Performance Management:

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Performance Management:

  1. 1. Performance Management: Finding the Missing Pieces to Close the Intelligence Gap Gary Cokins SAS Institute, Inc. www.sas.com 248-642-1296 USA gary.cokins@sas.com 1 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All1 1 . rights © 2004 , SAS rights reserved. About Gary Cokins B.S. Industrial Engineering & Operations Research; Cornell University, 1971 M.B.A. Finance & Accounting; Northwestern University, Kellogg Graduate School of Management, 1974 Recipient of CAM-I's 1993 Robert A. Bonsack Award for Distinguished Contribution to the field of Cost Management Previous Associations: - FMC Corporation - Consultant with: Deloitte & Touche, KPMG Peat Marwick, & Electronic Data Systems (EDS) 2 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All2 2 . rights © 2004 , SAS rights reserved. 1
  2. 2. About Gary Cokins Gary Cokins is a Strategist with SAS, the world’s leading provider of business intelligence and analytics software. He is an internationally recognized expert, speaker, and author in advanced cost management and performance improvement systems. Gary has authored: - the acclaimed An ABC Manager’s Primer (ISBN 0-86641-220-4) sponsored by the Institute of Management Accountants (IMA). - Activity Based Cost Management: Making it Work (ISBN 0-7863-0740-4), which was judged by the Harvard Business School Press as “read this ABC book first.” - Activity Based Cost Management: An Executive’s Guide (ISBN 0-471-44328-X) recently ranked #1 ‘bestselling’ of 151 books on the topic. - Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (ISBN 0-471-57690-5). 3 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All3 3 . rights © 2004 , SAS rights reserved. What’s the Problem? Direction, traction, and speed 4 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All4 4 . rights © 2004 , SAS rights reserved. 2
  3. 3. What’s the Answer? Performance Management PM embraces methodologies, metrics, processes, software tools, and systems that manage an organization’s performance. PM translates strategic plans into results. It is execution. PM is the process of managing your strategy. There is no single PM methodology because it spans the the complete “closed loop” management planning and control cycle. 5 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All5 5 . rights © 2004 , SAS rights reserved. What’s the Answer? Performance Management PM addresses some major headaches of senior executives: Most employees do not know their organization’s strategy. Managers and employee teams are making daily decisions with trade-offs … and they don’t know the impact --- where and to what extent. 6 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All6 6 . rights © 2004 , SAS rights reserved. 3
  4. 4. Strategy, Mission How Do They All Fit Together? customer ERP, etc. satisfaction CRM Your Scorecards Organization Inputs $ ROI Shareholders 7 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All7 7 . rights © 2004 , SAS rights reserved. Limitations from Business Systems In the 1990s you were happy if your business system simply recorded and reported transactional information. Today this is commonplace … and expected. Transactional systems are effective at producing data, but not at providing knowledge for decision support. Companies are deluged with data and wasting resources through misalignment. 8 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All8 8 . rights © 2004 , SAS rights reserved. 4
  5. 5. Managers and teams are stymied How do I reduce my budget without sacrificing service levels? How efficient do I have to become to support my expected future workload volume or “new program” with my current budgeted resources? How do I get out of this pickle? I’m now a process “owner” and being held accountable --- but I have minimal influence and control ! How do you answer these questions with transactional information? 9 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All9 9 . rights © 2004 , SAS rights reserved. The Database Core What matters more is what decisions are made with the data. 10 10 10 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 5
  6. 6. The Gap Between Strategy and Transaction Systems Strategy Operational and transaction-based data 11 11 11 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Performance Management: The Process strategy balanced map scorecard Managerial Operational Accounting Data Data 12 12 12 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 6
  7. 7. Agenda • Introduction to Performance Management • Part I – Performance Management Process • Focus --- Strategy Maps • Communication --- Scorecards • Collaboration --- Discussions/Dialog • Part II – Taking Action: The Power of ABC/M Intelligence - measuring strategic costs (customer/channel profitability) - measuring operational costs - predicting expenses (resource planning) • Summary: Leveraging Value with PM 13 13 13 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Goal Non-congruency, Conflict, and Mis-alignment Non- Mis- Mission Strategy Strategies Maximize Shareholder Value high quality speedy low cost “Wall of Disconnects” Disconnects” great service flexible Accountability Measures 14 Sub-optimization of work 14 14 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 7
