performance improvement consultancy

Performance Improvement Consultancy

Arriffin Mansor

Contents :

1. Corporate Performance Scorecard

2. Strategy Map Framework

3. Four Perspectives in Balanced Scorecard

4. Identifying Key Performance Indicators

5. Strategy Map in Corporate Functions (HR, IT, Finance and Marketing)

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3

Performance management

Targets

Key Result Areas

Objectives

Key Perform

ance Indicato

rs

Rewards

Standards

Variance Analysis

Training Need

Analysis

Appraisals

Cost Efficiency

Long-term Shareholder Value

Revenue Growth

Price Availability BrandServiceQuality

Operations Management

Processes

Human Capital

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Organization Capital Information Capital

Strategy Map Framework

Financial

Customer

Internal Process

Learning & Growth

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Financial Perspective

• In private companies, the financial perspective is the main objective (ultimate goal) – without having to sacrifice the interests of other relevant stakeholders (community, environment, government, etc.)

• In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.

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Improve ROE

Improve Gearing

Improve Cost Structure

Increase Asset Utilization

Increase ROA

Strategic Objectives in Financial

Expand Revenue Opportunities

Enhance Customer Value

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Rent Lease fixed assets

Buy assets on loans

Sell on cash buy on credit

Customer Perspective

• This perspective is very instrumental, because without customers, how can a company survive?

• Customer perspective covers the following elements:• Customer acquisition • Customer retention• Customer profitability • Market share• Customer satisfaction

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Price Availability BrandServiceQuality

Customer Acquisition

Customer Satisfaction

Customer Retention Customer Profitability

Market Share

Strategic Objectives in Customer

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Performance Management Framework

IdentifyingDefining

MeasuringMonitoring Reporting

Key Performance Indicators

Company strategy

VisionMissionStrategy

Strategy Map

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Agenda today

• What are the critical performance gaps?• Comparing actuals against industry and

company standards• Analyse staff incompetencies.• Analyse competency gaps using perspectives

and key result areas.• Analyse for true competency gaps

Corporate Objectives

ROEROAROS

Performance Gap analysis

Actuals Standards Gaps

Internal Process Perspective

• This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.

• There are four main themes in this perspective, namely:

• Operations Management Process

• Customer Management Process

• Innovation Process

• Regulatory and Social Process

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Operations Management

Processes

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Processes that produce and deliver

products and services

Processes that enhance customer

value

Processes that create new products and

services

Processes that improve communities and the environment

• Supply• Production• Distribution

• Selection• Acquisition• Retention• Growth

• New Ideas• R&D Portfolio• Design/ Develop• Launch

• Environment• Safety & Health• Employment• Community

Strategic Objectives in Internal Process

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Learning & Growth Perspective

• This perspective reflects the capability that a company should have, namely:

• Human Capital

• Organization Capital

• Information Capital

• This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance.

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• The measure of success must show clear, specific and

measurable performance indicators.

• The measure of success should be declared explicitly and in

detail so that it is clear what is being measured.

• Costs to identify and monitor the measure of success should

not exceed the value that will be known from the measurement.

Guidelines in Formulating the KPI

KPI Guidelines

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Relevant to the Strategic Objective

Does KPI have a linkage with the strategic objectives?

Controllable Are the KPI achievements still under control?

Actionable Can any action be taken to improve the performance?

Simple Is the KPI easy to explain?

Credible Is the KPI not easy to manipulate?

KPI Guidelines

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Layers of Measurement

Historical Measures

Enterprise Database • Applications

• Projects• Employees• Client

Performance Management

Process

Senior Management

Project A Project B Project C

Measurement Repository

Process Measures

Project/Product Data

Program OfficeGoals & Objectives

Project

Product

Enterprise

Process Management (QP)

Improve

Control

Define MeasureExecuteProcess

. .

Product X Product Y

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Common Misuse of Performance Measurement?

• Behavior is influenced by measures– “You get what you measure because that is what you reveal

as what you think is important.” (Sink and Tuttle, 1989)• But, are we measuring the right things?

– How do we know the measure accurately reflects system performance?

– How do we know that the measure is under the control of those it’s attributed to?

– Are we measuring to control or to improve, or both?

A good KPI system are measures

• At outcome level - performance level– Corporate Level

• At output level - Production level• At process level – efficiency and productivity

measures – Sales & Production

• At input level - alternative labour, material and overhead choices

KPI Family Dimension

Productivity Measures employee output (units/ transactions/ dollars), the uptime levels and how employees use their time (sales-to-assets ratio, dollar revenue from new customers, sales pipeline).

