Building A Metric Building A Metric ManagementManagementAn alternative to Balanced Scorecard

ARRIFFIN MANSOR

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Introduction Introduction

Metric management provide a framework for management measurements and targets.

Strategies are defined in metric terms for proper communication and execution.

When asked about strategy, managers reach for their metric charts and maps.

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AgendaAgenda

This slide presentation will outline the major steps for building a metric management plans.

How you execute these steps will depend upon many factors: Company culture, tolerance for change, leadership, etc.

However, please try to follow the same sequence, focusing on the strategic maps.

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Overview Overview

Metrics are used in management from planning to controls

Link these metrics into strategic mapsThroughout the process, we will refer back

to these maps, making sure everything is linked. This is very important since we want to capture a “cause and effect” relationship in building metrics.

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Why metric management?Why metric management?Improves how you communicate strategySuperimposes a discipline whereby you

capture cause-effect; otherwise you create pockets of under-performance.

Also forces you to think about strategic measurement as opposed to tactical or operating type measurements

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Start with StrategyStart with Strategy

Begin with your strategic plan – what things are critical to future success?

Focus on customers – what values will we add to our customers

Define the processes – how will we deliver these services to our customers

Build the organization – what capabilities must we put in place

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StrategiesStrategies

Once we establish our first anchor (goals), we can develop a set of strategies.

Strategies define what actions must be taken to reach the goals.

Strategies are critical to future success. For example, in order to grow revenues, we must introduce new products and expand our market share.

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GoalsGoals

The first components of your strategy are goals.

Goals establish direction in concrete terms. Goals anchor the rest of the process. Goals should fit with the vision and

mission of the organization.

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Goal AttributesGoal Attributes

Very short statementDirectly relates to the missionBroad in scopeCovers long time period (such as 3 years)Examples:

- Improve Customer Service- Leverage Core Competencies- Develop more innovative products

Inte

rnal

Pro

cess

Sta

keho

lder

Lea

rnin

g&

Gro

wth

Reduce Re-Activities thru ABC/M

Establish Web Based Self Services

Knowledge Management

Human Capital

Improved Returns on Investments

More rapid and accessible services

Leadership Development

Inve

stm

ents

Strategy Map: Capture a Cause Effect Strategy Map: Capture a Cause Effect Relationship from the Bottom UpRelationship from the Bottom Up

IT InfrastructureFacilities and Fixed Assets

Economic Model Process

Expand Global Facility Reach

Articulates how the organization creates value for its constituents and legitimizing authority

Displays key priorities and relationships between outcomes (the "what") and performance enablers or drivers (the "how")

Provides a clear view of "how I fit in" for sub-organizations, teams, and individuals

"Cascading the scorecard throughout the organization, and clearly mapping the various units and functions back to the organization or agency-wide map is critical to leveraging and ensuring alignment"

Key Benefits of Strategy MapsKey Benefits of Strategy Maps

Executive consensus and Executive consensus and accountability:accountability:

Building the map eliminates ambiguity and clarifies

responsibility.

Educate and Communicate:Educate and Communicate:

Build awareness and understanding of organization

strategy across the workforce.

Ensure Alignment:Ensure Alignment:

Each sub-unit and individual link their objectives

to the map.

Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan, April 21, 2004, pg. 20

Promote Transparency:Promote Transparency:

Communicate with and educate constituents, partners,

oversight bodies, and the general public.

Strategy Maps – Strategy Maps – A Better Way to Communicate StrategyA Better Way to Communicate Strategy

Detailed statement of what is critical to

successfully achieving the

strategy

How success in achieving the

strategy will be measured and

tracked

Key action programs

required to achieve

objectives

The level of performance or

rate of improvement

needed

Objective Description

Target

2 per setup per month each Outlet Office

InitiativeMeasure

Number of Reworks

Strategy Map

Sta

keho

lder

Inte

rnal

Pro

cess

L&

G

Faster Service Access

Self Service Applications

Web Enable Technologies

Process and ValueMap Analysis

Lean Processes

Inve

stm

ents

Invest in IT

Extend the Map into Measurements, Extend the Map into Measurements, Targets and InitiativesTargets and Initiatives

Lean / Six SigmaEliminate waste, reworks, and other errors in our processes

Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.

