Edgar Gnanou Corporate Control

1. Edgar Gnanou Corporate Control Performance Measures in the Value Chain July 2005

2. Competitors shareholders Politics Customers External Internal Complexification and diversification of business Re-organisation Product offered environment Process control Process re-enginiering (stratégic contrôl, opération contrôl, exécution contrôl ) Performance Measurement Reporting Audit and Simulation Process et Analyse Changing management tools (informations system, organisation, pricing system, etc…) Organisation Control

3. Organization and process control • Examples: • Forcasts • Staff meeting • Reporting documents • Exchanging ideas about target and performance • Organization control • Specifying objectives (5 to 7 years plan) • Communicating objectives to organization members (communicate and implement) • Monitoring performance relating to objectives (mesure, reporting) • Acting on discrepancies between actual and target performances(revise)

4. Organization and process control • Examples: • Pricing control • Comparing outsourced service with our proper teams • Improve the exhibit operations team to get the service paid on time • Process control • Short-term and sometimes continuous, control • Mesures short-term performance with short-run targets or standards • Evaluates and improves the processes that the organization uses to deliver goods or services

5. In practice What does the customer want What products are developed to meet the customer requirements (innovations) How are we to make and deliver the product (operations) After sales services (service) In their zeal to cut costs, some organizations cut service !

6. Performance measurement • Examples: • Clear pricing systems • Reliable service • « what you want, is what you get » spirit rather then « what you’ve ordered is what you’ve paid» • Reflecting the customer perspective • Identify things that are critical to our success in meeting the requirements of our targets customers • Customer-validated perfomance measures • Tools used to reflect customer requirements and help employees manage the value chain’s in order to please the custumers

7. In practice • What Palais des Congrès de Paris exhibition customers want: • On-time service • Hight standard products at the lowest price • Quality service • Palais des Congrès employees think : • The customers don’t order on time • Cuting cost by outsourcing led to decrease in product service, as competitors substituted cheaper product with higher-quality service with insourcing • What Mc Donalds customers want: • Fast service • Standard products at the lowest price • Clean environment • What Mc Donalds employees think: • All of them do not deal with customers • Housekeeping personnel are not said to clean outside the restaurant • Etc….

8. In practice What the customer wants The point is that there is a difference between input, output and outcome. Input is what the organization puts into a process (buying) Output is a physical measure of activity (cash flow, net income, m²…) Outcome is what the customer values as the result of the activity (number of jobs found that meet clients expectations, …effect of patrolling on servicing incidents, ….). The service gap What customer is promised The quality gap What customer is given

9. The input Costs & price What the custumer wants Service Gap What the custumer is promised Agreement point & pricing INPUT Equipments & Services Unsatisfaction zone Client expectation zone

10. The variations of input Costs & price What the custumer wants Service Gap Killing costs What the custumer is promised Agreement point 2 & pricing INPUT Growth of expectations Equipments & Services Unsatisfaction zone Client expectation zone

11. Orders What the custumer ordered What the custumer consumed The Output ratio point 1 Equipments & Services available Ressources engaged Ressources available The Outputratio = ressources engaged/available ressources Quality Gap Invoicing level

12. The OutputRatio Variations Orders What the custumer ordered Quality Gap Orders losted What the custumer consumed and paid The Output ratio point 2 Sunk costs Equipments & Services available Ressources engaged Ressources available

13. The Outcome Orders Using sunk costs which are available ressources to generate new services and reduce the quality gap What the custumer ordered Quality Gap What the custumer consumed Outcome The Output ratio point 2 What the custumer paid input Sunk costs Equipments & Services available Ressources engaged Ressources available

14. The point is… • Input variation : More the agreement point is high between what the customer want and what he is promised, more the expectations zone is small, and the cost control is difficult because the ressources engaged are important…but there will be less unexpected ! • Output variation : More the output point is low, more the sunk costs are heavy, and number of orders are lost • Outcome : using a part of sunk costs to reduce the quality gap is the « one best way » to increase activity…do not think of reducing your costs if this do not generate new services !

15. In practice…the scorecard

16. …the performance measures ? Wich benefits… Information value/cost $…+ Information costs Information Benefits Amount of information 0 x… Optimal level of information to provide

17. The complet Balanced Scorecard Financial Perspective « How do we look to our shareholders ? » Customer Perspective Business Processes Vision and Strategy « How do we look toour custumers » «What business process are the value drivers ?» Organizationnal Learning « Are we able to sustaininnovation, change, andimprovment ?»