Management Metrics

1. Management Metrics “If you can’t measure it, you can’t manage it” Fred Smith, Founder & CEO FedEx

2. Purposes of Metrics Managers can use metrics to evaluate a business’s progress in the following areas: • Examples Define Business Model • Clarify strategic priorities • Specify value proposition Communicate Strategy • Outline specific goals • Obtain employee buy-in Align Objectives • Harmonize individual objectives, departmental goals and companywide strategy. • Receive feedback • Modify tactics Track Performance • Link to performance appraisal system • Tie individual performance to metrics for the company, the team and the individual. Increase Accountability

3. Challenges to Specifying Metrics for Online Businesses Some reasons why many online businesses do not take a systematic approach to developing and applying metrics: • Companies’ strategies change rapidly. • Online measurement is resource intensive. • Development of systems to capture data can require significant capital investment and human resources. • Data mining is often needed to make data usable. • The amount of Information generated can overwhelm managers. • Online metrics are still evolving. • There is little agreement on which measures are appropriate. • Some metrics are ambiguous (e.g., amount of time spent at site). • Data capture is subject to manipulation. • “Hard” measures are needed for investment community, but “soft” measures are often the best early indicators of site performance.

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

5. The Balanced-Scorecard Strategy In Operational Terms The “Balanced Scorecard” was developed in response to managers’ tendency to focus too heavily on short-term financial performance. Financial To succeed financially, how should we appear to our shareholders? Customer To achieve our vision, how should we appear to our customers? Internal Business Process To satisfy our shareholders and customers, what businesses must we excel at? VisionandStrategy Learning and Growth To achieve our vision, how will we sustain our ability to change and improve? Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.

6. The Balanced Scorecard – Typical Measures Financial Revenue, revenue growth, gross margins, operating income, net margin, earnings per share, cash flow. Customer Market share, customer acquisition, customer satisfaction, customer profitability. Internal Business Process Innovation: perceived innovativeness, percent of sales from new products. Operations: order processing, cycle time, delivery time, number of errors. Post-sale service: returns, warranty processing, response time, payment processing. Learning and Growth Employee: selection, training, retention, satisfaction. Information systems: timeliness, accuracy, data utility. Motivation: personal and company goal alignment. Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February 1996): 76.

7. The Performance Dashboard Steps of Strategy Business Model Customer Interface Branding and Implementation Evaluation Market Opportunity Business Model Metrics Branding and Implementation Metrics Customer Interface and Outcome Metrics Financial Metrics Opportunity Metrics Performance Dashboard

8. Introducing the Performance Dashboard Market Business Model Steps of Strategy: Business Model Customer Interface Implementation and Branding Evaluation Performance Dashboard: Business Model Implementation and Branding Customer Financial Areas Addressed: • Size of market opportunity • Attractiveness of target segments • Competitive landscape • Uniqueness of value proposition • Attractiveness of offering • Firm capabilities relative to competition • Sustainability of competitive position • Branding • Technology infrastructure • Internal organization • Relationship with suppliers and partners • Fulfillment capability • Customer acquisition • Changes in customer behavior • Site experience and usability • Revenue • Profit • Cost • Balance sheet

9. Blueprint to the Performance Dashboard Step One: Articulate Business Strategy Step Two: Translate Strategy Into Desired Outcomes Step Three: Devise Metrics Step Four: Link Metrics to Leading and Lagging Indicators Step Five: Calculate Current and Target Performance Market Opportunity • Opportunity size? • Competitive environment? Market Opportunity • Market size and growth • Average age and income • Competitor concentration Business Model • Unique value proposition? • Capabilities vs. competition? Business Model • Customer perceived benefits • Exclusive partnerships • $ invested in technology vs. competition For each metric, determine the metrics that it affects and that affect it Map the linked set of metrics, indicating leading and lagging indicators Ensure that there is a balance between leading and lagging indicators For each metric, calculate current level of performance Determine target level required to meet outcomes described in Step 2 Ensure that targets are consistent with each other Implementation and Branding • How to develop brand? • How to go to market? Implementation • Customer brand awareness • System uptime percentage • Number of IT staff • % inaccurate orders Define goals and value proposition Develop resource system required to deliver the strategy Customer • How to acquire customers? • How will customers change? • The customer experience? Customer • Market share • Purchase/year • Success rate • Service requests/customer Financial • Financial consequences in terms of revenue, profit, cost and balance sheet? Financial • Revenue • Profit • Earnings per share • Debt to equity ratio

10. Charles Schwab -- Customer Acquisition StageStep 1: Articulate the Business Strategy • Schwab Learning Center • Live Events • Principles of Investing • Understanding Market Cycles • “Did You Know” Q&A Overall • General Goal Planner • Investor Profile • Sample Investment Plans Retirement • Retirement Planner • IRA Analyzer Product Offering Estate • Estate Tax and Probate Calculator • Alternatives Comparison College • College Planner Tax • Tax Strategies • IRS Withholding Calculator Online Investment Process • Get Educated About Investing • Online Chat with Customer Service Representatives • Customer Service via Phone • Customer Service via E-mail • Customer Service at Branch • My Watch List • Plan investments • Post Investment Support Overall • Quotes and Charts • Analyst Center Stocks and Options • Stock Analyzer Bonds and Treasuries • Schwab BondSource Services CDs and Money Markets • SchwabOne • Perform Research • Margin Loans • Money Transfers • Automatic Investing • Options Service • After Hours Trading • Account Protection • Bill Payment • Perform Investment • Decide on Investment Annuities • Schwab Select Annuity Life Insurance • Insurance Needs Calculator • Schwab Signature Services • Schwab AdvisorSource • Options Service • Global Investing Service “Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice” Innovative products 3. Resource System 1. Value Proposition Low price Technology Leadership 2. Marketspace Offering Superior service High-quality Investment Information

11. Schwab Desired Outcome Summary Martket Opportunity Significant Opportunity Financially Attractive Segment Competitively Attractive Segment Financial Evaluation Revenue Profit Cost Balance Sheet Business Model Value Proposition vs. Competition Offer vs. Competition Capabilities vs. Competition Sustainability of Value Proposition Implementation and Branding Customer Interface and Outcomes Lower Customer Acquisition Costs Transition Customer Base Outperform Competition on Interface Perceptions Customer Satisfaction and Loyalty Brand Associations vs. Competition Best-in-Class IT Infrastructure Ability to Deliver Brand Promise BusinessModel

12. Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics *Source: Nicole Tempest and Warren McFarlan, Charles Schwab Corporation (B). Case no. 9-300-507, Harvard Business School Publishing, September 13, 1999

13. POV: Bill Gurley on the Power of Conversion Rates A website’s conversion rate is a key metric of performance. Small increases in customer conversion can significantly impact marketing costs per transaction. Source: J. William Gurley, “The Most Powerful Metric of All,” CNET News.com, 21 February 2000.

14. Information Sources for Metrics Data collected internally are important, but external data are also useful for benchmarking and performance tracking:

15. US Top 25 Web and Digital Media Properties The number of unique visitors to a site is a key metric for the customer interface. Source: Media Metrix press release, 31 March 2000.

16. Market Research Source — BizRate.com BizRate asks consumers to rate the performance of an online store. “Ten dimensions of service”

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

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