Performance Measures- Leading Performance Measures- Leading Indicators (Activity Drivers)Indicators (Activity Drivers)

Prepared by Group 4:Prepared by Group 4:

Andrew MolloyAndrew Molloy

Amy MillerAmy Miller

Mike ElickerMike Elicker

Steps to leading Steps to leading performance measuresperformance measures

Leading performance measures are based on Leading performance measures are based on activity drivers that drive the performance of a activity drivers that drive the performance of a company.company.

1.1. The first step in performance measurement are The first step in performance measurement are activity drivers that drive the performance of a activity drivers that drive the performance of a company.company.

2.2. The second step to reaching your overall goal in The second step to reaching your overall goal in performance is leading performance indicators.performance is leading performance indicators.

3.3. The third step to reaching your company’s overall The third step to reaching your company’s overall goal are the specific results your company is goal are the specific results your company is looking for.looking for.

Performance DriversPerformance Drivers

Performance drivers are structured around trying to Performance drivers are structured around trying to achieve a firms overall goals, strategies, and achieve a firms overall goals, strategies, and objectives.objectives.

Performance drivers are the: process, learning, and Performance drivers are the: process, learning, and alignment of the employees working toward alignment of the employees working toward performance indicators.performance indicators.

By continuing to develop performance drivers By continuing to develop performance drivers leading toward effectiveness and efficiency a leading toward effectiveness and efficiency a company will be heading toward their overall goal. company will be heading toward their overall goal.

Performance IndicatorsPerformance Indicators Performance indicators- represent a set of measures Performance indicators- represent a set of measures

focusing on the aspects of organizational performance focusing on the aspects of organizational performance that are the most often critical for the current and future that are the most often critical for the current and future success of the organization.success of the organization.

There are several examples of performance indicators There are several examples of performance indicators that a company might use. Some of these examples that a company might use. Some of these examples include: include:

Environmental Environmental CustomerCustomer CompetitorCompetitor InternalInternal Human resourceHuman resource

These indicators will help for a business to categorize These indicators will help for a business to categorize their indicators into groups to help them measure and set their indicators into groups to help them measure and set up their performance drivers to work toward their results up their performance drivers to work toward their results and specific goals. and specific goals.

ResultsResults

The results of the activity drivers and performance The results of the activity drivers and performance indicators are what a company sets their overall indicators are what a company sets their overall goals for.goals for.

Some results that a company might be aiming for Some results that a company might be aiming for are customer satisfaction, cost per resolution, and are customer satisfaction, cost per resolution, and employee satisfaction.employee satisfaction.

These results can be reached when a company has These results can be reached when a company has all of these steps in place and fallow them in all of these steps in place and fallow them in reaching their overall goal to be a successful reaching their overall goal to be a successful business. business.

Diagram of relationships between Performance drivers, Diagram of relationships between Performance drivers, Leading indicators, and resultsLeading indicators, and results

There are many types of There are many types of leading indicators throughout leading indicators throughout a company that affect a company that affect performanceperformance

Company performance Company performance includes leading indicators of:includes leading indicators of:

Customer SatisfactionCustomer Satisfaction Growth and RetentionGrowth and Retention Internal OperationsInternal Operations -efficiency, speed, minimizing quality -efficiency, speed, minimizing quality

problemsproblems Human Resource SystemsHuman Resource Systems

A further breakdown of A further breakdown of leading indicators shows leading indicators shows which drivers lead to which drivers lead to specific results…specific results…

Indicators can be broken down Indicators can be broken down into smaller categories:into smaller categories:

1. Organizational1. Organizational2. Environmental2. Environmental3. Group/Departmental3. Group/Departmental4. Facility/Individual4. Facility/Individual

Environmental:Environmental: Outside factors such as government Outside factors such as government

regulations, economic cycle, politicsregulations, economic cycle, politics Example: Economy is headed for a Example: Economy is headed for a

recession. Company must plan to be recession. Company must plan to be ahead of the curve. ahead of the curve.

Solution: Address the orders dept. Solution: Address the orders dept. Measure how many orders should be Measure how many orders should be decreased to account for a slowing decreased to account for a slowing economy.economy.

