METRICS & SCORECARDS BEYOND FUNCTIONAL BOUNDARIES

1. METRICS & SCORECARDS BEYOND FUNCTIONAL BOUNDARIES Establishing an integrated performance management system that enables business to stay ON TARGET and deliver high performance results to customers & stakeholders Mark MacKenzie

2. Agenda – what will you take-away? Components of an Integrated Performance Management System What are Performance Measurement Systems & what value do they provide? How are Performance Measurement Systems Used? How to develop a Performance Measurement System that best fits your business Critical Success Factors in Deploying a Performance Management System Common Pitfalls or Obstacles to look out for in implementing a Performance Management System

3. What are Performance Measures? It enables businesses to evaluate: How well the business is doing and if they are in control of their processes If the business is ON TARGET to meet it’s goals If customers are satisfied In the simplest terms – a performance measure is composed of a number and a unit of measure. Performance measures provide businesses with quantifiable information about their customers , their employees, their products or services and the processes that deliver them.

4. What are Performance Measures? Value added by the process Value of labour & capital used EFFECTIVENESS – the degree to which a process conforms to requirements – Are we doing the right things? EFFICIENCY – the degree to which a process produces the required output at minimum cost – Are we doing things right? For businesses, performance measures are usually grouped into a number of different categories. SAFETY– the overall health, wellbeing and working environment for employees QUALITY – the degree to which a product or service meets a customer’s requirements and expectations TIMELINESS– whether a customer’s expectations for a product or service was done or delivered on time PRODUCTIVITY -

5.  Linking High Performance to Targets • Adapted from “The Service Profit Chain” • James L. Hesketh, W. Earl Sasser, Jr., Leonard A. Schelsinger A structured approach for focusing time, energy and resources on aligning strategy, targets, and actions at all levels within a business Improves communications internally among managers & employees and externally between customers & stakeholders Helps justify support for improvement programs & projects Supports a continuous improvement & high performance culture Promotes teamwork - recognises the interdependency among people & functions that necessitate a team approach to work and problem solving and working towards a shared TARGET Promotes fact-based decision making Influences employee performance and behaviours as employees “perform to the measurement”

6. Performance Measurement Systems Most businesses will have some form of measurement system in place. Some examples are: Balanced Scorecard Performance Dashboards Critical Few Measures Strategy deployment Hoshin (Daily & Cross-functional) ? Do they align the goals of the business (Strategy) with the plans of each function (Tactics) and the work performed by employees (Actions)? Does your business have alignment & congruence to meet its TARGETS? Does every employee in the business understand how they contribute to the organisation meeting its TARGETS? “The Balanced Scorecard” Robert Kaplan & David Norton – Harvard Business School Press 1996

7. Example Measures Whilst businesses always try to optimise all of it’s performance measures – there are generally some metrics that are more critical than other – one of the goals of implementing a performance management system is to find or focus on the critical measures without sacrificing any others!

8. How are Performance Measurements Systems Used? They allow businesses to: Set TARGETSand standards Detect problems in the business Detect a lack of alignment Demonstrate progress Determine effectiveness and efficiencies (or the opposite!) Empower employees to respond Set and/or Reset Priorities Recover & get back ON TARGET

9. Common Reasons People Don’t Track Performance “it’s just a way to justify getting rid of people” “my boss will want me to work harder” “But what if it doesn’t work?” “I don’t have time to track all that data” “It’s already in that big report we get each month!” “You can’t trust the data anyway” “We already track so many things we don’t use” “That’s accounting’s responsibility” “Why measure when we do nothing with the data?” “No one asked me to do it”

10. Components of an Integrated Management System Integration (or congruence between individual/functional performance management systems) makes it possible for employees to align or link their day-to-day activities with a businesses Vision, Mission and TARGETS It is made up of: A strategic plan Communication framework Key business processes Employee involvement Senior management involvement & commitment Customer & Stakeholder needs A sense of urgency Accountability & Ownership for results

