Corporate Performance Measurement In Strategic Planning

CORPORATE PERFORMANCE MEASUREMENT IN STRATEGIC CORPORATE PLANNINGCase Study, Concepts and Debatable Ideas

Kenny OngCNI Holdings Berhad

www.myCNI.com.my www.OOBEY.com

http://www.mycni.com.my/

http://www.oobey.com/

Intro: CNI

1. 19 years old

2. Core Business: MLM

3. Others: Contract Manufacturing, Export/Trading, eCommerce

4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan

5. Staff force: ± 500

6. Distributors: 200,000

7. Products: Consumer Goods and Services




1. Why we hate Performance Appraisals




As an Appraisee

As an Appraisor

Complaints about Performance Appraisals

Mgmt/HR




As an Appraisee


• Bias• Different Standards• Surprise• Subjective• No linkage*• No differentiation• Secretive• No follow up• No control




As an Appraiser


• Cannot remember• Tedious• Subjective• Right targets• Scoring Competencies*• Defensive staff• No $$ to differentiate• Prejudices• Results or Activities





• Flexible or Control?• MBO or Character?• Best Practice or Fit Culture?• Backward or Forward?• Quarterly Results or Long-term?• No $$ to differentiate*• Perfect System, Bad performance• Recency and Halo effects• Untrained Appraisers

Mgmt/HR




Complaints about Performance Appraisals - Summary

1. Process problem

2. Form problem

3. People problem




What is Performance Appraisal used for?

Reward?

Discipline?

Development?

Motivation?

Promotion?

Monitor?




Performance Management

Performance Appraisal

Performance Development

Performance Measurement

Common terms and definitions




What is the OBJECTIVE?

• What is the ultimate objective of a Performance Management System?

• ‘Performance’ – achievement, • ‘Management’ – controllable, improvement• ‘System’ – predictable outcome, autorun

Summary?• A Predictable process to Improve Controllable

Achievements





Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

KPIs

BSC

Business Model





Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

KPIs

BSC

Business Model

Business Plan Implementation

Talent Management




1. Why we hate Performance Management Systems

Focus on the Business Strategy and Business Direction first




“…in the past 18 months, we have heard that profit is more important than revenue,

quality is more important that profit, people are more important than profit,

customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our

performance is inconsistent"CEO, Anonymous




Before we start…

In the old days of HR…• Average training hours per staff• % of staff attending training• # of training programs• % of training programs conducted• Training needs analysis conducted• Competency models developed• Training budget as % of payroll

What’s wrong with this picture?www.myCNI.com.my www.OOBEY.com



Before we start…

Moral of the story…

1. Innovation:– Business models– Products– Services

2. Market Leadership

3. Competitive differentiation

Get the picture?www.myCNI.com.my www.OOBEY.com



“What is the moral of the story?”




What is the Business Model?

USP

Market Discipline

Profit Model




Intro: Market Discipline

• Mamak stall




Intro: Market Discipline

"They are the most innovative"

"Constantly renewing and creative"

"Always on the leading edge"

"A great deal!"

Excellent/attractive price

Minimal acquisition cost and hassle

Lowest overall cost of ownership

"A no-hassles firm"

Convenience and speed

Reliable product and service

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy




Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Strategy: Value Disciplines




Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'


• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization





The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

hand

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007




















Business Situation vs. Performance Mgmt Focus

Upturn Flat Downturn

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Sales

Cash Flow

Talent Mgmt

Innovation/R&D

Early wins

Slow Down HR Costs

Top Talent focus

Sales, Sales, Sales

Increase attrition




Revenue Growth

Base Retention

Share Gain Positioning Adjacent Market

New Business


Product Leadership

Customer Intimacy

Competencies Information Systems

Motivation, empowerment,

alignment

Financial

Learning & Growth

Internal Process

Customers

Investment Strategy

Productivity Market Value

Focus: Corporate Alignment




Financial

Learning & Growth

Internal Process

Customers / Distributors

Revenue Growth

ProductivityMarket Value

Department Operations

Supplier & Alliances

External Involvement

Target Markets

Products/ Services

Channel Strategies

Human Resources

Technology

Information & IntelligenceSystems &

Processes





Financial

Learning & Growth

Internal Process

Customers / Distributors


Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow

Customer Complaints. Customer Acquisition Rate. Product Availability. Product Quality & Service. Renewal Annual Subscription. Distributor Rank Achievement. No. of Active Distributor. No. DC/Regional Sales. Distributor with commission

Customer Database Availability. Accuracy of Forecast Planning. Continuous Improvement. Response Time to Customer Needs. Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P

% of staff evaluated on Core Competency Framework. % of staff with Career Development Plans. No. of training hours completed per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment




1. Why we hate Performance Management Systems

Implementing the Right System




What is Performance Measurement used for?

