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very good start with performance metric management. Essential reading for all scorecard practitioners. A must for all supervisors and managers
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Building A Metric Building A Metric ManagementManagementAn alternative to Balanced Scorecard
ARRIFFIN MANSOR
04/10/232
Introduction Introduction
Metric management provide a framework for management measurements and targets.
Strategies are defined in metric terms for proper communication and execution.
When asked about strategy, managers reach for their metric charts and maps.
04/10/233
AgendaAgenda
This slide presentation will outline the major steps for building a metric management plans.
How you execute these steps will depend upon many factors: Company culture, tolerance for change, leadership, etc.
However, please try to follow the same sequence, focusing on the strategic maps.
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Overview Overview
Metrics are used in management from planning to controls
Link these metrics into strategic mapsThroughout the process, we will refer back
to these maps, making sure everything is linked. This is very important since we want to capture a “cause and effect” relationship in building metrics.
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Why metric management?Why metric management?Improves how you communicate strategySuperimposes a discipline whereby you
capture cause-effect; otherwise you create pockets of under-performance.
Also forces you to think about strategic measurement as opposed to tactical or operating type measurements
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Start with StrategyStart with Strategy
Begin with your strategic plan – what things are critical to future success?
Focus on customers – what values will we add to our customers
Define the processes – how will we deliver these services to our customers
Build the organization – what capabilities must we put in place
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StrategiesStrategies
Once we establish our first anchor (goals), we can develop a set of strategies.
Strategies define what actions must be taken to reach the goals.
Strategies are critical to future success. For example, in order to grow revenues, we must introduce new products and expand our market share.
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GoalsGoals
The first components of your strategy are goals.
Goals establish direction in concrete terms. Goals anchor the rest of the process. Goals should fit with the vision and
mission of the organization.
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Goal AttributesGoal Attributes
Very short statementDirectly relates to the missionBroad in scopeCovers long time period (such as 3 years)Examples:
- Improve Customer Service- Leverage Core Competencies- Develop more innovative products
Inte
rnal
Pro
cess
Sta
keho
lder
Lea
rnin
g&
Gro
wth
Reduce Re-Activities thru ABC/M
Establish Web Based Self Services
Knowledge Management
Human Capital
Improved Returns on Investments
More rapid and accessible services
Leadership Development
Inve
stm
ents
Strategy Map: Capture a Cause Effect Strategy Map: Capture a Cause Effect Relationship from the Bottom UpRelationship from the Bottom Up
IT InfrastructureFacilities and Fixed Assets
Economic Model Process
Expand Global Facility Reach
Articulates how the organization creates value for its constituents and legitimizing authority
Displays key priorities and relationships between outcomes (the "what") and performance enablers or drivers (the "how")
Provides a clear view of "how I fit in" for sub-organizations, teams, and individuals
"Cascading the scorecard throughout the organization, and clearly mapping the various units and functions back to the organization or agency-wide map is critical to leveraging and ensuring alignment"
Key Benefits of Strategy MapsKey Benefits of Strategy Maps
Executive consensus and Executive consensus and accountability:accountability:
Building the map eliminates ambiguity and clarifies
responsibility.
Educate and Communicate:Educate and Communicate:
Build awareness and understanding of organization
strategy across the workforce.
Ensure Alignment:Ensure Alignment:
Each sub-unit and individual link their objectives
to the map.
Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan, April 21, 2004, pg. 20
Promote Transparency:Promote Transparency:
Communicate with and educate constituents, partners,
oversight bodies, and the general public.
Strategy Maps – Strategy Maps – A Better Way to Communicate StrategyA Better Way to Communicate Strategy
Detailed statement of what is critical to
successfully achieving the
strategy
How success in achieving the
strategy will be measured and
tracked
Key action programs
required to achieve
objectives
The level of performance or
rate of improvement
needed
Objective Description
Target
2 per setup per month each Outlet Office
InitiativeMeasure
Number of Reworks
Strategy Map
Sta
keho
lder
Inte
rnal
Pro
cess
L&
G
Faster Service Access
Self Service Applications
Web Enable Technologies
Process and ValueMap Analysis
Lean Processes
Inve
stm
ents
Invest in IT
Extend the Map into Measurements, Extend the Map into Measurements, Targets and InitiativesTargets and Initiatives
Lean / Six SigmaEliminate waste, reworks, and other errors in our processes
Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.
