Pramoul Nurach. Sairung Inlert

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2 2 Pramoul Nurach Sairung Inlert Pramoul Nurach is a Professional Development and Resources Manager of Microsoft Consulting Services. He had completed Bachelor Degree in Computer and Communication Engineering and finished 2 Master degrees from Asian Institute of Management in the Philippines and another degree from Rotterdam School of Management, The Netherlands. Before Joining Microsoft (Thailand), Mr. Pramoul had worked as Strategy Manager for Accenture (Thailand) for almost 10 years and 2 years as Service Director of QAD (Thailand). He has more than 15 years experiences in developing Business Strategy, Balance Scorecard Design, Supply Chain Strategy and Business Intelligence throughout Asia. Some of the clients include Uniliver, Caltex (Indonesia), PTT, PTT Retail Management, PTTChem, EGAT, Siam Cement, Bayer, SCBS and etc. Sairung Inlert is a Consultant of Microsoft Consulting Services. She posses Bachelor Degree in Industrial Engineering and Master Degree in Industrial Engineering at Chulalongkorn University. Sairung has very strong backgrounds and skills in designing and developing ERP Applications and Business Intelligence. She has more than 10 years experiences in this field. Some of the clients include Oishi Group, PTT Retail Management, BJCFoods. Before joining Microsoft (Thailand), she has worked for QAD (Thailand) for 7 years.

3 Business Intelligence Approach What is Balance Scorecard How to Build Balance Scorecard KPI Examples Communication & High Tech focus areas Products focus areas 3

4 What is the right approach of designing the Key Performance Indicators which will lead to the success of the company s strategy What is Balance Scorecard and how to design it effectively What is the relationship between Balance Scorecard and Business Intelligence How Business Intelligence will help the companies 4

5 Business Intelligence Approach What is Balance Scorecard How to Build Balance Scorecard KPI Examples Communication & High Tech focus areas Products focus areas 5

6 Balance Scorecard is the Capability of collecting and analyzing internal and external data to generate knowledge and value for the organization This includes support to business processes and decision making at the Strategic, Tactical, and Operational levels 6

7 Business Intelligence will integrate the Loops of Operation and Management. Second loop of management Performance indicators First loop of management Operational processes Monitoring Reporting and analysis Primary Supporting Purchasing Manufacturing Sales Finance, marketing, HR, IT 7

8 Business Intelligence Approach What is Balance Scorecard How to Build Balance Scorecard KPI Examples Communication & High Tech focus areas Products focus areas 8

9 The process of implementing Balance Scorecard will have to include the business strategy creation. Balance Scorecard Implementation Methodology 1. Business Strategy Use progress against objectives to confirm strategy Use strategy to identify the objectives 2. Business Use measures/ metrics to evaluate progress against objectives Use objectives to identify the measures that will be used Using the Balanced Scorecard 3. Measures & Metrics Use scorecard to determine if targets are met and the right measures are being measured Use measures to build the balanced scorecard 4. Implement

10 The traditional balanced scorecard model translates an organization s vision and strategy into a set of measures. Financial Perspective How do we look to shareholders? Customer Perspective How do customers see us? Vision and Strategy Internal Business Process Perspective What must we excel at? Innovation & Learning Perspective Can we continue to improve our employees skills and create value for our clients? Robert S. Kaplan and David P. Norton have developed what is considered to be the standard Balanced Scorecard template Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review (January-February 1996)

11 A balanced scorecard is a strategic measurement and management system that can motivate breakthrough performance. Financial Perspective To succeed financially, how should we appear to our shareholders? Measures Targets Customer Perspective Internal Business Process Perspective To achieve our strategy, how should we appear to our customers? Measures Targets To satisfy our shareholders and customers, what business processes must we excel at? Measures Targets Innovation & Learning Perspective To achieve our strategy, how will we sustain our ability to change and improve? Measures Targets Source: Robert S. Kaplan and David P. Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review (January-February 1996)

12 Develop key business objectives that will help you to attain your strategy. Customer Perspective 1. Rapidly penetrate market segments 2 Sustain significant customer growth 3. Retain customers 4. Achieve high customer satisfaction 5. Provide extremely positive customer on-line experience 6. Achieve customer satisfaction Financial Perspective 1. Drive rapid revenue growth 2. Manage operating costs and profitability 3. Achieve profitability 4. Effectively utilize assets 5. Manage risk 6. Improved Shareholder Value Vision and Strategy Innovation & Learning Perspective 1. Sustain employee satisfaction 2. Maintain employee productivity 3. Retain employees 4. Innovate operationally 5. Measure training quantities 6. Measure training effectiveness 7. Measure and evaluate innovations Internal Business Process Perspective 1. Develop provocative offers 2. Build brand awareness 3. Expand distribution 4. Drive incremental revenues 5. Offer leading high-speed Internet service 6. Provide compelling internet experience 7. Maintain technological leadership The diagram illustrates an example of a client s organizational objectives. In the balanced scorecard development process, the organizational objectives should provide a balance across the four dimensions of performance.