  8. 8. Issues with Performance Measures Lots of Energy, but Poor Traction - • Employees wheel-spin a lot. Poor Alignment - • Employees do not know the strategies. • Too many measures prevent focus. Reported Too Late and Not Predictive - • Most measures are after-the-fact outcomes. • Major emphasis is on financial measures. 15 15 15 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Vision and Mission Statements A Vision statement answers Vision “where do we want to go?” & Mission Examples: USA President Kennedy, “We will put a man on the moon.” Strategy Balanced Microsoft, “A computer on every desktop.” Mapping Scorecard A Mission statement answers “Why are we here?” Examples: US Navy Ordnance: “We save ships.” 16 16 16 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 8
  9. 9. The Strategy Maps and its Scorecard Vision & Mission The strategy map and its balanced scorecard answers the question: Strategy Balanced Mapping Scorecard “How will we get there?” 17 17 17 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Performance Management: Focus strategy map • Select manageable projects that can be accomplished 18 18 18 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 9
  10. 10. Generic Strategy Map Architecture Financial Maximize Shareholder Value Financial Realized Value Customer Customer Internal Process Internal Processes Potential Value Learning Learning (intangible assets) 19 19 19 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Who Does What? 1st Quarter Identify Projects, Strategic Initiatives, or KPI KPI comments / Objective Processes Measure Target Actual explanation Executive Team X X Managers and their Employees X X score X <----- period results -------> A scorecard is more of a social tool than a technical tool. 20 20 20 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 10
  11. 11. A Strategy Map vision & mission Exceed shareholder expectations Diversify income Increase sales Improve profit Financial stream volume margins Diversify Increase sales to Customer customer base existing customers Attract new customers Internal Target profitable develop new Optimize internal market segments products processes Process Attract new customers Learning Develop Integrate & Growth employee skills systems 21 21 Copyright 2001. Orion Development Group. Permission to reprint granted. 21 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) All rights reserved. Institute Inc. All rights reserved. Copyright © 2004 , SAS Performance Management The Process: Communicate • Provide feedback to employees 22 22 22 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 11
  12. 12. XYZ Corporation Balanced Scorecard Vision: To be the premier provider of our products in specific global markets Mission: To delight target customers through innovative products and application of leading-edge technology of our processes 2Q, 200X PERSPECTIVE / Lagging KPI Measures <--- KPI KPI KPI Comments / Strategic Objectives <--- Leading KPI Measures Target Actual score"* Explanation >1, good FINANCIAL <1, poor Exceed shareholder expectations Share price 72.0 71.0 0.975 ROI 25.0% 21.5% 40% increase sales volume Revenue ($ mil) $6.000 $5.482 35% Improve profit margins Gross margin % 35.0% 31.6% Operating expense % sales 20.0% 24.2% 25% diversify income stream % $ from top 20% of customers 50% 48% # products > 5% of revenues 6 7 CUSTOMER increase sales to Cross-sell ratio % 30% 13% existing cusomers customer retention rate 95% 90% These are % preferred supplier to 35% 20% The diversify customer base # sales call to new markets 90 84 Strategic attract new customers Revenues from new customers $0.500 $0.800 Objectives PROCESS adverising $ spent $ 25.0 K $ 23.4 K target profitable customer segments # segments identified 3 0 develop new products Revenues from new products $ 40.0 K $ 55.5 K new product intro time (# days) 60 days 95 days streamline order fulfillment cycle time (#days) 7.5 days 8.8 days fullfillment process On-time delivery % 95% 51% LEARNING & GROWTH Develop employee skills Profit per employee $ 50.0 K $ 32.5 K employee satisfaction index 80% 82% # training days / employee 2.00 1.25 Retention rate 95% 99% Integrate systems % IT plan integration 80% 90% % orders received via Internet 10% 4% * score equation example: Share price hi: 92 lo: 52 score = 1 + [(actual-target) / (hi - lo)] where hi/lo range has target as midpoint 23 23 23 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS A Balanced Scorecard Lagging KPI Target Actual Strategic Objective <-- Leading KPI KPI KPI CUSTOMER increase sales to Cross-sell ratio % 30% 13% existing cusomers customer retention rate 95% 90% % preferred supplier to 35% 20% diversify customer base # sales call to new markets 90 84 attract new customers Revenues from new customers $0.500 $0.800 adverising $ spent $ 25.0 K $ 23.4 K PROCESS target profitable customer segments # segments identified 3 0 develop new products Revenues from new products $ 40.0 K $ 55.5 K new product intro time (# days) 60 days 95 days streamline order fulfillment cycle time (#days) 7.5 days 8.8 days fullfillment process On-time delivery % 95% 51% 24 24 24 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 12
