1. Performance Improvement
Consultancy
Arriffin Mansor

2. Contents :
1. Corporate Performance Scorecard
2. Strategy Map Framework
3. Four Perspectives in Balanced Scorecard
4. Identifying Key Performance Indicators
5. Strategy Map in Corporate Functions (HR, IT, Finance and Marketing)
2

3. Performance management
Targets
Objectives
Key
Key Performa
Result nce
Areas Indicator
s
Training
Standards Need
Analysis
Variance
Rewards Appraisals
Analysis
3

4. Strategy Map Framework
Long-term Shareholder Value
Cost Efficiency Revenue Growth
Financial
Price Quality Service Availability Brand
Customer
Regulatory
Operations Customer Innovation
and Social
Management Management Processes
Processes
Processes Processes
Internal Process
Learning & Growth
Human Capital Organization Capital Information Capital
4

5. Financial Perspective
• In private companies, the financial perspective is the main objective
(ultimate goal) – without having to sacrifice the interests of other relevant
stakeholders (community, environment, government, etc.)
• In the financial perspective, the strategic goal is the long-term
shareholder value. This goal is driven by two factors, namely : revenue
growth and cost efficiency.
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6. Strategic Objectives in Financial
Improve ROE
Increase ROA Improve Gearing
Enhance Customer Value
Rent Lease fixed assets
Increase Asset Utilization
Buy assets on loans
Improve Cost Structure
Sell on cash buy on credit
Expand Revenue
Opportunities
6

7. Customer Perspective
• This perspective is very instrumental, because without customers, how can a
company survive?
• Customer perspective covers the following elements:
• Customer acquisition
• Customer retention
• Customer profitability
• Market share
• Customer satisfaction
7

8. Strategic Objectives in Customer
Customer Retention Customer Profitability
Customer Satisfaction Market Share
Customer Acquisition
Price Quality Service Availability Brand
8

9. Performance Management Framework
Vision Strategy Map
Mission
Strategy
Key Performance
Indicators
Company
strategy
Identifying
Defining
Measuring
Monitoring
Reporting 9

10. Agenda today
• What are the critical performance gaps?
• Comparing actuals against industry and
company standards
• Analyse staff incompetencies.
• Analyse competency gaps using perspectives
and key result areas.
• Analyse for true competency gaps

11. Corporate Objectives
ROS ROA ROE

12. Performance Gap analysis
Actuals Standards Gaps

13. Internal Process Perspective
• This perspective reflects the processes in key business that should be
optimized in order to meet the needs of the customers.
• There are four main themes in this perspective, namely:
• Operations Management Process
• Customer Management Process
• Innovation Process
• Regulatory and Social Process
13

14. Strategic Objectives in Internal Process
Operations Customer Regulatory
Innovation
Management Management and Social
Processes
Processes Processes Processes
Processes that Processes that Processes that create Processes that
produce and deliver enhance customer new products and improve
products and services value services communities and the
environment
• Supply • Selection • New Ideas • Environment
• Production • Acquisition • R&D Portfolio • Safety & Health
• Distribution • Retention • Design/ Develop • Employment
• Growth • Launch • Community
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15. Learning & Growth Perspective
• This perspective reflects the capability that a company should have, namely:
• Human Capital
• Organization Capital
• Information Capital
• This perspective shows us that good human resource development system,
organizational system and information system forms a solid foundation for
improving company performance.
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16. KPI Guidelines
Guidelines in Formulating the KPI
• The measure of success must show clear, specific and
measurable performance indicators.
• The measure of success should be declared explicitly and in
detail so that it is clear what is being measured.
• Costs to identify and monitor the measure of success should
not exceed the value that will be known from the measurement.
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17. KPI Guidelines
Relevant to the Does KPI have a linkage with the strategic objectives?
Strategic Objective
Controllable Are the KPI achievements still under control?
Actionable Can any action be taken to improve the performance?
Simple Is the KPI easy to explain?
Credible Is the KPI not easy to manipulate?
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18. Layers of Measurement
Performance
Senior Management Management
Enterprise
Goals & Program Office
Objectives
Measurement
Process Management (QP) Repository
Improve
Process .. Control
Process Enterprise
Define
Execute
Process Measure Measures Database •
•
Applications
Projects
• Employees
• Client
Project A Project B Project C
Project
Product Product X Product Y Project/Product
Data
Historical Measures
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19. Common Misuse of Performance Measurement?
• Behavior is influenced by measures
– “You get what you measure because that is what you reveal
as what you think is important.” (Sink and Tuttle, 1989)
• But, are we measuring the right things?
– How do we know the measure accurately reflects system
performance?
– How do we know that the measure is under the control of
those it’s attributed to?
– Are we measuring to control or to improve, or both?
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20. A good KPI system are measures
• At outcome level - performance level
– Corporate Level
• At output level - Production level
• At process level – efficiency and productivity
measures
– Sales & Production
• At input level - alternative labour, material
and overhead choices

