Value Drivers and CPM National Survey Results What Makes Scorecards “Stick” What NOT to Do Workshop to Identify Value Dr

2. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

3. Value Drivers and CPM Value Drivers are the “Vital Few” performance measures that really drive success. They are like the “Final Score” in a football game – they define what winning is. Final Score 28 21

4. Value Drivers Value Drivers and CPM Performance Measures

5. Value Drivers and CPM All performance measures are valuable and can continue to be used, but Value Drivers should make up your one page company scorecard.

6. Value Drivers and CPM All useful performance measures, but only one tells you who won:

7. Value Drivers and CPM Where (and how) do Performance Measures fit in with the other components of an effective management system?

8. Working Definition: Value Drivers and CPM Corporate Performance Management (CPM) is the full integration of all the major components of Planning… … Performance Measurement… Reporting… and Rewards to drive shareholder value.

9. The full CPM cycle covers everything from strategy to operational planning to ongoing reporting: Value Drivers and CPM

10. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

11. National Survey Results Survey of 227 Companies by the Buttonwood Group More than half reported they had developed a performancescorecard sometime over the last two years with mixed results: 65% said the results were disappointing 21% said they were somewhat satisfied 13% said they were highly satisfied Only 1% “weren’t sure”

12. Senior Management was very pleased with the scorecard program we implemented Our scorecard has driven improved financial results Most managers outside of Finance manage to the scorecard The project manager was promoted within a year National Survey Results The 13% Highly Satisfied Companies Is this Statement True? Partially True False True

13. Many had bought “KPIs in a can” from the outside Many did not involve managers outside of the finance department Most had scorecards that couldn’t fit on single page None had tied PMs to personal incentives Few establish targets for PMs in the annual plan None had budgeted resources in the annual plan to achieve PM targets Most lacked any ongoing variance analysis (target to actual PM results) Most did not have a single scorecard for the company as a whole (i.e. they maintained multiple measures across entities) National Survey Results Of the companies that reported disappointing results…

14. National Survey Results Interviews with the 8% highly satisfied revealed: Performance Measures are “owned” by senior management: they believe these measures drive success Senior management asks to see them every month Progress toward numerical goals is reported alongside financial statements Are “baked into” to budget through goal setting and resource allocation Focus on a handful of measures (the value drivers)

15. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

16. Establish strategic (long term) targets for performance measures Set annual plan targets as well Develop concrete Action Plans to achieve the targets Report on ongoing progress of those plans Report the PMs alongside the financials every month Making it Stick The real goal of performance measures is not to measure them for the sake of measuring them, but to improve performance: That means developing a full solution:

17. Making it Stick Nobody will want to do this if you haven’t picked the Right Measures

18. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

19. What NOT to Do Match the question to the objection Objection The Question that Was Asked What Balanced Scorecard measures should we have? What should our “learning and growth” measures be? Huh? Gimme a break What “should” we be measuring? What’s considered best practice or industry standard performance measures? Not invented here

20. What NOT to Do Don’t put the cart before the horse. If the first thing you do is “pick” your measures it assumes the “health” of those measures reflects what’s driving your success. You need to identify what drives success in your business first, then identify the measures that reflect that.

21. What NOT to Do Benefits of identifying Value Drivers first Senior Management really gets it Organizational buy-in It becomes vital to the organization It’s easy to explain how the measures were derived

22. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

23. The Value Driver Workshop Who: The Senior Management Team (or designates) What: A one day Workshop to identify the Company’s Value Drivers Where: Offsite preferred How: A series of workshop exercises

24. The Value Driver Workshop What are we here for? Get the performance management project off on the right foot by building a consensus on “what drives success in this business.” Identification of Value Drivers

25. The Value Driver Workshop 1) Revalidate existing strategy 2) Create or Revisit the Balanced Scorecard 3) “Filter” new investments If we do nothing else, what can we use that for?

26. The Value Driver Workshop Workshop: To Identify & Gain Consensus on Value Drivers go through the following set of exercises. Brainstorm Prioritize Group like ideas

27. The Value Driver Workshop You have a favorite nephew that you love a lot even though he’s not the sharpest tool in the shed. He’s taken a job at a company very similar to yours, and he asks you “So what really drives success in this business? How would you answer him in plain English?

28. The Value Driver Workshop Brainstorm Group like ideas Prioritize Examples of Replies Cost control Ability to charge a premium Highest possible quality Quality culture Superior customer service Elimination of non-value added risk Satisfied employees Product differentiation High potential employees developed Comprehensive marketing plan Responsible G&A Effective recruiting programs Retention of high performers Perceived value add above competitors Effective advertising & promotion Communicating why our products are best Internal checks and balances Understanding the competitive environment Having highly desirable products Investment in quality programs

29. The Value Driver Workshop Activity 2: Participants group like ideas: Brainstorm Group like ideas Prioritize Potent Workforce Pricing Power Operating Efficiency Retention of high performers Effective recruiting programs Ability to charge a premium Perceived value add above competitors Cost control Responsible G&A Elimination of non-value added risk Internal checks and balances Product differentiation Satisfied employees High potential employees developed Effective Branding Quality Obsession Consumer Satisfaction Communicating why our products are best Effective advertising & promotion Highest possible quality Quality culture Understanding the competitive environment Superior customer service Comprehensive marketing plan Having highly desirable products Investment in quality programs

30. The Value Driver Workshop Activity 3: Cause/Effect Analysis. Analyze each driver, one at a time, to see if it significantly impacts another, or if it is significantly impacted by any of the other drivers. Brainstorm Group like ideas Prioritize Operating Efficiency Pricing Power Effective Branding Potent Workforce Quality Obsession Consumer Satisfaction

31. The Value Driver Workshop Activity 4:Gap Analysis. Where do we stand today versus “perfection?” Brainstorm Group like ideas Prioritize Pricing Power Operating Efficiency Effective Branding Potent Workforce Quality Obsession Consumer Satisfaction

32. The Value Driver Workshop Activity 5:The$100 Test. Give each participant “$100 Dollars” to spend on the drivers Brainstorm Group like ideas Prioritize Jane John Mary Total Quality Obsession #1 $25 $10 $50 $85 Pricing Power #2 $25 $50 $75 Potent Workforce #3 $25 $20 $45 Consumer Satisfaction #4 $25 $10 $35 Effective Branding $10 $25 $35 #5 Operating Efficiency #6 $25 $25

33. The Value Driver Workshop What happens after the workshop?

34. The Value Driver Workshop Post Workshop Activity: For each driver develop a one page summary with a description and key factors listed: Operating Efficiency Description of the Value Driver: Operating Efficiency means we are highly productive operationally, and that we are on continuous search for new ways to streamline and improve our processes. Key Factors: • Cost control • Responsible G&A • Internal checks & balances • Elimination of non-value added tasks and redundancies • The right processes

35. The Value Driver Workshop Operating Efficiency • Operating Expense Ratio Activity: Identify one to three vital measures for each value driver • Employee Retention Rate • Employee Survey Index Potent Workforce Activity: Develop targets for measures Activity: Develop Strategic Initiatives to meet targets

36. The Value Driver Workshop All the pieces of the Value Drivers come together in a dashboard that monitors performance:

37. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

38. Quick Hits Secure Executive Sponsorship Focus on the “Vital Few” Measures (not a phone book) Standardize Measures Across the Company (consensus) Pick Measures Managers Really Connect With Measures Should be Explainable to Your Spouse

39. Outline • Value Drivers and CPM • National Survey Results • What Makes Scorecards “Stick” • What NOT to Do • Workshop to Identify Value Drivers • Quick Hits • Q&A

40. Q&A