  13. 13. Meters with scores provide feedback to all managers and employee teams just like an automobile dashboard 25 25 25 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Performance Management The Process: Collaborate • Tap into the collective knowledge of your entire workforce • Create discussion threads for faster consensus 26 26 26 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 13
  14. 14. Web-enabled Scorecards To: Jane From: Sylvia “I know why we are late on shipments. XYZ Trucking firm is unreliable!” 27 27 27 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS The Key to Scorecards How does everyone answer this single question: “How am I doing on what is important?” Strategy Maps and Scorecards provide this answer. The overriding purpose of a scorecard system is to make mission and strategy everyone’s job. 28 28 28 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 14
  15. 15. Accountability, Responsibility, and Ownership Scorecard or Report Card? (used for punishment or remedy?) 29 29 29 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Agenda • Introduction to Performance Management • Part I – Performance Management Process • Focus --- Strategy Maps • Communication --- Scorecards • Collaboration --- Discussions/Dialog • Part II – Taking Action: The Power of ABC/M Intelligence - measuring strategic costs (customer/channel profitability) - measuring operational costs - predicting expenses (resource planning) • Summary: Leveraging Value with PM 30 30 30 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 15
  16. 16. Here is a simple example of ABM that you can repeat to best friend! 31 31 31 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Taxonomy ACCOUNTING Managerial Financial Accounting Accounting (external reporting) Cost Measurement Cost Uses (decision support) Assigning expense Collecting cost data data into costs Control Assessment Planning (feedback) (insights & learning) (predictive) Concepts, Methods assumptions & issues financial Operational, Financial Operational Quality Segmented Variance Budgeting cost analysis Accountability Managing Managing analysis capacity demand SYSTEMS INTEGRATION financial operational QUOTATIONS SCORECARDS, (PRICING), PERFORMANCE MEASURES WHAT-IF ANALYSIS 32 32 32 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 16
  17. 17. The Need for ABC/M Changes in Cost Structure 100% Overhead Cost Direct Material Components Direct (recurring) Labor 1950s 1990s 0% Old-fashioned Hierarchical Integrated Stages in the Evolution of Businesses 33 33 33 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Most Recognize ABC as a Two -Stage Allocation From: General Ledger To: ABC Data Base Activity Chart-of-Accounts View Activity-Based View cost drivers Claims Processing Dept Claims Processing Department Key/scan claims $ 31,500 Favorable/ #of Products / customers Actual Plan (unfavorable) Analyze claims 121,000 #of Suspend claims 32,500 #of Salaries $621,400 $600,000 $(21,400) Receive provider inquiries 101,500 #of Equipment 161,200 150,000 (11,200) Resolve member problems 83,400 #of 2,000 Process batches 45,000 #of Travel expense 58,000 60,000 Determine eligibility 119,000 #of Supplies 43,900 40,000 (3,900) Make copies 145,500 #of Write correspondence 77,100 #of Use and occupancy 30,000 30,000 –– Attend training 158,000 #of Total $914,500 $880,000 $(34,500) Total $914,500 When managers get this kind of report, they are either happy or sad, but they are rarely any smarter! 34 34 34 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 17
  18. 18. ABC/M Doesn’t Replace the Accounting System Data Data+ Information A Strategy General B A blizzard of Ledger C transactions (expense / Operations account A balances) B M An Optical Decision makers Lens Accumulator (Reassigns Costs) 35 35 35 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Profitability Profile Using ABC Cumulative Profit (Millions) $8 $6 Net Revenues Minus $4 ABC Costs Unrealized profit revealed by ABC $2 $1.8 profit $0 Specific Products, Services, and/or Customers (ranked most profitable to least profitable) 36 36 36 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 18
  19. 19. $ 30 sales - 28 expenses = $ 2 profit Net Revenues Unrealized profit revealed by ABM Minus ABM costs = profit $ 2 profit 37 37 37 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Bill of Activity Costs ABM provides insight for the product’s or service’s cost drivers and driver quantities. Work Activities each activity’s driver quantity x unit activity driver cost (eg. # of registrations) Price/Fee Activity 38 (Revenue) Costs 38 38 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 19
