1st Senior Management Conference 12 August 2005

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1st Senior Management Conference 12 August 2005

• MK Makhubalo

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• BUSINESS PERFORMANCE
• MANAGEMENT PROCESS

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Dakota Tribal Wisdom

• Buying a stronger whip
• Changing riders
• Threatening the horse with termination
• Appointing a committee to study the horse
• Arranging to visit other sites to see how they
  ride dead horses

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Dakota Tribal Wisdom (cont)

• Lowering the standards so that dead horses can be
  included
• Appointing an intervention team to reanimate the
  dead horse
• Creating a training session to increase the
  riders load share
• Reclassifying the dead horse as living-impaired

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Dakota Tribal Wisdom (cont)

• Change the form so that it reads This horse is
  not dead.
• Hire outside contractors to ride the dead horse
• Harness several dead horses together for
  increased speed
• Donate the dead horse to a recognised charity,
  thereby deducting its full original cost

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Dakota Tribal Wisdom (cont)

• Providing additional funding to increase the
  horses performance
• Do a time management study to see if lighter
  riders would improve productivity
• Purchase an after-market product to make dead
  horses run faster
• Declare that a dead horse has lower overhead and
  therefore performs better

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Dakota Tribal Wisdom (cont)

• Form a quality focus group to find profitable
  uses for dead horses
• Rewrite the expected performance requirement for
  horses
• Promote the dead horse to a supervisory position

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• It is idiocy to do the same things the same way
  and hope for different results

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The typical implementation process for
Translating a Mission into Desired Outcome
(Kaplan and Norton)
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Performance Management Model
STRATEGIC GOALS
Vision
Strategy
Dashboard (Quantifying the vision final
destination)
Strategic Focus Area
STRATEGIC CHALLENGES
-Measures (KPIs)
-M -M -M -M
-Targets -T -T
-T -T -Responsibilities -R
-R -R - R
Strategic initiatives
Operational plans, budgets and resources
allocation
Team and individual performance measures and
targets
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OVERVIEW
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Step 1 Know what you want to use the Business
Dashboard for

• Obtain clarity about the strategy
• Communicate the Strategy
• Leadership development and empowerment
• Achieve focus
• Align resources and strategic initiatives
• Link rewards to achieving strategic objectives
• Provide a foundation for strategic learning
• Strategic intervention
• The foundation on which team and individual
  performance agreement must be developed

More than just somewhat ad hoc collection of
financial and non-financial performance measures
a top-down process driven by the vision and
strategy
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Step 2Develop the Business Dashboard linked to
the strategy

• In view of the vision, strategy, strategic goals
  and strategic challenges identify the strategic
  focus areas of your entire business
• Presently
• Asset performance Community Relations
• Suppliers, providers and feedstocks Management
  processes
• Financial SHER
• People Customers
• Products Technology
• Develop objectives, measures and targets for each

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Step 3Improve understanding and quality of the
Business Dashboard

• Analyse, discuss, understand and agree the
  cause-and-effect relationships between all the
  measures
• This will highlight any missing measures and any
  duplication
• It will help identify the critical drivers that
  will allow breakthrough performance
• Understand the links and the effect of a change
  to one measure on other measures

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Step 3Improve understanding and quality of the
Business Dashboard

• Have a critical look at the remaining measures
• Could any of them not be measured and managed at
  a lower level? (Leadership development and
  empowerment)
• Are all the strategic focus areas sufficiently
  covered? (Achieve focus)
• Are there any nice-to-have measures that are
  not strategically critical?
• Are they balanced between short and long term
  measures?
• Are they balanced between financial, customer,
  process, and people measures?
• Are they balanced between lead and lag
  indicators?
• Are all critical cross-functional measures
  identified?
• Allocate weights to the remaining measures

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There is no magic formula as to how many measures
there should be on a dashboard. It should
contain all the measures necessary at this level
to fly the business, without any nice-to-haves
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Step 4Setting targets

• Where benchmarks are not available
• Make (and record) your own assumptions
• Accumulate or derive them from known, related
  benchmarks
• Set your own benchmarks

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Step 4Setting targets

• Targets should be based on what is known (or
  perceived) to be the performance of a winner.
• The top target is the final destination (best in
  class) and not interim/yearly milestones
• The bottom or threshold target is the industry
  average

