75256-Leading Indicators (Activity Drivers)

7/27/2019 75256-Leading Indicators (Activity Drivers)

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Performance Measures- Leading

Indicators (Activity Drivers)

Prepared by Group 4:

Andrew Molloy

Amy MillerMike Elicker



Steps to leadingperformance measures

Leading performance measures are based onactivity drivers that drive the performance of acompany.

1. The first step in performance measurement are

activity drivers that drive the performance of acompany.

2. The second step to reaching your overall goal inperformance is leading performance indicators.

3. The third step to reaching your company’s overallgoal are the specific results your company islooking for.



Performance Drivers

Performance drivers are structured around trying toachieve a firms overall goals, strategies, andobjectives.

Performance drivers are the: process, learning, and

alignment of the employees working towardperformance indicators.

By continuing to develop performance driversleading toward effectiveness and efficiency acompany will be heading toward their overall goal.



Performance Indicators

Performance indicators- represent a set of measuresfocusing on the aspects of organizational performancethat are the most often critical for the current andfuture success of the organization.

There are several examples of performance indicatorsthat a company might use. Some of these examplesinclude:

Environmental

Customer

Competitor Internal

Human resource

These indicators will help for a business to categorizetheir indicators into groups to help them measure and

set up their performance drivers to work toward theirresults and specific goals.



Results

The results of the activity drivers and performanceindicators are what a company sets their overallgoals for.

Some results that a company might be aiming for

are customer satisfaction, cost per resolution, andemployee satisfaction.

These results can be reached when a company hasall of these steps in place and fallow them inreaching their overall goal to be a successfulbusiness.



Diagram of relationships between Performance drivers,Leading indicators, and results



There are many types of

leading indicators throughouta company that affectperformance



Company performanceincludes leading indicators of:

Customer Satisfaction

Growth and Retention

Internal Operations

-efficiency, speed, minimizing qualityproblems

Human Resource Systems



A further breakdown of leading indicators shows

which drivers lead tospecific results…



Indicators can be broken downinto smaller categories:

1. Organizational

2. Environmental3. Group/Departmental

4. Facility/Individual



Environmental:

Outside factors such as governmentregulations, economic cycle, politics

Example: Economy is headed for a

recession. Company must plan to beahead of the curve.

Solution: Address the orders dept.

Measure how many orders should bedecreased to account for a slowingeconomy.



Organizational:

Company Strategy, Policy,Structure

Example: Mgmt wants to

increase sales of Product A

Solution: The amount of Research and Development of

Product A needs to be measuredto determine how many hoursto increase by.



Group/Departmental:

Group relationships,responsibility, and assignments

Example: Mgmt wants to

increase inter- office grouprelations.

Mgmt may determine they want

to do this by increasing timespent working in teams. Amountof hours per week increased of working in teams must be

measured.



Individual:

Management style, skills,behavior

Example: Mgmt feels productivity

will increase if employee skills arehigher.

Solution: Extra training and

classes may be required toachieve this. Measurement of hours required to raise employeeskills must be conducted.



Key Point:

Measures of thesedrivers must be tied

to what the companyis trying to

accomplish



Other Common LeadingIndicators

Increase returning customers by15% this year……gain moremarket share

Reduce employee turnover thisyear……improve efficiency

Increase sales is a particular

department…..boost overallsales



Advantages

There is a closer link to long-term organizational strategies

Example- improving customer

relations, market competition,expanding new productdevelopment, or expandingorganizational capabilities may be

important strategic goals, but mayhinder short-term accountingperformance.



Advantages

Critics of traditional measures arguethat drivers of success in manyindustries are “intangible assets,” rather than figures on the balance

sheet A recently published study found that

measures related to companyinnovation, management capability,employee relations, quantity, and brandvalue explained a significant proportionof a company’s value, even afterfactoring in accounting assets andliabilities



Advantages

Often times non-financial indicatorscan be better indicators of futurefinancial performance For example, when the ultimate goal is

maximizing financial performance,current measures may not capture long-term benefits from decisions currentlybeing made.

Investments in customer satisfaction

can improve future economicperformance by increasing revenues andloyalty of existing customers, andattracting new customers.



Drawbacks

Time and cost

No common denominator

No statistical reliability in themeasures chosen



Implementation

Good understanding of value drivers What contributes to long-term success?

Principles for translating corporate objectivesinto measures that guide management’s dailyactions

Many companies go wrong here Statistical analysis of leading and lagging

indicators of financial performance

Business model - help determine whichmeasures best predict future financialperformance Assign weights to measures based on the

strengths of statistical relations

Integration



Questions?

75256-Leading Indicators (Activity Drivers)

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