Developing Effective KPIs

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Developing Effective
Key Performance Indicators
Main Slides Compilation
Kenny Ong

Intro
What is your objective?

Managing Expectations
• Exercise: Please note down one important item
you want to learn or get out from this workshop

Why do we hate Performance
Appraisals?
(How to develop better KPIs)

As an
Appraisee
As an
Appraisor
Complaints about
Performance Appraisals
Mgmt/HR

Complaints about Performance
Appraisals - Summary
1. Process problem
2. Form problem
3. People problem

What‟s the Difference?
Performance Appraisal Performance Management

What is the OBJECTIVE of a
Performance Management
System?
• What is the ultimate objective of a Performance
Management System?
• „Performance‟ – achievement,
• „Management‟ – controllable, improvement
• „System‟ – predictable outcome, autorun
Summary?
• A Predictable process to Improve Controllable
Achievements

What‟s In Between Planning
and Execution?
Succession Planning (Business
Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model

What is the OBJECTIVE?
Succession Planning (Business
Continuity)
Talent Management
Differentiation
Budgeting + Planning
BSC and KPIs
Strategy
Business Model
Business Strategy
Execution
Talent
Management

Intro
System
=
Business Plan
Implementation

Process [FULL]

KPIs, Strategy & Behavior

“…in the past 18 months, we have heard
that profit is more important than revenue,
quality is more important that profit,
people are more important than profit,
customers are more important than our
people, big customers are more important
than small customers, and that growth is
the key to our success. No wonder our
performance is inconsistent"
CEO, Anonymous

Before we start…
In the old days of HR…
• Average training hours per staff
• % of staff attending training
• # of training programs
• % of training programs conducted
• Training needs analysis conducted
• Competency models developed
• Training budget as % of payroll
What’s wrong with this picture?

Before we start…
Moral of the story…
1. Innovation:
– Business models
– Products
– Services
2. Market Leadership
3. Competitive differentiation
Get the picture?

“What is the moral of
the story?”

What is Strategic Planning?
Strategic
Planning
Variables:
Research
Growth
Risks
Stakeholders
Constraints
SWOT
Misc.
Output:
Plans
Priorities
KPIs

Before we start…
Which comes first?
1. Strategies -> KPI?
2. KPI -> Strategies?

Before we start…
Which comes first?
•already know our priorities, aware of all
strategy options available
•creating something UNIQUE, INNOVATIVE
and DISRUPTIVE e.g. Air Asia
•conducting a business Turnaround e.g. MAS

Before we start…
Which comes first?
•want to find out possible strategies,
•determine our priorities first thru selection of
important KPIs;
•growing through „normal‟ business, not a
Turnaround.

Wrong KPIs
“What is the moral of
the story?”

KPIs and Behavior
Before: “Handle Time” Per Call
• Motivated Call Centre staff to transfer callers,
getting rid of complainers, making them
someone else‟s problem
• Callers at 45% chance of being transferred
• 7,000 customers each week suffered transfers 7
times or more

KPIs and Behavior
After: “Minutes Per Resolution” of a
problem
• Resolution in ONE CALL become the core goal
• Reduced probability of call transfers from 45% to
18%

Performance Contracting
Model
Review performance &
results
- provide feedback
Provide coaching & counselling
Discuss and agree on objectives &
key measures
Prioritise the accountabilities agreed upon and discuss on competencies
required for the job.
Discuss &
agree on standards for performance
Discuss and agree on role accountabilities
Grievance level
Absenteeism
Discipline issue
Poor workethics
Unclear
ResultsDriven
Low Level of trust & commitment (between team leader and team member)
Procedure
driven
High
Degreeandclarityofjobresults
High level of employee empowerment
High employee performance
High employee satisfaction
High employee involvement
Challenging working environment
Optimum HRM cost structure
High
Visionled
Step 5
Step 4
Step 3
Step 2
Step 1
Performance Contracting Model

Performance Planning

Diagram

District Engineer
Duties and
Responsibilities
If stated as Accountabilities then the job
must produce :
Control, operate and
maintain the District
Distribution System
Ensure uninterrupted supply to
consumers in the district by operating
the District Distribution System.
Manage major supply
projects to customers in
the district.
Ensure satisfaction of the major customers
in the district by managing supply and
Distribution.
Supervise all technical
staff in the district.
Ensure high performance and Productivity
of technical staff by adopting proper human
resource management methods on
selection, training, coaching, counselling
and motivation.
Plan and design the High
voltage system
Ensure availability of adequate supply for
future needs of industries in the district by
planning and designing the High voltage
System

Results Driven
Activity vs.
Accountability

Exercise: Results
Description
Key Result Key Activities (Major
Supporting Actions)
KPIs
1. 1.
2.
3.
4.
1.
2.
3.
4.
2. 1.
2.
3.
4.
1.
2.
3.
4.
3. 1.
2.
3.
4.
1.
2.
3.
4.
4. 1.
2.
3.
4.
1.
2.
3.
4.

