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Performance MetricsPerformance Metrics

CPS 181sOct 30, 2001

MetricsMetricsMetricsAssessing the progress and health of their on-linebusinessesFinancial progress: sales, margins, profit, market shareStrategic metrics require entire examination of thecompany: perception of value proposition, marketplaceoffering, effectiveness of implementationPerformance Dashboard – five categories of theframework

opportunitybusiness modelbranding and implementationcustomer interface and outcomesfinancial metrics

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Metrics...Metrics...Metrics...

Senior and stock market analysts tend to have a biastoward financial metrics

providing history of the company in the marketplacedo not reflex the strategy of the company

Managers need early warning system – metricsBranding and implementation metrics focus on

supply-chain performanceorganizational dynamicsmarketing communication effectiveness – including branding

QuestionsQuestionsQuestions

Should senior managers be concerned aboutmetrics?

How can we assess the health of NewEconomy firms?

What are the steps to implement thePerformance Dashboard?

What are three sources of metrics informationthat firms can sue to chart their progress?

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Should Senior Managers beConcerned About Metrics?Should Senior Managers beShould Senior Managers beConcerned About Metrics?Concerned About Metrics?Organization metrics represent performance targets ofthe companyPercent increase in revenuePercent increase in unique visitorsLength of time visitors remain on siteCost of customer acquisitionMetrics valuable as employee reward or taking strategicactionChange processesChange strategyChange product strategies

Metrics Drive Behavior in aNumber of Ways

Metrics Drive Behavior in aMetrics Drive Behavior in aNumber of WaysNumber of Ways

Help define the business modelConcrete goals with precise measurementsFocusing on measurement can increase the precision of the valuepreposition

Help communicate strategyDocument performance targetsCommunicates strategy to workforceCreates buy-in to the metric-setting processes

Help track performanceInstantaneous feedback concerning site performance real-timeUsage, visitors, length of time on site, average sales, page views

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Metrics Drive Behavior in aNumber of Ways...

Metrics Drive Behavior in aMetrics Drive Behavior in aNumber of Ways...Number of Ways...

Help increase accountabilityMetrics must be linked to the performance appraisal systemIndividual performance can be appraisals tied to companywide,team-specific, and individual metricsSite usability can be tied to the interactive design functionCustomer service metrics can be tied t the customer servicedepartment

Help Align ObjectivesAlign precise objectives, departmental functional goals,companywide strategic activities as a whole

Current Challenges to SpecifyingMetrics for Online Businesses

Current Challenges to SpecifyingCurrent Challenges to SpecifyingMetrics for Online BusinessesMetrics for Online Businesses

Companies Strategies Change Rapidly – Internet timerequires rapid changeMeasurement is resource intensive

Setup and maintenance of capital intensive/human resourceintensive systems and proceduresData capture, data mining, and information use require time andcommitment of senior executives

Online measurement systems are vulnerable – easy tomanipulate final results

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Current Challenges to SpecifyingMetrics for Online Businesses...

Current Challenges to SpecifyingCurrent Challenges to SpecifyingMetrics for Online Businesses...Metrics for Online Businesses...

Soft metrics are not valued by the investment communityInvestment community looks at revenues, margins, number ofvisitors, length of time on site, customer acquisition costsBut, ease of customer use, best value perception, and other marketresearch measures are frequently early warning indicators of siteperformanceMeaningful metrics change on Internet time – often as quickly asthe time it takes to learn best how to interpret the retained originaldata

How Can We Assess the Healthof e-Commerce Firms?...

How Can We Assess the HealthHow Can We Assess the Healthof e-Commerce Firms?...of e-Commerce Firms?...

The Balanced ScorecardIntroduced by Kaplan and NortonFinance balanced by other domains of the businessIncludes internal business processes and customer responsesFour categories of financial, customer, internal businesssystems, learning and growth

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The Balanced Scorecard - Strategy Into Operational TermsThe Balanced Scorecard - Strategy Into Operational TermsThe Balanced Scorecard - Strategy Into Operational Terms

FINANCIAL

To succeed financially, howshould we appear to our

shareholders?

INTERNAL BUSINESSPROCESS

To satisfy our shareholders andcustomers, what businesses

must we excel at?

CUSTOMER

To succeed financially, howshould we appear to our

shareholders?

LEARNING AND GROWTH

To succeed financially, howshould we appear to our

shareholders?

