Chapter 8 - Copy

8/8/2019 Chapter 8 - Copy

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8-1

Chapter 8

MetricsMetrics

McGraw-Hill/Irwin Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.


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8-2Why Senior Managers ShouldWhy Senior Managers ShouldBe Concerned About MetricsBe Concerned About Metrics

Five ways in whichmetrics can have apositive effect on thegrowth and vitality of the organization:1. Help define the

Business Model.2. Help communicate

strategy.

3. Help trackPerformance.4. Help increase

accountability.5. Help Align Objectives.

Reasons why somefirms have not madean explicit commitment to metrics:1. Companies strategies

change rapidly.2. Measurement is

Resource Intensive.3. Soft Metrics are not

valued by theinvestment community.4. Meaningful metrics

change on Internettime.


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8-3Assessing the Health of Online FirmsAssessing the Health of Online Firms

The Balanced Scorecard:

Introduced by Kaplan and Norton in response totheir perception that managers overwhelminglyfocus on short term financial performance.

They argued that firms must balance their financial perspective by analyzing other domainsof the business,including internal businessprocesses and customer responses.

They introduced 4 categories of metrics:Financial, Customer, Internal Business Systems,and Learning and Growth.


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8-4Exhibit 8-1: The Balanced Scorecard Exhibit 8-1: The Balanced Scorecard Strategy Into Operational TermsStrategy Into Operational Terms

FINANCIALTo succeed financially, how

should we appear to our shareholders?

INTERNAL BUSINESSPROCESS

To satisfy our shareholders andcustomers, what businesses

must we excel at?

CUSTOMERTo succeed financially, how

should we appear to our shareholders?

LEARNING AND GROWTH

To succeed financially, howshould we appear to our

shareholders?

Visionand

Strategy

Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review 74 (January-February, 1996): 76.


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8-5Assessing the Health of Online Firms (contd)Assessing the Health of Online Firms (contd)

Financial Metrics: They are designed to assessthe financial performance of the company. Typical financial measures include revenue, revenue

growth, gross margins, operating income, net margin,

earnings per share and cash flow. Customer Metrics: Customer metrics are

intended to assess the management of customer relationships by the firm. These measures typically focus on a set of core

measurements, including market share, customer acquisition, satisfaction, and customer profitability.


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8-6Assessing the Health of Online Firms (contd)Assessing the Health of Online Firms (contd)

Internal Business Process Metrics: These focus onoperations inside the company. Kaplan and Norton dividedthem into three groups: Innovation Operations

Post-sale service Learning and Growth Metrics: These broadly cover

employee, information systems, and motivation metrics. Limitations of the Balanced Scorecard

No clear definition of strategy or business models. Unclear location of organizational capabilities or resources in the

framework. Unclear where partnerships reside in the framework.


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8-7The Performance DashboardThe Performance Dashboard

Strategy

Me t ric s

MarketOpportunity

Business

Model

Customer Branding

andMarketing

MarketOpportunity

Business Model Branding andMarketing

Implementation Customer

Implementation

Exhibit 8-2:Exhibit 8-2:


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8-8The Performance DashboardThe Performance Dashboard

The Performance Dashboard is intended toreflect the health of a business.o We first address the limitations of the Balanced

Scorecard through features of the PerformanceDashboard.

The Strategy Framework drives the necessarymetrics.

o Resources are featured in the resource system of the business model.o Partnerships are featured in the resource system of

the business model.


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8-95 Components of the Performance Dashboard5 Components of the Performance Dashboard

The Performance Dashboard is composed :1. Market opportunity metrics assess the degree

to which the firm can accurately gauge the marketopportunity.- Generic indicators include the ability of the firm to

include the most attractive segments, the ability of thefirm to understand and map the competitors strategyevolution and the ability of the firm to track the evolutionof target segment needs.


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8-105 Components of the Performance Dashboard5 Components of the Performance Dashboard(contd):(contd):

2. Business model metrics capture the subcomponents of

the business model: the value proposition, egg diagram,resource system, and financial metrics. Value proposition or Cluster Benefits: The value proposition is

composed of three parts: target segment, benefits offered, andcapabilities that drive the benefits.

Metrics for this assessment would focus on customer perceptions of the benefits that a given site offers relative to competitors .

