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Chapter 8

MetricsMetrics

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

8-3Chapter 8: MetricsChapter 8: Metrics

Questions answered in this chapter:• Why should senior managers be concerned about

metrics?• How can the health of online firms be assessed?• What are the steps to implement the Performance

Dashboard?• What external sources of metrics information can

firms use to chart their progress?

8-4Why Senior Managers Should Why Senior Managers Should Be Concerned About MetricsBe Concerned About Metrics

Five ways in which metrics can have a positive effect on the growth and vitality of the organization:

• Help define the Business Model.• Help communicate strategy.• Help track Performance.• Help increase accountability.• Help Align Objectives.

8-5Current Challenges to Specifying Current Challenges to Specifying Metrics for Online BusinessesMetrics for Online Businesses

Reasons why some firms have not made an explicit commitment to metrics:

• Companies’ strategies change rapidly.• Measurement is Resource Intensive.• Soft Metrics are not valued by the investment community.

• Meaningful metrics change on Internet time.

8-6Assessing the Health of Online FirmsAssessing the Health of Online Firms

The Balanced Scorecard:

• Introduced by Kaplan and Norton in response to their perception that managers overwhelmingly focus on short term financial performance.

• They argued that firms must balance their financial perspective by analyzing other domains of the business,including internal business processes and customer responses.

• They introduced 4 categories of metrics:Financial, Customer, Internal Business Systems, and Learning and Growth.

8-7Assessing the Health of Online Firms (cont’d)Assessing the Health of Online Firms (cont’d)

• Financial Metrics: They are designed to assess the financial performance of the company. Typical financial measures include revenue, revenue growth, gross margins, operating income, net margin, earnings per share and cash flow.

• Customer Metrics: Customer metrics are intended to assess the management of customer relationships by the firm. These measures typically focus on a set of core measurements, including market share, customer acquisition, satisfaction, and customer profitability.

8-8Exhibit 8-1: The Balanced Scorecard – Exhibit 8-1: The Balanced Scorecard – Strategy Into Operational TermsStrategy Into Operational Terms

FINANCIAL

To succeed financially, how should we appear to our

shareholders?

INTERNAL BUSINESS PROCESS

To satisfy our shareholders and customers, what businesses

must we excel at?

CUSTOMER

To succeed financially, how should we appear to our

shareholders?

LEARNING AND GROWTH

To succeed financially, how should we appear to our

shareholders?

Visionand

Strategy

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review 74 (January-February, 1996): 76.

8-9Assessing the Health of Online Firms Assessing the Health of Online Firms (cont’d)(cont’d)

• Internal Business Process Metrics: These focus on operations inside the company. Kaplan and Norton divided them into three groups: – Innovation – Operations– Postsale service

• Learning and Growth Metrics: These broadly cover employee, information systems, and motivation metrics.

8-10Limitations of the Balanced ScorecardLimitations of the Balanced Scorecard

• No clear definition of strategy or business models.

• Unclear location of organizational capabilities or resources in the framework.

• Unclear where partnerships reside in the framework.

8-11Exhibit 8-2: The Performance DashboardExhibit 8-2: The Performance Dashboard

Str

ate

gy

Me

tric

s

Market Opportunity

Business Model

Customer Branding

and Marketing

Market Opportunity

Business Model Branding and Marketing

Implementation Customer

Implementation

8-12The Performance DashboardThe Performance Dashboard

The Performance Dashboard is intended to reflect the health of a business. We first address the limitations of the Balanced Scorecard through features of the Performance Dashboard.

• The Strategy Framework drives the necessary metrics.• Resources are featured in the resource system of the

business model.• Partnerships are featured in the resource system of the

business model.

8-13Components of the Performance DashboardComponents of the Performance Dashboard

The Performance Dashboard is composed of five categories of metrics:

- Market Opportunity Metrics: Market opportunity metrics assess the degree to which the firm can accurately gauge the market opportunity. Generic indicators include the ability of the firm to include the most attractive segments, the ability of the firm to understand and map the competitors’ strategy evolution and the ability of the firm to track the evolution of target segment needs.

8-14Components of the Performance Components of the Performance Dashboard (cont’d)Dashboard (cont’d)

- Business Model Metrics: Business model metrics capture the subcomponents of the business model: the value proposition, egg diagram, resource system, and financial metrics.

– Value proposition or Cluster Benefits: The value proposition is composed of three parts: target segment, benefits offered, and capabilities that drive the benefits. Metrics for this assessment would focus on customer perceptions of the benefits that a given site offers relative to competitors.

8-15Components of the Performance Components of the Performance Dashboard (cont’d)Dashboard (cont’d)

– Online Offering Metrics: Metrics should reflect the entire decision process from pre- purchase to post purchase. Offering metrics focus more on the nuts-and-bolts features, attributes and functionality of the site.

– Resource System Metrics: The resource system is based on the benefits offered to consumers. From these benefits, the firm would analyze the capabilities that are necessary to supply the benefits.

– Financial Metrics: Captures the revenues, costs, profits, and balance-sheet metrics of the firm

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- Marketing and Branding Metrics- Marketing and Branding Metrics: These focus on

marketing communications and branding effectiveness.

