Performance Measurement

concept of CRM is a process approach which can be divided into two parts:

'front office' (client-facing part of the organization) and 'back-office' (part of the organization dedicated to tasks that support the business itself).

seemingly modern concepts stemming from Follett and Mayo's work in the mid-1920s and mid 1930s

'group dynamics', 'teamwork', and organizational 'social systems'

theories of the human relations movement and behavioral management became the theoretical basis for the development of a new concept of

'informal organization'

Classical (administrative) management emphasized the main five principles of organizational management, which were put by Fayol as follows:

'plan', 'organize', 'command', 'coordinate', and 'control'.

Management concepts of the 1990s advocated for the following three principles:

1. Alteration of the role and the value of manufacturing (i.e. material, production, and service provision) due to the increasing influence of science and technology, including the growing role of quality for competitive advantage 2. More attention given to organizational culture and democratic corporative governance with focus on behavioral and social aspects of management 3. Usage of the 'product-market' model for measuring the organizational performance

A. Fayol fourteen principles of administration

1. Specialisation/division of labor 2. Authority with responsibility 3. Discipline 4. Unity of command 5. Unity of direction 6. Subordination of individual interest to the greater interest 7. Remuneration of staff 8. Centralisation 9. Scalar chain/line of authority 10.Order 11. Equity 12. Stability of tenure 13. Initiative 14."Esprit de corps"

behavioral approach became so popular that it was soon expanded to all areas of management in the

1960s.

_________________ proposed fourteen principles of ______________ to go hand in hand with management's five primary roles.

A. Fayol administration

Effective management and issues of high productivity in commerce and business organizations became a subject of serious studies at the beginning of the 20th century after the publication of

F. Taylor's 'Principles of Scientific Management'.

Experiments which were carried out under the direction of E. Mayo and F. D. Roethlisberger as part of the '_________________ experiment' at Western Electric in Illinois emphasized the importance of

Hawthorne leadership and working groups.

development of the classic theory of administration (classical management) is primarily associated with the names of ______________________________________ and gives priority to the concept of '_________________' in relation to the function of the organization as a

Henry Fayol, Lyndal F. Urwick, J. D. Mooney, A. C. Railey, and Alfred P. Sloan efficiency whole unit.

_______________________ were the most determined advocates of the theory of human relations movement and today remain the leading authorities in the development of this approach in management.

Mary Parker Follett and George Elton Mayo

Classical (administrative) management main five principles of organizational management

Planning is the act of anticipating the future and acting accordingly. Organization is the development of the institution's resources, both material and human. Commanding is concerned with keeping the institution's actions and processes running. Co-ordination indicates the alignment and harmonization of the groups' efforts. control implies that the above activities were performed in accordance with appropriate rules and procedures.

main focus of scientific management was on the lowest level of the organization-

a worker and his supervisor where attention was directed towards how to make the work of this production unit more efficient.

Lawrence and Lorsch concluded bureaucracy is more effective for organizational performance if its

action is conducted in a stable environment.

In mechanistic model, the organization is a closed __________________ system with ____________ boundaries which is relatively independent of the

autonomic fixed external environment.

first four theories of management from a chronological perspective before 1950 are based on __________________________approaches to management.

behaviorist

F. Taylor, G. Gantt, and F. Gilbert suggested different quantitative measurements to determine the best options for ___________________________________________ which led to increased ___________________________________________

boosting performance of specific manufacturing operations. specialization, productivity, and efficiency of resource management.

Weber did not advocate ____________________; however, he envisioned the bureaucracy as a

bureaucracy large machine for attaining the objectives of an organization in the most efficient manner possible

advocates of theory of human relations movement first called attention to the fact that instead of considering the production process and people involved in it to be ________________________________, it is vital to focus on the

components to be controlled interpersonal relationships within the organization.

• basic principles of framework of strategic management include:

continuous improvement of productivity and performance fact-based approach towards and involvement of employees in the decision making process a customer-oriented focus leadership and a mutually beneficial relationship with suppliers, which goes hand in hand with the creation of strategic targets for effective organizational development and establishing a competitive advantage over time.

model that represents an organization as a complex hierarchical structure includes strategic management as a key aspect in its_____________________________, since the performance of the organization in such an uncertain environment cannot be guaranteed by ____________________________________ alone.

corporate governance forecasting and planning

Customer relationship management (CRM) is a

customer-oriented management strategy for organizations which already have certain regular customers.

Organizations which operate in a challenging environment should be more _________________ to ensure their success and performance ____________________. Such organizations should pay less attention to the existing _________________________________

decentralized efficiency rules and standard routines.

informal organization examined fundamental questions such as which factors influence _________________, which led to the factors being identified as critical components influencing decisions

decision making

Chester Barnard, James G. March, and Herbert A. Simon laid the foundations of the 'informal organization' concept which focused on understanding how

decisions come to pass among individuals, groups, organizations, companies, and society.

McGregor theorized the main task of management is to create conditions in which employees will _____________________________________in a way that will also allow the employees to realize their own personal goals to the best of their ability.

direct their efforts towards achieving the goals of an enterprise

Lawrence and Lorsch studied high- and low-efficiency organizations and came to the conclusion the effects and the interaction of such factors are the

driving force behind technological changes within products and methods of production and also responsible for much of the instability of the environment.

concepts promoted quantitative methods in corporate governance, seeking to boost performance through_____________________________. One variant of this approach was the development of the ____________________

effective resource and inventory management situation analysis.

Since F. Talor, ______________________________________ have become an independent area of research and a recognized science.

efficiency and performance in management

Fayol drew attention to the importance of team spirit as a key to

efficiency.

McGregor was also the founder of the famous theory X and theory Y which explain ________________________________________ theories suggest the main role of management is to 'skillfully' assemble the key factors of production, including

employee motivation. people, for the benefit of the enterprise.

Weber's measures result in a principle of leadership within a given company which follows stable and knowable rules,

especially in recruitment, promotion of employees and staff dismissal.

pivotal idea of Strategic Management Theory was the organization is constantly adapting to the ___________________ and changing its _____________________ at the same time. However, the causes for internal changes in the ________________ should be considered with regard to the external environment

external environment internal structures organization

Frederick Taylor postulated theories on manufacturing production, which he thought was inefficient. True False

false

Henry Ford advocated for organisations with flat hierarchy. True False

false

Lawrence and Lorsch suggested that bureaucracies are ineffective in stable environments. True False

false

Max Weber recommended the abolition of bureaucracy. True False

false

Modern management models concentrate on the organisation's internal affairs. True False

false

Weber's principles include:

fixed and official jurisdictional areas, a firmly ordered hierarchy of supremacy and subordination, management based on written records, thorough and expert training, official activity taking priority over other activities.

Follett believed a successful and effective manager should refuse _____________________________ and become a leader who is recognized by _______________, rather than relying solely on their authorized or official ____________.

formal interactions with employees workers power

Ford developed principal ideas of a __________________ structure of the organizational management, which were then further formulated by _________________________ in its definite form.

hierarchical Henry Fayol and Max Weber

In Theory of Quantitative Management, organization considered to be complex ______________________ system which is inextricably linked with the outside world. Key factors for success of a business venture were thought to reside in both the

hierarchical and multi-component external environment (from which it obtains resources, including information) and the internal environment.

neoclassical management (the theory behind the ___________________________ which replaced the classical ____________________)-emerged in the 1930s.

human relations movement administration

Fayol stressed the importance of specialization to ensure optimal use of ______________________, but also warned that specialization must have its _______________.

human resources limits

Ralph Stogdill formulated the theory of _____________________________ Stogdill became a pre-eminent opinion leader in ____________________ research.

individual behavior and group achievements. management

Chris Argyris and Douglas M. McGregor argued bureaucratic form of management is incompatible with the______________________________, and rigid hierarchy might cause inefficient relations within an organization when

individual needs of the employees representatives of a higher level of an association (management level) consider subordinates (the lower level staff) to be irresponsible.

scientific management's organizational influences contributed to the development of the field of

industrial engineering, personnel, and quality control.

The human relations movement's greatest impact was seen in changes to the activities of the organization's

leadership and personnel department.

Hawthorne experiment started in the early 1920s as an attempt to determine the effects of

lighting on worker productivity.

to understand the background of performance measurement theory need to first look at a taxonomy of broad ____________________ theories based on a ____________________approach

management chronological

Frederick Taylor and his theory of scientific management began the era of modern

management and efficiency in manufacturing

mechanistic of model only exists in practice when the

market and the technological environment are stable and predictable.

the management of the company has created value and this additional value is called market value added (MVA) if the

market capitalization plus the market value of debt (i.e. total market value of a company) is higher than the capital contributed by investors (both equity and debt)

theories of scientific management and administration became a theoretical basis for the formation of a

mechanistic model of the organization.

theory of classical management mainly focuses on the need to formulate the _____________________ and describes the functions of management such as

organization's objectives planning, organization and control.

decade of the 1980s was characterized by developing important concepts such as_____________________________ and even to the present-day, this idea is considered to be an important management tool to achieve________________________

organizational culture optimal performance.

________________ process has been separated from the implementation of plans while increased _____________________ of manufacturing processes has led to the ______________________ from the organization and its objectives

planning standardization alienation of workers

when environment is stable, organization is seen as a mechanism which combines basic factors of production:

production and capital goods, labor and raw materials.

theory of the human relations movement studied human behavior from the

production point of view i.e. what propels worker performance.

impetus for Theory of Quantitative Management was the rapid development of mathematics and cybernetics, which greatly contributed to the wide application of

quantitative methods in administration.

According to Follett, leadership has to be based on what the ________________ dictates and not from what is prescribed in

real situation control functions.

When Hawthorne experiments showed no clear correlation, the researchers started looking into other factors such as

rest breaks, free meals, and hours in the workday.

informal organization critical components influencing decisions

risk orientation leadership and the ambiguity of the present and the past politics and the vested interests of stakeholders challenges of giving and receiving advice challenges of organizational and individual learning challenges of balancing exploration and exploitation in business establishments

L. Porter found a correlation between different approaches in management and the ______ of the organization that also acknowledged differences between the

size structure of the organization and different positions held by individuals.

Within the framework of neoclassical management approach, business institutions were viewed as _________ structures, for which it is necessary to apply knowledge of the

social organizational culture, different types of motivation, and behavioral functions of the staff.

Development of a management strategy using the CRM method includes the following elements:

strategic management opportunity management strategy for marketing management documentation management

According to strategic management theory, evaluating the performance of the organization was necessary to _________________________________________), as well as address social and ethical factors and the interests of different stakeholders and groups involved in ________________________________

strengthen the influence of the environment on organizations and their performance (i.e. efficiency organizational development.

Hawthorne experiments determined that the workers had become a team and that the social dynamics of the team were a ________________________________ This caused a call for greater participation for the _____________, greater_____________________ in the working environment, and a greater attention to _________________ in the work place.

strong force influencing productivity. workers trust and openness teams and groups

Henry Ford introduced a modified concept of scientific management, which included a _______________ approach towards ________________ management, with the idea of

systematic personnel shared responsibilities between workers and managers in providing a workflow of high quality and efficiency for the organization as well as the idea of a scientific setting of labor quotas.

front office/back office model

te front-office tends to subdivide performance activity into marketing management and customer services back-office divides performance activity into optimizing effectiveness of sales and processing, logistics, monitoring financial flows, and other types of business performance.

mechanistic model allows ______________________________________to be established and reveals the dependencies between the various factors of _______________________.

technical and economic relations production

Knowledge management

·1 effective corporate communication req 2 info about industry-wide performance help guide performance thresholds which should be pursued 3 performance measurement capability accompanied by internal training program 4 successful companies are improving time-to-information with help of technologies and services which enable faster delivery of mission-critical information.

Financial perspectives (or shareholder value) of balanced scorecard addresses two questions:

"What needs to be done to succeed financially?" "How the organization needs to appear to shareholders?".

balanced scorecard asks the question:

"Where does the organization need to improve to achieve its three-year financial objectives?

customer perspectives of balanced scorecard answers two critical questions:

"Who are the target customers?" "What is the value proposition in serving them?"

EQ award process included requirements for ______________________________ comparisons and urged competitors to provide a degree of ______________ that their success would be _____________________.

'best in class' benchmark confidence sustainable

technology priorities should be 'ease of use for end-users' and 'integration capabilities with other applications'.

'ease of use for end-users' and 'integration capabilities with other applications'.

When a customer ends his business relationship and is not regarded to be worthy of recovering, an organization needs to include the costs of terminating that business relationship in its calculation of

'final costs'.

· By using performance drivers and metrics we can replace ___________' decisions with '____________________' ones.

'gut-feel fact-based

key reason for measuring intellectual capital is to recognize

'hidden' (potential) assets and strategically develop them to achieve organizational goals.

Max Weber devised a set of principles for an

'ideal' bureaucracy.

most benchmarking experts apply two main types:

'informal' and 'formal' benchmarking

In contractual settings, represented by the ____________________ model', the customer is either

'lost-for-good totally committed to the vendor or totally left alone.

Management teams become overloaded with excessive amounts of information which leads to

'paralysis by analysis'

Within a value-based culture, everyone in the organization recognizes______________________ as a primary goal.

'service to the customer'

strategic measurement and reporting technique _______________________ facilitates the need for the inclusion of measures which are focused internally and externally.

(SMART) pyramid

IRR used to prioritize potential projects a company is considering in following ways

1 Assuming all other factors are equal among various projects, project with highest internal rate of return would be considered best and undertaken first. 2 IRR can be viewed as rate of growth a project is expected to generate.

EVA metric can overcome shortcomings of other approaches such as:

1 Traditional income measures, inc net income and earnings per share, which can be manipulated & do not account for cost of equity. 2 Market-based measures, inc market value added (MVA), excess return, and future growth value (FGV) which can only be calculated for publicly-traded entities. 3 Cash flow measures, inc cash flow from operations (CFO) and cash flow return on investment (CFROI) which include neither the cost of equity nor the cost of debt.

four inputs required to calculate CFROI:

1 avg life of depreciating assets 2 total amount of assets (includes both depreciating and non-depreciating assets) adjusted for inflation 3 inflation-adjusted cash flows generated by assets over their lifetime 4 final inflation-adjusted residual value of non-depreciating assets at end of asset lifetime

Companies are more likely to benefit from EVA)if they adopt these characteristics:

1 corporate structure consists of autonomous business units, mot one large unit or amatrix organization with shared resources. 2 Strong managerial wealth incentives tied to business unit performance, not to corporate-wide goals (stock or stock options) or discretion of compensation committee. 3 CEO is an enthusiastic advocate; thing they understand and support. 4 Business heads are involved w/ well-being of organ and motivated by long-term incentives.

Two different kinds of recovery costs have to be considered in CLV:

1 costs which incur before termination of business relationship to avoid defection 2 costs which emerge after completion of relationship, stemming from efforts targeted at regaining a customer.