• Exercise: Results Description Questionnaire

Sources of Goals and KPIs
• Exercise: List down the sources of Goals and
KPIs available in your company:
– E.g. Job Description (RDQ)

Basics of the Balanced Scorecard

Reminder: Why BSC?
• Reason 1: Balanced
• Reason 2: Cause-and-Effect
www.myCNI.com.my www.OOBEY.com

Financial
“To satisfy our
stakeholders, what
Financial objectives must
we accomplish?”
Internal Process
“To satisfy our customers, in
which internal business
processes must we excel?"
Customer
“Who are our target
customers?
What is our value
proposition?”
Learning & Growth
“What capabilities and tools
do our employees require to
help them execute our
strategy?
Balanced Scorecard:
Corporate

Mission
“Who are our targets?
What is our value
proposition?”
Internal Process
“To satisfy our targets, in
which internal processes
must we excel?"
Learning & Growth
do our staff require to help
them execute our strategy?
Financial
“To fulfill the Mission,
what Financial, how do
we fund Internal
Processes?”
Balanced Scorecard: NGOs,
Non-Profits, Governments

Side notes on BSC
1. BSC should be a Thought Process and a Tool
not a Religion (e.g. Excel™ vs. Budgeting)
2. BSC ≠ Appraisal
3. New BSC implementations should start linking
with Budgeting right from the beginning
4. The „proper‟ BSC approach should rightly fully
be heavily customized to the organization
5. „Strategic Planning‟ trainings should be
provided before „BSC‟ trainings
6. Clear definitions for Accountability vs. Impact
vs. Influence vs. Assistance

Revenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Cause and Effect
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information Systems Motivation,
empowerment,
alignment
Satisfaction

Financial
Learning &
Growth
Internal
Process
Customers /
Distributors
Revenue Growth
ProductivityMarket Value
Department
Operations
Supplier &
Alliances
External
Involvement
Target
Markets
Products/
Services
Channel
Strategies
Human
Resources
Technology
Information &
IntelligenceSystems &
Processes
Cause and Effect: An
Example

Financial
Learning &
Growth
Internal
Process
Customers /
Distributors
Example: 1st Level BSC &
KPIs
Profit after Tax. Revenue. Cash-to-cash cycle. Operating
cash flow
Customer Complaints. Customer Acquisition Rate. Product
Availability. Product Quality & Service. Renewal Annual
Subscription. Distributor Rank Achievement. No. of Active
Distributor. No. DC/Regional Sales. Distributor with commission
Customer Database Availability. Accuracy of Forecast Planning.
Continuous Improvement. Response Time to Customer Needs.
Perfect Order Fulfillment. Inventory Turnover. Number of Effective
Sponsoring Program. On Time Delivery. No. of Effective Training.
Number of Effective A&P
% of staff evaluated on Core Competency Framework. % of staff
with Career Development Plans. No. of training hours completed
per staff. % of staff with access to strategic information. Q12
Index. % staff evaluated on Culture alignment

Leading and Lagging KPIs

Cause and Effect
Goal:
Healthy!
What are my
Vital Signs?
•Blood
Pressure?
•Temperature?
•Cholesterol?
•Fever?
•Chest Pain?
•Dizziness?

Cause and Effect
Also known as:
Leading vs. Lagging
Indicators

Exercise: Leading vs. Lagging
Lagging?
• Monthly Sales
• Customer Retention
• Project success
• Event attendance
• ARPU
• Customer Satisfaction
• Dealer Satisfaction
Leading?

Financial
“To satisfy our
stakeholders, what
Financial objectives must
we accomplish?”
Internal Process
“To satisfy our customers, in
which internal business
processes must we excel?"
Customer
“Who are our target
customers?
What is our value
proposition?”
Learning & Growth
do our employees require to
help them execute our
strategy?
Cause & Effect: Strategy

Top Performers and the „No
Contribution‟ Problem
Lagging
Leading
Historical, Outcome, Results, 1st
Level, Usually Financial or
tangible, Quarterly and Annually
Current, Indicators, Drivers, 2nd
Level onwards, usually non-
financial or intangible, Weekly,
Monthly and Quarterly

Developing „Driver‟ KPIs
Customer Retention % Lagging, 1st Level
Customer Satisfaction
Index
Leading, 2nd Level
On time delivery
Time to market for new products
TNA %
Defect levels, warranty claims
Leading, 3rd Level
onwards

What is the Objective?
„Do-or-Die‟ KPIs for CNI
• Revenue
• ARPU
• Sponsoring
• Retention
• Commission Plan (BDP)
• Product
• Corporate Image

• Exercise: What are the Key 1st Level KPIs for
your Industry?

Sample: Other 1st Level KPIs
across industries…
Financial Services Retail Telecommunications
•Maximize ARPU
•Minimize Churn
•Mutichannel customer
service
•Understand customer behavior
related to customer conversion,
acquisition, and retention
•Single view of customer
•Multichannel customer
experience
•Personalized customer
experience
•Anticipate and prevent churn
despite compensation
•Increase number of products
per customer
•Turn call center information
opportunity to up-sell and
cross-sell
•Increase customer
satisfaction and loyalty
Hospitality Travel & Leisure Manufacturing
experience
•Maximize share of wallet
•Player/customer loyalty
service
•Increase customer loyalty and
preference
•Maximize customer revenue
•Improve service quality and
efficiency
•Capture and close sales
opportunities
•Single view of customers
across supply chain
•Zero-error order capture
•Streamline opportunity to
cash processes
•Leverage investment in ERP
and backoffice systems

• Exercise: Developing your own Leading and
Lagging KPIs

Performance Standards

MBO Standards
A Excellent
B Good
C Average
D Poor
E Useless

MBO Standards
A Excellent
B Good
C Average Good
D Poor
E Useless

MBO Standards
A Excellent Excellent
B Good Very Good
C Average Good
D Poor Not Good
E Useless Commit Suicide

