Performance Management EGN 5622 Enterprise Systems Integration Spring, 2012

Performance ManagementPerformance Management

EGN 5622 Enterprise Systems IntegrationEGN 5622 Enterprise Systems IntegrationSpring, 2012 Spring, 2012

Corporate Performance ManagementCorporate Performance Management

Events

Act

Business ProcessesStrategiesGoals/Results

Decide

Vision

Measure

Compare

„One cannot manage what cannot be measured!“

Performance ManagementPerformance Management

Concepts & TheoriesConcepts & Theories

Balanced Scorecard (BSC) ConceptBalanced 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.

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Exercis

eSAP-SEM Faculty Workshop July

2007 2-4

Perspectives of BSCPerspectives of BSC

1. Financial perspective (financial results)2. Customer perspective (customer

satisfaction).3. Internal perspective (Continuous

improvement of internal processes)4. Learning and growth perspective (the

organization’s innovation and improvement activities)

Note: Focus on operational and financial measures that

drive future performance:Balance

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Exercis


2007 2-5

Adaption of Balanced ScorecardAdaption of Balanced Scorecard

Balanced Scorecard ApproachBalanced Scorecard Approach

1. Financial Perspective1. 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.Balance

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Exercis


2007 2-8

1. Financial Perspective (- cont.)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. Strateg

y Map

sSAP-SEM Faculty Workshop July

2007 3-9

2. Customer Perspective2. 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.

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Exercis


2007 2-10

2. Customer Perspective (- cont.)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.Strateg

y Map


2007 3-11


Operational ExcellenceExcel at competitive pricing, product

quality, product selection, lead time and on-time delivery.

Strateg

y Map


2007 3-12


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)

Strateg

y Map


2007 3-13


Product LeadershipFunctionalityFeaturesPerformance

Strateg

y Map


2007 3-14


Intended outcomes from value propositionMarket share in targeted customer segments.Account share with targeted customers.Acquisition and retention of customers in

targeted segments.Customer profitability.

Strateg

y Map


2007 3-15

3. Internal Business Process 3. Internal Business Process PerspectivePerspectiveWhat must firm excel at to satisfy

customer needs? These are factors that affect:◦Cycle time◦Quality◦Employee skills◦Productivity

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2007 2-16

3. Internal Business Process 3. Internal Business Process Perspective (-cont.)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. Bala

nced

Scoreca

rd Exercis


2007 2-17

3. Internal Business Process 3. Internal Business Process Perspective (-cont.)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

Strateg

y Map


2007 3-18

4. Learning & Growth Perspective4. Learning & Growth Perspective

Employee capabilities and skillsUse of technologyClimate needed to support a strategy

Strateg

y Map


2007 3-19

4. Learning & Growth Perspective 4. Learning & Growth Perspective (- cont.)(- 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.

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2007 2-20

Enterprise Performance Enterprise Performance (Summary)(Summary)

Major operational performance measure types:◦Cost◦Lead time◦Quality◦Benefit (profit)

Performance MeasurePerformance Measure

Foundation for performance measure◦Mission>value>vision>strategy (game

plan)>strategy roadmap (implementation plan)>performance measure

SAP-SEM Faculty Workshop July 2007 4-23

BSC vs

MC vs

Dashboards

THE BALANCED SCORECARD AND THE BALANCED SCORECARD AND STRATEGYSTRATEGY

Vision

Strategy

Strategic Objectives

Balanced Scorecard Performance measurement

Performance measurementPerformance measurementPerformance 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)

Performance measurementPerformance measurementCPI: 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)

Performance MeasurementPerformance MeasurementKPI, 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

Performance Measurement and KPIsPerformance 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.

CompanyVision

Business ProcessesStrategiesGoals /Results

Key Performance Indicator dashboard

Performance MeasurementPerformance 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

Performance MeasurementPerformance Measurement

DPI, from internal process perspective (1)◦ For operations management processes

Supply Production Distribution Risk management

◦ For customer management processes Selection Acquisition Retention growth

Performance MeasurementPerformance MeasurementDPI, 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

Performance MeasurementPerformance MeasurementDPI, from learning and growth perspective

◦ For human resource Skills Training Knowledge

◦ For information Systems Database Network

◦ For organization structure Culture Alignment Leadership Teamwork

Performance MeasurementPerformance MeasurementDPI, 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