Visionand

Strategy

Source: Kaplan, Robert S. and David P. Norton. 1996. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review 74 (January-February): 76.

Financial and CustomerMetrics

Financial and CustomerFinancial and CustomerMetricsMetrics

Financial MetricsRevenue, revenue growth, gross margins, operating income,net margin, earnings per share, cash flowReflect recent planning period , to some degree all previousplanning periods

Customer MetricsManagement relationship of customers by the firmMarket shareCustomer acquisitionCustomer satisfactionCustomer profitabilityCustomized by the target segment

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Internal Business ProcessMetrics

Internal Business ProcessInternal Business ProcessMetricsMetrics

Internal Business Process MetricsInnovation includes customer’s perception ofinnovativeness of the companyOperations – quality of entire supplyPostsale service – quality being offered tocustomer

Learning and Growth MetricsLearning and Growth MetricsLearning and Growth Metrics

Employee, information systems, innovationLimitations to the Balanced Scorecard in the NewEconomyNo clear definition of strategy or business modelsUnclear location of organizational capabilities orresources in frameworkUnclear where partnerships reside in framework

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The Performance Dashboardand Strategy Framework

The Performance DashboardThe Performance Dashboardand Strategy Frameworkand Strategy Framework

The Performance Dashboard - intended to reflect thehealth of the businessThe Strategy Framework Drives the Necessary Metrics

Utilized the strategy framework to derive necessary metricsSix critical steps

> opportunity assessment> business-model metrics> customer-interface design> market communications and branding> implementations> evaluation

Introducing the Performance DashboardIntroducing the Performance DashboardIntroducing the Performance Dashboard

FinancialMetrics

FinancialMetrics

Steps of Strategy:

Customer InterfaceCustomer Interface Implementation and Branding

Implementation and Branding

PerformanceDashboard:

AreasAddressed:

Size of marketopportunity

Attractiveness oftarget segments

Competitivelandscape

Customer acquisition

Changes in customerbehavior

Site experience andusability

Branding

Technologyinfrastructure

Internal organization

Relationship withsuppliers andpartners

Fulfillment capability

Revenue

Profit

Cost

Balance sheet

Market OpportunityAssessment

Market OpportunityAssessment Business ModelBusiness Model

Implementation & Branding

Metrics

Implementation & Branding

Metrics

CustomerInterface &

Outcome Metrics

CustomerInterface &

Outcome Metrics

Business ModelMetrics

Business ModelMetrics

OpportunityMetrics

OpportunityMetrics

Uniqueness of valueproposition

Attractiveness ofoffering

Firm capabilitiesrelative tocompetition

Sustainability ofcompetitive position

EvaluationEvaluation

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Capabilities and PartnershipsCapabilities and PartnershipsCapabilities and Partnerships

Capabilities are Featured in theResource System of the BusinessModelPartnerships are Featured in theResource System of the BusinessModel

Components of thePerformance Dashboard

Components of theComponents of thePerformance DashboardPerformance Dashboard

Opportunity MetricsAbility to discern unfulfilled needs in the market place is criticalMarket-opportunity metrics asses the degree to which the firmcan accurately gauge the market opportunity

Business-model MetricsCapture subcomponents of the business model: egg diagram,resource systems, financial metricsValue Proposition or Cluster Benefits Metrics

> target segments, benefits offered, capabiliti4s that drive benefits> focus on customer’s perceptions> performance relative to the competitor’s benefits

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Marketspace-Offering MetricsMarketspace-Offering MetricsMarketspace-Offering Metrics

Capture all phases of the customer decision processCapture features and attributes of the offering

PrepurchasePurchasePostpurchase

Offering metrics focus on nuts-and-bolts features,attributes, and functionality of the site

Customer evaluationsFAQ’sMember specials

Marketspace-Offering MetricsMarketspace-Offering MetricsMarketspace-Offering Metrics

Resource-system metricsBenefits offered to customersTrack performance on themost critical capabilities andassociated activities

Financial-model metrics

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Customer-Interface MetricsCustomer-Interface MetricsCustomer-Interface Metrics

Customer-interface and customer-outcome metricsCustomer’s perception of the firm’s performance oneach level of the 7 C’s of the customer interface

Example: customer’s rating of customization compared tocompetitors’

Other critical interface metricsIncluding value proposition

Customer-Outcome MetricsCustomer-Outcome MetricsCustomer-Outcome Metrics

Capture process measures that the firm will producefavorable customer responses such as satisfactionand loyaltyFocus on subjective customer-outcome metrics

satisfactionlength of stay at site (stickiness)overall evaluation of the experience

