Business Performance Management:

Linking Business and People Performance

Content

Business Context
Linking Business and People Performance
Building Blocks of Strategy-focused and Value-driven PM
Content
Process
Linkage
Implementation Infrastructure

Contains intellectual property rights. No part of this document may be reproduced, distributed or transmitted in any form or by any means now known or
to be invented, including photocopying or by any information storage or retrieval system, without written permission from PT SRW Asia.

© SRW&Co. 2
BUSINESS CONTEXT
Many organizations face common barriers to executing their business
strategy
Vision Barrier
“9 of 10 companies fail to execute Only 5% of the work force understands the
their business strategy” strategy

Management Barrier
85% of executive teams spend less than one
hour per month discussing strategy

Resource Barrier
60% of organizations don’t link budgets
to strategy

People Barrier
Only 25% of managers have incentives linked
to strategy

Source: R.A. Kaplan, D.P. Norton, “The Strategy-Focused Organization”, 2000

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A closer look to some of the barriers

Ineffective
Ineffectiveperformance
performancemeasures
measures
Vision Barrier Lack
Lackof
ofline-of-sight
line-of-sight
Only 5% of the work force understands Mixed
Mixedsignal
signalon
onthe
thedefinition
definitionof
of“success”
“success”
the strategy

Management Barrier
Lack
Lackof
ofongoing
ongoingreinforcement
reinforcement
85% of executive teams spend less than
one hour per month discussing strategy Limited
Limitedpeople-management
people-managementskills
skills
No
Nomeaningful
meaningfulfeedback
feedbackon
onperformance
performance
Resource Barrier
60% of organizations don’t link budgets
to strategy Minimal
Minimalalignment
alignmentbetween
betweenperformance
performance
and
andpay
pay
People Barrier
Lack
Lackof
ofemployee
employeedevelopment
development
Only 25% of managers have incentives
linked to strategy opportunities
opportunities
Insufficient
Insufficientsupporting
supportinginfrastructure
infrastructure

© SRW&Co. 5
MOVING BEYOND TRADITIONAL PM
SYSTEM
THE BUILDING BLOCKS
CONTENT
PROCESS
LINKAGE
 DEFINITION OF PERFORMANCE (CONTENT)
ƒ What do we need to focus on?
• BALANCED SCORECARD ƒ What do we define as “success”?
KPI • VALUE DRIVERS

• GENERAL
ƒ What competencies required?
COMPETENCY • FUNCTIONAL

PERFORMANCE MANAGEMENT PROCESS

ƒ What do managers need to know and do
PLANNING to implement the strategy?

COACHING REWARDING

REVIEW

LINKAGES TO OTHER HR PROGRAMS ƒ How can we link incentives with the key
drivers of value?
• COMPENSATION
• TRAINING &
ƒ How can we engage people to focus on
DEVELOPMENT value-creation? What supporting tools
• PROMOTION/ROTATION and systems required?

© SRW&Co. 8
THE BUILDING BLOCKS
CONTENT
PROCESS
LINKAGE
 The objective of every organization is
to create value for its stakeholders

© SRW&Co. 10
 “We cannot manage what we cannot
measure”

R.A. Kaplan & D.P. Norton, “The Balanced Scorecard”

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Measuring what matter most …
“WHAT” MEASURES
PROPERTIES
Quantitative, tangible, measurable
VISION, MISSION TOOLS
& VALUES
Balanced Scorecard
Value Driver Analysis

INDIVIDUAL
STRATEGY PERFORMANCE
OBJECTIVES
“HOW” MEASURES
PROPERTIES
Qualitative, intangible, not-easy to
measure
TOOLS
General Proficiency Level
1. Leadership
2. Customer Focus
3. Business Knowledge

Competency Model 4.
5.
6.
Communication
Innovation
Collaboration

© SRW&Co. 12
 Managing for Value:
“What” component of performance

Balanced Scorecard
Value Driver Analysis
Balanced Scorecard provides a framework for managing value
creation in the company
A concept introduced by Kaplan and Norton in 1991.
Relying on financial performance, e.g. Sales, Net Income, Earnings Per
Share (EPS), Return on Equity (ROE), and Return on Assets (ROA), is
insufficient to help organizations create future economic value.
Encouraging companies to measure and incorporate the contribution from
non-financial performance, e.g.
customer satisfaction,
business process efficiency,
innovation,
employee skills and development.