Four key performance metrics having customer view in focus:

1 customer satisfaction and how it changes over a period of time 2 customer issue resolution, which gives an idea of the speed with which customer issues are resolved 3 conversion of inquires to sales leads 4 sales-forecast-to-plan performance

Operational performance management capabilities depend on technological disciplines including:

1 data management, data integration, and data cleansing 2 data modelling and development of business rules 3 scorecarding with eye toward easy access and making info available to variety of technical and non-technical business stakeholders 4 automated alerting to enable stakeholders to learn about performance changes while they occur

Three notions of value according to value-based management are:

1 foundation of shared ethical values-starting w/ belief in intrinsic value of each person employee customer supplier 2 success in marketplace based on delivering max value (higher quality at lower prices) to the customer. 3 rewards based on value people contribute to organization; as individuals and as team, employees and as owners.

organization's management can be thought of as a three-stage-process:

1 gain understanding of value creation in each business 2 transform company to align it with ultimate goal of shareholder value maximization 3 communicate results internally and externally

value based management phase actions that must be untertaken

1 management component of the value-based management process. 2 For practical implementation of this process, techniques such as portfolio management and competitive advantage frameworks are used

determination of customer process/activity and customer-specific costs steps

1 match each account in ledger to a resource 2 utilize resource drivers to calculate activity costs 3 use activity drivers to determine customer costs 4 compare customer costs to customer revenue to find customer profitability

Basic value-based management compensation and reward systems might include:

1 monthly, bimonthly, or quarterly bonuses linked to each worker's profit centre within the company 2 annual, corporate-wide performance bonuses based on formulas tying each worker's contributions to overall organizational profits 3 structured, profit-based program of shared ownership (i.e. annual ESOP contribs) supplemented by cash dividend payouts to reinforce ownership awareness

shared organizational values, are expressed in a written set of:

1 organizational core values (i.e. ethical principles which define culture and clarify social purposes of organ) 2 code of ethics (i.e. set of encouraged habits to guide individual behavior toward strengthening organization's culture and interpersonal harmony). 3 Ideally core values and codes of ethics are agreed upon by every person

Performance management

1 organizations not only est key performance indicators to measure company's operational performance over time, but also to obtain comparative capabilities to ensure performance measures are in alignment across organization and with its strategy and performance metrics. 2 not enough to define key performance indicators and track them over time. 3 need to be communicated through organization to enable all staff to understand how indicators relate to performance goals of group, company, and how performance compare to competitor 4 achieved through involvement of industry trade associations and integrating data from industry aggregators and getting data from government agencies.

key areas of performance management emphasized and marked as central trends emerging in business world:

1 reviewing and enhancing organizational management profitability/methodologies of recounting them 2 emphasizing use of business-unit key performance indicators 3 refining customer-/channel-profitability measurement and analytics 4 improving alignment of components of performance management process 5 improving systems support and automation of performance management process 6 improving data quality and consistency

In the context of organizations, most lessons from informal benchmarking can be derived from the following:

1 talking to colleagues and learning from their experience ·2 consulting with experts 3 networking with other people from different organizations during conferences, seminars and Internet forums 4 online databases/websites and publications which share benchmarking info provide quick, easy ways to learn best practices and benchmarks

· Benchmarking continuous improvement process

1 what to survey 2 select methodology 3 gather data 4 report output 5 focus on best practices 6 implement ideas 7 track 8 repeat

From a high-level perspective such performance comparisons and analysis in accounting based performance measures may include:

1. Comparison of current year's results with previous year to identify trends and performance drivers within the organization 2. current year's results in comparison with results of companies in same line of business, in order to establish whether the organization is performing better or worse than its competitors 3. Current performance against a standard or benchmark of performance 4. Comparisons of one segment or division of a business with others, so to establish which parts of business are achieving goals

Performance measures focusing on financial aspects can be divided into two main types:

1. Measures based on accounting data o2. Market-based measures derived from stock or other financial market values

Current management accounting developed in the US between the _____________ when industrial organizations moved from ____________ payment systems to _______, single efforts to multiple operations, individual production plants to _________ integrated businesses, and individual businesses to multi-_______________ organizations.

1850s and 1920s piece-work wages vertical divisional

The balanced scorecard is built around a vision for what an organization wants to achieve in

2-5 years.

PM strategic objective 4

After setting targets, the organization begins measuring actual performances. By comparing actual performance against the targets, organizations can identify areas which need to be improved.

self assessment technique/effort level MATURE ORGANIZATION

Appropriate questionnaire LOW EFFORT pro-forma supported by peer validation MEDIUM EFFORT Award simulation HIGH EFFORT

Intangible Assets Characteristics

Assessment based on assumptions Can't be bought or imitated Appreciates w/ purposeful use Multiple applications w/o reducing value Best managed w/ abundance mentality Best leveraged through alignment Dynamic: short shelf-life when not in use

Return on equity (ROE):

Calculates earnings over a shareholder's equity. measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE= Net Income/ Shareholder Equity

Dividend payout-ratio:

Calculates percentage of earnings paid to shareholders in dividends in a specific period. stable dividend payout ratio indicates a solid dividend policy by the company's board of directors. Dividend payout ratio= Dividends/ Net income for the same period

intellectual capital measurement disadvantages: Process measures

Can be too much formalism. can be confusing when dealing with too many knowledge domains. only effective when knowledge flows are enabled across domains. not linked to profits or tangible improvements.

_________________ supports a business through all phases of the economic cycle

Capability leverage

CFROI

Cash flow return on investment

· Strengths of Balanced Scorecard

Clarity of vision and strategy adopted Consistent monitoring of strategy Concentration on strategy, in competition environment critical business objectives • Cross-disciplinary and hierarchy traversing communication process Integration of performance measures for operational objectives at an appropriate level Cause/effect relationships as instrument for management

__________________________________ used are the same for any organization to enable benchmarking in excellence model

Criteria and measurement

indicators of customer capital

Customer satisfaction, repeat business, financial well-being, and price sensitivity

in ideal EFQM model, ___________________________________ results need to be comprehensively measured and ___________________ measures and ______________________ indicators are determined and maintained.

Customer, people, and society perception performance

Weaknesses of Balanced Scorecard

Doesn't express interests of all stakeholders Lack of long-term commitment and leadership for management Too many/few metrics, development of unattainable metrics Lack of employee awareness or failure to communicate info to all employees Constructed as controlling tool rather than improvement tool No relationship quantification Inappropriate for benchmarking

organization's EBEI could be defined as:

EBEI t=CFOt+Accrual t where EBEI t is the earnings before extraordinary items and tax for period t, CFO t is the net cash from operating activities, accrual stands for the total operating accruals of the organization

· ______________ is the most widely-used business excellence framework in Europe with over 30,000 businesses using the excellence model to

EFQM improve performance and increase their bottom-line.

One of the most successful modifications of total quality management is known as the________ model which was initially developed in 1988 by the

EFQM European Foundation for Quality Management (EFQM).

framework EQ award assessment process became what is commonly known as the

EFQM Excellence Model.

In start-up companies or emerging markets, ______ is not the best performance metric.

EVA

calculation of EVA

EVA t=(NOPAT t +AcctAdj op; t)−[c*times {IC t−1 +AcctAd jc;t)] where AcctAdj op; t is adjustments to remove the accounting distortions from operating profit, AcctAdj c;t is adjustments to remove the accounting distortions from invested capital

self assessment technique/effort level STARTING ON THE EXCELLENCE JOURNEY

Elementary questionnaire LOW EFFORT Standard matrix LOW EFFORT Standard questionnaire MEDIUM EFFORT Very detailed questionnaire or tailored matrix HIGH EFFORT

____________________________________ are metrics which have a place in learning perspective.

Employee skill level, employee satisfaction, and availability of information

· In 1991, the ______________________________ was launched.

European Quality Award

self assessment in excellence model makes it easier for an organization to situate itself in a kind of

European top-league table

________________ variables such as the environment and impact on society are not systematically addressed in the balanced scorecard.

External

An application of benchmarking could be the comparison of the performances of the accounts and the marketing department. True False

False

Customer profitability analyses are not recommended for customers who order many, but small, quantities, as the cost of preparing an analysis is high. True False

False

Customer satisfaction is not a good example of a key performance metric because it is likely to change over a period of time. True False

False

Intangible assets are necessary for business operations. True False

False

Intellectual capital can be classified as human capital, organizational capital, and supplier capital. True False

False

Performance drivers are not meant to replace 'gut-feel' decisions by management. True False

False

Performance measurement cannot utilise non-financial measures, due to its quantitative approach. True False

False

Performance measurement is a qualitative approach. True False

False

Tangible assets are the key to establishing a competitive advantage in the IT industry. True False

False

Tangible assets tend to appreciate the more they are being used. True False

False

The European Foundation for Quality Management (EFQM) should be regarded as a prescriptive standard. True False

False

The balanced scorecard method is mainly used in accounts departments. True False

False

The balanced scorecard method is recommended for production environments only. True False

False

The balanced scorecard method should include the four aspects: financial, customer, supplier, and inventory control. True False

False

The following is an example of a performance metric associated with a preceding step in a value stream: If the key performance indicator is on-time-in-full shipments, the performance metric is customer satisfaction. True False

False

The main advantage of the Japanese concept of total quality management (TQM) is that it can be speedily implemented, provided the right computer software is used. True False

False

The term performance drivers refers to a set of indicators that are all of equal importance in measuring operational performance. True False

False

The total quality management (TQM) approach is effective for all types of organisations, as long as they are centrally managed. True False

False

The total quality management (TQM) approach is effective only for production type organisations. True False

False

The total quality management (TQM) approach is unique to every organization. True False

False

The total quality management (TQM) approach needs to be part of the governance processes to be successful. True False

False

Traditional financial measures are well equipped to capture the complex nature of intangible assets. True False

False

_______________________ included in the financial statement can be presented in the form of ratios and cover a number of concepts

Financial performance indicators

PM strategic objective 1

For a corporation, the most important objective is generating profit.

net margin.

Gross contribution margin minus marketing costs

SMART central question is:

How can stakeholders help to realize the strategy and as a result achieve organizational objectives?

ROE can obscure a lot of potential problems such as

If investors are not careful, it can divert attention from business fundamentals. Organizations can resort to financial strategies and artificially maintain a healthy ROE temporarily while hiding deteriorating performance in business fundamentals

EVA main differences from traditional approaches are:

Inclusion of capital costs focus on post-tax profits rather than operational profit. Interest is not deducted

Current assets/liability ratio: acct

Indicates extent current assets cover current liabilities way to measure ability to meet short-term obligations. rule is a ratio of 2:1. assets:liabilities Current Ratio=Current Assets/ Current Liabilities

Inventory Turnover Ratio Acct

Inventory Turnover=Cost of Goods Sold/ Average Inventory This ratio can be used to calculate the average days it takes to sell the inventory: Average days to sell the inventory= 365 days/Inventory turnover ratio

Tangible Assets Characteristics

Investment produces known returns easily duplicated Depreciates with use finite application Best managed with 'scarcity' mentality Best leveraged through control Can be accumulated

total quality management (TQM) was developed and presented in the 1950s by a committee of _____________ theoreticians, engineers, and government representatives who dedicated themselves to improving Japanese

Japanese productivity and performance efficiency.

operational performance organizations aspects ncludes adopting a process in which the Key Performance Indicators suitable for the respective organization are defined

Key Performance Indicators suitable for the respective organization are defined

Organization way to measure progress toward goals could be

Key performance indicators

manage the process phase of monitoring and managing intellectual capital includes

Monitor the measures Take caution when improvement needed Identify appropriate IC projects Measure payoff of IC projects Adjust strategy

EVA is calculated in a similar way as RI, but major difference between the two measures relates to a number of adjustments to

NOPAT and IC.

difference between EBEI and net operating profit after tax (NOPAT) is that

NOPAT does not take the after-tax interest expense into account, while EBEI does.

NOPAT formula

NOPAT t−ATInt t=EBEIt where: ATInt t is the interest expense after provision for tax.

Weaknesses EFQM Excellence Model

No focus/priorities - no links Criteria not specific w/in company - no possibility for differentiation not strategic management tool (systematic setting/achieving goals) and is not instrument for strategy implementation not suitable for enterprise communication Promotes tendency for bureaucracy Does not give guidelines how to design and conduct effective performance measurement

Balanced Scorecard third step

Once main drivers are identified, strategy map can be drawn, which involves assigning main drivers to corresponding perspective.

Balanced Scorecard fifth step

Once performance measures and target values are put in place, specific initiatives can be identified that support achieving the organization's goals.

Management literature has identified three basic approaches in value proposition approaches:

Operational excellence. Product leadership. Customer intimacy

intellectual capital measurement advantages: Perceptual measures

Perceptions affect attitudes/behaviors. Culture is a measure of normative behaviors. Knowledge of emp. perceptions help organ design more acceptable processes and bring behavioral change.

Balanced Scorecard Origins:

Performance measurement, value creation

traditional market-based performance measures

Price-to-book ratio (P/B ratio): Price-to-earnings ratio (P/E ratio): Dividend yield: Net present value (NPV): Internal rate of return (IRR):

______________________________________ in the manufacturing process laid the foundation for theories of scientific management.

Principles of efficient (rational) management

self assessment technique/effort level DEVELOPING ORGANIZATION

Questionnaire and workshop LOW EFFORT Matrix and workshop LOW EFFORT Pro-forma MEDIUM EFFORT Facilitated workshop MEDIUM EFFORT Piilot award simulation HIGH EFFORT Pro-forma and workshop HIGH EFFORT

at heart of the EFQM model lies the ____________ management logic, which is another set of guiding principles.

RADAR

residual income RI formula

RI t=NOPAT t−(c*·times IC t−1) where c* is the organization's estimated weighted average cost of capital (WACC) after tax, IC t-1 is the amount of capital invested in the organization at the beginning of the period.

From list of traditional performance measures, many analysts and investors tend to focus on ________ as a primary measure of company performance

ROE

'traditional' accounting-based performance measures (in particular __________________), performance indicators are used and monitored widely.

ROE and ROA

Breakeven sales: acct

Reflects sales which need to be generated in order to cover expenses. level of activity at which neither profit nor losses are incurred, or where total costs equate with total revenue. important ratio which every business should monitor on a monthly basis.

Stock turnover-days:

Reflects the number of times inventory is sold or used in a time period. The lower the ratio, the quicker the stock is sold

Return on investment (ROI):

Represents the after-tax return which owners are receiving on their investment and should be compared with alternative forms of investment. ROI=(Gain from investment− Cost of investment)/cost of investment

At the highest level, RADAR logic states that:

Results determined and achieved as part of organizational strategy. Approaches planned and developed as integrated set of directives to deliver required results now and in the future. Deploy approaches in a systematic way to ensure implementation. Assess and refine deployed approaches based on monitoring and analysis of results achieved and on-going learning activities.

accounting performance measures that have gained prominence

Return on equity (ROE): Return on assets (ROA): Return on investment (ROI): Earning per share (EPS): Dividend payout-ratio: Cash flow

Traditional Profit Calculation

Revenues - Operational costs = Earnings before interest and taxes (EBIT) - Interest = Earnings before taxes - Taxes = Profit after taxes

EVA-Based Profit Calculation

Revenues- Operational costs = Earnings before interest and taxes (EBIT) - Taxes = Net operating profit and taxes (NOPAT) - Capital charge = Economic value added (EVA)

Getting started phase of monitoring and managing intellectual capital includes

Review vision/mission /strategy List possibilities Review w/ senior man Adjust to min measures Est benchmarks

Who developed the balanced scorecard (BSC)?

Robert Kaplan and David Norton

One of the latest additions to performance measurement systems is the _________________ system, which was introduced in 1992.

