1. Identifying Value Drivers For Improved Budgeting and Decision Making Lawrence Serven The Buttonwood Group www.ButtonwoodLLP.com 203/328-3056

2. 2 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

3. 3 Value Drivers are the “Vital Few” performance measures that really drive success. They are like the “Final Score” in a football game – they define what winning is. Final Score2821 Value Drivers and CPM

4. 4 Performance Measures Value Drivers

5. 5 All performance measures are valuable and can continue to be used, but Value Drivers should make up your one page company scorecard. Value Drivers and CPM

6. 6 All useful performance measures, but only one tells you who won: Value Drivers and CPM

7. 7 Where (and how) do Performance Measures fit in with the other components of an effective management system? Value Drivers and CPM

8. 8 Working Definition: Corporate Performance Management (CPM) is the full integration of all the major components of Planning … to drive shareholder value. … Performance Measurement … Reporting …and Rewards Value Drivers and CPM

9. 9 The full CPM cycle covers everything from strategy to operational planning to ongoing reporting: Budgeting Forecasting PerformanceMeasures Long Term Plan Value Drivers and CPM

10. 10 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

11. 11 National Survey Results Survey of 227 Companies by the Buttonwood Group More than half reported they had developed a performance scorecard sometime over the last two years with mixed results: 65% said the results were disappointing 21% said they were somewhat satisfied 13% said they were highly satisfied Only 1% “weren’t sure”

12. 12 The 13% Highly Satisfied Companies Is this Statement True? FalseTrue Partially True Senior Management was very pleased with the scorecard program we implemented Our scorecard has driven improved financial results Most managers outside of Finance manage to the scorecard The project manager was promoted within a year National Survey Results

13. 13 Of the companies that reported disappointing results… Many had bought “KPIs in a can” from the outside Most did not have a single scorecard for the company as a whole (i.e. they maintained multiple measures across entities) Many did not involve managers outside of the finance department Most had scorecards that couldn’t fit on single page None had tied PMs to personal incentives Few establish targets for PMs in the annual plan None had budgeted resources in the annual plan to achieve PM targets Most lacked any ongoing variance analysis (target to actual PM results) National Survey Results

14. 14 Interviews with the 8% highly satisfied revealed: Performance Measures are “owned” by senior management: they believe these measures drive success Senior management asks to see them every month Progress toward numerical goals is reported alongside financial statements Are “baked into” to budget through goal setting and resource allocation Focus on a handful of measures (the value drivers) National Survey Results

15. 15 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

16. 16 Making it Stick The real goal of performance measures is not to measure them for the sake of measuring them, but to improve performance: That means developing a full solution: Establish strategic (long term) targets for performance measures Set annual plan targets as well Develop concrete Action Plans to achieve the targets Report on ongoing progress of those plans Report the PMs alongside the financials every month

17. 17 Making it Stick Nobody will want to do this if you haven’t picked the

18. 18 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

19. 19 Match the question to the objection What Balanced Scorecard measures should we have? What should our “learning and growth” measures be? What “should” we be measuring? What’s considered best practice or industry standard performance measures? Not invented here Huh? Gimme a break ObjectionThe Question that Was Asked What NOT to Do

20. 20 What NOT to Do first thing assumes Don’t put the cart before the horse. If the first thing you do is “pick” your measures it assumes the “health” of those measures reflects what’s driving your success. what drives success first, You need to identify what drives success in your business first, then identify the measures that reflect that.

21. 21 Benefits of identifying Value Drivers first Senior Management really gets it Organizational buy-in It becomes vital to the organization It’s easy to explain how the measures were derived What NOT to Do

22. 22 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

23. 23 The Value Driver Workshop Who: The Senior Management Team (or designates) What: A one day Workshop to identify the Company’s Value Drivers Where: Offsite preferred How: A series of workshop exercises

24. 24 What are we here for? Get the performance management project off on the right foot by building a consensus on “what drives success in this business.” Identification of Value Drivers The Value Driver Workshop

25. 25 If we do nothing else, what can we use that for? 3) “Filter” new investments 1) Revalidate existing strategy 2) Create or Revisit the Balanced Scorecard The Value Driver Workshop

26. 26 Brainstorm Group like ideas Prioritize Workshop: To Identify & Gain Consensus on Value Drivers go through the following set of exercises. The Value Driver Workshop

27. 27 You have a favorite nephew that you love a lot even though he’s not the sharpest tool in the shed. He’s taken a job at a company very similar to yours, and he asks you “So what really drives success in this business? You have a favorite nephew that you love a lot even though he’s not the sharpest tool in the shed. He’s taken a job at a company very similar to yours, and he asks you “So what really drives success in this business? The Value Driver Workshop How would you answer him in plain English?

