KPI

Key Performance Indicators

CIMA CPD Engagement*

Facilitator : Anand Sampath

June 19th 2010

•Attention : This presentation has been made solely for the consumption of CIMA students and members for their CPD

engagement. There is no commercial intent or solicitation of any kind behind this. While references from other

research/findings publicly made available have been made , the views stated herein are solely of the facilitator .

‘End of day’ Objectives

� A - Appreciate the context and utility of KPIs

� B- Understand successful KPI deployments

� C- [De] Construct KPIs

� D- Sustaining KPI deployment

Agenda

1. Setting base

(45 mins)

2. Validation5. Takeaways

•Context setting

•Understanding the basics BSC – KPI

•Getting the ‘why’ clear

•Key learnings / Recap

•Q&A

2. Validation

(30 mins)

3. Summarize

(15 mins)

4. [De]Construct

(30 mins)

5. Takeaways

(15 mins)

•Looking at some KPI deployments

•Back at my place – Dr Reddy’s

•So, it makes sense

•The KPI ‘checklist’

•Ensuring Sustainability

•Caselet: Constructing a BSC

•Discussions

Setting Base – Context Setting

Why do we exist ?

What is our picture of the future ?

What do we achieve ?

What is our game plan?

Setting base

Validation

Summarise[De]Construct

Way forward

What do we achieve ?

What should we be monitoring for the above ?


The Balanced Scorecard

To achieve our vision how should

we appear to our customers ?

To succeed financially, how should we

appear to our shareholders ?

To satisfy our shareholders and customers

what business processes must we excel at ?

Setting base

Validation


Way forwardTo achieve our vision, how will we sustain

our ability to change and improve ?

Setting Base – Context setting

The current context of Business Performance

Setting base

Validation


Way forward


How they all add up

Setting base

Validation


Way forward

www.davidparmenter.com : Finding your Organization’s Critical Successful Factors


KPIs defined and Clarified

KPIs are

�measured frequently eg daily or 24/7 (KPIs are not measured monthly);

�are usually non-financial measures (not expressed in $s, £s, INR etc);

Key Performance Indicators are

quantifiable measurements, agreed to beforehand, that reflect the critical success

factors of an organization.

Setting base

Validation


Way forward

�are usually non-financial measures (not expressed in $s, £s, INR etc);

�are acted upon by the CEO and the senior management team on a daily or 24/7 basis;

�all understand the measure and what corrective action is required;

�responsibility can be tied down to the individual or team;

�has a significant impact on the organisation eg it impacts on most of the critical

success factors and balanced scorecard perspectives; and

�positive movement affects all other performance measures in a positive way.


KPI distinguished from a Metric

Input Process Output

Metric Metric Metric

Outcome

KPI

Setting base

Validation


Way forward

Mitigating Metrics Madness: How to Tell KPIs from Mere Metrics : by Jonathan D. Becher

Metrics are not KPIs unless :

1. They are outcome oriented – tied to an objective

2. Target based – have at least one defined time sensitive target value

3. Rated or graded –have explicit thresholds that grade the difference [or gap] between actual

value and target


Understanding KPIs better – Another view

KEY RESULT INDICATOR

•Give an overview on performance

•Ideal for the board as they

communicate how management has

done in a critical success factor or

balanced scorecard perspective

PERFORMANCE INDICATOR

• which tell staff and management what

Setting base

Validation


Way forward


to do

KEY PERFORMANCE INDICATOR


to do to increase performance

dramatically

David Parmenter : THE NEW THINKING ON KEY PERFORMANCE INDICATORS


KPI Illustration [ Good KPI]

KPI ILLUSTRATION What’s missing?

Title of the KPI Increase sales

Defined Change in sales volume from month to month

•$ or Units

•List Price or Sales Price

•How are returns

considered

Setting base

Validation


Way forward

Measured Total of sales by region for all regions.

Target Increase each month

considered

•What is the target [%

increase]

•Process accuracy?

[How double count or

misses can be checked?]


KPI Illustration [ Good KPI]

A Good KPI

Title of the KPI Employee Turnover

Defined The total of the number of employees who resign for whatever

reason, plus the number of employees terminated for performance

reasons, and that total divided by the number of employees at the

beginning of the year.

Employees lost due to Reductions in Force (RIF) will not be included

Setting base

Validation


Way forward

Employees lost due to Reductions in Force (RIF) will not be included

in this calculation.

