business measures discussion
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Business Measures Discussion
10 July 2000
Security Cooperation Conference
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Agenda
Thoughts on Business Measurement
Attributes of a Good Business Measure
Broad Types of Measures
Targets, Goals and Standards
Balanced Scorecard
Scorecard Cases
Discussion
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3KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
Business Measurement Discussion
Thoughts on Business Measurement
The purpose of Business Measurement is to motivate and measure the desired behavior in
an organization…
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Business Measurement Discussion
Thoughts on Business Measurement
Qualities of a world-class measurement system Provides relevant and timely information required to meet the
strategic objectives of the organization– Accurate product and customer cost information
– Accurate operational performance information
– Dissemination of information to the right people at the right time in the right format
Less is more… focuses on a handful of critical measures to accurately portray the performance of the organization
Enables management to simulate future scenarios on which significant decisions will be based
Allows management to understand operational processes and stimulate process dynamics in order to optimize efficiencies and outputs
Links the organization’s strategic, operational, and individual goal setting process
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Business Measurement Discussion
Inefficient mechanics of planning and reporting
Plans and measures not aligned with organization strategy and goals
Focus primarily on output measures
Information and reporting cycles not linked to business cycle
Plethora of spreadsheets and fragmented data stores
Information not easily accessible for employee action
Managers manage “around” plans
Employee goals and appraisals not linked to business objectives
Weak linkage between individual performance and rewards
Inefficient mechanics of planning and reporting
Plans and measures not aligned with organization strategy and goals
Focus primarily on output measures
Information and reporting cycles not linked to business cycle
Plethora of spreadsheets and fragmented data stores
Information not easily accessible for employee action
Managers manage “around” plans
Employee goals and appraisals not linked to business objectives
Weak linkage between individual performance and rewards
Efficient process focused on analysis and value addition
Measures are a key communication and commitment mechanism
Measures and information accessible and used by all levels of the organization
Continuous or dynamic planning, responsive to environment
Measures linked to organizational priorities
Budgeting process develops commitment to priorities
Employee goal setting and performance appraisal develops commitment to organizational goals
Rewards are linked to performance
Efficient process focused on analysis and value addition
Measures are a key communication and commitment mechanism
Measures and information accessible and used by all levels of the organization
Continuous or dynamic planning, responsive to environment
Measures linked to organizational priorities
Budgeting process develops commitment to priorities
Employee goal setting and performance appraisal develops commitment to organizational goals
Rewards are linked to performance
Common Current State Future Vision…Performance Commitment
Thoughts on Business Measurement (cont’d)
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Business Measurement Discussion
Attributes of a Good Business Measure
Supports Organization’s Goals and Objectives
– Aligned with organizations direction
Meaningful to customers
– Supports customer focus
Understandable, logical and repeatable
Shows a trend over time
Clearly defined
– Virtually anyone in the organization understands what it is
Economical to collect data
– The result is worth the effort
Provides timely information on which to take action
It drives the appropriate action or behavior
The measure is a means to an end, not an end in itself!The measure is a means to an end, not an end in itself!
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Business Measurement Discussion
Measures without targets, goals or standards are largely worthless
Measures without targets, goals or standards are largely worthless
Broad Types of Measures
Raw data indicators
– Simple data that is reviewed for information purposes
– Can not be tied to a process
– Provides a general perception of the health of the organization
External output measures
– Monitors volume or quality of output
– Provides possible insights into customer satisfaction
Internal process measure
– Provides insight into the performance of a process as the output is created
– Designed to show ways to improve processes
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Business Measurement Discussion
Targets, Goals and Standards
Must be attainable
– Are processes capable of operating at that level?
– Are resources sufficient to be successful?
– If additional resources are required are they justified?
Should be statistically based if possible
– Upper and lower performance limits set over time based on SPC
– Fully mapped and normalized processes a must
Must drive the desired behavior
– Consider behavior at all levels… individual, office, divisions, functional areas, etc.
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Business Measurement Discussion
Balanced Scorecard
A management system that aligns performance throughout an organization to achieve strategic goals
Performance is measured in four quadrants
– Financial, customer, internal processes, and organizational learning
The four quadrants are linked by cause and effect
– Improving performance in one quadrant affects the level of performance of the other quadrants
– For example, organizational learning and growth improves the execution of internal business processes, which leads to higher customer satisfaction, which results in financial gains
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Business Measurement Discussion
Balanced Scorecard (cont’d)
Balanced Scorecard links strategy to activities throughout the organization
– Key to linking performance
Accomplished by cascading strategic themes to identified critical success factors,
– Key performance factors are then quantified
Process is repeated as the groups look to the level above to derive their strategic objectives, critical success factors, and key performance indicators
– Ensures that performance at the lowest levels supports organizational strategy
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Business Measurement Discussion
Balanced Scorecard (cont’d)
Where is the organization going?