Measures the ability to meet and/or exceed the requirements and expectations of the customer (customer complaints, percent returns, DPMO -- defects per million opportunities).

Quality

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Profitability Measures the overall effectiveness of the management organization in generating profits (profit contribution by segment/customer, margin spreads).

Measures the point in time (day/week/ month) when management and employee tasks are completed (on-time delivery, percent of late orders).

Timeliness

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Cost SavingsMeasures how successfully the management organization achieves economies of scale and scope of work with its people, staff and practices to control operational and overhead costs (cost per unit, inventory turns, cost of goods).

Measures the ability of the management organization to maintain competitive economic position in the growth of the economy and industry (market share, customer acquisition/retention, account penetration).

Growth

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KPI Category Dimension

DirectThe actual raw data value as measured (e.g., sales volume).

PercentThe comparison of the changes in performance of one

value relative to the same value at a different time, geography, etc. (e.g., percentage change in sales vs. last

year).

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Simple RatioThe comparison of one value relative to another to provide a benchmark for comparison of performance

(e.g., average sales per day).

IndexA combination of several separate measures added together that result in an overall indicator of

performance (e.g., (company sales growth)/(industry sales growth) for a specific geography).

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Composite Average

The addition of the weighted averages of several similar measures that result in an overall composite indicator of

performance (e.g., customer satisfaction composite is mixture of results from surveys, focus groups and product

returns).

StatisticsMultiple measures such as mean, variance, standard

deviation and variance that capture the spread and distribution of the performance measures (e.g., sales distribution by demographics, geography, channel).

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VisionMissionStrategy

Integration between Corporate and Division/Department

CorporateScorecard

DivisionScorecard

The Division Scorecard is built by referring to the corporate scorecard

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Financial

Customer

Internal Process

Learning & Growth

Corporate Finance

Corporate Marketing

Production

Supply Chain

R & D

Corporate HR

Info Technology

Corporate and Division Scorecard

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• Division Scorecard is formulated by looking at the four perspectives in Corporate Scorecard.

• As shown in the previous slides, the learning & growth perspective provides guidelines for developing scorecard at the Human Resource and IT divisions, while the internal process perspective provides guidelines for developing scorecard at the supply chain division or R&D.

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Sample from GE Lighting Business GroupLevel of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of

satisfaction level Improve internal process employee competency

Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level ofReduce inventory levels satisfaction level Improve internal process employee competency

Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" deliveredIncrease labor productivity Reduce customer per million Number of performanceReduce inventory levels complaints per million Improve quality incoming coaching session

materialsMaintain optimum equipment speed

Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard Reduce overtime Reduce number of poor job training" attended

Increase production rates solders Number of performanceReduce number of cracked coaching session bulbs attended

The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee level.

Division Strategy Map Template

• The strategy map for HR Division, Information Technology Division, Finance Division, and Marketing Division are presented in the following slides.

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Optimize HR Efficiency

Drive Long termShareholder Value

Enhance People & Organizational Effectiveness

Achieve HR Process

Excellence

Develop Strategic & Functional HR Competencies

Build Strategic Employee Competencies

Drive Organizational

Performance

Enhance Technology for HR

Create Climate for HR Action

HR Strategy Map Template

Financial

Customer

HR Internal Process

Learning & Growth

Create Positive Work Environment

Provide Quality HR Service

Provide High Performance People

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Optimize IT Efficiency


Enhance IT Impact on Enterprise Outcome

Maintain a Reliable IT

Infrastructure

Develop Strategic & Functional IT Competencies

Develop Effective Decision Support System

Propose and Deliver Transformational Applications

Enhance IT Tools that Enhance the IT Function

Promote Customer-focused Culture

IT Strategy Map Template

Financial

Customer

IT Internal Process

Learning & Growth

Deliver Consistent, High Quality IT Service

Provide Business Units with Innovative IT Solutions

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Optimize Financial Efficiency


Enhance Finance Effectiveness onEnterprise Outcome

Achieve FinanceProcess

Excellence

Develop Strategic & Functional Finance Competencies

Develop Financial Information to

Improve Decision Making

Ensure Compliance with Regulatory Requirements

Use Technology to Improve Financial Information

Delivery

Finance Strategy Map Template

Financial

Customer

Finance Internal Process

Learning & Growth

Deliver Responsive & Efficient Finance Operations

Provide Clear & Reliable Required Disclosure

Promote Customer-focused Culture

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Optimize Marketing Efficiency


Increase Sales Revenue

Develop Innovative Marketing Communication

Program

Develop Strategic & Functional Marketing Competencies

Develop Marketing Business

Intelligence

Accelerate New Product Development

Ideas

Enhance Technology for Marketing

Foster Creative Thinking & Innovative Solutions

Marketing Strategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Create Satisfied and Loyal Customers

Enhance Brand Image

Develop Effective Customer Relation

Management

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Strategy Map Template

• The following slide displays the strategy map template comprising of four perspectives : financial, customer, internal business process, and learning & growth.

