Performance Mgt & Assessment

1. Performance Mgt & Assessment

2. Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment The Big Picture • Company • Consumers • Competitors • Conditions • PEST Functional Integration Growth &Competitive Strategies • Profits • Mrkt Share • ROA • ROS • ROE • Asset T/O • Stock • Mrkt Cap Marketing R&D Production HR Finance

3. Cost Strategy = higher leverage/more investment/ more assets/more debt/ less equity Focused Strategies should operate more effectively & have overall less sales All Segments= more sales & thus enable greater Cum. profit & overall market share Differentiation Strategy =lower leverage/less investment/ less assets Diff Strategies Play into Different Success Measures

4. Success Measures • Cumulative Profits • Ending Market Share • ROS • Asset Turnover • ROA • ROE • Ending Stock Price • Market Cap. Performance Measures- Defined Performance Measures-Dynamics

5. NET PROFITS $$ • Year 1 $6 million • Year 2 $8 million • Year 3 $10 million • Year 4 $12 million • Year 5 $16 million • Year 6 $21 million • Year 7 $27 million • Year 8 $35 million CUM PROFIT • Typical Range: $20 to $100 M

6. It is important to look at the means used to achieve outcomes …. not just focus on the outcomes themselves • To only focus on traditional financial accounting measures(such as ROI, ROE, EPS) …..does not give mgt the whole picture….

7. Will Make $$$ - if sell product Performance needs to be judged thru mix of both financial & non-financial measures…. As - non-financialmeasures are drivers of financial outcomes Will sell product if consumer wants, knows about , can get, & LIKES product To achieve “above’ everyone must effectively do their job To effectively do job must know what to do

8. Strategic Thinking- the ten big ideas • 9 9. Metrics that matter • Balanced score card- a system that attempts to balance financial performance w/ consideration of customer's perspective, learning & growth perspective, & internal business process perspective

11. Today … ~ 70% of Fortune 1,000 companies utilize a Balanced Scorecard to help manage performance— because….. What is measuredgets noticed What is noticed gets acted on What is acted ongets improved

13. Balanced ScorecardPuts Mission- Vision- Values & Strategy At Top of Assessment System

17. For Each Perspective: Financial Objectives Measures Targets Initiatives Responsibility Budget 1. 2. 3. Customer… Business processes… Learning Objectives Measures Targets Initiatives Responsibility Budget 1. 2. 3.

18. Objectives • Fast ground turnaround Basic Scorecard Terminology(Southwest Airlines Example) Strategy Map Measures How performance is measured against objectives InitiativesKey action programs required to achieve targets Targets The level of performance or rate of improvement needed Strategic Theme: Operating Efficiency Objectives: What the strategy is trying to achieve Profits and RONA Financial Grow Revenues Fewer planes Attract & Retain More Customers Customer On-time Service Lowest prices Measures Targets Initiatives Internal Fast ground turnaround • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization Learning Ground crew alignment

19. A Complete Scorecard is a Program for Action Objectives Measures Targets Initiatives StrategicTheme: OperationsExcellence Strategic Theme:Operating Efficiency Profits and RONA Financial • 30% +/yr • 20% • 5% • Profitability • Grow Revenues • Fewer planes Grow Revenues Fewer planes Attract & Retain More Customers • # Customers • FAA On Time Arrival Rating • Market Survey • 12% growth • Ranked #1 • Ranked #1 • Customer loyalty program • Quality management • More Customers • Flight is on -time • Lowest prices Customer On-time Service Lowest prices Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization • Fast ground turnaround Fast ground turnaround • % Ground crew trained • % Ground crew stockholders • yr. 1 70%yr. 3 90%yr. 5 100% • Ground crew training • ESOP • Ground crew alignment Learning Ground crew alignment

20. Capstone's Balanced Scorecard • Manager's Guide: Balanced Scorecard

21. Additional Tools/Techniques for Managing & Assessing Your Performance: • Accurate Sales Forecasting • Marketing-Evaluation Checklist • Round Analysis & Analyst Report

22. Tutorials: Forecasting & Developing a Unit Sales Forecast • Guidelines Re: Sales Forecasting

23. Sales Forecasting • Quick N’ Dirty • Consumer Pref’s • Best / Worst Case

24. Estimate Your FAIR SHARE • Answer 2 Q’s: • What will average product sell in this segment next round? • To what degree is your product above or below average- on consumers'’ buying criteria?

