2. Metrics Chapter 8 McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter 8: Metrics Questions answered in this chapter:
Why should senior managers be concerned about metrics?
How can the health of online firms be assessed?
What are the steps to implement the Performance Dashboard?
What external sources of metrics information can firms use to chart their progress?

4. Why Senior Managers Should Be Concerned About Metrics
Five ways in which metrics can have a positive effect on the growth and vitality of the organization:
Help define the Business Model.
Help communicate strategy.
Help track Performance.
Help increase accountability.
Help Align Objectives.

5. Current Challenges to Specifying Metrics for Online Businesses
Reasons why some firms have not made an explicit commitment to metrics:
Companies’ strategies change rapidly.
Measurement is Resource Intensive.
Soft Metrics are not valued by the investment community.
Meaningful metrics change on Internet time.

6. Assessing the Health of Online Firms
The Balanced Scorecard:
Introduced by Kaplan and Norton in response to their perception that managers overwhelmingly focus on short term financial performance.
They argued that firms must balance their financial perspective by analyzing other domains of the business,including internal business processes and customer responses.
They introduced 4 categories of metrics:Financial, Customer, Internal Business Systems, and Learning and Growth.

7. Assessing the Health of Online Firms (cont’d)
Financial Metrics: They are designed to assess the financial performance of the company. Typical financial measures include revenue, revenue growth, gross margins, operating income, net margin, earnings per share and cash flow.
Customer Metrics: Customer metrics are intended to assess the management of customer relationships by the firm. These measures typically focus on a set of core measurements, including market share, customer acquisition, satisfaction, and customer profitability.

8. Exhibit 8-1: The Balanced Scorecard – Strategy Into Operational Terms
FINANCIAL
To succeed financially, how should we appear to our shareholders?
CUSTOMER
To succeed financially, how should we appear to our shareholders?
INTERNAL BUSINESS PROCESS
To satisfy our shareholders and customers, what businesses must we excel at?
Vision and Strategy
LEARNING AND GROWTH
To succeed financially, how should we appear to our shareholders?
Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February, 1996): 76.

9. Assessing the Health of Online Firms (cont’d)
Internal Business Process Metrics: These focus on operations inside the company. Kaplan and Norton divided them into three groups:
Innovation
Operations
Postsale service
Learning and Growth Metrics: These broadly cover employee, information systems, and motivation metrics.

10. Limitations of the Balanced Scorecard
No clear definition of strategy or business models.
Unclear location of organizational capabilities or resources in the framework.
Unclear where partnerships reside in the framework.

11. Exhibit 8-2: The Performance Dashboard
Market Opportunity
Business
Model
Customer
Branding and Marketing
Strategy
Implementation
Metrics
Market Opportunity
Business Model
Branding and Marketing
Implementation
Customer

12. The Performance Dashboard
The Performance Dashboard is intended to reflect the health of a business. We first address the limitations of the Balanced Scorecard through features of the Performance Dashboard.
The Strategy Framework drives the necessary metrics.
Resources are featured in the resource system of the business model.
Partnerships are featured in the resource system of the business model.

13. Components of the Performance Dashboard
The Performance Dashboard is composed of five categories of metrics:
Market Opportunity Metrics: Market opportunity metrics assess the degree to which the firm can accurately gauge the market opportunity. Generic indicators include the ability of the firm to include the most attractive segments, the ability of the firm to understand and map the competitors’ strategy evolution and the ability of the firm to track the evolution of target segment needs.

14. Components of the Performance Dashboard (cont’d)
Business Model Metrics: Business model metrics capture the subcomponents of the business model: the value proposition, egg diagram, resource system, and financial metrics.
Value proposition or Cluster Benefits: The value proposition is composed of three parts: target segment, benefits offered, and capabilities that drive the benefits. Metrics for this assessment would focus on customer perceptions of the benefits that a given site offers relative to competitors.