21. KPI Family Dimension
Productivity Measures employee output (units/ transactions/ dollars),
the uptime levels and how employees use their time (sales-
to-assets ratio, dollar revenue from new customers, sales
pipeline).
Measures the ability to meet and/or exceed the
Quality
requirements and expectations of the customer (customer
complaints, percent returns, DPMO -- defects per million
opportunities).
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22. KPI Family Dimension
Profitability Measures the overall effectiveness of the management
organization in generating profits (profit contribution by
segment/customer, margin spreads).
Timeliness Measures the point in time (day/week/ month) when
management and employee tasks are completed (on-time
delivery, percent of late orders).
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23. KPI Family Dimension
Measures how successfully the management
Cost Savings organization achieves economies of scale and scope
of work with its people, staff and practices to
control operational and overhead costs (cost per
unit, inventory turns, cost of goods).
Measures the ability of the management
organization to maintain competitive economic
Growth position in the growth of the economy and
industry (market share, customer
acquisition/retention, account penetration).
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24. KPI Category Dimension
The actual raw data value as measured (e.g., sales volume). Direct
The comparison of the changes in performance of one
Percent
value relative to the same value at a different time,
geography, etc. (e.g., percentage change in sales vs. last
year).
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25. KPI Category Dimension
The comparison of one value relative to another to Simple Ratio
provide a benchmark for comparison of performance
(e.g., average sales per day).
A combination of several separate measures added
Index
together that result in an overall indicator of
performance (e.g., (company sales growth)/(industry
sales growth) for a specific geography).
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26. KPI Category Dimension
The addition of the weighted averages of several similar Composite
measures that result in an overall composite indicator of Average
performance (e.g., customer satisfaction composite is
mixture of results from surveys, focus groups and product
returns).
Multiple measures such as mean, variance, standard
Statistics
deviation and variance that capture the spread and
distribution of the performance measures (e.g., sales
distribution by demographics, geography, channel).
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27. Integration between Corporate and
Division/Department
Vision
Mission
Strategy
Corporate
Scorecard
The Division Scorecard is
built by referring to the
Division corporate scorecard
Scorecard
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28. Corporate and Division Scorecard
Corporate
Finance
Financial
Corporate
Marketing
Customer
Production
Supply Chain
R&D
Internal Process
Learning & Growth
Corporate HR
Info Technology
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29. Corporate and Division Scorecard
• Division Scorecard is formulated by looking at the four perspectives in
Corporate Scorecard.
• As shown in the previous slides, the learning & growth perspective provides
guidelines for developing scorecard at the Human Resource and IT divisions,
while the internal process perspective provides guidelines for developing
scorecard at the supply chain division or R&D.
29

30. Corporate and Division Scorecard
Sample from GE Lighting Business Group
Level of Organization Financial Customer Internal Process Learning & Growth
Corporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of
satisfaction level Improve internal process employee competency
Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level of
Reduce inventory levels satisfaction level Improve internal process employee competency
Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the
Increase yields ratio on time delivery Reduce number of defects job training" delivered
Increase labor productivity Reduce customer per million Number of performance
Reduce inventory levels complaints per million Improve quality incoming coaching session
materials
Maintain optimum equipment
speed
Frontline Employee Reduce waste Reduce equipment downtime Number of "on the
Scorecard Reduce overtime Reduce number of poor job training" attended
Increase production rates solders Number of performance
Reduce number of cracked coaching session
bulbs attended
The above example shows how the scorecard at corporate level is cascaded to division
level, and further to plant level and employee level.