Goal Objective Measurement Target Initiative
Achieve Agency operational efficiencies with best practices in the private sector
Reduce Operational Service Costs by 50% over the next 5 years
Cost per Outlet Office, Cost per Region, Cost per FTE
5% - Year 1
10% - Year 2
15% - Year 3
Activity Based Costing / Management
Reduce identified re-activities within primary processes by 80% over the next 3 years
Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions)
Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%
Lean / Six Sigma
Alignment of Scorecard ComponentsAlignment of Scorecard Components
Multiple Choice Question – Multiple Choice Question – Create a Tight ModelCreate a Tight ModelThe Balanced Scorecard process captures a cause and effect relationship based on having all parts linked together. Strategic goals link down to objectives, objectives link down to measurements, and measurements link to:
a. Mission
b. Goals
c. Budgets
d. Targets
Multiple Choice Question – Multiple Choice Question – and the answer is . . .and the answer is . . .
d – Measurements should be linked to targets. We want a one-to-one relationship so that measurements are actionable to the Agency.
Key Result AreasKey Result Areas
A concentrated or focused minimum area of work that would give you the maximum intended outcome.
A major component of the outcomeA pareto activity that gives 20:80 outcome.The most sensitive inputs that give
maximum outputs.
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Strategy AttributesStrategy Attributes
Longer statement than goal statementMore specific than goal statementIndirect relationship to missionCovers shorter time period than goal (such
as 6 months or 1 year)Example:
- We will expand call center services to include technical support
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Programs (initiatives)Programs (initiatives)
Based on the goals, three to five programs should emerge.
From these programs, we will develop a strategic map.
Four common programs are: Operating Efficiencies, Customer Relations, Product Innovation, and Growing the Business.
04/10/2320
Strategic ModelStrategic Model
Strategic Models can emerge from four principles:
1. Translate strategies into operating terms.2. Link strategies throughout the entire
organization.3. Commit everyone to implementing
strategy.4. Make strategizing a continuous process of
learning and adjusting to change.
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Four PerspectivesFour Perspectives
Before we build strategic maps, we need to define four perspectives:
Financial: Top layer in the map, represents financial outcomes (profits, revenues, etc.)
Customer: Next layer down, enables financial results (service, image, price, quality, etc.)
Internal Processes: The values added to customers, such as delivery, production, distribution, etc.
Learning & Growth: The people, systems, and organization that enable processes.
Get down to a set of quantifiable strategic objectives:
Too vague
More precise
Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.
Before we can map your Before we can map your strategy . . .strategy . . .
Improve Customer Service
Reduce average customer wait times by 30% by year end
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Strategic MappingStrategic Mapping
Strategic Maps are the foundation of the Balanced Scorecard.
You will need one strategic map for each programs (initiatives)
Maps are constructed over four perspectives.
Strategies are mapped over the four perspectives, linked together.
04/10/2324
LinkingLinking
Strategies need to be placed in the Strategic Map according to which perspective fits with the objective.
Objectives may cross over more than one perspective.
We usually start at the top with outcomes and work our way down, looking at what enables (drives) the outcome.
04/10/2325
ApprovalApproval
Once you have completed the strategic maps, you will need to get approval from executive management. Does this map accurately tell the “story” of our strategy?
If management disagrees with the map, go back and redo the maps. We need to get this step right since it represents the foundation for the entire scorecard.
04/10/2326
MeasurementsMeasurements
For each you need one measurement. (KPI)
Measurement provides us with feedback on meeting the strategic objective.
Most organizations will use many of their existing measurements.
Organizations requiring major change should include driver type measurements.
The Measurement Pyramid The Measurement Pyramid
Goal
Outcome Performance
Measures
Program
Program Performance Measures
Program Components
Program Component Performance Measures
Activities
Activity Performance Measures
Strategic/GPRA GoalsEnd-Outcomes
Longer-Term IntermediateOutcomes
Shorter-TermIntermediateOutcomes& Outputs
Outputs& Inputs
Stakeholder / CustomerStakeholder / Customer Internal ProcessesInternal Processes
Learning and GrowthLearning and Growth InvestmentsInvestments• % of facility assets fully funded for upgrading• % of IT infrastructure investments approved• # of new hire positions authorized for filling• % of required contracts awarded and in place
• Percentage employee absenteeism• Hours of absenteeism• Job posting response rate• Personnel turnover rate• Ratio of acceptances to offers• Time to fill vacancy
• Number of unscheduled maintenance calls• Production time lost because of maintenance
problems• Percentage of equipment maintained on schedule• Average number of monthly unscheduled outages• Mean time between failures
• Current customer satisfaction level• Improvement in customer satisfaction• Customer retention rate• Frequency of customer contact by customer
service• Average time to resolve a customer inquiry• Number of customer complaints
Examples of Measurements by PerspectiveExamples of Measurements by Perspective
Key Performance IndicatorsKey Performance Indicators
The best KPI is a ratio of inputs and outputs.
