Transcript Powerpoint Report - Prof. Tim Richardson

University of Toronto
Measurement and
Management
Fall 2009
Performance Management
and Success
Study by Hewitt—437 Companies
Companies that used performance management
processes compared to those that did not
showed:
•
•
•
•
•
Greater profits
Better cash flow
Stronger stock market performance
Greater stock value
Higher sales per employee
* 1994 study of 437 companies in USA 1990-92 (as described in Harvard
Business Review, May/June 1995)
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 1
Performance Management
and Success
Companies with performance management
processes compared to those in the same
industry without performance management
processes showed:
• Total shareholder return increased by 24.8%
• Productivity increased by 94.2%
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 2
Performance Management
and Success
Study by William Schiemann & Associates - 203
Firms - Conference Board
“Measurement Managed” firms significantly
outperform their competitors, regardless of size,
on key indicators such as industry leadership,
financial ranking and capacity to make
organizational or operational change
* Conference Board, Using Measurement to Transform the Organization,
1996
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 3
Organization of the Future
and the Implications for
People and Programs
Key philosophy is that people are rewarded for
results
What counts is what you do and what you
accomplish
Managers should be rewarded for how they
focus and direct the efforts of their employees
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 4
Edward E. Lawler
Key factors that determine Organizational
Success:
• Knowledge of the work, business and the total
work systems
• Information about processes, quality, customer
feedback, events and business results
• Power to act and make decisions about the work
in all its aspects
• Rewards tied to business results and growth in
capability and contribution
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 5
Performance Measurement
Frameworks
• Traditional Financial Reporting
• Multi-Dimensional Measurement Framework, e.g.,
Balanced Scorecard
Usefulness of Reporting
Customers
Financial
People
Traditional
Financial
Reporting
Balanced
Scorecard
Innovation
Quality
Internal Processes
Other (?)
LOW
Fall 2009
Strategy & Measuring Performance
HIGH
University of Toronto
page 6
Why Use Multi-Dimensional
Measurement Frameworks?
Using financial data only has significant limitations. It
looks at the past. Does not help to predict the future
Financial measures are not relevant for important
indicators such as customer satisfaction, cycle time,
risk management, new product introduction, etc.
Significant “noise” in accounting numbers caused by
accounting process, e.g., overhead allocation
GAAP allows significant use of judgment which can
impact results
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 7
Multi- Dimensional Performance
Management Model
THE GOAL
To implement a consistent
performance model that
objectively measures
achievement towards set goals
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 8
Why Use Multi-Dimensional
Measurement Frameworks?
“What gets measured gets done”
Or
“Tell me how I’m measured and I’ll tell you
what I’ll do”
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 9
Key Questions When
Choosing a Model for
Performance Measurement
1. How does it allow you to understand the
drivers of financial performance?
2. How does it allow you to understand
relationships with customers?
3. How does it allow you to understand the
effectiveness of internal processes?
4. How does it allow you to assess the
organization’s performance in innovating and
growth for the future?
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 10
Key Questions When Choosing
a Model for Performance
Measurement
5. How does it allow you to assess operational
risk factors?
6. How does it assist you in planning for the
organization’s future?
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 11
Alternative Measurement
Frameworks
Balanced Scorecard - Kaplan and Norton
Quantum Performance Management System Anderson Consulting
Performance Pyramid - Cross and Lynch
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 12
The Generic Four Dials
of a Balanced Scorecard
Financial
Customer/Markets
Balanced
Scorecard
Innovation/
Learning/Growth
Internal Business
Processes
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 13
The Performance Pyramid
Corporate Vision
Objectives
Business
Units
Measures
External Effectiveness
Market
Customer
Satisfaction
Financial
Flexibility
Productivity
Internal Effectiveness
Quality
Delivery
Cycle Time
Waste
Business
Operating
Systems
Departments and
Work Centres
Operations
Source: Lynch, R.L. and Cross, K.F., “Measure Up!, Blackwell Publishers, 1994.
