Keeping Score In World Class Organizations 5/26/99

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Keeping Score In World Class Organizations5/26/99
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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

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Mission, Vision, Values

• 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 goals

Key Success Factors Core Competencies
Strategic Measurement Model
Performance Metrics
Metric Levels For Metrics
Tactics
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TheMeasurement Process
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Role of Objectives

• Strategy is a set of linked objectives
• Objectives are the interim goals
• Metrics assess goal attainment

Strategy
Innovation Production Post Sale Service
Revenue Growth Cost Reduction Asset Utilization
Market Share Retention Satisfaction Acquisition
Satisfaction Retention Productivity
Financial Customer Internal
Learning/ Processes Growth
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Types of Metrics
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Considerations in Choosing Metrics

• Specificity (Specific versus General)
• Productivity Level (Optimization versus
  Maximization)
• Closeness Goals (Descriptive, Behavioral,
  Accomplishment, or Organizational Effectiveness)

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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)

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Considerations in Choosing Metrics Cause and
Effect Relationship

• 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.

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Financial Customer Internal Business Pr
ocess Learning and Growth
ROCE
Cause-and-Effect Relationships
Customer Loyalty
On-Time Delivery
Process Quality
Process Cycle Time
Employee Skills
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Causal RelationshipsIf Then
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Lead Measures (Strategic Levers) Drive
Performance
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Lag MeasuresLet You KnowIf Youve ReachedYour
Destination
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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

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Setting The Level of Metrics

• Based on past performance
• Benchmarking o other companies
• Stretch goals
• Pilot testing

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Analyzing the Data

• Analysis of Data
• Level of performance
• Trend of performance
• Variability in performance.

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Characteristics Effective Metrics

• 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

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Problems With 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

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Building The Scorecard
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Financial To succeed financial, how should we
appear to our shareholders
Internal Business Processes To satisfy
our shareholders and customers what business
processes must we excel at?
Customer To achieve out vision, how should we
appear to our customers?
Vision And Strategy
Learning Growth To achieve our vision, how
will we sustain our ability to change and improve?
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Financial Metrics
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Key CharacteristicsFinancial 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)

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Strategic ThemesFinancial Measures

• Revenue growth and mix
• Cost reduction/ productivity improvement
• Asset utilization/ investment strategy
• Shareholder value

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Economic Value Added (EVA)

• Measure of financial performance based on a
  companys 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!!!!

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Economic Value Added makes managers act like
shareholders. Its the true corporate faith of he
1990s William Smithburg, Quaker Oaks CEO
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Market Value-Added (MVA)

• The Total Capital a Company Has Invested Since
  Inception Divided by the Market Value of the
  Companys Equity Debt

Coca Cola General Electric Wal-Mart Merck Microsof
t
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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

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Process Metrics
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Key CharacteristicsProcess Measures

• Innovation
• Operations
• Post Sale Service

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Key CharacteristicsProcess 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

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Common Process Measures

• Value added per employee
• Cycle time
• Variability
• Down Time
• Bottlenecks
• Number of Process Steps

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Product/ServiceMetrics
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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.

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Common Product/ Service Metrics

• Quality
• Quantity
• Responsiveness
• Innovation
• Need

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Supplier Metrics
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Key CharacteristicsSupplier 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

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Common Supplier Metrics

• Just In Time Delivery
• Variability
• Guarantees
• Return Rates

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CustomerSatisfaction Metrics
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Key CharacteristicsCustomer Metrics

• Linked to key organizational drivers
• Focus on Product and Process
• Include hard and soft measures
• Includes Customer satisfaction index

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Key Characteristics Customers

• Product/Service Attributes
• Customer Relationship
• Image and Reputation

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Core Measures -- Customers
Market Share
Customer Retention
Customer Profitability
Customer Satisfaction
Customer Acquisition
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Customer Satisfaction Metrics

• Timeliness of Service
• Consistency of Products/Services
• Guarantees
• Reliability
• Customer Satisfaction Surveys
• Mystery Customer Surveys

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EmployeeGrowth and DevelopmentMetrics
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Key Characteristics Learning and Growth

• Employee Satisfaction
• Employee Retention
• Employee Productivity

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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

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Employee Metrics

• Absenteeism
• Turnover
• Cost Per Hire
• Employee Satisfaction
• Grievances
• Cost of Labor
• Work Stoppages

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Key Learnings
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Key LearningsMeasurement 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

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Key LearningsMetrics

• 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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Key LearningsMetrics

• Develop global metrics for your organization
• Understand the relationships among measures
• Insure Scorecard is Balanced based on cause and
  effect relationships