SMART

__________________ Methods are a broad category which tries to identify various components of intangible assets or intellectual capital.

Scorecard

_______________ development and ______________ are examples of items which may be represented in internal perspective

Service delivery

service performance

Service performance: metrics for service, first-call resolution rates, renewal rates, service level agreement-compliance rates, delivery performance to customers, and product-return rates.

intellectual capital measurement advantages: Other measures including social measures

Social network measures determine optimum intangible resource allocation and utilization required for increasing rate of innovation. Human capital value addition measures the organ processes which can be improved to sustain and increase HCV addition. Econometrics measures reveal tangible benefits and value of intangible assets and resources.

Strengths EFQM Excellence Model

Systematic/nonprescription model Uses self-assessment approach to achieve organization excellence § Strengthens sense of quality § Recognizes strengths and weaknesses of an organization § Consists of criteria hierarchy § Allows shortlist of indicators based on 'exemplars' of practice § Creates conditions for comparative analysis of business processes with external business § Feedback from results helps to improve enablers

six main concepts

Theory of scientific management (1885-1920) Theory of administration (1920-1950) Human relations movement/neoclassical management (1930-1950) Behavioral management theory (1950-present) Theory of quantitative management (1950-present) Strategic management theory (1970-present) and its modern manifestations such as 'total quality management', 'competitive advantage strategy', a concept of 'customer relationship management' and 'consumer-oriented management', etc. (2000- present).

Excellence Model and Self Assessment Origins

Total quality management

A major difference between the 'customer profitability' and 'traditional profitibility' approaches is the incusion of asset opportunity costs. True False

True

Advertising campaigns do not affect the autonomous share of the generated revenue. True False

True

Conversion of inquiries to sales leads is a good example of a key performance metric because it measures the rate at which inquiries are converted to sales leads over a certain period of time, indicating the efficiency of the organization's sales force. True False

True

Customer lifetime value models can be very different in nature, there is no common set of variables that make up the model. True False

True

Infrastructure is part of the 'organizational capital' of an organization. True False

True

Innovation should be an integrated aspect of the balanced scorecard method. True False

True

Intangible assets do not usually show up on the balance sheet of a corporation. True False

True

Intellectual capital measurement can help to improve the innovation and creativity within an organization. True False

True

Often customer profitability analyses are based on the principles of activity-based costing. True False

True

Performance measurement can be applied to the organisation as a whole as well as to individual departments. True False

True

Performance metrics measure aspects of the business process that directly affect results. True False

True

Sales inquiries that lead to sales are a useful performance driver. True False

True

Skills and knowledge of employees form the 'human capital' of an organization. True False

True

The European Foundation for Quality Management (EFQM) is a framework that can be adapted by all types of businesses. True False

True

The Japanese concept of total quality management (TQM) must be adapted for each type of organisation and must involve every aspect of the organisation. True False

True

The balance scorecard method is a useful tool for measuring performance in administration, production, and management. True False

True

The balanced scorecard method is a strategic management approach. True False

True

The balanced scorecard method is based on a vision of what the organization wants to achieve in the next few years. True False

True

The balanced scorecard method requires high involvement of the executive management team. True False

True

The customer lifetime value measure converts indirect values (e.g. generated by word-of-mouth) to metric values. True False

True

The customer profitability analysis also looks at the company's production resources with a view to optimization. True False

True

The following is an example of a performance metric associated with a preceding step in a value stream: If the key performance indicator is on-time-in-full shipments, the performance metric is manufacturing lead time. True False

True

The relationship ability and culture of an organization are part of the 'human capital' True False

True

The retention rate measure in the customer lifetime value model represents the rate of customers regularly returning to place orders. True False

True

dimensions of benchmarking

What is to be compared to what? What the comparison is being made against?

performance benchmarking non-financial measures

absenteeism, staff turnover, % of admin staff to front-line staff, budget processing time, complaints, environmental impact, call centre perfor.

guiding principle of building and analyzing performance ratios should be the objective that these figures are supposed to

accomplish, which highly depends on the context.

additional critique of EVA is it is still tied to _________________ derived figures such as the ______________ charge being based on the ____________________ and thus __________________________ based aspects are neglected.

accounting capital economic book value strategic and market

Early attempts to measure intellectual capital (IC) focused on ___________________________________________of an association.

accounting and financial perspectives

incorporation of CVA values into valuation models should be undertaken with special care, since CVA is based on historical

accounting figures which do not represent the expected future cash flow generated by the enterprise.

Residual Income definition

accounting profit minus a charge for capital used to generate returns Residual Income= Profit−Capital Charge

early performance measurement systems have their origin in

accounting systems.

If the net margin is constant over time, it can be multiplied by the number of purchases which are expected within a given time frame resulting in the

accumulated margin

excellence model builds up knowledge on how an organization

accumulates, selects and embeds best practice against a cumulative and objective set of criteria.

positive residual income help to increase the total market value of an organization because a positive residual income indicates that a company is

accumulating profits at a greater rate then it needs to accumulate in order to satisfy the providers of capital.

important to consider what the organization is hoping to _______________ from using the EFQM excellence model.

achieve

· gross profit or accumulated margin needs to be corrected by any

acquisition costs

acquisition cost customer-specific calculation and assignment is based on the______________________________(e.g. direct marketing vs. mass marketing through advertising).

acquisition procedure used

· With help of both EQFM and scorecard approaches, an organization can take the appropriate steps with the knowledge that the

actions undertaken will be done properly.

benchmarking is learning how to improve

activities, processes, and management.

determination of customer costs and profitability can be performed by using activity based costing calculations

activity based costing calculations

organizations work with customer profitability analysis using the methodology called

activity-based costing.

best practices benchmarking focus lies on

actual processes within those businesses rather than just the associated performance levels.

Up-selling revenue is yielded by the _________________________________ as a consequence of increased purchase ________________________ in long-life relationships

additional selling of the same product frequency and intensity

formal committee in operational performance enables organization to develop specialized key performance indicators which

address the performance of multiple areas of the business

In 1999, S. Peter introduced the 'LISREL-Approach' which is concerned with

adequate analytical instruments to quantify the direction and strength of different customer-related factors.

By means of retention rates, anticipated contribution margins are adjusted to the probability of occurrence.

adjusted to the probability of occurrence.

· Balanced Scorecard second step

after formulating mission statement and vision of organ is to build a strategy map which is supposed to identify main drivers for increased profitability across four perspectives of balanced scorecard

· information in best practices benchmarking is usually gathered through some mutually beneficial ___________________ which follows a benchmarking______________________________

agreement code of conduct.

changes in economic value added:

allow indication of whether a business was able to produce intellectual capital or not.

in EFQM, elements of ______________ are used when assessing 'enabler' criteria and the 'results' elements are applied to assess 'result' criteria.

approach, deployment, assessment, and review

performance frameworks display certain characteristics which help an organization to identify an

appropriate set of criteria against which the organization can assess and manage their performance

success map demonstrates non-financial, internal, leading, and short-term measures such as ____________________________________________ development or employee satisfaction and how they affect financial, external, lagging, and long-term measures such as

as employee development or employee satisfaction return on capital employed or profit growth

by including an organization's cost of capital in their calculation, they can be applied to

assess the value creating potential of an organization

Awareness of total costs for particular processes and activities in customer ______________ allows for a focus on ___________________ those costs and ________________them. Knowing costs for specific customers enables a business to

assessing reducing controlling reduce these services, change them, or charge additional compensation

excellence model and its associated self-assessment processes are

assessing best practice at the process level.

Financial perspectives (or shareholder value) of balanced scorecard includes _________ utilization and ____________________ strategies are also part of the financial perspective.

asset investment

SMART strong points

attempts to integrate corporate objectives with operational performance indicators manages PM strategically

balanced scorecard tries to give all of four perspectives the required ______________ and aims to derive critical __________________________________________________ for each of these dimensions.

attention success factors and critical measures

ROA figure can be compared with the industry ____________ of a company.

average

Receivables turnover ratio: Acct

average length of time from sale to cash collection. lower ratio, quicker account is paid. cash flow perspective, imp to keep time lag to a minimum. Accounts Receivable Turnover= Net Credit Sales/ Avg Accounts Receivable average days to collect receivables calculated as: Average Collection Period= 365/ Accounts Receivable Turnover

return of assets (ROA) is defined as the

average pretax earnings of a company divided by the average tangible assets.

Paying managers for performance is a ______________-looking practice, since the ___________ markets assign value on a ______________-looking basis.

backward capital forward

In the time of Kaplan and Norton, less emphasis was placed on the exact ________________ of measures. There was a general desire to explicitly link _________________________________________ which enable realization of those targets.

balance desired performance results to the motives and drivers

form of periodic financial statements consist of (at least) a

balance sheet and a profit and loss statement

Performance frameworks gives set of measures which provides a '__________________' picture of the organizational activity. That set of measures should reflect

balanced financial and non-financial measures, internal and external measures, and efficiency and effectiveness measures.

self-assessment can also act as a useful starting point to the

balanced scorecard implementation process.

market capitalization methods of measuring the intellectual capital, used to evaluate intangible assets

based on 'market comparables' try to calculate the difference between a company's market capitalization and its stockholders' equity as the value of its intellectual capital or intangible assets. Market-to-book-value is one of the most simplistic approaches. Another approach is 'Tobin's q ratio',

EFQM MODEL policy and strategy criteria

based on present and future needs and expectations of stakeholders. built upon info from performance measurement, research, learning, and activities related to external circumstances. communicated and deployed through framework of key processes.

Modern theories of management are based on the _____________________ approach (emerging after 1950) and pay more attention to ____________________________________________________

behavioristic organizational culture and the 'product- market' model.

core purpose of the excellence model is to

benchmark a company's processes against an ideal external benchmark.

benchmarking process is an essential tool for organizations to help them quickly identify

benchmarks, benchmarking partners, and best practices.

issues with ROE led some companies to pick a different _____________________ for corporate financial performance namely ___________.

bottom-line metric ROA

Tangible Assets: Required for __________________ operations

business

above all, successful companies are focusing on business alignment.

business alignment.

organizations focus on obtaining solutions which address specific business pressures that drive operational performance

business pressures that drive operational performance

Performance metrics measure aspects of the _______________________________ which directly affect results or outcomes

business process or value stream

beginning from the 1980s, traditional accounting measures were criticized as inappropriate indicators for

businesses effectiveness.

Net present value (NPV):

calculates difference between present value of cash inflows/cash outflows (Ct) over a period of time (t). used in capital budgeting to analyze profitability of specific investment/project. sensitive to reliability of future cash inflows an investment/project will yield and expected rate of return (r). NPV=∑r/t−1*Ct/(1+r)t squared−CO

intellectual capital measurement disadvantages: Perceptual measures

can be difficult to establish causal relations hence measurement often cannot be generalized. subjective in nature and lead to bias. not correlated with performance and profits

at second-level of SMART business units are set short-term targets of _______________________________________ (e.g. market, financial, etc.).

cash flow and profitability and long-term goals of growth and market position

vitally important to assess the impact that profit and loss projections have on the future

cash flow of the business.

shareholder value is created when future

cash flows with a positive net present value exceed expectations.

The balanced scorecard model is set up to drive ________________________________ between objectives across the ___________ perspectives and paints the organization as a system of _______________________________

cause and effect explicitly four interlinked objectives

knowledge gathered from conducting the self-assessment provides a deep understanding of the _________________________ that an organization may face in delivering _________________ in performance regarding its _______________________________

challenges excellence strategic objectives

goals of a particular key performance indicator may ________________ as the organization's ___________ change or as it gets closer to

change goals achieving a goal.

balanced scorecard defines the highest requirements for _________________ (typically financial) needed to fulfill the _____________, given the current _______________ of a company.

change strategy position

Dealing with extra costs may require an organization to charge for selected services, cut back on services provided, increase efficiency of those services, renegotiate contracts or even terminate a business relation with a customer

charge for selected services, cut back on services provided, increase efficiency of those services, renegotiate contracts or even terminate a business relation with a customer

Weber believed that activities and performance of organizations are carried out in accordance with a

coherent system of certain rules and principles.

balanced scorecard does not introduce new indicators, but tries to

combine and 'balance' existing performance measures.

balanced score card concept=

combine different performance perspectives including intangible aspects.

Customer capital is considered to be the

combined value of relationships with customers, suppliers, industry associations, and markets.

· Achieving excellence in EFQM requires leadership____________________________________ of these concepts by all who are involved.

commitment and acceptance

success of operational performance organizations depend on existence of a formal _______________ dedicated to _________________________________ as well as applying the necessary __________________________________________________

committee understanding this information business rules and metrics to create appropriate key performance indicators.

main difficulty with comparing different concepts attempting to stipulate characteristics of the process to determine

commonality.

theoretical accounts such as the balanced scorecard, the performance prism, and the SMART pyramid are very good ________________________ tools both within the __________________________ team and for _______________________ the objectives by demonstrating how the __________________ of employees throughout the organization contribute to its overall objectives.

communication management communicating actions

balanced scorecard is a ___________________ tool which is used to tell how ______________ is created for the organization.

communication value

performance benchmarking involves

comparing the performance levels of organizations for a specific process.

performance benchmarking can be defined as a

comparison of performance measures for the purpose of determining how well the company is doing compared to others.

Human capital can be broken down into the employees'

competence, relationship ability, and values.

Intangible Assets: Key to _____________________ advantage in the _______________________ era

competitive knowledge

focus on '__________________' and '______________________' benchmarking is one of the reasons for using the excellence model.

competitor best in-class

Cross selling revenues, in contrast to up-selling ones, can be defined as the selling of

complementary products or product categories which have not been bought from the vendor

Self-assessment is a

comprehensive, systematic and regular review of an organization's activities and results referenced against the EFQM excellence model.

EBEI

concept of earnings before extraordinary items

'Balanced scorecard' is a much used (and abused) term, but it is the most identifiable concept in this areas of _________________________ business developed from a measurement tool into a strategic performance management approach of which _____________________ is but a small component

contemporary measurement

customer lifetime value helps organizations to treat customers differently based on their overall contribution to the company's returns.

contribution to the company's returns.

key task of balanced scorecard is to lead _____________________________ through a path of ____________________________, which in turn can be flexed and adapted to every situation.

corporate governance logical strategic thinking

ethical and material aspects of value can be realized in a business by creating structures of ________________ based on shared organizational ___________

corporate governance and management values

main strength of the SMART pyramid is its attempt to integrate

corporate objectives with operational performance indicators.

key management areas affected by value based management transformation process include:

corporate values and vision leadership style and skills corporate governance 'open book' management operations (policies and procedures) comm and info sharing training and education payment and rewards grievances & adjudication collective bargaining with labor unions employee shareholder education and participation future planning

development of an organization's SMART pyramid begins with defining an overall __________________ at the first horizontal level, which is then translated into

corporate vision individual business unit objectives.

measurement and management system should always be altered to

correspond with the strategy being pursued.

