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Leading Indicators
 

Leading Indicators

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    Leading Indicators Leading Indicators Presentation Transcript

    • Performance Measures- Leading Indicators (Activity Drivers)
      • Prepared by Group 4:
      • Andrew Molloy
      • Amy Miller
      • Mike Elicker
    • 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.
    • 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.
    • 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.
    • 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.
    • Diagram of relationships between Performance drivers, Leading indicators, and results
    • There are many types of leading indicators throughout a company that affect performance
    • Company performance includes leading indicators of:
      • Customer Satisfaction
      • Growth and Retention
      • Internal Operations
      • -efficiency, speed, minimizing quality problems
      • Human Resource Systems
      • A further breakdown of leading indicators shows which drivers lead to specific results…
    • Indicators can be broken down into smaller categories:
      • 1. Organizational
      • 2. Environmental
      • 3. Group/Departmental
      • 4. Facility/Individual
    • 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.
    • 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.
    • 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.
    • 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.
    • Key Point:
      • Measures of these drivers must be tied to what the company is trying to accomplish
    • 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
    • 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.
    • 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
    • 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.
    • Drawbacks
      • Time and cost
      • No common denominator
      • No statistical reliability in the measures chosen
    • 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
      • Questions?