CHAPTER 04 Measuring the Success of Strategic Initiatives McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

LEARNING OUTCOMES Define metrics and describe the relationship between efficiency IT metrics and effectiveness IT metrics. Explain why a business would use metrics to measure the success of strategic initiatives. 4-2

MEASURING INFORMATION TECHNOLOGY’S SUCCESS A few questions that banking executives recently raised regarding their IT systems include: Is the internal IT operation performing satisfactorily? Should the company outsource some or all of the IT operations? How is the outsourcing company performing? What are the risk factors to consider in an IT project? What questions should be asked to ensure an IT project proposal is realistic? What are the characteristics of a healthy project? Which factors are most critical to measure to ensure the project achieves success? 4-3

MEASURING INFORMATION TECHNOLOGY’S SUCCESS Key Performance Indicators —Measures that are tied to business drivers Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals 4-4

EFFICIENCY AND EFFECTIVENESS Efficiency IT Metrics—Measures the performance of the IT system itself including throughput, speed, and availability Effectiveness IT Metrics—Measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases 4-5

BENCHMARKING BASELINE METRICS Benchmarks—Baseline values the system seeks to attain Benchmarking—A process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance 4-6

THE INTERRELATIONSHIPS OF EFFICIENCY AND EFFECTIVENESS IT METRICS Efficiency IT metrics focus on technology and include: Throughput Transaction speed System availability Information accuracy Web traffic Response time 4-7

THE INTERRELATIONSHIPS OF EFFICIENCY AND EFFECTIVENESS IT METRICS Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include: Usability Customer satisfaction Conversion rates Financial 4-8

THE INTERRELATIONSHIPS OF EFFICIENCY AND EFFECTIVENESS IT METRICS Security is an issue for any organization offering products or services over the Internet It is inefficient for an organization to implement Internet security, since it slows down processing however, to be effective it must implement Internet security Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser) 4-9

METRICS FOR STRATEGIC INITIATIVES What is a metric? A metric is nothing more than a standard measure to assess performance in a particular area Metrics for measuring and managing strategic initiatives include: Website metrics Supply chain management (SCM) metrics Customer relationship management (CRM) metrics Business process reengineering (BPR) metrics Enterprise resource planning (ERP) metrics 4-10

WEBSITE METRICS Website metrics include: Abandoned registrations Abandoned shopping carts Click-through Conversion rate Cost-per-thousand Page exposures Total hits Unique visitors 4-11

SUPPLY CHAIN MANAGEMENT METRICS A supply chain is only as strong as its weakest link. The solution is to measure all key areas, which include: Back order Customer order promised cycle time Customer order actual cycle time Inventory replenishment cycle time Inventory turns (inventory turnover) 4-12

CUSTOMER RELATIONSHIP MANAGEMENT METRICS Customer relationship management metrics measure user satisfaction and interaction and include: Sales metrics Service metrics Marketing metrics 4-13

BPR AND ERP METRICS The balanced scorecard enables organizations to measure and manage strategic initiatives The balanced scorecard views the organization from four perspectives: The learning and growth perspective The internal business process perspective The customer perspective The financial perspective 4-14

BPR AND ERP METRICS Users should develop metrics, collect data, and analyze their business relative to each of these perspectives 4-15