1. Performance Management EGN 5622 Enterprise Systems Integration Spring, 2012

2. Corporate Performance Management
„One cannot manage what cannot be measured!“
Vision
Events
Goals/
Results
Strategies
Business Processes
Measure
Compare
Aus der Analyse werden Aktionen angestoßen; Feedback führt zur Anpassung der Strategie
Act
Decide

3. Performance Management Concepts & Theories

4. Balanced Scorecard (BSC) Concept
A comprehensive framework that translates a firm’s vision and strategy into a coherent and linked set of performance measures.
Measures include both outcome measures and the performance drivers of these outcomes (cause and effect).
Some measures are generic (customer satisfaction survey), while others focus on specific strategic objectives to attain competitive advantage.
Used to articulate (communicate) strategy and align individual, cross-departmental and organizational initiatives to achieve a common goal.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

5. Perspectives of BSC Financial perspective (financial results)
Balanced Scorecard Exercise
Perspectives of BSC
Financial perspective (financial results)
Customer perspective (customer satisfaction).
Internal perspective (Continuous improvement of internal processes)
Learning and growth perspective (the organization’s innovation and improvement activities)
Note:
Focus on operational and financial measures that drive future performance:
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise
SAP- SEM Faculty Workshop July 2006

6. Adaption of Balanced Scorecard

7. Balanced Scorecard Approach

8. 1. Financial Perspective
How does firm look to shareholders?
Revenue growth and mix.
Cost reduction/productivity improvement.
Asset utilization/Investment strategy.
Improved operational performance pays off only when it results in
improved sales,
reduced operating costs,
faster asset turnover and
higher stock price.
If financial results poor, review strategy.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

9. 1. Financial Perspective (- cont.)
Strategy Maps
1. Financial Perspective (- cont.)
Increase economic value through revenue growth and productivity.
Revenue growth
sales to new markets, customers or with new products.
More sales to existing customers by deepening relationships (cross selling/complete solution).
Productivity
Improve cost structure by lowering direct and indirect expenses.
Utilize assets more efficiently by reducing working and fixed capital.
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

10. 2. Customer Perspective
How can the firm best create value for the customer?
Time from product order to delivery.
Time to get product from definition stage to market.
On-time delivery measures.
Defect level as measured by customers.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

11. 2. Customer Perspective (- cont.)
Strategy Maps
2. Customer Perspective (- cont.)
Core strategy is customer value proposition:
Unique mix of product, price, service,
Relationship (loyalty), and
Image that a company offers.
Examples:
Operational excellence (McDonald’s, Dell)
Customer intimacy (Home Depot)
Product leadership (Intel, Sony)
Hint: excel in one and be satisfactory in the other two.
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

12. 2. Customer Perspective (- cont.)
Strategy Maps
2. Customer Perspective (- cont.)
Operational Excellence
Excel at competitive pricing, product quality, product selection, lead time and on-time delivery.
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

13. 2. Customer Perspective (- cont.)
Strategy Maps
2. Customer Perspective (- cont.)
Stress quality of relationship with customer
exceptional service
completeness and suitability of solutions offered to individual customers.
Hint:
increase customer’s loyalty (or cost to switch)
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

14. 2. Customer Perspective (- cont.)
Strategy Maps
2. Customer Perspective (- cont.)
Product Leadership
Functionality
Features
Performance
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

15. 2. Customer Perspective (- cont.)
Strategy Maps
2. Customer Perspective (- cont.)
Intended outcomes from value proposition
Market share in targeted customer segments.
Account share with targeted customers.
Acquisition and retention of customers in targeted segments.
Customer profitability.
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

16. 3. Internal Business Process Perspective
What must firm excel at to satisfy customer needs? These are factors that affect:
Cycle time
Quality
Employee skills
Productivity
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

17. 3. Internal Business Process Perspective (-cont.)
Must identify core competencies: the critical technologies needed to ensure market leadership.
Must specify measures for these core competencies to evaluate performance.
Note:
Need timely information and ability to drill down to identify trouble spots.
Need a good information system.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

18. 3. Internal Business Process Perspective (-cont.)
Strategy Maps
3. Internal Business Process Perspective (-cont.)
How will company achieve its differentiated value proposition?
Build the franchise
Increase customer value
Achieve operational excellence
Become a good corporate citizen
Not just cost/time/quality
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

19. 4. Learning & Growth Perspective
Strategy Maps
4. Learning & Growth Perspective
Employee capabilities and skills
Use of technology
Climate needed to support a strategy
SAP-SEM Faculty Workshop July 2007
Strategy Maps
SAP-SEM Faculty Workshop July 2006