Reward?

Discipline?

Development?

Motivation?

Promotion?

Monitor?




Behavior-based

Knowledge/Skill based

Results-based

Trait-based

Which system should we use?

Managing Performance = Managing Expectations

What’s YOUR expectation?

Activity based




Dangers of Best Practice and Benchmarking…

“Abraham Wald’s Work on Aircraft Survivability”, M. Mangel and F.J. Samaniego

Where would you focus reinforcement?




Company Performance

high

low

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005



Company Performance

high

low

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005


Selection Bias:

1. Success Traits = Failure Traits

2. Successful Cases + Failure Cases

3. Worst effects in ‘Old’ industries

4. Overvalue ‘best practice’ theories

5. Current accomplishments unfairly magnified by past achievements

6. Reverse Causal


Also known as ‘Beware of Consultants’:

1. Selection Bias

2. Big vs. Small company

3. Selective success stories

4. Correlation vs. Causal

5. Survey problems

6. Practical vs. Glamour-to-have

7. Leaders who benchmark




Survey Problems…

“In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied.”

HBR March/April 1996




Why BSC?

• Reason 1: Balanced

• Reason 2: Cause-and-Effect




Financial

“To satisfy our stakeholders, what Financial objectives must we accomplish?”

Internal Process

“To satisfy our customers, in which internal business processes must we excel?"

Customer

“Who are our target customers?

What is our value proposition?”

Learning & Growth

“What capabilities and tools do our employees require to help them execute our strategy?

BSC: Balanced & Cause-and-Effect




Performance Management for Change

o Grievance levelo Absenteeismo Discipline issueo Poor work ethics

Deg

ree

of

Cla

rity

of

Job

Res

ult

sV

isio

n L

ed

Pe

rfo

rma

nc

e d

rive

n

High

Low HighLevel of Trust & Commitment (Between Subordinate & Boss)

UNCLEAR

Discuss & Agree on Account

Objectives & Key Measures

Standards for Perform

ance

Provide Coaching & Counselling

RESULTS

DRIVEN

High Level of employee

empowerment

High Employee Performance

High Employee Satisfaction

High Employee Involvement

Challenging Working

Environment

Optimum HRM Cost Structure

Review Perform

ance & Results

2. Performance Planning

MBO, KPIs, Competencies




District Engineer, TNB

Duties and Responsibilities

If stated as Accountabilities then the job must produce :

Control, operate and maintain the District Distribution System

Ensure uninterrupted supply to consumers in the district by operating the District Distribution System.

Manage major supply projects to customers in the district.

Ensure satisfaction of the major customers in the district by managing supply and Distribution.

Supervise all technical staff in the district.

Ensure high performance and Productivity of technical staff by adopting proper human resource management methods on selection, training, coaching, counselling and motivation.

Plan and design the High voltage system

Ensure availability of adequate supply for future needs of industries in the district by planning and designing the High voltage System

MBO Standards

A Excellent

B Good

C Average

D Poor

E Useless




MBO Standards

A Excellent

B Good

C Average Good

D Poor

E Useless




MBO Standards

A Excellent Excellent

B Good Very Good

C Average Good

D Poor Not Good

E Useless Commit Suicide




MBO Standards

A Excellent Consistently achieved 4 for 3 quarters

B Very Good Higher than planned results

C Good Achieved Planned Results

D Not Good Did not fully meet planned results

E Commit Suicide

Unacceptable performance




MBO Target Setting - Objectives and Measures

SMART Targets• Specific (definite objective and purpose to be

achieved)• Measurable (by definite observation and a certain time

one should be able to tell whether or not it is attained)• Achievable (Must be within reach of the employees,

e.g. to meet stated deadlines, neither too high nor too low)

• Rewarding (Rewarding means it must be satisfying to you, no one else)

