definition of sustainability-driven key performance
TRANSCRIPT
Definition of sustainability-driven Key Performance Indicators (KPI)
Webinar on February 26, 2021
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1. What are KPIs? 2. Benefits & Pitfalls of KPIs3. What is the Balanced Scorecard? 4. What is the Sustainability Balanced
Scorecard?
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What are KPIs? Not for reproduction or distribution, in whole or in part, without prior written permission of the IMP³ROVE – European Innovation Management Academy.
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KPIs are quantifiable measurements that gauge the outcome of a critical success factor, goal and objective or performance
(Bauer, 2004)
KPIs are a relative measure of the performance of an organization. KPIs can also be used to indicate the performance of specific and focused activities in the organization which could directly affect the value of that organization
(Masilamani, 2005)
KPIs are quantifiable measurements, agreed to beforehand, that reflect the Critical Success Factors of the company, departments or projects
(David Parmenter, 2002)
KPIs are a basic performance measurement [...] they must be monitored on a daily basis by the senior management team
(Malaysia et al, 2005)
There are many definitions for describing Key Performance Indicators
Source: IMP³ROVE, 2021
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Benefits and pitfalls of KPIs
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KPIs offer a wide range of benefits for companies, but there are also pitfalls to look out for when developing KPIs
Pitfalls of KPIs for companies
Measures are not linked to organizational strategy
Too many measures create lack of focus onwhat is really critical to manage the business
Not enough critical measures results in missing information
Focusing only on the short-term measures
Measuring progress too often results in unnecessary effort and excessive costs and little value
Collecting too much or unnecessary data results in a mountain of data causing confusion what to do
Failure to base business decisions on data
Benefits of KPIs for companies
Help to define and measure progress towards organizational goals
Reflect strategic value drivers to achieve these goals
Are quantifiably based on valid data and standards as relevant to the organization’s needs
Offer incentives
Key issues are addressed and results are visible
Lead to positive actions and provide the key to organizational success
Source: IMP³ROVE, 2021, Anon., 2007)
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What is the Balanced Scorecard?
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The Balance Scorecard is a wide-spread tool for implementing a strategy and for measuring performance
Concept:
New approach to measuring the performance of companies as a result of the criticism of the one-sided, short-term and past-oriented focus of accounting and financial numbers (developed by Kaplan & Norton, 1997)
It assumes that it is no longer primarily focused on capital and its efficient use only, but increasingly also on soft factors that are decisive for the long-term creation of competitive advantages and corporate value
The Balanced Scoreboard is aligned with the company’s individual strategy and split into four perspectives to transform the contribution of soft factors into long-term financial results:– Financial Perspective– Customer Perspective– Internal Business Perspective – Innovation and Learning Perspective
The Balanced Scorecard links performance measures
Financial Perspective
GOALS MEASURES
Internal Business Perspective
GOALS MEASURES
Customer Perspective
GOALS MEASURES
Innovation and learning Perspective
GOALS MEASURES
Vision and Strategy
How do CustomersSee us?
How do we lookto Shareholders?
What must we Excel at?
Can we continue to improve and create value?
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Project processes (Internal business processes)
Continuous education for employees serves as the basis for creativity and innovation ideas
Education and Learning (Improvement and Learning Perspective)
Well trained and creative employees challenge the status-quo and improve continuously project processes
Customer satisfaction (Customer Perspective)
Improved processes lead to improved products and services for customers
Revenue (Financial Perspective)
Happy customers lead to increase in revenue
Innovation and Learning Perspective
– Reflects the necessary infrastructure to ensure long-term growth and improvement
– Focus is on employee needs, investment into training, education
Internal Business Perspective
– Focus is to optimize processes to achieve customer and stakeholder goals
Customer Perspective
– Company is viewed from the perspective of the customer pool
– Focus is increasing customer benefits
– Aim is to identify those customers and market segments whose needs the company can serve competitively and profitably
Financial Perspective
– Company is viewed from the perspective of owners, investors and markets
– Targets derived for achieving long-term economic success
– Goals of this perspective serve as the focus for the goals and numbers of the other BSC perspectives
The four perspectives work closely together and are causally linked to each other
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A Balanced Scorecard contains leading indicators and lagging indicators Perspective Leading indicators Lagging indicators
Financial Perspective - Cash flow, return on investment, revenue, value add
Customer Perspective Delivery time, quality, pricing, service, brand awareness, response time
Market position, customer loyalty, customer acquisition, customer satisfaction
Internal Business Perspective
Time-to-market, capacities, error rate Capacity planning, work hours, faulty products, ideas
Innovation and Learning Perspective
Quality checks, communication, motivation, company culture, IT infrastructure
Employee satisfaction, employee loyalty, productivity, creativity
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Continuous strategy review processes allow for adapting to changing circumstances
Strategic cycle of action:
This cycle of strategy review on a regular basis helps companies in adapting to changing markets, circumstances, conditions
This allows companies to review the status-quo of the strategy implementation, look at successes or challenges of the strategy and to keep those factors transparent to the employees
This process helps companies reflect, react quickly and constantly learn by questioning and testing hypotheses
Balanced Scorecard
Definition and documentationof vision and strategy
Strategy-related planningand target setting
Strategicfeedback and learning process
Communication of the strategy
and links within the company
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What is the Sustainability Balanced Scorecard?