Re-allocating resources makes it possible to engage in responsible ______________________, which in turn strengthens the business in the long term.

cost allocation

Customer-Specific Costs factors include cost sales, customer service, warranty department etc

cost sales, customer service, warranty department etc

traditional forecast methods in determining CLV costs are being supplemented by findings about

cost-reducing effects of long-term customer relationships.

risk of merging EQFM and scorecard models

could be misleading when defining the goal of the organization potentially obscure benefits that can be obtained from using the two models separately. creating unnecessarily cumbersome process which will not be fit for the purpose.

success or strategy map provides a model of the performance of the organization which

covers all aspects of the organization's strategy.

in value based management, phase actions must be untertaken to

create and preserve shareholder value and align the company with its overall goal.

customer profitability analysis looks at each segment of the process of creating and selling products to customers

creating and selling products to customers

Performance Management/Measurement obstacle lies in the

creation of incentives and their application.

self-assessment process gives a _______________________________________ description of the ____________________ within an organization.

critical and comprehensive current processes

most successful committees include a cross-discipline team which encompasses IT, business executives, and business end users

cross-discipline team which encompasses IT, business executives, and business end users

initiatives for improvement identified from the customer and internal learning perspective will necessarily reveal gaps between the ________________________________ including ________________________________, and the level necessary to achieve the set goals.

current organizational infrastructure employee skills, information systems and culture

self-assessment process of excellence model examines an organisation's

current processes against a set of pre-determined criteria.

The self-assessment outcomes in the excellence model describe the

current state of the organization's processes

assessment in excellence model gives a thorough account of an organization's_____________________________________________ and as a result provides suggestions as to where the organization might choose to

current strengths and areas for improvement focus some of its effort in the future.

internal processes have a direct link to the _____________________ strategy chosen

customer

benchmarking is an important tool in

customer analysis, performance measurement and business improvement in general

Awareness of ________________________________ is crucial to making the right decisions about current and potential customers

customer costs and profitability

management philosophy has shown an increasing realization of the importance of _______________________________ in any business.

customer focus and customer satisfaction

Acquisition costs have to be considered when contemplating the

customer lifetime value of a future customer.

Additional starting points for the analysis of retention rates are __________________________ which cover different kinds of relationship settings (e.g._________________________________________).

customer loyalty models contractual vs. non-contractual

· The ______________________________ takes a different approach than traditional profitability analysis

customer profitability analysis

Marketing costs represent costs of

customer retention and development.

Using customer lifetime value as a marketing metric provides an incentive for managers to place greater emphasis on ______________________________________ for the right set of customers instead of maximizing short-term sales.

customer service and long-term customer satisfaction short-term sales.

bulk of business and commerce activities and projects are focused on desire to improve

customer service, expense management, and sales operations performance.

calculation of customer lifetime value has to consider all elements included in ______________________, as well as all sorts of indirect ____________ contributions, such as

customer value monetary information, cooperation and innovation value.

EVA-based management is a _____________________________ system built upon

customer-focused shared principles and core values.

total quality management can be considered as a management system for a _____________________ organization which involves all employees in continual____________________________ of all aspects of the organization

customer-focused improvement

bonus model limitation: In highly _______________ industries, it is difficult to create strong wealth leverage while avoiding large negative _______________ in downtimes. This can only be achieved by setting compensation above ________________ which results in a high cost to ______________________.

cyclical bonus bank balances market levels shareholders

performance measurement system and metrics give employees a more tangible understanding of how their

daily actions contribute to the organizational goals and mission.

Performance frameworks' results need to be measured in way that performance measurement system can provide ____________ for __________________ past performance and ___________________ future performance. This demonstrates the way in which measured _____________________ and the respective ____________ contribute to an organization's _____________ (i.e. feed forward) and _______________ (i.e. feedback) system.

data monitoring planning internal processes results planning control

Automation of _________ integration, _____________ generation, and ____________ can improve the speed and ease with which information can be collected, assembled, and delivered to end-users.

data report alerting collected, assembled, and delivered to end-users.

________________ is another essential requirement of performance measurement, because if things are not accurate, those using the information will be misled and bad decisions will likely ensue.

data quality

main idea behind any performance measurement system is to

decide which measures to select, and just as importantly, which measures to ignore.

PM used to inform managerial

decision-making processes

· When TQM is properly implemented, this style of management can lead to

decreased costs related to corrective or preventative maintenance, better overall performance, and an increased number of satisfied and loyal customers

residual income (RI) is calculated by

deducting the cost of the total (i.e. debt and equity) capital.

PM strategic objective 2

define a set of strategic metrics, such as increasing sales and/or reducing production costs for business corporations.

Key performance indicators, also known as KPI or key success indicators (KSI), help an organization

define and measure progress toward organizational goals.

Calculation of revenue is usually performed by means of traditional procedures of

demand forecast.

in CVA, accumulated __________ is included in the invested capital amount when the ______________________ capital is determined.

depreciation gross invested

Since depreciation is added back during the calculation of the CVA, the measure is not influenced by an organization's ____________________ his characteristic of CVA can be seen as an advantage over EVA where different _______________________________ can result in large variations in the _______________________________

depreciation policy depreciation policies value of the measure.

major difference between CVA and EVA is that ______________________________________are added when calculating the operating_______________ values in CVA.

depreciations and accruals cash flow

balanced scorecard provides a basis for ______________________________________________ the strategy in an ________________ and consistent way.

describing, communicating, and managing explicit

PMS serves to measure

design and capture data processes.

in ideal EFQM model, processes are systematically ______________________________ in order to fully satisfy customers and stakeholders as well as to generate increasing ____________ for them.

designed, managed, and improved customers and stakeholders value

higher a project's or an investment's internal rate of return, the more

desirable it is to undertake the project or investment.

CFROI values below real cost of capital will result in the _____________________________________. One characteristic of this measure is that it focuses on the

destruction of shareholders' value return offered to all the capital providers of the organization and not only to shareholders

By using both EQFM and scorecard, a management team can foster a deeper _______________ about __________________ supported by an _______________________________ of the organization's performance.

dialogue performance end-to-end analysis

gross contribution margin defined as the

difference between recurring revenues minus recurring costs.

Cash flow:

different definitions for cash flows and different types of cash flows (e.g. free cash flow, operational cash flows, etc.). For practical purposes earnings plus depreciations can be used as a simple approximation. Cash Flows=Earnings + Depreciation

EFQM model encourages organizations to move from ______________ corporate cultures to ________ ones which are better suited to the challenges of today's

disciplined agile global economic environment.

CFROI value is calculated as _________________ which would ensure that the present value of all the future ________ flows (i.e. the equal annual inflation-adjusted gross cash flows, terminal non depreciating assets amount), is equal to the initial ________________ (i.e. total non-depreciating and depreciating assets).

discount rate cash investment

calculation of CFROI is based on basic

discounted cash flow principles

NPV and IRR measures are based on ___________________ and to some extent use market-based values.

discounted cash flows

intellectual capital measurement disadvantages: Other measures including social measures

do not consider individual perceptions and hence may not result in the requisite behavioral change.

high P/E suggests that investors are expecting higher _________________ in the future compared to companies with a lower P/E and it can be a sign of the __________ of the management.

earnings growth quality

Determination of customer cost and customer profitability becomes critical for an organization and its _______________.

efficiency

Many businesses use a customer profitability analysis as a means of streamlining processes in order to provide the highest degree of _____________________ while generating the lowest degree of _____________.

efficiency and return cost

comprehensive understanding of customer value comprises all different aspects of a customer's contribution to the organization's efficiency and the business success.

efficiency and the business success.

Every additional measure potentially reduces the

efficiency of the process

in scorecard, it takes further analysis to determine how much ________________ it will take to get to _________________, given the _____________________________________ of the organization.

effort tomorrow current strengths and weaknesses

Perceptual measurement in intellectual capital helps the organization understand

employee perceptions and can help to design more acceptable processes.

Human capital refers to the accumulated value of investments in

employee training, competence, and future development.

organization willing to implement EVA performance measurement throughout its business has to recognize the importance of all affected _____________, understanding the common __________ as well as how their __________ contribute to meeting it.

employees goal actions

learning perspective measures and activities become the ___________________ of the other three perspectives.

enablers

· EFQM excellence model is depicted by key nine criteria-five ________________ and four ____________-which lay ground for a _______________ view of an organization and, when used as a diagnostic tool, it allows an organization to assess its _________________ and define areas for _____________________ in detail across nine key areas.

enablers results holistic strengths improvement

excellence model includes both _________________ which are effectively linked by _________________________ and support the ___________________________t logic.

enablers and results cause and effect cause and effec

there is no definitive evidence which suggests that there needs to be an___________________________ in performance prism areas of measurement.

equal weighting of importance

To provide _________________ comparison and a system of _______________ to organizations, the assessment in excellence model must be applied consistently in its

equitable benchmarking structure, criteria, approach and content.

Direct intellectual capital methods of measuring the intellectual capital, used to evaluate intangible assets

est $value of intangible assets by identifying its various components. Once components identified, they can be evaluated, individually or as an aggregated coefficient. total value creation (TVC) primary calculation method

Dividing the above-average earnings by the company's weighted average cost of capital (WACC) provides an

estimate for the value of the company's intangible assets or intellectual capital.

actual rate of return a given project or investment ends up generating will often differ from

estimated IRR.

value-based management is embedded in an ________ framework for achievement in business. As such, this management system balances

ethical individual values with economic values.

necessary for all organizations to___________________________________________, in order to adapt to a rapidly changing and highly competitive business environment.

evaluate and modify their performance measures, and their performance management

TQM is an underlying philosophy which the organization must integrate throughout

every department of the organization and at every level of management.

all performance measures must be thoroughly ___________________ before

examined defining incentives for their achievement.

all proposed measures must be __________________ to determine if they are adequately contribute to the ___________________________ of the organization

examined strategic intentions

PM used to manage strategy implementation process by

examining whether an intended strategy is being put into practice as planned

concept of organizational excellence is about a mentality of _______________________-not simply to reach a certain level of _____________________, but to build up a culture of continuous _________________________.

excellence performance improvement

self-assessment is viewed as an integral part of achieving ______________________, rather than a

excellence stand-alone exercise

support the European quality award process, a set of nine criteria defining _______________ was developed against which applicants for the award were to be _____________.

excellence assessed

PM used to check progress by looking at whether the

expected performance results are being achieved

performance benchmarking financial measures

expenditure, cost of labor, buildings , equipment, energy, adherence to budget, cash flow, revenue collected

in excellence model, link is not drawn ___________________ together between specific

explicitly enablers and results.

In SMART, four levels of objectives which address the organization's __________________________ (at the bottom of the left side of the pyramid) and its _______________________ (at the bottom of the right side of the pyramid).

external effectiveness internal efficiency

theory of management in the 1970s and the 1980s was mainly focused on studying the relationships between

external environments, types of organizational structures, and forms of governance.

excellence model is populated by _________________ gathered within the organization. It is thoroughly documented from _______________ sources of information

facts and data objective

A customer profitability analysis can be presented in the form of a spread sheet. True False

false

After an organisation changes its strategy, the same type of variables should be collected to ensure continuity in reporting. True False

false

In order to manage a project it is not necessary to have adequate performance measures. True False

false

Return on equity is an excellent performance measure for shareholders, since it cannot easily be manipulated. True False

false

Sales inquiries that lead to sales are a performance driver of limited use. True False

false

The cash flow from operations (CFO) performance measure accounts for the cost of debt and equity.True False

false

Traditional performance measures are usually not based on financial market values.True False

false

three pillars of performance measurement:

features, roles, and processes

balanced scorecard promotes the idea that focusing on the

few key drivers of success is essential for organizations.

customer lifetime value represents an application of the principles of contemporary ___________ to contribute to the evaluation of customer relations.

finance customer relations.

Traditionally, evaluation and reward programs have been linked exclusively to organizational ________________ measures.

financial

drawback of EVA is the __________________ focus of the model.

financial

4 perspectives approach encourages managers to overcome the shortcomings of traditional _________________ measurement and ensures that administrators include various indicators when_____________________________

financial assessing performance

today, ___________ information is the most widely available information source on companies. One of the main reasons for this is the requirement imposed by regulators and supervisors on companies to disclose certain financial information

financial disclose certain financial information

intangibility of some measuring parameters, particularly non-__________________________ ones, is a complicating factor as these measures may be subject to ______________________

financial manipulation

four perspectives demonstrate need to balance

financial and non-financial measures, internal and external measures, and leading and lagging measures as well as short and long-term measures.

many different ways to examine an organization's activities and measure its _________________________________ performance

financial and operational

balanced scorecard method highlights fact that ___________________________ need to be accompanied by a view of the __________________ status, the ______________ perception, and the ________________ for innovation within the organization

financial indicators operational customer capability

balanced scorecard approach is one of several highly popular theoretical accounts for performance measurement which suggests that

financial indicators need to be accompanied by a measured view of operational status, customer perception, and capacity for innovation within the organization.

· Performance benchmarking may involve the comparison of

financial measures or non-financial measures

________________________________________and ____________________ should be prepared on a regular and consistent basis and compared with earlier periods

financial statements and other key performance indicators (KPIs)

In many cases value drivers are thought of in

financial terms.

Four perspectives of the balanced scorecard

financial, customer, internal business, learning and growth

Traditional accounting-based performance measures are characterized as being

financially-based, internally-focused, retrospective, and more concerned with local departmental performance rather than with the overall performance of the business

· key obstacles encountered during the process of benchmarking

finding suitable partners difficulties in comparing data resource constraints (time, finance, and expertise) staff resistance

evolutionary phases of intellectual capital

first step-reviewing vision, mission, and important strategic initiatives of business next step-definition and monitoring of measures which represent important areas related to intellectual capital issues final step-developing benchmarks is indicating where desired measure should be and initiating actions to make improvements where needed.

value-based management offers employees an opportunity to participate as

first-class shareholders in the company's equity growth.

balanced scorecard approach is _______________-looking, and is built around the ___________________ of what the organization should look like in the _____________, while the excellence model observes the organization as it is __________________

forward vision future currently.

EFQM excellence model is considered to be an over-arching _________________ which can be used alongside other tools and standards such as the ___________________________.

framework balanced scorecard

performance frameworks performance measures should be integrated both across the organization's _______________ and through its ________________, encouraging congruence of__________________________

functions hierarchy goals and actions.

balanced scorecard is ________________-oriented.

future

centre of the balanced scorecard is the vision of the organization's ___________ which includes organization's _________________________

future strategy, mission, and goals.

Strategic management is concerned with developing plans to deliver______________________________, whereas personnel management (or human resources) is concerned with ____________________________________________________

future objectives (including planned performance) managing the performance of people.

Organizations which achieve positive RI values are able to

generate profits in excess of their total cost of capital and consequently shareholder value should be created.