Organizational:Organizational:

Company Strategy, Policy, Company Strategy, Policy, StructureStructure

Example: Mgmt wants to Example: Mgmt wants to increase sales of Product Aincrease sales of Product A

Solution: The amount of Solution: The amount of Research and Development of Research and Development of Product A needs to be measured Product A needs to be measured to determine how many hours to to determine how many hours to increase by.increase by.

Group/Departmental:Group/Departmental: Group relationships, responsibility, Group relationships, responsibility,

and assignmentsand assignments Example: Mgmt wants to increase Example: Mgmt wants to increase

inter- office group relations. inter- office group relations. Mgmt may determine they want Mgmt may determine they want

to do this by increasing time spent to do this by increasing time spent working in teams. Amount of working in teams. Amount of hours per week increased of hours per week increased of working in teams must be working in teams must be measured.measured.

Individual:Individual: Management style, skills, behaviorManagement style, skills, behavior Example: Mgmt feels productivity Example: Mgmt feels productivity

will increase if employee skills are will increase if employee skills are higher.higher.

Solution: Extra training and Solution: Extra training and classes may be required to classes may be required to achieve this. Measurement of achieve this. Measurement of hours required to raise employee hours required to raise employee skills must be conducted.skills must be conducted.

Key Point:Key Point:

Measures of these Measures of these drivers must be tied drivers must be tied to what the company to what the company is trying to is trying to accomplishaccomplish

Other Common Leading Other Common Leading IndicatorsIndicators

Increase returning customers by Increase returning customers by 15% this year……gain more 15% this year……gain more market sharemarket share

Reduce employee turnover this Reduce employee turnover this year……improve efficiencyyear……improve efficiency

Increase sales is a particular Increase sales is a particular department…..boost overall department…..boost overall salessales

Advantages Advantages

There is a closer link to long-There is a closer link to long-term organizational strategies term organizational strategies Example- improving customer Example- improving customer

relations, market competition, relations, market competition, expanding new product expanding new product development, or expanding development, or expanding organizational capabilities may be organizational capabilities may be important strategic goals, but may important strategic goals, but may hinder short-term accounting hinder short-term accounting performance. performance.

AdvantagesAdvantages

Critics of traditional measures argue Critics of traditional measures argue that drivers of success in many that drivers of success in many industries are “intangible assets,” industries are “intangible assets,” rather than figures on the balance rather than figures on the balance sheet sheet A recently published study found that A recently published study found that

measures related to company measures related to company innovation, management capability, innovation, management capability, employee relations, quantity, and brand employee relations, quantity, and brand value explained a significant proportion value explained a significant proportion of a company’s value, even after of a company’s value, even after factoring in accounting assets and factoring in accounting assets and liabilities liabilities

AdvantagesAdvantages

Often times non-financial indicators Often times non-financial indicators can be better indicators of future can be better indicators of future financial performance financial performance For example, when the ultimate goal is For example, when the ultimate goal is

maximizing financial performance, maximizing financial performance, current measures may not capture long-current measures may not capture long-term benefits from decisions currently term benefits from decisions currently being made. being made.

Investments in customer satisfaction can Investments in customer satisfaction can improve future economic performance improve future economic performance by increasing revenues and loyalty of by increasing revenues and loyalty of existing customers, and attracting new existing customers, and attracting new customers. customers.

DrawbacksDrawbacks

Time and costTime and cost

No common denominator No common denominator

No statistical reliability in the No statistical reliability in the measures chosen measures chosen

Implementation Implementation Good understanding of value driversGood understanding of value drivers

What contributes to long-term success? What contributes to long-term success? Principles for translating corporate objectives Principles for translating corporate objectives

into measures that guide management’s daily into measures that guide management’s daily actionsactions

Many companies go wrong hereMany companies go wrong here Statistical analysis of leading and lagging Statistical analysis of leading and lagging

indicators of financial performance indicators of financial performance Business model - help determine which Business model - help determine which

measures best predict future financial measures best predict future financial performance performance Assign weights to measures based on the Assign weights to measures based on the

strengths of statistical relationsstrengths of statistical relations Integration Integration

Questions? Questions?