Agenda

1
(No Transcript)
2
Developing Key Performance IndicatorsTom
FreasPrincipalOctober 6, 2004
3
Sustainable high performance measuring what is
important to success
4
Developing Key Performance Indicators - Agenda

• Performance Measurement Today
• Issues Responses
• Performance Measurement Framework
• Performance Measurement Techniques
• Knowledge Management as an Enabler
• Performance Measurement Tools

5

• Performance Measurement Today

6
In Todays World, we keep it simple and expect
staff to rally around a few bottom line
measures.that way, we are all on the same
pageRight?
Our market capitalization has declined, therefore
we must improve ROCE, EVA, EBITDA...
EBITDA, hah!, most of the folks who get these
reports cannot spell EBITDA!
I wonder how Aunt Eva is doing?
So, what does ROCE have to do with whether I get
these drawings to the customer?
Wrong!organization complexity increases the
chances of the bottom line measures getting lost
in the shuffle, ignored and
7

• Issues Responses

8
The Issue - When performance measures get
ignored, employee focus declines causing the
organization to expose itself to issues that
negatively impact sustainable performance.
9
The Response Many organizations have had
limited success in implementing performance
measurement programs. Unsuccessful programs
sometimes resemble
Program
Result
K.I.S.S. Program The Company is asking the
entire organization to keep it simple and focus
on a select few measures. Have it Your
Way Program The Company allows each function to
select their own performance measures for success
Most of the organization does not know what these
few measures really mean. Functions pick the
self-serving measures and walls between
departments grow.
10

• Performance Measurement Framework

11
Question How can Executive Leaders build a
performance measurement program where staff are
given a more clear understanding of what is
strategically important?
Answer Build a performance management framework
that includes

• A set of performance measures that
• all levels in the organization can understand
• are clearly linked to the corporate strategy and
  goals
• can be measured
• A consistent process for capturing, tracking,
  monitoring and disseminating these performance
  measures throughout the organization (typically
  business intelligence tools).
• A culture that is willing to reward individual
  performance based upon these performance
  measures. (typically incentive compensation
  programs).

So, how can an organization determine the right
set of measures for a successful program?
12
Performance Measurement Answer Build a
performance measurement framework around the
performance building blocks unique to your
company.
Strategies represent executable statements
defining key focus areas that position the
company to meet its long term vision and overall
mission
Goals are measurable and time bound targets that
support the company strategy
Goals
Competencies describe how the company
differentiates itself from its competition to
achieve its goals
Competencies
Competencies
Competencies
Critical Success Factors define what activities
the company must do well to successfully excel at
their competencies
Critical Success Factors
Critical Success Factors
Critical Success Factors
13
Performance Measurement Answer and link the
building blocks to performance measures.
Strategies
1
6
Results Measures
Goals
(Tier 1 Sr. Executive)
2
Linked
3
Cascading Performance Measures
Competencies
Competencies
Competencies
(Tier 2 VPs/Directors Tier 3 Managers)
5
4
Critical Success Factors
Critical Success Factors
Critical Success Factors
14
Accountability The results and performance
measures can be stratified into multiple tiers
for assignment of staff accountability
5
Results Measures
Performance Measures
6
Tier 1
These measures involve setting the strategic
goals and metrics regarding organizational
results which are managed by the most senior
executive level. These are considered results
based and typically contain a strong financial
component.

• Executive level measures
• Typically financial metrics
• Results measures

• VP/Director level measures
• Typically a combination of financial and
  non-financial metrics
• Competency level measures

These measures are identified and set around
those things a company must do well to compete
and succeed in the market at the division level.
They may be both financial and non-financial in
nature.
Tier 2

• Manager and Supervisor level Measures
• Some financial and most non-financial metrics
• Operational

Tier 3
These measures relate to Critical Success Factors
that define what activities a company must do
well to successfully excel at their competencies
. These measures are at an operational level.
They may be both financial and non-financial in
nature.
15
Results Using this approach allows
organizations to select a set of performance
measures for the enterprise scorecard that

• Are linked to all levels in the organization via
  a set of concrete critical success factors that
  are in a language the organization understands
• Are linked to the corporate strategies via a set
  of organization competencies that link the
  critical success measures to the organization
  goals.
• Contain a set of distinct measures that are
  linked to the critical success factors and the
  results measures.