13 VISION To be a leading hospital with high quality and professional health care services across all customer segments. Illustrative STRATEGIC (BUSINESS) OBJECTIVES/ GOALS Increase Product Line Improve Advertising Effectiveness Cost Reduction Improve Brand Image Obtain International Recognition Improve Service & Product Quality Improve Employee Skills Increase Accessibility Improve Incentive Scheme STRATEGIC INITIATIVES Alliance/ Partnership New Product Development Process Review Brand Positioning and Image Building Improve Staff Competency Service Introduction/ Enhancement Service Standardization Product Quality Con t Imprv. Shelf Management Integrated Supply Demand Planning Outsourced Transportation Develop KPI New Medicines Research Consumer Segmentation Integrated Marketing Plan Service Outsourcing Supply Finished Products to Drug Stores Advertising Effectiveness Monitoring Drug Distribution and Channel Management 13

14 Develop specific measures and metrics to track progress. The next step after identifying the organizational objectives is to identify measures & metrics for achieving those objectives. Satisfied Clients Measures & Metrics Seamless Service Improved Quality Cost Reduction Effective performance measures have a number of key characteristics: Measures are part of a cause and effect relationship Measures are process-focused Measures are balanced Motivated People Balanced Growth Strong Leadership Effective Training Reward & Recognition Reduce Cost Reduce Backlog Best clients Measures are actionable Measures are vertically & horizontally aligned Measures are integrated Measures encourage teamwork Measures focus priorities

15 Every measure on the balanced scorecard should be an element in a chain of cause and effect relationships that will achieve the strategic objectives. Reduce IS Cost/ % Sales Increased Return on Investment Meet/ Exceed Targets Financial Perspective Increase Sales Cost Decrease Increased Margin Customer Perspective Satisfied Clients Satisfied End- Users/ Customers Internal Business Process Perspective Improved Cycle Time Progress Towards CMM Level 2 Increased Productivity Process Maturity/ Assessment Reduced Rework Innovation and Learning Perspective Tool Usage Skills and Training Employee Satisfaction & Motivation SPR Capability Leadership Capability An example of a cause and effect linkages between measures. The goal here is to ensure that all measures are consistent, coherent, and related to each other. This hypothesis can be tested upon implementation.

16 Gather measures, create the balanced scorecard, and use it to make decisions. Incorporate a continuous improvement philosophy in the process. The final outcome of the balanced scorecard development process is a high level and summarized view of the firm s performance measurements. The above example of a balanced scorecard shows that balanced scorecards can be as simple as management chooses them to be

17 Business Intelligence Approach What is Balance Scorecard How to Build Balance Scorecard KPI Examples Communication & High Tech focus areas Products focus areas 17

18 In Communications and High Tech, it all boils down to customers and employees. All of the key messages from the rest of the deck apply to Communications & High Tech, however, we d like to highlight the following differences: Total number of customers Companies need certain business volumes over which they can spread the cost of their infrastructure Customer Turnover Given the high cost of customer acquisition and low initial customer profitability makes it important to closely monitor customer turnover and reasons for losing customers Employee Turnover Where the customers switch for new products or services, the employees also follow the industry trends - always wanting to keep their skills current and to maximize their salary

19 Communications and High Tech Key Performance Indicators. Internal Processes Technology/product uptime Technology/product downtime Quality ratings Systems availability Actual capacity vs. purchased capacity Computer utilization Equipment failure Operator answer time Innovation & Learning R&D expenses as percent of sales Total R&D expenses Number of new products and services Stakeholder Employee competency survey Employee satisfaction Employee salary compared to benchmark & competitors Major customers obtained or lost Customer retention rate Major relationships in trouble Average customer transaction size Response time to customer service and requests Total number of customers Market share Financial Cost trends Days of sale outstanding Ease of obtaining partners Margin as a percentage of sales Net Profit Share price Product contribution Return on Capital Employed (ROCE) Return on Equity Return on Investment Return on Sales Sales by country Economic Value Added Shareholder Value Added Earnings per share

20 Business Intelligence Approach What is Balance Scorecard How to Build Balance Scorecard KPI Examples Communication & High Tech focus areas Products focus areas 20

21 In Products, key categories of measures are production costs, plant capacity, and inventory turnover. All of the key messages from the rest of the deck apply to Products, however, we d like to highlight the following differences: Manufacturing Cost of production plays an important role in measuring profitability Plant capacity/productivity is another measure which focuses on how efficiently the company is utilizing its assets. Overall Equipment Efficiency is a hot KPI for nowadays. Materials management R&D Employee Safety Product Quality Retail Pricing and advertising effectiveness Retail distribution Facility utilization Inventory Management Vendor Management Product margin Consumer satisfaction

22 Products Key Performance Indicators. Internal Processes Production defect rate; worker / cell productivity Overall Equipment Efficiency Idle capacity per man-hour Utilization Equipment inventory by functional area Activity by storeroom, backorder volume, inventory amount per customer, inventory turnover Inventory turns & levels customer complaints per time period Number of returns Sales per square foot Facility layout Departmental contribution for store sales Store contribution percentage Store / department share of traffic Innovation& Learning R&D expenses as percent of sales Total R&D expenses Line innovation / improvements suggested Stakeholder Employee competency survey Employee satisfaction Employee salary compared to benchmark # of incidents, days lost to injury Safety record Accident reports Average customer transaction size Financial Same Store Sales Growth Cost trends Net Profit Days of sale outstanding Margin as a percentage of sales Share price Product contribution Return on Capital Employed (ROCE) Return on Equity Return on Investment Return on Sales Sales by country Economic Value Added Shareholder Value Added Earnings per share Energy & labor costs Equipment expenditures by category Cost of marketing product Profit margin per square foot Average price per item

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