KPI must reflect the organization's _____________, they must be critical to the _________________ of the organization, and they must be

goals success quantifiable (i.e. measurable)

EVA-based management builds checks-and-balances in the ___________________________ system to allow executives flexibility to make _________________ executive decisions, while avoiding unworkable

governance and accountability traditional 'management by committee'.

customer lifetime value can be calculated in five steps:

gross contribution margin ·net margin. the accumulated margin or gross profit acquisition costs discounted to calculate the net present value

EFQM MODEL leader criteria

guide development of mission, vision, values, & ethic of organs. role model of culture of excellence. personally involved in ensuring organizational management system is developed, implemented, and continuously improved. identify and champion organ change.

metric when calculating key performance indicator advantage

helpful when calculating the key performance indicator. § For example, a gross margin key performance indicator could be calculated in the following way: sales units multiplied by list price, minus discounts and minus cost-ofgood-sold. calculation based on each of these components contributes to gross margin and is also one of its driver

important requirements of performance management is a clear link between performance measures at the different ____________________ in an organization in order to ensure that each ____________________________ moves towards the same goals.

hierarchical levels function and department

balanced scorecard model becomes a ________________________ framework which needs to be tailored to the organization's ____________________________

high-level guiding individual circumstances.

quantity effect

higher purchase amount per transaction and more transactions per period

Especially in the 1980s, researchers found empirical evidence there is little correlation between

historical accounting earning and shareholder value

in value-based management, clear communication is a ____________ approach which stresses the question of how everybody in the company can

holistic contribute to the overall goal of the organization.

new areas of consideration in Performance Prism can give managers a more ______________ report of the company's performance and can allow them to plan for _______________________________ across the company

holistic wider improvements

organizations should divide their customer bases into ____________________ segments which possess different _______________________

homogeneous lifetime values

the customer lifetime value is often calculated for a group or category of ________________________ customers.

homogenous

SMART framework encourages executives to pay more attention to the

horizontal flows of materials and information within the organization, i.e. the business processes.

Residual income measures

how much profit remains for investment in the business or distribution to the owners after subtracting expected returns on investment.

In order to structure the scope and to reduce the complexity of measurement, intellectual capital can be classified as

human capital, organizational capital, and customer capital.

theory and practice of management are often associated with managing the performance of people as ________________ which greatly contribute to overall _______________________

human resources organizational performance.

desire to manage and monitor intangible assets results in assigning the responsibility to the

human resources executive division

· the balanced scorecard is ______________________________, while the excellence model is ____________________________

hypothesis driven and subjective fact-based and objective.

· Whether a business thrives or fails is based on the companies' ability to correctly and accurately identify, define, track, and influence their production efficiency and quality performance

identify, define, track, and influence their production efficiency and quality performance

· best practice benchmarking involves the whole process of

identifying, capturing, analyzing, and implementing best practices.

Every measurement activity, the ______________________ as well as the _______________________, creates ______________.

implementation maintenance costs

PM used to o challenge assumptions by focusing not only on the ______________________ of an intended strategy but also on making sure that its content is still _________

implementation valid

as a result of the assessment in EQFM, an organization will have an indication as to where it may need to ____________ significantly, where it ____________ adequately, and where it excels against the ideal ___________________.

improve performs benchmark

in EFQM, there is an overarching philosophy of continuous ______________________ which is applicable to all sectors

improvement

focus on financial indicators can give misleading signals for continuous _________________ and ________________ in connection with the __________________________________ and _________________ and are '___________________' as shown when discussing the importance of intellectual capital.

improvement innovation economic value added and customer lifetime model incomplete

The EFQM excellence model encourages continuous ____________________ across the __________________ of a company as a matter of ___________________ in line with the fundamental concepts of TQM

improvement operations principle

PM used to encourage

improvement and learning

in performance benchmarking, infor can be used to identify opportunities for

improvement and/or setting performance targets

marketing costs comprise all marketing measures aimed at the ______________________________ for example when the customer's attention is drawn to higher-priced variants (____________________) or other product categories of the same company (__________________________).

improvement of customer profitability, up-selling cross-selling

Process benchmarking concerns methods and processes aiming at

improving the operation processes of organizations.

Balanced Scorecard fourth step

includes deriving appropriate performance measures and targets per perspective.

ROA is a better metric of financial performance than ____________ statement profitability measures such as

income return on sales.

performance management is regarded as an ________________ concept. It is a unity of different disciplines which recognizes the need for a _______________________________________

independent multidisciplinary approach to managing performance.

Gross profit margin: acct

indication of profitability of business and reflection of control over cost of goods sold (COGS) and pricing policies. ratio should be compared to prior periods and to any available industry data. Gross Profit Margin= Revenue−COGS/Revenue

Return on assets (ROA):

indicator of how profitable a company is relative to its total assets. gives idea how efficient management is at using its assets to generate earnings. ratio is calculated by dividing a company's annual earnings by its total assets. ROA= Net Income/ Average total Assets

human capital focuses on the value of what the ______________________________________; thus, human capital encompasses individual __________________________________

individual can produce and how to achieve it value in an economic sense.

TQM implementation needs to be tailored to the

individual circumstances and needs of each organization.

must calculate the customer lifetime value of the

individual customer

retention rate is a factor of CLV which is typically defined with regard to the

individual customer

value figures of each customer group will serve as a basis for the calculation of individual customer lifetime values.

individual customer lifetime values.

the CFROI as ROI is not calculated for __________________, but rather for the _________ as a whole.

individual projects firm

EVA fails to consider the ___________________________________ context in which each organization operates and it does not give clear direction on how businesses can create sustainable ___________ from a_____________________________ view.

industry and competitive value strategic long-term

__________________ influences the interpretation of excellence model

industry/sector

If an organization is able to generate CFROI values in excess of its ____________________ of capital, it should increase its ______________________ value.

inflation-adjusted cost shareholder's

CFROI calculated by considering the___________________________________________, and determines the ___________ generated over the estimated lifetime of the assets.

inflation-adjusted investment in assets, the inflation-adjusted cash flow generated by employing these assets in the organization yield

Managers may be reluctant to disseminate proprietary _________________________ to___________________________________s may resist efforts to have their performance measured _______________________.

information lower ranks and employee objectively

performance measurement system can be the _________________ system which is the key to the performance

information management process

__________________________________________ is a key area for processes of a performance measurement system.

information provision

___________________________ perspective is the foundation on which the other perspectives are built.

innovation and learning

balanced scorecard represents the ____________________________________________ of the management team with respect to the company's __________________ of success

insights, educated opinions, expertise, and knowledge drivers

as an outcome of first step of evolution of intellectual capital, the management realizes how important ______________ assets are and seeks to

intangible monitor and manage them in a productive way.

Performance management recognizes the strategic value of human resource management, reshapes it into an ________________________________________, and associates it with increased ________________________________________________________________

integrated and functional system (that integrates individuals' needs) productivity, efficiency, and related organizational development

Benchmarking is practiced and understood as an______________________ with two dimensions

integrated matrix or system

measurement of ________________________ practices result in benefits to organizational success and help determine business ___________ and ___________ design, as well providing ___________________ advantage.

intellectual capital and knowledge management strategy process competitive

Both monitoring and benchmarking result in identification with and the need for specific

intellectual capital projects.

Innovation capital includes

intellectual properties and intangible assets.

Intellectual capital can be defined as

intellectual resources which have been 'formalized, captured and leveraged' to create assets of higher value.

Unlike a management control system, a performance management system is meant to be _________________, since its main goal is to

interactive facilitate the implementation of the organizational strategy and to challenge strategic assumptions.

· basis of comparison using the benchmarking approach is the organization itself (______________ benchmarking), competitors, industry, or technology (________________ benchmarking) and, finally, best practices irrespective of the specific industry (_____________ benchmarking).

internal functional generic

improving performance in reaching the objectives found in the learning and growth perspective enables the organization to improve its ___________________ perspective objectives, which in turn enables the organization to create desirable results in the _____________________________ perspectives.

internal process customer and financial

Internal rate of return (IRR):

internal rate of return is often used in capital budgeting. exact interest rate (r) which makes the net present value (NPV) of all cash flows from a particular project equal to zero.

·operational performance drive towards deeper insight is an __________________-focused pressure which directly addresses the next most pressing business concern-replacing '___________________' decisions with '______________' decisions

internally intuitive fact-based

Calculating customer lifetime value helps companies understand how much they can ___________ in retaining a customer while still achieving a positive return on investment (ROI).

invest return on investment (ROI).

in EQFM, an association may not have a strong sense of where to ____________ as a _________________________ or where ____________________ will make the biggest impact in business performance and results.

invest strategic priority improvement

before looking at the organization itself,__________________________________ should examine the respective _________________________________ performance

investors, creditors, and all key stakeholders financial and operating

The financial statement is a public document which is targeted at the main user groups which include:

investors/shareholders employees lenders suppliers customers government the public

intellectual capital measurement advantages: process measures

involve mapping and establishing current processes. determine process/ system usefulness and effectiveness (usability statistics). predict future performance/ infrastructure requirements. lead to tangible benefits in learning time and cycle time reduction.

Since acquisition cost of a new customer arises only once, it may be characterized as an organization's

irreversible investment in the customer.

different frameworks can cause negative results, especially when they are implemented in ___________________, for example key performance indicators (KPI).

isolation

· By using the EFQM excellence model, an organization will have a good and broad understanding of

its own strengths and weaknesses at the process level.

EFQM excellence model is non-prescriptive in its nature except for two exceptions.

its sub-criteria, which are 32 in total without exception fundamental concepts of excellence on which the model is based; all 8 must be adopted by the organization

use of the scorecard framework helps managers' ___________________ and also strengthens their focus on what is _______________. It also helps to avoid________________________

judgement important information overload

crucial to identify and understand these customer specific costs as well as the major activities included and the key cost drivers.

key cost drivers.

right performance measures are determined by selecting the _____________________ which the organization needs to__________________ and designing appropriate measures to track this __________________.

key objectives improve on improvement

External factors are included in the balanced scorecard only if they are a______________________ which needs to be tracked on a ___________________________ basis.

key part of the strategy month-by-month

SMART approach does not provide any practical mechanisms to identify _____________________________, nor does it explicitly integrate the concept of __________________________

key performance indicators continuous improvement.

· Internal perspective (or business process): refers to internal business processes and identifies the

key processes at which the organization must excel in order to add value for customers and shareholders.

EQFM and scorecard models can add a useful dimension to the other by leveraging the ________________________ that each of the models brings to the

knowledge and insights organization

formal committee charged with developing and monitoring key performance indicators will look into the following aspects:

knowledge management performance management

Intellectual capital has a focus on intellectual material such as knowledge, information, intellectual property___________________________________, and experience which can be used to create _____________

knowledge, information, intellectual property, wealth

mix of core outcome measures (_____ measures) and performance drivers (____________ measures) can be put into place to guide managers in focusing ____________ where they can help the most.

lag lead funds

process of benchmarking has extended from only looking at __________ companies to also include __________ businesses as well as the

large small public sector.

Since information gathering and provision are key areas of a performance measurement system, there are some cases in which a

large amount of information creates negative effects on an organization.

search for and interest in profitability measures is in line with neoclassical economists and classical management, which ultimately sees the

legitimate objective of any private organization as maximizing profits

recognition schemes, known as _______________________, are standards designed not only to determine success but also to allow

levels of excellence benchmarking of the organization's performance against the best in Europe.

key principles of the balanced scorecard and its success maps, as well as the performance prism and SMART pyramid, are to

limit the number of measures which are actually needed and therefore reach clarity on what the organization is trying to achieve.

there are indicators that EVA does not overcome all _______________ of _______________ performance measures.

limitations traditional

return on assets (ROA) receives less attention from executives and investors when seeking to analyze

long-term profitability trends across all public organizations.

if accruals and depreciation are removed from the calculation of CVA, the measure may

lose important information required by the market when evaluating an enterprise.

retention rate can be estimated with the help of empirically validated factors of loyalty, such as customer satisfaction, switching barriers, variety-seeking behavior and attractiveness of alternatives

loyalty, such as customer satisfaction, switching barriers, variety-seeking behavior and attractiveness of alternatives

Balanced Scorecard Final Step

makes strategic objectives actionable and creates important link between strategy and operations

necessity to understand what is being _____________________ and therefore ensure the reflection of

managed continuous change.

success of value-based management comes when each person, from top __________ down to lowest ________________ levels, feels that they______________________________ and can share the results as members of

management staffing own and benefit from the process one team.

· Balanced Scorecard first step

management agrees to the following overarching mission and vision of the company

Financial measurement in intellectual capital provides

management and shareholders with an overview over the financial value of the intangible assets of an organization.

performance measurement system is comprised of performance measures and supports

management infrastructure

Performance management can be described as the

management of the performance of an organization or an individual.

performance management is concerned with __________________________________________________ and is often a __________________________ approach in its application.

managing the performance capacity of a whole organization multidisciplinary

scientific management engaged in a study of processes of

manufacturing management, not taking into account the management of the organization as such.

performance frameworks show all possible measures of an organization's performance have to be __________________ onto the _____________________________________ in order to identify where there are __________________ or where there is a need for greater ________________. For example, the performance measurement matrix (PMM) provides ________________________. However, the performance measurement matrix provides little indication of the ___________________

mapped applied theoretical account omissions focus comprehensiveness different dimensions of performance which should be measured.

process measurement in intellectual capital is where current processes are

mapped and established and their usefulness and effectiveness is therefore determined.

reference value measures ______________ which stem from

margins new customers who were gained through the referral behavior of existing customers.

Following from _____________-oriented theory of economic justice, EVA management system is triggered by '______________________' who seek to ____________________; it is developed and sustained from the

market authentic leaders empower others bottom up.

central concept of market-based performance figures is

market capitalization

_________________ or particular ______________________ environments are factors that do not have any essential impact on the _______________________________ of the excellence model.

market niche competitive usefulness and application

__________________________ is the present value of all future EVA.

market value added (MVA)

By segmenting customers across different dimensions and groups, businesses can better align their _________________________________________ and allocate their__________________________ to optimize long-term customer value leading to long-term ___________________.

marketing, sales, and services resources and expenditures profitability

key performance indicators associated with operational performance involve complex mathematics and formulas integrating information from multiple data sources.

mathematics and formulas integrating information from multiple data sources.

idea in customer profitability analysis is to determine whether the _______________________________, or if there is some way to ___________________________ to other functions while still satisfying the customer.

max benefit is being earned from the current use of those resources allocate a portion of those resources

Once the organization has calculated the customer lifetime value, it can allocate its limited resources to ______________________. Based on a customer-centric view, the customer lifetime value framework helps to select the right marketing strategies and activities.

maximize returns select the right marketing strategies and activities.

While EQFM and scorecard models have the same __________________ approaches in common, the ____________________________ are quite different.

measurement outcomes and benefits

both scorecard and excellence models have much in common, in particular using

measurement approaches for the improvement of performance and applying similar principles of management.

'lagging' indicators

measures show the results of the business after events have occurred

Important to identify the right __________ for a business

metrics

customer performance

metrics customer satisfaction, customer issue resolution speed, customer issue resolution accuracy, & customer retention rate.

sales operations

metrics for new accounts, meetings secured, conversion of enquiries to leads, and calls completed per hour, shift, and day.

__________________ models are often based on Markov-chains and are related to ____________________ situations in which customers

migration non-contractual split their category expenses among several organizations or companies.

