Agenda - Arkonas.comarkonas.com/wp-content/uploads/2014/11/Performance... · More fact-based...

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© 1998 Arthur Andersen. All rights reserved. 304 - 1

Agenda

Performance Management Concepts and Definition Why use Performance Management Benefits Success Factors The PM Cycle

How does ABCM support PerformanceManagement?

Case StudyWrap Up

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An enterprise-wide management system Aligns operations with strategy Ensures consistency Enables deployment of rapid directional

changesAn ongoing process

Focuses priorities and results Integrates measurement, analysis and action Encourages continuous improvement Defines and reinforces accountability

Performance Management (PM) is...

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PM Concepts

KPI - Key Performance Indicator Scorecard - Report displaying all KPIs

owned by an executive, manager, or team Targets - Short-term and long-term KPI

goals Status Level of KPI performance incomparison to the short-term target

Trend - Performance of a KPI incomparison to the prior period

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PM Concepts

Balanced Scorecard Shows all of the balanced measures for a KPI owner

KPI Trend Graphs Graphically displays the performance of a specific KPI over

timeAlerts

Exception reporting to inform of high and critical performancewithin a span of responsibility

Knowledge Integration Tracks explanations and actions taken for critical and high

performing KPIs, creating organizational memory and helpingto establish internal best practices

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Why Use Performance Measures?

Focus efforts Provide direction towards increasing

shareholder value Monitor progress Benchmark against others Catalyze change

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Seven Sins Of TraditionalPerformance Measures

Output only Short-term Lack of integration Historical Isolated and remote Too complex Not connected to the customer

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A company that consistently satisfies its customers’ needs andmakes a profit doing so, will be well positioned to withstandcompetitive pressures…

Performance Goals and MeasuresPerformance Goals and Measures

ProfitabilityProfitability CustomerSatisfactionCustomer

SatisfactionGoals

CriticalSuccessFactors

CostEffectiveness

CostEffectiveness

ShareholderValue

ShareholderValue

TimelinessTimelinessQualityProcessesQuality

Processes

Results

Providing Value to YourCustomers at a Profit…

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The Power Of Change

Create anOrganization

Conducive to Change

Implement &Measure the

Changes

Design theChanges

Create aPlatform

for Change

“What Get’s Measured Gets Done”

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What Good Is Running If You’reon the Wrong Road?

Every morning in Africaa zebra and a lion wakeup and run all day. Theonly difference is that oneis running for his lunchand the other is runningfor his life.

Be The Lion

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Satisfying Customers (internal & external) - performancemeasures focus everyone on a company’s most importantmission: customer satisfaction.

Monitoring Progress - the right performance measures makeprocess improvement not just possible but continuous.

Benchmarking Processes and Activities - performancemeasures provide the information needed to focus on thebest processes and allow comparisons between companies.

Driving Change - the right performance measures helporganizations change successfully, because the rightperformance breaks down barriers and, in many cases,prevents barriers.

The Benefits of PM are...

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Industry leadership and steady financial gains Measurable improvement in customer satisfaction Major increase in employee morale/satisfaction Greater understanding of vision, values, and

goals Greater understanding of individual role and

impact Increased emphasis on innovation and revenues

from new products More fact-based decision making Increased competitor awareness/understanding Ability to manage vs. react to change Enhanced accountability for results

AT&TBristol-Myers Squibb

DeltaDun & Bradstreet

DuPontEmerson ElectricGeneral Electric

GilletteHewlett-Packard

Johnson & JohnsonMerck

MotorolaPepsiCo

Phillip MorrisReader’s Digest

Wal-MartXerox

The Benefits of PM are...

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PM Key Success Factors

Strong leadership Utilization Communication Approach

Comprehensively defined performancemanagement program/architecture

Dedicated implementation resources Inclusion of employees (buy-in and

acceptance)

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PM Summary

Balance output and process measures Support continuous improvement Help anticipate and prevent problems Monitor the critical steps in a process Change as the company’s strategy changes Rely on cross-functional teams Consist of family of measures

Effective performance measurement systems:

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PM OverviewThere are three critical components of a successfulPerformance Management program:

An integrated,continuous cyclerather than a one-time event

A culture ofresponsibility,authority, andaccountability

Alignment ofpeople,processes andtechnologywith strategyand the PMprogram

PerformanceManagement

Cycle

PerformanceManagement

Culture

PerformanceManagementInfrastructure

People

Processes

Technology

Winning SupportStructure

PerformanceManagementCycle/Culture

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The PM Cycle

SetPerformance

Targets

IdentifyPerformance

Barriers

OvercomePerformance

Barriers

Monitorand

Evaluate

Rewardand

Coach

DevelopStrategy

How do we set the direction ?