31. Division Strategy Map Template
• The strategy map for HR Division, Information Technology Division, Finance
Division, and Marketing Division are presented in the following slides.
31

32. HR Strategy Map Template
Drive Long term
Shareholder Value
Enhance People & Organizational
Optimize HR Efficiency
Effectiveness
Financial
Create Positive Work Provide Quality HR Provide High
Environment Service Performance People
Customer
Achieve HR Build Strategic Employee Drive
Process Competencies Organizational
Excellence Performance
HR Internal Process
Learning & Growth
Develop Strategic & Functional HR Enhance Technology Create Climate for
Competencies for HR HR Action
32

33. IT Strategy Map Template
Drive Long term
Shareholder Value
Enhance IT Impact on
Optimize IT Efficiency
Enterprise Outcome
Financial
Deliver Consistent, High Provide Business Units with
Quality IT Service Innovative IT Solutions
Customer
Maintain a Develop Effective Decision Propose and Deliver
Reliable IT Support System Transformational Applications
Infrastructure
IT Internal Process
Learning & Growth
Develop Strategic & Functional IT Enhance IT Tools that Enhance the Promote Customer-focused
Competencies IT Function Culture
33

34. Finance Strategy Map Template
Drive Long term
Shareholder Value
Enhance Finance Effectiveness on
Optimize Financial Efficiency
Enterprise Outcome
Financial
Deliver Responsive & Efficient Provide Clear & Reliable Required
Finance Operations Disclosure
Customer
Achieve Finance Develop Financial Ensure Compliance
Process Information to with Regulatory Requirements
Excellence Improve Decision Making
Finance Internal Process
Learning & Growth
Develop Strategic & Functional Use Technology to Improve Promote Customer-focused
Finance Competencies Financial Information Culture
Delivery
34

35. Marketing Strategy Map Template
Drive Long term
Shareholder Value
Increase Sales
Optimize Marketing Efficiency
Revenue
Financial
Create Satisfied and Loyal Enhance Brand
Customers Image
Customer
Develop Effective Develop Innovative Marketing Develop Accelerate
Customer Relation Communication Marketing Business New Product
Management Program Intelligence Development
Ideas
Internal Process
Learning & Growth
Develop Strategic & Functional Enhance Technology Foster Creative Thinking &
Marketing Competencies for Marketing Innovative Solutions
35

36. Strategy Map Template
• The following slide displays the strategy map template comprising of four
perspectives : financial, customer, internal business process, and learning &
growth.
36

37. Strategy Map Template
Enhance Long-term Shareholder
Value
Improve Increase Revenue Growth
Cost Efficiency
Financial
Build High Performance Expand Enhance
Products Market Share Brand Image
Customer
Achieve Operational Drive Demand through Implement Good
Manage Dramatic
Excellence Customer Relation Environmental Policy
Growth through
Management
Innovation
Internal Process
Learning & Growth
Develop Strategic Build Learning Expand Capabilities with
Competencies Culture Technology
37

38. Maximising ROE strategies
Profit
Equity
38

39. CORPORATE PERFORMANCE
ROS
ROA
ATO
ROE
ASSETS
EM
EQUITY
39

40. Maximising ROA strategies
Profit
Assets
40

41. Cash
CREDITORS
Working Stock
capital
debtors
41

42. Performance Relationship
KRA
KRA
KRA
42

43. Process
Inputs
Inputs
outputs
43

44. Value Chain
Inputs Process Output Outcome
44

45. Horizontal comparision
This year Last year
material material
labour labour
overheads overheads
Cost of Production Cost of Production
45

46. Performance management
Targets
Objectives
Key Key
Result Performance
Indicators
Areas
Training
Standards Need
Analysis
Variance
Rewards Appraisals
Analysis
46

47. Performance Metrics
objectives
Key Result
Areas
Key Performance
Indicators
47

48. KPI is input output ratio
Outputs
Inputs
48

49. Six Steps in Business Planning
1
• Cost volume profit analysis to determine size of business
2
• Working capital from trading strategies
3
• Minimzing investment in Fixed capital
4
• Financed by Equity and Leveraging
5
• Cash flow Projection to check liquidity
6
• Constructing the Financial Statements
49

50. Six Steps in Business Planning
1
• Cost volume profit analysis to determine size of business
2
• Working capital from trading strategies
3
• Minimzing investment in Fixed capital
4
• Financed by Equity and Leveraging
5
• Cash flow Projection to check liquidity
6
• Constructing the Financial Statements
50