25. Fair Share - Sales Forecast Determine industry demand next round. Take last year’s total demand -- multiply by (1 + Growth Rate). Estimate # products that will be in segment. Divide total industry demand by the number of products. Your product’s demand will typically be between one half and twice the average product’s demand. Compare your product with competing products. Factors include design, awareness, accessibility, and planned mid-year revisions. Examine industry capacities, and the capacities of the “best” products. Can products meet the demand they generate?

26. #2 Forecast by Consumer Pref’s

27. Forecast off Customer Survey Scores

28. For Example-in Traditional segment everyone begins w/ 13% market share • Opening rounds crucial- can establish competitive advantage (that can be sustained for many years- even thru-out entire sim.) • Initial round demand can vary +/- 25% • Later rounds best case/worst case vary ~~~~ 10-15%

29. After 1st Year/Round-Can see demand spread

30. Total=223

31. R#2 2 1

32. CASE CASE

33. Worst Case: • BIG INVENTORY/ little cash • Best case: • Lots of CASH / little Inventory

34. Maintain Adequate working capital & cash reserves In order to: Need to: • Avoid “Big AL” & a Liquidity Crisis-

35. Enter WORSE case- in “your sales forecast” on marketing spreadsheet • Enter BEST case- in “production schedule” on production spreadsheet • Spread show up as inventory on proforma BALANCE SHEET

36. $0.00 In WORSE CASE: You have lots of Inventory & little or no Cash.

37. $0.00 In WORSE CASE: You have lots of Inventory & thus need to drive your cash position to the black…

38. To adjust your cash position -- • If you are cash poor, issue Stock /Bonds - or consider a short term loan • If you are cash rich, pay dividends and/or buy back stock.

39. Important Considerationsre: BEST-WORST Scenario Analyses By adjustingyour CASH POSITIONaccording to your WORST CASE estimate– NOT ONLY will avoid … BiG AL

40. Also Avoid Stock-Outs! By adjustingproduction according to BEST CASE estimate– will minimize loss of profit due to Stock-outs • Fixed costs(marketing, R&D, interest or depreciation)already covered • Thus, any additional sales would only incur variable(production) costs

41. For example, If your annual sales were $120M, in one month you’d sell $10M. If a months material & labor costs = $7M, you missed contributing $3M to Net Margin. This would be taxed in the simulation at 35%, so your opportunity cost is a missed $2M in profit.

42. How Big is your Slinky? • Worst Case: • BIG INVENTORY/ no cash– risk seeing Big Al • Best case: • Lots of CASH / noInventory -you risk stockout

43. Determining A Reasonable Spread • Want to avoid generating an ultra Conservative-- Worst case scenario …matched w/ an ultra Optimistic-- Bestcase scenario • Should be able to sell excess inventory in ~betw. 6 & 16 weeks

44. How to measure your slinky slack-- Take your total inventory costs $23,900M

45. & Divide by total variable costs of inventory sold: $23,900M/$131,119M =.18 52weeks *.18 = 9 Risk ~9weeks of Inventory to avoid stockout

46. Additional Tools/Techniques for Managing & Assessing Your Performance: • Accurate Sales Forecasting • Marketing-Evaluation Checklist • Round Analysis & Analyst Report

47. Evaluating Product Success

48. Simulation Scoring System

49. Round analysis -example

50. One more thing to think about: The Relationship between Your Strategy & Success Measures