Are weencouraging

the rightbehavior?

How muchprogress arewe making?

What isgetting inour way?

What do we want to achieve ?

What arethe requiredactions tobe taken?

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STRATEGY ARTICULATION MAP: THE BEATLES

Market Differentiators

StrategicObjectives

CriticalProcesses

Band ofIndividuals:

The “Fab Four”

Hold sell-outconcerts in bigvenues

Exploit all media--especially TV

Sell morerecords than

Elvis

Improve marketingof the band

withoutconstraining their

spontaneity

100 % sell-outconcerts

Obtain accessand visibilityfor the band

Songwriting Marketing StagePerformance

Promotion

DriversTo develop a band“bigger than Elvis”

•Always be polite•Be available to the

media•No swearing•No marriage

To develop and promote a band with an“identifiable” image, broad based personalappeal and acceptability to the executives,producers, and promoters who controlaccess to the music industry’s channels ofdistribution

Vision Mission Values

Release more thanone single at a time

The PM Cycle

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Key Performance Indicator Development Process

Purpose and directionCommunicateStrategy

AlignCustomer Needs

The individuals, groups, ororganizations that receive

products or services

DevelopObjectives

Statement of what is to beachieved to meet customer

needs

DefineCritical Processes

Activities that directly impactthe achievement of objectives

A quantifiable measureestablished to communicateand monitor desired results

Develop KPIsand KPI Targets

The PM Cycle

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Key Performance Indicator Characteristics:

Linked to objectives Controllable Actionable Simple Credible Integrated Measurable

The PM Cycle

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Targets Need to be Balanced

Target Aggressiveness Target Achievability

“Would I beproud of this

level ofperformance”?

“Would I betmoney on the

outcome”?

The PM Cycle

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Identify Performance Barriers

Resource Limitations

Processes

Structure

Communications

Technology Capital Constraints

Cooperation between Divisions

Skills

Culture

The PM Cycle

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Overcome Performance Barriers

ReengineerBusinessProcesses

EnhanceTechnology

IncreasePeopleSkills

RedeployResources

AdjustOrganization

Structure

The PM Cycle

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Monitor and Evaluate Performance

Continuouslytrack actualperformanceProactively

manage futureperformanceTake

correctiveactionCelebrate

success

Continuouslytrack actualperformanceProactively

manage futureperformanceTake

correctiveactionCelebrate

success

The PM Cycle

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Monitor and Evaluate PerformanceThe PM Cycle

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Reward and Coach

Evaluate performance and reward/coach to ensureaccountability and reinforce desired performance.

Compensation

Compensation

Performance

PERFORMANCE

The PM Cycle

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Future State ReportingOverview

Executive InformationSystem

On-line access; GUI

Ad-Hoc Analysis:

Decision Support

Exceptions, etc.

Timely, Integrated Outputs

Management Reporting:

Product Profit

AOP Reporting

Performance Measures

External Reporting:

10-K, 10Q etc.

Transaction

Systems

LegacySystem

Essbase

Global Reporting System“Data Mart”

OROSABC

Essbase

Essbase

Staging Platform

PerformanceReporting

Statutory Reporting

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The PM Culture

KPIsBudgetsandControls

Levelof

Empowerment

Accountability Tools

KPIs providethe

foundationfor

accountabilityversus budget

line items

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Effective performance management requires supportfrom an integrated technology infrastructure thatprovides: An accurate picture of the organization’s performance Ability to analyze to the real causes of performance problems

and successes Easy access to appropriate information

The PM InfrastructureTechnology

Visibility

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Tools for Measuring FinancialPerformance

Cost is a fundamentalcomponent of performancemeasurement

Effective performancemeasures are based onbusiness processes

Traditional financialmeasures do not report onbusiness processes

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The PM Infrastructure

Process

Service Delivery

Procurement

Product Development

MeasuresDetermined Solely

by Process

Processes

Functional

MeasuresDetermined Solely

by Function

Combination

Service Delivery

Procurement

Product Development

Measures CombineProcess and

Functional Views

DIS

TRIB

UTI

ON

FIN

AN

CE

OPE

RA

TIO

NS

F O D

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Tools for Measuring FinancialPerformance