• Time phased (per quarter, per year. By end of fiscal year, by 15th of November)




MBO Target Setting - Objectives and Measures

Quality How well the result is produced / performed

Errors and Appearance

Quantity How much / many of the results are produced or performed

Cost At what expense the result is produced / performed

Timeliness When is the result to be produced / performed




Sample KPIs for Each Discipline


• Price• Selection• Convenience• Zero Defects• Growth


• Price• Selection• Convenience• Zero Defects• Growth

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

focus

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

focus

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline




• Operational Excellence• Move know-how from top performing

units to others• Benchmark against best in class• Ensure operations training for all

employees• Use disciplines like TQM for continuous

learning to reduce costs and improve quality






• Customer Intimacy• Capture knowledge about customers• Understand customer needs• Empower front line employees• Ensure that everyone knows the

customer• Make company knowledge available to

customers




• Product Leadership• Reduce time to market• Commercialize new products fast• Ensure that ideas flow• Reuse what other parts of the company

have already learned• Ensure there are multiple sources of

funding





Lagging and Leading KPIs

Lagging

Leading

Historical, Outcome, Results, 1st Level, Usually Financial or tangible, Quarterly and Annually

Current, Indicators, Drivers, 2nd Level onwards, usually non-financial or intangible, Weekly, Monthly and Quarterly




Developing ‘Driver’ KPIs

Customer Retention % Lagging, 1st Level

Customer Satisfaction Index

Leading, 2nd Level

On time delivery

Time to market for new products

TNA %

Defect levels, warranty claims

Leading, 3rd Level onwards




What is the Objective?

‘Do-or-Die’ KPIs for CNI• Revenue• ARPU

• Sponsoring• Retention

• Commission Plan (BDP)• Product• Corporate Image




MBO – Sources of KRAs and KPIs, Targets

1. Department Scorecard [E3],

2. Employee’s Job Description,

3. Department SOP,

4. Department Quality Objectives,

5. Corrective Action Requests (CAR),

6. Preventive Action Requests (PAR), or

7. Special Projects relevant to the employee.




E3 – Department BSC

Financial Perspective

Goals Measures Targets CAPEX OPEX

Quality

Innovation

On Time Delivery




Individual Performance

1.0 Key Results

Area (Max 6)

2.0 Goals and

Targets for Q1

3.0 Achievements and

Efforts for Q1

4.0 Merit* 5.0 Rating (Merit x Weight)

6.0 Appraiser

Overall Comments/ Feedback




Competency Target Setting

1. Initiative

2. Teamwork

3. Problem Solving

4. Leadership

5. Integrity

What’s the problem here?




Competency Target Setting

Initiative

1. Minimize problems quickly without needing to be asked

2. Seeks personal growth and professional self-development

3. Doing more than is required/expected in a job

4. Seeks new and improved solutions and approaches to completing assignments

5. Looks for opportunities to help others and team




Competency Standards

3 Meets behavioral standards consistently. Is a good role model for others.

2 Meets behavioral standards some of the time. Needs improvement.

1 Does not meet behavioral standards. Require counseling or disciplinary actions.




Performance Setting & Review ScheduleStep One - August

Senior Management – Facilitate BOD Strategic Planning process by studying & producing appropriate papers from BOD

• Macro economic data and observations

• Emerging business conditions

• CNI’s strategic considerations/needs

Step Two - AugustBOD consideration & consensus on:

• Macro economic information

• Emerging business conditions

• SWOT

• Strategic Needs

• Broad business goals & operating philosophy

Sr. Mgmt Strategic Planning Process

Study BOD observations and directions & review:

• Corporate vision / mission

• Change dimensions

• Strategic initiatives

• Corporate key results

Step Three September - October

Sr. Management Annual Management Plan for Board of Directors Approval

Step Five - November

Approved Annual Management Plan for execution

Step Six - December

• Senior managers performance plans, objectives and standards

• Performance vs. plans for top management review

Quarterly performance review reports of the Board of Directors

Step Four - November

Step Seven - January

• Review annually performance plans vs. results

3. The Manager’s Role in Performance Management

Appraisal, Evaluation, Communication, Coaching, Counseling, Mentoring




Coaching & Counseling

Month 1

Performance Planning

Month 12

Performance Appraisal

Month 2-11

?




