Post on 24-Dec-2015
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Chapter 6
Measuring Indicators
© David O’Sullivan
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Reflections Define a stakeholder for a particular organization. Explain the terms transactional and contextual
requirements. Define strategic thrust. List up to five strategic thrusts suitable for an
organization such as a hospital. Explain why strategic plans should be concise. Discuss how to evaluate strategic objectives. Name four common or emergent objectives currently
discussed in strategy literature.
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Activities
[Discussion of selected student ‘Activities’ from previous chapter]
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Learning Targets Describe the difference between financial and
nonfinancial indicators Understand the importance of indicators for motivating
employees Explain the balanced scorecard technique List a number of current or emergent indicators used in
many organizations Create a simple form for capturing the critical data for an
indicator Indicate the key data points in a performance chart
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Why Measure?
Corporate accounting scandals Overdependence on financial
measures which few understand Inability for organisations to
implement strategy
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Performance Indicators
Performance indicators are a measurable way of defining and monitoring goals
Financial and non-financial metrics
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Performance Indicators
Indicators that show progress towards organisational goals
Key questions: What has happened ? Why has it happened ? Is it going to continue ? What are we going to do about it ?
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Weakness of sole financial focus
Inconsistency with today’s business realities
Reliance on historical data (“driving by rearview mirror”)
Tendency to reinforce functional silos Sacrifice of long-term thinking Lack of relevance to many levels of the
organization Lack of connection to strategic objectives
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Defining Indicators Indicators show progress toward
defined performance targets and motivate people to achieve goals
Key questions addressed include: What has happened in the organization? Why has it happened? Is the trend going to continue? What impact have efforts had on the
trend?
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Macro Measures
Cost Quality Time (Flexibility) (Environment) (Culture)
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Indicator Attributes Related directly to strategic objectives Repeatable over time, allowing comparisons Fosters improvement rather than monitoring Reliable and verifiable Mix of financial and nonfinancial metrics Maximum number of measures Simple and easy to use Provide fast feedback Linked hierarchically
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Indicator Examples Operations
Productivity (hours/unit) Throughput (units per day) Utilization (output/capacity)
Sales and Marketing Sales per region Sales per model Marketing costs
People Labor turnover Overtime Absenteeism
Research and Development R&D expenditure Failure rates Additional revenue created
Environment Emissions Scrap and wastage Accidents
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‘Innovation Process’ Indicators Percentage of revenue attributable to recent innovations Percentage of ideas migrating to projects Number of projects per member of staff Percentage of staff involved in the generation of ideas or
problems Percentage of actions originating outside the organization Percentage of indicators without actions Number of projects per strategic thrust Percentage of strategies without actions Percentage of actions delivered within planned constraints Percentage of actions abandoned during the innovation
process Cost–benefit ratio of the portfolio undertaken
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Performance Charts
Outcomes vs. Drivers• Reflect the results or
outcomes of strategies
• Also called “lagging metrics” (show past performance)
• Examples: profitability, market share, customer satisfaction.
• Reflect how to drive the outcomes to be achieved
• Also called “leading metrics” (show early signs of strategy success)
• Examples: cycle time, defect rates, efficiency, performance versus plan
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Balanced Scorecard Developed by Robert Kaplan and David Norton (1996) Approach to strategic management and associated
performance measurement and development initiatives
Four perspectives:
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Implementing the Balanced Scorecard
Translate strategic objectives into operational actions
Measure strategic objectives through leading indicators
Make strategy a continuous and active process
Allow strategy to be a periodic agenda item at meetings
Balanced ScorecardPerspectives Objectives Indicators Targets
Firm Stretch
Financial Maximum Returns Return on Equity 12% 13%
Utilization of Assets Utilization Rates 7% 8%
Revenue Growth % Change in Revenue +11% +11%
Customer Customer Retention Retention % 75% 75%
Customer Service Survey Rating 85% 88%
Customer Relations % Self Initiated Calls 35% 40%
Internal Processes Fast Delivery Turnaround Time 15m 14m
Effective Service 1st Time Resolution 0.68 0.69
Optimal Cost % cost of sales 66% 64%
Resource Utilization Productivity Indicator 77% 80%
Learning & Growth High Skill Levels Skill set ratio 65% 68%
Employee Satisfaction Survey Index 75% 77%
Samples
Example
Variation
VariationObjectives Indicators Targets
Research Enhance supports for staff to bid successfully for research funding Publications 140Create and Expand research partnerships w ith other Universities and Industry Funding Acquired €1.6kDisseminate Develop training opportunities for graduate students Proposals €4.6mNew Knowledge Enhance graduate student engagement in teaching
Develop graduate school(s)Hire staff in line w ith research funding priorities
Teaching Promote teaching modules across disciplines Undergraduate Intake above 360 points 260Improve Review and revise credit allocations against learning outcomes Taugh Postgraduate Intake 240Learning Engage all teachers in effective teaching methods International Graduate Intake 60Outcomes Develop and enhance pre-University activities for studentsand Experiences Promote learner engagement - attendance, PEP, CKI, clubs&soc
Develop effective teaching evaluation processIncrease lifelong opportunities in distance and blended learning
Internal Implement a w orkload model for the College Cost Avoidance €0.4kProcesses Migrate to new engineering building BudgetsUtilise and Lobby the University to designate funding for capital equipment.Improve Develop greater access to research and teaching information.Resources Enhance bi-lingual signage and usage in communications.and Processes Enhance use of electronic and paperless communication
Improve compliance to information guidelines and policy
Engagement Greater interaction betw een Discipline Heads (DH) and staff College Meeting Attendance 60%and Growth Develop mentoring scheme for new er members of staff Student Assessment Audits 75%Engage and Greater involvement of staff in policy making.Empower Staff Regularise meetings betw een college and UMT
Enhance communications w ith studentsRepresent CoEI values in staff promotional schemes
Initiatives
Indicators
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Indicators 2009 Current Targets Stretch
Research Publications 140 140 140 140Funding Acquired €1.6k €1.6k €1.6k €1.6k
Teaching Undergraduate Intake above 400 points 260 260 260 260Taugh Postgraduate Intake 240 240 240 240International Graduate Intake 60 60 60 60
Internal Budget €0.4k €0.4k €0.4k €0.4kProcesses Cost Avoidance
Engagement College Meeting Attendance 60% 60% 60% 60%and Growth Student Assessment Audits 75% 75% 75% 75%
2010
Invisible Thread
Business Unit
Department
Individual
Goals Actions
Top Down Planning
Bottom Up Implementation
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Summary Describe the difference between financial and
nonfinancial indicators Understand the importance of indicators for motivating
employees Explain the balanced scorecard technique List a number of current or emergent indicators used in
many organizations Create a simple form for capturing the critical data for an
indicator Indicate the key data points in a performance chart
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Sample Performance Indicators
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Activities
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Search Online
Keyword: ‘Balanced Scorecard’ http://www.ted.com
Chris Anderson on the four key stages of any viable technology
Yochai Benkler on collaborative projects Charles Leadbeater that innovation isn't
just for professionals anymore