Transcript Identifying Value Drivers - The Buttonwood Group, LLP

Identifying Value Drivers
For Improved Budgeting and Decision Making
Lawrence Serven
The Buttonwood Group
www.ButtonwoodLLP.com
203/328-3056
Outline
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Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
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What NOT to Do
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Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
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Value Drivers and CPM
Value Drivers are the “Vital Few” performance measures
that really drive success. They are like the “Final Score”
in a football game – they define what winning is.
Final Score
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Value Drivers and CPM
Performance Measures
Value
Drivers
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Value Drivers and CPM
All performance measures are valuable and can
continue to be used, but Value Drivers should
make up your one page company scorecard.
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Value Drivers and CPM
Total 1st Downs
Total Yards
Rushing
Passing
Total Plays
# Pass Attempts
# Pass Completions
Average Yards/Pass
% Complete
# Punt Returns
Punt Return Yards
# Kickoff Returns
Kickoff Return Yards
# of Penalties
Yards Penalized
# Sacks Allowed
# of Touchdowns
Passing Touchdowns
Rushing Touchdowns
Total Turnovers
Passes Intercepted
Fumbles
Fumbles Lost
Avg Time of Possession
Total Points Scored
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389
97
292
78
34
21
14
61%
6
59
3
60
11
95
2
4
2
2
3
2
1
1
31:52:00
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16
288
76
212
72
30
15
14
49%
5
47
4
79
11
100
2
3
2
1
2
1
2
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28:08:00
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All useful performance
measures, but only one
tells you who won:
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Value Drivers and CPM
Where (and how) do Performance
Measures fit in with the other
components of an effective
management system?
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Value Drivers and CPM
Working Definition:
Corporate Performance Management (CPM) is the full
integration of all the major components of Planning…
… Performance Measurement… Reporting… and Rewards
to drive shareholder
value.
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Value Drivers and CPM
The full CPM cycle covers everything from strategy to operational
planning to ongoing reporting:
Long Term Plan
Operating
Plan
Rewards
Performance
Measures
Reporting
& Analysis
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
10
National Survey Results
Survey of 227 Companies by the Buttonwood Group
More than half reported they had developed a performance
scorecard sometime over the last two years with mixed results:
65% said the results were disappointing
21% said they were somewhat satisfied
13% said they were highly satisfied
Only 1% “weren’t sure”
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National Survey Results
The 13% Highly Satisfied Companies
Is this Statement True?
False
Partially
True
True
Senior Management was very
pleased with the scorecard
program we implemented
Our scorecard has driven
improved financial results
Most managers outside of Finance
manage to the scorecard
The project manager was
promoted within a year
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National Survey Results
Of the companies that reported disappointing results…
Many had bought “KPIs in a can” from the outside
Many did not involve managers outside of the finance department
Most had scorecards that couldn’t fit on single page
None had tied PMs to personal incentives
Few establish targets for PMs in the annual plan
None had budgeted resources in the annual plan to achieve PM targets
Most lacked any ongoing variance analysis (target to actual PM results)
Most did not have a single scorecard for the company as a whole (i.e.
they maintained multiple measures across entities)
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National Survey Results
Interviews with the 8% highly satisfied revealed:
Performance Measures are “owned” by senior management:
they believe these measures drive success
Senior management asks to see them every month
Progress toward numerical goals is reported alongside
financial statements
Are “baked into” to budget through goal setting and
resource allocation
Focus on a handful of measures (the value drivers)
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
15
Making it Stick
The real goal of performance measures is not to measure them for the
sake of measuring them, but to improve performance:
That means developing a full solution:
Establish strategic (long term) targets for performance measures
Set annual plan targets as well
Develop concrete Action Plans to achieve the targets
Report on ongoing progress of those plans
Report the PMs alongside the financials every month
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Making it Stick
Establish strategic (long term) targets for performance measures
Nobody will want to do this
if you haven’t picked the
Set annual plan targets as well
Develop concrete Action Plans to achieve the targets
Report on ongoing progress of those plans
Report the PMs alongside the financials every month
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
18
What NOT to Do
Match the question to the objection
Objection
The Question that Was Asked
Huh?
What Balanced Scorecard measures should we have?
What should our “learning and growth” measures be?
Gimme a break
What “should” we be measuring?
Not invented here
What’s considered best practice or industry standard
performance measures?
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What NOT to Do
Don’t put the cart before the horse. If the first thing you do is
“pick” your measures it assumes the “health” of those measures
reflects what’s driving your success.
You need to identify
what drives
success in your
business first, then
identify the measures
that reflect that.
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What NOT to Do
Benefits of identifying Value Drivers first
Senior Management really gets it
Organizational buy-in
It becomes vital to the organization
It’s easy to explain how the measures were derived
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
22
The Value Driver Workshop
Who: The Senior Management Team (or designates)
What: A one day Workshop to identify the Company’s Value Drivers
Where: Offsite preferred
How: A series of workshop exercises
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The Value Driver Workshop
What are we
here for?
Get the performance management project off on the
right foot by building a consensus on “what drives
success in this business.”
Identification of Value Drivers
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The Value Driver Workshop
If we do nothing
else, what can we
use that for?
