Process management PV215 - 9 2 Strategic frame Business hypothesis Vision Mission Values and Rules Strategy (C) J. Plamínek Lecture Introduction   Change Vector ◦  Performance Indicators   Balance Scorecard   Key Performance Indicators   Processes and Projects PV215 - 9 3Lecture Introduction PV215 - 9 4 Products, Services, Processes & Projects, Resources, Tasks, Competencies, Feedbacks, Feedforwards, HR development, ... Goals & Objectives Strategic Frame Processes & Projects Strategi c frame Busines s hypothe sis Vision Mission Values and Rules Strategy Lecture Introduction PV215 - 9 5 I ... intention (goal, objective, milestone) Strategi c frame Busines s hypothe sis Vision Mission Values and Rules Strategy I I II I I I I I I Lecture Introduction parameter p a) difference between parameter and target value PV215 - 9 6 target value P of p b) target definition p2 p1 P2 P1 c) change vector definition p2 p1 Q2 Q1 SQ SQ ... status quo P1 P2 T T ... target Change vector PV215 - 9 7 SF BH M VS VR DC Plan Do Chec k Act Change Vector SQ T How to track the change? DC...Deming Cycle Change vector PV215 - 9 8   To know WHAT to do is not enough   It is important to know WHETHER and HOW we are doing   Therefore MbC operates with system of indicators on every level of management ◦  in accordance with development of company and people, the target values for indicators are determined that enable continuous monitoring and management of improvement   Balanced Score Card utilization SQ T Change vector   Balanced Score Card (BSC) ◦  introduced in 1990’s by Robert Kaplan and David Norton ◦  reaction to popular cost-cutting projects   Cost-cutting Projects substantially improved cost-related financial indicators in fiscal year ◦  and consultancy companies made well getting good profit share   However, in next years cost-cut companies ◦  have seen a huge drop in their performance ◦  loose much of their ability to react to changes (stability) ◦  become less vital, i.e. able to continuously succeed   Therefore BSC ◦  introduced new kinds of indicators to existing ones to connect corporate strategy with all operational areas of within the enterprise PV215 - 9 9Balanced Scorecard PV215 - 9 10 TOP management financial indicators revenues -> profit/loss <- costs customer indicators number of new customers average size of order new products ratio number of loyal customers ... internal processes indicators average time to market number of complaints – quality product cost service innovation pace ... learning and growth indicators competencies/resources abilities attitudes qualities all managers managementof sales andmarketing managementof primaryprocess, logistics, development, IT,... Balanced Scorecard Learning and grow indicator are of the big importance • focuses on competences that employees must have to successfully fulfill financial, customer, process or others • these indicators focus the happening in the world of possibilities whereas the others the world of requirements PV215 - 9 11 TM FI CI IPI LGI all M S’n’M PMs Balanced Scorecard   BSC is tool primarily for managers ◦  but also communication mean with leaders, owners, shareholders PV215 - 9 12   BSC may be foundation of monitoring system shareholders, owners, ... • see lecture 5 Monitoring system • see lecture 5 Correction system Goals Ways Results Feedback D S E U Balanced Scorecard Book by David Parmenter • “Key Performance Indicators: Developing, Implementing and Using Winning KPIs”, 2010, 2nd edition • provides the missing link between the BSC work and the reality of implementation of performance measures in organizations Performance measures • indicators used by management to measure, report, and improve performance • aimed to help organization align daily activities to strategic objectives PV215 - 9 13 Goals Ways KPIs Key Result Indicators (KRIs) • tell you how you had done in a perspective of critical success factor Result Indicators (RIs) • tell you what you have done Performance Indicators (PIs) • tell you what to do Key Performance Indicators (KPIs) • tell you what to do to increase performance dramatically Many performance measures in practice are an inappropriate mix of these four types! PV215 - 9 14 by D. Parmenter KPIs Values are results of many actions Give a clear picture of whether you are traveling in the right direction However, they do not tell you what you need to do to improve these results Cover a longer period of time (months, quarter) Ideal for the board • i.e. people who are not involved in day-to-day management PV215 - 9 15 by D. Parmenter KPIs KRIs include • Customer satisfactions • Net profit before tax • Profitability of customers • Employees satisfaction • Return on capital employed RIs include • Net profit on key product lines • Sales made yesterday • Customer complaints from key customers PIs include • Percentage increase in sales with top 10% of