15. Components of the Performance Dashboard (cont’d)
Online Offering Metrics: Metrics should reflect the entire decision process from pre- purchase to post purchase. Offering metrics focus more on the nuts-and-bolts features, attributes and functionality of the site.
Resource System Metrics: The resource system is based on the benefits offered to consumers. From these benefits, the firm would analyze the capabilities that are necessary to supply the benefits.
Financial Metrics: Captures the revenues, costs, profits, and balance-sheet metrics of the firm

16. Components of the Performance Dashboard (cont’d)
Marketing and Branding Metrics
Marketing and Branding Metrics: These focus on marketing communications and branding effectiveness.
Implementation Metrics
Implementation Metrics: These focus on the effectiveness of a company’s human resources program as well as its processes, organizational structure, systems (including information, incentives, and rewards), coordination mechanisms, culture and management style, and technology systems.

17. Components of the Performance Dashboard (cont’d)
Customer Metrics
Customer Interface Metrics: Measures the customer’s experience with the technology interface; that is, the customer’s response to the 7C’s of the interface.
Customer Outcome Metrics: This captures output metrics such as overall costs of satisfaction, average order size, and customer profitability.

18. Exhibit 8-3: Life Cycle of a Company
STARTUP/
BETA
CUSTOMER
ACQUISITION
MONETIZATION
MATURITY
6 Months- 1 Year
1 Year - 2 Years
2 Years - 5 years
> 5 Years
Strategy
Develop a platform for rapid growth by building a strong team and creating a flexible site.
Build market share as quickly as possible by aggressively spending on partnerships and promotion.
Increase revenues and customer lock-in by developing new revenue streams.
Control costs and optimize marketing expenditures to achieve profitable growth.
* At time of writing (February 2001)

19. Implementing the Performance Dashboard
Step One: Articulate Business Strategy
Step Two: Translate the Strategy into Desired Outcomes
Step Three: Choose Metrics
Step Four: Link Metrics to Leading and Lagging Indicators
Step Five: Calculate Current and target Performance

20. Exhibit 8-4: Blueprint for the Performance Dashboard
Step One: Articulate business strategy
Step Two: Translate strategy into desired outcomes
Step Three: Choose metrics
Step Four: Link metrics to leading and lagging indicators
Step Five: Calculate current and target performance
Market Opportunity
Opportunity size?
Competitive environment?
Market Opportunity
Market size and growth
Average age and income
Competitor concentration
Business Model
Unique value proposition?
Capabilities vs. competition?
Business Model
Customer-perceived benefits
Exclusive partnerships
More invested in technology vs. competition
For each metric, determine the metrics that it affects and that affect it
Map the linked set of metrics, indicating leading and lagging indicators
Ensure that there is a balance between leading and lagging indicators
For each metric, calculate current level of performance
Determine target level required to meet outcomes described in Step Two
Ensure that targets are consistent
Marketing
How to develop brand?
Marketing
Customer brand awareness
Define goals and value proposition
Develop resource system required to deliver the strategy
Implementation
System uptime percentage
Number of IT staff
Percent of inaccurate orders
Implementation
How to go to market?
Customer
How to acquire customers?
How will customers change?
What is customer experience?
Customer
Market share
Purchases per year
Success rate
Service request frequency

21. Exhibit 8-5: Metrics for Seamless Online / Offline Customer Purchase Process
AWARENESS
Awareness of online offering vs. offline offering
Perceived benefits of Web vs. offline offering
KNOWLEDGE
Prepurchase
Available offering information online vs. offline
Currency of information online vs. offline
EVALUATION OF
ALTERNATIVES
PURCHASE
Security and privacy associated with purchasing online vs. offline
Purchase
SATISFACTION
Response time online vs. offline
Customer loyalty and incentive programs online vs. offline
LOYALTY
Postpurchase
DISPOSAL
Exchange policies online vs. offline

22. Exhibit 8-6: Metrics for Seamless Internal Business Processes and Operations
Ability to open accounts online and offline
Ability to access accounts online and offline
Integrated customer databases
Information
Sharing
Seamless order processing
Seamless order tracking
Integrated inventory systems
Fulfillment
Systems

23. External Sources of Metrics Information
Firms are likely to track their value proposition versus competition, customer satisfaction with the site, site usability and financial outcomes.
Online Information:
Market Research: Online market research firms collect primarily customer data through online surveys or customer submissions.
Analyst Reports: Analyst reports are data sources that blend primary market data on a particular topic with an analyst’s view of the market.
Financial Information: These data sources principally provide statutory filings of financial information on particular companies or aggregated financial data across industries. The data collected generally includes income statement, balance sheet and statement of cash flow information.