• Beating a Dead Horse




Most Common Desperate Performance Improvement methods

1. Send for more Training

2. Enforce more Incentives (positive/negative)




Mager and Pipe

• Analyzing Performance Discrepancies




Alignment: 4-Wheels Model

Philosophies

Corporate

ObjectivePerformance Objectives

StructureResources

Leadership

Person




4. Performance Evaluation

Formal Review, Incentives, Compensation, Reward, Differentiation




Performance Evaluation Session: Key Ingredients

Self Review

Evaluator’s Review

Next Steps

Support/ Resources

ImprovementMethods




PASSE

Praise and encourage

Ask questions

allow the person to Save Face

use SMART goals

Encourage small improvements

Performance Evaluation Session: Communication


Incentive Problems

Problem with Incentives in managing performance:• Most people are confused or unsure about

compensation tools• Some people misuse compensation tools




What to Pay?

• Pay for Service

• Pay for Job

• Pay for Performance

• Pay for Competency




Performance and Incentives

1. Internal Equity1. Internal Job Rates

2. Performance differentials

2. External Competitiveness1. External Job Rates - Benchmarking

2. Demand & Supply




What’s the Difference?

• Increment

• Bonus

• Promotion




Compa Ratio Table

Use this if your company: • Pays for Performance, and • Pays for Job rates

Def:

Mid-Point = Mid Point of Pay Grade

Grade E2

Min RM2,000

MID RM2,500

Max RM3,000




Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5

4

3

2

1




Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5

4

3 5%

2

1




Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 9

4 7

3 9 7 5% 4 3

2 2

1 0




Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 15 12 9 8 7

4 12 9 7 5 3

3 9 7 5% 4 3

2 6 4 2 1 0

1 4 2 0 0 0




Dangers of Direct Incentives

1. lessen internal motivation, 2. switch to mercenary mode, 3. do something and do not do something else, 4. bribe and fraud culture, 5. easier for competitors to recruit, 6. lessen teamwork & helpful culture, 7. less and less impact for same value, 8. mockery of base salary and employment

contract, 9. rebellion from non-incentivised staff, 10.end up incentivising everyone for everything?,




Other Performance Review processes

1. Result Planning schedule inc. BSC, Budget2. Quarterly Performance Appraisals3. EMC – sales performance4. QMS – non-sales performance5. Divisional meetings6. Annual Appraisals7. Specialized KPI committees8. CAR, PAR, SCAR KPI improvements9. Internal Audit & MSD – process problems10. HRM & TND – people problems11. Supervisor Induction – PM training12. Talent Management




Employee Distinctions through Relative Performance



Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 9 8 7 6 5

4 8 7 6 5 4

3 7 6 5% 4 3

2 6 5 4 3 2

1 5 4 3 2 1


Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 20 15 12 8 5

4 18 12 9 5 3

3 9 7 5% 4 3

2 1 1 1 0 0

1 0 0 0 0 0


Employee Distinction

Average Rating

Rating Multiply Factor

Example Rating

Example Increme

nt

> 4.1 5 2 4.2 8.4%

> 3.3 – 4.1 4 1.2 3.5 4.2%

> 2.3 – 3.3 3 0.75 2.8 2.1%

> 1.3 – 2.3 2 0.5 1.8 0.9%

≤ 1.3 1 0 1.0 0%


Employee Distinction

Group I

(Talent Pool)

Group II

( Potential)

Group III

( Performance)

Group IV

(Counseling)

2 3 4 5

23

45

PE

RF

OR

MA

NC

E

POTENTIAL• Identify


Curse of the Bell Curve

‘A’ Staff

‘B’ Staff

‘D’ Staff

‘E’ Staff

‘C’ Staff


http://upload.wikimedia.org/wikipedia/commons/8/8c/Standard_deviation_diagram.svg

Managing People performance: A Summary


More Problems….

1. cost of evaluation vs. gains of evaluation

2. defer achievements of a good year to next

3. barely achieve so that next target is not high

4. spread improvements over several years

5. value reducing actions to increase performance

6. most ratings are 4 or 5, new people are 3


Before I forget…

• Re-train Appraisers• Train new Appraisers


Alignment: 4-Wheels Model

Philosophies

Corporate

ObjectivePerformance Objectives

StructureResources

Leadership

Person


Thank You.

soft copy of slides: www.totallyunrelatedrandomanddebatable.

blogspot.com