Once an organization has analyzed its _______________, identified all its ____________________ and defined its ________________, it needs to find a way to =

mission stakeholders goals measure progress toward those goals.

theories of scientific management by Frederick Taylor started the era of

modern management in manufacturing.

strategy development and formalization process of the balanced scorecard forces management teams to decide and discuss which measures of business performance should be _________________ and requires management to be very ___________ about their ___________________________________________ between them.

monitored explicit performance priorities and relationship

employees as shareholders in EVA company's equity growth is achieved by

monthly and annual profits on a profit centre basis

performance management system can be used as a _______________ device when it is integrated in the compensation system.

motivational

calculating economic value added for private entities or for divisions within companies can also be used as a

motivational tool on several levels of hierarchy within an organization

Performance frameworks gives set of performance measures which is ___________-dimensional. This reflects need to measure ________ areas of performance which are important to the organization's success. However, there is no consensus on what the ______________________ of performance are. For example, the _________ model provides the broadest indication of dimensions of performance to be measured.

multi all dimensions EFQM

Performance measurement can be considered multi-faceted and

multidimensional.

current market capitalization calculated by

multiplying the number of shares of a company with the current price per share on the stock market.

customer profitability analysis can help to identify factors which could have a negative impact on the future of the company.

negative impact on the future of the company.

the residual income concept has shifted focus from a total profit perspective to a '______' profit view that takes into account expected

net capital returns.

customer lifetime value is calculated by discounting the forecasted ______________________ with the risk-adjusted _______________ which is often referred to as the weighted average cost of capital (WACC).

net cash flows cost of capital weighted average cost of capital (WACC).

NOPAT

net operating profit after tax

well-designed EVA-based management system can sharpen a

new market philosophy around a set of universal business principles.

ineffective management of the evolution of measurement systems is causing a

new measurement 'crisis'.

important to adjust the measures accordingly when assessing how the

new strategy is to be executed.

EFQM excellence model is a _________________ framework which allows for enough _________________ to be _________________ to any type of organization, regardless of size or sector.

non-prescriptive flexibility adapted

'European Foundation for Quality Management Excellence Model' is based upon these fundamental concepts of excellence:

o Adding value for customers:by understanding, anticipating & fulfilling needs, expectations & opportunities. o Creating sustainable future: have positive impact on environment by enhancing performance whilst advancing economic, environmental, and social conditions within the communities they touch. o Developing organizational capability: enhance capabilities by managing change w/in and beyond the organizational boundaries. o Harnessing creativity and innovation: continual improvement and systematic innovation by harnessing the creativity of their stakeholders. o Leading with vision, inspiration, and integrity: achieved by leaders who shape future and make it happen, acting as role models for company's values and ethics. o Managing with agility: ability to identify and respond effectively and efficiently to opportunities and threats. o Succeeding through the talent of people: values its ppl & creates a culture of empowerment for achievement of both organizational and personal goals. o Sustaining outstanding results: achieve sustained, outstanding results which meet short & long-term needs of stakeholders w/in context of operating environment.

focus of operational performance metrics across variety of operational business areas include:

o Customer performance: o Service performance: o Sales operations: o Sales plan:

· four key performance metrics used to determine excellent performance:

o Customer satisfaction: data reflecting annual changes in customer satisfaction. o Customer issue resolution capability: data reflecting average time customer issues are resolved. o Conversion of inquiries to sales leads: data reflecting annual changes in rate inquiries converted to leads-percentage of sales leads per inquiries o Sales forecast-to-plan performance: data reflecting annual changes in accuracy of sales forecast-to-plan measurement.

eight generic steps for carrying out a self assessment.

o Develop commitment o Plan self assessment o Establish teams to perform self assessment and educate them o Communicate self assessment plans o Conduct self assessment o Establish action plan o Implement action plan o Review progress

business pressures that drive operational performance include need to

o Improve executive visibility to operational drivers. organizations can do better than entry-level of maturity. Companies are successful when operational data is applied within a time frame, since that can affect performance improvement. o Replace 'intuitive' decisions with 'fact-based' decisions. many operational decisions are still based on the so-called 'gut feel' approach, since there is no immediate and relevant information after the occurrence of business events. o Gain an understanding of operational performance drivers. There are many operational 'moving parts'

Key performance drivers

o Leading indicators: Customer satisfaction ratings, % SLA compliance, Customer-initiated early renewals o KPI Components:, % Customer Retention, Avg Contract Price Variance, Avg Additional Product Revenue o KPI Metric: Existing Customer Revenue, Growth, Target: 20%

Excellence Model & Self-Assessment Characteristics

o Less context independent (best practice benchmark) o Descriptive and comprehensive o Fact-based and objective o Current (as-is view of the company) o Implicit cause and effect model o External variables systematically addressed

Steps to calculate customer lifetime value

o Recurring revenues-recurring costs o Gross contribution margin-marketing costs o Net margin-expected number of purchases over next 3 years o Accumulated margin-acquisition costs o =customer life time values

Sales plan:

o Sales plan: This includes metrics for price-to-purchase order accuracy, purchase order fulfillment ratio, quantity earned (where revenue can be recognized), forecast to-plan ratio, and total closed contracts (which is cumulative).

roles of the performance management system can be defined by three key categories:

o Strategy: Comprises roles of managing strategy implementation and challenging assumptions. o Communication: Comprises role of checking progress, complying with non-negotiable parameters and communicating direction as well as providing feedback and benchmarking. o Motivation: Comprises role of evaluating and rewarding behavior and encouraging improvement and learning.

TQM implementation approaches can be generalized in the following order:

o Train top management on TQM principles. o Assess culture, customer satisfaction, and quality management system. o Top management determines core values and principles and communicates them. o Develop a TQM master plan based on first 3 steps. o Identify/prioritize customer needs & determine products or services to meet those needs. o Determine critical processes which produce customer quality products or services. o Create process improvement teams. o Managers support efforts by planning, training, and providing resources to the team. o Manag. make changes for improve. in daily process manag. After improvements, comes standardization o Evaluate progress against plan and adjust as needed. o Provide constant employee awareness and feedback. o Establish an employee reward/recognition process.

Balanced Scorecard Characteristics

o context dependent (tailored every time) o Prescriptive and focused o Hypothesis driven and subjective o Aspirational (to-be view of the company) o Explicit cause & effect model o External variables unsystematically addressed

Total Quality Management is comprised of ten fundamental principles underlying specific technique that lead to achieving excellence in performance:

o customer focused: ONLY customers determine the level of quality. o Ensure total employee involvement: remove fear, empower employees o Process centered: focus on process improvement o Integrated system: All employees know organ mission and vision, every dept is working towards same result. o Strategic and systematic approach: effective strategic plan must integrate quality as a core component. o Continual improvement: Use analytical quality tools & creative thinking for efficiency. improvements occur continually to increase customer satisfaction & loyalty. o Fact based decision making: based on facts and data, not on personal or situational factors. o Quality must be measurable: quality management system which quantifies the results. o . Quality is a long-term investment: Managing quality is not a quick fix, results will not occur immediately. TQM is a long-term investment to achieve long-term success. o Communication: Communication strategy, method and timeliness must be well defined.

self-assessment process activities include:

o educating/training staff to give them knowledge/skills necessary to fulfill their role o scheduling self-assessments o developing action plans resulting from self-assessments o planning review meetings o embedding self-assessment process into regular business planning cycle o maintaining commitment to activity plans by supporting improvement activities

two points which add to the complexity and multidimensional nature of operational performance measures:

o five operations performance objectives trade off with one another, but extent of trade-offs depends on context-specific characteristics and timing. o there are internal as well external reasons for operations performance objectives.

advantages of intellectual capital measurement include the following factors 1

o identification and mapping of intangible assets o recognition of knowledge flow patterns within organization o prioritization of critical knowledge issues o acceleration of learning patterns within organization o best practice identif and dispersion across organization by strong business case for best practice oconstant monitoring of asset value & finding ways to increase it

performance measurement system might consist of three interrelated elements:

o individual measures quantify efficiency and effectiveness of actions o set of combined measures to assess performance of an organ as whole o supporting infrastructure which enables assoc to acquire data which is later collected, sorted, analyzed, interpreted, and disseminated

Claimants or stakeholder categories which help to form a holistic view in performance management context are:

o investors (including shareholders, banks, and other capital providers) o customers and intermediaries o employees (including labor unions) o suppliers and partners o regulators o pressure groups, communities, and the media

· Performance drivers include

o leading indicator or early warning system which reports existing situations will lead to a poor result if not addressed accordingly. o performance metric which is associated with a preceding step in a value stream. o metric which directly contributes to a key performance indicator.

process of operational performance

o management system initiatives depend on combo of capabilities and technology enablers o performance management systems must be realigned o alignment done by regularly employing method for identifying, incorporating, and reviewing the performance management system and framework with relation to operational performance. o process of updating a performance management system on continuous basis is important, especially for operational performance

· process of benchmarking research generates five different comparison targets:

o performance o technology o Process o Competence o Strategy

Two theoretical schemes which link performance measures with different hierarchical levels and foster a stakeholder view of the corporation are the

o performance pyramid (or the SMART system) proposed by Cross and Lynch o performance prism introduced by Neely.

advantages of intellectual capital measurement include the following factors 2

o understanding of how knowledge creates interrelationships o understanding social networks within organization and identifying agents which drive change increase in innovation o increase in collaborative activities and knowledge sharing culture as result of increased awareness of benefits of knowledge o increased identification of employees with organ. and increased motivation to achieve organ. objectives o creating performance-oriented culture

Performance measurement systems can be used to formulate a strategy in order to determine what the __________________ of the organization are and how the organization plans to

objectives achieve them

Every balanced scorecard is unique in its ____________________________ specific to each a company.

objectives and measurement

There is no prioritization of ______________________ in the excellence model.

of one activity over another

intellectual capital measurement disadvantages: Financial measures

often too complex, incorporates several variables, and cannot be standardized. may not always be possible to account for earnings from intangible assets. dependent on external factors eg market exuberance. don't take process & people factors into consideration and cannot be used to identify problem areas and design improvements.

Acquiring a large number of customers who_______________________________ is not an optimal strategy

only purchase once

From 1970 to the early 1980s, the idea of an association being an _______________ was formulated.

open system

value measure calculates the difference between an organizations'

operating cash flow and a capital charge based on the gross amount of invested capital

customer perspective Operational excellence. · Businesses pursuing an ____________________________ strategy focus on

operational excellence low price, convenience, and often a 'no frills' approach

Management of the organization in mechanistic systems is directed towards____________________________ and the role of the _____________ factor is not considered when attempting to improve ____________________ and increase organizational ____________.

operational management human performance efficiency

________________________________ is becoming a top priority for business intelligence and performance management projects

operational performance

o achieve excellent quality performance, organizations must prioritize the areas of the business which will benefit most from operational performance management initiatives.

operational performance management initiatives.

revenue represents factors which are not directly influenced by the ___________________or only affected by ____________________________ such as TV advertising.

organization standard marketing measures

EFQM MODEL Partnership and resources criteria

organization plans and manages external partnerships, suppliers, and internal resources in order to support policy, strategy and effective operation of processes. while managing partnership and resources, it balances the current and future needs of itself, the community, and the environment.

PM strategic objective 3

organization sets performance targets, e.g. to increase sales by 30 % and to cut production costs by 10 %.

cash flow return on investment is compared to the

organization's inflation-adjusted (real) cost of capital.

common operational element value based management is:

organization's management

ex.s of organizational/innovation capital

organization's policies &procedures customized software applications research & develop. programs and training courses patents

As for the balanced scorecard and its context specific approach to performance management, it is obvious that it entirely depends and is based on an

organization's positioning, challenges, competitive context, and, of course, its strategy.

In structural terms, intellectual classification can be split into

organizational capital, process capital, and innovation capital.

consequence of constantly creating new performance measures which are different to existing measures is a paradox where

organizational control is maintained without knowing exactly what the performance is.

basic feature of performance measurement is to be a system which measures

organizational performance

role of performance measurement is to implement

organizational strategy.

PM involves establishing a simple but effective system for identifying whether

organizations meet their objectives or not.

PM used to benchmark the performance of different

organizations, plants, departments, teams and individuals

Regular measurement is necessary in order to make progress towards specified _______________ and it is a vital component of any

outcomes customer-oriented process.

EVA is designed to instill an ___________________ culture in an organization.

ownership

structuring company's compensation and reward system is one of the fundamental aspects of _____________. It reflects the 'correct' principle of __________________ and is contained within the _______________ theory of ____________ justice.

ownership distributive justice Kelso-Adler economic

In EVA, foundation is laid for an on-going ____________________ culture within an organization.

ownership sharing

In EVA in order to avoid double accounting interest, _______________ is not deducted from the revenues but it is included in the capital charge for both

paid for capital equity and debt (net working capital).

In excellence model, self-assessment outcomes do not

pass judgment as to which activities need to be focused on based on a view of the future

PM used to communicate direction to the rest of the employees by

passing on information about what the strategic goals are and how individuals are expected to achieve them

Because paying managers for performance is a backward-looking practice, organs which pay their managers for past performance may unwittingly

pay to undermine value creation.

From a financial perspective in benchmarking, ___________________ is likely to vary and depends on the specific

payback aims of the project.

value-based bonus plan can also include a target bonus plus a fixed ________________ _____________ (since value-based metrics are measured in _____________ and can be positive or negative).

percentage of excess value added improvement currency

most customer profitability analysis templates allow for determining what ____________________________ is generated from a given customer or group of customers.

percentage of revenue

ways of measurement of intellectual capital include

perceptual process financial

Performance frameworks gives framework of measures which provides a succinct overview of the organization's _________________. For example, the simplicity and intuitive logic of the ____________________ has been a major contributor to its widespread adoption, as it is easily ________________ by users and applied to their organization.

performance balanced scorecard understood

objective of scorecard framework accounts is to help organizations to determine their _________________ in a way that ________________ are reflected as well as to assess organizational ___________________ appropriately.

performance objectives performance

Performance Management and Measurement risk is that incentives which are linked to ___________________ may motivate employees __________________________ and thus an _______________________ will not result in any__________________________ to performance.

performance only temporarily incentive scheme long-term commitment

Once an organization has identified its strategic spurs of ______________________________________________, it will turn to the development of ___________________ using the balanced scorecard approach.

performance and associated measurement targets and initiative

formal benchmarking two main types:

performance and best practice benchmarking.

Benchmarking has established its position as a tool to improve an organization's

performance and competitiveness in the business world.

production point of view approach focuses on the relationships between

performance and social and psychological conditions as critical management elements.

need for effective human resource management places importance on the function of

performance management.

theories describing the evolution of performance management clearly are _________________________________ (since it has the most identifiable body of literature) and the _____________________________ (which in the eyes of many people is synonymous with performance measurement).

performance measurement 'balanced scorecard'

Employees who are instructed using ____________________________________ must be equipped with appropriate______________________________________ to act on these measures accordingly

performance measurement metrics information and knowledge

main criticism for traditional accounting measures was focused on the dysfunctional actions of the traditional accounting-based __________________, especially when used inappropriately.

performance measures inappropriately

danger is that organizations are constantly creating new _________________________ which are significantly __________ and do not correspond to

performance measures different already existing measures.

in ideal EFQM model, key performance results are measured by the introduction of ____________________________ with respect to the key element of organizational

performance outcomes policy and strategy.

guiding postulate of EQFM is based on the belief that: "Excellency results which include _________________________________________________ are achieved through policies and strategies driven by strong _______________. Results are delivered by ________________________________________________________."

performance, customer, people and society leadership people, partnership, resources, and process

Fayol clearly believed that _____________________________________ were part of an 'ideal' organization.

personal efforts and team dynamics

Organizational capital includes the _________________ of a business and systems for increasing the organization's

philosophy capability to achieve its goals.