Focus on objective customer-outcome metricscustomer acquisition costsaverage order sizecustomer profitabilitynumber of visits per month

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Branding and ImplementationMetrics

Branding and ImplementationBranding and ImplementationMetricsMetrics

Focus on the supply-chain performance,organizational dynamics, marketingcommunication effectiveness (includingbranding)Fulfillment of the brand process metrics:customer awareness of the brandInnovation metrics: ability to rapidly innovate,even if in a potentially discontinuous fashion

Financial MetricsFinancial MetricsFinancial Metrics

RevenuesCostsProfitsBalance–sheet metrics

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POV: Bill Gurley on the Power ofConversion Rates

POV: Bill Gurley on the Power ofPOV: Bill Gurley on the Power ofConversion RatesConversion Rates

Conversion Rate 2% 4% 8%

Advertising Spend 10,000$ 10,000$ 10,000$

Visitors 5000 5000 5000

Transactions 100 200 400

Cost/Transaction 100$ 50$ 25$

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

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

Average transaction size = $100 Source: J William Gurley

Source: Gurley, J. William. 2000. The Most Powerful Metric of All. CNET News.com, 21 February. URL: http://www.news.com/Perspectives/Column/0,176,403,00/html?tag=st.ne.

Life Cycle of a CompanyLife Cycle of a CompanyLife Cycle of a Company

Four stages of development of the life cycle of acompany

Startup/Beta – emphasis on market opportunity metricsCustomer accusation – emphasis on customer acquisitionand financialMonetizationMaturity – customer retention and cost control

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Life Cycle of a CompanyLife Cycle of a CompanyLife Cycle of a Company

STARTUP/BETA

STARTUP/BETA

CUSTOMERACQUISITION

CUSTOMERACQUISITION MONETIZATIONMONETIZATION MATURITYMATURITY

Develop aplatform for rapidgrowth bybuilding a strongteam andcreating a flexiblesite.

Build marketshare as quicklyas possible byaggressivelyspending onpartnerships andpromotion.

Increaserevenues andcustomer lock-inby developingnew revenuestreams.

Control costs andoptimizemarketingexpenditures toachieve profitablegrowth.

6 Months- 1 Year 1 Year - 2 Years 2 Years - 5 years > 5 Years

Strategy

Business.comTNBT.com

mValue.comPaypal.comEvite.com

Yahoo.comAmazon.com

SchwabAOL

Examples*

* At time of writing (3/2000)

What are the Steps to Implementthe Performance Dashboards?

What are the Steps to ImplementWhat are the Steps to Implementthe Performance Dashboards?the Performance Dashboards?

Step One: articulate business strategymarket opportunity assessmentbusiness modelcustomer-interface designbrandingimplementationevaluation

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Steps Two and ThreeSteps Two and ThreeSteps Two and Three

Step Two: translate strategy into desired outcomesnot settling target levels but specifying outcomes

Step Three: devise metricsidentifies specific metrics that reflect the desiredoutcomeslook-to-book ratios

Steps Four and FiveSteps Four and FiveSteps Four and Five

Step Four: link metrics to leading and laggingindicators

map entire set of indicatorsincluding focal and leading indicators

Step Five: calculate current and target performancecurrent conversion rtesadvertising expendituresdegree of positive word of mouth

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Blueprint to the Performance DashboardBlueprint to the Performance DashboardBlueprint to the Performance DashboardStep One:ArticulateBusinessStrategy

Step One:ArticulateBusinessStrategy

Step Two:Translate

Strategy IntoDesired

Outcomes

Step Two:Translate

Strategy IntoDesired

Outcomes

Step Three:DeviseMetrics

Step Three:DeviseMetrics

Step Four:Link MetricsTo Leading

And LaggingIndicators

Step Four:Link MetricsTo Leading

And LaggingIndicators

Step Five:Calculate

Current AndTarget

Performance

Step Five:Calculate

Current AndTarget

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?

Implementation andBranding

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

Implementation andBranding

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

Financial•Financial consequences interms of revenue, profit, costand balance sheet?

