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Performance improvement consultancy

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  • 1. Performance Improvement Consultancy Arriffin Mansor
  • 2. Contents :1. Corporate Performance Scorecard2. Strategy Map Framework3. Four Perspectives in Balanced Scorecard4. Identifying Key Performance Indicators5. Strategy Map in Corporate Functions (HR, IT, Finance and Marketing) 2
  • 3. Performance management Targets Objectives Key Key Performa Result nce Areas Indicator s Training Standards Need Analysis Variance Rewards Appraisals Analysis 3
  • 4. Strategy Map Framework Long-term Shareholder Value Cost Efficiency Revenue GrowthFinancial Price Quality Service Availability Brand Customer Regulatory Operations Customer Innovation and Social Management Management Processes Processes Processes Processes Internal Process Learning & Growth Human Capital Organization Capital Information Capital 4
  • 5. Financial Perspective• In private companies, the financial perspective is the main objective (ultimate goal) – without having to sacrifice the interests of other relevant stakeholders (community, environment, government, etc.)• In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency. 5
  • 6. Strategic Objectives in Financial Improve ROE Increase ROA Improve GearingEnhance Customer Value Rent Lease fixed assetsIncrease Asset Utilization Buy assets on loans Improve Cost Structure Sell on cash buy on credit Expand Revenue Opportunities 6
  • 7. Customer Perspective• This perspective is very instrumental, because without customers, how can a company survive?• Customer perspective covers the following elements: • Customer acquisition • Customer retention • Customer profitability • Market share • Customer satisfaction 7
  • 8. Strategic Objectives in Customer Customer Retention Customer Profitability Customer Satisfaction Market Share Customer Acquisition Price Quality Service Availability Brand 8
  • 9. Performance Management Framework Vision Strategy MapMissionStrategy Key Performance Indicators Company strategy Identifying Defining Measuring Monitoring Reporting 9
  • 10. Agenda today• What are the critical performance gaps?• Comparing actuals against industry and company standards• Analyse staff incompetencies.• Analyse competency gaps using perspectives and key result areas.• Analyse for true competency gaps
  • 11. Corporate ObjectivesROS ROA ROE
  • 12. Performance Gap analysisActuals Standards Gaps
  • 13. Internal Process Perspective• This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.• There are four main themes in this perspective, namely: • Operations Management Process • Customer Management Process • Innovation Process • Regulatory and Social Process 13
  • 14. Strategic Objectives in Internal Process Operations Customer Regulatory Innovation Management Management and Social Processes Processes Processes Processes Processes that Processes that Processes that create Processes that produce and deliver enhance customer new products and improveproducts and services value services communities and the environment• Supply • Selection • New Ideas • Environment• Production • Acquisition • R&D Portfolio • Safety & Health• Distribution • Retention • Design/ Develop • Employment • Growth • Launch • Community 14
  • 15. Learning & Growth Perspective• This perspective reflects the capability that a company should have, namely: • Human Capital • Organization Capital • Information Capital• This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance. 15
  • 16. KPI GuidelinesGuidelines in Formulating the KPI• The measure of success must show clear, specific and measurable performance indicators.• The measure of success should be declared explicitly and in detail so that it is clear what is being measured.• Costs to identify and monitor the measure of success should not exceed the value that will be known from the measurement. 16
  • 17. KPI Guidelines Relevant to the Does KPI have a linkage with the strategic objectives?Strategic Objective Controllable Are the KPI achievements still under control? Actionable Can any action be taken to improve the performance? Simple Is the KPI easy to explain? Credible Is the KPI not easy to manipulate? 17
  • 18. Layers of Measurement Performance Senior Management ManagementEnterprise Goals & Program Office Objectives Measurement Process Management (QP) Repository Improve Process .. Control Process Enterprise Define Execute Process Measure Measures Database • • Applications Projects • Employees • Client Project A Project B Project C Project Product Product X Product Y Project/Product Data Historical Measures 18