EFQM MODEL people resources criteria

planned, managed, and improved. organization manages, develops, and releases full potential of its employees at an individual, team and organizational level. promotes fairness and equality, involves and empowers its staff. cares for, communicates, rewards, and recognizes people in way that motivates them and builds commitment to use skills & knowledge for organ. benefit

performance management includes a variety of activities, including the

planning and execution of actions required to ensure that performance objectives are achieved.

Earning per share (EPS):

portion of a company's profit allocated to weighted outstanding shares. indicator of a company's profitability. EPS= Profit/weighted average common share

If net present value of a potential project or investment is _________________, it should be accepted. On the other hand, if the net present value is ________________, the project should be rejected because it does not create ________ for the organization.

positive negative value

If the returns generated by an organization's projects are in excess of the cost of capital, these projects will generate

positive net present values and consequently shareholder value is increased.

main feature of EVA is its focus on_______________ profits rather than _________________ profit. This incentivizes management to take this into consideration when managing the ____________________ account.

post tax operational profit and loss

Behavioral Management Theory

postulates that a close interaction exists between the internal capacity and personal needs of employees and organizational efficiency and related production growth, making management of employees a key task required to achieve a high level of performance

Return on assets avoids the

potential distortions created by financial strategies

Eventually, customer profitability analysis process will provide clarity about elements which may contain potential for earning more revenue from those same clients.

potential for earning more revenue from those same clients.

balanced scorecard approach is _______________________, while the excellence model uses a ______________________ approach.

prescriptive descriptive

While accounting-based performance measures focus on the companies past performance, market-based measures reflect the

present value of future streams of income.

· excellence model and self-assessment process show the _________________________ very deliberately.

present-day picture

Up-selling revenue also emerges from a _________________ which is created by selling higher-priced _______________ of the same category to loyal, long-term customers who are less

price effect substitutes price-sensitive

· TQM is more a set of _________________ rather than a set of specific __________________.

principles instructions

human relations movement theoretical model was based on the idea that the organization is a group founded on the

principles of the division of labor.

In the scorecard, the ___________________ for today are derived from the assumption of where the____________________________ tomorrow.

priorities organization needs to be

balanced scorecard identifies a unique and focused set of _________________ which the management team believes will

priorities deliver the strategy.

Organizations may implement new performance measures to reflect new ______________________ but fail to discard measures reflecting ______________________, resulting in __________________________________ measures and hence the loss of _________ of performance management.

priorities old priorities uncorrelated and inconsistent focus

While traditional metrics do not take into consideration the___________________________________________, customer lifetime value incorporates these aspects and is able to give managers a much better perspective.

probability of customers being active

self assessment also provide a clear guideline regarding the level of ________________________ required as well as the ____________ that is needed to fully implement the balanced scorecard ______________________________

process investment time objectives/measures.

excellence model provides comprehensive description and assessment of how

processes across the organization are managed and deployed.

balanced scorecard does not analyze the quality of

processes and activities today.

principle methods for predicting customer costs are those which are commonly applied in

product-related accounting

Between 1920 and 1950, a rational approach in management focusing on the _____________________ cycle was slowly replaced by a 'classical' approach, or what is well-known today as administrative management, relating to the issues of

production improved governance and administration at the level of the organization as a whole.

Sales costs include both the ______________ costs of the goods and all costs of serving the customer, including the

production cost of order procession, handling, warehousing, and shipping.

customer perspective Product leadership · Product leaders push the envelope of their company's __________________. Constantly ________________________, they always strive to be ahead of the curve and offer the best products in the market. The ________________________________ industries include many companies pursuing a strategy of product leadership.

products innovating consumer electronics, fund management, automotive and pharmaceutical

All revenue and costs need to be matched with customers so that __________ can be determined.

profit

key feature of the EVA model is it brings balance sheets and cash flow variables into the ____________________ profit and loss account by charging the organization's cost of capital as a___________________________ employed in the business before the bottom-line profit is calculated.

profit and loss account percentage of the assets

key financial performance indicators an organization should prepare on a monthly basis is a ______________ for at least a 12-month period.

profit and loss budget

businesses should concentrate on identifying how much each customer contributes to the overall profit and performance of the organization.

profit and performance of the organization.

customer lifetime value measures the

profit streams of a customer across the entire customer life cycle.

financial performance indicator concepts can be grouped as follows:

profitability liquidity utilization financial structure investment-shareholder ratios

customer lifetime value model is aimed at assigning a _______________________ to the customer, which is based on ______________ and directly referable to in-payments and out-payments

profitability figure profit forecasts

Breaking down the task into segments makes it easier to identify what is actually working to increase profitability with a major client or a group of clients within the customer base.

profitability with a major client or a group of clients within the customer base.

shareholder value concept is supposed to give an incentive to decision-makers when evaluating new

projects or business opportunities to view them from an economic profit perspective

intellectual capital measurement advantages: financial measures

provide share holders w/ financial value of organ's intangible assets. clearly link spending on intangibles with profits. Measures such as ROA, ROI, and KCV, provide for intangibles in accounting framework and justify spending on intangible resources. By linking process and financial side, organization can measure and improve its IC effectiveness.

In developing metrics for satisfaction, customers should be analyzed in terms of various categories and according to the kinds of processes for which an organization is

providing a product or service to those customer groups

· five operations performance objectives are usually utilized:

quality dependability speed cost flexibility

in scorecard,______________________ are equally important to achieve strategic goals.

quality processes

in SMART, four key performance measures such as _______________________________________ are used at departments and work centers on a daily basis

quality, delivery, cycle time, and waste

The balanced scorecard forces assumptions and value judgments to be made about how to

reach the level of performance described in the vision and strategy.

organizations and their stakeholders have to recognize that their relationships are _______________.

reciprocal

costs cannot only be better assigned to customers, but opportunities to ________________________ them can be identified in order to decrease the total cost to serve the customer

reduce or redirect

reference value estimation can, for example, be accomplished with the help of the reference value model developed by Cornelsen in 2000.

reference value model developed by Cornelsen in 2000.

autonomous revenue

refers to basic revenue excluding targeted measures to increase sales or cross sales.

TQM helps organizations to

refine and improve their internal processes and increase customer satisfaction.

performance measurement

regular measurement of the results or outcomes and efficiency of services or programs

benchmarking matrix each possible combination should be evaluated according to its __________________ and subdivided into three categories:

relevance high, medium, and low.

retention rate refers to the possibility an individual customer remains loyal to a particular supplier and keeps yielding expected revenue, as well as costs, within a fixed period of time.

remains loyal to a particular supplier and keeps yielding expected revenue, as well as costs, within a fixed period of time.

value-based measures attempt to include an organization's cost of capital and to adjust financial statement information in order to

remove some of the accounting distortions contained in traditional financial performance measures.

Technical ability, or the lack of it among users, naturally pushes the job of__________________________ to the IT department.

report generation

performance measurement system provides managers with useful information in order to help them to effectively fulfill their_______________________ and to help the organization identify and develop the most feasible set of

required tasks actions for successful achievement of its objectives.

EVA model expands the __________________ concept and tries to measure the difference between the _________ made during a period and the _________ of all resources valued in economic terms consumed in the same period.

residual income revenue costs

economic value added (EVA) builds on

residual income concept.

using too many performance measurement metrics may generate ___________________ from employees who potentially feel that the amount of _____________________ is excessive.

resistance observation

As a 'communication tool', balanced scorecard provides an opportunity to

resolve any hidden differences of opinion and strategic objectives.

· customer profitability analysis will look closely at how much of the company's _________________are dedicated to

resources producing goods and services for specific clients.

critical aspects of performance measurement definition is the regular measurement of

results or outcomes.

customer lifetime value models variables can generally be classified in three basic categories:

retention rate revenue costs

In lost for good model, the ___________________________ can be forecasted fairly accurately, depending on the usage of the _____________in the previous period and the contract terms.

retention rate and expected revenues services

three basic categories of customer lifetime value are

retention rate, revenue, and costs.

up-selling revenues symbolize the

retention value of a customer.

many companies focus too much on financial indicators such as __________________________________ in their performance measurement and reporting systems.

return on investment (ROI) or earning per share (EPS)

CFROI may be viewed as a

return on investment (ROI).

readily available financial leverage often helps to increase _______________________, leading many companies to neglect the potential of capability leverage

returns for shareholders

Economic profit focuses on the ____________________ and is different from accounting-based profit, since it takes into account ___________________

returns generated opportunity costs of capital employed in enterprise.

Financial perspectives (or shareholder value) of balanced scorecard includes strategies for _______________ growth and changes in the ___________ mix or cost _______________ and _____________________ improvement.

revenue revenue reduction productivity

Traditionally, profitability analysis assigns ____________________ to actual products in order to inform companies about which product is ________________________ and which one is not.

revenues and costs profitable

benchmarking measures should be used in conjunction with a ___________ of the organization's _______________ statements in order get a better picture of the overall '__________' and condition of the association.

review financial health

structuring company's compensation and reward system enables each person in the organization to be

rewarded for the value of their contributions and inputs.

PMS utilized for measuring performance as a

role and finally includes information provision.

European Quality Award intention is to serve as a way of identifying '_____________________' of excellence and giving recognition for demonstrating that Europe could be _______________

role models competitive

second step of evolution of intellectual capital includes

routine reporting, analysis, and commentary about identified issues.

scorecard methods use various indicators and indices and generates a scorecard, which usually is a

score value not necessarily related to a dollar value

Best practice benchmarking is where organizations

search for and study organizations which are high performers in particular areas of interest.

Pm used to comply with non-negotiable parameters by making sure that the organization is

securing its survival by achieving the minimum standards needed (e.g. legal requirements, environmental parameters, etc.)

in customer profitability analysis, revenues and costs are assigned to ______________________ of the customer base in order to determine

segments customer profitability

customer profitability analysis is an evaluation process which focuses on assigning costs and revenues to ____________________________________ instead of assigning revenues and costs to the actual ___________________________________which compose the corporate structure of the producer

segments of the customer base, products or the units or departments

When projects are carefully __________________________, there is no reason why major benefits (e.g. ________________________________) should not be gained

selected, planned, and managed financial and non-financial

key feature of the EQFM model is that it can be used as a diagnostic tool for __________________________, where organizations ______________ themselves against a set of detailed criteria under each of the nine headings. The overall score acts as a European ___________________ and helps organizations identify areas to be _______________________.

self-assessment grade benchmark improved

One of the recommended strategies within the EFQM Model for improving performance is the adoption of the process of

self-assessment.

Balanced Scorecard is a framework which helps to develop a ________________ which gives the ____________________________ a fast but _________________________ view of the business.

set of measures executive management comprehensive

Performance measurement outlines a process by which businesses

set up criteria for determining the quality of their activities based on organizational goals.

in the balanced scorecard, external factors are typically taken into account in

setting targets for the measurement (e.g. external benchmark, market research).

Negative RI values are an indication that insufficient profits are generated, and as a result,

shareholder value could be destroyed

All aspects and activities of the value based organization need to be brought in line with

shareholder value maximization.

in performance management there is an · increasing need to balance the interests of ______________________ with the interests of other _________________.

shareholders claimants

In order to achieve its objectives, the organization needs to satisfy ________________________________ and has to manage internal processes as well as _______________________________________

shareholders and customers innovation and learning.

Dividend yield:

shows how much company pays out in dividends each year relative to its share price. In absence of capital gains, dividend yield is the return on investment for a stock. Dividend Yield=Annual Dividends Per Share/ Price Per Share

intellectual capital is comprised of the intangible assets of

skill, knowledge, and information.

Increased customer costs can result from services such as:

smaller order quantities customized and/or more frequent deliveries producing and/or stocking greater # of products req to hold inventory increasing necessity for post-sales support

____________________ is an explicit part of the excellence model and therefore any ____________________ is going to provide feedback on this dimension

society self-assessment

neoclassical management theory adopted the achievement of ____________________________and used them as tools.

sociology and psychology

customer perspective Customer intimacy Doing whatever it takes to provide _________________ for ____________ customer requirements defines customer-intimate businesses. Their focus is not high volume _____________________ transactions, but instead_________________________ through deep knowledge of their customers' needs

solutions unique one-time long-term relationships

limitations with regard to CVA:

some researchers think EVA is better financial measure argue problem of different depreciation policies in of EVA can be solved by including an accounting adjustment.

in 'always-a share' case, retention rate is not regarded to be __________, but a dynamic factor reflecting changes in

stable purchase behavior throughout the entire customer life cycle.

in performance prism,______________________________ is the first viewpoint on performance

stakeholder satisfaction

performance prism suggests that measurements of ______________________________________________________________________ are taken into account when developing the company's strategy.

stakeholder satisfaction, stakeholder contribution, strategies, processes, and capabilities of the organization

SMART defines strategy and strategic objectives based on the___________________________ perspective and expectations.

stakeholder's

o The performance prism approach helps build a

stakeholder-focused measurement and management system.

PM used to communicate with external

stakeholders

Another aspect in realizing ethical and material values is maximizing value for the __________________________ by increasing _________ and/or decreasing ___________.

stakeholders and customers quality price

EFQM is not to be understood as a '________________'. It is a

standard framework or a practical diagnostic tool.

key elements in the theory of rational management were

standardization, rationalization, specialization, and intensification of work.

Kelso-Adler theory

states that a person's returns are based on performance and contribution, not charity.

Unlike the environment in which organizations operate, many initiatives to introduce PMSs appear to be

static

early 1960s was characterized by a drastic transition from a ______________________ management model, which took changes in the _________________________ environment of the organization into account. During this period, a more ________________ approach to management was enacted.

static to a dynamic internal and external systematic

TQM aggregates a process of __________________________ with extensive statistical __________________ in order to improve the level of quality of Japanese _________________

statistical quality control training enterprises

If underlying profitability continues to deteriorate, more

stock buybacks or debt leverage will be necessary to maintain an attractive return on equity

accounting measures are not the only driving force for _________________ performance of a company

stock market

ownership sharing culture incorporates an employee ___________________ plan, individual and team performance ____________ (i.e. formula-based cash profit sharing), ownership ________________, and sharing of _______________ information

stock ownership feedback education financial

allowing ROE to decline is often too painful to contemplate, since the impact on ____________________ can be immediate. The risks on the other side are less ____________ and less ________________, so there is an understandable temptation to avoid immediate pain in this way.

stock performance immediate quantifiable

studies have attempted to empirically prove the relationship between EVA performance measures and

stock performance (i.e. shareholder value increase)

In order to develop a system of performance measures, an organization needs to identify its _______________ objectives.

strategic

financial indicators lack _______________performance measurement component and are ________-dimensional.

strategic one

balanced scorecard can be used to provide knowledge of where the____________________ is needed and which action needs to be __________________ as well as where ____________________ need to be allocated to.

strategic focus prioritized resources

balanced scorecard tries to link _________________________________. It complements financial measures with ______________ as well ______________ aspects.

strategic initiatives with operational activities operational internal

balanced scorecard can show a logical step by-step connection between _____________________________ in the form of a _____________________________

strategic objectives cause-and-effect

· In order to design a performance measurement system, the first step is to identify _____________________ from which___________________________ and performance targets can be derived.

strategic objectives strategic metrics

principal difference between scorecard and excellence approaches is that the balanced scorecard communicates and assesses_____________________________, whereas the excellence model includes its various applications, such as the_______________________________, and focuses more on the adoption of

strategic performance self-assessment process good practice across all management activities

balanced scorecard does not assess the quality of the

strategic planning process itself.