Financial•Financial consequences interms of revenue, profit, costand 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•Purchases / year•Success rate•Service requests / customer

Customer•Market share•Purchases / 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 themetrics that it affectsand that affect it

•Map the linked set ofmetrics, indicatingleading and laggingindicators

•Ensure that there is abalance betweenleading and laggingindicators

•For each metric,determine themetrics that it affectsand that affect it

•Map the linked set ofmetrics, indicatingleading and laggingindicators

•Ensure that there is abalance betweenleading and laggingindicators

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 currentlevel of performance

•Determine targetlevel required tomeet outcomesdescribed in Step 2

•Ensure that targetsare consistent witheach other

•For each metric,calculate currentlevel of performance

•Determine targetlevel required tomeet outcomesdescribed in Step 2

•Ensure that targetsare consistent witheach 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 vscompetition

Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vscompetition

What are the Three Sources ofMetrics Information That Firms Can

Use to Chart Their Progress?

What are the Three Sources ofWhat are the Three Sources ofMetrics Information That Firms CanMetrics Information That Firms Can

Use to Chart Their Progress?Use to Chart Their Progress?

Industry standardMetricsBenchmark values

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Online InformationOnline InformationOnline Information

Market research – primary customer dataAnalysts reports – blending market dataFinancial information – income statement, balance sheet,statement of cash flowUse of Bizrate – use of dimensions of serviceUse of Forrester Reports – e-commerce reports –competitors, consumers, technology evolution in a segmentof the industryUse of Hoover’s Online – financial and market information forboth online and offline companies

U.S. Top 25 Web & Digital Media Properties (March 2000)U.S. Top 25 Web & Digital Media Properties (March 2000)U.S. Top 25 Web & Digital Media Properties (March 2000)

Source: Media Metrix (www.mediametrix.com/usa/press/releases/20000424.jsp) March 31, 2000

Rank Digital Media/Web Unique Visitors (000)1 AOL Network 59,8582 Yahoo Sites 48,3363 Microsoft Sites 46,5814 Lycos 32,8995 Excite @ Home 28,5716 Go Network 23,0067 NBC Internet 17,1698 Amazon 15,2179 Time Warner Online 13,63610 Real.com Network 13,48211 Go2Net Network 13,04112 AltaVista Network 12,55713 About.com Sites 12,32914 Ask Jeeves 12,26915 eBay 11,15516 LookSmart 10,55717 ZDNet Sites 10,22618 CNET Networks 10,02319 eUniverse Network 9,19820 JUNO/JUNO.COM 9,17721 EarthLink 8,52622 Infospace Impressions 8,30523 Viacom Online 8,13924 FortuneCity Network 7,80925 CitySearch-TicketMaster

Online7,689

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Market Research Source - Bizrate.comMarket Research Source - Bizrate.comMarket Research Source - Bizrate.com

Analyst Source - ForresterAnalyst Source - ForresterAnalyst Source - Forrester

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Financial Information Source - Hoovers OnlineFinancial Information Source - Hoovers OnlineFinancial Information Source - Hoovers Online

POINT-COUNTERPOINT

Off-Line Research On-Line Research

Advantages

• Allows richer interactions, such as focus groupsand in-depth phone interviews

• Can address an unbiased group of respondents- does not only address on-line respondents

Disadvantages• Labor and time intensive - questions asked in

person by telephone or by filling out surveys

• Data collection is costly and not scalable - verydifficult to conduct extensive survey at the pointof purchase

• Data must be entered for analysis – resourceintensive process, subject to human error

• Cannot measure people’s behavior – onlyopinions

• Only allows for low or highly costly interactivity -interactivity requires highly trained phoneinterviewers

Advantages

• Fixed cost with almost no variable cost andhence is highly scalable

• Automatic data entry, eliminating unnecessarylabor, cost and potential for human error

• Easy-to-conduct point of purchase research

• Can ensure higher level of data completenessand accuracy by performing automatic error andgap checks

Disadvantages

• Selection bias for people with Internet access

• Concerns over privacy, since many users arenot aware of how their data can or will be used

Which is Better? Online or Off-line Data SourcesWhich is Better? Online or Off-line Data SourcesWhich is Better? Online or Off-line Data Sources

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POINT-COUNTERPOINT

User-Based Research Content Expert-Based Research Content

• Users buy, use and rate often, keeping reviewsup to date

• Extensive customer base reaches and rates asignificantly larger number of sites than limitedgroup of experts

• Users tend to trust the opinion of other usersmore than the opinion of experts

• Bias may be introduced because users aremost likely to complete a survey if they have astrongly positive or negative opinion