  • 19. Common Misuse of Performance Measurement?• Behavior is influenced by measures – “You get what you measure because that is what you reveal as what you think is important.” (Sink and Tuttle, 1989)• But, are we measuring the right things? – How do we know the measure accurately reflects system performance? – How do we know that the measure is under the control of those it’s attributed to? – Are we measuring to control or to improve, or both? 19
  • 20. A good KPI system are measures• At outcome level - performance level – Corporate Level• At output level - Production level• At process level – efficiency and productivity measures – Sales & Production• At input level - alternative labour, material and overhead choices
  • 21. KPI Family DimensionProductivity Measures employee output (units/ transactions/ dollars), the uptime levels and how employees use their time (sales- to-assets ratio, dollar revenue from new customers, sales pipeline). Measures the ability to meet and/or exceed the Quality requirements and expectations of the customer (customer complaints, percent returns, DPMO -- defects per million opportunities). 21
  • 22. KPI Family DimensionProfitability Measures the overall effectiveness of the management organization in generating profits (profit contribution by segment/customer, margin spreads). Timeliness Measures the point in time (day/week/ month) when management and employee tasks are completed (on-time delivery, percent of late orders). 22
  • 23. KPI Family Dimension Measures how successfully the managementCost Savings organization achieves economies of scale and scope of work with its people, staff and practices to control operational and overhead costs (cost per unit, inventory turns, cost of goods). Measures the ability of the management organization to maintain competitive economic Growth position in the growth of the economy and industry (market share, customer acquisition/retention, account penetration). 23
  • 24. KPI Category DimensionThe actual raw data value as measured (e.g., sales volume). Direct The comparison of the changes in performance of one Percent value relative to the same value at a different time, geography, etc. (e.g., percentage change in sales vs. last year). 24
  • 25. KPI Category Dimension The comparison of one value relative to another to Simple Ratioprovide a benchmark for comparison of performance (e.g., average sales per day). A combination of several separate measures added Index together that result in an overall indicator ofperformance (e.g., (company sales growth)/(industry sales growth) for a specific geography). 25
  • 26. KPI Category Dimension The addition of the weighted averages of several similar Composite measures that result in an overall composite indicator of Average performance (e.g., customer satisfaction composite ismixture of results from surveys, focus groups and product returns). Multiple measures such as mean, variance, standard Statistics deviation and variance that capture the spread and distribution of the performance measures (e.g., sales distribution by demographics, geography, channel). 26
  • 27. Integration between Corporate andDivision/Department Vision Mission Strategy Corporate Scorecard The Division Scorecard is built by referring to the Division corporate scorecard Scorecard 27
  • 28. Corporate and Division Scorecard Corporate FinanceFinancial Corporate Marketing Customer Production Supply Chain R&DInternal ProcessLearning & Growth Corporate HR Info Technology 28
  • 29. Corporate and Division Scorecard• Division Scorecard is formulated by looking at the four perspectives in Corporate Scorecard.• As shown in the previous slides, the learning & growth perspective provides guidelines for developing scorecard at the Human Resource and IT divisions, while the internal process perspective provides guidelines for developing scorecard at the supply chain division or R&D. 29
  • 30. Corporate and Division Scorecard Sample from GE Lighting Business GroupLevel of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of satisfaction level Improve internal process employee competencyDivision Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level of Reduce inventory levels satisfaction level Improve internal process employee competencyPlant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" delivered Increase labor productivity Reduce customer per million Number of performance Reduce inventory levels complaints per million Improve quality incoming coaching session materials Maintain optimum equipment speedFrontline Employee Reduce waste Reduce equipment downtime Number of "on theScorecard Reduce overtime Reduce number of poor job training" attended Increase production rates solders Number of performance Reduce number of cracked coaching session bulbs attended The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee level.