MBO Standards
A Excellent Consistently achieved 4 for 3
quarters
B Very Good Higher than planned results
C Good Achieved Planned Results
D Not Good Did not fully meet planned
results
E Commit
Suicide
Unacceptable performance

Rating Scale
≥ 105 million kilo of A5
98 million kilo of A4
≤ 93 million kilo of A1
Key Results KPIs Objectives
Ensure the achievement of current
production targets within cost
specification by regularly
monitoring production reports and
directing corrective action, where
necessary.
1.Production
targets/figures
2.Variance in
operating expense
budget
1.95million kilogram of Product A
2.Within budgeted factory cost
i.e. RM20 million

Business Model
The biggest impact

The McPlaybook*
Make it easy to eat
• 50% drive-thru
• Meals held in one
hand
Make it easy to prepare
• High Turnover
• Tasks simple to learn
& repeat
Make it quick
• “Fast Food”
• Tests new products
for Cooking Times
Make what customers want
• Prowls market for new
products
• Monitored field tests
*Adapted from: Businessweek , Februrary 5th 2007

What is the Business Model?
USP
Market
Discipline
Profit Model
•Google
•Tata Nano

What is the Business
Model?
USP
Market
Discipline
Profit Model

Business Model: USP
USP
(How do I
position my
organization?)
Trends
Customer
Internal

Business Model: USP
Unique Selling Proposition (USP)
=
Targeted Customer
=
Core Buying Purpose/ Customer Value
Proposition/ Job To Be Done (JBTD)

Business Model: USP
“The Product is Not the Product”
• What is the customer really buying?
• What is the “Core Buying Purpose”?
• What is the “Job To Be Done”?

Business Model: USP
Obstacles to JBTD:
1. Insufficient WEALTH
2. Insufficient ACCESS
3. Insufficient SKILL
4. Insufficient TIME

Business Model: Profit Model
Revenue
Cost
Margin
Cash
Flow
Assets

Revenue
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset

What is the Business Model?
USP
Market
Discipline
Profit Model

Market Discipline
"They are the most innovative"
"Constantly renewing and creative"
"Always on the leading edge"
"A great deal!"
Excellent/attractive price
Minimal acquisition cost and
hassle
Lowest overall cost of
ownership
"A no-hassles firm"
Convenience and speed
Reliable product and
service
"Exactly what I need"
Customized products
Personalized communications
"They're very responsive"
Preferential service and
flexibility
Recommends what I need
"I'm very loyal to them"
Helps us to be a success
Product
Leadership
Operational
Excellence
Customer
Intimacy
• Cost
• Convenience
• TCO
• Features,
Benefits
• Limited
Range
• Solutions
• Customization
• Breadth &
Depth

Market Discipline
"They are the most innovative"
"Constantly renewing and creative"
"Always on the leading edge"
"A great deal!"
Excellent/attractive price
Minimal acquisition cost and
hassle
Lowest overall cost of
ownership
"A no-hassles firm"
Convenience and speed
Reliable product and
service
"Exactly what I need"
Customized products
Personalized communications
"They're very responsive"
Preferential service and
flexibility
Recommends what I need
"I'm very loyal to them"
Helps us to be a success
Product
Leadership
Operational
Excellence
Customer
Intimacy•Air Asia
•LV
•Ramly

Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Alignment & Consistency:
Market Disciplines

Operational
Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent
information for all
• Transactional
• 'Once and Done'
Customer Intimacy
• Management by
Fact
• Easy to do
business with
• Have it your way
(customization)
• Market segments
of one
• Proactive, flexible
• Relationship and
consultative
selling
• Cross selling
Product Leadership
• New, state of the
art products or
services
• Risk takers
• Meet volatile
customer needs
• Fast concept-to-
counter
• Never satisfied -
obsolete own and
competitors'
products
• Learning
organization
Disciplines, Priorities, and KPIs

(low cost producer)
Product Leadership
(best product)
Customer Intimacy
Alignment & Consistency

(low cost producer)
Product Leadership
(best product)
Customer Intimacy
Alignment & Consistency
HP well-balanced
portfolio, mass
customization
Acer super lean
cost structure,
aggressive pricing
Apple powerful
products, premium
pricing, limited range
Still Doing
well in
2009/2011

Business Model
USP
Market
Discipline
Profit Model

Strategy + BSC = How
„Hope‟ is not a strategy

What is your Goal?
1. Cost Reduction
2. Growth
3. Both?

Growth Strategy
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy

Growth Strategy
1. Base Retention
2. Share Gain
3. Positioning4. Adjacent Market
5. New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
•Increase switching cost
•Customize products
•Preempt Defections
•Brand
•Neutralize Competitor
advantages
•Superior Value
•Buy market share
•Spot growth opportunities
•Organized search
•Promising Market?
•Make or Buy?

