1. Case KCI Konecranes: Developing Non-Financial Measures in a Global Crane Company (By Kari Lukka and Markus Granlund 1999)
Henri Teittinen

2. Issues to be studied
Strategies, critical success factors and management control
The development and implementation of non-financial measures
Maintenance business context
How was the non-financial measurement system designed?
What are the design alternatives?
How strategies are linked with the measures?
Opinions of HQ and BU for non-financial measurement system?

3. Assignments
Discuss the competitive environment of KCI Konecranes and the recent changes in the strategy.
Describe the main characteristics of the Crane Services Finland (CSF) unit.
Evaluate the way the development and implementation of non-financial measures was organised at KCI. What could have been alternatives for the selected organisation?
How do the three non-financial measures developed support the strategy of the Field Services segment of the Maintenance Business at KCI? How about the six forthcoming ones, i.e. the so-called Benchmark measures of performance? Do you think it is a good idea that the currently applied three non-financial measures will probably be soon replaced by the Benchmark measures?
In your view, what other non-financial measures could have been considered as useful for the Field Services segment of the Maintenance business at KCI?
Using the data in Appendix 4, calculate both versions of the Pricing ratio (the currently used and the forthcoming benchmark version of it) of CSF in Evaluate the differences from a strategic perspective.
Consider the balance between financial and non-financial measures at KCI. How would you comment the fact that Controller Virtanen finds “the Pricing Ratio a bit complicated in the sense that the time and material based sales is often indeed a good business for CSF”?
What might explain the fact that CSF’s monthly Lost Contract Ratio values in 1996 are often more than 100%, whereas the monthly Lost Contract Ratios of the US Field Services profit-centre tend to be below 100% (Appendices 2a and 2b)? In addition, compare the Pricing Ratio figures of CSF and those of the US profit-centre in Appendices 2a and 2b. Explain the differences.
Provide reasons for the limited application of the non-financial measures, developed by CFO Rintamäki, at CSF.

4. 1. Discuss the competitive environment of KCI Konecranes and the recent changes in the strategy.
Global and local competition  forced to evaluate and develop its operation.
Strategy? Global and local
Crane maintenance has a great growth potential.
Strategy? From maintenance as after sales to maintenance as first sales.
How to communicate this to sales people?

5. 2. Describe the main characteristics of the Crane Services Finland (CSF) unit.
Business unit, Nordic Region.
South, West, East, North.
Profit centers and service districts.
Stable position, large customer base, mature market, limited growth potential.  CSF differs global units.

6. 3. Evaluate the way the development and implementation of non-financial measures was organised at KCI. What could have been alternatives for the selected organisation?
CFO Rintamäki, owner of the project.
Top-down oriented: Easy, low-cost, management involved…
Communication: ”Selling the measures” vs. negoatiations vs. straighforward style? Sending letters to implement.
Alternatives:
Bottom-up style? Starting from profit centers (”local” strategy), dialogue, expected effects, different measurement system, higher commitment?
Lot of effort, time consuming…
Combination of top-down and bottom-up styles?

7. The broad target of the project: Enhance customer satisfaction
4. How do the three non-financial measures developed support the strategy of the Field Services segment of the Maintenance Business at KCI? How about the six forthcoming ones, i.e. the so-called Benchmark measures of performance? Do you think it is a good idea that the currently applied three non-financial measures will probably be soon replaced by the Benchmark measures?
The broad target of the project:
Enhance customer satisfaction
Increase number of customers
Increase predictability and controllability of the near future
Enhance profitability

8. 4. The Lost Contract Ratio:
Supports to aim the good quality and customer satisfaction.
Also meant to motivate for growth be getting continuosly new customers.
Small customers, hopefully becoming larger ones.  number-wise measurement system instead of monetary measurement system.
In order to keep a sufficient customer base, has to be able to control gaining and losing customers.
Losses of key customers indicate problems as regards in strategy.

9. 4. The Service Hit Ratio:
Target of getting more orders (in monetary units).
The purpose is to get more purchases from one customer.
This measuremet is thus connected to customer satisfaction and competitiveness, also good overall quality and reliability of KCI.
High ratio: Growht potential? Trying to get new customers?