11. Integrated Performance Measures VERTICAL Integration of performance measures focuses all employees on the business’s strategic objectives HORIZONTAL The optimisation of workflows and processes across the business. These are customer focused and assess the capability of a process to provide value to the customer. Consider an example where a customer places an order for a product or service… Sales Growth of 10% over 5 years The order may pass through multiple functions within a business - sales, order entry, procurement, receiving, packaging, dispatch, accounts etc. Unless all the functions are ‘in-sync’ the requirements & expectations of the customer in terms of order fulfillment then value to a customer may not be achieved. Increase Sales by 10% in FY20XX % of time spent with ‘X’ Customers

12. Common Pitfalls & Obstacles PITFALLS Collecting inconsistent, conflicting and unnecessary data or failing to link it to strategic objectives Too much data results in information overload and the business will start to ignore it but…summarizing the data too much can also make it meaningless Measuring too little – don’t just focus on financial or numerical quota measures Measuring too often or not often enough – timing is important Focusing only on the short-term & forgetting completely about the long-term objectives Managers refusing to base decisions on data or fact – too much reliance on past experience or intuition Setting unrealistic measures – they need to be achievable otherwise no-one attempts to attain it Ignoring the customer in the establishment of measures or measures that drive behaviours against customer satisfaction or requirements Setting one team/function against another – i.e. creating internal competition rather than encouraging teamwork Asking who’s to blame vs. asking what went wrong? Mistaking the purpose of the measurement system is not to collect data but to make critical business decisions easier! OBSTACLES Letting the design of the data collection & the reporting development process take-over the overall intent to improve business performance – however… Don’t take the easy way out – do spend time setting meaningful targets and understanding the measurements that drive performance in the business Don’t eat the elephant in one bite – you might need to take small steps implementing the measurement system for it to be fully adopted/embraced Watch out for resistance – people naturally don’t like change particularly when it calls into question individual performance – involve & engage employees from the beginning to get buy-in Do not use the performance measurement system as a ‘punitive’ measurement system – it needs to be a motivator not a de-motivator Lack of management/leadership support Look forward and not just behind – don’t just look at bottom line results. Remember to measure the critical things that impact results so you can respond Don’t mistake poor results for poor execution of a process – the process itself may be defective. Just remember to investigate to establish root-cause effects of any poor performance

13. Critical Success Factors Accountability & Ownership – Not just management ‘voicing’ support for the measurement system but also ensuring those responsible have the appropriate authority, knowledge and understanding to manage both the system and supporting processes Establish TARGETS that Align to Business Priorities & Strategy – The leadership needs to ensure priorities are established and realistic and achievable targets are set for each measurement being used and that support critical business objectives or strategy Help Management teams identify & scope improvement effort – Having a baseline and setting targets is the first step. Once you’ve identified gaps in performance the business needs to scope improvement efforts with the appropriate tools and methods to find root causes of poor performance

14. Critical Success Factors Gauge R&R – Reliability and Reproducibility are two major areas. You need a system that not only measures the right things but also measures them correctly. Are the definitions of each metric clear? Are efforts to collect the data the same across the business? Education & Communication! – Customise the training & communication programs to maximise understanding & acceptance of the system. Employees need to know how to use AND effectively manage with the new system – make it part of the normal operating fabric of the business. For example: What the measurements are and how they tie all employees to business results? How to analyse the metrics and being able to understand the differences between signals and noise? Being capable of making informed decisions and properly scoping solutions and/or corrective actions How do changes to a process impact the measurement system? How to share lessons learnt across the business (e.g. what worked? what didn’t work?) How to adopt best practice across the business

15. Critical Success Factors People & Behavioural Aspects – implementing a measurement system is not just a technical implementation. Some employees will feel naturally threatened by such a tool so ensuring leadership and management teams are appropriately training in managing change will help identify and address key issues, concerns and misgivings within the business for all stakeholders. Additionally, having an effective change management plan will help businesses anticipate issues, resistance and risks – thus developing mitigating actions to ensure the success of the system Change is Good – As businesses change over time their objectives will also change. The performance measurement system will also need to change. Not only will specific measures change but so to will the TARGETS. The business will need to carefully manage these changes to the system - just as important as when they were deployed in the first instance!

16. 1. Start with your Strategy What? 2. Pick measures that drive the right behaviours in the business and align with the strategy How? 3. Keep measures to the ‘critical few’ and deploy scorecards with these as the priority 4. Empower employees to respond, recover & get back on TARGET

17. Questions?