Slide 1

Chapter 4

Measuring the Success of Strategic Initiatives1CLASSROOM OPENERGREAT BUSINESS DECISIONS Henry Luce Decides to Rank Companies in the Fortune 500Henry Luce founded Time magazine in 1923 and Fortune magazine in 1929. Luce decided to create a ranking of Americas top 500 companies, called The Fortune 500, which has served as the corporate benchmark for the twentieth century as well as being a clever marketing tactic for the magazine. The Fortune 500 remains a powerful barometer of whos up and down in the corporate world. It is also a brilliant marketing tool since every single time its name is mentioned, so is the name of the magazine. However, being ranked on the Fortune 500 does not guarantee that the organization will achieve future success, and its measures of current achievement can also be limited and a bit confusing. BusinessWeek magazine created a similar ranking by introducing its biannual ranking of business schools. The issue routinely outsells all other issues of the magazine in the year.Learning Outcomes4.1Compare efficiency IT metrics and effectiveness IT metrics

4.2List and describe five common types of efficiency IT metrics

24.1 Compare efficiency IT metrics and effectiveness IT metricsEfficiency implies doing things right and effectiveness implies doing the right things. Efficiency IT metrics focus on technology and include throughput, which is the amount of information that can travel through a system at any point in time. Efficiency metrics include speed, availability, accuracy, Web traffic, and response time. Effectiveness IT metrics focus on an organizations goals, strategies, and objectives and include usability, customer satisfaction, conversion rates, and financial metrics. Ideally, an organization wants to operate with significant increases in both efficiency and effectiveness.4.2 List and describe five common types of efficiency IT metricsEfficiency IT metrics include:Throughput - the amount of information that can travel through a system at any point in timeSpeed the amount of time to perform a transactionAvailability - the number of hours a system is availableAccuracy - the extent to which a system generates correct resultsWeb traffic - includes number of pageviews, number of unique visitors, and time spent on a Web pageResponse time time to respond to user interactionsLearning Outcomes4.3List and describe four types of effectiveness IT metrics

4.4Explain customer metrics and their importance to an organization34.3 List and describe four types of effectiveness IT metricsEffectiveness IT metrics include:Usability - the ease with which people perform transactions and/or find informationCustomer satisfaction - such as the percentage of existing customers retainedConversion rates - the number of customers an organization touches for the first time and convinces to purchase products or servicesFinancial metrics - such as return on investment, cost-benefit analysis, etc.4.4 Explain customer metrics and their importance to an organizationCustomer metrics assess the management of customer relationships by the organization. These effectiveness metrics typically focus on a set of core measurements including market share, customer acquisition, customer satisfaction, and customer profitabilityMeasuring Information Technologys SuccessKey performance indicator measures that are tied to business drivers

Metrics are detailed measures that feed KPIs

Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals4How would you define success in relation to an IT system? Is it more important to have IT professionals or business professional define success for an IT system? What happens if only one group defines success?IT professionals know how to install and maintain information systems. Business professionals know how to run a successful business. But how does a company decide if an information system helps make a business successful?

Efficiency and EffectivenessEfficiency IT metric measures the performance of the IT system itself including throughput, speed, and availability

Effectiveness IT metric measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases5Efficiency focuses on the extent to which an organization is using its resources in an optimal way, Doing things rightEffectiveness focuses on how well an organization is achieving its goals and objectives, Doing the right thingsIt is important that your students understand the differences between efficiency and effectiveness if you are going to cover the Business Plug-In for Supply Chain Management. This plug-in deals with efficient vs. effective supply chains.Benchmarking Baselining MetricsRegardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks baseline values the system seeks to attain

Benchmarking a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance6How would you determine if the system was performing faster or slower than expected if there were not any benchmarks?They could not, it would impossible to determine

Benchmarking Baselining MetricsE-government benchmarks

7What types of things might e-government efficiency and effectiveness measure?E-government efficiency metrics includes the number of computers per 100 citizens, the number of Internet hosts per 10,000 citizens, the percentage of the citizen population onlineThe United States ranks first in terms of e-government efficiencyE-government effectiveness metrics include CRM practices, customer-service vision, approaches to offering e-government services through multiple-service delivery channels, and initiatives for identifying services for individual citizen segmentsCanada ranks number one in terms of e-government satisfaction of its citizensGovernments wanting to increase efficiency and effectiveness would benchmark themselves against these sorts of metrics