Goal Objective Measurement Target Initiative

Achieve Agency operational efficiencies with best practices in the private sector

Reduce Operational Service Costs by 50% over the next 5 years

Cost per Outlet Office, Cost per Region, Cost per FTE

5% - Year 1

10% - Year 2

15% - Year 3

Activity Based Costing / Management

Reduce identified re-activities within primary processes by 80% over the next 3 years

Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions)

Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%

Lean / Six Sigma

Alignment of Scorecard ComponentsAlignment of Scorecard Components

Multiple Choice Question – Multiple Choice Question – Create a Tight ModelCreate a Tight ModelThe Balanced Scorecard process captures a cause and effect relationship based on having all parts linked together. Strategic goals link down to objectives, objectives link down to measurements, and measurements link to:

a. Mission

b. Goals

c. Budgets

d. Targets

Multiple Choice Question – Multiple Choice Question – and the answer is . . .and the answer is . . .

d – Measurements should be linked to targets. We want a one-to-one relationship so that measurements are actionable to the Agency.

Key Result AreasKey Result Areas

A concentrated or focused minimum area of work that would give you the maximum intended outcome.

A major component of the outcomeA pareto activity that gives 20:80 outcome.The most sensitive inputs that give

maximum outputs.

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Strategy AttributesStrategy Attributes

Longer statement than goal statementMore specific than goal statementIndirect relationship to missionCovers shorter time period than goal (such

as 6 months or 1 year)Example:

- We will expand call center services to include technical support

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Programs (initiatives)Programs (initiatives)

Based on the goals, three to five programs should emerge.

From these programs, we will develop a strategic map.

Four common programs are: Operating Efficiencies, Customer Relations, Product Innovation, and Growing the Business.

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Strategic ModelStrategic Model

Strategic Models can emerge from four principles:

1. Translate strategies into operating terms.2. Link strategies throughout the entire

organization.3. Commit everyone to implementing

strategy.4. Make strategizing a continuous process of

learning and adjusting to change.

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Four PerspectivesFour Perspectives

Before we build strategic maps, we need to define four perspectives:

Financial: Top layer in the map, represents financial outcomes (profits, revenues, etc.)

Customer: Next layer down, enables financial results (service, image, price, quality, etc.)

Internal Processes: The values added to customers, such as delivery, production, distribution, etc.

Learning & Growth: The people, systems, and organization that enable processes.

Get down to a set of quantifiable strategic objectives:

Too vague

More precise

Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.

Before we can map your Before we can map your strategy . . .strategy . . .

Improve Customer Service

Reduce average customer wait times by 30% by year end

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Strategic MappingStrategic Mapping

Strategic Maps are the foundation of the Balanced Scorecard.

You will need one strategic map for each programs (initiatives)

Maps are constructed over four perspectives.

Strategies are mapped over the four perspectives, linked together.

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LinkingLinking

Strategies need to be placed in the Strategic Map according to which perspective fits with the objective.

Objectives may cross over more than one perspective.

We usually start at the top with outcomes and work our way down, looking at what enables (drives) the outcome.

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ApprovalApproval

Once you have completed the strategic maps, you will need to get approval from executive management. Does this map accurately tell the “story” of our strategy?

If management disagrees with the map, go back and redo the maps. We need to get this step right since it represents the foundation for the entire scorecard.

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MeasurementsMeasurements

For each you need one measurement. (KPI)

Measurement provides us with feedback on meeting the strategic objective.

Most organizations will use many of their existing measurements.

Organizations requiring major change should include driver type measurements.

The Measurement Pyramid The Measurement Pyramid

Goal

Outcome Performance

Measures

Program

Program Performance Measures

Program Components

Program Component Performance Measures

Activities

Activity Performance Measures

Strategic/GPRA GoalsEnd-Outcomes

Longer-Term IntermediateOutcomes

Shorter-TermIntermediateOutcomes& Outputs

Outputs& Inputs

Stakeholder / CustomerStakeholder / Customer Internal ProcessesInternal Processes

Learning and GrowthLearning and Growth InvestmentsInvestments• % of facility assets fully funded for upgrading• % of IT infrastructure investments approved• # of new hire positions authorized for filling• % of required contracts awarded and in place