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A Sustainability Balanced Scorecard combines the triple bottom line with the traditional Balanced Scorecard
Building a Sustainability Balanced Scorecard is an individual process for every organizationCompanies can choose to include the triple bottom line aspects fully, partially or even extend the traditional BSC
Financial Perspective
Customer Perspective
Internal Business
Perspective Innovation and
Learning Perspective
Non-Market Perspective*
Source: Figge et al., 2001
Define strategic business unit
Identify environmental and social exposure
Identify strategic relevance of environmental and social aspects for company
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Step 1 Step 2 Step 3 Step 4
Define strategic business unit – Business strategy needs
to be defined first– Depending on company,
this BU could be the whole company, or just a small portion
– The chosen BU should have strong customer relations
Identify environmental and social exposure– Develop a catalogue of all
environmental and social aspects that could be of relevance for this BU
– Include the company’s impact on environmental and social aspects (e.g. footprint)
Identify strategic relevance of environmental and social aspects for company– Following the BSC
structure, all perspectives are being assessed top-down from the Financial Perspective based on their strategic relevance
– Leading and lagging indicators are defined for each of the perspectives
– The bottom perspective has to be the pre-requisite for achieving the upper perspective in a causal manner
Combine goals and leading indicators – Prioritize the goals and its
indicators – Identify interrelations
between perspectives– Define measurements
(timeframe, number of x) – Define measures to
achieve the prioritized goals
Source: Figge et al., 2001
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Example of goals and indicators in the Financial Perspective
Goals Leading indicators Lagging indicators
Sustainability-oriented increase of company value
– Measures to establish and maintain a corporate identity
– Number of stakeholder exchanges for improving transparency
– Reputation quotient– Regularity of positive media
exposure
Sustainability-oriented revenue growth
– Market growth of innovation through new, environmental and social solutions
– Winning new customers and market segments with sustain-
– able products
– Revenue from new, environmental and social solutions and innovations
– Revenue from new, sustainable applications of existing products
Sustainability-oriented increase in productivity and/or cost reduction
– Number of employee-oriented process simplifications
– Number of improved communication channels
– Cost of material, water and energy usage
– Increase in productivity– Average price per product – Environmental protection costs, i.e.
investment, production and operating costs
Source: Bieker/Dylik/Gminder, 2001
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Example of goals and indicators in Internal Business Perspective
Goals Leading indicators Lagging indicators
Development of sustainable products and services
– Share of product-related sustainability goals in documentation of projects
– Number of sustainable products developed with certifications
More sustainable product life cycle
– Number of products with product line analysis
– Number of product innovations reducing global footprint
– Environmental and social benefits per each value chain step
Sustainability-oriented logistics
– Distance to suppliers, customers– Share of storage of hazardous
substances
– Material, water or energy usage per product unit
Improving circulation capability of products
– Share of recyclable, reusable and disposable components of products at the end of life cycle
– Average life cycle of products – Number of products returned
Source: Bieker/Dylik/Gminder, 2001
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Example of goals and indicators in the Customer Perspective
Goals Leading indicators Lagging indicators
Developing a sustainable brand
– Measures to analyze target group– Communication campaigns for
brand improvement
– Higher willingness to pay more through sustainable brand image
– Winning new market share in customers
Increase profitability in sustainable market segment
– Share of products with environmental or social additional value
– Recruiting sustainability-aware customers
– Creating cross-selling effects– Increase in price, adopted by
customers for additional social or environmental value
Source: Bieker/Dylik/Gminder, 2001
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Example of goals & indicators in Innovation &Learning perspective Goals Leading indicators Lagging indicators
Building internal competencies for implementing environmental and social efficiency
– Operational excellence– Technology compentecies– Motivation of employees
– Number of ideas suggested focusing on environmental and social efficiency
Develop operational excellence in environmental and social efficiency
– Share of employees trained in environmental and social efficiency
– Number of employees with applicable software tools
– Share of employees suggesting steps for increasing environmental and social efficiency
Develop technology competencies in environmental and social efficiency
– Share of business units researching further measures for environmental and social efficiency
– Share of business units with technological know-how to increase efficiency
Creating a sustainability-friendly organization culture
– Share of employees appreciating strong engagement in environmental and social activities by top management
– Number of employees sharing the same vision and moving forward
Source: Bieker/Dylik/Gminder, 2001
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Company example: Rent a plant (Planting power)
Source: Wirtenberg, Kelley, Lipsky, Russel, 2018
Financial
Environmental Social
Reduce fuel costsReduce postage costs
Increased sales form improved reputationTraining budget
Internal Business Processes
Environmental Social
Reduce CO2 emissionsReduce paper consumptionReduce gas consumptionSeparating waste
Reduce employee absenceIncrease participation of employees
Customer
Environmental Social
Shorter lines of communicationIncrease the number of “green” products
Customer satisfaction training for employeesIncrease customer participation
Learning and Growth
Environmental Social
Make suppliers more sustainableReduce number of complaints from stakeholders
Workforce diversityNumber of employees with disabilities
Vision and Strategy
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Strategic core aspects
Strategic core aspects
Strategic core aspects
Learning and development
Internal Process
Customers
FinanceExemplary strategy map based on a Sustainable Balanced Scorecard
Source: Falle, Rauter, Engert, Baumgartner, 2016
Securing the company’s independence
Operating loss Turnover of returnable products
Turnover of returnable products
Cost reduction and cost efficiency Value creating investment
Increased market share
Customer satisfactionCustomer profitability New-customer winning
Delivery quality and reliability
Presentation to outside image and reputation
Reduction of production costs
Increase of process efficiency and
environmental performanceProduct and process
innovation
Product quality and product security
Provision of sustainable products
Role as steady employer attracting and keeping the best
Employee satisfaction
Team spirit and collaboration Employee qualification Identification with the
corporate visionUse of electronic
information systems
Performance drivers
Performance drivers
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References for further reading
1. Martínez-Perales, S.; Ortiz-Marcos, I.; Juan Ruiz, J.; Lázaro, F. Using Certification as a Tool to Develop Sustainability in Project Management. Sustainability 2018.