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Improve Cost Efficiency

Enhance Long-term Shareholder Value

Increase Revenue Growth

Enhance Brand Image

Build High Performance Products

Achieve Operational Excellence

Develop Strategic Competencies

Drive Demand through Customer Relation

Management

Manage Dramatic Growth through

Innovation

Implement GoodEnvironmental Policy

Build Learning Culture

Expand Capabilities with Technology

Strategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Expand Market Share

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Maximising ROE strategies

Profit

Equity

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CORPORATE PERFORMANCEROE

ROA

ROS

ATO

EM

ASSETS

EQUITY

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Maximising ROA strategies

Profit

Assets

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Working capital

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Performance RelationshipKRA

KRA

KRA

Goals

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Process

outputs

Inputs

Inputs

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Value Chain

Inputs Process Output Outcome

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Horizontal comparision

This year

Cost of Production

overheads

labour

material

Last year

Cost of Production

overheads

labour

material

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Performance management

Targets

Key Result Areas

Objectives

Key Performance

Indicators

Rewards

Standards

Variance Analysis

Training Need

Analysis

Appraisals

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Performance Metricsobjectives

Key Result Areas


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KPI is input output ratio

Outputs

Inputs

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Six Steps in Business Planning1 •Cost volume profit analysis to determine size of business

2 •Working capital from trading strategies

3 •Minimzing investment in Fixed capital

4 •Financed by Equity and Leveraging

5 •Cash flow Projection to check liquidity

6 •Constructing the Financial Statements

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PERFORMANCE METRICSObjectives & Goals

Key Result Areas


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METRICS (Continue) TARGETS

VARIANCES

EVALUATION

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Finance + Leverage

Equity

Ordinary Preference

debt

bonds Banks

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PERFORMANCE COMPARATIVE ANALYSIS

ACTUALS

TARGETS

VARIANCE ANALYSIS

VisionMission and

ValuesStrategy

Finance

Customer

Internal Business Process

HR Development




Strategic Objectives

KPI = Measurement or indicator that provides

information on how far we have succeeded in achieving

the strategic objectives

Key Performance Indicators (KPI)

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Human Capital Organization Capital Information Capital

• Skills• Knowledge• Attitude

• Systems• Database• Networks

• Culture• Leadership• Organization Development

Strategic Objectives in Learning & Growth

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Managing Performance with Balanced Scorecard

Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

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• Balances financial and non-financial measures

• Balances short and long-term measures

• Balances performance drivers (leading indicators) with outcome measures (lagging indicators)

• Leads to strategic focus and organizational alignment.

Managing Performance with Balanced Scorecard

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4 Perspectives in Balanced Scorecard

If we succeed, how will we look to our shareholders?

Financial Perspective

To achieve our vision, how must we look to our

customers?

Customer Perspective

To satisfy our customers, which processes must we excel at?

Internal Perspective

To achieve our vision, how must our organization learn and

improve?

Learning & Growth Perspective

The Strategy

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Strategy and Balanced Scorecard

Mission – Why We

Exist

Vision – What We

Want to Be

Values – What’s

Important to Us

Strategy : Our Game

Plan

Strategy Map :

Translate the Strategy

Balanced Scorecard :

Measure and Focus

Strategic Outcomes

Satisfied Shareholders

Delighted Customers

Excellent Processes

Motivated Workforce

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• The strategy map framework is presented in the following slides.

• This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth perspective.

