Performance Measures- Leading Indicators (Activity Drivers)

1
Performance Measures- Leading Indicators
(Activity Drivers)

• Prepared by Group 4
• Andrew Molloy
• Amy Miller
• Mike Elicker

2
Steps to leading performance measures

• Leading performance measures are based on
  activity drivers that drive the performance of a
  company.
• The first step in performance measurement are
  activity drivers that drive the performance of a
  company.
• The second step to reaching your overall goal in
  performance is leading performance indicators.
• The third step to reaching your companys overall
  goal are the specific results your company is
  looking for.

3
Performance Drivers

• Performance drivers are structured around trying
  to achieve a firms overall goals, strategies, and
  objectives.
• Performance drivers are the process, learning,
  and alignment of the employees working toward
  performance indicators.
• By continuing to develop performance drivers
  leading toward effectiveness and efficiency a
  company will be heading toward their overall
  goal.

4
Performance Indicators

• Performance indicators- represent a set of
  measures focusing on the aspects of
  organizational performance that are the most
  often critical for the current and future success
  of the organization.
• There are several examples of performance
  indicators that a company might use. Some of
  these examples include
• Environmental
• Customer
• Competitor
• Internal
• Human resource
• These indicators will help for a business to
  categorize their indicators into groups to help
  them measure and set up their performance drivers
  to work toward their results and specific goals.

5
Results

• The results of the activity drivers and
  performance indicators are what a company sets
  their overall goals for.
• Some results that a company might be aiming for
  are customer satisfaction, cost per resolution,
  and employee satisfaction.
• These results can be reached when a company has
  all of these steps in place and fallow them in
  reaching their overall goal to be a successful
  business.

6
Diagram of relationships between Performance
drivers, Leading indicators, and results
7
There are many types of leading indicators
throughout a company that affect performance
8
Company performance includes leading indicators
of

• Customer Satisfaction
• Growth and Retention
• Internal Operations
• -efficiency, speed, minimizing quality problems
• Human Resource Systems

9

• A further breakdown of leading indicators shows
  which drivers lead to specific results

10
Indicators can be broken down into smaller
categories

• 1. Organizational
• 2. Environmental
• 3. Group/Departmental
• 4. Facility/Individual

11
Environmental

• Outside factors such as government regulations,
  economic cycle, politics
• Example Economy is headed for a recession.
  Company must plan to be ahead of the curve.
• Solution Address the orders dept. Measure how
  many orders should be decreased to account for a
  slowing economy.

12
Organizational

• Company Strategy, Policy, Structure
• Example Mgmt wants to increase sales of Product
  A
• Solution The amount of Research and Development
  of Product A needs to be measured to determine
  how many hours to increase by.

13
Group/Departmental

• Group relationships, responsibility, and
  assignments
• Example Mgmt wants to increase inter- office
  group relations.
• Mgmt may determine they want to do this by
  increasing time spent working in teams. Amount of
  hours per week increased of working in teams must
  be measured.

14
Individual

• Management style, skills, behavior
• Example Mgmt feels productivity will increase if
  employee skills are higher.
• Solution Extra training and classes may be
  required to achieve this. Measurement of hours
  required to raise employee skills must be
  conducted.

15
Key Point

• Measures of these drivers must be tied to what
  the company is trying to accomplish

16
Other Common Leading Indicators

• Increase returning customers by 15 this
  yeargain more market share
• Reduce employee turnover this yearimprove
  efficiency
• Increase sales is a particular department..boost
  overall sales

17
Advantages

• There is a closer link to long-term
  organizational strategies
• Example- improving customer relations, market
  competition, expanding new product development,
  or expanding organizational capabilities may be
  important strategic goals, but may hinder
  short-term accounting performance.

18
Advantages

• Critics of traditional measures argue that
  drivers of success in many industries are
  intangible assets, rather than figures on the
  balance sheet
• A recently published study found that measures
  related to company innovation, management
  capability, employee relations, quantity, and
  brand value explained a significant proportion of
  a companys value, even after factoring in
  accounting assets and liabilities

19
Advantages

• Often times non-financial indicators can be
  better indicators of future financial performance
  
• For example, when the ultimate goal is maximizing
  financial performance, current measures may not
  capture long-term benefits from decisions
  currently being made.
• Investments in customer satisfaction can improve
  future economic performance by increasing
  revenues and loyalty of existing customers, and
  attracting new customers.

20
Drawbacks

• Time and cost
• No common denominator
• No statistical reliability in the measures chosen

21
Implementation

• Good understanding of value drivers
• What contributes to long-term success?
• Principles for translating corporate objectives
  into measures that guide managements daily
  actions
• Many companies go wrong here
• Statistical analysis of leading and lagging
  indicators of financial performance
• Business model - help determine which measures
  best predict future financial performance
• Assign weights to measures based on the strengths
  of statistical relations
• Integration

22

• Questions?