Corporate Performance Management

1. Corporate Performance Management

2. Performance Management Framework Vision Mission Strategy Strategy Map Key Performance Indicators Company strategy Identifying Defining Measuring Monitoring Reporting

3. Performance Management Process Performance Management Component Three critical components for effective process of performance management Performance management cycle is continuous and consistent Performance Management Infrastructure Performance Management Culture Logistic support and performance management administration Culture that is based on performance accountability

4. Our responsibility to continuously develop Creating Good-to-GREAT Company

5. Moving from Good to Great The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it

6. Moving from Good to Great The key point of this element is not just the idea of getting the right people on the team.

7. Moving from Good to Great The key point is that "who" questions come before "what" decisions—before vision, before strategy, before organisationstructure, before tactics. First who, then what — as a rigorous discipline, consistently applied.

8. Performance Management Cycle STRATEGY Set Measures and Target Reward and Coach Plan and Execute Monitor and Evaluate

9. Tools for Performance Measurement • Financial Budgets • Introduced in 1992 • Robert Kaplan and David Norton • is the most commonly used framework for ensuring that agencies execute their strategies • today, about 70% of the Fortune 1,000 companies utilise the Balanced Scorecard to help manage performance. • Definition: • The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organistionis progressing towards the achievement of its strategic goals.

10. The Balanced Scorecard; Why? The Balanced Scorecard: • Balances financial and non-financial measures • Balances short and long-term measures • Should contain just enough data to give a complete picture of organizational performance… and no more! • Quantifies the Agency Strategy in measurable terms • Leads to strategic focus and organizational alignment. • Must capture a cause-effect relationship between strategic objectives over the four perspectives on the Strategy Map.

11. The Balanced Scorecard; Why do it? To achieve strategic objectives. To provide quality with fewer resources. To eliminate non-value added efforts. To align customer priorities and expectations with the customer. To track progress. To evaluate process changes. To continually improve. To increase accountability.

12. Managing Performance with Balanced Scorecard Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organisation is progressing towards the achievement of its strategic goals.

13. Building Performance using the ‘BalancedScore card’ as a tool

14. A Sample of Users of the balanced score card

15. Balanced Approach • The oldest approach of performance measurement is using financial measures. • In 1991, scholars of Harvard started to question the validity of measuring performance by means of financial measures only. • Egan (1995) argued that financial indicators are not only liable to distort the realities of business but also tend to lag rather than lead success. • Performance Measurement System “has a series of measures that provide information about the operation of many different processes” (Robert, Vijay, 1998). • Balanced Scorecard is an approach to implementing Performance Measurement System. Kaplan and Norton originally developed this concept in 1992. • Kaplan and Norton (1992) stated, “No single measure can provide a clear performance target or focus attention on the critical areas of the business.”

16. Balanced Approach • Kaplan and Norton (1992) divided the measurements in four perspectives of organisation performance, namely; financial management, customer service, internal business process efficiency and learning and development. • According to Kaplan and Norton (1992), the Balanced Scorecard endeavours to create a blend of strategic measures: outcome and driver measures, financial and non-financial measures, and internal and external measures.

17. Balanced Approach • As Canada’s Management Accounting Guideline, ‘Applying the Balanced Scorecard’, states: • “Managers can use the Balanced Scorecard as a means to articulate strategy, communicate its details, motivate people to execute plans, and enable executives to monitor results. Perhaps the prime advantage is that the broad array of indicators can improve the decision-making that contributes to strategic success. Non-financial measures enable managers to consider more factors critical to long-term performance. In addition, the Balanced Scorecard can help organisations strategically manage the alignment of cause-and-effect relationships of external market forces” (Crawford, 2005).

18. Mission and objectives Vision Mission Goals and objectives

19. Levels of Strategy Corporate Business Functional

20. Conflict between objectives Sources of goal conflict • Between short term/ long term goals • Between different stakeholder groups • Means/ends conflicts • Within the stakeholder group

21. Conflict between objectives Resolving conflicting objectives • Satisfying (…the most powerful?!) • Sequential attention • Side payments • Prioritisation • Bargaining

22. Other views on objectives Drucker • multiple objectives (covering 8 areas) Cyert and March • coalitions of stakeholders leading to compromise Simon • satisfice to combine needs of all stakeholders

23. Scope of Ethical Issues • Support for the disadvantaged • Dealing with unethical companies or countries • Treatment of stakeholders • Treatment of animals • Green Issues

24. Objective setting Horizontal consistency Time consistency Mission Vertical consistency Corporate Business Operational Individual

25. Organisational Systems Analysis Corporate Goals Targets Customer Financial Employee Internal Processes Strategic Obj Strategic Obj Strategic Obj Strategic Obj Performance Optimisation Process Departmental Objectives- Aims Planned Objectives Targets- KPIs Management reviews tactical actions Mang feedback-Quarterly Reports Implemented dept “a” objectives Implemented dept “b” objectives Implemented dept “c” objectives Indiv Indiv Indiv Indiv Indiv Indiv Appraisal Appraisal Appraisal Appraisal Appraisal Appraisal Set Objectives Set Objectives Set Objectives Actual KPIs Achieved Analyses of variances Recommended Performance Improvement Actions

26. Managing Performance with Balanced Scorecard • Balances financial and non-financial measures • Balances short and long-term measures • Balances performance drivers (leading indicators) with outcome measures (lagging indicators) • Leads to strategic focus and organisational alignment.

27. 4 Perspectives in Balanced Scorecard The Strategy Financial Perspective If we succeed, how will we look to our shareholders? Customer Perspective To achieve our vision, how must we look to our customers? Internal Perspective To satisfy our customers, which processes must we excel at? Learning & Growth Perspective To achieve our vision, how must our organization learn and improve?

28. Strategy and Balanced Scorecard Mission – Why We Exist Strategy Map : Translate the Strategy Strategic Outcomes Vision – What We Want to Be Satisfied Shareholders Strategy : Our Game Plan Delighted Customers Balanced Scorecard : Measure and Focus Excellent Processes Values – What’s Important to Us Motivated Workforce

29. Strategy Map Framework Long-term Shareholder Value Cost Efficiency Revenue Growth Financial Price Quality Service Availability Brand Customer Regulatory and Social Processes Operations Management Processes Customer Management Processes Innovation Processes Internal Process Learning & Growth Human Capital Organisation Capital Information Capital

30. Financial Perspective • In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.

31. Strategic Objectives in Financial Long-term Shareholder Value Cost Efficiency Revenue Growth Expand Revenue Opportunities Improve Cost Structure Increase Asset Utilisation Enhance Customer Value

32. Customer Perspective • This perspective is very instrumental, because without customers, how can an organisation survive? • Customer perspective covers the following elements: • Customer acquisition • Customer retention • Customer profitability • Market share • Customer satisfaction

33. Strategic Objectives in Customer Customer Retention Customer Profitability Customer Satisfaction Market Share Customer Acquisition Price Quality Service Availability Brand

34. Internal Process Perspective • This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers. • There are four main themes in this perspective, namely: • Operations Management Process • Customer Management Process • Innovation Process • Regulatory and Social Process

35. Strategic Objectives in Internal Process Operations Management Processes Customer Management Processes Regulatory and Social Processes Innovation Processes Processes that produce and deliver products and services Processes that enhance customer value Processes that create new products and services Processes that improve communities and the environment • Supply • Production • Distribution • Selection • Acquisition • Retention • Growth • New Ideas • R&D Portfolio • Design/ Develop • Launch • Environment • Safety & Health • Employment • Community

36. Learning & Growth Perspective • This perspective reflects the capability that an organisation should have, namely: • Human Capital • Organisation Capital • Information Capital • This perspective shows us that good human resource development system, organisational system and information system forms a solid foundation for improving organisational performance.