Activity-Based CostManagement is the tool ofchoice for measuring thefinancial performance ofbusiness processes

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An Overview of How ABC Works

CostsCosts

ActivitiesActivities

ActivityDriversActivityDrivers

CostObjects

CostObjects

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Comparing Functional andProcess Views of Costs

Salaries $50,000Premises 20,000Computer 10,000Other 5,000

Total $85,000


Total $85,000

Computer Operations


Total $85,000


Total $85,000

Call Center

Salaries $50,000Premises 20,000Technology 10,000Other 5,000

Total $85,000

Salaries $50,000Premises 20,000Technology 10,000Other 5,000

Total $85,000

Invoice Preparation $ 35,000Credit/Collection 40,000Inquiries 40,000Adjustment 25,000

Total $140,000

Invoice Preparation $ 35,000Credit/Collection 40,000Inquiries 40,000Adjustment 25,000

Total $140,000

Billing Department

Billing Process

The Departmental View... The Activity-Based View...

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A factor that causes a change in the performance ofan activity and thereby affects the resourcesrequired by the activity.

Cost drivers determine the work load and effortrequired to perform an activity.

The “root causes” of costs. Activities may have more than one cost driver

associated with them. Cost drivers may be qualitative or quantitative.

Definitions of “Cost Driver”

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Performance measures throughout theorganization that link shareholder valueto the work performed in theorganization from the chairman’s desk tothe factory floor.

Value Drivers

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Aligned with corporate strategies Significant and measurable Simple to understand and use Close to operations Controlled by empowered employees Promote continuous improvement

Value Driver Characteristics

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Produce Parts

What are thesteps required

to performthis activity?

What are thesteps required

to performthis activity?

Is this a value-added activity?Is this a value-added activity?

How can Ireduce the time

required to completethis activity?

How can Ireduce the time

required to completethis activity?

What resourcescontribute to the

cost of thisactivity?

What resourcescontribute to the

cost of thisactivity?

Typical ABM Questions

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Why use ABC?

ABC Measures the Costs of Complexityand Diversity Small order quantities Low volume products Unique products Customer service demands

This allows a more accurate depiction of product,customer and channel profitability

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Linking ABM to the BalancedScorecard:

FinancialFinancial

Learningand

Growth

Learningand

Growth

InternalBusinessProcesses

InternalBusinessProcesses

CustomerCustomer

Source: Adapted from Kaplan and Norton

ABC

ABC ABMVision &Strategy

ABM

Revenue Growth and Mix Cost Reduction / Productivity

Improvement Asset Utilization / Investment

Strategy

Market Share Customer Retention Customer Acquisition Customer Satisfaction Customer Profitability

Innovation Operations Post-sale Service

Translating Strategy into Operations

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StrategyStrategy

Rewardand

Coach

Rewardand

Coach

OvercomeBarriers

OvercomeBarriers

Monitorand

Evaluate

Monitorand

Evaluate

SetTargets

SetTargets

IdentifyBarriersIdentifyBarriers

ABCMABCM

How Does ABM Work?

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Overview How Does It All FitTogether?

ABC

ABM

DollarResources

Activities

Products,Services

KPIsCostDrivers

RelevantCost

RelevantCost

ContinuousImprovementContinuous

Improvement

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Measure performance of activities

Performance Measure = An indicator of the workperformed and the results achieved in an activityor a group of activities; a measure of how well anactivity meets the needs of its customers

Example : Cost per transaction

How Does ABM Work?

ActivitiesActivitiesCost DriverCost Driver KPIsKPIs

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Linking Measurement Initiatives

KeyActivities

ResourceDrivers

BusinessProcesses

ActivityDrivers

CostObjects

ActivityCosts

CostDrivers

PerformanceMeasures

ABC

ABM

BalancedScorecard

Performance Measurement

KeyActivities

CriticalProcesses

OutputMeasures

ProcessMeasures

Cost Measurement

ArticulateStrategy

Case Study

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USAir Project Description

Lost several billion dollars in past fiveyears

Highest cost structure in the industry Disparate systems, processes, and

culture as a result of acquisition growth Increased competition from low-cost

carriers

Business Challenge

USAir has:

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Focus on becoming a High PerformingEnterprise

Reengineer the operational processesand the management process

Implementation of a comprehensive andintegrated Performance ManagementProgram is deemed critical to becominga High Performing Enterprise