© SRW&Co. 14
There is a positive correlation between financial and non-financial performance
1996 - Fortune Magazine’s 1996 - Stern Stewart 1000
Most Admired Company (EVA)
1.1. Company
Company11 1.1. Company
CompanyAA Value Creator
2.2. Company ƒ 11 of the top 20 value creators
Company22 2.2. Company
CompanyBB
3.3. Company were also in the top 20 of the
Company3.3. 3.3. Company
CompanyCC
4.4. Company Fortune’s Most Admired
Company44 4.4. Company
Company. CompanyDD
5.5. Company
Company55 5.5. Company
CompanyEE
6.6. .... ƒ 7 of the top 10 value creators 6.6. ....
7.7. .... were among the 10 most 7.7. ....
8.8. .... admired companies 8.8. ....
9.9. .... 9.9. ....
.... ....
.... ƒ 12 of the 20 greatest value ...
“destroyers” were among the ...
429.
429..... 998. ..
bottom 20% in the Fortune’s 998. .. Value Destroyer
430.
430.…… 999.
most admired company list 999.……
431.
431..... 1000.…
1000.…
Criteria used Criteria used
ƒ 3 Financials ƒ EVA (Economic Value Added)
ƒ 5 Non-financials (innovation, quality of management,
community and environmental responsibilities, the
ability to attract, develop, and keep talented people, Source: Young & O’ Byrne, “EVA and Value-
and the quality of product and services) Based Management”, 2001

© SRW&Co. 15
 Balanced Scorecard describes organization strategy - the unique and sustainable
organizational approach to creating value
A hypothesis on the “cause & effect” relationships between various factors
affecting an organization performance
Frequently presented in “strategy map”.

results in …
Quality
Employee
Skill & ?
Services to
?
Customer
Satisfaction
?
Improved
Sales Profit
Engagement clients

Learning & Business

Customer Financial
Growth Process

VALUE CREATION

• Employee Engagement • Speed • Product Quality • Sales volume

KPI • Employee Turnover • Accuracy • Service Level • Profit
• Competency Gap • Volume • Customer Satisfaction

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Balanced Scorecard translates company’s vision and mission into (four) balanced
perspectives
Financial Perspective
Company “If we succeed, how will • Profitability
Vision, Mission we look to our • Growth
shareholders?” • Shareholder value

Customer Perspective
“To achieve our vision, • Price
how must we look to our • Service
customer?” • Quality

Internal Process Perspective

“To satisfy our customers, • Cycle Time
what business process • Productivity
must we excel at?” • Cost

(Employee) Learning & Growth Perspective

“To achieve our vision, • Market innovation
how must our company • Continuous learning
learn and improve?” • Intellectual Assets

© SRW&Co. 17
 Sample A: Strategy map and
KPIs of a bank

UNOFFICIAL
Improve
Shareholder Value
Perspective
Financial

Develop Profitable • TSR Grow the

• Revenue Growth
• ROA Business • EVA business
• Market Share
• ROE

Provide excellent
Strong Customer
customer services
Perspective

Relationship
Customer

Optimal
Product Mix • Customer Satisfaction Index Management
• Business from
• Key Product Improve Branch
Key Customers
Market Share Networking

Achieve
Business Process

operational
excellence
Perspective

Adopt quality Improve GCG &

management • Cost to Income Ratio Risk Management
system Harness IT Improve
Capability productivity • Compliance
• ISO 9001 compliance Level
• ROI for IT

Motivated and Competent

Learning & Growth

engaged employees Employees

Service
Perspective

• Employee Commitment Index • Competency Gaps

Culture
• Culture Profile Develop functional
Employee excellence &
Human Capital leadership skills
Branding &
Management
Communications
© SRW&Co. 18
 Sample B: Strategy map of a
government institution

To provide world class UNOFFICIAL

transport system
Stakeholder/ Integrate Develop comprehensive
road network & maximize Manage demand of Provide quality public
Public transport & land
its capacity road usage transport choices
use planning