PM used to evaluate and reward behavior in order to focus employees' attention on

strategic priorities and motivate them to take action and make decisions that are consistent with organizational goals

performance measurement system (PMS) provides organizations with the information necessary to identify

strategies that offer the greatest potential for meeting the targets set by the organization.

in performance prism, organization's ________________________________________ have to be aligned and integrated with one another if the organization is to be best positioned and therefore capable of

strategies, processes, and capabilities delivering real value to all of its stakeholders.

With a ___________________-centric approach, balanced scorecard supports the translation of the organization's ________________________ into_________dimensional actionable _________________________ measures.

strategy mission and vision multi goals and objective

SMART pyramid purpose is to connect an organization's ___________________ to its __________________________by ________________________ from the _______________ (based on customer priorities) and _________________________ from the bottom up.

strategy operation levels remitting objectives transmitting measures

balanced scorecard tests the validity of the _________________ and monitors the organization's _______________________ against its ________________ on a regular and frequent basis, usually ____________.

strategy performance delivery monthly

Both EQFM and scorecard models clearly have their place within the

strategy and business planning spectrum.

A company's balanced scorecard is driven by its____________________ and represents the unique_______________________ of the company.

strategy and vision position and strategy

focus of the balanced scorecard has shifted from performance measurement to__________________________________ (i.e. a broader performance management view).

strategy development and strategic control

main purpose of the balanced scorecard is to ensure that the __________________________________ as well as to enable an organization to continuously

strategy gets implemented learn from its performance and adapt its strategy accordingly.

conflict between the fixed organization's __________________ and rapidly changing _________________________ which might create some ________________________________________________

strategy goals business environments dysfunctional operational problems.

Within the framework of the balanced scorecard, Kaplan and Norton proposed the use of _________________________ to understand

strategy maps (or success maps) how the goals of performance affect the top-level objectives.

'good scorecard' refers to the existence of __________________________________ regardless of whether the balanced scorecard (using its four perspectives), the performance prism, the SMART pyramid, or any other theoretical measurement account has been used to develop it.

strategy or success-map,

TQM uses________________________________________________ to integrate the _________________ principles into the culture and activities of the organization.

strategy, data, and effective communication quality

distinct benefit of the self-assessment exercise is

streamlining the process of managing performance

excellence model identifies relative _______________ and areas for ___________________ today across the whole set of activities based on the

strengths improvement objective criteria

primary objective of self-assessment is to identify an organization's _______________________________________ and to develop

strengths and areas for improvement action plans to improve organizational performance.

it can be expected a project with a substantially higher IRR value than other available options would provide a much better chance of

strong growth.

With regard to existing customers, acquisition cost has to be booked as a

submerged cost.

customer lifetime value is a metric which is calculated by

subtracting the forecasted net cash flows from the risk-adjusted cost of capital.

EBEI makes provision for the cost of debt by

subtracting the interest expense

primary goal of 'service to the customer' formula becomes the core strategic task for any business that desires to

succeed in the competitive marketplace.

ROA explicitly considers the assets used to ____________ business activities and determines whether the organization is able to generate an adequate ___________ on these assets, rather than simply showing robust

support return return on sales.

Organizational capital is the

supportive infrastructure which enables human capital to function.

EFQM model discerns diversity of approaches to achieve _________________________________________

sustainable excellence in all aspects of performance

difference of ROA and average is multiplied by company's average ________________ assets to calculate an

tangible average annual earning from intangibles.

market value of leading companies is far higher than their value of

tangible assets.

traditional managerial bonus plan awards a_________________ for meeting ________________ which can be linked to ________________ or any other metric

target bonus expectations share price

________ issues add a significant layer of complexity to the EVA model and the resulting number is usually called

tax net profit after tax (NOPAT).

process capital includes the ____________________ which implement and enhance the delivery of

techniques, procedures, and programs goods and services.

information is critical to support decisions with regard to stra______________________________________________ customers or the services provided to them as well as implementing new services and seeking new customers

tegic pricing, contract negotiations, and rationalizing

ROA management key question helps executive teams to focus their own operations more intently on ________________________________and to branch out other activities and assets to more

the activities and assets they are best qualified to manage specialized organizations.

Using ROA as a key performance metric quickly focuses management attention on

the assets required to run the business.

MVA calculated as

the difference between the company's market capitalization and the shareholders' equity plus debt.

Mathematics, statistics, engineering, and related disciplines affected by the rapid development in the 1950s undoubtedly made a significant contribution to the

theory and practice of management.

Abstract theories derived from natural sciences were incorporated into management theories such as the

theory of rational choice and equilibrium solutions, theories and models of optimization, and game theories.

most criticized aspects of accounting-based performance measures:

they only reflect a company's former achievements which are not always indicative of future developments

PM used to provide feedback by reporting to employees how

they, their group and the organization as a whole are performing in comparison to the expected goals

· Business alignment pertains to ability to

tie operational activity and performance to the successful attainment of corporate goals.

demand forecast calculations include analysis of __________ sequences or _________________________ frameworks such as the multinomial 'Logit' model.

time stochastic brand choice

EVA as a single period measure does not address the problem of the ______________________________ and it does not provide a strong enough incentive to avoid '___________________________'.

time period over which profits are to be maximized short-termism

third horizontal level of SMART, i.e. business operating system, bridges the gap between __________________________________________________ Here, targets include

top-level and day-to-day operational measures. customer satisfaction, flexibility and productivity.

market capitalization

total market value of all shares of a company.

Discounting the stream of all expected future improvements in EVA helps to explain the difference between the

total market value of an organization and its debt plus equity capital.

EVAs' popularity corresponds with the trend of '______________________', which was established in the 1980s.

total quality management

beginning of the 21st century revealed different concepts within the framework of strategic management which are

total quality management and the idea of customer relationship management.

value-based management approaches attempt to overcome problems associated with _______________ measures. Accounting distortions contained in the __________________________ are being removed. Cash value added is considered to be another form of ___________________________.

traditional financial statements residual income

management and employee ________________ programs are crucial components of any EVA plan.

training

· Innovation and learning perspective (or growth): includes employee ________________ and a corporate ______________ attitude related to both individual and corporate ___________________________ In a ______________________________ organization, people, the only repository of knowledge, are the main resource.

training cultural self-improvement. knowledge worker

Taylor's theory advocated for ____________________________________ in the production process which represented a significant improvement over the ____________ human relations of the time

training the workforce and developing 'a hearty cooperation' feudal

criteria of European quality award were designed to track how far applicants for the Award had

travelled along the road to excellence.

Unlike typical strategic business, intelligence initiatives focus on___________________ which is captured over time (i.e. weeks, months, years) whereas operational performance initiatives relate to areas of the business which experience _______________________________. This requires the ability to

trend data multiple changes throughout the business day access, capture, integrate, and analyze operational data quickly.

After an organisation changes its strategy, variables for data collection should be scrutinized for relevance. True False

true

Dynamic models of modern management suggest that organisations are affected by changing external environments. True False

true

Economic value added (EVA) is an excellent performance measure since it also accounts for the cost of debt and equity.True False

true

Frederick Taylor postulated theories on manufacturing management, which he thought was inefficient. True False

true

Henry Ford laid the foundation for hierarchical structures in industry.True False

true

Max Weber developed the idea of bureaucracy as a large 'efficiency-machine'. True False

true

Modern management models view the organisation as a system that consists of internal and external players. True False

true

Net present value (NPV) is a discounted cash flow performance measure. True False

true

Performance drivers typically include (1) a leading indicator, (2) a performance metric that is associated with a preceding step in a value stream, and (3) a metric that contributes directly to a key performance indicator. True False

true

Return on equity (ROE) and return on assets (ROA) never have the same values for a given company. True False

true

Traditional performance measures can be based on accounting data. True False

true

there is no acceptable way of measuring intellectual capital. t/f

true

Customer capital refers to aspects such as

trust and understanding, and the strength as well as the loyalty of customer relations.

balanced scorecard perceives performance objectives which need to be achieved in order to reach the organization's vision in

two or five years' time.

good scorecards will be _______________, containing mostly _____________________________ measures.

unbalanced non-financial, internal, leading, short-term

Informal benchmarking is a type of benchmarking that is

unconsciously practiced by people at work or in their private life

inefficient relations create structures which promote an ________________ and lead to the _________ needs of the workforce being unmet. • This can lead to conditions that foster reduced interest of employees in their work and the development of

unhealthy one-sided dependence basic anti-organizational activities such as strikes.

balanced scorecard is characterized by the provision of the __________________________, while the excellence model gives the opportunity to build up

unique advantage improved performance based on best practice.

Since each person contributes and carries risks and shares as an owner as well as a worker, the value-based management helps

unite everyone's self-interest around the organization's bottom-line and corporate values

Price-to-book ratio (P/B ratio):

used to compare a stock's market value with its book value. calculated by dividing the current market capitalization by latest quarter's book value of the shareholders' equity. P/B Ratio=Market Capitalization/Total Assets− Liabilities

total value creation TVC

uses discounted projected cash flows to analyze how events affect planned activities.

Price-to-earnings ratio (P/E ratio):

valuation ratio of company's market capitalization to its earnings. P/E Ratio= MarketCapitalization/ Earnings

Performance exceeding the cost of capital is certain to produce __________, while the failure to achieve this will result in the destruction of _____________________________

value shareholder value

ability to build and leverage the __________ of these _________________ assets represents a core competency of an organization.

value intangible

Like quality, _________ is every employee's _____________________.

value responsibility

shareholder value concept is based idea of measuring the

value a company creates or destroys by subtracting a capital charge from the cash returns generated on the capital invested

In order to create sufficiently detailed individual customer lifetime values, and minimize calculation efforts at the same time,

value component needs to be calculated separately for each customer segment.

___________________ is the central theme of value-based management

value creation

From a value based management perspective, the focus is on

value drivers which ultimately increase shareholder value.

Market-to-book-value calculation

value of Intellectual Capital is assessed as the difference between the stock market value and the book value of the company.

Especially the second question of customer perspective on choosing an appropriate_________________________ encompasses a fundamental strategic decision.

value proposition

balanced scorecard starts from the _____________ and works its way back to the present to identify the

vision gaps and the strategic roadmap.

Interest coverage ratio: Acct

way to measure ability of business to meet interest commitments through profits and linked to debt/equity ratio. rule used by banks is a ratio of 3:1, earnings before interest and taxes (EBIT) exceeding interest expense threefold. Interest Coverage Ratio= EBIT/Interest Expense

Debt/equity ratio: Acct

way to measure extent a business relies on external borrowings to fund ongoing operations. higher the ratio, more heavily debt financing is used. to provide reliable measure, assets should be valued at market value Debt/Equity Ratio=Total Liabilities/Shareholders Equity

bonus model limitation: bonus plan can backfire if corporate/national culture spurns strong _________________. Managers near retirement may see strong wealth leverage as too ___________.

wealth incentives risky

internal processes allow managers to get an idea of how _________________________ and whether its products and services conform to _____________________________ (i.e. the mission)

well their organization is running customer requirements

ROA management key question is

who is in the best position to earn the highest return on those assets?

customer lifetime value tries to provide information by measuring the worth of a customer to the company

worth of a customer to the company

Excellence Model and Self Assessment Deliverables

§ Benchmark and relative assessment of the quality of an organization's processes and results by assessing/scoring against the nine criteria of the model § Areas of relative process strengths and weaknesses

Excellence Model and Self Assessment Success factors

§ Management team level sponsorship and commitment § Ongoing process embedded in day-to-day management

Balanced Scorecard Success factors

§ Management team level sponsorship and commitment § Ongoing process embedded in governance processes

Excellence Model and Self Assessment Aspiration and benefits sought

§ Performance improvement § To identify the strengths and areas for improvement across an organization's processes in order to encourage best management practice § Enabling best management practice

Balanced Scorecard Aspiration and benefits sought

§ Performance improvement § To translate a strategy into focused, operational and measurable terms § Enabling strategic performance

Excellence Model and Self Assessment Development approach

§ Process -driven, sel fassessment, fact-gathering, data collection, scoring-based, detail oriented, present focused § Set of criteria and measurement areas are the same for all organizations § Continuous improvement

operations performance objective speed characteristics

§ Quote generation § Delivery speed § Delivery frequency § Production speed § New product development speed

operations performance objective dependability characteristics

§ Schedule adherence § Delivery performance § Price performance § Price performance § Ability to keep promises

performance prism measurement framework is built around five interrelated perspectives on performance which pose specific key questions:

§ Stakeholder satisfaction: Who are the key stakeholders and what do they want and need? § Stakeholder contribution: What is wanted and needed from the stakeholders on a mutual basis? § Strategies: What strategies need to be put in place to satisfy these twin sets of wants and needs? § Processes: What processes need to be put in place to enable the execution of the strategies? § Capabilities: What capabilities need to be put in place to allow the company to operate and improve these processes?

Balanced Scorecard Development approach

§ Strategy-driven, workshop-based, iterative, hypothesis-driven, management team involvement, macro-view, future-looking § Set of objectives and measurement are unique to every organization § step change in performance

revenue-can be divided into four sub-categories

§ autonomous revenue § up-selling revenue § cross-selling revenue § contribution margins resulting from referral activities of existing customers

o Different organizations can choose any or all of the five self-assessment methods and their choice will depend upon various factors:

§ be clear on whether they have already achieved a certain degree of improvement with the application of quality concepts and frameworks, § choice of method is dependent on the availability of resources within the organization, particularly those relating to commitment, time, energy, information, and finance.

SMART weak points

§ does not provide any mechanism to identify key performance indicators § fails to specify the form of the measures § does not explicitly integrate the concept of continuous improvement

operations performance objective cost characteristics

§ manufacturing cost § value added § selling price § running cost § service cost § profit

operations performance objective flexibility characteristics

§ material quality § output quality § new product § modified product § deliverability § volume § mix § resource mix

weaknesses of performance prism

§ offers little about how the performance measures are going to be implemented • some measures are not effective in practice § short of logic among the measures, no sufficient link between the results and drivers § no consideration is given to the existent PMSs that companies may have in place

operations performance objective quality characteristics

§ performance § features § reliability § conformance § technical duration § serviceability § aesthetics § perceived quality § value for money

five key self-assessment methods are:

§ questionnaire § matrix chart § workshop § pro-forma § award simulation

STRENGTHS of performance prism

§ reflects new stakeholders (such as employees, suppliers, alliance partners, or intermediaries) who are usually neglected when forming performance measures § considers the stakeholders' contribution to performance § ensures that the performance measures have a strong foundation

Balanced Scorecard Deliverables

§ set of logically linked strategic objectives with lead and lag indicators/ targets across four perspectives § Set of initiatives aligned to strategic objectives and measures

gross margin formula

· (sales units*list price perunit)-(discounts + cost of good sold)=gross margin

Pitfalls in Performance Measurement and Management

· Information Overload · Key Performance Indicators (KPI) · Perverse Incentives · Cost of Measurement · Cultural resistance

'Tobin's q ratio' calculation

·ratio of stock market value divided by replacement cost of all its assets Changes in this ratio provide a proxy for effective performance of intellectual capital.