How Markets determine
Growth Strategies (1)
• Growth Rate
Growth
Rate
Strategy Why?
Fast 1. Market
Positioning
2. Share Gain
3. Base
Retention
•Maintain market share in strategic
segments
•Prepare for market decline
•Competitors focus too much on
getting new customers
Flat 1. Base
Retention
2. Share Gain
(Acquisitions)
•Lose customers slower than
competitors
•Create scale economics, squeeze
costs

• Churn Rate
Churn
Rate
Strategy Why?
Low 1. Share Gain
(Acquisitions)
2. Adjacent
Markets
•Buying customer base is
cheaper than own efforts
•New products, old customers
strategy
High 1. Base
Retention
2. Share Gain
3. Adjacent
Market
•Lose customers slower than
competitors
•Customers are always open to
the best value and offer
•Desperate to gain revenue

Fast Growth,
Low Churn
1.Market Positioning
2.Share Gain
3.Base Retention
4.Adjacent Markets
•Example: XYZ Sector

Side Notes on Cost
Reduction Strategy
Cost Reduction
Business
Model
•USP
•Profit Model
•Market Discipline
•Invest/Divest
Operational
•Finance, HR, IT
•Supply Chain
•R&D
•Sales & Marketing
5% -
30%
30% -
80%

Revenue
Base
Retention
Market
New
Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Satisfaction

(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
Strategy: Disciplines,
Priorities, and KPIs

• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent
information for all
• Transactional
• 'Once and Done'
Customer Intimacy
• Management by
Fact
• Easy to do business
with
• Have it your way
(customization)
• Market segments of
one
• Proactive, flexible
• Relationship and
consultative selling
• Cross selling
Product Leadership
• New, state of the
art products or
services
• Risk takers
• Meet volatile
customer needs
• Fast concept-to-
counter
• Never satisfied -
obsolete own and
competitors'
products
• Learning
organization
Strategy: Disciplines,
Priorities, and KPIs

• Operational Excellence
• Move know-how from top performing
units to others
• Benchmark against best in class
• Ensure operations training for all
employees
• Use disciplines like TQM for continuous
learning to reduce costs and improve
quality
Strategy: Value Disciplines

• Customer Intimacy
• Capture knowledge about customers
• Understand customer needs
• Empower front line employees
• Ensure that everyone knows the
customer
• Make company knowledge available to
customers

• Product Leadership
• Reduce time to market
• Commercialize new products fast
• Ensure that ideas flow
• Reuse what other parts of the company
have already learned
• Ensure there are multiple sources of
funding

Intro: Market Discipline
* Treacy & Wiersema, The Discipline of Market Leaders, 1995
Product/Service Attributes Relationship Image

Product/Service Attributes
Price
Quality
Time
Selection
√
√
Smart
Shopper
Relationship Image
Operational Excellence: Quality and selection in
key categories with unbeatable prices

√
Brand
Time
Function
√
√
Best
Product
Relationship Image
Product Leadership: Unique products and services
that push the standards

√
√
√
√
Service Trusted
Brand
Relationship Image
Customer Intimacy: Personal service tailored to
produce results for customer and build long-term
relationships
Relations

Revenue
Base
Retention
Market
New
Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Satisfaction

Alignment: 4-Wheels Model
Culture
Business
Model
Strategic
Planning
Structure
Person
Leadership
Resources

Alignment: Framework
• Focus point
• Alignment
• Quality
• Innovation & Differentiation
• Risk taking
• Performance Management
• Corporate obsession
• Decision making
Culture

Alignment: Framework
• Org Structure
• Job Design
• C&B
• Policies & procedures
• Decision making
• Job fit
• Management Systems
• BSC and KPIs
• Decentralized & Empower
Structure

Strategy: Framework
• Role modeling
• Vision/Mission/Philosophy
• Leadership Style
• Delegation & Empowerment
• C&B, Promotions
• Sense of Urgency
• Speak regularly about Performance
Leadership

Strategy: Framework
• Recognition
• Recruitment
• Training
• Profit sharing
• Values
• Motivation
• Self Efficacy
• Awareness
• Useful Competencies
• Career aspirations
• Attribution (control)
Person

Strategy: Framework
Enablers
• Technology
• Equipment
• Materials
• Human
• Intellectual
Property
• Partners
• Property
Resources
Funding
• CAPEX
• OPEX

Operational
Excellence
Customer
Intimacy
Product
Leadership
Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Each Discipline Requires
Different Priorities & Resources

•Central authority, low level of empowerment
•High skills at the core of the organization
•Disciplined Teamwork
•Process, product- driven
•Conformance, 'one size fits all' mindset
•Integrated, low cost transaction systems
•The system is the process
•Command and control
•Quality management
Organization,
jobs, skills
Management
systems
Information and
systems
Culture, values,
norms

Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Product Leadership
•Ad hoc, organic and cellular
•High skills abound in loose-knit structures
•Concept, future-driven
•Experimentation and 'out of the box' mindset
•Person-to-person communications systems
•Technologies enabling cooperation
•Rewarding individuals' innovative capacity
•Risk and exposure management
•Product Life Cycle profitability

Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Customer Intimacy
•Empowerment close to point of customer contact
•High skills in the field and front-line
•Customer-driven
•Variation and 'have it your way' mindset
•Strong customer databases, linking internal and
external information
•Strong analytical tools
•Customer equity measures like life time value
•Satisfaction and share management
•Focus on „Share of Wallet‟

Market Disciplines &
Learning & Growth
Employee Motivation, Competencies
and Alignment

Case Study
Customer
Satisfaction
Service
Product
Facilities
Store
Profitability
Sales
Revenue
Operating
Cost
© Rajiv D. Banker
Employee
Satisfaction
Training
Support
Managerial
Support
Merchandise
Support
Associate
Support

Case Study
The company can now predict that:
for every
5%
increase in
employee
satisfaction
influences
1.3%
increase in
customer
loyalty
influences
0.5%
increase in
revenue
Source: Balanced Scorecard, P. Niven; 2002

