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Performance improvement consultancy
The document discusses performance improvement through a consultancy focusing on corporate performance scorecards, strategy maps, the four perspectives of a balanced scorecard, identifying key performance indicators, and strategy maps for corporate functions like HR, IT, finance, and marketing. It provides examples and templates for strategy maps and scorecards at the corporate and divisional levels to help organizations track performance across financial, customer, internal process, and learning & growth perspectives.
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Performance improvement consultancy
- 1. Performance Improvement Consultancy Arriffin Mansor
- 2. Contents : 1. Corporate Performance Scorecard 2. Strategy Map Framework 3. Four Perspectives in Balanced Scorecard 4. Identifying Key Performance Indicators 5. 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 Growth Financial 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 inFinancial Improve ROE Increase ROA Improve Gearing Enhance Customer Value Rent Lease fixed assets Increase 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 inCustomer Customer Retention Customer Profitability Customer Satisfaction Market Share Customer Acquisition Price Quality Service Availability Brand 8
- 9. Performance Management Framework Vision Strategy Map Mission Strategy Key Performance Indicators Company strategy Identifying Defining Measuring Monitoring Reporting 9
- 10. Agenda today • Whatare 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 Objectives ROS ROA ROE
- 12. Performance Gap analysis Actuals 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 inInternal 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 improve products 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 & GrowthPerspective • 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 Guidelines Guidelines inFormulating 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 Management Enterprise 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 ofPerformance 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 KPIsystem 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 Dimension Productivity 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 Dimension Profitability 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 management Cost 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 Dimension Theactual 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 Ratio provide 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 of performance (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 is mixture 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 Corporateand Division/Department Vision Mission Strategy Corporate Scorecard The Division Scorecard is built by referring to the Division corporate scorecard Scorecard 27
- 28. Corporate and DivisionScorecard Corporate Finance Financial Corporate Marketing Customer Production Supply Chain R&D Internal Process Learning & Growth Corporate HR Info Technology 28
- 29. Corporate and DivisionScorecard • 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 DivisionScorecard Sample from GE Lighting Business Group Level of Organization Financial Customer Internal Process Learning & Growth Corporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of satisfaction level Improve internal process employee competency Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level of Reduce inventory levels satisfaction level Improve internal process employee competency Plant 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 speed Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard 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 MapTemplate • The strategy map for HR Division, Information Technology Division, Finance Division, and Marketing Division are presented in the following slides. 31
- 32. HR Strategy MapTemplate Drive Long term Shareholder Value Enhance People & Organizational Optimize HR Efficiency Effectiveness Financial Create Positive Work Provide Quality HR Provide High Environment Service Performance People Customer 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 MapTemplate Drive Long term Shareholder Value Enhance IT Impact on Optimize IT Efficiency Enterprise Outcome Financial Deliver Consistent, High Provide Business Units with Quality IT Service Innovative IT Solutions Customer 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 MapTemplate Drive Long term Shareholder Value Enhance Finance Effectiveness on Optimize Financial Efficiency Enterprise Outcome Financial Deliver Responsive & Efficient Provide Clear & Reliable Required Finance Operations Disclosure Customer 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 MapTemplate Drive Long term Shareholder Value Increase Sales Optimize Marketing Efficiency Revenue Financial Create Satisfied and Loyal Enhance Brand Customers Image Customer 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 Efficiency Financial 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 Innovation Internal Process Learning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture Technology 37
- 38. Maximising ROE strategies Profit Equity 38
- 39. CORPORATE PERFORMANCE ROS ROA ATO ROE ASSETS EM EQUITY 39
- 40. Maximising ROA strategies Profit Assets 40
- 41. Cash CREDITORS Working Stock capital debtors 41
- 42. Performance Relationship KRA KRA KRA 42
- 43. Process Inputs Inputs outputs 43
- 44. Value Chain Inputs Process Output Outcome 44
- 45. Horizontal comparision This year Last year material material labour labour overheads overheads Cost 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 Areas Key Performance Indicators 47
- 48. KPI is inputoutput ratio Outputs Inputs 48
- 49. Six Steps inBusiness Planning 1 • Cost volume profit analysis to determine size of business 2 • Working capital from trading strategies 3 • Minimzing investment in Fixed capital 4 • Financed by Equity and Leveraging 5 • Cash flow Projection to check liquidity 6 • Constructing the Financial Statements 49