  20. 20. Multi-Stage Cost Flowing Resources Resources Activities Objects Objects Activities Simple Expanded ABC ABC 39 39 39 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS ABC/M Cost Assignment Network Phone, Rent, Salary, Fringe Direct Travel Depreciation Interest, Resources Benefits Material Supplies Tax Work People Activities Support Activities Activities Equipment “cost-to-serve” Activities paths Final Cost Products, Costs (2) “Costs Measure the Effects” Services Objects (1) Demands On Work Business Suppliers Sustaining Customers 40 40 40 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 20
  21. 21. The ABC/M Slogan It is better to be approximately correct than precisely inaccurate! 41 41 41 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Rapid Prototyping with Iterative Remodeling Each iteration enhances the use of the ABC/M system. ABC/M System ABC/M Models (repeatable, reliable, relevant) #0 #1 0 1 3 2 #2 #3 42 42 42 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 21
  22. 22. Other Below-the-line “Calculated” Costs Products are not the only thing for which accountants should compute costs. What about costs for: • types of orders? • types of SKUs? • types of containers? • types of routes? • types of trucks? • types of sales channels? • types of customers? The problem with traditional accounting’s gross margin reporting is you don’t see the bottom half of the picture. 43 43 43 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Why Do Customer-related Costs Matter? The Perfect Storm # 1- Customer Retention – It is relatively much more expensive to acquire a new customer than to retain an existing one. # 2 – Sources of Competitive Advantage – As products become commodity-like, the shift is towards service-differentiation. # 3 - Power Shift – The Internet is shifting power … irreversibly … from sellers to buyers. 44 44 44 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 22
  23. 23. Profitable and unprofitable customers are distinguished by how they place demands on work activities u Less profitable customers u More profitable customers They make you jump You hardly know they are through flaming hoops! there … but they keep on buying from you. This behavior can be measured by activity costs and activity cost drivers 45 45 45 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS ABC/M Profit Contribution Margin Layering SALARY & DIRECT CAPITAL NON-WAGE RELATED RESOURCES FRINGE BENEFITS MATERIAL (equipment-related) (e.g., operating supplies) RELATIONSHIP PURCHASES, •BRAND/PRODUCT- TRADE SHOWS, SALES CALLS, RELATEDWORK, MACHINES IMAGE ADVERTISING ORDER HANDLING, MANAGEMENT RECEIPTS MAKE PRODUCT, WORK •BRAND/PRODUCT- FREIGHT RELATED ADVERTISING MOVE PRODUCT, ACTIVITIES # Sales calls & MERCHANDISING, SET-UPS (examples) # POs # orders # Receipts •FACILITIES COST # shipments FINAL Facility costs COST OBJECTS # Machine hours SUPPLIER # Advertisements # Material moves SENIOR OSHA IRS SUSTAINING MGT DOT # Set-ups Etc. Profi ARBITRARY Gvt Regulators t UNIT & cont BRAND # Pounds UNUSED Product-specific BATCH # Gallons (for full absorption) R&D SUSTAINING CAPACITY LEVEL ribut # Meters SUPPLIERS ion PRODUCT/SERVICE LINE SUSTAINING erosi # Shows # Advertisements BUSINESS SUSTAINING RELATED SUPPLIER- RELATED UNIT & on CUSTOMER SUSTAINING BATCH LEVEL UNIT & ARBITRARY PRODUCTS/SKUs BATCH (for full absorption) LEVEL PRODUCT & SERVICE LINE- RELATED CUSTOMERS CUSTOMER- RELATED 46 46 46 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 23
  24. 24. ABC/M Customer Profit & Loss Statement CUSTOMER: XYZ CORPORATION (CUSTOMER #1270) Sales $$$ Margin $ Margin (Sales - ΣCosts) % of Sales Product-Related Supplier-Related costs (TCO) $ xxx $ xxx 98% Direct Material xxx xxx 50% Product- Brand Sustaining xxx xxx 48% related Product Sustaining xxx xxx 46% costs Unit, Batch* xxx xxx 30% Distribution-Related Outbound Freight Type* xxx xxx 28% Order Type* xxx xxx 26% Channel & Channel Type* xxx xxx 24% Customer- related Customer-Related costs Customer-Sustaining xxx xxx 22% Unit-Batch* xxx xxx 10% Business Sustaining xxx xxx 8% Operating Profit xxx 8% * Activity Cost Driver Assignments use measurable quantity volume of Activity Output 47 (Other ActvityAssignments traced based on informed (subjective) %s) 47 47 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Migrating Customers to Higher Profitability Knowing where channels or customers are located Knowing where channels or customers are located requires knowing their true costs via ABC/M. requires knowing their true costs via ABC/M. Very Types of Customers Profitable High (Creamy) le ab fit P ro Big Profit $ (but not necessarily margin%) Product Mix Margin e bl Small profit $ (but not ita necessarily margin%) of pr Un Low (Low Fat) Low High Very unprofitable Cost-to-Serve Cost- to- 48 48 48 . Copyright © 2004 48 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. rights © 2004 , SAS 24