‰ Road network (km) ‰ Car to Population ‰ % trips by public transport

‰ Utilization rate of MRT network
‰ GLIDE coverage Ratio ‰ Commuters satisfaction (by
‰ Plot Ratios at MRT station
‰ Vehicle Population type of transport vehicle)
‰ Accessibility
Growth
“Build strong partnership between government, commuters, and service operators”

‰ Competitive fare ‰ NEV/EVA

Financial Provide Recover operating Develop policy on
‰ “Value of service” ‰ Revenue (taxes, fees)
realistic fare cost asset replacement
rating ‰ Operating Cost
‰ Operating Margin

“Achieve operational excellence”

Adopt quality Enhance policy & Improve Ensure safety of the

Business management system planning process productivity projects/operation
Process
‰ ISO 9001 (9002) ‰ Quality of policies & ‰ % of major projects ‰ Safety record
compliance planning completed in time &
‰ SQA/SQC Award ‰ Implementation Rate budget

“Build professional, motivated, and innovative workforce”

Develop functional
Build continuous Improve Employee
Learning & excellence & leadership
Engagement
skills improvement tools
Growth
‰ Skill level (% of staff meeting ‰ Average no. of training days ‰ Engagement Score/ Employee
Climate Survey
© SRW&Co. required competency level) ‰ PDA Award
‰ Attrition rate of key people 19
The corporate scorecard needs to be cascaded down the organization so
that to create the line-of-sight.

Corporate Scorecard
Company’s vision,
KPIs mission
1
2
3
4
5 Group Level Scorecard
6 KPIs
1
„ Measures of overall 2
corporate’s success 3 Division Level Scorecard
4
KPIs
5
6 1
2
„ Measures contributing 3
EXAMPLE: 4
to corporate’s success
CUSTOMER SATISFACTION
„ Measures supporting
Improve customer
Increase customer Group’s goals
satisfaction level by
20% in 2003 satisfaction level in market
segment XYZ by 10% by Reduce customer
2003 complaints for product
ABC by 50%

© SRW&Co. 20
 Managing for Value:
“What” component of performance

Balanced Scorecard
Value Driver Analysis
 Value Driver Tree is another form of map which breaks down each business driver
into different levels of measures and highlights how value is created in the
organization.
ROE
EXAMPLE:
ROE FOR A BANK
Operating Profit Equity

Total
Director/ Total Revenue
Expenses
Group Head
Interest Non-Interest Interest Operating
Revenue Revenue Expense Expense
Division Head Trust & Interest on
Interest on Loans Staff Expenses
Investment Fee Deposits

Deposit Provision for

Senior Manager Securities
Transaction Credit Losses
Professional,
Legal & Others
Government Forex/Securities Govt Funds & Net Occupancy
Funds Trading Securities Expense
Credit Analyst Interest-bearing Notes &
Financing IT & Equipment
Deposits Debentures Expense
Equity Other ST Goodwill
Others
Investment borrowings Amortisation

Others
Others

© SRW&Co. 22
It shows how employee performance affects business results …
CORPORATE
• Record customer • Form teams to CORPORATE
REVENUE
enquiries deliver REVENUE
TOTAL
accurately and excelllent CS REVENUE
timely CUSTOMER RETAIL GROSS
• Provide training SERVICE REVENUE MARGIN
• Document and in CS COST OF
COST OF
follow-up customer GOODS
GOODS
complaints SOLD
SOLD

OPERATING
• Follow proper • Implement JIT MARGIN
check-in and check- to minimize
out procedures inventory cost
INVENTORY
• Perform timely and • Provide MANAGEMENT INVENTORY
accurate stock- training in
taking inventory
management
OPERATING
BAD DEBT
BAD DEBT EXPENSES

AREA FOR IMPROVEMENT LABOR

LABOR

EMPLOYEE LEVEL MANAGER LEVEL BUSINESS DRIVERS FINANCIAL IMPACT

© SRW&Co. 23
 ILLUSTRATIVE

It shows how daily activities affect drivers of the company’s performance.