Measured The HRIS contains records of each employee. The separation section

lists reason and date of separation for each employee.

Monthly, or when requested by the SVP, the HRIS group will query

the database and provide Department Heads with Turnover Reports.

HRIS will post graphs of each report on the Intranet.

Target Reduce Employee Turnover by 5% per year.

Validation – Understanding some models of BSC /KPI

Setting base

Validation


Way forward

Validation – Understanding some models of BSC /KPI

Setting base

Validation


Way forward

Validation – Understanding Models of BSC/KPI

Suggested Measures: Kaplan and Norton (1996a)

Setting base

Validation


Way forward

CIMA :Research Report [2005] : A Practitioner’s Guide to the Balanced Scorecard

Validation – Do all KPIs need to derive from the BSC model ?

Setting base

Validation


Way forward

Mc Kinsey : Measuring Long term performance [2005]


Du-pont’ s ROI

LEADS

Setting base

Validation


Way forward

LAGS


DRL ICDS

Setting base

Validation


Way forward

DRL ICDS

Research by Year Study Finding

Blundell et

all

2003 Study of NZ companies •More than 60% of the NZ Stock exchange’s top 40 companies use BSC at the

organizational or divisional levels

•Non financial performance measures continue to lag financial measures in perceived

importance

Kaplan and

Norton

1996,

2001

Have doc experience of

Chadwick inc, Mobil,

Chemical Bank ,

UWSENE, Motorola and

Sears

�communicating with their employees on the goals and mission of the Company

�Influencing their behaviors and performance

�achieve targeted cost savings while suffering little attrition in customers , post merger

[in the case of Chemicals Bank]

Ashton 1998 Examined NatWest

Bank

�improve quality, service and speed and

�help change the corporate culture from its traditional command and to control


No , but the BSC model seems to be most effective

Bank �help change the corporate culture from its traditional command and to control

structure to a culture based on ‘empowerment and coaching’

Malina and

Selto

2001 Examined data from

variety of divisions of

manufacturing

organizations.

�Was an effective tool in developing , communicating and implementing strategy

�Elicited behavioral change in taking action and utilizing resources that improved

performance in the defined measures

�Most likely to garner support when it is comprehensively closely tied to strategy

Silk 1988 �60% of Fortune 1000 cos in US have had experienced with the BSC

Chenhall &

Smith

1988 �88% adoption rate of the BSC in Australia and observed moderate benefits

Olive, et all 1999 Presented cases of

ABB, Halifax, Skandia,

Electrolux, BA, Coke

Beverages and SKF

Mc Cunn 1998 �Reported Strong support among managers at leading UK retail bank to improve branch

management.

�Effective communication on the banks business model

Setting base

Validation


Way forward

Balanced Scorecard implementations : Global and Indian experiences : Indian Management Studies Journal [2007]

Research by Year Synopsis

Analog Device

Inc USA

•First BSC in the world created and implemented

•Was an offshoot of the Strategic Planning Process and Quality Improvement Process

•Driven by Strategic Objectives which related to its stakeholders – customers, suppliers,

employees, shareholders, society, etc with focus to create ‘delight for the stakeholder’

•5 year strat plan provided the basis and TQM was the main device to achieve stakeholder delight

ABB , Sweden 1994 •EVITA developed – a system of financial and management control .

•Chose 5 perspectives - customer, process/supplier, employee, innovation/development and

financial

•Recommended a min of one and a max of 5 measures for each perspective

•Conferences were organized to discuss EVITA



•Conferences were organized to discuss EVITA

Halifix, UK •Utilized the BSC as an instrument of operational management system rather than a strategic

instrument.

•Has 2-5 measures in each perspective resulting in 16 measures for its balances scorecard

Skandia, Sweden •Integrated Intellectual Capital with BSC . Gave the name navigator

•Uses as tool of controlling internal management and comprehensive measure of organizational

performance

Electrolux •Originally called it Global Integrated management System [GIMS] to establish relationship

between organization vision, strategy and short term planning.