- 50. Six Steps inBusiness Planning 1 • Cost volume profit analysis to determine size of business 2 • Working capital from trading strategies 3 • Minimzing investment in Fixed capital 4 • Financed by Equity and Leveraging 5 • Cash flow Projection to check liquidity 6 • Constructing the Financial Statements 50
- 51. Six Steps inBusiness Planning 1 • Cost volume profit analysis to determine size of business 2 • Working capital from trading strategies 3 • Minimzing investment in Fixed capital 4 • Financed by Equity and Leveraging 5 • Cash flow Projection to check liquidity 6 • Constructing the Financial Statements 51
- 52. Six Steps inBusiness Planning 1 • Cost volume profit analysis to determine size of business 2 • Working capital from trading strategies 3 • Minimzing investment in Fixed capital 4 • Financed by Equity and Leveraging 5 • Cash flow Projection to check liquidity 6 • Constructing the Financial Statements 52
- 53. Six Steps inBusiness Planning 1 • Cost volume profit analysis to determine size of business 2 • Working capital from trading strategies 3 • Minimzing investment in Fixed capital 4 • Financed by Equity and Leveraging 5 • Cash flow Projection to check liquidity 6 • Constructing the Financial Statements 53
- 54. PERFORMANCE METRICS Objectives &Goals Key Result Areas Key Performance Indicators 54
- 55. METRICS (Continue) TARGETS VARIANCES EVALUATION 55
- 56. Finance + Leverage Equity debt Ordinary Preference bonds Banks 56
- 57. PERFORMANCE COMPARATIVE ANALYSIS ACTUALS TARGETS VARIANCE ANALYSIS 57
- 58. Key Performance Indicators(KPI) KPI = Measurement or Vision indicator that provides information on how far we Mission 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 in Learning& Growth Organization Capital Information Human Capital Capital • Skills • Culture • Systems • Knowledge • Leadership • Database • Attitude • Organization • Networks Development 59
- 60. Managing Performance with Balanced Scorecard Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals. 60
- 61. Managing Performance with BalancedScorecard • 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 inBalanced 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 BalancedScorecard Mission – Why We Exist Strategic Strategy Map Outcomes : Translate the Strategy Satisfied Vision – Shareholders What We Strategy : Our Game Delighted Want to Be Plan Customers Excellent Balanced Processes Values – Scorecard : What’s Measure and Motivated Important 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.
- 66. Performance Management Component Threecritical components for effective process of performance management Performance management cycle is continuous and Performance consistent Management Process Performance Performance Management Management Infrastructure Culture Logistic support and Culture that is based on performance management performance administration accountability 66
- 67. Performance Management Cycle STRATEGY Set Measures and Target Reward and Coach Plan and Execute Monitor and Evaluate 67
- 68. Performance Gaps Performance Gaps Competency Other Causes Gaps Management Technical Change Gaps Gaps
- 69.
- 70. Performance Framework andBuilding Plans
- 71. CRITICAL PERFORMANCE GAP ANALYSIS CEO Marketing Finance HR Operations
- 72. Performance Improvement Strategies KRA1 KRA3 KRA2 Goals
- 73.
- 76. Tools used inthis consultancy • Du Pont ROE format. • Variance analysis • Input output analysis • BSC perpectives • Key Result Areas • Calculating the improvement in KPIs • Calculating the ROI training
- 77. Types of indicators • Input indicators • Process Indicators • Output indicators • Outcome indicators • Impact indicators (c) Arriffin Mansor 012-2786282 77
- 78. FINANCIAL KPIs INPUT PROCESS OUTPUT OUTCOME Material variances Labour Overhead Efficiency No Average cost ratios produced per transaction Research Productivity Value ROI dev expense ratios produced Inventory Average RETURN ON turnover lead time EQUITY Waste Reduction 78
- 79. MARKETING INPUT PROCESS OUTPUT OUTCOME Material Response rate No of customers Labour Marketing costs % Sales volume Overhead Efficiency ratios Customers Profitability Research Productivity Product ROA marketing dev expense ratios profitability Average cost per Customer Return on Sales transaction acquisition Inventory turnover Average lead time Customer retention Price rel to comp Waste Reduction Revenue growth Delivery Channel 79
- 80. INTERNAL PROCESS INPUT PROCESS OUTPUT OUTCOME Material variances Labour Overhead Efficiency No Average cost ratios produced per transaction Research Productivity Value ROI dev expense ratios produced Inventory Average turnover lead time Waste Reduction 80
- 81. HRM KPIs INPUT PROCESS OUTPUT OUTCOME Incentives variances Turnover ratio Hours Efficiency No Profit per employee ratios produced Training Productivity Value ROI ratios produced Salary Average Turnover Revenue per lead time employee Skill Waste Reduction Employee Value added per competency productivity employee 81
- 82. 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 Equity Balance $ 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
- 83. Extend the Mapinto Measurements, Targets and Initiatives Strategy Map Stakeholder 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 Applications Internal 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 Enable L&G Technologies Investments Invest in IT
- 84. Alignment of ScorecardComponents 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 Initiative Achieve Reduce Cost per Outlet 5% - Year 1 Activity Agency Operational Office, Cost per 10% - Year 2 Based operational Service Costs by Region, Cost 15% - Year 3 Costing / efficiencies 50% over the per FTE Management with best next 5 years practices in the private Reduce identified Waste Volume Waste stream Lean / Six sector 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%
- 85. Steps in calculatingROA for employees 1. Draw an income statement fo each employee 2. 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
- 86.