  • 31. Division Strategy Map Template• The strategy map for HR Division, Information Technology Division, Finance Division, and Marketing Division are presented in the following slides. 31
  • 32. HR Strategy Map Template Drive Long term Shareholder Value Enhance People & Organizational Optimize HR Efficiency EffectivenessFinancial Create Positive Work Provide Quality HR Provide High Environment Service Performance PeopleCustomer Achieve HR Build Strategic Employee Drive Process Competencies Organizational Excellence Performance HR Internal Process Learning & Growth Develop Strategic & Functional HR Enhance Technology Create Climate for Competencies for HR HR Action 32
  • 33. IT Strategy Map Template Drive Long term Shareholder Value Enhance IT Impact on Optimize IT Efficiency Enterprise OutcomeFinancial Deliver Consistent, High Provide Business Units with Quality IT Service Innovative IT SolutionsCustomer Maintain a Develop Effective Decision Propose and Deliver Reliable IT Support System Transformational Applications Infrastructure IT Internal Process Learning & Growth Develop Strategic & Functional IT Enhance IT Tools that Enhance the Promote Customer-focused Competencies IT Function Culture 33
  • 34. Finance Strategy Map Template Drive Long term Shareholder Value Enhance Finance Effectiveness on Optimize Financial Efficiency Enterprise OutcomeFinancial Deliver Responsive & Efficient Provide Clear & Reliable Required Finance Operations DisclosureCustomer Achieve Finance Develop Financial Ensure Compliance Process Information to with Regulatory Requirements Excellence Improve Decision Making Finance Internal Process Learning & Growth Develop Strategic & Functional Use Technology to Improve Promote Customer-focused Finance Competencies Financial Information Culture Delivery 34
  • 35. Marketing Strategy Map Template Drive Long term Shareholder Value Increase Sales Optimize Marketing Efficiency RevenueFinancial Create Satisfied and Loyal Enhance Brand Customers ImageCustomer Develop Effective Develop Innovative Marketing Develop Accelerate Customer Relation Communication Marketing Business New Product Management Program Intelligence Development Ideas Internal Process Learning & Growth Develop Strategic & Functional Enhance Technology Foster Creative Thinking & Marketing Competencies for Marketing Innovative Solutions 35
  • 36. Strategy Map Template• The following slide displays the strategy map template comprising of four perspectives : financial, customer, internal business process, and learning & growth. 36
  • 37. Strategy Map Template Enhance Long-term Shareholder Value Improve Increase Revenue Growth Cost EfficiencyFinancial Build High Performance Expand Enhance Products Market Share Brand Image Customer Achieve Operational Drive Demand through Implement Good Manage Dramatic Excellence Customer Relation Environmental Policy Growth through Management InnovationInternal ProcessLearning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture Technology 37
  • 38. Maximising ROE strategies Profit Equity 38
  • 39. CORPORATE PERFORMANCE ROS ROA ATOROE ASSETS EM EQUITY 39
  • 40. Maximising ROA strategies Profit Assets 40
  • 41. CashCREDITORS Working Stock capital debtors 41
  • 42. Performance Relationship KRA KRA KRA 42
  • 43. Process InputsInputs outputs 43
  • 44. Value ChainInputs Process Output Outcome 44
  • 45. Horizontal comparision This year Last year material material labour labour overheads overheadsCost of Production Cost of Production 45
  • 46. Performance management Targets Objectives Key Key Result Performance Indicators Areas Training Standards Need Analysis Variance Rewards Appraisals Analysis 46
  • 47. Performance Metrics objectives Key Result AreasKey Performance Indicators 47
  • 48. KPI is input output ratio Outputs Inputs 48
  • 49. Six Steps in Business Planning1 • Cost volume profit analysis to determine size of business2 • Working capital from trading strategies3 • Minimzing investment in Fixed capital4 • Financed by Equity and Leveraging5 • Cash flow Projection to check liquidity6 • Constructing the Financial Statements 49
  • 50. Six Steps in Business Planning1 • Cost volume profit analysis to determine size of business2 • Working capital from trading strategies3 • Minimzing investment in Fixed capital4 • Financed by Equity and Leveraging5 • Cash flow Projection to check liquidity6 • Constructing the Financial Statements 50