•Now called Dynamic Business Measurement where 16 measures are used of which 12 are non

financial

Compaq •Focused the contribution of IT to four different dimensions of performance

•Integration of IT, Process reengineering and business strategy contributed substantially to the

overall success and market leadership of the company

Setting base

Validation


Way forward


Research by Year Synopsis

Godrej GE

Appliances

•Used to integrate the management initiatives for quality and cost[ Six Sigma, Cost takeout, target 10, etc]

•Prioritized 20 initiatives from the series of ongoing initiatives.

•Set long term and short term measurable targets

•Benefited on certain fronts [SCM initiatives]

Goodlass Nerolac •Adopted it to operationalise long term strategy and allow measure business performance clearly

•Communicated across the organization and a business review and enterprise performance management

framework

•Allow defining financial, customer, process and organizational priorities and align resources appropriately

for delivery

Philips Electronics •Identified 4 CSFs competence , processes, customers and financial



Philips Electronics •Identified 4 CSFs competence , processes, customers and financial

•Used to set up organizational goals and targets for divisions worldwide and linking them with business

strategy through CSFs

•Targets are based on the current performance gap and are set for the current year plus two to four years in

the future.

•All units faced with six common indicators – profitable revenue growth , customer delight , employee

satisfaction and drive to operational excellence ,organizational development and IT supports

Infosys

technologies

•Wanted to migrate towards a culture of measurement where all decisions are data driven and have a holistic

approach towards strategy

•Facilitates communication across organization and enhances the understanding of vision, mission and

strategy

•Ties the vision , mission and strategy to the goals and objectives of individuals and departments

•Facilitates understanding of the reasons and helps identify initiatives to achieve the relevant performance

•Acts as an effective basis of resource allocation with focus on both managing current performance and long

term value

TCS 2001

Setting base

Validation


Way forward



CIMA research Findings

n =60

Setting base

Validation


Way forward

CIMA :Research Report [2005] : A Practitioner’s Guide to the Balanced Scorecard

Validation – While BSC is very popular , it is not easy !

Setting base

Validation


Way forward


Summarise - Why should I use KPIs ?

� Reduce the number of decisions that are based solely on instinct or gut feel and

make decisions based on objectivity and facts.

� Quantify the achievement of goals by setting, monitoring and measuring against a

standard or target.

Setting base

Validation


Way forward

� As your business grows it becomes more difficult to remain as close to the

operational details as you once were.

� Allows you to focus on facts when chaos ensues.

Summarise - KPI Profiler

Setting base

Validation


Way forward

KPI Profiler : CRM Case study [ DM Review Nov 2004 ] www.dmreview.com

Summarise - The KPI ‘Checklist’

Setting base

Validation


Way forward

Summarise - ‘KPI speak’

Too often measurement systems are driven by what is available, rather than what is

needed.

Robert Kaplan

People and their managers are working so hard to be sure things are done right, that

they hardly have time to decide if they are doing the right things.

Setting base

Validation


Way forward

they hardly have time to decide if they are doing the right things.

Stephen R. Covey

Very few organizations really monitor their true key performance indicators (KPIs),

because very few have explored what a KPI actually is

Performance Consultant, David Parmenter

De [ Constructing ] BSC – KPI – Exercise (1/4)

Way forward

Dr

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Way forward

Setting base

Validation


Way forward

Dr

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Way forward

Dr

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Setting base

Validation


Way forward

Dr

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Way forward

Dr

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Setting base

Validation


Way forward

Dr

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Way forward

Dr. Reddy’s began as an API manufacturer in 1984, producing high-quality APIs to first the

Indian, and later, the international markets. In 1987, we started our formulations operations

and, after becoming a force to reckon with in the Indian formulations market, went

international in 1991.

In India, we have a product portfolio of over 200 brands in major therapeutic areas, with an

emphasis on gastro-intestinal, cardiovascular, pain management, oncology, anti-infectives,

probiotic, pediatrics and dermatology.

Today, our value proposition to our customers derives from an optimal operating systemww

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Way forward

Setting base

Validation


Way forward

Today, our value proposition to our customers derives from an optimal operating system

in which operations, product development and marketing & sales are fully integrated.

Operations and the supply chain are aligned to ensure high availability, pull based

replenishment of products at the retail level and superior inventory turns to our

customers. This advantage is combined with a highly effective prescription generation

detailing effort.

A field force of over 1,400 motivated and knowledgeable representatives supported by an

integrated network of back-end services and armed with handheld devices for quick

information access add value to every customer call and interaction.

