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Performance Improvement Consultancy
Arriffin Mansor
Contents :
1. Corporate Performance Scorecard
2. Strategy Map Framework
3. Four Perspectives in Balanced Scorecard
4. Identifying Key Performance Indicators
5. Strategy Map in Corporate Functions (HR, IT, Finance and Marketing)
2
3
Performance management
Targets
Key Result Areas
Objectives
Key Perform
ance Indicato
rs
Rewards
Standards
Variance Analysis
Training Need
Analysis
Appraisals
Cost Efficiency
Long-term Shareholder Value
Revenue Growth
Price Availability BrandServiceQuality
Operations Management
Processes
Human Capital
CustomerManagement
Processes
Innovation Processes
Regulatory and Social Processes
Organization Capital Information Capital
Strategy Map Framework
Financial
Customer
Internal Process
Learning & Growth
4
Financial Perspective
• In private companies, the financial perspective is the main objective (ultimate goal) – without having to sacrifice the interests of other relevant stakeholders (community, environment, government, etc.)
• In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.
5
Improve ROE
Improve Gearing
Improve Cost Structure
Increase Asset Utilization
Increase ROA
Strategic Objectives in Financial
Expand Revenue Opportunities
Enhance Customer Value
6
Rent Lease fixed assets
Buy assets on loans
Sell on cash buy on credit
Customer Perspective
• This perspective is very instrumental, because without customers, how can a company survive?
• Customer perspective covers the following elements:• Customer acquisition • Customer retention• Customer profitability • Market share• Customer satisfaction
7
Price Availability BrandServiceQuality
Customer Acquisition
Customer Satisfaction
Customer Retention Customer Profitability
Market Share
Strategic Objectives in Customer
8
Performance Management Framework
IdentifyingDefining
MeasuringMonitoring Reporting
Key Performance Indicators
Company strategy
VisionMissionStrategy
Strategy Map
9
Agenda today
• What are the critical performance gaps?• Comparing actuals against industry and
company standards• Analyse staff incompetencies.• Analyse competency gaps using perspectives
and key result areas.• Analyse for true competency gaps
Corporate Objectives
ROEROAROS
Performance Gap analysis
Actuals Standards Gaps
Internal Process Perspective
• This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.
• There are four main themes in this perspective, namely:
• Operations Management Process
• Customer Management Process
• Innovation Process
• Regulatory and Social Process
13
Operations Management
Processes
CustomerManagement
Processes
Innovation Processes
Regulatory and Social Processes
Processes that produce and deliver
products and services
Processes that enhance customer
value
Processes that create new products and
services
Processes that improve communities and the environment
• Supply• Production• Distribution
• Selection• Acquisition• Retention• Growth
• New Ideas• R&D Portfolio• Design/ Develop• Launch
• Environment• Safety & Health• Employment• Community
Strategic Objectives in Internal Process
14
Learning & Growth Perspective
• This perspective reflects the capability that a company should have, namely:
• Human Capital
• Organization Capital
• Information Capital
• This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance.
15
• The measure of success must show clear, specific and
measurable performance indicators.
• The measure of success should be declared explicitly and in
detail so that it is clear what is being measured.
• Costs to identify and monitor the measure of success should
not exceed the value that will be known from the measurement.
Guidelines in Formulating the KPI
KPI Guidelines
16
Relevant to the Strategic Objective
Does KPI have a linkage with the strategic objectives?
Controllable Are the KPI achievements still under control?
Actionable Can any action be taken to improve the performance?
Simple Is the KPI easy to explain?
Credible Is the KPI not easy to manipulate?
KPI Guidelines
17
18
Layers of Measurement
Historical Measures
Enterprise Database • Applications
• Projects• Employees• Client
Performance Management
Process
Senior Management
Project A Project B Project C
Measurement Repository
Process Measures
Project/Product Data
Program OfficeGoals & Objectives
Project
Product
Enterprise
Process Management (QP)
Improve
Control
Define MeasureExecuteProcess
. .
