KPI

Key Performance Indicators
CIMA CPD Engagement*
Facilitator : Anand Sampath
June 19th 2010

•Attention : This presentation has been made solely for the consumption of CIMA students and members for their CPD
engagement. There is no commercial intent or solicitation of any kind behind this. While references from other
research/findings publicly made available have been made , the views stated herein are solely of the facilitator .

‘End of day’ Objectives

A - Appreciate the context and utility of KPIs

B- Understand successful KPI deployments

C- [De] Construct KPIs

D- Sustaining KPI deployment

Agenda

•Context setting
1. Setting base •Understanding the basics BSC – KPI
(45 mins) •Getting the ‘why’ clear

•Key learnings / Recap
•Q&A

2. Validation
5. Takeaways
(30 mins)
(15 mins)

•Looking at some KPI deployments
•Back at my place – Dr Reddy’s
•So, it makes sense

•Caselet: Constructing a BSC
•Discussions

4. [De]Construct 3. Summarize
•The KPI ‘checklist’
(30 mins) (15 mins) •Ensuring Sustainability

Setting Base – Context Setting

Why do we exist ?
What is our picture of the future ?
What is our game plan?
What do we achieve ?

What should we be monitoring for the above ?

Setting base

Way forward Validation

[De]Construct Summarise

The Balanced Scorecard

To succeed financially, how should we
appear to our shareholders ?

To achieve our vision how should
we appear to our customers ?
To satisfy our shareholders and customers
what business processes must we excel at ?

Setting base

To achieve our vision, how will we sustain
our ability to change and improve ?

Setting Base – Context setting
The current context of Business Performance

Setting base



How they all add up

Setting base



www.davidparmenter.com : Finding your Organization’s Critical Successful Factors

KPIs defined and Clarified

Key Performance Indicators are
quantifiable measurements, agreed to beforehand, that reflect the critical success
factors of an organization.

KPIs are

measured frequently eg daily or 24/7 (KPIs are not measured monthly);
are usually non-financial measures (not expressed in $s, £s, INR etc);
are acted upon by the CEO and the senior management team on a daily or 24/7 basis;
all understand the measure and what corrective action is required;
responsibility can be tied down to the individual or team;
has a significant impact on the organisation eg it impacts on most of the critical
success factors and balanced scorecard perspectives; and
positive movement affects all other performance measures in a positive way.
Setting base



KPI distinguished from a Metric

Input Process Output Outcome

Metric Metric Metric KPI

Metrics are not KPIs unless :
1. They are outcome oriented – tied to an objective
2. Target based – have at least one defined time sensitive target value
3. Rated or graded –have explicit thresholds that grade the difference [or gap] between actual
value and target

Setting base


Mitigating Metrics Madness: How to Tell KPIs from Mere Metrics : by Jonathan D. Becher

Understanding KPIs better – Another view

KEY RESULT INDICATOR
•Give an overview on performance
•Ideal for the board as they
communicate how management has
done in a critical success factor or
balanced scorecard perspective

PERFORMANCE INDICATOR
• which tell staff and management what
to do

KEY PERFORMANCE INDICATOR
• which tell staff and management what
to do to increase performance
dramatically

Setting base


David Parmenter : THE NEW THINKING ON KEY PERFORMANCE INDICATORS

KPI Illustration [ Good KPI]

KPI ILLUSTRATION What’s missing?

•$ or Units
•List Price or Sales Price

Title of the KPI Increase sales
•How are returns
Defined Change in sales volume from month to month considered

Measured Total of sales by region for all regions.
•Process accuracy?
Target Increase each month [How double count or
misses can be checked?]