2. Duman, M.; Taskaynatan,M.; Kongar, E.; Rosentrater, A. Integrating Environmental and Social Sustainability into Performance Evaluation: A Balanced Scorecard-Based Grey-DANP Approach for the Food Industry. Front. Nutr. 2018.
3. Bell, S.; Morse, S. Sustainability Indicators Past and Present: What Next? Sustainability 2018.4. Rajnoha, R.; Lesníková, P.; Krajˇcík, V. Influence of business performance measurement systems and corporate sustainability concept
to overall business performance: Save the planet and keep your performance. E + M Ekon. Manag. 2017. 5. Falle, S.; Rauter, R.; Engert, S.; Baumgartner, R. Sustainability Management with the Sustainability Balanced Scorecard in SMEs:
Findings from an Austrian Case Study. Sustainability 2016.6. Hristov, I.; Chirico, A.; Appolloni, A. Sustainability Value Creation, Survival, and Growth of the Company: A Critical Perspective in the
Sustainability Balanced Scorecard (SBSC). Sustainability 2019.7. Hristov, I.; Chirico, A. The Role of Sustainability Key Performance Indicators (KPIs) in Implementing Sustainable
Strategies. Sustainability 2019.8. Elkington, J. Cannibals with Forks: The Triple Bottom Line of 21st Century Business; Capstone: Oxford, UK, 1997.9. Graedel, T.E.; Allenby, B.R. Industrial sustainability: Challenges, Perspectives, Actions, 2013. 10. Chaudhary, A.; Gustafson, D.; Mathys, A. Multi-indicator sustainability assessment of global food systems. Nat. Commun. 2018.11. Vivas, R.; Sant’anna, Â.; Esquerre, K.; Freires, F. Measuring Sustainability Performance with Multi Criteria Model: A Case Study.
Sustainability 2019. 12. Fechete, F.; Nedelcu, A. Performance Management Assessment Model for Sustainable Development. Sustainability 2019. 13. Psarras, A.; Anagnostopoulos, T.; Tsotsolas, N.; Salmon, I.; Vryzidis, L. Applying the Balanced Scorecard and Predictive Analytics in
the Administration of a European Funding Program. Adm. Sci. 2020. 14. Godina, R.; Ribeiro, I.; Matos, F.; T. Ferreira, B.; Carvalho, H.; Peças, P. Impact Assessment of Additive Manufacturing on Sustainable
Business Models in Industry 4.0 Context. Sustainability 2020.15. Chen, N.; Yang, X.; Shadbolt, N. The Balanced Scorecard as a Tool Evaluating the Sustainable Performance of Chinese Emerging
Family Farms—Evidence from Jilin Province in China. Sustainability 2020.16. Andrade Arteaga, C.; Rodríguez-Rodríguez, R.; Alfaro-Saiz, J.-J.; Verdecho, M.-J. An ANP-Balanced Scorecard Methodology to
Quantify the Impact of TQM Elements on Organisational Strategic Sustainable Development: Application to an Oil Firm. Sustainability 2020.
17. Silva, R.; Oliveira, C. The Influence of Innovation in Tangible and Intangible Resource Allocation: A Qualitative Multi Case Study. Sustainability 2020.
18. Dudic, Z.; Dudic, B.; Gregus, M.; Novackova, D.; Djakovic, I. The Innovativeness and Usage of the Balanced Scorecard Model inSMEs. Sustainability 2020.
19. Wirtenberg, J., Kelley, M. L., Lipsky, D., & Russell, G. W. (2018). The Sustainable Enterprise Fieldbook: Building New Bridges, (2nd ed.). Routledge, 2018.
Non-exhaustive
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