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Chapter 6

Measuring Indicators

© David O’Sullivan

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Reflections Define a stakeholder for a particular organization. Explain the terms transactional and contextual

requirements. Define strategic thrust. List up to five strategic thrusts suitable for an

organization such as a hospital. Explain why strategic plans should be concise. Discuss how to evaluate strategic objectives. Name four common or emergent objectives currently

discussed in strategy literature.

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Activities

[Discussion of selected student ‘Activities’ from previous chapter]

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Learning Targets Describe the difference between financial and

nonfinancial indicators Understand the importance of indicators for motivating

employees Explain the balanced scorecard technique List a number of current or emergent indicators used in

many organizations Create a simple form for capturing the critical data for an

indicator Indicate the key data points in a performance chart

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Why Measure?

Corporate accounting scandals Overdependence on financial

measures which few understand Inability for organisations to

implement strategy

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Performance Indicators

Performance indicators are a measurable way of defining and monitoring goals

Financial and non-financial metrics

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Performance Indicators

Indicators that show progress towards organisational goals

Key questions: What has happened ? Why has it happened ? Is it going to continue ? What are we going to do about it ?

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Weakness of sole financial focus

Inconsistency with today’s business realities

Reliance on historical data (“driving by rearview mirror”)

Tendency to reinforce functional silos Sacrifice of long-term thinking Lack of relevance to many levels of the

organization Lack of connection to strategic objectives

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Defining Indicators Indicators show progress toward

defined performance targets and motivate people to achieve goals

Key questions addressed include: What has happened in the organization? Why has it happened? Is the trend going to continue? What impact have efforts had on the

trend?

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Macro Measures

Cost Quality Time (Flexibility) (Environment) (Culture)

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Indicator Attributes Related directly to strategic objectives Repeatable over time, allowing comparisons Fosters improvement rather than monitoring Reliable and verifiable Mix of financial and nonfinancial metrics Maximum number of measures Simple and easy to use Provide fast feedback Linked hierarchically

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Indicator Examples Operations

Productivity (hours/unit) Throughput (units per day) Utilization (output/capacity)

Sales and Marketing Sales per region Sales per model Marketing costs

People Labor turnover Overtime Absenteeism

Research and Development R&D expenditure Failure rates Additional revenue created

Environment Emissions Scrap and wastage Accidents

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‘Innovation Process’ Indicators Percentage of revenue attributable to recent innovations Percentage of ideas migrating to projects Number of projects per member of staff Percentage of staff involved in the generation of ideas or

problems Percentage of actions originating outside the organization Percentage of indicators without actions Number of projects per strategic thrust Percentage of strategies without actions Percentage of actions delivered within planned constraints Percentage of actions abandoned during the innovation

process Cost–benefit ratio of the portfolio undertaken

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Performance Charts

Outcomes vs. Drivers• Reflect the results or

outcomes of strategies

• Also called “lagging metrics” (show past performance)

• Examples: profitability, market share, customer satisfaction.

• Reflect how to drive the outcomes to be achieved

• Also called “leading metrics” (show early signs of strategy success)

• Examples: cycle time, defect rates, efficiency, performance versus plan

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Balanced Scorecard Developed by Robert Kaplan and David Norton (1996) Approach to strategic management and associated

performance measurement and development initiatives

Four perspectives:

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Implementing the Balanced Scorecard

Translate strategic objectives into operational actions

Measure strategic objectives through leading indicators

Make strategy a continuous and active process

Allow strategy to be a periodic agenda item at meetings

Balanced ScorecardPerspectives Objectives Indicators Targets  

      Firm Stretch

Financial Maximum Returns Return on Equity 12% 13%

Utilization of Assets Utilization Rates 7% 8%

Revenue Growth % Change in Revenue +11% +11%

Customer Customer Retention Retention % 75% 75%

Customer Service Survey Rating 85% 88%

Customer Relations % Self Initiated Calls 35% 40%

Internal Processes Fast Delivery Turnaround Time 15m 14m

  Effective Service 1st Time Resolution 0.68 0.69

Optimal Cost % cost of sales 66% 64%

Resource Utilization Productivity Indicator 77% 80%

Learning & Growth High Skill Levels Skill set ratio 65% 68%

  Employee Satisfaction Survey Index 75% 77%

Samples

Example

Variation

VariationObjectives Indicators Targets

Research Enhance supports for staff to bid successfully for research funding Publications 140Create and Expand research partnerships w ith other Universities and Industry Funding Acquired €1.6kDisseminate Develop training opportunities for graduate students Proposals €4.6mNew Knowledge Enhance graduate student engagement in teaching

Develop graduate school(s)Hire staff in line w ith research funding priorities

Teaching Promote teaching modules across disciplines Undergraduate Intake above 360 points 260Improve Review and revise credit allocations against learning outcomes Taugh Postgraduate Intake 240Learning Engage all teachers in effective teaching methods International Graduate Intake 60Outcomes Develop and enhance pre-University activities for studentsand Experiences Promote learner engagement - attendance, PEP, CKI, clubs&soc

Develop effective teaching evaluation processIncrease lifelong opportunities in distance and blended learning

Internal Implement a w orkload model for the College Cost Avoidance €0.4kProcesses Migrate to new engineering building BudgetsUtilise and Lobby the University to designate funding for capital equipment.Improve Develop greater access to research and teaching information.Resources Enhance bi-lingual signage and usage in communications.and Processes Enhance use of electronic and paperless communication

Improve compliance to information guidelines and policy

Engagement Greater interaction betw een Discipline Heads (DH) and staff College Meeting Attendance 60%and Growth Develop mentoring scheme for new er members of staff Student Assessment Audits 75%Engage and Greater involvement of staff in policy making.Empower Staff Regularise meetings betw een college and UMT

Enhance communications w ith studentsRepresent CoEI values in staff promotional schemes

Initiatives

Indicators

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Indicators 2009 Current Targets Stretch

Research Publications 140 140 140 140Funding Acquired €1.6k €1.6k €1.6k €1.6k

Teaching Undergraduate Intake above 400 points 260 260 260 260Taugh Postgraduate Intake 240 240 240 240International Graduate Intake 60 60 60 60

Internal Budget €0.4k €0.4k €0.4k €0.4kProcesses Cost Avoidance

Engagement College Meeting Attendance 60% 60% 60% 60%and Growth Student Assessment Audits 75% 75% 75% 75%

2010

Invisible Thread

Business Unit

Department

Individual

Goals Actions

Top Down Planning

Bottom Up Implementation

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Summary Describe the difference between financial and

nonfinancial indicators Understand the importance of indicators for motivating

employees Explain the balanced scorecard technique List a number of current or emergent indicators used in

many organizations Create a simple form for capturing the critical data for an

indicator Indicate the key data points in a performance chart

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Sample Performance Indicators

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Activities

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Search Online

Keyword: ‘Balanced Scorecard’ http://www.ted.com

Chris Anderson on the four key stages of any viable technology

Yochai Benkler on collaborative projects Charles Leadbeater that innovation isn't

just for professionals anymore