The Interrelationships of Efficiency and Effectiveness IT MetricsEfficiency IT metrics focus on technology and include:ThroughputTransaction speedSystem availabilityInformation accuracyWeb trafficResponse time

8Efficiency metrics monitor technology Efficiency metrics are easier to measure and monitor than effectiveness metricsThroughput - the amount of information that can travel through a system at any pointTransaction speed - the amount of time a system takes to perform a transactionSystem availability - the number of hours a system is available for usersInformation accuracy - the extent to which a system generates the correct results when executing the same transaction numerous timesWeb traffic - includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web pageResponse time - the time it takes to respond to user interactions such as a mouse click

Efficiency IT metricsThroughput - the amount of information that can travel through a system at any pointTransaction speed - the amount of time a system takes to perform a transactionSystem availability - the number of hours a system is available for usersInformation accuracy - the extent to which a system generates the correct results when executing the same transaction numerous times Web traffic - includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page Response time - the time it takes to respond to user interactions such as a mouse click

The Interrelationships of Efficiency and Effectiveness IT MetricsEffectiveness IT metrics focus on an organizations goals, strategies, and objectives and include:Usability Customer satisfaction Conversion rates Financial

10Effectiveness metrics are more difficult to measure and monitor, for example, how do you measure customer satisfaction?Which metrics are more important to a company like eBay efficiency or effectiveness?Both - eBay continuously measures both efficiency and effectivenessThe company must ensure constant availability and reliability of its systemsUsability - The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information.Customer satisfaction - Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.Conversion rates - The number of customers an organization touches for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.Financial - Such as return on investment (the earning power of an organizations assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

Effectiveness IT metricsUsability - The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information. Customer satisfaction - Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer. Conversion rates - The number of customers an organization touches for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet. Financial - Such as return on investment (the earning power of an organizations assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

The Interrelationships of Efficiency and Effectiveness IT Metrics Security is an issue for any organization offering products or services over the Internet

It is inefficient for an organization to implement Internet security, since it slows down processingHowever, to be effective it must implement Internet security Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser)

12Purely from an efficiency IT metric point of view, security generates some inefficienciesFrom an organizations business strategy point of view, security should lead to increases in effectivenessCLASSROOM EXERCISEMeasuring Efficiency and EffectivenessBreak your students into groups and ask them to create a plan to measure the efficiency and effectiveness of this course and recommendations on how they would improve the course to make it more efficient and more effective. Student answers to this exercise will vary. They will need to determine ways to benchmark current efficiency and effectiveness and ways to continuously monitor and measure against the benchmarks to determine if the course is becoming more or less efficient and effective (class quizzes and exams are the most obvious benchmarks). Ask your students to present their plan and recommendations to the entire class. Be sure students plans and recommendations address the following: Design of the classroomRoom temperature Lighting and electronic capabilities of the classroomTechnology available in the classroomLength of classE-mail and instant messagingStudents attendanceStudents preparationStudents arrival timeQuizzes and exams (frequency, length, grades)The Interrelationships of Efficiency and Effectiveness IT MetricsInterrelationships between efficiency and effectiveness

13Ideally, an organization should operate in the upper right-hand cornerOperating in the upper left-hand corner or the lower right-hand corner may be in line with an organization's particular strategiesNo organization would want to operate in the lower left-hand cornerMetrics for Strategic InitiativesMetrics for measuring and managing strategic initiatives include:Web site metrics Supply chain management (SCM) metrics Customer relationship management (CRM) metrics Business process reengineering (BPR) metrics Enterprise resource planning (ERP) metricsReviewing the metrics for measuring strategic system initiatives will help your students understand why these critical business systems are important to a running a business. Understanding inventory turnover, customer turnover, and sales opportunities and that these are all measured and managed by IT systems will help them understand why they need this course and need these systems to run their businesses.Ask your students how these strategic initiatives were maintained, managed, and measured prior to IT systems?14WEB SITE METRICSWeb site metrics include:Abandoned registrations Abandoned shopping cards Click-through Conversion rate Cost-per-thousand Page exposures Total hits Unique visitorsAbandoned registrations: Number of visitors who start the process of completing a registration page and then abandon the activity.Abandoned shopping carts: Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise.Click-through: Count of the number of people who visit a site, click on an ad, and are taken to the site of the advertiser.Conversion rate: Percentage of potential customers who visit a site and actually buy something.Cost-per-thousand (CPM): Sales dollars generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine.Page exposures: Average number of page exposures to an individual visitor.Total hits: Number of visits to a Web site, many of which may be by the same visitor.Unique visitors: Number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web sites.