The top targets should, if achieved, transform
the company and represent a step change in
performance
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Step 5Initiatives, resources allocation and
budgets

• Identify and set priorities for initiatives
  intended to close the gaps between the top
  targets and the current performance (see Step 8)
• Identify critical cross-business initiatives
  (synergies)
• Allocate human and capital resources to these
  initiatives

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Step 5Initiatives, resources allocation and
budgets

• Eliminate initiatives that will not have a major
  impact on one or more measures
• Base the production, operational and capital
  budgets on these targets and initiatives

Focus all resources on the vision
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Step 6Achieving Strategic alignment from top to
bottom

• The alignment of an organisation to a shared
  vision and common direction is an extended and
  complex process
• Communication and Education programmes
• All employees must understand the strategy and
  the required behaviour to achieve the strategic
  objectives. (The Short Strategic Forums)

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Step 6Achieving Strategic alignment from top to
bottom

• Goal Setting Programmes (Cascading)
• Teams and individuals throughout the business
  translate the higher level objectives, measures
  and targets into team and personal objectives,
  measures and targets
• Reward System Linkage
• Alignment must ultimately be motivated through
  the incentive and reward systems

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Step 7Cascading

• Each Executive should spend sufficient time with
  his subordinates to
• Help them understand and interpret the Business
  Dashboard
• Help them translate it into tactical objectives,
  measures and

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Step 7Cascading

• Also ask the following questions
• What are our core products/services?
• What are the elements of these products/services?
  (Volume, mass, temperature, quality, etc)
• What processes are needed (across borders) to
  supply these products/services?
• What skills/competencies/systems/procedures do we
  need to support these processes?
• If any measures is a lag indicator, what is (are)
  its leading indicator(s)?

Each individual must be able to see where he/she
fits in and how he/she can contribute to
reaching our goals
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Step 8Align processes and initiatives with the
strategy

• List all the processes and major initiatives that
  are currently being used/implemented in your
  area
• Test whether they directly support your Dashboard
  KPIs and the challenges facing your team
• Evaluate the perceived quality/state of
  development of these processes/initiatives

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Step 8Align processes and initiatives with the
strategy
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Step 8 Align processes and initiatives with the
strategy (cont)

• Plot them
• Quality

Number of KPI/ Challenges Impact
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Step 8 Align processes and initiatives with the
strategy

• Stop those with no/low impact, especially if
  their quality is low as well (e.g. P2)
• Re-engineer those in Zone 1 (e.g. P3)
• Improve those in Zone 2 (e.g. P1 and I1)
• Do not spend any time to further improve those in
  Zone 3 (e.g. P4 and I2)
• Check for KPIs/challenges that are not supported
  by any process/initiative (e.g Profit after tax)
  and implement supportive processes/initiatives
  for it.

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Step 8Align processes and initiatives with the
strategy

• Check for KPIs/challenges that are supported by
  too many processes/initiatives (e.g.
  Information resources management) and consider
  stopping some of the processes/initiatives
• Identify best practice where a process is
  perceived to be good or excellent in one area
  and transfer it to other areas where the same
  process is perceived to be bad or in its
  embryonic stage

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Strategy Formulation is A Continuous Process
INTERACTIVE SYSTEM THE STRATEGIC MANAGEMENT
CYCLE (Insure execution of the long-range
strategy)
Review Strategic 60 Issues Discuss
Implication 30 Review Performance 10
TIME ALLOCATION
DIAGNOSTIC SYSTEM THE MONTHLY PERFORMANCE
MANAGEMENT CYCLE (Insure execution of the short
term plan/budget)
ACTIONS 10 DISCUSS
IMPLICATION 40 REVIEW PERFORMANC
60
TIME ALLOCATION
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Nov Feb May
Aug
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Appendix A Format of monthly reporting
J A S O N D J F M A M J
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Appendix BLinking the incentive bonus to
business performance

• The incentive pay-out is based on the weighted
  average of the actual performance on a straight
  line sliding scale between the bottom and the top
  targets.

P E R F O R M A N C E
x
Weighted average of top targets (best in class)
100
x
29,9
x
0
Weighted average of bottom targets (Industry
average)
Incentive pay-out
0 29,3 100