51. Six Steps in Business Planning
1
• Cost volume profit analysis to determine size of business
2
• Working capital from trading strategies
3
• Minimzing investment in Fixed capital
4
• Financed by Equity and Leveraging
5
• Cash flow Projection to check liquidity
6
• Constructing the Financial Statements
51

52. Six Steps in Business Planning
1
• Cost volume profit analysis to determine size of business
2
• Working capital from trading strategies
3
• Minimzing investment in Fixed capital
4
• Financed by Equity and Leveraging
5
• Cash flow Projection to check liquidity
6
• Constructing the Financial Statements
52

53. Six Steps in Business Planning
1
• Cost volume profit analysis to determine size of business
2
• Working capital from trading strategies
3
• Minimzing investment in Fixed capital
4
• Financed by Equity and Leveraging
5
• Cash flow Projection to check liquidity
6
• Constructing the Financial Statements
53

54. PERFORMANCE METRICS
Objectives & Goals
Key Result Areas
Key Performance Indicators
54

55. METRICS (Continue)
TARGETS
VARIANCES
EVALUATION
55

56. Finance +
Leverage
Equity debt
Ordinary Preference bonds Banks
56

57. PERFORMANCE COMPARATIVE
ANALYSIS
ACTUALS TARGETS
VARIANCE
ANALYSIS
57

58. Key Performance Indicators (KPI)
KPI = Measurement or
Vision indicator that provides
information on how far we
Mission and Strategy have succeeded in achieving
Values the strategic objectives
Strategic Objectives
Key Performance
Indicators
Finance
Key Performance
Customer
Indicators
Internal Business
Process Key Performance
Indicators
HR Development
58

59. Strategic Objectives in
Learning & Growth
Organization Capital Information
Human Capital
Capital
• Skills • Culture • Systems
• Knowledge • Leadership • Database
• Attitude • Organization • Networks
Development
59

60. Managing Performance with
Balanced Scorecard
Balanced Scorecard is a management tool that
provides stakeholders with a comprehensive
measure of how the organization is progressing
towards the achievement of its strategic goals.
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61. Managing Performance with
Balanced Scorecard
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading indicators) with
outcome measures (lagging indicators)
• Leads to strategic focus and organizational alignment.
61

62. 4 Perspectives in Balanced Scorecard
Financial Perspective
The Strategy If we succeed, how will we
look to our shareholders?
Customer Perspective
To achieve our vision, how
must we look to our
customers?
Internal Perspective
To satisfy our customers, which
processes must we excel at?
Learning & Growth Perspective
To achieve our vision, how must
our organization learn and
improve? 62

63. Strategy and Balanced Scorecard
Mission –
Why We
Exist Strategic
Strategy Map Outcomes
: Translate the
Strategy Satisfied
Vision – Shareholders
What We Strategy :
Our Game Delighted
Want to Be
Plan Customers
Excellent
Balanced Processes
Values – Scorecard :
What’s Measure and Motivated
Important to Focus Workforce
Us
63

64. Strategy Map Framework
• The strategy map framework is presented in the following
slides.
• This framework describes the types of strategic target that
should be presented in each perspective, namely the
financial perspective, customers, internal business
process, and learning & growth perspective.
64

65. Key Performance Indicators

66. Performance Management Component
Three critical components for effective process of performance
management
Performance management
cycle is continuous and
Performance consistent
Management
Process
Performance Performance
Management Management
Infrastructure Culture
Logistic support and Culture that is based on
performance management performance
administration accountability
66

67. Performance Management Cycle
STRATEGY
Set Measures and Target
Reward and Coach Plan and Execute
Monitor and Evaluate
67

68. Performance Gaps
Performance
Gaps
Competency
Other Causes
Gaps
Management Technical
Change
Gaps Gaps

69. TRAINING NEED ANALYSIS

70. Performance Framework and Building
Plans

71. CRITICAL PERFORMANCE GAP
ANALYSIS
CEO
Marketing Finance
HR Operations

72. Performance Improvement Strategies
KRA1
KRA3 KRA2
Goals

73. COMPETENCY GAP ANALYSIS

76. Tools used in this consultancy
• Du Pont ROE format.
• Variance analysis
• Input output analysis
• BSC perpectives
• Key Result Areas
• Calculating the improvement in KPIs
• Calculating the ROI training

77. Types of indicators
• Input indicators
• Process Indicators
• Output indicators
• Outcome indicators
• Impact indicators
(c) Arriffin Mansor 012-2786282 77

