management metrics

Last Updated: 01/19/01Copyright 2002 by Marketspace LLC

Management Metrics

“If you can’t measure it, you can’t manage it”

Fred Smith, Founder & CEO

FedEx


Purposes of Metrics

Clarify strategic prioritiesSpecify value proposition

Outline specific goalsObtain employee buy-in

Receive feedbackModify tactics

Link to performance appraisal systemTie individual performance to metrics for the company, the

team and the individual.

Harmonize individual objectives, departmental goals and companywide strategy.

Define Business ModelDefine Business Model

Communicate StrategyCommunicate Strategy

Align ObjectivesAlign Objectives

Track PerformanceTrack Performance

Increase AccountabilityIncrease Accountability

Managers can use metrics to evaluate a business’s progress in the following areas:Examples


Challenges to Specifying Metrics for Online Businesses

Companies’ strategies change rapidly.

Online measurement is resource intensive.– Development of systems to capture data can require significant

capital investment and human resources.– Data mining is often needed to make data usable.– The amount of Information generated can overwhelm managers.

Online metrics are still evolving.– There is little agreement on which measures are appropriate.– Some metrics are ambiguous (e.g., amount of time spent at site).– Data capture is subject to manipulation.

“Hard” measures are needed for investment community, but “soft” measures are often the best early indicators of site performance.

Some reasons why many online businesses do not take a systematic approach to developing and applying metrics:


“A firm can be profitable, yet strategically bankrupt….”

Michael Porter


The Balanced-Scorecard Strategy In Operational Terms

Financial

To succeed financially, how should we appear to our

shareholders?

Internal Business Process

To satisfy our shareholders and customers, what businesses

must we excel at?

Customer

To achieve our vision, how should we appear to our

customers?

Learning and Growth

To achieve our vision, how will we sustain our ability to change

and improve?

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.

The “Balanced Scorecard” was developed in response to managers’ tendency to focus too heavily on short-term financial performance.


The Balanced Scorecard – Typical Measures

Internal Business Process

Innovation: perceived innovativeness, percent of sales from new products. Operations:

order processing, cycle time, delivery time, number of errors.

Post-sale service: returns, warranty processing, response

time, payment processing.

Customer

Market share, customer acquisition, customer satisfaction, customer

profitability.

Learning and Growth

Employee: selection, training, retention, satisfaction.

Information systems: timeliness, accuracy, data utility.

Motivation: personal and company goal alignment.

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.

Financial

Revenue, revenue growth, gross margins, operating

income, net margin, earnings per share, cash flow.


The Performance Dashboard

FinancialMetrics

FinancialMetrics

Steps of Strategy

CustomerInterface

CustomerInterface

Branding andImplementationBranding and

Implementation

Performance Dashboard

BusinessModel

BusinessModel

Branding andImplementation

Metrics

Branding andImplementation

Metrics

CustomerInterface and

OutcomeMetrics

CustomerInterface and

OutcomeMetrics

BusinessModel Metrics

BusinessModel Metrics

EvaluationEvaluation


Introducing the Performance Dashboard

FinancialFinancial

Steps of Strategy:

Customer Interface

Customer Interface

Implementation and Branding


Performance Dashboard:

Areas Addressed:

Size of market opportunity

Attractiveness of target segments

Competitive landscape

Customer acquisition

Changes in customer behavior

Site experience and usability

Branding

Technology infrastructure

Internal organization

Relationship with suppliers and partners

Fulfillment capability

Revenue

Profit

Cost

Balance sheet


Implementation and Branding CustomerCustomerBusiness ModelBusiness Model

Business ModelBusiness Model

Uniqueness of value proposition

Attractiveness of offering

Firm capabilities relative to competition

Sustainability of competitive position

EvaluationEvaluation


Blueprint to the Performance Dashboard

Step One: Articulate Business Strategy

Step One: Articulate Business Strategy

Step Two: Translate

Strategy Into Desired

Outcomes

Step Two: Translate

Strategy Into Desired

Outcomes

Step Three: Devise Metrics

Step Three: Devise Metrics

Step Four: Link Metrics to Leading

and Lagging Indicators

Step Four: Link Metrics to Leading

and Lagging Indicators

Step Five: Calculate

Current and Target

Performance

Step Five: Calculate

Current and Target

Performance

Def

ine

goal

s an

d va

lue

prop

ositi

onD

efin

e go

als

and

valu

e pr

opos

ition

Market Opportunity•Opportunity size?•Competitive environment?

Market Opportunity•Opportunity size?•Competitive environment?

Customer•How to acquire customers?•How will customers change?•The customer experience?

Customer•How to acquire customers?•How will customers change?•The customer experience?


•How to develop brand?•How to go to market?