• Can analyze all aspects of interface experience,including features that users might be unawareof

• Consistent rating scheme, ensuring that samecriteria are enforced when comparing betweenweb sites

Which is Better? User-Based or Expert-BasedResearch Content

Which is Better? User-Based or Expert-BasedWhich is Better? User-Based or Expert-BasedResearch ContentResearch Content

Mapping Internet Research ontothe Performance Dashboard

Mapping Internet Research ontoMapping Internet Research ontothe Performance Dashboardthe Performance Dashboard

Data sources tend to specialize on different types of dataMedia Metrix and ACNielsen emphasize marketinformation and trafficCustomer purchase process

Prepurchase> awareness> knowledge> evaluation of alternatives

PurchasePost purchase

> satisfaction> loyalty> disposal

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Mapping Internet Research Onto The Performance DashboardMapping Internet Research Onto The Performance Dashboard

MediaMetrix

ACNielsen

BizRate Forrester Gomez Jupiter CreativeGood

Hoovers

Market Info

Traffic

Fulfillment

Implemen-tation

Privacy

Usability

Content

CustomerSatisfaction

CustomerService

FinancialPerformance

Market

Implementation

Customer

Financial

Market Research AnalystFinancial

Information

Metrics for Seamless On-line/Off-line Customer Purchase ProcessMetrics for Seamless On-line/Off-line Customer Purchase ProcessMetrics for Seamless On-line/Off-line Customer Purchase ProcessAwareness of off-line offer vs awareness ofon-line offer

Perceived benefits of web vs off-line offer

InformationAvailable offering information on-line vs off-lineCurrency of information on-line vs off-line

Security and privacy associated with purchasing

Customer serviceResponse time on-line vs off-line

Customer loyalty incentive programs on-line vsoff-line

Exchange policies on-line vs off-line

AWARENESSAWARENESS

KNOWLEDGEKNOWLEDGE

EVALUATION OF ALTERNATIVES

EVALUATION OF ALTERNATIVES

PURCHASEPURCHASE

SATISFACTIONSATISFACTION

LOYALTYLOYALTY

DISPOSALDISPOSAL

Pre

-Pur

chas

eP

ost-

Pur

chas

eP

urch

ase

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Seamless Internal BusinessProcesses and Operations

Seamless Internal BusinessSeamless Internal BusinessProcesses and OperationsProcesses and Operations

Ability to perform internal processes and operations,regardless of interacting within the companyWhether a customer is interacting through its online oroffline channelInformation sharingFulfillment systems

Metrics for Seamless Internal BusinessProcesses and Operations

Metrics for Seamless Internal BusinessMetrics for Seamless Internal BusinessProcesses and OperationsProcesses and Operations

Ability to open accounts on-line and off-line

Ability to access accounts on-line andoff-line

Integrated customer databases

InformationSharing

InformationSharing

FulfillmentSystems

FulfillmentSystems

Seamless order processing

Seamless order tracking

Integrated inventory keeping

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Step One: Articulate SchwabStrategy

Step One: Articulate SchwabStep One: Articulate SchwabStrategyStrategy

Value propositionSchwab’s OfferResource system – three layers

Benefits delivered to customersCapabilities in place to deliver functionalityResources need to be retained to deliver thee capabilities

Steps Two and Three: TranslateStrategy into Outcomes and Metrics

Steps Two and Three: TranslateSteps Two and Three: TranslateStrategy into Outcomes and MetricsStrategy into Outcomes and Metrics

Market opportunityIs the market opportunity significant? – desired outcome #1 – locate asignificant market opportunity in the financial services industry

Metrics to track:discount brokerage firms share of total retail brokerage fundspercentage growth rat of discount brokerage fundsIs the target segment financially attractive? – desired outcome #2locate financially attractiveness target segment(s) within the financialservices industry

Metrics to track:medium to high-net-worth individuals in segmentpercent of customers in target segment versus other segmentspercent of target customers with Internet access

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Competition in the SegmentCompetition in the SegmentCompetition in the Segment

How intense is the competition in thesegment? – desired outcome – locatecompetitively attractive segmentMetrics to track:

Schwab market share relative to competitionrate of competitors entry and exit in the market

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

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

“Use technology to offer innovativeproducts and superior service atlower prices to investors unwilling topay for investment advice”

Schwab Learning CenterLive EventsPrinciples of InvestingUnderstanding MarketCycles“Did You Know” Q&A