• Percentage employee absenteeism• Hours of absenteeism• Job posting response rate• Personnel turnover rate• Ratio of acceptances to offers• Time to fill vacancy

• Number of unscheduled maintenance calls• Production time lost because of maintenance

problems• Percentage of equipment maintained on schedule• Average number of monthly unscheduled outages• Mean time between failures

• Current customer satisfaction level• Improvement in customer satisfaction• Customer retention rate• Frequency of customer contact by customer

service• Average time to resolve a customer inquiry• Number of customer complaints

Examples of Measurements by PerspectiveExamples of Measurements by Perspective

Key Performance IndicatorsKey Performance Indicators

The best KPI is a ratio of inputs and outputs.

It indicates efficiency at all processes along the value chain i.e inputs, process, outputs and outcomes.

The most important KPI is at the outcome phase which should supercede those of earlier KPIs in the value chain.

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Measurement CriteriaMeasurement Criteria

Measurements should drive change, providing teeth to our strategy.

Measurements define objectives in specific terms. A good measurement should tell you what your objective is – this is an indicator of good linkage.

Measurements should be repeatable, quantifiable, and verifiable.

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MeasurementsMeasurementsOutcome efficiencyCustomer satisfaction:

- Response time to service customer- Satisfaction survey scores

Process Efficiency:- Cycle time- Downtime- Number of Restarts

Input efficiency

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Lead and Lag MeasurementsLead and Lag Measurements

Leading measurements are drivers behind performance and provide some predictability (forward looking)

Lagging measurements are usually final outcomes that look back, such as customer satisfaction or return on investment

Metrics should include both leading and lagging type measurements

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Targets (KPS)Targets (KPS)

Once you establish measurements, you need to set a target for each measurement.

Targets push the organization to a required level of performance.

Targets put focus on the strategy, expressing the specifics of the strategy.

When an organization hits its targets, then it has successfully implemented its strategy.

Leader Sponsored Requires Investments – people, funding, technology, etc. Has designated owners Includes deliverables or milestones Usually has time deadlines May be difficult to launch – not resourced Could encounter obstacles – people are confused, conflicts with

other functions

Characteristics of InitiativesCharacteristics of Initiatives

Initiatives Goals or ObjectivesValue Mapping Project Improve identification and delivery of all

agency services across the full stakeholder spectrum

Employee Rotation Program Improve the employee turnover and satisfaction scores

Web Self Service Portal Reduce agency costs and streamline our services for more direct service delivery

Common Knowledge Center Expand the overall knowledge base so that inter-functions can learn from one another

Customer Survey and Analysis Tool Program

Develop a more systematic process across the entire agency to better connect to our customers

Shared Service Center Tracking System

Reduce reworks and overlaps between our seven shared service centers

Initiatives should enable strategic executionInitiatives should enable strategic execution

Average Turnaround Times at Docking Sites

8 days FY05

7.5 days FY06

6.8 days FY07

Utilization Rate for Self Serve Web Portal

10% FY05 18% FY06 25% FY07

Rotation Internship Participation Rates

1,800 FY05 2,500 FY06 3,900 FY07

Glider integration mapping tool used for geo-sets

Establish baseline

8 per sets 10 per sets

% of agency SES Levels following IRPS from end to end for the entire year

30% FY05 40% FY05 65% FY05

% funding through SEPCO for space mapping

30% FY05 35% FY06 45% FY07

Examples of TargetsExamples of Targets

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Examples of TargetsExamples of Targets

Total Time to Recruit New Employees: Less than 40 days by year-end

Utilization of rental facilities: Increase to 85% during peak summer months

Growth in top line revenues: 10% increase over last year

Improve overall customer satisfaction: Total scores exceed 90%

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Initiatives (programs)Initiatives (programs)

In order for things to happen in an organization, you must initiate major projects or programs. For example, improving customer service may require a new customer management system.

Once you launch appropriate initiatives, you should be able to meet your objectives. This closes the loop, everything is now linked and away we go!

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Initiative AttributesInitiative Attributes

Sponsored by senior managementDesignated owners manage project(s)Includes deliverables or milestonesUsually has some time deadlinesCould be difficult to launch – lack of

support, no funding, poorly defined, etc.

