Financial Evaluation
•Revenue•Profit•Cost•Balance Sheet
BusinessModel
BusinessModel
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$
Revenue growth 24% 10%
Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate
Revenue breakdownTrading 62%Non-Trading 38%
Trading 59%Non-Trading 41%
An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues
Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume
Average fee per trade 64.27$ $51.41
1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%
Profit
Post tax proft margin 19.50% 19.50%
Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs
Pre tax profit growth 14% 10%Profit breakdown
Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution
Earnings per share growth 14% 8%Non-Traditional Metrics * 13-Mar-00
Advice and Market Info 9.29Customer Service 9.84Features 8.83Transacting 10.81Usability 9.75Value 11.44Overall 59.95
*Source: Nicole Tempest and Warren McFarlan, Charles Schwab Corporation (B). Case no. 9-300-507,
Harvard Business School Publishing, September 13, 1999
Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
POV: Bill Gurley on the Power of Conversion Rates
Conversion Rate 2% 4% 8%
Advertising spend 10,000$ 10,000$ 10,000$
Visitors 5000 5000 5000
Transactions 100 200 400
Cost per transaction 100$ 50$ 25$
Revenue 10,000$ 20,000$ 40,000$
Marketing/revenue (%) 100% 50% 25%
Average transaction size = $100
Source: J. William Gurley, “The Most Powerful Metric of All,” CNET News.com, 21 February 2000.
A website’s conversion rate is a key metric of performance. Small increases in customer conversion can significantly impact marketing costs per transaction.
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Information Sources for MetricsData collected internally are important, but external data are also useful for benchmarking and performance tracking:
Data Type Sample Measures Sample Sources
Market research Site usability
Customer satisfaction
Site traffic
BizRate.com
Jupiter Media Metrix
AC Nielsen
Analyst reports Industry trends
Company or site ratings
Forrester
Aberdeen Group
Frost and Sullivan
IDC
Financial information Company profiles
Financials
Industry and market comparative data
Hoover’s Online
Edgar Online
DLJ Direct
SEC filings
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
US Top 25 Web and Digital Media Properties
Source: Media Metrix press release, 31 March 2000.
The number of unique visitors to a site is a key metric for the customer interface.Rank Digital Media/Web Unique Visitors
(000) 1 AOL Network 59,858 2 Yahoo Sites 48,336 3 Microsoft Sites 46,581 4 Lycos 32,899 5 Excite @ Home 28,571 6 Go Network 23,006 7 NBC Internet 17,169 8 Amazon 15,217 9 Time Warner Online 13,636 10 Real.com Network 13,482 11 Go2Net Network 13,041 12 AltaVista Network 12,557 13 About.com Sites 12,329 14 Ask Jeeves 12,269 15 eBay 11,155 16 LookSmart 10,557 17 ZDNet Sites 10,226 18 CNET Networks 10,023 19 eUniverse Network 9,198 20 JUNO/JUNO.COM 9,177 21 EarthLink 8,526 22 Infospace Impressions 8,305 23 Viacom Online 8,139 24 FortuneCity Network 7,809 25 CitySearch-TicketMaster
Online 7,689
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Market Research Source — BizRate.comBizRate asks consumers to rate the performance of an online store.
“Ten dimensions of service”
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Analyst Source — ForresterForrester ratings are based on expert reviews and customer surveys.
Last Updated: 01/19/01Copyright 2002 by Marketspace LLC
Financial Information Source — Hoovers OnlineHoover’s Online provides industry information and profiles of individual companies.
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