Bridge Knowle Workshop - Developing Effective KPIs (Main Slides)

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Developing EffectiveKey Performance IndicatorsMain Slides Compilation

Kenny Ong

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

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

Business Plan Implementation

Performance Management 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

Stakeholders

Constraints

Output:

Priorities

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

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)

Proceduredriven

High level of employee empowerment

High employee performance

High employee satisfaction

High employee involvement

Challenging working environment

Optimum HRM cost structure

Step 5

Step 4

Step 3

Step 2

Step 1

Performance Contracting Model

Performance Planning

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)

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“What capabilities and tools 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 ≠ Appraisal3. New BSC implementations should start linking

with Budgeting right from the beginning4. The ‘proper’ BSC approach should rightly fully

be heavily customized to the organization5. ‘Strategic Planning’ trainings should be

provided before ‘BSC’ trainings6. 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 GrowthProductivityMarket 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

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“What capabilities and tools 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

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

•Personalized customer experience•Maximize share of wallet•Player/customer loyalty•Multichannel customer 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 A 4

95 million kilo of A3

94 million kilo of A2

≤ 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/figures2.Variance in operating expense budget

1.95million kilogram of Product A2.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

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?

Market Discipline

Profit Model

•Google

•Tata Nano

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

Market Discipline

Profit Model

Business Model: Profit Model

Revenue

MarginCash Flow

Assets

RevenueFinancial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

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

OperationalExcellence

CustomerIntimacy

• 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

OperationalExcellence

CustomerIntimacy•Air Asia

•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

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

• 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

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

Product Leadership

• Risk takers

Alignment & Consistency: Disciplines, Priorities, and KPIs

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

Alignment & Consistency: Business Model

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 RateChurn 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 Gain3.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

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Satisfaction

Strategy: Disciplines, Priorities, and KPIs

Operational Excellence• Competitive price• Error free, reliable• Fast (on demand)• Simple• Responsive• Consistent

information for all• Transactional• 'Once and Done'

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

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

• Risk takers

Product Leadership

• Risk takers

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

Quality

Selection

Smart Shopper

Relationship Image

Operational Excellence: Quality and selection in key categories with unbeatable prices

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

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

Satisfaction

Alignment: 4-Wheels Model

Culture

Business Model

Strategic Planning

StructurePerson

Leadership

Resources

Alignment: Framework

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

Culture

• 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

Culture

Business Model

Strategic Planning

StructurePerson

Leadership

Resources

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

•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

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

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

Management systems

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’

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

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

• 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

• 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

• 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

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

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

Competencies Information Systems Motivation, empowerment,

alignment

Satisfaction

B2B/B2G BSC Matching

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

Competencies Information Systems

Motivation, empowerment,

alignment

Satisfaction

Customer/Client/ Government BSC

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin Cash Flow Asset

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

Financial

Learning & Growth

Internal Process

Revenue GrowthProductivityMarket Value

Department Operations

Supplier & Alliances

External Involvement

Target Markets

Products/ Services

Channel Strategies

Human Resources

Technology

Information & IntelligenceSystems &

Processes

Cause and Effect: An Example

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?

Company Performance

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

Company Performance

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

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

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•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

•Personalized customer experience•Maximize share of wallet•Player/customer loyalty•Multichannel customer 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

• Price• Selection• Convenience• Zero Defects• Growth

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline

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 Achievements 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

Share Gain Mkt

New Business

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

Performance Planning Worksheet

Planning, Budgeting, Schedules, Processes

Tying it all up

The Planning & Budgeting ProcessStages 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

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, Budget2. Quarterly Performance Appraisals3. Sales performance4. QMS – non-sales performance5. Divisional meetings6. Annual Appraisals7. Specialized KPI committees8. CAR, PAR, SCAR KPI improvements9. Internal Audit & MSD – process problems10. HRM & TND – people problems11. Supervisor Induction – PM training12. Talent Management

Problems, problems and more problems…

1. No serious budget to tackle key risks2. Too much optimism or pessimism3. Innovation vs. Results vs. Baseline4. Investment ≠ Portfolio Management5. Top down vs. Bottom up6. Good to have vs. Need to have7. Line Manager not thinking like Investors8. Too focused on KPI and BSC9. Budget allocation seen as ‘popularity’ vote10.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: YearlyFor 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:

KPI Name

Description

Objective

Type Quantitative Qualitative

Effort Low Medium High

Assessment Method

Possible Tools

Analysis Frequency

Day Week Month Quarter Year Year+

Comments

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

Culture

Business

ModelStrategic Planning

StructurePerson

Leadership

Resources

• 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

• 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

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

Culture

4-Wheels Model

Culture

Business

ModelStrategic Planning

StructurePerson

Leadership

Resources

The Integrated and Holistic Performance Management System

Why Performance Appraisal?

Performance

ManagementDevelopment

Motivation

Selection

Evaluation

Talent Segmentation

Group I

(Talent Pool)

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

Selection and Identification

PERFORMANCE APPRAISAL

1. Results

2. Values

3. Special Contributions

POTENTIAL EVALUATION

1. Capacity

2. Competencies

3. Culture

1. Capacity

Next Level

Ambition

2. Competencies

Competent

Reliable/Consistent

Pressure

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

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 Equity1. Internal Job Rates

2. Performance differentials

2. External Competitiveness1. 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

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

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

3 9 7 5% 4 3

Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤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

Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤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

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

> 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/Attendance•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

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

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

(in months)

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 LeaderMonthly 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 PerformancePerformance Improvement Area

Intervention Methods Effectiveness of Direct Incentive Measures

Skill Deficiency

•Off site Training•Job redesign•On-the-job training•Process Redesign

Performance Punishing

•Review performance management processes•Study on supervision style of Team Leader•Remove punishment

Non-performance rewarding

•Proper performance monitoring process•Arrange positive consequence

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, Budget2. Quarterly Performance Appraisals3. Sales performance KPIs4. QMS – non-sales performance KPIs5. Divisional meetings6. Annual Appraisals7. Specialized KPI committees8. CAR, PAR, SCAR KPI improvements9. Internal Audit & MSD – process problems10. HRM & TND – people problems11. Supervisor Induction – PM training12. Talent Management