37. Strategic Objectives in Learning & Growth Organisation Capital Information Capital Human Capital • Skills • Knowledge • Attitude • Culture • Leadership • Organisation Development • Systems • Database • Networks

38. Strategy Map Template Enhance Long-term Shareholder Value Improve Cost Efficiency Increase Revenue Growth Financial Build High Performance Products Expand Market Share Enhance Brand Image Customer Drive Demand through Customer Relation Management Achieve Operational Excellence Implement Good Environmental Policy Manage Dramatic Growth through Innovation Internal Process Learning & Growth Develop Strategic Competencies Build Learning Culture Expand Capabilities with Technology

39. Key Performance Indicators (KPI) KPI = Measurement or indicator that provides information on how far we have succeeded in achieving the strategic objectives Vision Mission and Values Strategy Strategic Objectives Key Performance Indicators Finance Key Performance Indicators Customer Internal Business Process Key Performance Indicators HR Development

40. KPI Guidelines Guidelines in Formulating the KPI • The measure of success must show clear, specific and measurable performance indicators. • The measure of success should be declared explicitly and in detail so that it is clear what is being measured. • Costs to identify and monitor the measure of success should not exceed the value that will be known from the measurement.

41. KPI Guidelines Relevant to the Strategic Objective Does KPI have a linkage with the strategic objectives? Are the KPI achievements still under control? Controllable Can any action be taken to improve the performance? Actionable Simple Is the KPI easy to explain? Credible Is the KPI not easy to manipulate?

42. Environmental Scan Strengths Weaknesses Opportunities Threats A Model for Strategic Planning Values Mission & Vision Strategic Issues Strategic Priorities Objectives, Initiatives, and Evaluation

43. The Strategy Focused Organisation Source: The Strategy Focused Organization, Norton & Kaplan • The Five Principles • Translate the strategy to operational terms. • Align the organisation to the strategy.

44. The Strategy FocusedOrganisation Source: The Strategy Focused Organization, Norton & Kaplan • The Five Principles (cont.) • Make strategy everyone’s job. • Make strategy a continual process. • Mobilise change through executive leadership

45. The Balanced Scorecard and The Big Picture • Activity Based Costing • Economic Value Added • Forecasting • Benchmarking • Market Research • Best Practices • Six Sigma • Statistical Process Control • Reengineering • ISO 9000 • Total Quality Management • Empowerment • Learning Organization • Self-Directed Work Teams • Change Management

46. Strategy can be described as a series of cause and effect relationships. Provides a “line of sight” from strategic to operational activity working on the “right” things. “If we succeed, how will we look to our stakeholders?” “To satisfy our customers, at which processes must we excel? "To execute our processes, how must our organization learn and improve?" “In order to succeed, what investments in people and infrastructure must we make?” Stakeholders Internal Processes Learning & Growth Agency Investments Four Views of Performance Strategic Objectives

47. Examples of Measurements by Perspective Internal Processes Stakeholder / Customer • Current customer satisfaction level • Improvement in customer satisfaction • Customer retention rate • Frequency of customer contact by customer service • Average time to resolve a customer inquiry • Number of customer complaints • Number of unscheduled maintenance calls • Production time lost because of maintenance problems • Percentage of equipment maintained on schedule • Average number of monthly unscheduled outages • Mean time between failures Learning and Growth Investments • % of facility assets fully funded for upgrading • % of IT infrastructure investments approved • # of new hire positions authorized for filling • % of required contracts awarded and in place • Percentage employee absenteeism • Hours of absenteeism • Job posting response rate • Personnel turnover rate • Ratio of acceptances to offers • Time to fill vacancy

48. Why Measure? • To determine how effectively and efficiently the process or service satisfies the customer. • To identify improvement opportunities. • To make decisions based on FACT and DATA

49. Measurements Should: • Translate customer expectations into goals. • Evaluate the quality of processes. • Track our improvement. • Focus our efforts on our customers. • Support our strategies.

50. Selection Criteria for Performance Measurements • MEANINGFUL - related significantly and directly to organizations mission and goal • VALUABLE – measure the most important activities of the organization • BALANCED – inclusive of several types of measures (i.e. quality, efficiency) • LINKED - matched to a unit responsible for achieving the measure • PRACTICAL – affordable price to retrieve and/or capture data • COMPARABLE – used to make comparisons with other data over time • CREDIBLE - based on accurate and reliable data • TIMELY - use and report data in a usable timeframe • SIMPLE -- easy to calculate and understand