78. FINANCIAL KPIs
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency No Average cost
ratios produced per
transaction
Research Productivity Value ROI
dev expense ratios produced
Inventory Average RETURN ON
turnover lead time EQUITY
Waste Reduction
78

79. MARKETING
INPUT PROCESS OUTPUT OUTCOME
Material Response rate No of customers
Labour Marketing costs % Sales volume
Overhead Efficiency ratios Customers
Profitability
Research Productivity Product ROA marketing
dev expense ratios profitability
Average cost per Customer Return on Sales
transaction acquisition
Inventory turnover Average lead time Customer retention
Price rel to comp Waste Reduction Revenue growth
Delivery Channel 79

80. INTERNAL PROCESS
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency No Average cost
ratios produced per
transaction
Research Productivity Value ROI
dev expense ratios produced
Inventory Average
turnover lead time
Waste Reduction
80

81. HRM KPIs
INPUT PROCESS OUTPUT OUTCOME
Incentives variances Turnover ratio
Hours Efficiency No Profit per employee
ratios produced
Training Productivity Value ROI
ratios produced
Salary Average Turnover Revenue per
lead time employee
Skill Waste Reduction Employee Value added per
competency productivity employee
81

82. DuPont Analysis
Sales COH 2005
$ 1,689,429,000
Cost of Goods
Sold + Extra Taxes Net Profits
$ 384,153,000 After Taxes
$ 358,612,000 Net Profit
Operating Margin
Income Expenses 21.23%
Statement $ 731,891,000 NI/SALES
Sales Return on
Interest $ 1,689,429,000 Total Assets
Expense (ROA)
$ 13,641,000 26.17%
NPM X TAT
Taxes
$ 201,132,000 Sales
$ 1,689,429,000 Total Asset
Turnover
1.23 Return on
Current SALES/TA Equity (ROE)
Assets 33.96%
$ 709,360,000 Total Assets ROA X FLM
$ 1,370,157,000
Net Fixed
Assets & Other Stockholders'
$ 660,797,000 Equity
Balance $ 1,055,920,000 Financial
Sheet Current Leverage
Liabilities Multiplier (FLM)
$ 265,661,000 Total 1.30
Liabilities Total Liabilities TA/EQUITY
Long Term $ 314,237,000 & Stockholders'
Debt Equity = Total
$ 3,270,000 Assets
Stockholders $ 1,370,157,000
Other Equity
Liabilities $ 1,055,920,000
82 $ 45,306,000

83. Extend the Map into Measurements,
Targets and Initiatives
Strategy Map
Stakeholder
Detailed statement How success in The level of Key action
Faster Service Access of what is critical to achieving the performance or programs
successfully strategy will be rate of required to
achieving the measured and improvement achieve
strategy tracked needed objectives
Self Service
Applications
Internal Process
Objective
Measure Target Initiative
Lean Processes Description
Eliminate waste, Number of Reworks 2 per setup per Lean / Six Sigma
reworks, and other month each
Process and Value errors in our Outlet Office
Map Analysis processes
Web Enable
L&G
Technologies
Investments
Invest in IT

84. Alignment of Scorecard Components
Make sure the components of your scorecard fit together. We want to create a tight
model for driving execution of your strategy.
Goal Objective Measurement Target Initiative
Achieve Reduce Cost per Outlet 5% - Year 1 Activity
Agency Operational Office, Cost per 10% - Year 2 Based
operational Service Costs by Region, Cost 15% - Year 3 Costing /
efficiencies 50% over the per FTE Management
with best next 5 years
practices in
the private Reduce identified Waste Volume Waste stream Lean / Six
sector re-activities Charts, Rework reductions of Sigma
within primary Tracking, Cycle 5% each year,
processes by Time End to End Reworks cut in
80% over the in S-LX (5 of 7 half for next 3
next 3 years Regions) years, cycle
time cut by 75%

85. Steps in calculating ROA for employees
1. Draw an income statement fo each employee
2. Identify assets employed to each employee.
(Assets allocated to the employee)
3. ROA determine the viability of each job but not the
fairness of the job pay.
4. Use return on pay (ROP) to compare the performance of
each employee with relation to their salary or
compensation plan.
5. Profits / Sales x Sales / pay = ROP
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© Arriffin 2009

86. Questions & Answers
86