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Leading Indicators

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  • 1. Performance Measures- Leading Indicators (Activity Drivers)
    • Prepared by Group 4:
    • Andrew Molloy
    • Amy Miller
    • Mike Elicker
  • 2. Steps to leading performance measures
    • Leading performance measures are based on activity drivers that drive the performance of a company.
    • The first step in performance measurement are activity drivers that drive the performance of a company.
    • The second step to reaching your overall goal in performance is leading performance indicators.
    • The third step to reaching your company’s overall goal are the specific results your company is looking for.
  • 3. Performance Drivers
    • Performance drivers are structured around trying to achieve a firms overall goals, strategies, and objectives.
    • Performance drivers are the: process, learning, and alignment of the employees working toward performance indicators.
    • By continuing to develop performance drivers leading toward effectiveness and efficiency a company will be heading toward their overall goal.
  • 4. Performance Indicators
    • Performance indicators- represent a set of measures focusing on the aspects of organizational performance that are the most often critical for the current and future success of the organization.
    • There are several examples of performance indicators that a company might use. Some of these examples include:
    • Environmental
    • Customer
    • Competitor
    • Internal
    • Human resource
    • These indicators will help for a business to categorize their indicators into groups to help them measure and set up their performance drivers to work toward their results and specific goals.
  • 5. Results
    • The results of the activity drivers and performance indicators are what a company sets their overall goals for.
    • Some results that a company might be aiming for are customer satisfaction, cost per resolution, and employee satisfaction.
    • These results can be reached when a company has all of these steps in place and fallow them in reaching their overall goal to be a successful business.
  • 6. Diagram of relationships between Performance drivers, Leading indicators, and results
  • 7. There are many types of leading indicators throughout a company that affect performance
  • 8. Company performance includes leading indicators of:
    • Customer Satisfaction
    • Growth and Retention
    • Internal Operations
    • -efficiency, speed, minimizing quality problems
    • Human Resource Systems
  • 9.
    • A further breakdown of leading indicators shows which drivers lead to specific results…
  • 10. Indicators can be broken down into smaller categories:
    • 1. Organizational
    • 2. Environmental
    • 3. Group/Departmental
    • 4. Facility/Individual
  • 11. Environmental:
    • Outside factors such as government regulations, economic cycle, politics
    • Example: Economy is headed for a recession. Company must plan to be ahead of the curve.
    • Solution: Address the orders dept. Measure how many orders should be decreased to account for a slowing economy.
  • 12. Organizational:
    • Company Strategy, Policy, Structure
    • Example: Mgmt wants to increase sales of Product A
    • Solution: The amount of Research and Development of Product A needs to be measured to determine how many hours to increase by.
  • 13. Group/Departmental:
    • Group relationships, responsibility, and assignments
    • Example: Mgmt wants to increase inter- office group relations.
    • Mgmt may determine they want to do this by increasing time spent working in teams. Amount of hours per week increased of working in teams must be measured.
  • 14. Individual:
    • Management style, skills, behavior
    • Example: Mgmt feels productivity will increase if employee skills are higher.
    • Solution: Extra training and classes may be required to achieve this. Measurement of hours required to raise employee skills must be conducted.
  • 15. Key Point:
    • Measures of these drivers must be tied to what the company is trying to accomplish
  • 16. Other Common Leading Indicators
    • Increase returning customers by 15% this year……gain more market share
    • Reduce employee turnover this year……improve efficiency
    • Increase sales is a particular department…..boost overall sales
  • 17. Advantages
    • There is a closer link to long-term organizational strategies
      • Example- improving customer relations, market competition, expanding new product development, or expanding organizational capabilities may be important strategic goals, but may hinder short-term accounting performance.
  • 18. Advantages
    • Critics of traditional measures argue that drivers of success in many industries are “intangible assets,” rather than figures on the balance sheet
      • A recently published study found that measures related to company innovation, management capability, employee relations, quantity, and brand value explained a significant proportion of a company’s value, even after factoring in accounting assets and liabilities
  • 19. Advantages
    • Often times non-financial indicators can be better indicators of future financial performance
      • For example, when the ultimate goal is maximizing financial performance, current measures may not capture long-term benefits from decisions currently being made.
      • Investments in customer satisfaction can improve future economic performance by increasing revenues and loyalty of existing customers, and attracting new customers.
  • 20. Drawbacks
    • Time and cost
    • No common denominator
    • No statistical reliability in the measures chosen
  • 21. Implementation
    • Good understanding of value drivers
      • What contributes to long-term success?
      • Principles for translating corporate objectives into measures that guide management’s daily actions
      • Many companies go wrong here
    • Statistical analysis of leading and lagging indicators of financial performance
    • Business model - help determine which measures best predict future financial performance
      • Assign weights to measures based on the strengths of statistical relations
    • Integration
  • 22.
    • Questions?