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 14
Quantum Performance Matrix and
Model Application
Goals
Critical
Processes
Output
Measures
Key
Activities
Process
Measures
Fall 2009
People Measures
Maintain customer
loyalty through rapid
product introduction
Corporate
Strategy
Increase speed to
market by 50%
over next 2 years
Marketing
and selling
Cycle time
Get 25T of company
profits form new
products in 2 years
New product
development
Number of
parts used
Conceptual
design
Supplier
involvement
by X day?
Develop 2 new
products each year
1. Are the right people involved?
2. Do they have the right number
of skills?
Product
design
Crossfunctional
input?
Number of
vendors
Desirability
Prototyping
Design
standards
upheld?
Strategy & Measuring Performance
Actual cost to
budget
Target
costing
Number of
steps in the
manufacturing
process
Number of
common Source: Hronec, S.M., Vital Signs,
AMACOM, 1993
parts
University of Toronto
page 15
What is a Balanced
Scorecard?
A multi-dimensional set of performance dials for
measuring strategic health and performance
A vehicle for enriching dialogue about the
business at all levels
A rigorous approach to translating vision,
strategy and tactics into concrete performance
targets and measures
A vehicle for communicating what’s important to
everyone in the business
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 16
What Does a Balanced
Scorecard Look Like?
Balanced Scorecard
Financial
Business
Strategy
Market
Operational
Performance
Fall 2009
Strategy & Measuring Performance
Processes
University of Toronto
Innovation
People
page 17
Why Use a Balanced Scorecard?
It is simple, easy to understand and easy to
communicate
It translates the organization’s mission and
strategy into a multi-dimensional/comprehensive
set of performance measures that provides the
framework for a strategic measurement and
management system
It retains emphasis on achieving financial
objectives but also includes the performance
drivers of these financial objectives
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 18
Why Use a Balanced Scorecard?
It is unique to each organization
Assessments of performance will generally be
against targets and will reflect the organization’s
success in improving performance over time
Targets may come from benchmarking, historical
data, markets, business plan, stretch goals,
strategic plan, etc.
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 19
A Management-Driven Business
Process for Strategy Execution and
Cultural Change
Strategy
Culture and
Values
Fall 2009
Critical
Success
Factors
Measurement and
Management of
Performance
(“what it takes
to win”)
(individual, team,
unit, work process,
company levels)
Strategy & Measuring Performance
University of Toronto
Company
Performance
page 20
How Do We Start?
1. Define/Articulate the vision/mission/strategy
2. Develop lists of measures based on strategic
capabilities
3. Refine measures
» may have transition and end state
4. Develop implementation plan for gathering and
reporting required information and assign one
person with key accountability for coordinating
and delivering the regular report
5. Use information as a key focal point in the
management processes for the organization/unit
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 21
Balanced Scorecard
Methodology
Business Strategy
“Long list”
of measures
Operational Performance
“Critical few”
measures
Customers/
Market
Financial
Innovation
& learning
Internal
processes
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 22
Key Questions
“So what?”
• Does the measure tie into strategic capabilities?
• What are the cross-functional implications?
• Does it impact on line of sight?
“As measured by…”?
What’s the right blend of measures? What are
the right dials?
How often should we measure/monitor?
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 23
Key Questions
Should we/how do we cascade the objectives/
measures down into the organization?
How far can/should we go in the first version?