Learning & Growth
Capabilities Tools Culture &
Climate
Employee Satisfaction

Market Disciplines &
The Role of ICT

• Providing reliable products and services at
competitive prices with minimal difficulty and
inconvenience
• Role of IT
– Optimizing business processes for efficiency (e.g.,
workflow automation)
– Substituting information systems for inventory
– Using integrated information systems to coordinate
order entry with production, distribution and service

Product/Service Leadership
• Producing a continuous stream of state-of-the-art
products and services that are attractive to
customers
• Role of IT
– Optimizing business processes for product
development speed
– Providing support for quick product-related decision-
making (e.g., design, pricing, advertising)
– Information Awareness for discovering new product
ideas
– Knowledge Management for assimilating and
disseminating information

Customer Intimacy
• Customizing products and services to increasingly
fine definitions of customer segments
• Role of IT
– Enhancing relationships through the use of IT-based
channels
– Optimizing business processes for flexibility and
responsiveness (e.g., intelligent call centers, flexible
manufacturing systems)
– Database marketing and other data-mining tools for
customer profiling and segmentation
– Decision Architecture empowers employees closest
to the customers

• Role of IT
– Optimizing business processes for
efficiency (e.g., workflow automation)
– Substituting information systems for
inventory
– Using integrated information systems to
coordinate order entry with production,
distribution and service
– Examples: Wal-Mart, Federal Express,
Seven Eleven Japan

Customer Intimacy
• Role of IT
– Enhancing relationships through the use of IT-
based channels
– Optimizing business processes for flexibility and
responsiveness (e.g., intelligent call centers,
flexible manufacturing systems)
– Database marketing and other data-mining tools
for customer profiling and segmentation
– Decision Architecture empowers employees
closest to the customers
– Examples: Amazon.com, Merrill Lynch, Kraft

Product/Service Leadership
• Role of IT
– Optimizing business processes for product
development speed
– Providing support for quick product-related
decision-making (e.g., design, pricing,
advertising)
– Information Awareness for discovering new
product ideas
– Knowledge Management for assimilating and
disseminating information
– Examples: Intel, Microsoft, Nokia, Sony

Revenue
Base
Retention
Market
New
Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information Systems Motivation,
empowerment,
alignment
Satisfaction

B2B/B2G BSC Matching
Revenue
Base
Retention
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfaction
Customer/Client/
Government BSC
Revenue
Base
Retention
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfaction
Your BSC
1. Draw your „customer‟s‟ BSC
2. Match their CP/IP with your CP
3. Identify IPs that support/conflict

Dangers of Best Practice and
Benchmarking

Dangers of Best Practice
and Benchmarking…
“Abraham Wald‟s Work on
Aircraft Survivability”, M.
Mangel and F.J.
Samaniego
Where would
you focus
reinforcement?

and Benchmarking…
Company
Performance
high
low
„Best Practice‟
theories
low high
zero
Perfor
mance
Trend
line
“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

and Benchmarking…
Selection Bias:
1. Success Traits = Failure Traits
2. Successful Cases + Failure Cases
3. Worst effects in „Old‟ industries
4. Overvalue „best practice‟ theories
5. Current accomplishments unfairly magnified by
past achievements
6. Reverse Causal

and Benchmarking…
Also known as „Beware of Consultants‟:
1. Selection Bias
2. Big vs. Small company
3. Selective success stories
4. Correlation vs. Causal
5. Survey problems
6. Practical vs. Glamour-to-have
7. Leaders who benchmark

Survey Problems…
“In business after business, 60% to
80% of lost customers reported
on a survey just prior to defecting
that they were satisfied or very
satisfied.”
HBR March/April 1996

Cascading from Company-Department-
Individual

Sample: Other 1st Level KPIs
across industries…
Financial Services Retail Telecommunications
•Maximize ARPU
•Minimize Churn
•Mutichannel customer
service
•Understand customer
behavior related to customer
conversion, acquisition, and
retention
•Single view of customer
experience
experience
•Anticipate and prevent churn
despite compensation
•Increase number of products
per customer
•Turn call center information
opportunity to up-sell and
cross-sell
•Increase customer
satisfaction and loyalty
Hospitality Travel & Leisure Manufacturing
experience
•Maximize share of wallet
•Player/customer loyalty
service
•Increase customer loyalty
and preference
•Maximize customer revenue
•Improve service quality and
efficiency
•Capture and close sales
opportunities
•Single view of customers
across supply chain
•Zero-error order capture
•Streamline opportunity to
cash processes
•Leverage investment in ERP
and backoffice systems

Sample KPIs for Each
Discipline
Operational
Excellence
• Price
• Selection
• Convenience
• Zero Defects
• Growth
Customer Intimacy
• Customer
Knowledge
• Solutions Offered
• Penetration
• Customer Data
• Customer-success
focus
Product Leadership
• Marketing
• Functionality
• # of Successes
• # of Failures
• Learn from key
users
• Interdisciplinary
teams
• Pipeline

Company – Business Unit –
Department KPIs
Department:
Corporate Business Unit Department
Financial Increase
Profitability
(Margins +15%)
Customer
Internal
Process
Learning
& Growth

E3 – Department BSC
Financial Perspective
Goals Measures Targets CAPEX OPEX
Quality
Innovation
On Time
Delivery