•What is the target [%
increase]

Setting base



KPI Illustration [ Good KPI]

A Good KPI

Title of the KPI Employee Turnover
Defined The total of the number of employees who resign for whatever
reason, plus the number of employees terminated for performance
reasons, and that total divided by the number of employees at the
beginning of the year.
Employees lost due to Reductions in Force (RIF) will not be included
in this calculation.
Measured The HRIS contains records of each employee. The separation section
lists reason and date of separation for each employee.
Monthly, or when requested by the SVP, the HRIS group will query
the database and provide Department Heads with Turnover Reports.
HRIS will post graphs of each report on the Intranet.
Target Reduce Employee Turnover by 5% per year.

Setting base



Validation – Understanding some models of BSC /KPI

Setting base



Validation – Understanding Models of BSC/KPI
Suggested Measures: Kaplan and Norton (1996a)

Setting base



CIMA :Research Report [2005] : A Practitioner’s Guide to the Balanced Scorecard

Validation – Do all KPIs need to derive from the BSC model ?

Setting base



Mc Kinsey : Measuring Long term performance [2005]

Du-pont’ s ROI
LEADS

Setting base


LAGS


DRL ICDS

Setting base



No , but the BSC model seems to be most effective
Research by Year Study Finding

Blundell et 2003 Study of NZ companies •More than 60% of the NZ Stock exchange’s top 40 companies use BSC at the
all organizational or divisional levels
•Non financial performance measures continue to lag financial measures in perceived
importance
Kaplan and 1996, Have doc experience of communicating with their employees on the goals and mission of the Company
Norton 2001 Chadwick inc, Mobil, Influencing their behaviors and performance
Chemical Bank , achieve targeted cost savings while suffering little attrition in customers , post merger
UWSENE, Motorola and [in the case of Chemicals Bank]
Sears
Ashton 1998 Examined NatWest improve quality, service and speed and
Bank help change the corporate culture from its traditional command and to control
structure to a culture based on ‘empowerment and coaching’
Malina and 2001 Examined data from Was an effective tool in developing , communicating and implementing strategy
Selto variety of divisions of Elicited behavioral change in taking action and utilizing resources that improved
manufacturing performance in the defined measures
organizations. Most likely to garner support when it is comprehensively closely tied to strategy
Silk 1988 60% of Fortune 1000 cos in US have had experienced with the BSC

Chenhall & 1988 88% adoption rate of the BSC in Australia and observed moderate benefits
Smith
Olive, et all 1999 Presented cases of
ABB, Halifax, Skandia,
Electrolux, BA, Coke
Setting base
Beverages and SKF

Way forward
Mc Cunn Validation
1998 Reported Strong support among managers at leading UK retail bank to improve branch
management.
Effective communication on the banks business model

Balanced Scorecard implementations : Global and Indian experiences : Indian Management Studies Journal [2007]


Research by Year Synopsis

Analog Device •First BSC in the world created and implemented
Inc USA •Was an offshoot of the Strategic Planning Process and Quality Improvement Process
•Driven by Strategic Objectives which related to its stakeholders – customers, suppliers,
employees, shareholders, society, etc with focus to create ‘delight for the stakeholder’
•5 year strat plan provided the basis and TQM was the main device to achieve stakeholder delight
ABB , Sweden 1994 •EVITA developed – a system of financial and management control .
•Chose 5 perspectives - customer, process/supplier, employee, innovation/development and
financial
•Recommended a min of one and a max of 5 measures for each perspective
•Conferences were organized to discuss EVITA

Halifix, UK •Utilized the BSC as an instrument of operational management system rather than a strategic
instrument.
•Has 2-5 measures in each perspective resulting in 16 measures for its balances scorecard
Skandia, Sweden •Integrated Intellectual Capital with BSC . Gave the name navigator
•Uses as tool of controlling internal management and comprehensive measure of organizational
performance
Electrolux •Originally called it Global Integrated management System [GIMS] to establish relationship
between organization vision, strategy and short term planning.
•Now called Dynamic Business Measurement where 16 measures are used of which 12 are non
financial
Compaq
Setting base

•Focused the contribution of IT to four different dimensions of performance
Way forward Validation •Integration of IT, Process reengineering and business strategy contributed substantially to the
overall success and market leadership of the company