Online Offering Metrics: Metrics should reflect the entiredecision process from pre- purchase to post purchase.

Offering metrics focus more on the nuts-and-bolts features, attributesand functionality of the site.

Resource System Metrics: The resource system is based onthe benefits offered to consumers. From these benefits, the firmwould analyze the capabilities that are necessary to supply thebenefits.

Financial Metrics: Captures the revenues, costs, profits, andbalance-sheet metrics of the firm


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3. Marketing and Branding Metrics- Marketing and Branding Metrics: These focus on

marketing communications and brandingeffectiveness.

4. Implementation Metrics- Implementation Metrics: These focus on theeffectiveness of a companys human resourcesprogram as well as its processes, organizationalstructure, systems (including information, incentives,and rewards), coordination mechanisms, culture andmanagement style, and technology systems.

Components of the PerformanceComponents of the PerformanceDashboard (contd)Dashboard (contd)


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5. Customer Metrics Customer Interface Metrics: Measures thecustomers experience with the technologyinterface; that is, the customers response to the

7Cs of the interface. Customer Outcome Metrics: This captures outputmetrics such as overall costs of satisfaction,average order size, and customer profitability.

Components of the PerformanceComponents of the PerformanceDashboard (contd)Dashboard (contd)


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8-13Implementing the Performance DashboardImplementing the Performance Dashboard

Step One: Articulate Business Strategy

Step Two: Translate the Strategy into DesiredOutcomes

Step Three: Choose Metrics Step Four: Link Metrics to Leading and Lagging

Indicators

Step Five: Calculate Current and targetPerformance


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8-14Exhibit 8-4: Blueprint for the PerformanceExhibit 8-4: Blueprint for the PerformanceDashboardDashboard

Step One:Articulatebusinessstrategy

Step One:Articulate

businessstrategy

Step Two:Translate

strategy intodesired

outcomes

Step Two:Translate

strategy intodesired

outcomes

Step Three:Choosemetrics

Step Three:Choose

metrics

Step Four:Link metrics

to leading andlagging

indicators

Step Four:Link metrics

to leading andlagging

indicators

Step Five:Calculate

current andtarget

performance

Step Five:Calculate

current andtarget

performance

De fine g o a ls a nd va lu e p ro p o s it io n

De fine g o a ls a nd va lu e p ro p o s it io n

Market Opportunity Opportunity size? Competitive environment?

Market Opportunity Opportunity size? Competitive environment?

Customer How to acquire customers? How will customers change? What is customer

experience?

Customer How to acquire customers? How will customers change? What is customer

experience?

Marketing How to develop brand?

Marketing How to develop brand?

Implementation How to go to market?

Implementation How to go to market?

Market Opportunity Market size and growth Average age and income Competitor concentration

Market Opportunity Market size and growth Average age and income Competitor concentration

Customer Market share Purchases per year Success rate Service request frequency

Customer Market share Purchases per year Success rate

Service request frequency

Marketing Customer brand awareness

Marketing Customer brand awareness

Implementation System uptime percentage Number of IT staff Percent of inaccurate

orders

Implementation System uptime percentage Number of IT staff Percent of inaccurate

orders

For each metric,determine the metricsthat it affects and thataffect it

Map the linked set of metrics, indicatingleading and laggingindicators

Ensure that there is abalance betweenleading and laggingindicators

For each metric,determine the metricsthat it affects and thataffect it

Map the linked set of metrics, indicatingleading and laggingindicators

Ensure that there is abalance betweenleading and laggingindicators

De ve lo p re s o u rc e s y s t e m re q

u ire d t o d e live r t he s t ra t e g y

De ve lo p re s o u rc e s y s t e m re

q u ire d t o d e live r t he s t ra t e g y

For each metric,calculate current levelof performance

Determine targetlevel required to meetoutcomes describedin Step Two

Ensure that targetsare consistent

For each metric,calculate current levelof performance

Determine targetlevel required to meetoutcomes describedin Step Two

Ensure that targetsare consistent

Business Model Unique value proposition? Capabilities vs. competition?

Business Model Unique value proposition? Capabilities vs. competition?

Business Model Customer-perceived benefits Exclusive partnerships More invested in technology

vs. competition

Business Model Customer-perceived benefits Exclusive partnerships More invested in technology

vs. competition

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