Product X Product Y
19
Common Misuse of Performance Measurement?
• Behavior is influenced by measures– “You get what you measure because that is what you reveal
as what you think is important.” (Sink and Tuttle, 1989)• But, are we measuring the right things?
– How do we know the measure accurately reflects system performance?
– How do we know that the measure is under the control of those it’s attributed to?
– Are we measuring to control or to improve, or both?
A good KPI system are measures
• At outcome level - performance level– Corporate Level
• At output level - Production level• At process level – efficiency and productivity
measures – Sales & Production
• At input level - alternative labour, material and overhead choices
KPI Family Dimension
Productivity Measures employee output (units/ transactions/ dollars), the uptime levels and how employees use their time (sales-to-assets ratio, dollar revenue from new customers, sales pipeline).
Measures the ability to meet and/or exceed the requirements and expectations of the customer (customer complaints, percent returns, DPMO -- defects per million opportunities).
Quality
21
KPI Family Dimension
Profitability Measures the overall effectiveness of the management organization in generating profits (profit contribution by segment/customer, margin spreads).
Measures the point in time (day/week/ month) when management and employee tasks are completed (on-time delivery, percent of late orders).
Timeliness
22
KPI Family Dimension
Cost SavingsMeasures how successfully the management organization achieves economies of scale and scope of work with its people, staff and practices to control operational and overhead costs (cost per unit, inventory turns, cost of goods).
Measures the ability of the management organization to maintain competitive economic position in the growth of the economy and industry (market share, customer acquisition/retention, account penetration).
Growth
23
KPI Category Dimension
DirectThe actual raw data value as measured (e.g., sales volume).
PercentThe comparison of the changes in performance of one
value relative to the same value at a different time, geography, etc. (e.g., percentage change in sales vs. last
year).
24
KPI Category Dimension
Simple RatioThe comparison of one value relative to another to provide a benchmark for comparison of performance
(e.g., average sales per day).
IndexA combination of several separate measures added together that result in an overall indicator of
performance (e.g., (company sales growth)/(industry sales growth) for a specific geography).
25
KPI Category Dimension
Composite Average
The addition of the weighted averages of several similar measures that result in an overall composite indicator of
performance (e.g., customer satisfaction composite is mixture of results from surveys, focus groups and product
returns).
StatisticsMultiple measures such as mean, variance, standard
deviation and variance that capture the spread and distribution of the performance measures (e.g., sales distribution by demographics, geography, channel).
26
VisionMissionStrategy
Integration between Corporate and Division/Department
CorporateScorecard
DivisionScorecard
The Division Scorecard is built by referring to the corporate scorecard
27
Financial
Customer
Internal Process
Learning & Growth
Corporate Finance
Corporate Marketing
Production
Supply Chain
R & D
Corporate HR
Info Technology
Corporate and Division Scorecard
28
Corporate and Division Scorecard
• Division Scorecard is formulated by looking at the four perspectives in Corporate Scorecard.
• As shown in the previous slides, the learning & growth perspective provides guidelines for developing scorecard at the Human Resource and IT divisions, while the internal process perspective provides guidelines for developing scorecard at the supply chain division or R&D.
29
Corporate and Division Scorecard
Sample from GE Lighting Business GroupLevel of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of
satisfaction level Improve internal process employee competency
Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level ofReduce inventory levels satisfaction level Improve internal process employee competency
Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" deliveredIncrease labor productivity Reduce customer per million Number of performanceReduce inventory levels complaints per million Improve quality incoming coaching session
materialsMaintain optimum equipment speed
Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard Reduce overtime Reduce number of poor job training" attended
Increase production rates solders Number of performanceReduce number of cracked coaching session bulbs attended
The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee level.
Division Strategy Map Template
• The strategy map for HR Division, Information Technology Division, Finance Division, and Marketing Division are presented in the following slides.