- Implementation Metrics- Implementation Metrics: These focus on the

effectiveness of a company’s human resources program as well as its processes, organizational structure, systems (including information, incentives, and rewards), coordination mechanisms, culture and management style, and technology systems.

Components of the Performance Components of the Performance Dashboard (cont’d)Dashboard (cont’d)

8-17

- Customer Metrics– Customer Interface Metrics: Measures the

customer’s experience with the technology interface; that is, the customer’s response to the 7C’s of the interface.

– Customer Outcome Metrics: This captures output metrics such as overall costs of satisfaction, average order size, and customer profitability.

Components of the Performance Components of the Performance Dashboard (cont’d)Dashboard (cont’d)

8-18Exhibit 8-3: Life Cycle of a CompanyExhibit 8-3: Life Cycle of a Company

STARTUP/BETA

STARTUP/BETA

CUSTOMERACQUISITION

CUSTOMERACQUISITION MONETIZATIONMONETIZATION MATURITYMATURITY

Develop a platform for rapid growth by building a strong team and creating a flexible site.

Build market share as quickly as possible by aggressively spending on partnerships and promotion.

Increase revenues and customer lock-in by developing new revenue streams.

Control costs and optimize marketing expenditures to achieve profitable growth.

6 Months- 1 Year 1 Year - 2 Years 2 Years - 5 years > 5 Years

Strategy

* At time of writing (February 2001)

8-19Implementing the Performance DashboardImplementing the Performance Dashboard

• Step One: Articulate Business Strategy

• Step Two: Translate the Strategy into Desired Outcomes

• Step Three: Choose Metrics

• Step Four: Link Metrics to Leading and Lagging Indicators

• Step Five: Calculate Current and target Performance

8-20Exhibit 8-4: Blueprint for the Performance Exhibit 8-4: Blueprint for the Performance DashboardDashboard

Step One: Articulate business strategy

Step One: Articulate business strategy

Step Two: Translate

strategy into desired

outcomes

Step Two: Translate

strategy into desired

outcomes

Step Three: Choose metrics

Step Three: Choose metrics

Step Four: Link metrics

to leading and lagging

indicators

Step Four: Link metrics

to leading and lagging

indicators

Step Five: Calculate

current and target

performance

Step Five: Calculate

current and target

performance

Def

ine

goal

s an

d va

lue

prop

ositi

onD

efin

e go

als

and

valu

e pr

opos

ition

Market Opportunity• Opportunity size?• Competitive environment?

Market Opportunity• Opportunity size?• Competitive environment?

Customer• How to acquire customers?• How will customers change?• What is customer experience?

Customer• How to acquire customers?• How will customers change?• What is customer experience?

Marketing• How to develop brand?

Marketing• How to develop brand?

Implementation• How to go to market?

Implementation• How to go to market?

Market Opportunity• Market size and growth• Average age and income• Competitor concentration

Market Opportunity• Market size and growth• Average age and income• Competitor concentration

Customer• Market share• Purchases per year• Success rate• Service request frequency

Customer• Market share• Purchases per year• Success rate• Service request frequency

Marketing• Customer brand awareness

Marketing• Customer brand awareness

Implementation• System uptime percentage• Number of IT staff• Percent of inaccurate orders

Implementation• System uptime percentage• Number of IT staff• Percent of inaccurate orders

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step Two

•Ensure that targets are consistent

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step Two

•Ensure that targets are consistent

Business Model• Unique value proposition?• Capabilities vs. competition?

Business Model• Unique value proposition?• Capabilities vs. competition?

Business Model• Customer-perceived benefits• Exclusive partnerships• More invested in technology vs. competition

Business Model• Customer-perceived benefits• Exclusive partnerships• More invested in technology vs. competition

8-21Exhibit 8-5: Metrics for Seamless Exhibit 8-5: Metrics for Seamless Online / Offline Customer Purchase ProcessOnline / Offline Customer Purchase Process

–Awareness of online offering vs. offline offering

–Perceived benefits of Web vs. offline offering

–Available offering information online vs. offline

–Currency of information online vs. offline

–Security and privacy associated with purchasing online vs. offline

–Response time online vs. offline

–Customer loyalty and incentive programs online vs. offline

–Exchange policies online vs. offline

AWARENESSAWARENESS

KNOWLEDGEKNOWLEDGE

EVALUATION OF ALTERNATIVES

EVALUATION OF ALTERNATIVES

PURCHASEPURCHASE

SATISFACTIONSATISFACTION

LOYALTYLOYALTY

DISPOSALDISPOSAL

Pre

purc

hase

Po

stpu

rcha

seP

urch

ase

8-22Exhibit 8-6: Metrics for Seamless Internal Exhibit 8-6: Metrics for Seamless Internal Business Processes and OperationsBusiness Processes and Operations

–Ability to open accounts online and offline

–Ability to access accounts online and offline

–Integrated customer databasesInformation

SharingInformation

Sharing

FulfillmentSystems

FulfillmentSystems

–Seamless order processing

–Seamless order tracking

–Integrated inventory systems

8-23External Sources of Metrics InformationExternal Sources of Metrics Information

Firms are likely to track their value proposition versus competition, customer satisfaction with the site, site usability and financial outcomes.