1) Revalidate existing
strategy
Financial
Financial
2) Create or Revisit the
Balanced Scorecard
Customer
Customer
ROE %
Strong OEM Partnership
Operating Profit
Delighted Consumers
Acquisitions
Competitive/ Profitable Rates
Portfolio
Dealer Satisfaction
Interest Rate Spread
Internal Processes
Processes
Internal
Planning Process
Learning &
& Growth
Growth
Learning
Billing & Payment Processing
Employee Recruiting & Rewards Remarketing
Credit Process
Audit & Control
Marketing & Sales
Communications
Organizational Effectiveness
Qualified/Motivated Workforce
Risk Management
Operating Efficiency
The Right Data to the Right People
3) “Filter” new
investments
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The Value Driver Workshop
Workshop: To Identify & Gain Consensus on
Value Drivers go through the following set of
exercises.
Group like ideas
Prioritize
Brainstorm
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The Value Driver Workshop
You have a favorite nephew that you love
a lot even though he’s not the sharpest
tool in the shed. He’s taken a job at a
company very similar to yours, and he
asks you “So what really drives success
in this business?
How would you answer him
in plain English?
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The Value Driver Workshop
Examples of Replies
Group like ideas
Prioritize
Brainstorm
Cost control
Highest possible quality
Ability to charge a
premium
Quality culture
Superior customer service
Elimination of non-value
added risk
Satisfied employees
Product differentiation
High potential employees
developed
Comprehensive marketing
plan
Responsible G&A
Effective advertising &
promotion
Understanding the
competitive environment
Perceived value add above
competitors
Effective recruiting
programs
Retention of high
performers
Communicating why our
products are best
Internal checks and
balances
Investment in quality
programs
Having highly desirable
products
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The Value Driver Workshop
Activity 2: Participants group like ideas:
Potent Workforce
Retention of high
performers
Effective recruiting
programs
Satisfied employees
High potential employees
developed
Pricing Power
Ability to charge a
premium
Effective Branding
Communicating why our
products are best
Comprehensive marketing
plan
Effective advertising &
promotion
Group like ideas
Operating Efficiency
Perceived value add above
competitors
Cost control
Responsible G&A
Product differentiation
Elimination of non-value
added risk
Internal checks and
balances
Quality Obsession
Highest possible quality
Prioritize
Brainstorm
Quality culture
Investment in quality
programs
Consumer Satisfaction
Understanding the
competitive environment
Superior customer service
Having highly desirable
products
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The Value Driver Workshop
Activity 3: Cause/Effect Analysis. Analyze each driver, one at a time, to
see if it significantly impacts another, or if it is significantly impacted by
any of the other drivers.
Group like ideas
Prioritize
Brainstorm
Operating Efficiency
Pricing Power
Effective Branding
Potent Workforce
Quality Obsession
Consumer Satisfaction
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The Value Driver Workshop
Activity 4: Gap Analysis. Where do we stand today versus “perfection?”
Group like ideas
Prioritize
Brainstorm
Pricing Power
Operating Efficiency
Effective Branding
Potent Workforce
Quality Obsession
Consumer Satisfaction
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The Value Driver Workshop
Activity 5: The $100 Test. Give each participant “$100 Dollars” to spend
Group like ideas
on the drivers
#1
Quality Obsession
#2
Pricing Power
#3
Potent Workforce
#4
#5
#6
Consumer
Satisfaction
Effective Branding
Operating Efficiency
Prioritize
Brainstorm
Jane
John
$25
$10
$25
$50
$75
$25
$20
$45
$25
$10
$35
$10
Mary
Total
$50
$85
$25
$35
$25
$25
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The Value Driver Workshop
What happens
after the
workshop?
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The Value Driver Workshop
Post Workshop Activity: For each driver develop a one page summary with a description and
key factors listed:
Operating Efficiency
Description of the Value Driver:
Operating Efficiency means we are highly productive operationally, and that we are on continuous search for new ways to streamline
and improve our processes.
Key Factors:
•
•
•
•
•
Cost control
Responsible G&A
Internal checks & balances
Elimination of non-value added tasks and redundancies
The right processes
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The Value Driver Workshop
Activity: Identify one to three vital
measures for each value driver
Operating Efficiency
Potent Workforce
- Operating Expense
Ratio
- Employee Retention
Rate
- Employee Survey
Index
Activity: Develop targets for
measures
Activity: Develop Strategic
Initiatives to meet targets
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The Value Driver Workshop
All the pieces of the Value Drivers come together in a
dashboard that monitors performance:
Progress on Value Drivers
June Year To Date
(Partial View for Illustration Only)
Significantly exceeds target
Within target range
Significantly below target
Value Driver
Measure
Operating Efficiency
Operating Expense Ratio
Quality Obsession
# of Defects per Thousand
Potent Workforce
Employee Retention
Employee Survey Index
Stoplight
Rating
Target
Reference Data
YTD Actual
45%
46%
5
8
90%
95%
95
80
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
37
Quick Hits
Secure Executive Sponsorship
Focus on the “Vital Few” Measures (not a phone book)
Standardize Measures Across the Company (consensus)
Pick Measures Managers Really Connect With
Measures Should be Explainable to Your Spouse
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Outline
–
Value Drivers and CPM
–
National Survey Results
–
What Makes Scorecards “Stick”
–
What NOT to Do
–
Workshop to Identify Value Drivers
–
Quick Hits
–
Q&A
39
Q&A
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