  25. 25. Customer Equity (CE) and CLV Management Who is more important to pursue with the scarce resources of our marketing spend budget? Our most profitable customers? Or our most valuable customers? What is the difference? The “customer lifetime value” measure is intended to answer this question. Treat each customer as an investment in a stock portfolio. 49 49 49 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Agenda • Introduction to Performance Management • Part I – Performance Management Process • Focus --- Strategy Maps • Communication --- Scorecards • Collaboration --- Discussions/Dialog • Part II – Taking Action: The Power of ABC/M Intelligence - measuring strategic costs (customer/channel profitability) - measuring operational costs - predicting expenses (resource planning) • Summary: Leveraging Value with PM 50 50 50 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 25
  26. 26. Activity Analysis for Process Improvement Target an activity for improvement Activity analysis judges work based on need, efficiency, and value. Is activity Is activity required by No required by aacustomer? customer? Yes No No Eliminate Eliminate Can activity Can activity No Can the Can the Does Does All cost All cost the activity to be driver driver activity contain activity contain reduction the activity to be frequency be reduction reduce cost eliminated? frequency be low-value added low-value added opportunities reduce cost eliminated? reduced? opportunities reduced? tasks? tasks? identified identified Yes Yes Yes Reduce the activity Eliminate Eliminate Reduce the activity frequency to low-value added low-value added frequency to reduce cost work to reduce cost work to reduce cost reduce cost 51 51 51 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Agenda • Introduction to Performance Management • Part I – Performance Management Process • Focus --- Strategy Maps • Communication --- Scorecards • Collaboration --- Discussions/Dialog • Part II – Taking Action: The Power of ABC/M Intelligence - measuring strategic costs (customer/channel profitability) - measuring operational costs - predicting expenses (resource planning) • Summary: Leveraging Value with PM 52 52 52 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 26
  27. 27. Historic Reporting vs. Predictive Costing ABC/M ABP Past Now Future • Activity-Based Costing • Activity-Based Planning - Historical & Descriptive - Predictive - Starts with known: - Requires capacity analysis spending - Starts with estimated outputs driver measures - Applies ABC/M rates output quantities - Calculates “costs” - Solves for Resource “expenses” 53 53 53 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS The Challenge of projecting “what-ifs” Phone, Rent, Salary, Fringe Benefits IT Travel Depreciation Interest, Supplies Resources Tax Work People Activities Activities Resource Support Activities expenses can be calculated Equipment “cost-to-serve” with Activities paths “backwards Final Cost ABC” Products, Costs (2) Objects “Costs Measure the Effects” Services (1) Demands On Work Business Suppliers Sustaining Customers 54 54 54 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 27
  28. 28. Agenda • Introduction to Performance Management • Part I – Performance Management Process • Focus --- Strategy Maps • Communication --- Scorecards • Collaboration --- Discussions/Dialog • Part II – Taking Action: The Power of ABC/M Intelligence - measuring strategic costs (customer/channel profitability) - measuring operational costs - predicting expenses (resource planning) • Summary: Leveraging Value with PM 55 55 55 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS Value is Ambiguous -- Whose Value? Strategy, Mission How Do They All Fit Together? customer ERP, etc. satisfaction CRM Your Organization Inputs Scorecards $ ROI Shareholders 56 56 56 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 28
  29. 29. Senior How Do They All Fit Together? Strategy, Mission Management Products, Services, Adjusted needs Missions Strategy customer ERP, etc. satisfaction KPIs Process planning & CRM execution (back office) Order Management (front office) Assets Employee Inputs Scorecards behavior Employees Your Organization $ “ How am I doing on what is important? ” ROI Shareholders 57 57 57 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS SAS has Global Reach & Local Presence Connecting with Customers • 238 offices in 53 countries • 9,100 employees; $1.3 billion • 3.5 million users worldwide – 40,200 sites – 113 countries – 90% of Fortune 500 – 97 of Forbes Super 100 • Hundreds of local user groups globally 58 58 58 Copyright © 2004 SAS Institute Inc. (gary.cokins@sas.com) AllCopyrightreserved. Institute Inc. All rights reserved. . rights © 2004 , SAS 29

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