Business Measures Discussion

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Business Measures Discussion

  1. 1. Business Measures Discussion Security Cooperation Conference 10 July 2000
  2. 2. Agenda  Thoughts on Business Measurement  Attributes of a Good Business Measure  Broad Types of Measures  Targets, Goals and Standards  Balanced Scorecard  Scorecard Cases  Discussion
  3. 3. Thoughts on Business Measurement Business Measurement Discussion The purpose of Business Measurement is to motivate and measure the desired behavior in an organization… 3 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  4. 4. Thoughts on Business Measurement Business Measurement Discussion Qualities of a world-class measurement system  Provides relevant and timely information required to meet the strategic objectives of the organization – Accurate product and customer cost information – Accurate operational performance information – Dissemination of information to the right people at the right time in the right format  Less is more… focuses on a handful of critical measures to accurately portray the performance of the organization  Enables management to simulate future scenarios on which significant decisions will be based  Allows management to understand operational processes and stimulate process dynamics in order to optimize efficiencies and outputs  Links the organization’s strategic, operational, and individual goal setting process 4 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  5. 5. Thoughts on Business Measurement (cont’d) Business Measurement Discussion Common Current State Future Vision…Performance Commitment  Inefficient mechanics of planning and  Efficient process focused on analysis reporting and value addition  Plans and measures not aligned with  Measures are a key communication organization strategy and goals and commitment mechanism  Focus primarily on output measures  Measures and information accessible and used by all levels of the  Information and reporting cycles not organization linked to business cycle  Continuous or dynamic planning,  Plethora of spreadsheets and responsive to environment fragmented data stores  Measures linked to organizational  Information not easily accessible for priorities employee action  Budgeting process develops  Managers manage “around” plans commitment to priorities  Employee goals and appraisals not  Employee goal setting and linked to business objectives performance appraisal develops  Weak linkage between individual commitment to organizational goals performance and rewards  Rewards are linked to performance 5 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  6. 6. Attributes of a Good Business Measure Business Measurement Discussion  Supports Organization’s Goals and Objectives – Aligned with organizations direction  Meaningful to customers – Supports customer focus  Understandable, logical and repeatable  Shows a trend over time  Clearly defined – Virtually anyone in the organization understands what it is  Economical to collect data – The result is worth the effort  Provides timely information on which to take action  It drives the appropriate action or behavior The measure is a means to an end, not an end in itself! 6 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  7. 7. Broad Types of Measures Business Measurement Discussion  Raw data indicators – Simple data that is reviewed for information purposes – Can not be tied to a process – Provides a general perception of the health of the organization  External output measures – Monitors volume or quality of output – Provides possible insights into customer satisfaction  Internal process measure – Provides insight into the performance of a process as the output is created – Designed to show ways to improve processes Measures without targets, goals or standards are largely worthless 7 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  8. 8. Targets, Goals and Standards Business Measurement Discussion  Must be attainable – Are processes capable of operating at that level? – Are resources sufficient to be successful? – If additional resources are required are they justified?  Should be statistically based if possible – Upper and lower performance limits set over time based on SPC – Fully mapped and normalized processes a must  Must drive the desired behavior – Consider behavior at all levels… individual, office, divisions, functional areas, etc. 8 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  9. 9. Balanced Scorecard Business Measurement Discussion  A management system that aligns performance throughout an organization to achieve strategic goals  Performance is measured in four quadrants – Financial, customer, internal processes, and organizational learning  The four quadrants are linked by cause and effect – Improving performance in one quadrant affects the level of performance of the other quadrants – For example, organizational learning and growth improves the execution of internal business processes, which leads to higher customer satisfaction, which results in financial gains 9 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  10. 10. Balanced Scorecard (cont’d) Business Measurement Discussion  Balanced Scorecard links strategy to activities throughout the organization – Key to linking performance  Accomplished by cascading strategic themes to identified critical success factors, – Key performance factors are then quantified  Process is repeated as the groups look to the level above to derive their strategic objectives, critical success factors, and key performance indicators – Ensures that performance at the lowest levels supports organizational strategy 10 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  11. 11. Balanced Scorecard (cont’d) Business Measurement Discussion Where is the organization going? How do we get there? What do we need to “do well”? How do we measure how well we are doing? 11 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  12. 