16

• Performance Measurement Techniques

17
Balanced Scorecard is a strategic management
system used to drive performance and
accountability throughout the organization

• The scorecard balances traditional performance
  measures with more forward-looking indicators in
  four key dimensions
• Financial
• Operational Excellence
• Employees
• Customers
• Benefits include
• Alignment of individual and State of Ohio
  objectives
• Accountability throughout the organization
• Culture driven by performance
• Support of shareholder value creation

18
Strategy Mapping methodology translates high
level strategic vision into measures, and ensures
alignment of objectives throughout the
organization
.
Sample Department A Strategy Map
Maximize market share while meeting current year
revenue profit commitments
Sample Department Balanced Scorecard
Financial Strategies

• Marketing spend / Revenue
• increase in marketing reach

• Revenue / Total market
• Operating profit

Customer Strategies
Improve brand performance
Develop new products / solutions
Sample Department A Strategies
Operational Excellence Strategies
Develop effective, sustainable marketing programs

• Brand recognition rating
• New product ramp rates
• New product revenue/Total revenue

• Global diversity rating
• Meeting employee retention plans

Attract the diversity, skills and competencies we
need
Employee Strategies
19
Strategy Mapping - Use consistent terms and
definitions throughout the strategy mapping
process for communication across departments and
functions
To monitor progress, targets are set for each
measure in given time period. Targets should be
based off the strategic planning financials and
assumptions.
Objectives support the overall vision and provide
areas of emphasis for the organization to focus
its activities

• Measures are directly linked to strategies of the
  organization and should include all major
  performance drivers for each strategy.
• Measures should be
• Timely, accurate, focused and relevant
• Leading indicators of performance
• Linked to controllable events
• Cost effective to collect and compute
• Easy to communicate broadly to the organization

Strategies break down the objectives into more
actionable elements and in aggregate should
represent the overall organizational focus
20

• Knowledge Management as an Enabler

21
Knowledge Management - is a process and is
closely linked to Performance Measurement
Capture/ Store
Refine
Distribute
Use
Monitor
Create

• Which subprocesses do we do (well)?
• Where do we need to focus?
• Who owns or manages each one?
• What human and technical enablers apply?

How do we assure a continuous and natural flow of
information?To the benefit of performance
improvement.
22
Personalized Information The right information
to the right Audience
Information

• The web application is fully automated and
  interactive, providing a personalized combination
  of push and pull information sources
• Information about companys products and services
• Industry and firm specific applications,
  services, articles, market studies, financial
  information etc.
• Personalized data and content from other existing
  WebSites / Portals / Marketplaces etc...
• Computer based training (WBT)

23

• Performance Measurement Tools

24
Balanced Measures A personalized Dashboard
shows at a glance the performance of any
department across a balanced set of performance
measures
Note Dashboard measures are fully customizable.
24
25
Monitoring Tools provide management with the
operational information, required to make
strategic decisions
Distribution Channel
Production Line
Geographic Area
Period
û
18.09
ROE
!
ü
36.14
6,54
Leverage
ROA
ü
13,09
0.503
ü
ü
2,389
Operational Margin
Assets Turnover
Equity
ü
36
ü
ü
277
4,222
!
6,610
Net Profit
Sales
Liabilities
Assets
25
26
Tomorrow The organization has a clearly defined
approach to linking what people should be doing
to what is important for the organization.
Now we can focus on measurements of success...
Thank goodness Bob quit asking for those crazy
reports, now I can start following up on our past
due inquiries
Now that we are buying the right PCs, I can help
finish this job faster
If I get these annual plans done accurately, they
will get approved today, and we will be able to
27
Contact Info.

• Thomas Freasthfreas_at_deloitte.com
• CFO Principal, Deloitte Consulting LLP

28

• Questions and Answers