15Abandoned registrations: Number of visitors who start the process of completing a registration page and then abandon the activity. Abandoned shopping carts: Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise. Click-through: Count of the number of people who visit a site, click on an ad, and are taken to the site of the advertiser. Conversion rate: Percentage of potential customers who visit a site and actually buy something. Cost-per-thousand (CPM): Sales dollars generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine. Page exposures: Average number of page exposures to an individual visitor. Total hits: Number of visits to a Web site, many of which may be by the same visitor. Unique visitors: Number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web sites.

SUPPLY CHAIN MANAGEMENT METRICS Back order Customer order promised cycle time Customer order actual cycle time Inventory replenishment cycle time Inventory turns (inventory turnover)Supply Chain Management MetricsBack order: An unfilled customer order. A back order is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand.Customer order promised cycle time: The anticipated or agreed upon cycle time of a purchase order. It is a gap between the purchase order creation date and the requested delivery date.Customer order actual cycle time: The average time it takes to actually fill a customers purchase order. This measure can be viewed on an order or an order line level.Inventory replenishment cycle time: Measure of the manufacturing cycle time plus the time included to deploy the product to the appropriate distribution center.Inventory turns (inventory turnover): The number of times that a companys inventory cycles or turns over per year. It is one of the most commonly used supply chain metrics.

17 Back order: An unfilled customer order. A back order is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand. Customer order promised cycle time: The anticipated or agreed upon cycle time of a purchase order. It is a gap between the purchase order creation date and the requested delivery date. Customer order actual cycle time: The average time it takes to actually fill a customers purchase order. This measure can be viewed on an order or an order line level. Inventory replenishment cycle time: Measure of the manufacturing cycle time plus the time included to deploy the product to the appropriate distribution center. Inventory turns (inventory turnover): The number of times that a companys inventory cycles or turns over per year. It is one of the most commonly used supply chain metrics.

Purchase order creationRequested delivery dateCustomer order PROMISED cycle timeCustomer order ACTUALcycle timeCYCLE TIMEDEPLOY DISTRIBUTION CENTERInventory replenishment cycle timeCUSTOMER RELATIONSHIP MANAGEMENT METRICS Customer relationship management metrics measure user satisfaction and interaction and includeSales metrics Service metrics Marketing metricsSales MetricsNumber of prospective customersNumber of new customersNumber of retained customersNumber of open leadsNumber of sales callsNumber of sales call per leadAmount of new revenue Amount of recurring revenueNumber of proposals given

Service Metrics Cases closed same day Number of cases handled by agentNumber of service calls Average number of service requests by typeAverage time to resolution Average number of service calls per dayPercentage compliance with service-level agreementPercentage of service renewalsCustomer satisfaction level

Marketing MetricsNumber of marketing campaignsNew customer retention ratesNumber of responses by marketing campaignNumber of purchases by marketing campaignRevenue generated by marketing campaignCost per interaction by marketing campaignNumber of new customers acquired by marketing campaignCustomer retention rate Number of new leads by product

Ask your students if they can think of any additional sales, service, or marketing metrics not mentioned in the text

20Sales MetricsNumber of prospective customersNumber of new customersNumber of retained customersNumber of open leadsNumber of sales callsNumber of sales call per leadAmount of new revenue Amount of recurring revenueNumber of proposals given

Service Metrics Cases closed same day Number of cases handled by agentNumber of service calls Average number of service requests by typeAverage time to resolution Average number of service calls per dayPercentage compliance with service-level agreementPercentage of service renewalsCustomer satisfaction level

Marketing MetricsNumber of marketing campaignsNew customer retention ratesNumber of responses by marketing campaignNumber of purchases by marketing campaignRevenue generated by marketing campaignCost per interaction by marketing campaignNumber of new customers acquired by marketing campaignCustomer retention rate Number of new leads by product

BPR AND ERP METRICSThe balanced scorecard enables organizations to measure and manage strategic initiatives

The balanced scorecard is a management system, (in addition to a measurement system), that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterpriseThe balanced scorecard views the organization from four perspectives, and users should develop metrics, collect data, and analyze their business relative to each of these perspectives:The learning and growth perspective.The internal business process perspective.The customer perspective.The financial perspective

22