It indicates efficiency at all processes along the value chain i.e inputs, process, outputs and outcomes.
The most important KPI is at the outcome phase which should supercede those of earlier KPIs in the value chain.
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Measurement CriteriaMeasurement Criteria
Measurements should drive change, providing teeth to our strategy.
Measurements define objectives in specific terms. A good measurement should tell you what your objective is – this is an indicator of good linkage.
Measurements should be repeatable, quantifiable, and verifiable.
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MeasurementsMeasurementsOutcome efficiencyCustomer satisfaction:
- Response time to service customer- Satisfaction survey scores
Process Efficiency:- Cycle time- Downtime- Number of Restarts
Input efficiency
04/10/2332
Lead and Lag MeasurementsLead and Lag Measurements
Leading measurements are drivers behind performance and provide some predictability (forward looking)
Lagging measurements are usually final outcomes that look back, such as customer satisfaction or return on investment
Metrics should include both leading and lagging type measurements
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Targets (KPS)Targets (KPS)
Once you establish measurements, you need to set a target for each measurement.
Targets push the organization to a required level of performance.
Targets put focus on the strategy, expressing the specifics of the strategy.
When an organization hits its targets, then it has successfully implemented its strategy.
Leader Sponsored Requires Investments – people, funding, technology, etc. Has designated owners Includes deliverables or milestones Usually has time deadlines May be difficult to launch – not resourced Could encounter obstacles – people are confused, conflicts with
other functions
Characteristics of InitiativesCharacteristics of Initiatives
Initiatives Goals or ObjectivesValue Mapping Project Improve identification and delivery of all
agency services across the full stakeholder spectrum
Employee Rotation Program Improve the employee turnover and satisfaction scores
Web Self Service Portal Reduce agency costs and streamline our services for more direct service delivery
Common Knowledge Center Expand the overall knowledge base so that inter-functions can learn from one another
Customer Survey and Analysis Tool Program
Develop a more systematic process across the entire agency to better connect to our customers
Shared Service Center Tracking System
Reduce reworks and overlaps between our seven shared service centers
Initiatives should enable strategic executionInitiatives should enable strategic execution
Average Turnaround Times at Docking Sites
8 days FY05
7.5 days FY06
6.8 days FY07
Utilization Rate for Self Serve Web Portal
10% FY05 18% FY06 25% FY07
Rotation Internship Participation Rates
1,800 FY05 2,500 FY06 3,900 FY07
Glider integration mapping tool used for geo-sets
Establish baseline
8 per sets 10 per sets
% of agency SES Levels following IRPS from end to end for the entire year
30% FY05 40% FY05 65% FY05
% funding through SEPCO for space mapping
30% FY05 35% FY06 45% FY07
Examples of TargetsExamples of Targets
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Examples of TargetsExamples of Targets
Total Time to Recruit New Employees: Less than 40 days by year-end
Utilization of rental facilities: Increase to 85% during peak summer months
Growth in top line revenues: 10% increase over last year
Improve overall customer satisfaction: Total scores exceed 90%
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Initiatives (programs)Initiatives (programs)
In order for things to happen in an organization, you must initiate major projects or programs. For example, improving customer service may require a new customer management system.
Once you launch appropriate initiatives, you should be able to meet your objectives. This closes the loop, everything is now linked and away we go!
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Initiative AttributesInitiative Attributes
Sponsored by senior managementDesignated owners manage project(s)Includes deliverables or milestonesUsually has some time deadlinesCould be difficult to launch – lack of
support, no funding, poorly defined, etc.
04/10/2340
TemplatesTemplates
Throughout this process, we will use templates to capture, analyze and document data. Templates are used for strategic mapping, defining measurements, etc.
