Thursday, June 11, 2009

Vital Signs Framework for Performance Management (Part1) #vitalsigns #innovation

What are your organization's vital signs? Are they clearly aligned to your strategy? Are they fully integrated?

I get asked by corporate clients to help align strategic objectives to performance measures in the context of a planning, budgeting, forecasting project. Over the past couple of years, I've been developing a concept of corporate "vital signs".

Depending on the scope of the engagement, I begin an assessment with one key question: "how healthy (along a variety of dimensions) is the organization/business unit/functional group?" The analogy comes from the human body metaphor for gauging the health of a person but I've taken some liberty to expand it to include not only health but competitiveness, process performance, the culture of the organization, effectiveness of the leadership team, and the skill sets of the people.

The concept of vital signs is even more important in today's turbulent times. Take for example the measuring of business health (think about the bank stress tests: "Banks Needs at Least $65B in Capital") to assess the state of the economic recovery.

Play this quick mind game: If I asked your key stakeholders to list your company's vital signs in relative importance, what would they say?

Use this definition: Vital signs are a limited set of internal and external performance and risk indicators that satisfy your stakeholder needs. Vital signs can be planned, forecasted, measured, and analyzed against your strategic objectives. Note this definition is more than standard scorecarding because it looks externally as well as looking at the risks.

In the true spirit of growing economic value, would your Board, as a proxy for shareholders and stakeholders say "revenue growth" is a vital sign to indicate that your business model is competitive and that you are serving more customers? Or would it say that "operating margin" is a vital sign to indicate that you are running a lean operation? They are very likely to point to strategic risk but would they know how to measure it?

Would the management team look at "% revenues from products/services introduced in the past 2 years" as an indicator of innovativeness?

Would your employees say that "% customers highly satisfied" is a vital sign for how well you serve your customers?

What about your customers? Maybe they'd say that your company's vital signs should be your ability to solve customer problems or "% of customer problems resolved on the first call".

Would the public, as your ultimate stakeholder, insist it is your "carbon footprint"?

The fact is you may be saying "yes!" to all of these questions and you would be right. Depending on your stakeholder's perspective, there's a vital sign that's more important to them because it drives their decisions as they interact with or do work for your organization.

Clearly a hospital's vital signs are different from a car manufacturer's vital signs which are different from a professional services firm's vital signs.

How are these vital signs best identified? How do you know you've got the right ones? In future posts, I'll describe what I call the "Vital Signs Framework" for identifying and integrating your vital signs into the strategic and operational management process.

Tuesday, June 2, 2009

Acer Netbooks to run #Google #Android OS and threaten #Microsoft OS revenues

The Globe and Mail reported here that Acer will be selling netbooks with Google's Android free operating system (OS). The vital signs on this move mean that although today 80% of netbooks run the Windows OS today and Microsoft gets $15-$20 (U.S.) per machine for the OS software, this move can be viewed with a risk lens.

In a classic disruption described by Christensen and Raynor in Innovator's Solution, Google has moved over the years from offering a software with much less functionality to one that can hit at the core of Microsoft's cash cow operating system. Microsoft's core business is very likely at risk.

This is a very good example of the need for CFO's and corporate planners to start building risk drivers into their driver-based operating budgets. In this case, the volume [# of netbooks sold with the MS operating system installed] is a driver for Microsoft's budgets and the price rate is $15 per installation. While Acer's move was anticipated for some time, with this announcement those revenues are suddenly at risk and should be offset with a risk volume driver [# of netbooks sold that will sold with Google Android instead of an MS OS] to reflect the anticipated reduction in volume.