  • 51. Six Steps in Business Planning1 • Cost volume profit analysis to determine size of business2 • Working capital from trading strategies3 • Minimzing investment in Fixed capital4 • Financed by Equity and Leveraging5 • Cash flow Projection to check liquidity6 • Constructing the Financial Statements 51
  • 52. Six Steps in Business Planning1 • Cost volume profit analysis to determine size of business2 • Working capital from trading strategies3 • Minimzing investment in Fixed capital4 • Financed by Equity and Leveraging5 • Cash flow Projection to check liquidity6 • Constructing the Financial Statements 52
  • 53. Six Steps in Business Planning1 • Cost volume profit analysis to determine size of business2 • Working capital from trading strategies3 • Minimzing investment in Fixed capital4 • Financed by Equity and Leveraging5 • Cash flow Projection to check liquidity6 • Constructing the Financial Statements 53
  • 54. PERFORMANCE METRICSObjectives & Goals Key Result Areas Key Performance Indicators 54
  • 55. METRICS (Continue)TARGETS VARIANCES EVALUATION 55
  • 56. Finance + Leverage Equity debtOrdinary Preference bonds Banks 56
  • 57. PERFORMANCE COMPARATIVE ANALYSISACTUALS TARGETS VARIANCE ANALYSIS 57
  • 58. Key Performance Indicators (KPI) KPI = Measurement or Vision indicator that provides information on how far weMission and Strategy have succeeded in achieving Values the strategic objectives Strategic Objectives Key Performance Indicators Finance Key Performance Customer Indicators Internal Business Process Key Performance Indicators HR Development 58
  • 59. Strategic Objectives inLearning & Growth Organization Capital InformationHuman Capital Capital• Skills • Culture • Systems• Knowledge • Leadership • Database• Attitude • Organization • Networks Development 59
  • 60. Managing Performance with Balanced ScorecardBalanced Scorecard is a management tool thatprovides stakeholders with a comprehensivemeasure of how the organization is progressingtowards the achievement of its strategic goals. 60
  • 61. Managing Performance withBalanced Scorecard• Balances financial and non-financial measures• Balances short and long-term measures• Balances performance drivers (leading indicators) with outcome measures (lagging indicators)• Leads to strategic focus and organizational alignment. 61
  • 62. 4 Perspectives in Balanced Scorecard Financial Perspective The Strategy If we succeed, how will we look to our shareholders? Customer Perspective To achieve our vision, how must we look to our customers? Internal Perspective To satisfy our customers, which processes must we excel at? Learning & Growth Perspective To achieve our vision, how must our organization learn and improve? 62
  • 63. Strategy and Balanced Scorecard Mission – Why We Exist Strategic Strategy Map Outcomes : Translate the Strategy Satisfied Vision – ShareholdersWhat We Strategy : Our Game DelightedWant to Be Plan Customers Excellent Balanced Processes Values – Scorecard : What’s Measure and MotivatedImportant to Focus Workforce Us 63
  • 64. Strategy Map Framework• The strategy map framework is presented in the following slides.• This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth perspective. 64
  • 65. Key Performance Indicators
  • 66. Performance Management ComponentThree critical components for effective process of performancemanagement Performance management cycle is continuous and Performance consistent Management Process Performance Performance Management Management Infrastructure Culture Logistic support and Culture that is based onperformance management performance administration accountability 66
  • 67. Performance Management Cycle STRATEGY Set Measures and TargetReward and Coach Plan and Execute Monitor and Evaluate 67
  • 68. Performance Gaps Performance Gaps Competency Other Causes GapsManagement Technical Change Gaps Gaps
  • 69. TRAINING NEED ANALYSIS
  • 70. Performance Framework and Building Plans
  • 71. CRITICAL PERFORMANCE GAP ANALYSIS CEO Marketing Finance HR Operations
  • 72. Performance Improvement Strategies KRA1 KRA3 KRA2 Goals
  • 73. COMPETENCY GAP ANALYSIS