CUSTOMER SATISFACTION

Product Innovation Customer Value Price Quality

Brand Delivery Customer Customer Products Products Failure

Image Time Support Relationship Availability Returned Rate

Cycle Time

Order Check
Enter Schedule Send Collect After-Sales
Delivery Account
Order Delivery Invoice Payment Services
Process Status

For example
Accurate & Timely Order Entry  Reduced cycle time  Customer value 
Customer satisfaction
Quality after-sales services  Improve customer relationship

© SRW&Co. 24
Value driver trees will be used to cascade the performance metrics down the
organization so that to create the line of sight
Corporate Performance Scorecard
Value Driver - Financial Financial Customers Value Driver - Customer
Value Driver - Financial Value Driver - Customer
Corporate
Operational Learning & Level
Growth

Div X - Performance Scorecard Div Y - Performance Scorecard Div Z - Performance Scorecard

Division
Financial Customers Financial Customers Financial Customers
Level

Operational Learning & Operational Learning & Operational Learning &

Growth Growth Growth

Department
Level

© SRW&Co. 25
Setting performance standard

Historical data of company and peer group

Probability analysis based on a historical evaluation
Investor/shareholder expectations
XYZ Co. Peer Group
Probability of Probability of
Sales Growth Sales Growth
Achievement Achievement
95% -6.9% 95% -12.8%
KPI : Sales Growth 90% -4.0% 90% -7.9%
85% -2.2% Performance 85% -5.2%
XYZ Co. vs. Peer Group 80% 0.9% 80% 0.0%
50%
Threshold
75% 1.2% 75% 0.7%
40%
70% 1.4% 70% 1.2%
65% 2.3% 65% 2.4%
30% 60% 3.1% 60% 3.8%
Sales Growth

55% 3.9% Performance 55% 5.1%

20% 50% 4.7% Target 50% 6.5%
45% 5.5% 45% 7.8%
10% 40% 6.3% 40% 9.3%
0% 35% 7.1% 35% 10.6%
2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
30% 8.0% 30% 12.2%
-10% 25% 9.0% Performance 25% 13.6%
XYZ Co 25th Percentile 50th Percentile 75th Percentile 20% 10.1% Maximum 20% 15.7%
15% 11.5% 15% 18.3%
10% 13.3% 10% 21.1%
5% 16.3% 5% 25.1%

© SRW&Co. 26
 Managing for Value:
“How” component of performance

Competency Model
 ILLUSTRATIVE

Competency model describes the expected behavior that affect individual

and company’s performance
Required Competency Profile
Leadership Customer Business Communi- Innova- Collabo
Organization Focus Knowledge cation tion ration
Capabilities
Company Customer driven 9 9 9 9
Organization
Vision, Business Quality service 9 9 9 9 9
Capability
Mission, Strategy External communication 9 9
Requirements Process Efficiency 9 9 9 9
Values
Market Focus 9
Leadership 9 9 9
Information Technology 9 9 9 9

Individual Job Competency Profile Requirement

Job A Job B Job C
General Proficiency Level General Proficiency Level General Proficiency Level
1. Leadership 1. Leadership 1. Leadership
2. Customer Focus 2. Customer Focus 2. Customer Focus
3. Business Knowledge 3. Business Knowledge 3. Business Knowledge
Competency Gap 4. Communication 4. Communication 4. Communication
5. Innovation 5. Innovation 5. Innovation
6. Collaboration 6. Collaboration 6. Collaboration
Training & Technical 1 2 3 4 5 Technical 1 2 3 4 5 Technical 1 2 3 4 5
Development 1. Project Management 1. Refinancing 1. Corporate Taxation
2. LAN/WAN 2. Loan Restructuring 2. Project Management
Programs 3. … 3. … GAP 3. …
4. …

© SRW&Co. 28
THE BUILDING BLOCKS
CONTENT
PROCESS
LINKAGE
Managing performance is a process …

Vision, Mission, Values

Step 3: Rewarding/Developing
Company Business Plan „ Performance appraisal results
Performance Scorecard - 2004 Incentive (Rp) are used to determine:
Name : Anton Hilman

Annual Budget „ Training Program

Level : Senior Manager

KPI TARGET RESULT

„ Bonus/incentive
▪ Sales Rp 4 bio …
▪ Customer Satisfaction Level 75% …
▪ Cost per employee … …

Step 1: Performance Planning ▪ ….