With a range of over 200 brands across 13 therapeutic areas, Dr. Reddy’s aims to further

consolidate its position as an industry leader in the Indian pharma market.

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De [ Constructing ] BSC – KPI – Exercise

Way forward

1. Identify the Core purpose and Strategy vision for Dr Reddy’s

2. Identify the India Business Strategy for Dr Reddy’s

3. Prepare a [strategy ] map for the Objectives outlined in the InvestorWay forward

Setting base

Validation


Way forward

3. Prepare a [strategy ] map for the Objectives outlined in the Investor

Presentation considering all perspectives per the BSC Model

4. Think of the [ Strategic ] Outcomes and suggest at least 1 and at most 2

measures [KPIs] for each Outcome

De [Constructing] - A Sample BSC-KPI Strategy Map

Cu

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Strategy[C] – Be a leading player in the Indian Pharma Market [Top X]

C1 – Increase MS in existing portfolio C2 – Launch new products

F1 -X times increase in the Sales or

[Target] % growth in CAGR

1a

2a 2b

Lea

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Pro

cess

Setting base

Validation


Way forward

P2 – Improve

portfolio coverage

P2 – Increase sales in NE India ,

Rural

P-3– Supply chain

excellence

P2A – Develop

newer products

P2B – In-license

newer productsP3A – Implement

model wellP2A – Increase

Sales force

P2B –

Improve SFE

L2A1 – Recruit &

TrainingL2B1 – Training /SOPs

& Knowledge Sharing

L2B1 – Innovation

New technology train.

L2B1 – Hiring of

skilled ,

knowledable

people and

trainingL2B2 – Product /

Innovative detailing

3a 3b 3c

4a 4b 4c 4d 4e

5a

5b

5c 5d

5a

De [Constructing] - A Sample BSC-KPI

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Strategy[C] – Be a leading player in the Indian Pharma Market [Top X]

Strategic Objectives Performance Measures Initiatives

3x time increase in sales

by 2013

X% CAGR growth pa

Market rank - IPM

Increase MS in existing

portfolio

Launch new products

X% Increase in PC

prescription generation

Y ‘Nos’ Increase in Dr

coverage

New product % to sales

Strategy map

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Pro

cess

Setting base

Validation


Way forward

Increase Sales force

Improve SFE

Implement SCE model

Develop / In-license new

products

X no of critical mass NP

launch

X% increase in PCPM

X% attrition

3x times inventory turns

HC higher by N

T&D

Product innovation

Critical skill-set hiring 8 critical hire by 2010

$N Budget ‘usage’ on

innovative R&D

N Training Hrs on the job

Takeaways - What are your observations

Setting base

Validation


Way forward

� A - Appreciate the context and utility of KPIs

� B- Understand successful KPI deployments

Takeaways - Key learnings [Recap]

Have we met our ‘End of day’ Objectives ?

� C- [De] Construct KPIs

� D- Sustaining KPI deployment

Setting base

Validation


Way forward

“The key thing

is to keep

THE KEY THING,

key”key”

End of CPD Discussion

Q&ASetting base

Validation


Way forward

References

1. The new thinking of KPIs . David Parmenter

2. Finding your organization's critical success factors . David Parmenter

3. Mitigating Metrics Madness: How to Tell KPIs from Mere Metrics . Jonathan Betcher

4. A Practitioner’s Guide to the Balanced Scorecard . CIMA Research

Setting base

Validation


Way forward

4. A Practitioner’s Guide to the Balanced Scorecard . CIMA Research

5. Measuring Long term performance . Mc Kinsey

6. BSC implementations . Global and Indian experiences. Indian Management Studies Journal

7. Balanced Scorecard Institute website

About the facilitator

Anand Sampath is a qualified Management Accountant [CIMA,UK],

Chartered Accountant [ICAI, India] and Cost Accountant [ICWAI, India].

With a post qualification experience of close to 12 years, Anand has

worked for two companies , Lucas TVS Ltd and Dr Reddy’s.

His areas of specialization and interest are business finance, analytics,

controlling [including SOX] and capex evaluations.controlling [including SOX] and capex evaluations.

He is passionate about Risk Management is presently pursuing a career

in risk management in Dr Reddy’s.

He is also a student member of Global Association of Risk Professionals [GARP, US] and

Professional Risk Managers International Association [PRMIA, US]

[email protected]

Documents

KPI