31
Optimize HR Efficiency
Drive Long termShareholder Value
Enhance People & Organizational Effectiveness
Achieve HR Process
Excellence
Develop Strategic & Functional HR Competencies
Build Strategic Employee Competencies
Drive Organizational
Performance
Enhance Technology for HR
Create Climate for HR Action
HR Strategy Map Template
Financial
Customer
HR Internal Process
Learning & Growth
Create Positive Work Environment
Provide Quality HR Service
Provide High Performance People
32
Optimize IT Efficiency
Drive Long termShareholder Value
Enhance IT Impact on Enterprise Outcome
Maintain a Reliable IT
Infrastructure
Develop Strategic & Functional IT Competencies
Develop Effective Decision Support System
Propose and Deliver Transformational Applications
Enhance IT Tools that Enhance the IT Function
Promote Customer-focused Culture
IT Strategy Map Template
Financial
Customer
IT Internal Process
Learning & Growth
Deliver Consistent, High Quality IT Service
Provide Business Units with Innovative IT Solutions
33
Optimize Financial Efficiency
Drive Long termShareholder Value
Enhance Finance Effectiveness onEnterprise Outcome
Achieve FinanceProcess
Excellence
Develop Strategic & Functional Finance Competencies
Develop Financial Information to
Improve Decision Making
Ensure Compliance with Regulatory Requirements
Use Technology to Improve Financial Information
Delivery
Finance Strategy Map Template
Financial
Customer
Finance Internal Process
Learning & Growth
Deliver Responsive & Efficient Finance Operations
Provide Clear & Reliable Required Disclosure
Promote Customer-focused Culture
34
Optimize Marketing Efficiency
Drive Long termShareholder Value
Increase Sales Revenue
Develop Innovative Marketing Communication
Program
Develop Strategic & Functional Marketing Competencies
Develop Marketing Business
Intelligence
Accelerate New Product Development
Ideas
Enhance Technology for Marketing
Foster Creative Thinking & Innovative Solutions
Marketing Strategy Map Template
Financial
Customer
Internal Process
Learning & Growth
Create Satisfied and Loyal Customers
Enhance Brand Image
Develop Effective Customer Relation
Management
35
Strategy Map Template
• The following slide displays the strategy map template comprising of four perspectives : financial, customer, internal business process, and learning & growth.
36
Improve Cost Efficiency
Enhance Long-term Shareholder Value
Increase Revenue Growth
Enhance Brand Image
Build High Performance Products
Achieve Operational Excellence
Develop Strategic Competencies
Drive Demand through Customer Relation
Management
Manage Dramatic Growth through
Innovation
Implement GoodEnvironmental Policy
Build Learning Culture
Expand Capabilities with Technology
Strategy Map Template
Financial
Customer
Internal Process
Learning & Growth
Expand Market Share
37
38
Maximising ROE strategies
Profit
Equity
39
CORPORATE PERFORMANCEROE
ROA
ROS
ATO
EM
ASSETS
EQUITY
40
Maximising ROA strategies
Profit
Assets
41
Working capital
42
Performance RelationshipKRA
KRA
KRA
Goals
43
Process
outputs
Inputs
Inputs
44
Value Chain
Inputs Process Output Outcome
45
Horizontal comparision
This year
Cost of Production
overheads
labour
material
Last year
Cost of Production
overheads
labour
material
46
Performance management
Targets
Key Result Areas
Objectives
Key Performance
Indicators
Rewards
Standards
Variance Analysis
Training Need
Analysis
Appraisals
47
Performance Metricsobjectives
Key Result Areas
Key Performance Indicators
48
KPI is input output ratio
Outputs
Inputs
49
Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business
2 •Working capital from trading strategies
3 •Minimzing investment in Fixed capital
4 •Financed by Equity and Leveraging
5 •Cash flow Projection to check liquidity
6 •Constructing the Financial Statements
50
Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business
2 •Working capital from trading strategies
3 •Minimzing investment in Fixed capital
4 •Financed by Equity and Leveraging
5 •Cash flow Projection to check liquidity
6 •Constructing the Financial Statements
51
Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business
2 •Working capital from trading strategies
3 •Minimzing investment in Fixed capital
4 •Financed by Equity and Leveraging
5 •Cash flow Projection to check liquidity
6 •Constructing the Financial Statements
52
Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business
2 •Working capital from trading strategies
3 •Minimzing investment in Fixed capital
4 •Financed by Equity and Leveraging
5 •Cash flow Projection to check liquidity
6 •Constructing the Financial Statements
53
Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business
2 •Working capital from trading strategies
3 •Minimzing investment in Fixed capital
4 •Financed by Equity and Leveraging
5 •Cash flow Projection to check liquidity
6 •Constructing the Financial Statements
54
PERFORMANCE METRICSObjectives & Goals
Key Result Areas
Key Performance Indicators
55
METRICS (Continue) TARGETS
VARIANCES
EVALUATION
56
Finance + Leverage
Equity
Ordinary Preference
debt
bonds Banks
57
PERFORMANCE COMPARATIVE ANALYSIS
ACTUALS
TARGETS
VARIANCE ANALYSIS
VisionMission and
ValuesStrategy
Finance
Customer
Internal Business Process
HR Development
Key Performance Indicators
Key Performance Indicators
Key Performance Indicators
Strategic Objectives
KPI = Measurement or indicator that provides
information on how far we have succeeded in achieving
the strategic objectives
Key Performance Indicators (KPI)
58
Human Capital Organization Capital Information Capital
• Skills• Knowledge• Attitude
• Systems• Database• Networks
• Culture• Leadership• Organization Development
Strategic Objectives in Learning & Growth
59
Managing Performance with Balanced Scorecard
Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.
60
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading indicators) with outcome measures (lagging indicators)
• Leads to strategic focus and organizational alignment.
Managing Performance with Balanced Scorecard
61
4 Perspectives in Balanced Scorecard
If we succeed, how will we look to our shareholders?
Financial Perspective
To achieve our vision, how must we look to our
customers?
Customer Perspective
To satisfy our customers, which processes must we excel at?
Internal Perspective
To achieve our vision, how must our organization learn and
improve?
Learning & Growth Perspective
The Strategy
62
Strategy and Balanced Scorecard
Mission – Why We
Exist
Vision – What We
Want to Be
Values – What’s
Important to Us
Strategy : Our Game
Plan
Strategy Map :
Translate the Strategy
Balanced Scorecard :
Measure and Focus
Strategic Outcomes
Satisfied Shareholders
Delighted Customers
Excellent Processes
Motivated Workforce
63
• The strategy map framework is presented in the following slides.
• This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth perspective.