20. 4. Learning & Growth Perspective (- cont.)
Continue to create value in face of global competition and when targets for success keep changing.
Identify (competency) gaps between existing capabilities of people, systems and procedures and those needed to achieve targets.
Launch new products (percent of sales from new products).
Employee satisfaction, retention and skills.
Detailed indexes of specific skills for specific environment.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

21. Enterprise Performance (Summary)
Major operational performance measure types:
Cost
Lead time
Quality
Benefit (profit)

22. Performance Measure Foundation for performance measure
Mission>value>vision>strategy (game plan)>strategy roadmap (implementation plan)>performance measure

23. THE BALANCED SCORECARD AND STRATEGY
BSC vs MC vs Dashboards
THE BALANCED SCORECARD AND STRATEGY
Vision
Strategy
Strategic Objectives
Balanced Scorecard Performance measurement
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

24. Performance measurement
Performance measurement levels
At corporate level (financial perspective)
Core performance indicators (CPI)
At division (profit center) level (customer perspective)
Key performance indicators (KPI)
At dept. (cost center) level (internal process perspective)
Department performance indicators (DPI)
At individual level (learning & growth perspective)
Personal performance indicators (PI)

25. Performance measurement
CPI: From financial perspective for long-term shareholder value
Strategy types
Productivity strategy
Improve cost structure
Measures: cash expense reduction, defect elimination, yield improvement
Increase asset utilization
Measures: resource utilization, bottleneck elimination
Grow strategy
Expand revenue opportunities
Measures: new revenue sources (new products, markets, partners)
Enhance customer value
Measures: profitability improvement (of existing customers)

26. Performance Measurement
KPI, From customer perspective
Customer value proposition
Product attributes: price, quality, availability, selection, and functionality
Relationship: service and partnership
Image: brand
Cost-related strategy
Measures: lowest cost supplier,
Quality related strategy
Measures: product performance, quality consistency, quality of solution to customer,
Time related strategy
Measures: availability, first to market, response time
Benefit related strategy
Measures: high switching cost to customers, customer retention, customer’s product lifetime profitability

27. Performance Measurement and KPIs
Key Performance Indicators (KPI) define a set of key figures used to measure against a target, benchmark or time.
KPIs are used in Business Intelligence to assess the present state of the business, evaluate the strategic performance and prescribe a course of action.
For example: "Increase Average Revenue per Customer from $10K to $15K by 2010.“ In this case, 'Average Revenue Per Customer' is the key figure.
Key Performance Indicator dashboard
Company
Vision
Goals /
Results
Strategies
Business Processes

28. Performance Measurement
KPI Example
Cost-related
Meting target revenue
Indirect cost ratio
Labor resource utilization
Direct/indirect labor ratio
Equipment resource utilization
Quality related
Continuing disability review (CDR)
Rework counts
T1 accomplishment rate
# of Tests to delivery
Accomplishment rate
Time related
Quotation/EC turnaround time
In-time delivery
Benefit/goodwill
Industrial safety
Customer satisfaction

29. Performance Measurement
DPI, from internal process perspective (1)
For operations management processes
Supply
Production
Distribution
Risk management
For customer management processes
Selection
Acquisition
Retention
growth

30. Performance Measurement
DPI, from internal process perspective (2)
For innovation processes
Opportunity ID
R&D portfolio
Design and development
Launch
For regulatory and social processes
Environment
Safety and health
Employment
community

31. Performance Measurement
DPI, from learning and growth perspective
For human resource
Skills
Training
Knowledge
For information
Systems
Database
Network
For organization structure
Culture
Alignment
Leadership
Teamwork

32. Performance Measurement
DPI, a generic example
Cost-related
Sales, overhead, gross profit, average revenue per head count, worker & machine utilization
Quality-related
Number of try-outs, rework, in process quality control (IPQC), first article quality, product quality at shipping.
Time-related
Turnaround time
Benefit related
Customer satisfaction

33. Performance Measurement
DPI, specific example – production engineering
Department overall performance
From sub-departments and/or
From all workers in the dept.
Organization
Resources readiness (counts)
Resources readiness (competence)
Individual (head)
Planning capability (% of work planned)
TQM/6-sigma project
Patent application
Employee training
Industrial safety

34. Performance Measurement
PI, varying by individual’s functionality (& personal objectives)
Cost-related
Resources uptime
Resources utilization
Expense and overhead
Quality-related
Work quality
Re-work rate
Time-related
In-time work completion
Response time
Benefit related
Customer satisfaction

35. Performance Measurement
PI, an Example
For a machining worker
Equipment uptime
In-time work completion
Work quality
Tooling consumption rate
Equipment utilization
CAD/CAM worker
Program error
For a design worker
Design change rate
Design for manufacturability

36. Performance Measurement
Specific PI example – production engineer
MPI accomplishment counts
EC accomplishment rate
Test accomplishment rate
Test counts to delivery
Work load
6 sigma
Training
Industrial safety

37. Implementation in SAP/SEM
Performance Management
Implementation in SAP/SEM

38. SEM Overview SEM Workshop Intro SAP-SEM Faculty Workshop July 2006
url: help.sap.com/saphelp_sem40bw/helpdata/en/15/d75f3785b8fc49e b38f842/frameset.htm
SAP-SEM Faculty Workshop July 2007
SEM Workshop Intro
SAP-SEM Faculty Workshop July 2006

39. ALL VIEWED IN CONTEXT OF PERFORMANCE MEASUREMENT (PM)
BSC vs MC vs Dashboards
ALL VIEWED IN CONTEXT OF PERFORMANCE MEASUREMENT (PM)
PM asks “How effectively is management implementing the company’s strategy?”
Develops perspectives, objectives and metrics to monitor this progress.
In many, especially larger, companies PM is a major, enterprise-wide initiative.
Two major formats are EVA (Economic Value Added) and BSC (Balanced Scorecard Concept).
Software for BSC, MC (Management Cockpit)and Dashboard are ways to create, organize and display variables.
“Strategic Performance Measurement Systems: Translating Strategy into Results” by Stephen Gates, Journal of Applied Corporate Finance (Fall 2000).*
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

40. Management Cockpit (MC)
COMPARATIVE FEATURES
BSC vs MC vs Dashboards
Management Cockpit (MC)
Walls (Panels)
KPI Reporting
Different visuals (dials, graphs, etc.)
BSC
Overview with Perspectives
Strategy maps illustrate cause and effect
SBUs integrated into corporate model.
Status settings
Different views
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

41. THE BALANCED SCORECARD AND STRATEGY
BSC vs MC vs Dashboards
THE BALANCED SCORECARD AND STRATEGY
Vision
Strategy
Strategic Objectives
Balanced Scorecard Performance Measurements
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

42. BALANCED SCORECARD Not just a display methodology.
BSC vs MC vs Dashboards
BALANCED SCORECARD
Not just a display methodology.
Offers a process and a clear structure by which strategy is developed, implemented, communicated and monitored.
More expensive and time consuming to implement than MC or Dashboard.
Software has more analytics (Cause and Effect maps).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

43. MC STRUCTURE Visual structure and logical structure.
BSC vs MC vs Dashboards
MC STRUCTURE
Visual structure and logical structure.
Black wall: financial indicators and critical success factors.
Red wall: Indicators for markets, competitors and competitor analysis.
Blue wall: Indicators for internal processes, productivity and quality improvement
White wall: Indicators for monitoring strategic projects. (Infrastructure).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

44. BSC vs MC vs Dashboards
MC Structure, cont.
Each wall (summarizes information of a specific type: financial, market, etc.) can have up to 6 logical views.
Each logical view (summarizes a business factor: profitability) can have up to 6 graphic frames.
Each graphic frame displays the relationship between up to three measures as KPIs.
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

45. DASHBOARD (CONTROL PANEL)
BSC vs MC vs Dashboards
DASHBOARD (CONTROL PANEL)
Dashboard probably has oldest roots. Emerged from pre-existing Executive Information Systems.
Pratt & Whitney’s ‘War Room’ in 1980s.
Least structure of the three.
May or may not be linked to strategy.
Can focus on KPIs that represent ‘the way we have always done it’.
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

46. DASHBOARDS
BSC vs MC vs Dashboards
Presentation of information with colorful graphic indicators and other easy to read gauges.
“Delivers at a glance summaries presented in a highly visual and informative format”.
Easier to monitor performance and recognize when corrective action should be taken. (
Can be ‘quickly’ implemented.
A “data delivery vehicle”.
Colin, David. “How Dashboards Can Change Your Culture” Strategic Finance pp. 45 – 50 (October 2004).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

47. DASHBOARDS FOR TEAMS
BSC vs MC vs Dashboards
PM systems must go beyond old EIS systems and alert cross functional teams monitoring processes when corrective action must be taken.
Team knows best what measures it needs and should create own system.
Should adopt ‘dashboard’ to display data trends related to process measures. This instead of spreadsheet presentation.
Should display results measures (financial) as well as process (cycle times) measures. Latter more important for teams.
Can be linked to BSC initiatives. Thus, issue is one of how to display information.
Meyer, Christopher “How the Right Measures Help Teams Excel;” Harvard Business Review, pp (May – June 1994).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

48. ESTABLISHING CAUSE AND EFFECT RELATIONSHIPS
BSC vs MC vs Dashboards
ESTABLISHING CAUSE AND EFFECT RELATIONSHIPS
Important for all display systems.
Focus on cause and effect links between nonfinancial performance measures and financial results (cash flow, profit, stock price).
Survey results suggest most companies do not rigorously establish these links. Instead use boiler plate approach or preconceptions of what is important.
Strategy maps help. Diagram logical links. But survey showed only 23% took this step.
Validation through statistical techniques, focus groups, etc.
Too many measures on MC counterproductive.
Weightings on measures important but difficult to establish.
What level of customer satisfaction contributes most to financial results and beyond that is associated with excessive investment levels?
Ittner, Christopher D. and David F. Larcker, “Coming Up Short on Nonfinancial Performance Measurement” Harvard Business Review pp. 1 – 8 (November 2003).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

49. BOB KAPLAN’S CAR
BSC vs MC vs Dashboards
“My car is like the control panel. It gives me information on how fast I am going, how many miles I have traveled, what the temperature is inside the car, how much gas I have left, etc. Bob’s car gives him all that plus, he has a GPS system. The GPS tells him where he wants to go. While my car is useful to me telling me how I am doing, it has no clue where I want to go and what I need to do to get there, unlike Bob’s car. There are no cause and effect maps (strategy maps) embedded in the control panel”.
Narayanan, V.G., “Teaching Note: Andina Bottling Co.” HBS No (2003).
SAP-SEM Faculty Workshop July 2007
BSC vs MC vs Dashboards
SAP-SEM Faculty Workshop July 2006

50. Gilbraltar Server – SEM7.0
Choose Client 800
Login=fiu-001 ~ fiu-020
Initial password:
SUBWAY80
Click checkmark or hit enter
At prompt, change your password
Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007

51. Balanced Scorecard (T-code UMB_PRES1)
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

52. Use: PC4YOU SBU Software
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

53. SETTING DATES Select Other Select Other Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

54. PERIOD SET Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

55. SCORECARD OVERVIEW Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

56. PERSPECTIVES, OBJECTIVES & MEASURES
Financial
Customer
Internal
Learning & Growth
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

57. OBJECTIVES Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

58. MEASURES Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

59. STATUS SYMBOL KEY Balanced Scorecard Exercise
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

60. STATUS SETTINGS
Six different status settings used to represent the current status of objectives, measures and initiatives.
Value area compares target values and actual values, usually as a percentage variance.
Also have trend indicators.
SAP-SEM Faculty Workshop July 2007
Balanced Scorecard Exercise

61. Management Cockpit (MC) (T-code: UMM_PRES)
Management Cockpit Demonstration
Management Cockpit (MC) (T-code: UMM_PRES)
SAP-SEM Faculty Workshop July 2006
Management Cockpit Demonstration
SAP-SEM Faculty Workshop July 2006

62. SELECT PC4YOU Corporation Cockpit
SAP-SEM Faculty Workshop July 2006
Management Cockpit Demonstration

63. SET THE PERIOD Management Cockpit Demonstration
SAP-SEM Faculty Workshop July 2006
Management Cockpit Demonstration

64. OPEN NODES TO SEE MEASURES AND STATUS INDICATORS
Expand all nodes

65. AFTER EXPANSION Management Cockpit Demonstration
SAP-SEM Faculty Workshop July 2006
Management Cockpit Demonstration

66. Exercises: Part 1: Balanced Scorecard
a) Using BSC overview , summarize the performance of PC4YOU’s Software SBU.
b) Determine which perspective would an accountant be most closely associated?
c) View Perspective/Objective/Measure view in analysis mode.
d) Show how perspective and objective score are calculated.
e) Examine measures under two objectives Optimize value added and Grow Revenue from strategic customers.
Part 2: Management Cockpit
a) How many walls are in this cockpit? What is the general area of each? How does this relate to the perspective in BSC?
b) Look and explain what are the measures and why they are important items to measure financial details in both Hardware and Software SBUs.