Individual Performance
1.0 Key
Results
Area (Max
6)
2.0
Goals
and
Targets
for Q1
3.0
Achievem
ents and
Efforts for
Q1
4.0 Merit* 5.0 Rating
(Merit x
Weight)
6.0
Appraiser
Overall
Comments
/ Feedback

Cascading
Customer Perspective
Goals Strategies Targets Direct Indirect
Base
Retention
Mkt
Share Gain Mkt
New
Business
BD

E3 – Department BSC
Customer Perspective –
Marketing Department
Goals Strategies Targets CAPEX OPEX
Base
Retention
Share Gain
Budgeting

Individual MBO
Employee A – Marketing Executive
KRAs Action Plans Targets Weight (%) Score
Class A
Customer
Retention
Class B
Customer
Retention
Competition
Crossovers
Re: Base
Retention

Worksheet

Planning, Budgeting, Schedules,
Processes
Tying it all up

The Planning & Budgeting Process
Stages Output Month
1. Pre-Planning
Analysis &
Brainstorming
•Current ½ yr budget & revision
•Next yr options and budgets required
July -
Sep
2. High-level
Group Strategy
and Targets
•High-level strategy of Group Corp Plan.
•Circulation of Main Budget simulation to
all departments
Sep
3. Functional
Strategy and
Budgets
•BSC & Budget preparation by HODs to
HODivs
Sep - Oct
4. Formal Results
Planning
•BSC & Budget to CEOs, followed by BOD
•Revised and Finalized Plans and Budgets
Oct-Nov
5. Communication
and Cascading
•Presentation of Group Budget and
Planning summary & distribution
•Communication of Highlights to the field
and staff
Nov-Jan

Review processes
1. Result Planning schedule inc. BSC, Budget
2. Quarterly Performance Appraisals
3. Sales performance
4. QMS – non-sales performance
5. Divisional meetings
6. Annual Appraisals
7. Specialized KPI committees
8. CAR, PAR, SCAR KPI improvements
9. Internal Audit & MSD – process problems
10. HRM & TND – people problems
11. Supervisor Induction – PM training
12. Talent Management

Problems, problems and
more problems…

Problems, problems and
more problems…
1. No serious budget to tackle key risks
2. Too much optimism or pessimism
3. Innovation vs. Results vs. Baseline
4. Investment ≠ Portfolio Management
5. Top down vs. Bottom up
6. Good to have vs. Need to have
7. Line Manager not thinking like Investors
8. Too focused on KPI and BSC
9. Budget allocation seen as „popularity‟ vote
10.Public Listing -> pressure for short-term
budgets and results vs. long-term innovation

KPI Documentation and Dashboard

Data Elements
and Collection
Logic:
An online survey will be administered to clients, both internal* (within LLSG
and SJHC) and external (those who refer in work e.g. HICL).
*Physicians, Nurses, Ward Clerks, PSA/TSA, Managers/Coordinators,
Researchers, Students, Allied Health Professionals, others.
Dave Schaus will create the survey form and collect the data with Omniform
Perform. Data will exported to MS Access for review and analysis.
Calculation
Formula:
For each question:
# survey participants response for each rating (1-4)/ total # of survey
participants = x/100 = x%
Frequency: Yearly
For the first initiative, customers will be resurveyed once training is completed to see if there has been an increase in customer
satisfaction.
Baseline: Not known
Target:
Target Rationale:
Limitations and Exclusions:
Analysis Considerations:
Initiatives: Develop and administer Customer Service Training for existing and new
employees
References:
Sample 1: KPI Data
Collection Form

Data Elements
and Collection
Logic:
Calculation
Formula:
Frequency:
Baseline:
Target:
Target Rationale:
Limitations and Exclusions:
Analysis Considerations:
Initiatives:
References:
Sample 1: KPI Data
Collection Form

Sample 2: KPI Data
Collection Form

Sample 2: KPI Data
Collection Form
KPI Name
Description
Objective
Type  Quantitative  Qualitative
Effort  Low  Medium  High
Unit
Assessment
Method
Possible Tools
Analysis
Frequency
 Day  Week  Month
 Quarter  Year  Year+
Comments

Sample 3: Scorecard/KPI
Data Collection Template

Sample 3: Scorecard/KPI
Data Collection Template
Measure Owner:
Data Owner:
Actual Results
Measure
Name
Perspective Description Mth 1 Mth 2 Mth 3 Commentary

4. Building a Performance Culture

Strategy: Framework
• Recognition
• Recruitment
• Training
• Attitude
• Values
• Motivation
• Self Efficacy
• Awareness
• Useful Competencies
• Career aspirations
• Attribution (control)
Person

Strategy: Framework
Enablers or Obstacles
• Technology
• Equipment
• Materials
• Human
• Intellectual Property
• Partners
• Property
Resources
Funding
• CAPEX
• OPEX

4-Wheels Model
Culture
Business
Model
Strategic
Planning
Structure
Person
Leadership
Resources

The Integrated and Holistic

Why Performance
Appraisal?
Performance
Management
Development
Motivation
Selection
Evaluation

Talent Segmentation
Group I
(Talent Pool)
2345
PERFORMANCE
2 3 4 5
POTENTIAL• Identify

Employee Differentiation
Group I
(Talent Pool)
Group II
( Potential)
Group III
( Performance)
Group IV
(Counseling)
2 3 4 5
2345
PERFORMANCE