•How to develop brand?•How to go to market?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

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•Purchase/year•Success rate•Service requests/customer

Customer•Market share•Purchase/year•Success rate•Service requests/customer

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders

Financial•Revenue•Profit•Earnings per share•Debt to equity ratio

Financial•Revenue•Profit•Earnings per share•Debt to equity ratio

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs. competition

Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs. competition


Charles Schwab -- Customer Acquisition StageStep 1: Articulate the Business Strategy

“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

Schwab Learning Center Live Events Principles of Investing Understanding Market

Cycles “Did You Know” Q&A

Schwab Signature Services

Schwab AdvisorSource Options Service Global Investing

Service

Online Chat with Customer Service Representatives

Customer Service via Phone Customer Service via E-mail Customer Service at Branch My Watch List

Margin Loans Money Transfers Automatic

Investing Options Service After Hours

Trading Account

Protection Bill Payment

Overall General Goal

Planner Investor Profile Sample

Investment Plans

Retirement Retirement

Planner IRA Analyzer

Product Offering

Online Investment Process

Get Educated About

Investing

Plan investments

Decide on Investment

Perform Investment

Post Investment Support

Perform Research

Estate Estate Tax and

Probate Calculator Alternatives

ComparisonCollege College PlannerTax Tax Strategies IRS Withholding

Calculator

Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource

ServicesCDs and Money Markets SchwabOne

Annuities Schwab Select

AnnuityLife Insurance Insurance Needs

Calculator

1. Value Proposition

1. Value Proposition

2. Marketspace Offering

2. Marketspace Offering

High-quality Investment Information

High-quality Investment Information

Innovative productsInnovative products

Low priceLow price

Technology LeadershipTechnology Leadership

Superior serviceSuperior service

3. Resource System

3. Resource System


Schwab Desired Outcome Summary

Martket Opportunity

•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment

Business Model

•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition

Customer Interface and Outcomes

•Lower Customer Acquisition Costs•Transition Customer Base•Outperform Competition on Interface Perceptions

•Customer Satisfaction and Loyalty


•Brand Associations vs. Competition•Best-in-Class IT Infrastructure•Ability to Deliver Brand Promise

Financial Evaluation

•Revenue•Profit•Cost•Balance Sheet

BusinessModel

BusinessModel


Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$

Revenue growth 24% 10%

Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate

Revenue breakdownTrading 62%Non-Trading 38%

Trading 59%Non-Trading 41%

An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues

Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume

Average fee per trade 64.27$ $51.41

1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%

Profit

Post tax proft margin 19.50% 19.50%

Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs

Pre tax profit growth 14% 10%Profit breakdown

Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution

Earnings per share growth 14% 8%Non-Traditional Metrics * 13-Mar-00

Advice and Market Info 9.29Customer Service 9.84Features 8.83Transacting 10.81Usability 9.75Value 11.44Overall 59.95

*Source: Nicole Tempest and Warren McFarlan, Charles Schwab Corporation (B). Case no. 9-300-507,

Harvard Business School Publishing, September 13, 1999

Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics


POV: Bill Gurley on the Power of Conversion Rates

Conversion Rate 2% 4% 8%

Advertising spend 10,000$ 10,000$ 10,000$

Visitors 5000 5000 5000

Transactions 100 200 400

Cost per transaction 100$ 50$ 25$

Revenue 10,000$ 20,000$ 40,000$

Marketing/revenue (%) 100% 50% 25%

Average transaction size = $100

Source: J. William Gurley, “The Most Powerful Metric of All,” CNET News.com, 21 February 2000.

A website’s conversion rate is a key metric of performance. Small increases in customer conversion can significantly impact marketing costs per transaction.


Information Sources for MetricsData collected internally are important, but external data are also useful for benchmarking and performance tracking:

Data Type Sample Measures Sample Sources

Market research Site usability

Customer satisfaction

Site traffic

BizRate.com

Jupiter Media Metrix

AC Nielsen

Analyst reports Industry trends

Company or site ratings

Forrester

Aberdeen Group

Frost and Sullivan

IDC

Financial information Company profiles

Financials

Industry and market comparative data

Hoover’s Online

Edgar Online

DLJ Direct

SEC filings


US Top 25 Web and Digital Media Properties

Source: Media Metrix press release, 31 March 2000.

The number of unique visitors to a site is a key metric for the customer interface.Rank Digital Media/Web Unique Visitors

(000) 1 AOL Network 59,858 2 Yahoo Sites 48,336 3 Microsoft Sites 46,581 4 Lycos 32,899 5 Excite @ Home 28,571 6 Go Network 23,006 7 NBC Internet 17,169 8 Amazon 15,217 9 Time Warner Online 13,636 10 Real.com Network 13,482 11 Go2Net Network 13,041 12 AltaVista Network 12,557 13 About.com Sites 12,329 14 Ask Jeeves 12,269 15 eBay 11,155 16 LookSmart 10,557 17 ZDNet Sites 10,226 18 CNET Networks 10,023 19 eUniverse Network 9,198 20 JUNO/JUNO.COM 9,177 21 EarthLink 8,526 22 Infospace Impressions 8,305 23 Viacom Online 8,139 24 FortuneCity Network 7,809 25 CitySearch-TicketMaster

Online 7,689


Market Research Source — BizRate.comBizRate asks consumers to rate the performance of an online store.

“Ten dimensions of service”


Analyst Source — ForresterForrester ratings are based on expert reviews and customer surveys.


Financial Information Source — Hoovers OnlineHoover’s Online provides industry information and profiles of individual companies.

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