Research by Year Synopsis

Godrej GE •Used to integrate the management initiatives for quality and cost[ Six Sigma, Cost takeout, target 10, etc]
Appliances •Prioritized 20 initiatives from the series of ongoing initiatives.
•Set long term and short term measurable targets
•Benefited on certain fronts [SCM initiatives]
Goodlass Nerolac •Adopted it to operationalise long term strategy and allow measure business performance clearly
•Communicated across the organization and a business review and enterprise performance management
framework
•Allow defining financial, customer, process and organizational priorities and align resources appropriately
for delivery
Philips Electronics •Identified 4 CSFs competence , processes, customers and financial
•Used to set up organizational goals and targets for divisions worldwide and linking them with business
strategy through CSFs
•Targets are based on the current performance gap and are set for the current year plus two to four years in
the future.
•All units faced with six common indicators – profitable revenue growth , customer delight , employee
satisfaction and drive to operational excellence ,organizational development and IT supports
Infosys •Wanted to migrate towards a culture of measurement where all decisions are data driven and have a holistic
technologies approach towards strategy
•Facilitates communication across organization and enhances the understanding of vision, mission and
strategy
•Ties the vision , mission and strategy to the goals and objectives of individuals and departments
•Facilitates understanding of the reasons and helps identify initiatives to achieve the relevant performance
Setting base
•Acts as an effective basis of resource allocation with focus on both managing current performance and long
term value

TCS 2001


CIMA research Findings

n =60

Setting base


CIMA :Research Report [2005] : A Practitioner’s Guide to the Balanced Scorecard

Validation – While BSC is very popular , it is not easy !

Setting base



Summarise - Why should I use KPIs ?

Reduce the number of decisions that are based solely on instinct or gut feel and
make decisions based on objectivity and facts.

Quantify the achievement of goals by setting, monitoring and measuring against a
standard or target.

As your business grows it becomes more difficult to remain as close to the
operational details as you once were.

Allows you to focus on facts when chaos ensues.

Setting base



Summarise - KPI Profiler

Setting base



KPI Profiler : CRM Case study [ DM Review Nov 2004 ] www.dmreview.com

Summarise - The KPI ‘Checklist’

Setting base



Summarise - ‘KPI speak’

Too often measurement systems are driven by what is available, rather than what is
needed.
Robert Kaplan

People and their managers are working so hard to be sure things are done right, that
they hardly have time to decide if they are doing the right things.
Stephen R. Covey

Very few organizations really monitor their true key performance indicators (KPIs),
because very few have explored what a KPI actually is
Performance Consultant, David Parmenter

Setting base



Dr Reddy’s Investor presentation May 2009 De [ Constructing ] BSC – KPI – Exercise (1/4)

Way forward

Setting base




Way forward

Setting base



De [ Constructing ] BSC – KPI – Exercise (4/4)

Dr. Reddy’s began as an API manufacturer in 1984, producing high-quality APIs to first the
Indian, and later, the international markets. In 1987, we started our formulations operations
India Business – www.drreddys.com

and, after becoming a force to reckon with in the Indian formulations market, went
international in 1991.

In India, we have a product portfolio of over 200 brands in major therapeutic areas, with an
emphasis on gastro-intestinal, cardiovascular, pain management, oncology, anti-infectives,
probiotic, pediatrics and dermatology.

Today, our value proposition to our customers derives from an optimal operating system
Way forward

in which operations, product development and marketing & sales are fully integrated.

Operations and the supply chain are aligned to ensure high availability, pull based
replenishment of products at the retail level and superior inventory turns to our
customers. This advantage is combined with a highly effective prescription generation
detailing effort.

A field force of over 1,400 motivated and knowledgeable representatives supported by an
integrated network of back-end services and armed with handheld devices for quick
Setting base information access add value to every customer call and interaction.

With a range of over 200 brands across 13 therapeutic areas, Dr. Reddy’s aims to further

consolidate its position as an industry leader in the Indian pharma market.