Selection and
Identification
PERFORMANCE
APPRAISAL
1. Results
2. Values
3. Special
Contributions

Selection and
Identification
POTENTIAL
EVALUATION
1. Capacity
2. Competencies
3. Culture

Selection and
Identification
POTENTIAL
EVALUATION
1. Capacity
Learn
Next Level
Ambition

Selection and
Identification
POTENTIAL
EVALUATION
2. Competencies
Competent
Reliable/Consistent
Pressure

Selection and
Identification
POTENTIAL
EVALUATION
3. Culture
Demonstrate
Improve
Influence

Exercise
Define ‘Performance’ Define ‘Potential’

Performance Coaching

Coaching & Counseling
Month 1
Performance
Planning
Month 12
Performance
Appraisal
Month 2-11
?
Refer: Coaching Self-
Assessment

Designing Your Own Performance
Appraisal Form

Performance Appraisal Form
• Exercise: Performance Appraisal Form - Critical
Components
– What Do you Want to Evaluate?
– What are Your Objectives?

Performance and Motivation

Motivating Talent
Hope
Control

Motivating Talent
Passion Job
GrowthTalent
Minimum Motivation Target:
2 out of 4
Delegation

8. Performance and Reward

„Basic Values‟ Driven C&B
1. Performance
2. Differentiation

What to Pay?
• Pay for Service
• Pay for Job
• Pay for Competency
• Pay for Performance

•Competency
- Knowledge
- Skills
- Experience
•Problem solving
- Complex
- Type of problems
- Special Problems
•Responsibility
- Authority
- Success/Failure
- Freedom to act
Pay for Job

Performance and Incentives
1. Internal Equity
1. Internal Job Rates
2. Performance differentials
2. External Competitiveness
1. External Job Rates - Benchmarking
2. Demand & Supply

What‟s the Difference?
• Increment
• Bonus
• Promotion
Exercise: How does your company
define the difference?

What to Pay?
• Pay for Service
• Pay for Job
• Pay for Competency
• Pay for Performance
Exercise: Which ones does your
company use for Pay?

Compa Ratio Table
Use this if your company:
• Pays for Performance, and
• Pays for Job rates
Def:
Mid-Point = Mid Point of Pay Grade
Grade E2
Min
RM2,000
MID
RM2,500
Max
RM3,000

Compa Ratio Table
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5
4
3
2
1

Compa Ratio Table
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5
4
3 5%
2
1

Compa Ratio Table
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 9
4 7
3 9 7 5% 4 3
2 2
1 0

Compa Ratio Table
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 15 12 9 8 7
4 12 9 7 5 3
3 9 7 5% 4 3
2 6 4 2 1 0
1 4 2 0 0 0

Employee Differentiation through Relative
Performance and Talent Management

Values Driven C&B
1. Performance
2. Differentiation

Employee Distinction
Group I
(Talent Pool)
Group II
( Potential)
Group III
( Performance)
Group IV
(Counseling)
2 3 4 5
2345
PERFORMANCE

Employee Distinction?
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 9 8 7 6 5
4 8 7 6 5 4
3 7 6 5% 4 3
2 6 5 4 3 2
1 5 4 3 2 1

Employee Distinction?
< 0.7 ≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 20 15 12 8 5
4 18 12 9 5 3
3 9 7 5% 4 3
2 1 1 1 0 0
1 0 0 0 0 0

Employee Distinction
Average
Rating
Rating Multiply
Factor
Example
Rating
Example
Increme
nt
> 4.1 5 2 4.2 8.4%
> 3.3 – 4.1 4 1.2 3.5 4.2%
> 2.3 – 3.3 3 0.75 2.8 2.1%
> 1.3 – 2.3 2 0.5 1.8 0.9%
≤ 1.3 1 0 1.0 0%

VARIABLE AND INCENTIVE
SCHEMES
Part B-3

Incentive Scheme Design
Agenda
1. Objective
2. Situation Analysis
3. Target Areas to be improved
4. Current Incentive
5. Recommended KPIs
6. Proposed Incentive Scheme
7. Improving Performance

Objective?
1.What are you trying to achieve?
2.How to measure?
3.What is the Gap?

Target group?
The following positions are eligible to participate in this
scheme:

Situation Analysis?
1. Retention?
2. Working environment?
3. The current basic pay?
4. Teamwork?
5. Supervision/Leadership style?
6. Attitude?
7. Turnover issues?
8. Absenteeism?

Target areas to be improved?
1. Increase/Decrease the basic pay?
2. Fixed costs?
3. Incentives tied to… ??
4. Absenteeism?
5. Quality improvement?
6. Easily understood by employee?

Recommended KPIs to be
incentivised
Output Skill (Proficiency) Behavioural
(Attitude)
•Manpower productivity
•Operational Cost
•Safety and
Environment
•Quality (e.g.
Defect/unit)
•Volume
•Job Specific Skills •Punctuality
•Absenteeism/Attenda
nce
•Teamwork
•Turnover

Proposed incentive scheme
1. Fixed Salary Proportion (Fixed Personal
Income, Variable Team Bonus)
Total Payout
= Fixed Quantum + Team Based Bonus

Example:
1. Budgeted incentive = 5.8 months of basic payroll
2. Fixed Quantum = 0.4 months (for example) [4.8 mths 12]
3. Monthly Total Payout = Basic Pay + Fixed Quantum
= RM500 + 0.4 months
= RM500 + RM200
= RM700
4. Amount available for bonus = 5.8 months - 4.8 months
= 1.0 month
1. Fixed Salary Proportion (Fixed Personal Income, Variable
Team Bonus)

