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8-1
Chapter 8
MetricsMetrics
McGraw-Hill/Irwin Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
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8-2Why Senior Managers ShouldWhy Senior Managers ShouldBe Concerned About MetricsBe Concerned About Metrics
Five ways in whichmetrics can have apositive effect on thegrowth and vitality of the organization:1. Help define the
Business Model.2. Help communicate
strategy.
3. Help trackPerformance.4. Help increase
accountability.5. Help Align Objectives.
Reasons why somefirms have not madean explicit commitment to metrics:1. Companies strategies
change rapidly.2. Measurement is
Resource Intensive.3. Soft Metrics are not
valued by theinvestment community.4. Meaningful metrics
change on Internettime.
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8-3Assessing the Health of Online FirmsAssessing the Health of Online Firms
The Balanced Scorecard:
Introduced by Kaplan and Norton in response totheir perception that managers overwhelminglyfocus on short term financial performance.
They argued that firms must balance their financial perspective by analyzing other domainsof the business,including internal businessprocesses and customer responses.
They introduced 4 categories of metrics:Financial, Customer, Internal Business Systems,and Learning and Growth.
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8-4Exhibit 8-1: The Balanced Scorecard Exhibit 8-1: The Balanced Scorecard Strategy Into Operational TermsStrategy Into Operational Terms
FINANCIALTo succeed financially, how
should we appear to our shareholders?
INTERNAL BUSINESSPROCESS
To satisfy our shareholders andcustomers, what businesses
must we excel at?
CUSTOMERTo succeed financially, how
should we appear to our shareholders?
LEARNING AND GROWTH
To succeed financially, howshould we appear to our
shareholders?
Visionand
Strategy
Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review 74 (January-February, 1996): 76.
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8-5Assessing the Health of Online Firms (contd)Assessing the Health of Online Firms (contd)
Financial Metrics: They are designed to assessthe financial performance of the company. Typical financial measures include revenue, revenue
growth, gross margins, operating income, net margin,
earnings per share and cash flow. Customer Metrics: Customer metrics are
intended to assess the management of customer relationships by the firm. These measures typically focus on a set of core
measurements, including market share, customer acquisition, satisfaction, and customer profitability.
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8-6Assessing the Health of Online Firms (contd)Assessing the Health of Online Firms (contd)
Internal Business Process Metrics: These focus onoperations inside the company. Kaplan and Norton dividedthem into three groups: Innovation Operations
Post-sale service Learning and Growth Metrics: These broadly cover
employee, information systems, and motivation metrics. Limitations of the Balanced Scorecard
No clear definition of strategy or business models. Unclear location of organizational capabilities or resources in the
framework. Unclear where partnerships reside in the framework.
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8-7The Performance DashboardThe Performance Dashboard
Strategy
Me t ric s
MarketOpportunity
Business
Model
Customer Branding
andMarketing
MarketOpportunity
Business Model Branding andMarketing
Implementation Customer
Implementation
Exhibit 8-2:Exhibit 8-2:
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8-8The Performance DashboardThe Performance Dashboard
The Performance Dashboard is intended toreflect the health of a business.o We first address the limitations of the Balanced
Scorecard through features of the PerformanceDashboard.
The Strategy Framework drives the necessarymetrics.
o Resources are featured in the resource system of the business model.o Partnerships are featured in the resource system of
the business model.
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8-95 Components of the Performance Dashboard5 Components of the Performance Dashboard
The Performance Dashboard is composed :1. Market opportunity metrics assess the degree
to which the firm can accurately gauge the marketopportunity.- Generic indicators include the ability of the firm to
include the most attractive segments, the ability of thefirm to understand and map the competitors strategyevolution and the ability of the firm to track the evolutionof target segment needs.
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8-105 Components of the Performance Dashboard5 Components of the Performance Dashboard(contd):(contd):
2. Business model metrics capture the subcomponents of
the business model: the value proposition, egg diagram,resource system, and financial metrics. Value proposition or Cluster Benefits: The value proposition is
composed of three parts: target segment, benefits offered, andcapabilities that drive the benefits.
Metrics for this assessment would focus on customer perceptions of the benefits that a given site offers relative to competitors .
Online Offering Metrics: Metrics should reflect the entiredecision process from pre- purchase to post purchase.