Online Information:• Market Research: Online market research firms collect primarily

customer data through online surveys or customer submissions.

• Analyst Reports: Analyst reports are data sources that blend primary market data on a particular topic with an analyst’s view of the market.

• Financial Information: These data sources principally provide statutory filings of financial information on particular companies or aggregated financial data across industries. The data collected generally includes income statement, balance sheet and statement of cash flow information.

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Exhibit 8-7: BizRate—QVCExhibit 8-7: BizRate—QVC

8-25

Exhibit 8-8: ForresterExhibit 8-8: Forrester

8-26Exhibit 8-9: Mapping Internet Research Exhibit 8-9: Mapping Internet Research Onto the Performance DashboardOnto the Performance Dashboard

Market

Implementation

Customer

Financial

Market Research AnalystFinancial

Information

8-27Marketwatch.com Metrics ApplicationMarketwatch.com Metrics Application

- Step one: Articulate the Marketwatch.com Strategy

• Value proposition: “To be a leading Web-based provider of comprehensive, real-time business news, financial programming and analytic tools.”

• Marketwatch.com Offer: The aim is to deliver three key benefits to users: real-time information, comprehensive and in-depth analysis and tools and multimedia access.

• Resource System: Consists of three layers.a) Core benefits delivered to users as described in the

company’s offer.b) Capabilities that must be in place to deliver the core

benefits. c) The activities and resources that need to be retained to

deliver these capabilities.

8-28Exhibit 8-10: MarketWatch.com StrategyExhibit 8-10: MarketWatch.com Strategy

Personal Finance Process

Investor’s Primer IPO Basics Financial Glossary

Broker Decision Center

Datek Online Fidelity Investments National Discount Brokers Ameritrade DLJ Direct

Sharebuilder Payment Calculator Home Price Checker Best Credit Card Rates Insurance QuickQuote

Private Email People Watch Hot Discussions Weekly Poll

Market guide Hoover’s Online Multex Annual Reports Club INVESTools Over 250,000

Investment ResearchReports

Interactive Charting Historical Charts

Fund Profile Fund Charts

Market Monitor Major Indexes Dollar Volume

Leaders

BellwetherBonds Report

Futures Contracts After-Hours Futures

Key RateSnapshot

InternationalIndexes

Non-Us Stocks

Thom Calandra’s Stockwatch Bambi Francisco’s Net Sense Bezderick on Bonds eNewsletters

News Watch Email Alerts Real-time Headlines Marketwatch Live Esignal Hotstock Tracker

Contributions To:– CBS The Early Show– CBS Evening News– CBS Newspath

Contribution toWestwood RadioNetwork

LearnAbout

PersonalFinance

PlanInvestment

Strategy

Stay Updated onLatest News

DevelopInsight

PerformInvestment

TrackInvestments

Television Radio

Stocks

Funds

US Markets

Bonds

Global Markets

Futures and Options

Commentary

Third Party Sources

Tools

Community

Sponsorships by Online Brokerages

Online

Portfolio View Portfolio Analyzer Portfolio Allocation Portfolio Forecast

Breaking News

Market Figures

“To be a leading provider of comprehensive, real-time business news, financial programming, and

analytic tools.”

“To be a leading provider of comprehensive, real-time business news, financial programming, and

analytic tools.”

1. Value Proposition1. Value Proposition

2. Marketspace Offering2. Marketspace Offering

3. Resource System3. Resource System

8-29

Marketwatch.com Metrics(cont’d)Marketwatch.com Metrics(cont’d)

- Steps Two and Three: Translate Strategy into Outcomes and Metrics. An effective way is by asking key questions for each of the five categories.

• Market Opportunity:a) Is the opportunity significant?b) How intense is the competition?

• Business Model:a) How unique is the Markwetwatch.com value proposition

relative to competitors?b) Are the Marketwatch.com resources and Partnerships

significantly better than competition’s?c) How sustainable is the Marketwatch.com’s value

proposition relative to the competition’s?d) Will MarketWatch.com be able to maintain profitability?

8-30Exhibit 8-11: MarketWatch.com Desired Exhibit 8-11: MarketWatch.com Desired Outcome SummaryOutcome Summary

Customer Customer

Market Opportunity Market Opportunity

Business Model Business Model

Marketing and Branding Marketing and Branding

Implementation Implementation

Significant opportunity Moderate degree of

competition

Significant opportunity Moderate degree of

competition

Best-in-class IT infrastructure

Best-in-class IT infrastructure

Better brand awareness than competition

Better brand awareness than competition

User acquisition User online behavior User satisfaction and

loyalty

User acquisition User online behavior User satisfaction and

loyalty

Better value proposition than competitors

Better capabilities than competitors

Revenue and profit

Better value proposition than competitors

Better capabilities than competitors

Revenue and profitStrategyStrategy

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Marketwatch.com Metrics(cont’d)Marketwatch.com Metrics(cont’d)

• