2. Keeping Score In World Class Organizations 5/26/99

3. Data, like hay, is usually dry And piled in stacks and measured by the bit. And how like the needle information is. It always has a point and it needs an eye. Thomas F. Gilbert

4. Mission, Vision, & Values Key Success Factors & Core Competencies Performance Metrics Metric Levels For Metrics Tactics What the organization Is What the future goals are What the organization stands for What the organization needs to focus upon to beat the competition and achieve its strategic vision Determine the Family of Measures A balanced scorecard Past Present Future Desired annual long term levels for each metric SBU Process Team Individual Activities implemented to achieve goals Strategic Measurement Model

5. The Measurement Process

6. Innovation Production Post Sale Service Role of Objectives Strategy is a set of linked objectives Objectives are the interim goals Metrics assess goal attainment Revenue Growth Cost Reduction Asset Utilization Market Share Retention Satisfaction Acquisition Satisfaction Retention Productivity Financial Customer Internal Learning/ Processes Growth Strategy

7. Types of Metrics

8. Considerations in Choosing Metrics Specificity (Specific versus General) Productivity Level (Optimization versus Maximization) Closeness Goals (Descriptive, Behavioral, Accomplishment, or Organizational Effectiveness)

9. Considerations in Choosing Metrics Decision Focus (Judgmental versus Nonjudgmental) Perceptual Focus (Process versus Outcome) Reference (Absolute versus Relative) Number (Singular, Multiple, or Family of Measures)

10. Strategy is a set of hypotheses about cause and effect Measurement systems should make relationships (hypotheses) among objectives explicit so they can be managed and validated. Considerations in Choosing Metrics Cause and Effect Relationship

11. ROCE Customer Loyalty On-Time Delivery Process Quality Process Cycle Time Employee Skills Cause-and-Effect Relationships Financial Customer Internal Business Process Learning and Growth

12. Causal Relationships IfThen

13. Lead Measures ( Strategic Levers) Drive Performance

14. Lag Measures Let You Know If You’ve Reached Your Destination

15. A Metric Can Be BOTH A Lag and Lead Indicator Track performance through a linked chain of cause and effect relationships Lag measure of earlier efforts Lead indicator of future performance

16. Setting The Level of Metrics Based on past performance Benchmarking o other companies Stretch goals Pilot testing

17. Analyzing the Data Analysis of Data –Level of performance –Trend of performance –Variability in performance.

18. Strategically linked to key success factors AND the mission, vision, values Focused on past, present AND future Linked to needs of ALL stakeholders (customers, shareholders, employees) Multidimensional Vital Few versus trivial many Clustered into overall indices of performance Flexible to meet changing business needs Characteristics Effective Metrics

19. TOO MUCH DATA!!!! Not causally linked to success factors Short Term focus Lack of specificity and detail Measuring A while hoping for B –Courtesy versus competency –Behavior versus Results –Outcome versus process Problems With Metrics

20. Building The Scorecard

22. Financial To succeed financial, how should we appear to our shareholders Learning & Growth To achieve our vision, how will we sustain our ability to change and improve? Internal Business Processes To satisfy our shareholders and customers what business processes must we excel at? Customer To achieve out vision, how should we appear to our customers? Vision And Strategy

23. Financial Metrics

24. Key Characteristics: Financial Measures Includes a few key overall financial measures Balanced mix of short and long term measures Includes financial data on our major competitors Aggregated into summary financial measures –Economic Value Added (EVA) –Return on Assets (ROA)

25. Strategic Themes: Financial Measures Revenue growth and mix Cost reduction/ productivity improvement Asset utilization/ investment strategy Shareholder value

26. Economic Value Added (EVA) Measure of financial performance based on a company’s profits adjusted for the cost of capital. Historical Focus Capital is money tied up in equipment, buildings as well as investments in training, research and development. A company can operate a profit but actually operate at a loss when one includes the cost of capital!!!!

27. Economic Value Added makes managers act like shareholders. It’s the true corporate faith of he 1990s William Smithburg, Quaker Oaks CEO

28. Market Value-Added (MVA) The Total Capital a Company Has Invested Since Inception Divided by the Market Value of the Company’s Equity & Debt Coca Cola General Electric Wal-Mart Merck Microsoft

29. Activity Based Costing (ABC) Measures true financial performance Tracks direct and indirect costs associated with producing a product. –Machine down times –Cost of inventory –Cost of rework and scrap Allocates costs to specific processes

30. Process Metrics

31. Key Characteristics: Process Measures Innovation Operations Post Sale Service

32. Key Characteristics: Process Measures Includes a few key common operational measures –Value added per employee –Cycle time Directly related to key components customers care about Allows company to prevent, rather than react to, problems

33. Common Process Measures Value added per employee Cycle time Variability Down Time Bottlenecks Number of Process Steps

34. Product/ Service Metrics

35. Key Characteristics Product/Service Relates to specific attributes of the product or service. It is not the way an item is produced but what it actually does when received by the customer.

36. Common Product/ Service Metrics Quality Quantity Responsiveness Innovation Need

37. Supplier Metrics

38. Key Characteristics: Supplier Metrics Includes a few key common operational measure Process measures directly related to key components organizational units care about Allow company to prevent, rather than react to, problems

39. Common Supplier Metrics Just In Time Delivery Variability Guarantees Return Rates

40. Customer Satisfaction Metrics

41. Key Characteristics: Customer Metrics Linked to key organizational “drivers” Focus on Product and Process Include hard and soft measures Includes Customer satisfaction index

42. Key Characteristics Customers Product/Service Attributes Customer Relationship Image and Reputation

43. Market Share Customer Retention Customer Profitability Customer Acquisition Customer Satisfaction Core Measures -- Customers

44. Customer Satisfaction Metrics Timeliness of Service Consistency of Products/Services Guarantees Reliability Customer Satisfaction Surveys Mystery Customer Surveys

45. Employee Growth and Development Metrics

46. Key Characteristics Learning and Growth Employee Satisfaction Employee Retention Employee Productivity

47. Key Characteristics: Employee Metrics Linked to key organizational “drivers” Focus on present and future Include hard and soft measures Includes employee satisfaction index (ESI) –Surveys –focus groups –stress index –Appeals for layoffs

48. Employee Metrics Absenteeism Turnover Cost Per Hire Employee Satisfaction Grievances Cost of Labor Work Stoppages

49. Key Learnings

50. Key Learnings: Measurement System Tightly linked to key successful factors –Differentiate self from competitors –Make important decisions Measurement system was built with a plan rather than merely evolving Mostly consistent across organizational units –Facilitates benchmarking Balanced across metric areas

51. Key Learnings: Metrics An effective scorecard is more than a collection of financial and non-financial measures 4Tells a coherent story 4Mix of lag and lead metrics 4Provides a path to link metrics BACK to financial performance

52. Key Learnings Metrics Develop global metrics for your organization Understand the relationships among measures Insure Scorecard is Balanced based on cause and effect relationships