Schwab SignatureServicesSchwab AdvisorSourceOptions ServiceGlobal InvestingService

Online chat with CustomerService RepresentativesCustomer Service via phoneCustomer Service via emailCustomer Service at BranchMy Watch List

Margin LoansMoney TransfersAutomaticInvestingOptions ServiceAfter HoursTradingAccountProtectionBill Payment

OverallGeneral GoalPlannerInvestor ProfileSampleInvestmentPlans

RetirementRetirementPlannerIRA Analyzer

Product Offering

On-Line Investment Process

Get educatedabout

investing

Planinvestments

Decide onInvestment

PerformInvestment

Post InvestmentSupport

PerformResearch

EstateEstate Tax andProbate CalculatorAlternativesComparison

CollegeCollege Planner

TaxTax StrategiesIRS WithholdingCalculator

OverallQuotes and ChartsAnalyst Center

Stocks and OptionsStock Analyzer

Bonds and TreasuriesSchwab BondSourceServices

CDs and Money MarketsSchwabOne

AnnuitiesSchwab SelectAnnuity

Life InsuranceInsurance NeedsCalculator

1. ValueProposition

2. MarketspaceOffering

High quality Investment Information

High quality Investment Information

Innovative productsInnovative products

Low priceLow price

Technology LeadershipTechnology Leadership

Superior serviceSuperior service

3. ResourceSystem

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Business ModelBusiness ModelBusiness ModelHow is the Schwab value proposition perceived versuscompetition? – desired outcome #4 Schwab value propositionoutperforming competitionMetrics to track:

number of competitors offering any combination ofSchwab’s benefitscustomers’ perceptions of Schwab’s performance on the four criticalbenefits versus the competition

Is the Schwab offer perceived as more attractive versuscompetition? – desired outcome – Schwab offer perceived asmore attractive than competitionMetrics to track:

importance to target customer of innovative products, high-qualityinformation, service, and low priceextent to which customer perceived that Schwab was outperformingcompetition on the stage of the customer decision process (inner ringof the egg diagram)extent to which the sites product, services, and information wereviewed as superior to the competition (outer ring of egg diagram)

Capabilities and PartnershipsCapabilities and PartnershipsCapabilities and Partnerships

Are Schwab’s firm capabilities and partnershipssignificantly better when compared to competition? –desired outcome #6: market street perceives Schwab’scapabilities and partnerships superior to competitionMetrics to track:

dollar invested in technology relative to competitioncustomer brand awareness relative to competitionnumber of distribution channels relative to competitionnumber of strategic alliances (and associate customer base)relative to competition

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Value Proposition Relative toCompetition

Value Proposition Relative toValue Proposition Relative toCompetitionCompetition

How sustainable is Schwab’s value proposition relativeto competition? – desired outcome – factors that drivesustainability are in excellent condition

increased branchesincreased partnershipsexpand into international markets

Metrics to track:exclusivity and length of partnershipsnumber and remaining duration of patents held for offeredproducts and servicesaverage switching cost for customers

Branding and ImplementationBranding and ImplementationBranding and ImplementationHow is the Schwab brand perceived in the market? – desiredoutcome #8: Schwab maintains best brand associations andequity in financial services industryMetrics to track:

customer-unprompted brand awarenesscustomer associations with the Schwab brandcustomer perceptions of Schwab brand in online investing (versuscompetition)

Does Schwab have the “best of class” in IT infrastructure? –desired outcome #9: to process the “best of class” ITinfrastructure.Metrics to track:

trade capacity to volume rationumber of possible simultaneous Web sessions that the system canhandleuptime of system (versus competition)cut-over time (time to route information between mainframes)

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Branding andImplementation...

Branding andBranding andImplementation...Implementation...

Does Schwab have the best organization in place? –desired outcome #10: ability to deliver on the brandpromise versus competitionMetrics to watch:

number of branchesaverage number of staff per branchnumber of hours of training per year per salespersonaverage time to respond to and resolve problempercent of time order not fulfilled or fulfilled inaccurately

Customer Interface and OutcomesCustomer Interface and OutcomesCustomer Interface and OutcomesHow effective and efficient is Schwab’s new customeracquisition? – desired outcome #11: lower customeracquisition costs versus competitionMetrics to track:

customer acquisition costdollars spent on marketing (percent online and offline)number of new accounts openedcustomer churn rate

Can Schwab Transition Customers Online? – desiredoutcome #12: seamless transition of customer base fromoffline to online tradingMetrics to track:

average user account balancenumber of trades per year per customertotal assets in online an offline accountspercent of Schwab customers online and offline

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Customer Interface andOutcomes...