▪ ….
…
…
…
… „ Salary increase
„ Promotion
▪ …. … …

„ Supervisors set KPIs, target COMPETENCIES

▪ Leadership
REQUIRED
Level 4
RESULT

and competencies ▪ Problem solving

▪ Teamwork
Level 3
Level 3
Performance
▪ Communication Level 3
▪ …. …

Step 2: Performance Review/

Appraisal
„ Supervisors conduct performance
review based on target set in the
Continuous Monitoring/Coaching working plan.
„ Continuous coaching
„ Monthly and mid-year review

© SRW&Co. 30
 “…It's a marathon. Ten years. Fifteen years.
It's not a sprint. You have to have a plan.
You have to stick with it. You have to
modify it at times, but every day you've got
to get up and play hard…”
Jack Welch to Jeff Immelt – CEO of General Electric

© SRW&Co. 31
THE BUILDING BLOCKS
CONTENT
PROCESS
LINKAGE

“Everything in life is interconnected”

“Managing Performance” also means providing rewards, training and development
to employees
Communicate what is important to employees and organization
Reward employees’ contribution to the value creation
TRAINING &
COMPENSATION SYSTEM CAREER MANAGEMENT
DEVELOPMENT
TOTAL REMUNERATION REPORT

Company Vision,
Mission, Values
P25 Median P75 Average

Business
Strategy
PERFORMANCE COMPETENCY MODEL &
MANAGEMENT ASSESSMENT

Organization
Capability
Requirements

© SRW&Co. 33
Design of the incentive plan needs to focus on driving value
creation …

Rp
Performance Scorecard
KPIsPerformance Scorecard
1 KPIs

Incentive
2 1
3 2 Incentive Variable
4 3

Reward Mix
Pay
5 4
6 5
6 Performance Level

• Balanced Scorecard Base Pay Fixed Pay

• Value-driver Analysis

Total
TotalCompensation
CompensationStrategy
Strategy

© SRW&Co. 34
 ILLUSTRATIVE

Customizing incentives for “mission-critical” functions

Analyzing impact of the various functions on key business drivers enables us to

develop custom reward systems

CRM Revenue
Growth
Sales Grow customer base

l Net Income
sel COGS
ss Innovation Growth
CRM Cro
uce
ogy to red
l SG&A
chno sts
ve rage te cturing co expense
Le fa
Research & manu Operating
Development Redu Cashflow
ce tim
e - to
-mar
ket Product
Lead Time
Working
Capital
Turnover Capital
Efficiency
Competency Requirement Asset
turnover

Training & Development

Programs

© SRW&Co. 35
Implementation Infrastructure

The Role of Technology

 Technology enables organizations to

Monitor performance (KPIs) regularly

Understand driving factors affecting
business
Identify trends
Provide early warning
Make faster and more effective decisions

© SRW&Co.
Source of screen output: Business Objects SA 37
Example: Strategy Formulation and Goal Achievement

Performance
management dashboards

“Cause and effect

relationship”

© SRW&Co. 38
Source: PeopleSoft Enterprise Scorecard
© SRW&Co. 39
 Example: ROE Value Tree

How to improve
our sales?

How to reduce
account
receivables?

Safe
Warning
Emergency

Source of screen output: Oracle

© SRW&Co. 40
Wrap-up

DEFINITION OF PERFORMANCE (CONTENT)

KPI
• BALANCED SCORECARD REQUIREMENT FOR SUCCESS
• VALUE DRIVERS
Company Vision,
COMPETENCY
• GENERAL ƒ Broad leadership commitment
Mission, Values • FUNCTIONAL
ƒ Improving performance is
PERFORMANCE MANAGEMENT PROCESS
PLANNING
not just HR’s responsibilities
Business
Strategy COACHING REWARDING ƒ Leveraging existing tools
REVIEW • Alignment with other people
Organization
LINKAGES TO OTHER HR PROGRAMS management systems
Capability • COMPENSATION
Requirements • TRAINING &
• Supporting infrastructure
DEVELOPMENT
• PROMOTION/ROTATION

© SRW&Co. 41
Thank You
About SRW&Co.
About SRW&Co.

SRW&Co. is a management consulting firm specializing in

human capital solutions. Our focus and goal is certain - to
help our clients improve their organizational performance
through people practices.