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 24
Integration of Balanced
Scorecard into Business
Planning Process
Department
Business
Planning
Strategic
Management
Process
Division/
Program
Business
Planning
Individual
Performance
Planning
Individual
Performance
Individual
Performance
Management
Individual
Compensation
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 25
Balanced Scorecard for
Public Sector Organization
Traditional
Corporate Performance
Measurement Program
Customer
Service
Financial
Customers/
Markets
Balanced
Scorecard
Innovation,
Learning &
Growth
Internal
Processes
& People
Fall 2009
Strategy & Measuring Performance
Community
Impact
Balanced
Scorecard
Efficiency
University of Toronto
page 26
Balanced Scorecard for
Public Sector Organization
Efficiency
• Operating Costs
• Timely Completion of
Capital Projects
Customer Service
•
•
•
•
Quality
High Performance Teams
Staff Contribution
Internal Customer
Satisfaction
• External Customer
Satisfaction
Fall 2009
Balanced
Scorecard
Strategy & Measuring Performance
Community Impact
• Safety
• Innovation
University of Toronto
page 27
Cascading Division
Measurement: Example
Division
Section
Unit
Fall 2009
Operations and Maintenance
% of Department
operating costs
System Operations
% of Division
operating costs
Roads
Cost/Lane km
Strategy & Measuring Performance
Utilities
Cost/Pipe km
University of Toronto
page 28
Building the Department
Business Plan
Municipality/
Department
Division
Programs
Focus Areas
Gaps and Issues
Priorities
Long list of priorities
identified
Priorities and Targets by Scorecard Dial
Community Impact
Fall 2009
Customer Service
Strategy & Measuring Performance
Assessments and Plans
submitted by Division
and Program Managers
Efficiency
Narrowed to “Critical
Few” priorities
Department/Division/
Program $$ targets
identified
University of Toronto
page 29
Structure of the Monitoring
and Tracking System
Department Head
• Conducts reviews on consistent basis
• Reviews accuracy and timeliness of reporting
• Reviews progress against interim deadlines
• Reviews quality and timeliness of final products
• Suggests improvements and corrections
• Reinforces good performance
Monitoring and Tracking
• Acts as agent of Department Head
• Designs tracking mechanisms
in consultation with affected
Director
Director
Director
executives
• Receives regular information
• Commits to deliverables and deadlines
from executives re. progress
• Organizes work to deliver
against deadlines and issues/changes
• Regularly reports accurate information to
to deliverable and plan
monitoring and tracking re. progress against
• Issues regular report of compiled
deadlines and issues/changes to objectives and plan information
• Consults with Department Head in advance when • Alerts Directors and Department Head
changes to deliverables or deadlines will be required as to issues and potential problems
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 30
Lessons Learned
Concerns over whether or not Scorecards are
“perfect”
Aversion to moving from traditional financialbased incentives - not sure they understand the
levers to affect results
Positive impact of group work to ensure
commitment and alignment
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 31
Linkages to Information Systems
Issues
• Most information systems limited beyond financial
data and even this has limitations
• Existence of information within the organization
• Cost effective ways of capturing and reporting
» Spreadsheet
» PB Views
» Alacrity
• May need transitional Scorecards and use of
proxies in the short term
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 32
Summary
No “Magic Bullet”
Iterative process/continuous learning due to:
• Limitations of information systems
• Subsequent input by employees and other
managers into what should be measured
• Organizational learning in terms of knowing how to
use the instrument
But…!!!
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 33
Summary (cont’d)
Structured, rigourous approach to performance
management
Encourages new insights into the underlying
dynamics of the business
Helps people to think “outside of the box”
Increases focus on key drivers of the business
Facilitates linkages with Human Resource
programs
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 34
Questions for Reflection
1. How would this approach change the way you
manage your organizations? What kinds of
conversations might you have?
2. Where in the organization, i.e., what level,
would you start implementation? What dials
(and measures) would be most useful for your
organization?
3. Should this type of approach be tied to your
individual performance management system?
Should there be implications for
compensation?
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 35
Appendix A
Approach to Balanced Scorecard
(Source Kaplan and Norton, The Balanced Scorecard, Harvard Press, 1997)
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 36
Strategic Framework for Action
Clarifying and Translating
the Vision and Strategy
• Clarifying the vision
• Gaining consensus
Communicating and
Linking
• Communicating and
educating
• Setting goals
• Linking rewards to
performance measures
Strategic Feedback and
Learning
• Articulating the shared
vision
• Supplying strategic
feedback
• Facilitating strategy
review and learning
Balanced
Scorecard
Planning and Target
Setting
• Setting targets
• Aligning strategic
initiatives
• Allocating resources
• Establishing milestones
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 37
A Different Management System for
Strategic Implementation
• The strategy is the reference point for the entire
management process
• The shared vision is the foundation for strategic
learning
Clarifying and
Translating the
Vision and
Strategy
• Goal alignment exists
from top to bottom
• Education and open
communication about
strategy are basis for
employee
empowerment
• Compensations is
linked to strategy
Communicating
and Linking
Strategic
Feedback and
Learning
Planning and
Target Setting
•
•
•
•
Fall 2009
Balanced
Scorecard
• Feedback system used
to test the hypotheses
on which strategy is
based
• Team problem solving
• Strategy development is
a continuous process
Stretch targets are established and accepted
Strategic initiatives are clearly identified
Investments are determined by the strategy
Annual budgets are linked to long-range plans
Strategy & Measuring Performance
University of Toronto
page 38
Appendix B
Scorecard Examples
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 39
Insurance Case
Balanced Scorecard Implementation
• Use of Senior Management team to develop
divisional Balanced Scorecard
• Focus on divisional strategy - what do we need to
do to be successful
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 40
Insurance Case
Use of retreat methodology (1 day) to build
Scorecard
• Homework: “What does my area need to do to be
successful?”
• Confirm strategy/CSF identification
• Key goals/themes/drivers for success
• Use of ‘Strawman’ Scorecard
» confirmation of appropriate dials/buckets
» confirm/identify measures/indicators
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 41
Insurance Case
Balanced Scorecard Implementation
• Post retreat
» asked Senior Management group for feasibility
on indicators
» developed template for reporting
» development of senior management monthly
meeting agenda to incorporate reporting on
Balanced Scorecard basis
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 42
Insurance Case
Balanced Scorecard Implementation
• Second retreat - half day
» purpose - weighting of scorecard and dealing
with feasibility issues
» presentation of proposed integration with
variable compensation
– cascade of divisional Scorecard into
Scorecard for Senior Management group
– threshold on Financial measures
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 43
Insurance Case Balanced
Scorecard
Financial
Customers/Markets
•
•
•
•
•
• Return on capital
employed
• EVA
• Asset accumulation
• Profitability by line of
business
Brand awareness
Customer satisfaction
Customer retention
Market share
Proportion of sales by
distribution channel
Balanced
Scorecard
Innovation/Learning/
Growth
• % sales from new
products/services
• # of new products to
market
• Intellectual capital
Internal Processes and
People
•
•
•
•
Fall 2009
Cycle time by product
Employee satisfaction
Risk management
Claims leakage
Strategy & Measuring Performance
University of Toronto
page 44
Telecom Case Balanced
Scorecard
Pre Balanced Scorecard Implementation
• Initiated because of change in organization
structure
• Variable incentive compensation linked to financial
results
» operating profitability for profit centre
» cost goals for cost centre
• Maximum incentive payout - 40%
» averaging 20-30 %actual but
– poor financial results
– loss of customer franchise
– poor stock performance
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 45
Telecom Case Balanced
Scorecard
Balanced Scorecard Implementation
• Used a bottom up methodology by working with
the divisions through a series of workshops to
develop Scorecards
• Development of ‘Strawman’ Scorecard for review
of senior management group
» review of current strategy and CSFs for fit
» development of feasibility plan for
measures/indicators
» discuss/approve weightings
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 46
Telecom Case Balanced
Scorecard
Balanced Scorecard Implementation
• Incorporated project completion bonuses
• Incorporation of Scorecard into monthly senior
management meetings
• Cascade plan down to the Director level within the
organization
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 47
Telecom Case Balanced
Scorecard
Balanced Scorecard Implementation
• Posting of the Scorecard results with monthly
financials available on the network
• Slow down of market share loss
• Improvement of financial operating results, cash
flow and stock performance
Fall 2009
Strategy & Measuring Performance
University of Toronto
page 48
Telecom Balanced Scorecard
Financial
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•
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•
•
Customers/Markets
•
•
•
•
Free Cash Flow
Operating Cash Flow
Value Created/SVA
Revenue
Net Income
Balanced
Scorecard
Share of Wallet
Customer Satisfaction
Customer Retention
Market Share
Employee/Organizational
Learning
•
•
•
•
New Products
Employee Satisfaction
Competency
Organizational
Leadership
Internal Processes
•
•
•
•
Fall 2009
Internal Service Levels
Product Intro Cycle Time
IS/IT Effectiveness
Efficiency
Strategy & Measuring Performance
University of Toronto
page 49