1. Chapter 6 Measuring 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
Innovation is a process of management in most oganisations
Changes to products, processes, services, organisations, …
Changes can be incremental or radical - large or small.
Innovation is often confused with ‘Invent or Invention’ which is defined as creating something that has never existed before

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 Sales and Marketing People
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. Macro Indicators Operations Sales and Marketing People
Research and Development
Environment

14. Indicators > Operations
Productivity (hours/unit)
Throughput (units per day)
Utilisation (output/capacity)
See Notes
non-financial indicators, depending on the exact nature of the production process, might include the following :-
production line efficiency
ability to change the manufacturing schedule when the marketing plan changes
production line repair record
keeping failures of finished goods to a minimum
ability to produce against the marketing plan
product life cycle
indicators concerned with controlling production quality - right first time
tests for components, sub-assemblies and finished products
fault analysis
"most likely reasons" for product failures
actual failure rates against target failure rates
complaints received against the quality assurance testing programme
annualised failures as a % of sales value
failures as a % of units shipped
various indicators of product / service quality
various indicators of product / service reliability
indicators concerned with the purchasing department's external relationships with its suppliers
inventory levels and timing of deliveries
"just in time" inventory control measurements
stock turnover ratio
weeks stocks held
suppliers delivery performance
analysis of stock-outs
parts delivery service record
% of total requests supplied in time
% supplied with faults
indicators of sales delivery and service
shipments vs. first request date
average no. of days shipments late
response time between enquiry and first visit

15. Indicators > Sales and Marketing
Sales per region
Sales per model
Marketing costs
See Notes
measurements based on "staying close to the customer"
complaints re manuals
complaints re packaging / ease of opening
quality of packaging materials
customer satisfaction analysis
price of products comparisons
check on unsuccessful visit reports
monitoring repeated lost sales by individual salesmen
sales commission analysis
monitoring of enquiries and orders
sales per 100 customers
"strike rate" - turning enquiries into orders
analysis of sales by product line
by geographical area
by individual customer
by salesmen
matching sales orders against sales shipments - the trend from the mismatch
backlog of orders analysis
flash reports on sales
publication of sales teams performance internally
analysis of basic salaries and sales commissions
share of the market against competitors
share of new projects in the industry
new product / service launch analysis
time to turn round repairs
delays in delivering to customers (customer goodwill)
value of warranty repairs to sales over the period

16. Indicators > People
Labor turnover
Overtime
Absenteeism
See Notes
head count control
head count by responsibility
mix of staff analysis
mix of business analysis vs. staff personnel needs
skilled vs. non skilled
management numbers vs. operations staff
workload activity analysis
vacancies existing and expected
labour turnover vs. local economy
absence from work
staff morale
cost of recruitment
number of applicants per advert
number of employees per advertising campaign
staff evaluation techniques
evaluation of staff development plans
monitoring of specific departments, eg. accounting
speed of reporting to internal managers vs. HQ
accuracy of reporting as measured by misallocations and mispostings
queries re what reports mean
monitoring of departments performance long term
pay and conditions vs. competition

17. Indicators > R&D R&D Expenditure Failure Rates
Additional Revenue Created
Value Analysis Savings
See Notes
evaluation vs. basic R&D objectives, strategic objectives and project objectives
product improvement against potential market acceptance
R&D against technical achievement criteria, against cost and markets
R&D priority vs. other projects
R&D vs. competition
R&D technical milestones
analysis of market needs over the proposed product / service life of R&D outcome
top management audit of R&D projects
major programme milestones
failure rates of prototypes
control by visibility - releases, eg. definition release, design release, trial release, manufacturing release, first shipment release, R&D release

18. Indicators > Environment
Emissions
Scrap and Wastage
Accidents
Litigation

19. ‘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

20. Performance Charts

21. Outcomes vs. Drivers Reflect the results 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

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

23. 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

24. Balanced Scorecard Perspectives Objectives Indicators Targets Firm
Firm
Stretch
Financial
Maximum Returns
Return on Equity
12%
13%
Utilization of Assets
Utilization Rates 7% 8%
Revenue Growth
% Change in Revenue
+11%
Customer
Customer Retention
Retention %
75%
Customer Service
Survey Rating
85%
88%
Customer Relations
% Self Initiated Calls
35%
40%
Internal Processes
Fast Delivery
Turnaround Time
15m
14m
Effective Service
1st Time Resolution
0.68
0.69
Optimal Cost
% cost of sales
66%
64%
Resource Utilization
Productivity Indicator
77%
80%
Learning & Growth
High Skill Levels
Skill set ratio
65%
68%
Employee Satisfaction
Survey Index

25. Samples

26. Example

28. Variation

29. Variation

30. Initiatives

31. Indicators

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

33. 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

34. Sample Performance Indicators

35. Activities

36. 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