1. Acct 7320 Spring 2010 Thanks to Dinara Ablaeva & Tatyana Golosiy
TRACKING PERFORMANCE:
WHEN LESS IS MORE
Gjerde & Hughes, Management Accounting Quarterly Fall 2007
Acct 7320 Spring 2010
Thanks to Dinara Ablaeva & Tatyana Golosiy

2. THE HOME DEPOT

3. WHY??? Real Life Situation 1
Home Depot grew to become the world's largest home-improvement chain Service began to slip over the past six years
WHY???

4. STARBUCKS

5. WHY??? Real Life Situation 2
Starbucks was ranked first in customer loyalty in the
coffee-and-doughnuts category for the five years prior
to 2007
Lately, Starbucks was knocked out of first place in the coffee-and-doughnuts category by Dunkin' Donuts, the first time in five years Starbucks didn't dominate
WHY???

6. What is Performance Measurement
The specific representation of a capacity, process, or outcome deemed relevant to the assessment of performance. A performance measure is quantifiable and can be documented.
(Adapted from “Guidebook for Performance Measurement” by P. Lichiello)

7. What are the Main Objectives of Performance Measurements
Translating strategy into desired behaviors and results
Communicating expectations to all parties
Monitoring progress
Providing feedback
Motivating employees through performance based
rewards and sanctions

8. Financial Performance Measures - Lagging Indicators:
Net Income
Operating Income
Earnings per share
Budget projections and targets, and many others

9. Nonfinancial Performance Measures – Leading indicators:
Initiatives related to customer satisfaction
Internal business processes
Learning and growth

10. Customer Prospective:
Average customer satisfaction
Satisfaction vs. level of importance (gap analysis)
Satisfaction distribution

11. Internal Prospective Cycle time Completion rate
Workload and employee utilization
Transactions per worker
Errors or reworks

12. Learning and Growth Employee satisfaction Retention and turnover
Training hours and resources
Technology investments

13. Balanced Scorecards - Most Widely Used Performance Measurement System
Integrated performance management system
Provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals

14. What it Does: Balances financial and non-financial measures
Balances short and long-term measures
Balances performance drivers (leading indicators) with outcome measures (lagging indicators)
Contains just enough information to give a complete picture of organizational performance
Leads to strategic focus and aligns the organization to the strategy

15. How Many Measures do You Think the Company Should Track?
Less than 5?
Less than 10?
Less than 15?
Less than 20?
More than 20?

16. Typically It Includes:
20-25 measures total (optimal)
Five financial measures
Five customer related measures
Five to ten internal business measures
Five learning and growth measures
Is this still too many?
Let’s take a

17. Example: Balanced Scorecard for Retail Apparel Company

18. Problems With Using Balanced Scorecards
Too many targets, may lose sight of overall strategic goal
Managers are overloaded trying to evaluate and improve performance on so many measures
Making adjustments to improve performance on one measure may cause performance on the others to drop

19. The Ways to Overcome Problems With Balanced Scorecards are:
To identify key leaingd measures, which may be:
customer, process and learning initiatives that have significant and direct ties to the long-term strategic objectives of the organization
the measures that are accumulated frequently and that result either in achieving or changing of strategic objectives
To develop the measurement system with fewer :
measurements (not more than ten), but these measurements must include key lead measures

20. What Went Wrong in Home Depot Example?
Measures focused on aspects of store productivity
Financial
Customer
Customer service began to slip.
Internal Business Processes
Learning and Growth
Sales and market share began to slip
No Connect
to Strategy

21. What Went Wrong in Starbucks Example?
Automation and Standardization
Financial
Customer
Speed and efficiency not what customers value
Internal Business Processes
Improved efficiency and speed of delivery
Learning and Growth
Dunkin’ Donuts #1 in customer loyalty

22. The Steak n Shake Experience

23. THREE Key Metrics That Drive Restaurant Performance
Associate turnover Drive-thru window times Dine-in satisfaction

24. What is the lesson?
Tracking too many metrics can lead to confusion, lack of focus, and, ultimately, failure to achieve the goal.
Management needs to identify tree to five key lead measures that most drive revenue and net income performance
All employees must have a clear understanding of these measurements and of the final strategic goals
The employees’ compensation must be linked to achieving of key lead measures

25. A Final Thought
Companies should remember that performance measurement choice is a dynamic process- measures may be appropriate today, but the system needs to be continually reassessed as strategies and competitive environment evolve

26. Questions

27. Sources
Kathy A. Paulson Gjerde, Ph.D., Susan B. Hughes, Ph.D., CPA, “Tracking Performance: When Less is More,” Management Accounting Quarterly, Fall 2007.
Chee W. Chow, Ph.D., Wim A. Van der Stede, Ph.D., “The Use and Usefulness of Nonfinancial Performance Measures,” Management Accounting Quarterly, Spring 2006.
Gerald K. DeBusk, Ph. D., CMA, CPA, Aaron D. Crabtree, Ph.D., “Does the Balanced Scorecard Improve Performance?” Management Accounting Quarterly, Fall 2006.
Robert S. Kaplan, David P. Norton, “Putting the Balanced Scorecard to Work,” Harvard Business Review, September-October 1993.
Christopher Ittner, David Larcker, “Non-financial Performance Measures: What Works and What Doesn’t,” .
NERCOMP Conference Presentation, October 27, 2005, The International, Bolton, MA.
John Sanders, “The Balanced Scorecard” Presentation for Finance and Administrative Services Division of California State University.
Ram Charan, “Home Depot’s Blueprint for Culture Change,” Harvard Business Review, April 2006.
Matt Creamer, “Starbucks Wakes Up and Smells the Death of its Brand Experience,” Advertising Age, February 26, 2007.