Strategy Map Framework
64
Key Performance Indicators
Three critical components for effective process of performance management
Performance ManagementInfrastructure
PerformanceManagement
Culture
PerformanceManagement
Process
Performance management cycle is continuous and
consistent
Culture that is based on performance accountability
Logistic support and performance management
administration
Performance Management Component
66
STRATEGY
Plan and Execute
Monitor and Evaluate
Reward and Coach
Set Measures and Target
Performance Management Cycle
67
Performance Gaps
Performance Gaps
Competency Gaps
Management Gaps
TechnicalGaps
Other Causes
Change
TRAINING NEED ANALYSIS
Performance Framework and Building Plans
CRITICAL PERFORMANCE GAP ANALYSIS
CEOFinance
OperationsHR
Marketing
Performance Improvement Strategies
Goals
KRA3KRA1
KRA2
COMPETENCY GAP ANALYSIS
Tools used in this consultancy
• Du Pont ROE format.• Variance analysis• Input output analysis• BSC perpectives• Key Result Areas• Calculating the improvement in KPIs• Calculating the ROI training
(c) Arriffin Mansor 012-2786282 77
Types of indicators
• Input indicators• Process Indicators• Output indicators• Outcome indicators• Impact indicators
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FINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency ratios
No produced
Average cost per transaction
Research dev expense
Productivity ratios
Value produced
ROI
Inventory turnover
Average lead time
RETURN ON EQUITY
Waste Reduction
79
MARKETINGINPUT PROCESS OUTPUT OUTCOME
Material Response rate No of customers
Labour Marketing costs % Sales volume
Overhead Efficiency ratios Customers Profitability
Research dev expense
Productivity ratios
Product profitability
ROA marketing
Average cost per transaction
Customer acquisition
Return on Sales
Inventory turnover Average lead time Customer retention
Price rel to comp Waste Reduction Revenue growth
Delivery Channel
80
INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency ratios
No produced
Average cost per transaction
Research dev expense
Productivity ratios
Value produced
ROI
Inventory turnover
Average lead time
Waste Reduction
81
HRM KPIsINPUT PROCESS OUTPUT OUTCOME
Incentives variances Turnover ratio
Hours Efficiency ratios
No produced
Profit per employee
Training Productivity ratios
Value produced
ROI
Salary Average lead time
Turnover Revenue per employee
Skill competency
Waste Reduction Employee productivity
Value added per employee
82
DuPont Analysis Sales COH 20051,689,429,000$
Cost of GoodsSold + Extra Taxes Net Profits
384,153,000$ After Taxes358,612,000$ Net Profit
Operating MarginIncome Expenses 21.23%
Statement 731,891,000$ NI/SALESSales Return on
Interest 1,689,429,000$ Total AssetsExpense (ROA)
13,641,000$ 26.17%NPM X TAT
Taxes201,132,000$ Sales
1,689,429,000$ Total AssetTurnover
1.23 Return onCurrent SALES/TA Equity (ROE)Assets 33.96%
709,360,000$ Total Assets ROA X FLM1,370,157,000$
Net FixedAssets & Other Stockholders'
660,797,000$ EquityBalance 1,055,920,000$ Financial
Sheet Current LeverageLiabilities Multiplier (FLM)
265,661,000$ Total 1.30Liabilities Total Liabilities TA/EQUITY
Long Term 314,237,000$ & Stockholders'Debt Equity = Total
3,270,000$ AssetsStockholders 1,370,157,000$
Other EquityLiabilities 1,055,920,000$
45,306,000$
Detailed statement of what is critical to
successfully achieving the
strategy
How success in achieving the
strategy will be measured and
tracked
Key action programs
required to achieve
objectives
The level of performance or
rate of improvement
needed
Objective Description Target
2 per setup per month each Outlet Office
InitiativeMeasure
Number of Reworks
Strategy Map
Stak
ehol
der
Inte
rnal
Pro
cess
L&G
Faster Service Access
Self Service Applications
Web Enable Technologies
Process and ValueMap Analysis
Lean Processes
Inve
stm
ents
Invest in IT
Extend the Map into Measurements, Targets and Initiatives
Lean / Six SigmaEliminate waste, reworks, and other errors in our processes
Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.
Goal Objective Measurement Target Initiative
Achieve Agency operational efficiencies with best practices in the private sector
Reduce Operational Service Costs by 50% over the next 5 years
Cost per Outlet Office, Cost per Region, Cost per FTE
5% - Year 110% - Year 215% - Year 3
Activity Based Costing / Management
Reduce identified re-activities within primary processes by 80% over the next 3 years
Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions)
Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%
Lean / Six Sigma
Alignment of Scorecard Components
© Arriffin 200985
Steps in calculating ROA for employees
1. Draw an income statement fo each employee2. Identify assets employed to each employee.
(Assets allocated to the employee)3. ROA determine the viability of each job but not the
fairness of the job pay.4. Use return on pay (ROP) to compare the performance
of each employee with relation to their salary or compensation plan.
5. Profits / Sales x Sales / pay = ROP
86
Questions & Answers