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TemplatesTemplates

Throughout this process, we will use templates to capture, analyze and document data. Templates are used for strategic mapping, defining measurements, etc.

Strategic Map for Strategic Theme #1:

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Cus

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Other Important StepsOther Important Steps

Metrics are built around three teams: Leadership Team (upper level management), Core Team (middle level management) and Measurement Team (lower level functional personnel).

Metrics are built around at least four group meetings: Kick Off Meeting followed by at least one meeting for each of the three teams.

Metrics are cascaded to the individual level at performance planning meeting

Some Tools for Determining Some Tools for Determining What to MeasureWhat to Measure

InputsProcess/System Output

IntermediateOutcomes

EndOutcome

Program Logic Model

DesiredOutcome

Causal AnalysisProcess Flow

ResultsOf

Testing

Not AcceptableAcceptable

PrototypeProduct

Back to Laboratory

To Market

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ImplementationImplementation

The minimum time for developing a metric management is three months.

Full deployment of metrics throughout the entire organization can take more than one year.

The best place to start building a metric managemnt is where all components of the value chain are in place: Customer, Innovation, Production, Delivery, Services, etc.

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SummarySummary

Metrics are the best framework of management today.

It communicates strategies.A fully integrated approach: Goals,

Objectives, Mapping, Measurements, Targets, and Initiatives.

Metrics can be experimental, whereby you test your strategies, refine, and make changes as you get feedback and learn what works.

Components of Metric Components of Metric ManagementManagementGoals and objectives definitionKey result areas (Strategies) – cause effect

relationshipStrategic Programs (initiatives)Strategic MappingKey Performance Indicators – lead and lag

indicatorsKey Performance Standards &

Benchmarkings

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Installing corporate metricsInstalling corporate metricsDefine corporate goals in Du Pont ROE format.Identify critical performance gaps and strengthsIdentify Critical success factorsRefine above into strategic mapsDeveloping programs and people identifiedCascading metrics to operating departmental

heads

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Performance improvement frameworkPerformance improvement framework

Performance Gaps Targeted Output

Identify Critical Gaps Gap Analysis Best PracticesTrainingOther management changesInnovation

The right performance improvement strategies

CurrentPractices

NewPractices

STANDARDS

Company Industry Innovation

Evaluate Performance through measurements

Linking metrics through the strategic maps

Adopt participative performance planning and appraisal cycle

RETURN ON EQUITYRETURN ON EQUITY

20% 4 2 160%

PROFITX

SALESX

ASSETS =

PROFIT

SALES ASSETS EQUITY

EQUITY

PROFIT MARGIN

ASSET TURNOVER

EQUITY MULTIPLIER

RETURN ON EQUITY

48

FINANCIAL KPIsFINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios No produced Average cost per transaction

Research dev expense

Productivity ratios

Value produced ROI

Inventory turnover

Average lead time

RETURN ON EQUITY

Waste Reduction

49

MARKETINGMARKETINGINPUT PROCESS OUTPUT OUTCOME

Material Response rate No of customers

Labour Marketing costs % Sales volume

Overhead Efficiency ratios Customers Profitability

Research dev expense

Productivity ratios

Product profitability

ROA marketing

Average cost per transaction

Customer acquisition Return on Sales

Inventory turnover

Average lead time Customer retention

Price rel to comp Waste Reduction Revenue growth

Delivery Channel50

INTERNAL PROCESSINTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios

No produced Average cost per transaction

Research dev expense

Productivity ratios

Value produced

ROI

Inventory turnover

Average lead time

Waste Reduction

51

HRM KPIsHRM KPIsINPUT PROCESS OUTPUT OUTCOME

Incentives variances Turnover ratio

Hours Efficiency ratios

No produced Profit per employee

Training Productivity ratios

Value produced

ROI

Salary Average lead time

Turnover Revenue per employee

Skill competency

Waste Reduction Employee productivity

Value added per employee

52

Performance ToolsPerformance Tools

Du Pont ROE Analysis– KPI standards – industry or past– Variance Analysis– Critical Performance Gaps

Input Output Evaluation– KPI

BSC perspective to determine learning needs Strategic Maps Performance improvement matrix ROI Training

53

QUESTION PLEASEQUESTION PLEASE

Thank you

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