Choosing Measures of Performance: Translating Strategy into Action

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Choosing Measures of Performance Translating
Strategy into Action

• Why do we measure?
• Clarify and translate vision and strategy
• Communicate and link strategic objectives and
  measures
• Plan, set targets, and align strategic
  initiatives
• How do we measure?
• Financial measures
• Customer measures
• Internal business process measures
• Learning and growth measures

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Strategy, organizational design, and performance
measures
Performance Measures
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Information Requirements of Organizations
Complex Environment Non-routine Technology Inter
dependent Tasks
Uncertainty
Amount of Information
Ambiguity
Richness of Information
Selection of Alternative Performance
Information
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Management Control Subsystems
External Environment
Corporate Strategy
Budget
Reward Systems
Operating Procedures
Statistical Reports
Resource Production Process
Departmental Inputs
Task Activities Outputs
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Performance and Control Measures
Corp strategy
EXTERNAL
INTERNAL
Operations
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• Vision and Strategy
• Clarifying vision
• Translating strategy
• Gaining Consensus

• Strategic Feedback and Learning
• Articulating shared vision
• Supplying strategic feedback
• Strategy review
• Facilitate learning

• Communicating and Linking
• Setting goals
• Educating
• Setting rewards
• Linking rewards to measures

Balanced Scorecard

• Planning and Target Setting
• Setting targets
• Allocating resources
• Determining milestones
• Coordinating initiatives

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Types of Organizational Strategies

• Functional Plan of action to strengthen an
  organizations functional capabilities to create
  core competencies
• Business Plan of action to combine functional
  core competencies to create competitive
  advantage
• Corporate Plan of action to protect and/or
  enhance an organizations domain of activities to
  sustain its competitive advantages

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Business Level Strategy Strategies to enlarge
the organizational domain
PRODUCT
Existing
New
Existing
Market Penetration (HARVEST)
Product Development (SUSTAIN)
DOMAIN
Diversification (GROWTH)
Market Development (SUSTAIN)
New
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Linking Financial Objectives to Business Unit
Strategy
Strategic Themes
Revenue Growth and Mix
Cost Reduction and Productivity
Asset Utilization

• Sales Growth Rate
• revenue from new products, services, and
  customers

• Revenue per employee

• Investment (of sales)
• RD ( of sales)

Growth

• Share of targeted customers
• Cross selling
• sales from new applications
• Product line profitability

• Cost reduction rates
• Indirect expenses as of sales
• Relative costs compared to industry

• Working capital ratios(cash to cash cycle)
• ROCE by key assets
• Asset utilization rates

Business Unit Strategy
Sustain

• Unit costs for each output or transaction

• Payback
• Throughput

• Customer and product line profitability
• of unprofitablecustomers

Harvest
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Core Customer Measures
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Customer Value Propositions
Generic Model Value Product/Service
Attributes Image Relationship
Functionality Quality Price Time
Kenyon Stores Direct Selling to Mass
Market Price Fashion Quality
Brand Availability
Shopping Benefits Design
Image
Experience Retail Mark-up
Return Market
Out-of-Stock Mystery Price
Rate Share
Shopper Transactions
Target Item
Premium on per store growth rate
Brand label
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Internal Business Process Measures
The Generic Value-chain Model
Postsale Service Process
Operations Process
Innovation Process
Customer need Identified
Customer need satisfied
Identify the Market
Create product or Service
Build the product or service
Deliver the product or service
Service the Customer

• of sales from new products
• Time to develop new products
• Time to market

Manufacturing Cycle Effectiveness Processing
Time Throughput Time
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Learning and Growth Measures
Core Measurements
Results
Employee Retention
Employee Productivity
Employee Satisfaction
Enablers
Staff Competencies
Technology Infrastructure
Climate for Action
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Basic premises of measurementand control

• Recognize that maximizing the performance of the
  whole organization does not necessarily mean that
  each sub-unit produces at maximum efficiency.
• Managers manage activities not costs. Costs are
  the outcome of organizational activities.
• Controls should focus on organizational rather
  than individual activities because of the
  explicit recognition of interdependence.
• Simply comparing actuals to standards is not
  sufficient to set up control systems.
• Control should assume a strategic orientation.