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How Good Are Most Companies at Selecting the Right Performance Metrics?
Companies that validate a causal model (cause & effect relationships) between operational performance measures and financial results achieve: 2.95% higher Return on Assets 5.14% higher Return on Equity However only 23% of companies have a developed causal model
Key Issues
1. How business and IT leaders can leverage information for financial benefit? 2. What is the relationship between performance measures and financial results, and which performance measures we should focus on? 3. What roles within IT and the business can facilitate the use of performance metrics to successfully execute the business strategy being followed?
Business Strategy
Performance Management
Performance Management
Delivers shared management view into multiple levels of information/analysis across multiple planning, execution and decisions cycles Strategy driven
BI Competency Center
People
Process
Analytic Applications
Analytic Applications
Provides users with analysis of information for business transformation/ improvement Process-driven analytic applications (also known as analytics) Analyst-driven analytic applications (also known as BI)
Regulated Metrics Industry Standard Non-Regulated Performance Metrics Company Specific Metrics
Example: Gartner Business Value Model
Book Value
Market Value
Earnings
Measurement Gap
The Enhanced Business Reporting Consortium in the U.S. http://www.ebr360.org The Operating and Financial Review Initiative in the U.K. http://www.co3.coop/subpage.asp?id=45&mainid=18
$100
BU 1
KPIs KPIs
BU 2
KPIs KPIs
BU 3
KPIs KPIs
Business Functions
Marketing
Operations
Marketing
Operations
Marketing
Operations
Business Operations
Op. 1
Op. 2
Op. 3
Op. 4
Op. 5
Op. 6
Op. 7
Op. 8
Op. 9
Sales Cycle Index Forecast Accuracy Order Fill Rate Agreement Effectiveness IT Support Performance New Projects Index
Sales Close Index Customer Retention Index Material Quality Transformation Ratio Partnership Ratio IT Total Cost Index
Metrics
Forecasting Extrapolating new versions of plans and budgets based on the analysis of historical data. Budgeting Involves defining a short-term, financially oriented plan, which sets financial targets for revenue, expenditure and cash generation.
Alignment
Define Strategic Objectives
The Business Objectives
Increase store volumes Develop a Web-based order process Improved product development
The IT Strategy
Influence planning process Re-prioritize existing portfolio Reduce response time Improve IT skills
Measures of IT Performance
The IT Metrics
Agreement effectiveness New projects index System performance Skills inventory index
Identify Performance Measures to Monitor Business Success: Present customer options Maximize customer control Maximize customer loyalty Maximize customer information Immediate cash receipts Assemble to order, purchase to order
R&D Success Index Service Accuracy Transformation Ratio Supplier Service Accuracy Supplier Transformation Ratio Sigma Value
Sales Effectiveness
What Roles Within IT and the Business Can Make This Happen?
IT Roles:
- CIO - Enterprise Architect - Business Process Improvement - Project & Program Management - Business Intelligence & Data Warehousing
Business Counterparts:
- CFO - Business Strategist - Operating Committee - Business Management - Product Marketing or Financial Analyst
Let's look at the typical tasks or activity cycles for some of these roles . . .
Analytic Skills
Identify data Have adaptable infrastructure Extract data IT Discover and explore Skills Maintain data quality
Recommendations
Follow the best practices for selecting performance measures to build the foundation of your corporate performance management program. Clearly establish the relationship between the performance measures and financial outcomes so that all employees can see how operational performance drives real business value. Develop a Business Intelligence Competency Center with clearly defined roles, standards and methodologies to optimize results.