28. 28 Brainstorm Group like ideasPrioritize Examples of Replies Communicating why our products are best Effective advertising & promotion Comprehensive marketing plan Understanding the competitive environment Superior customer service Having highly desirable products Highest possible quality Quality culture Investment in quality programs Cost control Responsible G&A Internal checks and balances Elimination of non-value added risk Retention of high performers Effective recruiting programs High potential employees developed Ability to charge a premium Perceived value add above competitors Product differentiation Satisfied employees The Value Driver Workshop

29. 29 Activity 2: Participants group like ideas: Brainstorm Group like ideasPrioritize Operating Efficiency Potent Workforce Effective Branding Consumer Satisfaction Quality Obsession Communicating why our products are best Effective advertising & promotion Comprehensive marketing plan Understanding the competitive environment Superior customer service Having highly desirable products Highest possible quality Quality culture Investment in quality programs Pricing Power Cost controlResponsible G&A Internal checks and balances Elimination of non-value added risk Retention of high performers Effective recruiting programs High potential employees developed Ability to charge a premium Perceived value add above competitors Product differentiation Satisfied employees The Value Driver Workshop

30. 30 Activity 3: Cause/Effect Analysis. Analyze each driver, one at a time, to see if it significantly impacts another, or if it is significantly impacted by any of the other drivers. Operating Efficiency Pricing Power Effective Branding Potent Workforce Quality Obsession Consumer Satisfaction Brainstorm Group like ideasPrioritize The Value Driver Workshop

31. 31 Activity 4: Gap Analysis. Where do we stand today versus “perfection?” Brainstorm Group like ideasPrioritize Operating Efficiency Consumer Satisfaction Effective Branding Potent Workforce Pricing Power Quality Obsession The Value Driver Workshop

32. 32 JaneJohnMaryTotal Quality Obsession $25$10$50 $85 #1 Pricing Power $25$50 $75 #2 Potent Workforce $25$20 $45 #3 Consumer Satisfaction $25$10 $35 #4 Effective Branding $10$25 $35 #5 Operating Efficiency $25 $25 #6 Activity 5: The $100 Test. Give each participant “$100 Dollars” to spend on the drivers Brainstorm Group like ideasPrioritize The Value Driver Workshop

33. 33 What happens after the workshop? The Value Driver Workshop

34. 34 Post Workshop Activity: For each driver develop a one page summary with a description and key factors listed: Description of the Value Driver: Operating Efficiency means we are highly productive operationally, and that we are on continuous search for new ways to streamline and improve our processes. Key Factors: Cost control Responsible G&A Internal checks & balances Elimination of non-value added tasks and redundancies The right processes Operating Efficiency The Value Driver Workshop

35. 35 Activity: Identify one to three vital measures for each value driver Operating Efficiency -Operating Expense Ratio Potent Workforce -Employee Retention Rate -Employee Survey Index -Employee Retention Rate -Employee Survey Index Activity: Develop targets for measures Activity: Develop Strategic Initiatives to meet targets The Value Driver Workshop

36. 36 All the pieces of the Value Drivers come together in a dashboard that monitors performance: The Value Driver Workshop

37. 37 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

38. 38 Standardize Measures Across the Company (consensus) Secure Executive Sponsorship Focus on the “Vital Few” Measures (not a phone book) Pick Measures Managers Really Connect With Measures Should be Explainable to Your Spouse Quick Hits

39. 39 –Value Drivers and CPM –National Survey Results –What Makes Scorecards “Stick” –What NOT to Do –Workshop to Identify Value Drivers –Quick Hits –Q&A Outline

40. 40 Q&A