Offering metrics focus more on the nuts-and-bolts features, attributesand functionality of the site.
Resource System Metrics: The resource system is based onthe benefits offered to consumers. From these benefits, the firmwould analyze the capabilities that are necessary to supply thebenefits.
Financial Metrics: Captures the revenues, costs, profits, andbalance-sheet metrics of the firm
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3. Marketing and Branding Metrics- Marketing and Branding Metrics: These focus on
marketing communications and brandingeffectiveness.
4. Implementation Metrics- Implementation Metrics: These focus on theeffectiveness of a companys human resourcesprogram as well as its processes, organizationalstructure, systems (including information, incentives,and rewards), coordination mechanisms, culture andmanagement style, and technology systems.
Components of the PerformanceComponents of the PerformanceDashboard (contd)Dashboard (contd)
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5. Customer Metrics Customer Interface Metrics: Measures thecustomers experience with the technologyinterface; that is, the customers response to the
7Cs of the interface. Customer Outcome Metrics: This captures outputmetrics such as overall costs of satisfaction,average order size, and customer profitability.
Components of the PerformanceComponents of the PerformanceDashboard (contd)Dashboard (contd)
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8-13Implementing the Performance DashboardImplementing the Performance Dashboard
Step One: Articulate Business Strategy
Step Two: Translate the Strategy into DesiredOutcomes
Step Three: Choose Metrics Step Four: Link Metrics to Leading and Lagging
Indicators
Step Five: Calculate Current and targetPerformance
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8-14Exhibit 8-4: Blueprint for the PerformanceExhibit 8-4: Blueprint for the PerformanceDashboardDashboard
Step One:Articulatebusinessstrategy
Step One:Articulate
businessstrategy
Step Two:Translate
strategy intodesired
outcomes
Step Two:Translate
strategy intodesired
outcomes
Step Three:Choosemetrics
Step Three:Choose
metrics
Step Four:Link metrics
to leading andlagging
indicators
Step Four:Link metrics
to leading andlagging
indicators
Step Five:Calculate
current andtarget
performance
Step Five:Calculate
current andtarget
performance
De fine g o a ls a nd va lu e p ro p o s it io n
De fine g o a ls a nd va lu e p ro p o s it io n
Market Opportunity Opportunity size? Competitive environment?
Market Opportunity Opportunity size? Competitive environment?
Customer How to acquire customers? How will customers change? What is customer
experience?
Customer How to acquire customers? How will customers change? What is customer
experience?
Marketing How to develop brand?
Marketing How to develop brand?
Implementation How to go to market?
Implementation How to go to market?
Market Opportunity Market size and growth Average age and income Competitor concentration
Market Opportunity Market size and growth Average age and income Competitor concentration
Customer Market share Purchases per year Success rate Service request frequency
Customer Market share Purchases per year Success rate
Service request frequency
Marketing Customer brand awareness
Marketing Customer brand awareness
Implementation System uptime percentage Number of IT staff Percent of inaccurate
orders
Implementation System uptime percentage Number of IT staff Percent of inaccurate
orders
For each metric,determine the metricsthat it affects and thataffect it
Map the linked set of metrics, indicatingleading and laggingindicators
Ensure that there is abalance betweenleading and laggingindicators
For each metric,determine the metricsthat it affects and thataffect it
Map the linked set of metrics, indicatingleading and laggingindicators
Ensure that there is abalance betweenleading and laggingindicators
De ve lo p re s o u rc e s y s t e m re q
u ire d t o d e live r t he s t ra t e g y
De ve lo p re s o u rc e s y s t e m re
q u ire d t o d e live r t he s t ra t e g y
For each metric,calculate current levelof performance
Determine targetlevel required to meetoutcomes describedin Step Two
Ensure that targetsare consistent
For each metric,calculate current levelof performance
Determine targetlevel required to meetoutcomes describedin Step Two
Ensure that targetsare consistent
Business Model Unique value proposition? Capabilities vs. competition?
Business Model Unique value proposition? Capabilities vs. competition?
Business Model Customer-perceived benefits Exclusive partnerships More invested in technology
vs. competition
Business Model Customer-perceived benefits Exclusive partnerships More invested in technology
vs. competition