customers • Customer complaints from key customers • Late deliveries to key PV215 - 9 16 by D. Parmenter KPIs They are important but not key for the business The PIs help teams to align themselves with their organization’s strategy The RIs summarize activity, and all financial performance measures are RIs • it is a result of the efforts of many teams PV215 - 9 17 by D. Parmenter KPIs “Represents a set of measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization.” Note that, current and future organization success corresponds to concept of vitality introduced by MbC! PV215 - 9 18 by D. Parmenter KPIs “This example concerns a senior British Airways (BA) official, who set about turning BA around in 1980s by reportedly concentrating on one KPI. He was notified, wherever he was in the world, if a BA plane was delayed. The BA manager at the relevant airport knew that if a plane was delayed beyond a certain threshold, they would receive a personal call from the BA official. It was not long before BA plans had reputation for leaving on time.” PV215 - 9 19 by D. Parmenter Measurement Context Action & Behavoir Improvement KPIs   The KPI affected all of BSC perspectives. PV215 - 9 20 LPs increase costs LPs negatively affect supplier relationships LPs confirm staff behavior leading to late planes LPs increase customer dissatisfaction FI CI IPI LGI by D. Parmenter LP...Late Planes KPIs Non-financial measures Measured frequently (24/7, daily, weekly) • enabling “immediate” action Acted on by CEO and senior management staff Clearly indicate what action is required by staff • staff can understand the measure and know what to fix Tie responsibility down to the team or individuals • superiors can call subordinates and ask why? Have a significant impact • e.g. affects more than one BSC perspective Encourage appropriate action • need to be tested to ensure it creates the desired behavioral outcome PV215 - 9 21 by D. Parmenter KPIs KRIs • Can be financial • Monthly, quarterly measurements • Summary of progress reported to board • It does not say what to do • Commonly, the only responsible person is CEO • Summarize activity within one CSF • Usually reported as a trend graph covering at least the last 15 month of activity KPIs • Non-financial • 24/7, daily, weekly measurements • Acted on by CEO and senior management team • All staff understand the measure and know the corrective action • Significant impact • Normally reported by way of an intranet screen indicating activity, person responsible, and past history PV215 - 9 22 by D. Parmenter KPIs   Balance Score Card ◦  Parmenter recommends to add two more perspective to four basic ones   Employee satisfaction focusing positive company culture, retention of key staff, increased recognition   helps retain current employees   Environment/Community supporting company prestige in other context than primary business, e.g. green initiatives, voluntary work in community   community is the source of current and future employees and customers   Hoshin Kanri Business Methodology PV215 - 9 23 by D. Parmenter KPIs PV215 - 9 24 Mission/Vision/Values Critical Success Factors (CSFs) Strategies (Issues & Initiatives) Key Result Indicators (KRIs) Result Indicators, Performance Indicators Key Performance Indicators (KPIs) Financial Results Customer Focus Learning & Grow Internal Processes Staff Satisfaction Community & Environment KPIs   Processes and projects ◦  defined sets of procedures, activities or actions transforming inputs to outputs   Processes ◦  repeatable, easy to monitor, subject of continual improvement ◦  deterministic, predictable ◦  focused on outputs   Projects ◦  unique, have to be attentively planned and executed, continuously monitored and managed ◦  uncertain ◦  focused on impact, benefits and goals of its outputs PV215 - 9 25 D S E U Processes and Projects   How can projects benefit from process management? ◦  projects may involve processes; for partial design of project the process design techniques may be utilized   How can processes benefit from project management? ◦  process definition may be extended to define desired impact of process outputs; then performance indicators may be defined more appropriately PV215 - 9 26 D S E U Processes and Projects Reasonable process specification granularity Structure as a consequence of process specification Top-down approach Suitable tools Process domain reflection Continuous improvement PV215 - 9 27 D S E U Processes and Projects   Performance Indicators are necessary to know WHERE we are and WHERE are we going   Balance Scorecard is an strategic performance tool working with complete set of indicators ◦  financial, customer, processes, learn and growth   Processes and projects are two kinds of what can happen in companies PV215 - 9 28Lecture Summary   Experience intermezzo nr. 2: Processes in Mycroft Mind PV215 - 9 29Lecture Summary