12. Balanced Scorecard (cont’d) Business Measurement Discussion Financial Perspective  Critical success factors  Performance indicators  Targets Organizational Learning Customer Perspective Perspective  Critical success factors Vision and  Critical success factors  Performance indicators Strategy  Performance indicators  Targets  Targets Process/Product Perspective  Critical success factors  Performance indicators  Targets 12 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  13. 13. Balanced Scorecard (cont’d) Business Measurement Discussion Financial Perspective  How do we appear to our stakeholders?  Critical success factors  What financial outcomes do  Performance indicators we need to generate?  Targets Organizational Learning Customer Perspective Perspective  Critical success factors Vision and  Critical success factors  Performance indicators Strategy  Performance indicators  Targets  Targets Process/Product Perspective  Critical success factors  Performance indicators  Targets 13 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  14. 14. Balanced Scorecard (cont’d) Business Measurement Discussion Financial Perspective  Critical success factors  Performance indicators  Targets Organizational Learning Customer Perspective Perspective  Critical success factors Vision and  Critical success factors  Performance indicators Strategy  Performance indicators  Targets  Targets  Are we able to sustain Process/Product innovation, change and improvement? Perspective  How will we maintain our  Critical success factors ability to meet customer expectations?  Performance indicators  Targets 14 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  15. 15. Balanced Scorecard (cont’d) Business Measurement Discussion Financial Perspective  Critical success factors  Performance indicators  Targets Organizational Learning Customer Perspective Perspective  Critical success factors Vision and  Critical success factors  Performance indicators Strategy  Performance indicators  Targets  Targets Process/Product  What business processes Perspective must we excel at to satisfy our customers?  Critical success factors  Are these processes  Performance indicators effective (i.e., adding value for customers)?  Targets  Are they efficient? 15 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  16. 16. Balanced Scorecard (cont’d) Business Measurement Discussion Financial Perspective  Critical success factors  How should we appear to our  Performance indicators customers?  Targets  Are they satisfied? Organizational Learning Customer Perspective Perspective  Critical success factors Vision and  Critical success factors  Performance indicators Strategy  Performance indicators  Targets  Targets Process/Product Perspective  Critical success factors  Performance indicators  Targets 16 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  17. 17. Case Study - Managed Services Company Business Measurement Discussion  $4 billion managed services company identified several concerns with existing performance measurements: – More than 94 metrics used across the seven lines of business (LOB’s). – Not clearly linked to vision and strategy, mainly financial, internal, and historical. – Inconsistently tracked, communicated, and available to users.  Challenge – Develop a consistent and limited number of performance measures for each line of business utilizing the framework of the Balanced Scorecard – Cascade the line of business Scorecards to the Region, District, and Front Line levels linking LOB vision and strategy to Front Line operations – Design and develop a delivery system to enable tracking of actual performance against measurement targets  Results – Replacement of monthly and quarterly reporting (President’s Report, Operating Report, etc.) with Balanced Scorecard measurements. – Drill down capabilities to measure performance against targets for LOB, Region, District and Front Line. – Increased individual motivation and accountability to achieve performance that is linked to strategic goals 17 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  18. 18. Case Study - Consumer Products Company Business Measurement Discussion  A $3 billion global consumer products corporation experienced external pressure to increase shareholder value. To achieve increased shareholder value the company wanted to address the total performance of all operating companies by developing and implementing Balanced Business Scorecards  Challenge – Create understanding of Balanced Scorecard concept and its relation to shareholder value creation – Create understanding of the strategic issues facing each company and the relation to the corporate objective of increasing shareholder value – Determine how to measure and monitor the progress of the strategies set out by the operating companies in alignment with the corporate strategic objectives  Results – Realignment of the strategic initiatives and priorities of resource allocation of all operating companies with the defined shareholder value objectives – Realization of more relevant and accurate performance feedback to executives and managers in a timely manner – Development of a performance management foundation for improved planning and budgeting 18 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  19. 19. Balanced Scorecard Benefits Business Measurement Discussion  Focuses the organization on what is most important – Linked to strategies, goals, impact to customers  Provides foundation for continuous improvement – Balances improvement among all four quadrants  Supports the good of the organization over the good of an individual or functional group  Focuses attention on continuously improving employee performance  Balances internal and external perspectives – Employees versus customers  Balances short and long term objectives Balanced performance in all four quadrants is the end goal! 19 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.
  20. 20. Discussion Business Measurement Discussion 20 KPMG Consulting LLC. Proprietary and Confidential. Copyright 2000.

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