8-1

Chapter 8

Metrics

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 Why Senior Managers Should 8-2
Be Concerned About Metrics

 Five ways in which  Reasons why some

metrics can have a
positive effect on the
growth and vitality of
the organization:
1. Help define the
Business Model.
2. Help communicate
strategy.
3. Help track
Performance.
4. Help increase
accountability.
5. Help Align Objectives.
firms have not made
an explicit commitment
to metrics:
1. Companies’ strategies
change rapidly.
2. Measurement is
Resource Intensive.
3. Soft Metrics are not
valued by the
investment community.
4. Meaningful metrics
change on Internet
time.
 Assessing the Health of Online Firms 8-3

 The Balanced Scorecard:

• Introduced by Kaplan and Norton in response to
their perception that managers overwhelmingly
focus on short term financial performance.
• They argued that firms must balance their
financial perspective by analyzing other domains
of the business,including internal business
processes and customer responses.
• They introduced 4 categories of metrics:
Financial, Customer, Internal Business Systems,
and Learning and Growth.
 Exhibit 8-1: The Balanced Scorecard – 8-4

Strategy Into Operational Terms

FINANCIAL
To succeed financially, how
should we appear to our
shareholders?

CUSTOMER INTERNAL BUSINESS

Vision PROCESS
To succeed financially, how
should we appear to our
and To satisfy our shareholders and
shareholders? Strategy customers, what businesses
must we excel at?

LEARNING AND GROWTH

To succeed financially, how
should we appear to our
shareholders?

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.
 8-5
Assessing the Health of Online Firms (cont’d)

• Financial Metrics: They are designed to assess

the 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.
 8-6
Assessing the Health of Online Firms (cont’d)

• Internal Business Process Metrics: These focus on

operations inside the company. Kaplan and Norton divided
them 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.
 8-7
Strategy The Performance Dashboard

Market Business Branding

Customer and Implementation
Opportunity Model
Marketing
Metrics

Market Business Model Branding and Implementation Customer

Opportunity Marketing

Exhibit 8-2:
 The Performance Dashboard 8-8

 The Performance Dashboard is intended to

reflect the health of a business.
o We first address the limitations of the Balanced
Scorecard through features of the Performance
Dashboard.

 The Strategy Framework drives the necessary

metrics.
o Resources are featured in the resource system of
the business model.
o Partnerships are featured in the resource system of
the business model.
 8-9
5 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 market
opportunity.
- Generic indicators include the ability of the firm to
include the most attractive segments, the ability of the
firm to understand and map the competitors’ strategy
evolution and the ability of the firm to track the evolution
of target segment needs.
5 Components of the Performance Dashboard 8-10

(cont’d):

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, and
capabilities 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 entire
decision process from pre- purchase to post purchase.
• Offering metrics focus more on the nuts-and-bolts features, attributes
and functionality of the site.
– Resource System Metrics: The resource system is based on
the benefits offered to consumers. From these benefits, the firm
would analyze the capabilities that are necessary to supply the
benefits.
– Financial Metrics: Captures the revenues, costs, profits, and
balance-sheet metrics of the firm
 Components of the Performance 8-11

Dashboard (cont’d)
3. Marketing and Branding Metrics
- Marketing and Branding Metrics: These focus on
marketing communications and branding
effectiveness.
4. Implementation Metrics
- Implementation Metrics: These focus on the
effectiveness of a company’s human resources
program as well as its processes, organizational
structure, systems (including information, incentives,
and rewards), coordination mechanisms, culture and
management style, and technology systems.
 Components of the Performance 8-12

Dashboard (cont’d)

5. Customer Metrics
– Customer Interface Metrics: Measures the
customer’s experience with the technology
interface; that is, the customer’s response to the
7C’s of the interface.
– Customer Outcome Metrics: This captures output
metrics such as overall costs of satisfaction,
average order size, and customer profitability.
 8-13
Implementing the Performance Dashboard

• Step One: Articulate Business Strategy

• Step Two: Translate the Strategy into Desired
Outcomes
• Step Three: Choose Metrics
• Step Four: Link Metrics to Leading and Lagging
Indicators
• Step Five: Calculate Current and target
Performance
 Exhibit 8-4: Blueprint for the Performance 8-14

Dashboard
Step
StepOne:
One: Step
StepTwo:
Two: Step
StepThree:
Three: Step
StepFour:
Four: Step
StepFive:
Five:
Articulate
Articulate Translate
Translate Choose
Choose Link metrics
Link metrics Calculate
Calculate
business
business strategy
strategyinto
into metrics
metrics to
toleading
leadingand
and current
currentand
and
strategy
strategy desired
desired lagging
lagging target
target
outcomes
outcomes indicators
indicators performance
performance

Market Opportunity Market Opportunity

Market Opportunity
• Opportunity
size?
• Opportunity size?
• Competitive environment?
• Competitive environment?
Market Opportunity
• Market
size and growth
• Market size and growth
• Average age and income
• Average age and income
• Competitor concentration
• Competitor concentration

Business Model Business Model

• For each metric,
Develop resource system required to deliver the strategy

• Unique Business Model

value proposition? Business Model
• Customer-perceived benefits • For each metric, • For each metric,
Develop resource system required to deliver the strategy

• Unique value proposition? • Customer-perceived benefits determine the metrics • For each metric,
• Capabilities vs. competition? • Exclusive partnerships determine the metrics calculate current level
Define goals and value proposition

• Capabilities vs. competition? • Exclusive partnerships that it affects and that calculate current level
Define goals and value proposition

• More invested in technology

Marketing
Marketing
• How to develop brand?
• How to develop brand?
Implementation
• How toImplementation
go to market?
• How to go to market?
• More invested in technology that it affects and that of performance
vs. competition affect it of performance
vs. competition affect it
• Determine target
• Map the linked set of • Determine target
Marketing • Map the linked set of level required to meet
• Customer Marketing
brand awareness metrics, indicating
metrics, indicating
level required to meet
outcomes described
• Customer brand awareness leading and lagging outcomes described
leading and lagging in Step Two
indicators in Step Two
indicators
• Ensure that targets
• Ensure that there is a • Ensure that targets
Implementation • Ensure that there is a are consistent
• SystemImplementation
uptime percentage balance between
balance between
are consistent
• System uptime percentage
• Number of IT staff leading and lagging
leading and lagging
• Number of IT staff indicators
• Percent of inaccurate
• Percent of inaccurate indicators
orders
orders

Customer Customer
Customer
• How to acquire Customer
• Market share
customers?
• How to acquire customers? • Market share
• How will customers change? • Purchases per year
• How will customers change? • Purchases per year
• What is customer • Success rate
• What is customer • Success rate
experience? • Service request frequency
experience? • Service request frequency