Strategic Map for Strategic Theme #1:
Inte
rnal
Lea
rnin
g F
inan
cial
Cus
tom
er
04/10/2341
Other Important StepsOther Important Steps
Metrics are built around three teams: Leadership Team (upper level management), Core Team (middle level management) and Measurement Team (lower level functional personnel).
Metrics are built around at least four group meetings: Kick Off Meeting followed by at least one meeting for each of the three teams.
Metrics are cascaded to the individual level at performance planning meeting
Some Tools for Determining Some Tools for Determining What to MeasureWhat to Measure
InputsProcess/System Output
IntermediateOutcomes
EndOutcome
Program Logic Model
DesiredOutcome
Causal AnalysisProcess Flow
ResultsOf
Testing
Not AcceptableAcceptable
PrototypeProduct
Back to Laboratory
To Market
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ImplementationImplementation
The minimum time for developing a metric management is three months.
Full deployment of metrics throughout the entire organization can take more than one year.
The best place to start building a metric managemnt is where all components of the value chain are in place: Customer, Innovation, Production, Delivery, Services, etc.
04/10/2344
SummarySummary
Metrics are the best framework of management today.
It communicates strategies.A fully integrated approach: Goals,
Objectives, Mapping, Measurements, Targets, and Initiatives.
Metrics can be experimental, whereby you test your strategies, refine, and make changes as you get feedback and learn what works.
Components of Metric Components of Metric ManagementManagementGoals and objectives definitionKey result areas (Strategies) – cause effect
relationshipStrategic Programs (initiatives)Strategic MappingKey Performance Indicators – lead and lag
indicatorsKey Performance Standards &
Benchmarkings
04/10/2345
Installing corporate metricsInstalling corporate metricsDefine corporate goals in Du Pont ROE format.Identify critical performance gaps and strengthsIdentify Critical success factorsRefine above into strategic mapsDeveloping programs and people identifiedCascading metrics to operating departmental
heads
04/10/2346
Performance improvement frameworkPerformance improvement framework
Performance Gaps Targeted Output
Identify Critical Gaps Gap Analysis Best PracticesTrainingOther management changesInnovation
The right performance improvement strategies
CurrentPractices
NewPractices
STANDARDS
Company Industry Innovation
Evaluate Performance through measurements
Linking metrics through the strategic maps
Adopt participative performance planning and appraisal cycle
RETURN ON EQUITYRETURN ON EQUITY
20% 4 2 160%
PROFITX
SALESX
ASSETS =
PROFIT
SALES ASSETS EQUITY
EQUITY
PROFIT MARGIN
ASSET TURNOVER
EQUITY MULTIPLIER
RETURN ON EQUITY
48
FINANCIAL KPIsFINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency ratios No produced Average cost per transaction
Research dev expense
Productivity ratios
Value produced ROI
Inventory turnover
Average lead time
RETURN ON EQUITY
Waste Reduction
49
MARKETINGMARKETINGINPUT PROCESS OUTPUT OUTCOME
Material Response rate No of customers
Labour Marketing costs % Sales volume
Overhead Efficiency ratios Customers Profitability
Research dev expense
Productivity ratios
Product profitability
ROA marketing
Average cost per transaction
Customer acquisition Return on Sales
Inventory turnover
Average lead time Customer retention
Price rel to comp Waste Reduction Revenue growth
Delivery Channel50
INTERNAL PROCESSINTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency ratios
No produced Average cost per transaction
Research dev expense
Productivity ratios
Value produced
ROI
Inventory turnover
Average lead time
Waste Reduction
51
HRM KPIsHRM KPIsINPUT PROCESS OUTPUT OUTCOME
Incentives variances Turnover ratio
Hours Efficiency ratios
No produced Profit per employee
Training Productivity ratios
Value produced
ROI
Salary Average lead time
Turnover Revenue per employee
Skill competency
Waste Reduction Employee productivity
Value added per employee
52
Performance ToolsPerformance Tools
Du Pont ROE Analysis– KPI standards – industry or past– Variance Analysis– Critical Performance Gaps
Input Output Evaluation– KPI
BSC perspective to determine learning needs Strategic Maps Performance improvement matrix ROI Training
53
QUESTION PLEASEQUESTION PLEASE
Thank you
04/10/2354