We are still young as an organization, but our consultants

have extensive experience working for many leading global
and well respected organizations, and have consulted many
leading global and local organizations in the Asia-Pacific
region.

Our technical advisors are industrial and technical experts

which own thorough experience and knowledge in their
specific business areas and functions.

We are currently building our presence in Indonesia. We

plan to keep expanding our presence in this very dynamic
region to better serve our clients.

© SRW&Co. 44
 OUR VISION

TO BE A LEADING MANAGEMENT CONSULTING FIRM,

FOCUSING ON PEOPLE SOLUTIONS, IN THE SOUTHEAST ASIA BY 2014

OUR MISSION

WE ARE MANAGEMENT CONSULTING FIRM FOCUSING ON PEOPLE SOLUTIONS, COMMITED TO:

BUILDING PARTNERSHIP WITH OUR CLIENTS

IN IMPROVING THEIR ORGANIZATIONAL PERFORMANCE

PROVIDING A BUSINESS AND IMPLEMENTATION ORIENTED SOLUTIONS

TO ADDRESS OUR CLIENT’S ORGANIZATIONAL CHALLENGES

DEVELOPING A COMPETENT, ENTREPRENEURIAL,

AND ENGAGED TEAM OF CONSULTANTS

OUR VALUES

CUSTOMER ORIENTATION – COMMITMENT TO EXCELLENCE – CONTINUOUS IMPROVEMENT –

TEAMWORK – RESPECT OTHERS – ENTREPRENEURSHIP – COMMUNITY IMPACT

© SRW&Co. 45
Our Service Offerings

TALENT SOURCING & PERFORMANCE LEARNING & REWARD & SEPARATION &
TALENT PLANNING
PLACEMENT MANAGEMENT DEVELOPMENT RETENTION TERMINATION

‰ Talent Strategy ‰ Assessment ‰ Performance ‰ Competency ‰ Job Evaluation ‰ Separation &

& Planning Outsourcing Management Modelling & Pay Structure Termination
Development System Design ‰ Career Design Strategy
Development ‰ Short- & Long-
Design term Incentive
‰ Corporate Design
University ‰ Benefits Design
Design ‰ Market Data

ORGANIZATION DESIGN AND DEVELOPMENT – PEOPLE STRATEGY

TRAINING AND LEADERSHIP DEVELOPMENT PROGRAM

HR REGULATION COMPLIANCE

© SRW&Co. 46
Partial List of Our Clients

JAYA REAL PROPERTY

© SRW&Co. 47
 Our consultants have worked with a diverse set of major organizations
across the region1
Alliance Bank, Malaysia Land Transport Authority, Singapore
Asia Pulp & Paper, Indonesia and Singapore Lucent Technology, Hong Kong
Affin UOB Securities, Singapore Maritime and Port Authority, Singapore
Bank Indonesia, Indonesia Maybank, Malaysia
Bank Mandiri, Indonesia Maxis Communication Berhad, Malaysia
Bumiputera Commerce Bank, Malaysia Micron Semiconductors, Singapore
Indonesian Bank Restructuring Agency (IBRA), Indonesia Monetary Authority of Singapore, Singapore
ITT Technology, Singapore Pfizer Pharmaceuticals, Indonesia
Jakarta Stock Exchange, Indonesia Procter & Gamble, Indonesia
Jurong Town Corporation (JTC), Singapore Proton, Malaysia
Jurong Port (JPPL), Singapore Sime Darby Berhad, Malaysia
Kiani Kertas, Indonesia Telekom Malaysia, Malaysia
Kuala Lumpur Stock Exchange, Malaysia Telkom Indonesia, Indonesia
Telkomsel, Indonesia

1Including consultants’ previous engagements

© SRW&Co. 48
For Further Information

SRW&Co.
Plaza Business Kemang II, 2nd Floor
Jl. Kemang Raya No.2
Jakarta 12730 – Indonesia
Tel : (021) 719-8326
Fax : (021) 718-3415

Irwan Rei
Managing Partner
HP : 0812-9787-497
E-mail : irwan_rei@srw.co.id

Iwan Prajogi
Partner and Practice Leader for Business Performance Management
HP : 0811-870-234
E-mail : iwan_prajogi@srw.co.id

© SRW&Co. 49