Chapter 6 Measuring Indicators

1. Chapter 6Measuring Indicators © David O’Sullivan

2. 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.

3. Activities [Discussion of selected student ‘Activities’ from previous chapter]

4. 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

5. Why Measure? • Corporate accounting scandals • Overdependence on financial measures which few understand • Inability for organisations to implement strategy

6. Performance Indicators • Performance indicators are a measurable way of defining and monitoring goals • Financial and non-financial metrics

7. 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 ?

8. 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

9. 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?

10. Macro Measures • Cost • Quality • Time • (Flexibility) • (Environment) • (Culture)

11. 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

12. 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

13. ‘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

14. Performance Charts

15. Outcomes vs. Drivers • Reflect theresults 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

16. Balanced Scorecard • Developed by Robert Kaplan and David Norton (1996) • Approach to strategic management and associated performance measurement and development initiatives • Four perspectives:

17. 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

18. Balanced Scorecard

19. Samples

20. Example

22. Variation

23. Variation

24. Initiatives

25. Indicators

26. Invisible Thread Goals Actions Business Unit Department Individual Top Down Planning Bottom Up Implementation

27. 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

28. Sample Performance Indicators

29. Activities

30. 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