75256-leading indicators (activity drivers)
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Performance Measures- Leading
Indicators (Activity Drivers)
Prepared by Group 4:
Andrew Molloy
Amy MillerMike Elicker
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Steps to leadingperformance measures
Leading performance measures are based onactivity drivers that drive the performance of acompany.
1. The first step in performance measurement are
activity drivers that drive the performance of acompany.
2. The second step to reaching your overall goal inperformance is leading performance indicators.
3. The third step to reaching your company’s overallgoal are the specific results your company islooking for.
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Performance Drivers
Performance drivers are structured around trying toachieve a firms overall goals, strategies, andobjectives.
Performance drivers are the: process, learning, and
alignment of the employees working towardperformance indicators.
By continuing to develop performance driversleading toward effectiveness and efficiency acompany will be heading toward their overall goal.
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Performance Indicators
Performance indicators- represent a set of measuresfocusing on the aspects of organizational performancethat are the most often critical for the current andfuture success of the organization.
There are several examples of performance indicatorsthat a company might use. Some of these examplesinclude:
Environmental
Customer
Competitor Internal
Human resource
These indicators will help for a business to categorizetheir indicators into groups to help them measure and
set up their performance drivers to work toward theirresults and specific goals.
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Results
The results of the activity drivers and performanceindicators are what a company sets their overallgoals for.
Some results that a company might be aiming for
are customer satisfaction, cost per resolution, andemployee satisfaction.
These results can be reached when a company hasall of these steps in place and fallow them inreaching their overall goal to be a successfulbusiness.
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Diagram of relationships between Performance drivers,Leading indicators, and results
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There are many types of
leading indicators throughouta company that affectperformance
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Company performanceincludes leading indicators of:
Customer Satisfaction
Growth and Retention
Internal Operations
-efficiency, speed, minimizing qualityproblems
Human Resource Systems
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A further breakdown of leading indicators shows
which drivers lead tospecific results…
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Indicators can be broken downinto smaller categories:
1. Organizational
2. Environmental3. Group/Departmental
4. Facility/Individual
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Environmental:
Outside factors such as governmentregulations, economic cycle, politics
Example: Economy is headed for a
recession. Company must plan to beahead of the curve.
Solution: Address the orders dept.
Measure how many orders should bedecreased to account for a slowingeconomy.
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Organizational:
Company Strategy, Policy,Structure
Example: Mgmt wants to
increase sales of Product A
Solution: The amount of Research and Development of
Product A needs to be measuredto determine how many hoursto increase by.
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Group/Departmental:
Group relationships,responsibility, and assignments
Example: Mgmt wants to
increase inter- office grouprelations.
Mgmt may determine they want
to do this by increasing timespent working in teams. Amountof hours per week increased of working in teams must be
measured.
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Individual:
Management style, skills,behavior
Example: Mgmt feels productivity
will increase if employee skills arehigher.
Solution: Extra training and
classes may be required toachieve this. Measurement of hours required to raise employeeskills must be conducted.
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Key Point:
Measures of thesedrivers must be tied
to what the companyis trying to
accomplish
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Other Common LeadingIndicators
Increase returning customers by15% this year……gain moremarket share
Reduce employee turnover thisyear……improve efficiency
Increase sales is a particular
department…..boost overallsales
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Advantages
There is a closer link to long-term organizational strategies
Example- improving customer
relations, market competition,expanding new productdevelopment, or expandingorganizational capabilities may be
important strategic goals, but mayhinder short-term accountingperformance.
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Advantages
Critics of traditional measures arguethat drivers of success in manyindustries are “intangible assets,” rather than figures on the balance
sheet A recently published study found that
measures related to companyinnovation, management capability,employee relations, quantity, and brandvalue explained a significant proportionof a company’s value, even afterfactoring in accounting assets andliabilities
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Advantages
Often times non-financial indicatorscan be better indicators of futurefinancial performance For example, when the ultimate goal is
maximizing financial performance,current measures may not capture long-term benefits from decisions currentlybeing made.
Investments in customer satisfaction
can improve future economicperformance by increasing revenues andloyalty of existing customers, andattracting new customers.
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Drawbacks
Time and cost
No common denominator
No statistical reliability in themeasures chosen
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Implementation
Good understanding of value drivers What contributes to long-term success?
Principles for translating corporate objectivesinto measures that guide management’s dailyactions
Many companies go wrong here Statistical analysis of leading and lagging
indicators of financial performance
Business model - help determine whichmeasures best predict future financialperformance Assign weights to measures based on the
strengths of statistical relations
Integration