Performance MeasurementPerformance MeasurementDPI, 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

Performance MeasurementPerformance MeasurementPI, 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

Performance MeasurementPerformance 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 In-time work completion Tooling consumption rate Equipment utilization

◦ For a design worker In-time work completion Design change rate Design for manufacturability

Performance MeasurementPerformance 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

Implementation in SAP/SEMImplementation in SAP/SEM

Performance Management


SEM Workshop

Intro

SEM OverviewSEM Overview

url: help.sap.com/saphelp_sem40bw/helpdata/en/15/d75f3785b8fc49e10000009b38f842/frameset.htm


BSC vs

MC vs

Dashboards

ALL VIEWED IN CONTEXT OF ALL VIEWED IN CONTEXT OF PERFORMANCE MEASUREMENT (PM)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).*


BSC vs

MC vs

Dashboards

COMPARATIVE FEATURESCOMPARATIVE FEATURESBSC

Overview with Perspectives

Strategy maps illustrate cause and effect

SBUs integrated into corporate model.

Status settingsDifferent views

Management Cockpit (MC)Walls (Panels)KPI ReportingDifferent visuals (dials,

graphs, etc.)


BSC vs

MC vs

Dashboards

THE BALANCED SCORECARD AND THE BALANCED SCORECARD AND STRATEGYSTRATEGY

Vision

Strategy

Strategic Objectives

Balanced Scorecard Performance Measurements


BSC vs

MC vs

Dashboards

BALANCED SCORECARDBALANCED SCORECARDNot 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).


BSC vs

MC vs

Dashboards

MC STRUCTUREMC STRUCTUREVisual 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).


BSC vs

MC vs

Dashboards

MC Structure, cont.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.


BSC vs

MC vs

Dashboards

DASHBOARD (CONTROL PANEL)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’.


BSC vs

MC vs

Dashboards

DASHBOARDSDASHBOARDSPresentation 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).


BSC vs

MC vs

Dashboards

DASHBOARDS FOR TEAMSDASHBOARDS FOR TEAMS 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. 95 - 103 (May – June 1994).


BSC vs

MC vs

Dashboards

ESTABLISHING CAUSE AND EFFECT ESTABLISHING CAUSE AND EFFECT RELATIONSHIPSRELATIONSHIPS 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).


BSC vs

MC vs

Dashboards

BOB KAPLAN’S CARBOB KAPLAN’S CAR“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. 102-040 (2003).

SAP-SEM Faculty Workshop July 2007 2-50Balanced Scorecard Exercise

Gilbraltar Server – Gilbraltar Server – SEM7.0 SEM7.0

Choose Client 800Login=fiu-001 ~

fiu-020Initial password: SUBWAY80Click checkmark

or hit enterAt prompt, change

your password


Balance

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Balanced Scorecard Balanced Scorecard (T-code UMB_PRES1)(T-code UMB_PRES1)


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Use: PC4YOU SBU SoftwareUse: PC4YOU SBU Software


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SETTING DATESSETTING DATES

Select OtherSelect Other


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PERIOD SET PERIOD SET


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SCORECARD OVERVIEWSCORECARD OVERVIEW


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PERSPECTIVES, OBJECTIVES & PERSPECTIVES, OBJECTIVES & MEASURESMEASURES

PERSPECTIVES◦Financial◦Customer◦Internal◦Learning & Growth


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OBJECTIVESOBJECTIVES


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MEASURESMEASURES


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STATUS SYMBOL KEYSTATUS SYMBOL KEY


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STATUS SETTINGSSTATUS 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.


Management

Cockpit Demo

nstratio

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Management Cockpit (MC)Management Cockpit (MC) (T-code: UMM_PRES) (T-code: UMM_PRES)


Management

Cockpit Demo

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SELECT PC4YOU Corporation SELECT PC4YOU Corporation CockpitCockpit


Management

Cockpit Demo

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SET THE PERIODSET THE PERIOD

OPEN NODES TO SEE MEASURES OPEN NODES TO SEE MEASURES AND STATUS INDICATORSAND STATUS INDICATORS

Expand all nodes


Management

Cockpit Demo

nstratio

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AFTER EXPANSIONAFTER EXPANSION

Exercises: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 Cockpita) 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.

Documents

Performance Management EGN 5622 Enterprise Systems Integration Spring, 2012