  • 74. Tools used in this consultancy• Du Pont ROE format.• Variance analysis• Input output analysis• BSC perpectives• Key Result Areas• Calculating the improvement in KPIs• Calculating the ROI training
  • 75. Types of indicators• Input indicators• Process Indicators• Output indicators• Outcome indicators• Impact indicators (c) Arriffin Mansor 012-2786282 77
  • 76. FINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency No Average cost ratios produced per transactionResearch Productivity Value ROIdev expense ratios producedInventory Average RETURN ONturnover lead time EQUITY Waste Reduction 78
  • 77. MARKETINGINPUT PROCESS OUTPUT OUTCOMEMaterial Response rate No of customersLabour Marketing costs % Sales volumeOverhead Efficiency ratios Customers ProfitabilityResearch Productivity Product ROA marketingdev expense ratios profitability Average cost per Customer Return on Sales transaction acquisitionInventory turnover Average lead time Customer retentionPrice rel to comp Waste Reduction Revenue growth Delivery Channel 79
  • 78. INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency No Average cost ratios produced per transactionResearch Productivity Value ROIdev expense ratios producedInventory Averageturnover lead time Waste Reduction 80
  • 79. HRM KPIsINPUT PROCESS OUTPUT OUTCOMEIncentives variances Turnover ratioHours Efficiency No Profit per employee ratios producedTraining Productivity Value ROI ratios producedSalary Average Turnover Revenue per lead time employeeSkill Waste Reduction Employee Value added percompetency productivity employee 81
  • 80. DuPont Analysis Sales COH 2005 $ 1,689,429,000 Cost of Goods Sold + Extra Taxes Net Profits $ 384,153,000 After Taxes $ 358,612,000 Net Profit Operating Margin Income Expenses 21.23%Statement $ 731,891,000 NI/SALES Sales Return on Interest $ 1,689,429,000 Total Assets Expense (ROA) $ 13,641,000 26.17% NPM X TAT Taxes $ 201,132,000 Sales $ 1,689,429,000 Total Asset Turnover 1.23 Return on Current SALES/TA Equity (ROE) Assets 33.96% $ 709,360,000 Total Assets ROA X FLM $ 1,370,157,000 Net Fixed Assets & Other Stockholders $ 660,797,000 EquityBalance $ 1,055,920,000 Financial Sheet Current Leverage Liabilities Multiplier (FLM) $ 265,661,000 Total 1.30 Liabilities Total Liabilities TA/EQUITY Long Term $ 314,237,000 & Stockholders Debt Equity = Total $ 3,270,000 Assets Stockholders $ 1,370,157,000 Other Equity Liabilities $ 1,055,920,000 82 $ 45,306,000
  • 81. Extend the Map into Measurements, Targets and Initiatives Strategy MapStakeholder Detailed statement How success in The level of Key action Faster Service Access of what is critical to achieving the performance or programs successfully strategy will be rate of required to achieving the measured and improvement achieve strategy tracked needed objectives Self Service ApplicationsInternal Process Objective Measure Target Initiative Lean Processes Description Eliminate waste, Number of Reworks 2 per setup per Lean / Six Sigma reworks, and other month each Process and Value errors in our Outlet Office Map Analysis processes Web EnableL&G Technologies Investments Invest in IT
  • 82. Alignment of Scorecard Components Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy. Goal Objective Measurement Target InitiativeAchieve Reduce Cost per Outlet 5% - Year 1 ActivityAgency Operational Office, Cost per 10% - Year 2 Basedoperational Service Costs by Region, Cost 15% - Year 3 Costing /efficiencies 50% over the per FTE Managementwith best next 5 yearspractices inthe private Reduce identified Waste Volume Waste stream Lean / Sixsector re-activities Charts, Rework reductions of Sigma within primary Tracking, Cycle 5% each year, processes by Time End to End Reworks cut in 80% over the in S-LX (5 of 7 half for next 3 next 3 years Regions) years, cycle time cut by 75%
  • 83. Steps in calculating ROA for employees1. Draw an income statement fo each employee2. Identify assets employed to each employee. (Assets allocated to the employee)3. ROA determine the viability of each job but not the fairness of the job pay.4. Use return on pay (ROP) to compare the performance of each employee with relation to their salary or compensation plan.5. Profits / Sales x Sales / pay = ROP 85 © Arriffin 2009
  • 84. Questions & Answers 86