24. Exhibit 8-7: BizRate—QVC

25. Exhibit 8-8: Forrester

26. Exhibit 8-9: Mapping Internet Research Onto the Performance Dashboard
Financial Information
Market Research
Analyst
Market
Implementation
Customer
Financial

27. Marketwatch.com Metrics Application
Step one: Articulate the Marketwatch.com Strategy
Value proposition: “To be a leading Web-based provider of comprehensive, real-time business news, financial programming and analytic tools.”
Marketwatch.com Offer: The aim is to deliver three key benefits to users: real-time information, comprehensive and in-depth analysis and tools and multimedia access.
Resource System: Consists of three layers.
Core benefits delivered to users as described in the company’s offer.
Capabilities that must be in place to deliver the core benefits.
The activities and resources that need to be retained to deliver these capabilities.

28. Exhibit 8-10: MarketWatch.com Strategy
“To be a leading provider of comprehensive, real-time business news, financial programming, and analytic tools.”
1. Value Proposition
3. Resource System
2. Marketspace Offering

29. Marketwatch.com Metrics(cont’d)
Steps Two and Three: Translate Strategy into Outcomes and Metrics. An effective way is by asking key questions for each of the five categories.
Market Opportunity:
Is the opportunity significant?
How intense is the competition?
Business Model:
How unique is the Markwetwatch.com value proposition relative to competitors?
Are the Marketwatch.com resources and Partnerships significantly better than competition’s?
How sustainable is the Marketwatch.com’s value proposition relative to the competition’s?
Will MarketWatch.com be able to maintain profitability?

30. Exhibit 8-11: MarketWatch.com Desired Outcome Summary
Market Opportunity
Significant opportunity
Moderate degree of competition
Implementation
Business Model
Best-in-class IT infrastructure
Better value proposition than competitors
Better capabilities than competitors
Revenue and profit
Strategy
Marketing and Branding
Customer
Better brand awareness than competition
User acquisition
User online behavior
User satisfaction and loyalty

31. Marketwatch.com Metrics(cont’d)
Marketing and Branding:
How effective and efficient is the Marketwatch.com’s marketing efforts at attracting new users?
How is the MarketWatch.com brand perceived in the market?
Implementation:
Does Marketwatch.com have an infrastructure that enables it to reliably distribute financial content across multiple platforms?

32. Marketwatch.com Metrics(cont’d)
Customer:
What is the perception of the online user experience?
How satisfied and loyal is the user base?

33. Marketwatch.com Metrics(cont’d)
Step Four: Link Metrics to leading and Lagging indicators.
The fundamental question is “How do we link the metrics to each other?”
Knowledge of this interrelation will help management understand which groups of leading indicators it needs to focus on in order to achieve its target performance on lagging indicators.
A unique value proposition that is marketed successfully will lead to creation of a strong brand and high brand awareness among users. This will stimulate usage which will lead to an increase in ad revenue because there will be more users viewing more pages resulting in profitability.

34. Exhibit 8-12: Leading/Lagging Indicators for MarketWatch.com
Market Opportunity
Business Model
Implementation and Branding
Customer Interface
Financial
Competition underserving market
Unique value proposition
Build brand
Brand awareness
Usage
Ad revenue
Satisfaction and loyalty
Attractive segments that company can serve well
Attractive offering to users
Develop improved offering to users
Other revenue sources
Profit
System reliability
Leverage capabilities to deliver offering
Invest in IT infrastructure
Optimized system costs

35. Marketwatch.com Metrics(cont’d)
Step Five- Calculate Current and Target Performance.
A successful strategy needs to be implemented by setting targets and taking actions to reach those targets.
In many cases, the target performance is to become the best performer in a metric.

37. Exhibit 8-13: MarketWatch.com Best-in-Class Metrics
Source: comScore Media Metrix