Customer Interface andCustomer Interface andOutcomes...Outcomes...

What is the perception of the online customer experience?– desired outcome #13: Schwab will outperform thecompetition on interface and usability metricsMetrics to track:

original impression - customer evaluation of the 7Cs versuscompetitionsite usability metrics – goal-based success rateconversion ratenumber of occurrences of critical failuresservice recover metricsnumber of service requests per user – percentage of users wholeave the site before requesting service

Customer Interface andOutcomes...

Customer Interface andCustomer Interface andOutcomes...Outcomes...

How satisfied and loyal is the customer base versuscompetition? – desired outcome #14: maintain thehighest customer satisfaction and loyalty scores inthe industryMetrics to track:

overall customer satisfaction relative to competition as wellas a number of key attributes including quality of information,price, reliability, quality of servicepercentage of users in frequent trader programs

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FinancialFinancialFinancialAre we outperforming competition in Financial Metrics thatmatter in the Financial Service Industry? – desired outcome#15: Schwab outperformed competition on both top-line(revenue growth) and bottom-line (net or operating profit)measures of financial performanceMetrics to track:

revenue - total revenue and revenue growth, revenue breakdownby offering, total transaction volumeprofit – total profit and profit growth, profit breakdown, earnings pershare and growthcost – total cost, cost breakdown by department, cost pertransactionbalance sheet – debt to equity ratio, corporate credit rating, totalmargin loans, margin loans spread

Management must be able to track all relevant business-model metrics

Schwab Desired Outcome SummarySchwab Desired Outcome SummarySchwab Desired Outcome SummaryMARKET 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 &OUTCOMES

•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition onInterface Perceptions

•Customer Satisfaction & Loyalty

IMPLEMENTATION &BRANDING

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

FINANCIAL EVALUATION

•Revenue•Profit•Cost•Balance Sheet

BusinessModel

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Step Four: Link Metrics to Leadingand Lagging Indicators

Step Four: Link Metrics to LeadingStep Four: Link Metrics to Leadingand Lagging Indicatorsand Lagging Indicators

Knowledge of the leading and lagging indicators willhelp management understand which groups ofleading indicators it needs to focus on in order toachieve its target performance on lagging indicatorsMetrics to avoid crowded markets and target attractivesegments increase the probability that Schwab willprovide unique value proposition

Charles Schwab -- Customer Acquisition StageCharles Schwab -- Customer Acquisition StageCharles Schwab -- Customer Acquisition Stage

BusinessModel

BusinessModel

Implementation& Branding

Implementation& Branding CustomerCustomer FinancialFinancial

Buildbrand

Buildbrand

Increasesystemuptime

Increasesystemuptime

Trainbranch

staff

Trainbranch

staff

Improvecustomerservice

Improvecustomerservice

Increasecustomer

loyalty

Increasecustomer

loyalty

Increaseprofit

Increaseprofit

Optimizecost

Optimizecost

Increaserevenue

Increaserevenue

Investin

technology

Investin

technology

Increasenumber of

IT staff

Increasenumber of

IT staff

Increasecustomer

satisfaction

Increasecustomer

satisfaction

Increaseusage

Increaseusage

Acquirenew

customers

Acquirenew

customers

MarketOpportunity

MarketOpportunity

Avoidcrowdedmarkets

Avoidcrowdedmarkets

Play inattractivemarket

Play inattractivemarket

Targetattractivesegments

Targetattractivesegments

Leveragecapabilitiesto deliveroffering

Leveragecapabilitiesto deliveroffering

Provideunique VP

Provideunique VP

Provideattractiveoffering

Provideattractiveoffering

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Charles Schwab -- Customer Acquisition Stage Current and Target Levels for Select MetricsCharles Schwab -- Customer Acquisition Stage Current and Target Levels for Select Metrics

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 9.84

8.83Transacting 10.81

9.7511.4459.95Overall

Features

UsabilityValue

*Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard BusinessSchool Publishing.

Step Five: Calculate Currentand Target Performance

Step Five: Calculate CurrentStep Five: Calculate Currentand Target Performanceand Target Performance

Strategy needs to be implemented bysetting targets and by taking actions toreach these targets

Management may have to move down onemore level to leading indicators