10. 4. The Pricing Ratio: For long-term contracting
Predictability for the near future, financial planning.
The Staff to Operatives Ratio:
Supportive measure? Customer satisfaction?
Sufficient number of direct customer servants. (relatively low)
Too little resources allocated to develop business. (very low)

11. 4. The Field Services vs. Home Base Services ratio:
Customer satisfaction
Target value 70/30. Target to optimize.
High value: service personnel has spent much time with customer. Sign of good and reliable customer satisfaction.
Extremely high values should be avoided: other activities, like selling spare parts?

12. 4. CMII %: Traditional financial measure (contribution margin)
Long history
DSO (days sales outstanding):
Typical process cycle speed
Do not present innovation.
Rintamäki: competitive weapon agains competitors.
Customer satisfaction?

13. 4. Lost Contract Ratio Transform to Contract Renewal Ratio
Ignoring new contracts? Existing contracts.
Gained Contract Ratio?
In monetary or number-wise?
Mature market: monetary. (difficulty to get new customers).
Growing market: number-wise.

14. 5. In your view, what other non-financial measures could have been considered as useful for the Field Services segment of the Maintenance business at KCI?
Wide range of local non-financial measures in profit centers.
Developed by BU themselves
Maintenance service hours spent / crane
Proportion of sold service hours / total hours paid.
Bottom-up style of implementation.
Down-time % of customers, and its change.
Re-work %, for quality of service.

15. 6. Using the data in Appendix 4, calculate both versions of the Pricing ratio (the currently used and the forthcoming benchmark version of it) of CSF in Evaluate the differences from a strategic perspective.
Currently used pricing ratio:
SP22M/(SP22R + SP22M + SP23) *100 = 4183 / ( ) * 100 = 48,6% (in ,5%)
Benchmark version of Pricing ratio:
(SP21 + SP22M)/(SP21 + SP22R + SP22M + SP23) * 100 = ( )/( ) * 100 = 8300/12728 *100 = 65,2% (in ,8%)
Current version: SP22, SP23, but excludes large item SP21 long term contracts
Strategy: long term contracts. Benchmark version looks better?

16. 7. Consider the balance between financial and non-financial measures at KCI. How would you comment the fact that Controller Virtanen finds “the Pricing Ratio a bit complicated in the sense that the time and material based sales is often indeed a good business for CSF”?
Virtanen: Pricing ratio is complicated since the time and material based sales is often a good business for CSF.
Rintamäki: high margin time and material based sales of CSF are provided by sales to long-term customers.
It is easier to make deals with customers under long-term contracts rather than with ad-hoc basis customers.
Long-term contracts.

17. Profit-centers in different markets: Mature vs. Growth.
8. What might explain the fact that CSF’s monthly Lost Contract Ratio values in 1996 are often more than 100%, whereas the monthly Lost Contract Ratios of the US Field Services profit-centre tend to be below 100% (Appendices 2a and 2b)? In addition, compare the Pricing Ratio figures of CSF and those of the US profit-centre in Appendices 2a and 2b. Explain the differences.
Lost contract ratio in CSF (1996): in 6 months out of 12 CSF has lost more customers than it has been able to gain.
Profit-centers in different markets: Mature vs. Growth.
Profit-centers in different developing stage (fixed price long term contracts in CSF).
Does the profit-centers calculate the measures same way?
Manipulation?
Correct measures?

18. 9. Provide reasons for the limited application of the non-financial measures, developed by CFO Rintamäki, at CSF.
Controller just calculates the figures for HQ, but that is all.
Tradition? Profitability? No need for additional measures. Local non- financial measures.
Development process of non-financial measures (top-down).
Major target in global business units.
Role of measures in monthly reports: financial vs. non-financial.
Measures linked to incentives!

19. Suggested readings
Argyris, C. (1977), Organizational Learing and Management Information Systems. Accounting, Organization, and Society, 2,
Dent, J. (1991), Accounting and Organizational Cultures: A Field Study of the Emergence of a New Organizational Reality. Accounting, Organization, and Society, 16,
Jönsson, J. & Grönlund, A. (1988), Life with a Subcontractor: New Technology and Management Accounting. Accounting, Organization, and Society, 13,
Kaplan, R. (1983), Measuring Manufacturing Performance: A New Challenge for Managerial Accounting Research. The Accounting Review, 58,
Kaplan, R. & Norton, D. (1993), Putting the Balanced Scorecard to Work. Harward Business Review, 71,
Kaplan, R. & Norton, D. (1996), Using Balanced Scorecard as a Strategic Management System. Harward Business Review, 74,
Vaivio, J. (1995), The Emergence of Non-financial Management Accounting Measures, Helsinki School of Economics and Business Administration B-158.