De [ Constructing ] BSC – KPI – Exercise

1. Identify the Core purpose and Strategy vision for Dr Reddy’s

2. Identify the India Business Strategy for Dr Reddy’s

3. Prepare a [strategy ] map for the Objectives outlined in the Investor
Way forward

Presentation considering all perspectives per the BSC Model

4. Think of the [ Strategic ] Outcomes and suggest at least 1 and at most 2
measures [KPIs] for each Outcome

Setting base



De [Constructing] - A Sample BSC-KPI Strategy Map
Strategy[C] – Be a leading player in the Indian Pharma Market [Top X]

1a
F1 -X times increase in the Sales or
Financial

[Target] % growth in CAGR

2a 2b
Customer

C1 – Increase MS in existing portfolio C2 – Launch new products

P2 – Increase sales in NE India , P-3– Supply chain P2 – Improve
Rural excellence portfolio coverage
3a 3b 3c
Internal
Process

P2A – Increase P2B – P3A – Implement P2A – Develop P2B – In-license
Sales force Improve SFE model well newer products newer products

4a 4b 4c 4d 4e
Learning and

L2A1 – Recruit &
Growth

L2B1 – Training /SOPs L2B1 – Innovation L2B1 – Hiring of
Training & Knowledge Sharing New technology train. skilled ,
Setting base

5a 5c 5d
knowledable
L2B2 – Product / people and
Innovative detailing 5b 5a training

De [Constructing] - A Sample BSC-KPI
Strategy[C] – Be a leading player in the Indian Pharma Market [Top X]

Strategy map Strategic Objectives Performance Measures Initiatives
Financial

3x time increase in sales X% CAGR growth pa
by 2013 Market rank - IPM

Increase MS in existing X% Increase in PC
portfolio prescription generation
Customer

Y ‘Nos’ Increase in Dr
coverage

Launch new products New product % to sales

Increase Sales force X% attrition

HC higher by N
Internal
Process

Improve SFE X% increase in PCPM

Implement SCE model 3x times inventory turns

Develop / In-license new X no of critical mass NP
products launch
Learning and

T&D N Training Hrs on the job
Growth

Setting base
Product innovation $N Budget ‘usage’ on
innovative R&D

Critical skill-set hiring 8 critical hire by 2010

Takeaways - What are your observations

Setting base



Takeaways - Key learnings [Recap]

A - Appreciate the context and utility of KPIs

B- Understand successful KPI deployments

C- [De] Construct KPIs

D- Sustaining KPI deployment

Way forward
Setting base

Validation
Have we met our ‘End of day’ Objectives ?

“The key thing
is to keep
THE KEY THING,
key”
End of CPD Discussion

Q&A
Setting base



References

1. The new thinking of KPIs . David Parmenter

2. Finding your organization's critical success factors . David Parmenter

3. Mitigating Metrics Madness: How to Tell KPIs from Mere Metrics . Jonathan Betcher

4. A Practitioner’s Guide to the Balanced Scorecard . CIMA Research

5. Measuring Long term performance . Mc Kinsey

6. BSC implementations . Global and Indian experiences. Indian Management Studies Journal

7. Balanced Scorecard Institute website

Setting base



About the facilitator

Anand Sampath is a qualified Management Accountant [CIMA,UK],
Chartered Accountant [ICAI, India] and Cost Accountant [ICWAI, India].

With a post qualification experience of close to 12 years, Anand has
worked for two companies , Lucas TVS Ltd and Dr Reddy’s.

His areas of specialization and interest are business finance, analytics,
controlling [including SOX] and capex evaluations.

He is passionate about Risk Management is presently pursuing a career
in risk management in Dr Reddy’s.

He is also a student member of Global Association of Risk Professionals [GARP, US] and
Professional Risk Managers International Association [PRMIA, US]

sampatha@drreddys.com

KPI

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Similar to KPI

Similar to KPI (20)

KPI