Team
Performance
Rating
5 1.50 months 2.00 months 2.50 months
Production Operator Team Leader Group Leader
Annual Bonus Annual Bonus Annual Bonus
Annual Bonus Incentive Matrix
1. Fixed Salary Proportion (Fixed Personal Income, Variable
Team Bonus)

Monthly Incentive Payout Matrix
Personal Rating
5 1.2 months
4 1.0 months
3 0.8 months
2 0.5 months
1 0.0 months
Monthly Incentive
2. Two-tier Multiplier (Variable Personal Income,
Variable Team Bonus)
Total Payout =
Basic Pay + Monthly Personal Target Achievement + (Personal
Target Achievement x Team Performance Multiplier)

Personal
Performance
Rating 500 550 600 650 700 750 800
5 1,100 1,210 1,320 1,430 1,540 1,650 1,760
4 1,000 1,100 1,200 1,300 1,400 1,500 1,600
3 900 990 1,080 1,170 1,260 1,350 1,440
2 750 825 900 975 1,050 1,125 1,200
1 500 550 600 650 700 750 800
Monthly Basic Pay (RM)
Example: Production Operator

Personal
Rating
Monthly Incentive
Team Leader Group Leader
Monthly Incentive Monthly Incentive
Production Operator

5 4 3 2 1
5 2.4 1.8 1.2 0.6 0
4 2 1.5 1 0.5 0
3 1.6 1.2 0.8 0.4 0
2 1 0.75 0.5 0.25 0
1 0 0 0 0 0
Team Performance
PersonalPerformance
(in months)
2. Two-tier Multiplier (Variable Personal Income, Variable Team Bonus)

3. Team Ratio Plan (Team-based Income, No Annual Bonus)
Total Payout =
Basic Pay + Monthly Incentive Payout (No Annual Bonus)
Team Rating
Production Staff Team Leader Group Leader
Monthly Incentive Monthly IncentiveMonthly Incentive
Monthly Incentive Payout Matrix

Team
Performance
Rating 500 550 600 650 700 750 800
5 1,500 1,650 1,800 1,950 2,100 2,250 2,400
4 1,250 1,375 1,500 1,625 1,750 1,875 2,000
3 1,100 1,210 1,320 1,430 1,540 1,650 1,760
2 875 963 1,050 1,138 1,225 1,313 1,400
1 500 550 600 650 700 750 800
Monthly Basic Pay (RM)
Example: Production Operator
3. Team Ratio Plan (Team-based Income, No Annual Bonus)

Improving Performance
Performance
Improvement Area
Intervention Methods Effectiveness of
Direct Incentive
Measures
Skill Deficiency •Off site Training
•Job redesign
•On-the-job training
•Process Redesign
Yes
Performance Punishing •Review performance management
processes
•Study on supervision style of Team
Leader
•Remove punishment
No
Non-performance
rewarding
•Proper performance monitoring
process
•Arrange positive consequence
No
Coordination &
Teamwork
•Communication of clear direction
and goals
•Shared Accountabilities
•Focus on Team Competencies
Partly
Behavioural •Communication of clear behavioural
indicators
•Focus on Behavioural
•Coaching and Counselling
Partly
Supervision Style •Leadership styles of team leaders
•Regular tracking on morale of team
members
Yes but not for team
members

Curse of the Bell Curve
„A‟
Staff
„B‟
Staff
„D‟
Staff
„E‟
Staff
„C‟
Staff

9. Performance Management: Issues
and Challenges

Other Performance Review
processes
1. Result Planning schedule inc. BSC, Budget
2. Quarterly Performance Appraisals
3. Sales performance KPIs
4. QMS – non-sales performance KPIs
5. Divisional meetings
6. Annual Appraisals
7. Specialized KPI committees
8. CAR, PAR, SCAR KPI improvements
9. Internal Audit & MSD – process problems
10. HRM & TND – people problems
11. Supervisor Induction – PM training
12. Talent Management

More Problems….
1. cost of evaluation vs. gains of evaluation
2. defer achievements of a good year to next
3. barely achieve so that next target is not high
4. spread improvements over several years
5. value reducing actions to increase performance
6. most ratings are 4 or 5, new people are 3

Before I forget…
• Re-train Appraisers
• Train new Appraisers

Issues and Challenges
1. HODs unclear
2. HODs disagree/unsupportive
3. HODs not committed
4. Functional silos
5. HODs not willing to openly differentiate
6. Incompetent superiors/HODs
7. Difficult to evaluate
8. Aligning with Business Goals
9. Unsynchronized and unmonitored training and
development

End Point
The end of the Beginning

QUESTIONS, ANSWERS,
COMMENTS
forum

Which Company?
American Customer Satisfaction Index (ACSI)
• 64 out of100-point scale: lower than IRS (Tax)
• 2nd last among 30 companies surveyed
• Lowest 5% among 223 companies surveyed
• Bottom 5% of all measured private sector
companies
• 500 million customers
2010 American Customer Satisfaction Index
(ACSI) E-Business Report

Popularly Unpopular
Popularity
≠
Affection

Don‟t forget…
“The business of business
is Business, not KPIs”

Thank You.
soft copy of slides:
http://totallyunrelatedrandomanddebatable.
blogspot.com/

Developing Effective KPIs

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