Strategy Map Framework

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Three critical components for effective process of performance management

Performance ManagementInfrastructure

PerformanceManagement

Culture

PerformanceManagement

Process

Performance management cycle is continuous and

consistent

Culture that is based on performance accountability

Logistic support and performance management

administration

Performance Management Component

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STRATEGY

Plan and Execute

Monitor and Evaluate

Reward and Coach

Set Measures and Target

Performance Management Cycle

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Performance Gaps

Performance Gaps

Competency Gaps

Management Gaps

TechnicalGaps

Other Causes

Change

TRAINING NEED ANALYSIS

Performance Framework and Building Plans

CRITICAL PERFORMANCE GAP ANALYSIS

CEOFinance

OperationsHR

Marketing

Performance Improvement Strategies

Goals

KRA3KRA1

KRA2

COMPETENCY GAP ANALYSIS

Tools used in this consultancy

• Du Pont ROE format.• Variance analysis• Input output analysis• BSC perpectives• Key Result Areas• Calculating the improvement in KPIs• Calculating the ROI training

(c) Arriffin Mansor 012-2786282 77

Types of indicators

• Input indicators• Process Indicators• Output indicators• Outcome indicators• Impact indicators

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FINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios

No produced

Average cost per transaction

Research dev expense

Productivity ratios

Value produced

ROI

Inventory turnover

Average lead time

RETURN ON EQUITY

Waste Reduction

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MARKETINGINPUT PROCESS OUTPUT OUTCOME

Material Response rate No of customers

Labour Marketing costs % Sales volume

Overhead Efficiency ratios Customers Profitability


Productivity ratios

Product profitability

ROA marketing


Customer acquisition

Return on Sales

Inventory turnover Average lead time Customer retention

Price rel to comp Waste Reduction Revenue growth

Delivery Channel

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INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios

No produced



Productivity ratios

Value produced

ROI

Inventory turnover

Average lead time

Waste Reduction

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HRM KPIsINPUT PROCESS OUTPUT OUTCOME

Incentives variances Turnover ratio

Hours Efficiency ratios

No produced

Profit per employee

Training Productivity ratios

Value produced

ROI

Salary Average lead time

Turnover Revenue per employee

Skill competency

Waste Reduction Employee productivity

Value added per employee

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DuPont Analysis Sales COH 20051,689,429,000$

Cost of GoodsSold + Extra Taxes Net Profits

384,153,000$ After Taxes358,612,000$ Net Profit

Operating MarginIncome Expenses 21.23%

Statement 731,891,000$ NI/SALESSales Return on

Interest 1,689,429,000$ Total AssetsExpense (ROA)

13,641,000$ 26.17%NPM X TAT

Taxes201,132,000$ Sales

1,689,429,000$ Total AssetTurnover

1.23 Return onCurrent SALES/TA Equity (ROE)Assets 33.96%

709,360,000$ Total Assets ROA X FLM1,370,157,000$

Net FixedAssets & Other Stockholders'

660,797,000$ EquityBalance 1,055,920,000$ Financial

Sheet Current LeverageLiabilities Multiplier (FLM)

265,661,000$ Total 1.30Liabilities Total Liabilities TA/EQUITY

Long Term 314,237,000$ & Stockholders'Debt Equity = Total

3,270,000$ AssetsStockholders 1,370,157,000$

Other EquityLiabilities 1,055,920,000$

45,306,000$

Detailed statement of what is critical to

successfully achieving the

strategy

How success in achieving the

strategy will be measured and

tracked

Key action programs

required to achieve

objectives

The level of performance or

rate of improvement

needed

Objective Description Target

2 per setup per month each Outlet Office

InitiativeMeasure

Number of Reworks

Strategy Map

Stak

ehol

der

Inte

rnal

Pro

cess

L&G

Faster Service Access

Self Service Applications

Web Enable Technologies

Process and ValueMap Analysis

Lean Processes

Inve

stm

ents

Invest in IT

Extend the Map into Measurements, Targets and Initiatives

Lean / Six SigmaEliminate waste, reworks, and other errors in our processes

Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy.

Goal Objective Measurement Target Initiative

Achieve Agency operational efficiencies with best practices in the private sector

Reduce Operational Service Costs by 50% over the next 5 years

Cost per Outlet Office, Cost per Region, Cost per FTE

5% - Year 110% - Year 215% - Year 3

Activity Based Costing / Management

Reduce identified re-activities within primary processes by 80% over the next 3 years

Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions)

Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%

Lean / Six Sigma

Alignment of Scorecard Components

© Arriffin 200985

Steps in calculating ROA for employees

1. Draw an income statement fo each employee2. Identify assets employed to each employee.

(Assets allocated to the employee)3. ROA determine the viability of each job but not the

fairness of the job pay.4. Use return on pay (ROP) to compare the performance

of each employee with relation to their salary or compensation plan.

5. Profits / Sales x Sales / pay = ROP

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Questions & Answers

performance improvement consultancy

Business

key performance indicators5

strategic objectives

critical performance

strategic goal

key business

strategy map framework3

true competency gaps

cost structuresell