What do we need to “do well”?
How do we get there?
How do we measure how well we are doing?
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Business Measurement Discussion
Process/Product Perspective
Critical success factors Performance indicators Targets
Organizational Learning Perspective
Critical success factors Performance indicators Targets
Financial Perspective
Critical success factors Performance indicators Targets
Customer Perspective
Critical success factors Performance indicators Targets
Balanced Scorecard (cont’d)
Vision and Strategy
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Business Measurement Discussion
Process/Product Perspective
Critical success factors Performance indicators Targets
Organizational Learning Perspective
Critical success factors Performance indicators Targets
Financial Perspective
Critical success factors Performance indicators Targets
Customer Perspective
Critical success factors Performance indicators Targets
Balanced Scorecard (cont’d)
Vision and Strategy
How do we appear to our stakeholders?
What financial outcomes do we need to generate?
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Business Measurement Discussion
Are we able to sustain innovation, change and improvement?
How will we maintain our ability to meet customer expectations?
Process/Product Perspective
Critical success factors Performance indicators Targets
Organizational Learning Perspective
Critical success factors Performance indicators Targets
Financial Perspective
Critical success factors Performance indicators Targets
Customer Perspective
Critical success factors Performance indicators Targets
Balanced Scorecard (cont’d)
Vision and Strategy
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Business Measurement Discussion
Process/Product Perspective
Critical success factors Performance indicators Targets
Organizational Learning Perspective
Critical success factors Performance indicators Targets
Financial Perspective
Critical success factors Performance indicators Targets
Customer Perspective
Critical success factors Performance indicators Targets
Balanced Scorecard (cont’d)
Vision and Strategy
What business processes must we excel at to satisfy our customers?
Are these processes effective (i.e., adding value for customers)?
Are they efficient?
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16KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
Business Measurement Discussion
Process/Product Perspective
Critical success factors Performance indicators Targets
Organizational Learning Perspective
Critical success factors Performance indicators Targets
Financial Perspective
Critical success factors Performance indicators Targets
Customer Perspective
Critical success factors Performance indicators Targets
Balanced Scorecard (cont’d)
Vision and Strategy
How should we appear to our customers?
Are they satisfied?
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Business Measurement Discussion
Case Study - Managed Services Company $4 billion managed services company identified several concerns with existing
performance measurements: – More than 94 metrics used across the seven lines of business (LOB’s).
– Not clearly linked to vision and strategy, mainly financial, internal, and historical.
– Inconsistently tracked, communicated, and available to users.
Challenge– Develop a consistent and limited number of performance measures for each line of
business utilizing the framework of the Balanced Scorecard
– Cascade the line of business Scorecards to the Region, District, and Front Line levels linking LOB vision and strategy to Front Line operations
– Design and develop a delivery system to enable tracking of actual performance against measurement targets
Results– Replacement of monthly and quarterly reporting (President’s Report, Operating Report,
etc.) with Balanced Scorecard measurements.
– Drill down capabilities to measure performance against targets for LOB, Region, District and Front Line.
– Increased individual motivation and accountability to achieve performance that is linked to strategic goals
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Business Measurement Discussion
Case Study - Consumer Products Company
A $3 billion global consumer products corporation experienced external pressure to increase shareholder value. To achieve increased shareholder value the company wanted to address the total performance of all operating companies by developing and implementing Balanced Business Scorecards
Challenge– Create understanding of Balanced Scorecard concept and its relation to
shareholder value creation
– Create understanding of the strategic issues facing each company and the relation to the corporate objective of increasing shareholder value
– Determine how to measure and monitor the progress of the strategies set out by the operating companies in alignment with the corporate strategic objectives
Results– Realignment of the strategic initiatives and priorities of resource allocation of all
operating companies with the defined shareholder value objectives
– Realization of more relevant and accurate performance feedback to executives and managers in a timely manner
– Development of a performance management foundation for improved planning and budgeting
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Business Measurement Discussion
Balanced Scorecard Benefits
Focuses the organization on what is most important
– Linked to strategies, goals, impact to customers
Provides foundation for continuous improvement
– Balances improvement among all four quadrants
Supports the good of the organization over the good of an individual or functional group
Focuses attention on continuously improving employee performance
Balances internal and external perspectives
– Employees versus customers
Balances short and long term objectives
Balanced performance in all four quadrants is the end goal!Balanced performance in all four quadrants is the end goal!
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Business Measurement Discussion
Discussion