Resulting Action

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February 1995 to present Conceptual Design of an Enterprise

Management Initiative Performance Management Finance Reengineering (Activity Based

Management) Human Resources Reengineering Procurement Reengineering

Well into detail design

Project Scope

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USAir Project Approach andResults

Andersen One Business Consulting

Partner; Part-time One Andersen Consulting

Associate Partner; Part-time One Business Consulting

Manager; Full-time Two Andersen Consulting

Managers; Full-time Four seniors; Full-time

USAir Three USAir IS

Managers; Full-time Four USAir Division

Controllers; Part-time Five USAir client

representatives; Part-time

Project Team

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USAir Project Approach andResults

Major Deliverables: Corporate Performance Management Conceptual

Design Process Culture Infrastructure

Corporate Performance ManagementImplementation Strategy

Corporate Key Performance Indicators - assistedwith developing corporate vision, mission, andstrategic objectives

Performance Management Training Program

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Project Approach and Results

Major Deliverables Reservations Pilot

Key Performance Indicator hierarchy Reservations activity hierarchy - current

costs Performance Management prototype Communications strategy

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KPI Reporting

Source Systems

Multi-dimensionaldatabase

Options for reporting•Comshare - Commander•Wired for OLAP

•ACD•GL•PACER

Essbase

PrototypeArchitecture

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Continuously improve value and service to allcustomers

Improve operational performance Transition to a competitive environment Integrate with organizational alignment Integrate with reengineering initiatives Project competition with Human Resources

Department

Business Challenges:

Identifying the Client’s Needs -Bell South

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Project Description - Scope

Cost Management implementation acrossFinance Organization

Balanced Scorecard pilot in Consolidated Cost,Disbursement, and Treasury Offices (CCO,CDO, CTO)

KPIs driven down to manager-led teams Reporting systems built to scale across Finance

Finance Org. in BellSouth Telecommunications:

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TPM Project Approach

Mar 94 May 94 Aug 94 Nov 94 Jan 95 Mar 95 Apr 95

Pilot

Cost Model

Cost Tools

KPI Development

KPI Reporting System

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Pilot

Voucher Function in the CDO• Activity Analysis

• Product Analysis

• Process/Activity Cost Rollup Model (Excel)

• $50,000; 3 - 4 BC Professionals

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Finance Cost Model Development• Process/Activity Analysis• Product Cost Model Development• Process/Activity Cost Rollup Modeling• $900,000; 6 - 8 BC Professionals

Cost Model

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•Cost Management Decision Support Tools• Process/Activity Structure and Costing

• Cost Reporting and Management Rollups

• Integration with BST Finance systems


Cost Tools


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KPI Development

•KPI and Balanced Scorecard Development• KPI Facilitation for CCO/CDO/CTO

• Scorecard Development and Alignment



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KPI Reporting System

•Balanced Scorecard Reporting andMonitoring System

• KPI and Exception Reporting System• Client Server Application for Scorecard Owners• $450,000; 5 - 7 BC Professionals


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TPM Project Deliverables

Cost Management Process and Models Cost Management Decision Support Tools KPI Development KPI Reporting and Analysis Concepts KPI Process Timeline KPI Training, Development and Delivery KPI Reporting and Monitoring System

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Balanced Scorecard Shows all of the cost, quality, and

timeliness measures for the scorecard KPI Trend Graphs

Graphically displays the performance ofa specific KPI over time

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Exception Report Informs managers of high and critical

performance in their span ofresponsibility

Knowledge Integration Tracks explanations and actions taken

for critical and high performing KPIs,creating organizational memory


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TPM Project DeliverablesClient Server Architecture

BOSIPLAN

Sybase

• SQLWindows 5.0 andMS Access for clientapplication development

• Sybase System 10 runningunder UNIX for databasemanagement on server

• Local and wide area networksfor communication servicesbetween the client PCs and thecentral server

• ABC Technology’s Orosproduct for ABC analysis

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Phase II

Strategy articulation and commitment setting Activity and cost object analysis and

simplification KPI development for the rest of the Finance

Organization (40 - 50 additional scorecards) Extend hierarchy to EVP Finance level Implement KPI system enhancements Train BST facilitators and process administrators

for long-term support

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Phase II

Sept 95 Dec 95 Feb 96 Apr 96 Jun 96 Aug 96

Cost Mgmt Process

KPI System

KPI Development

Strategy

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Wrap Up

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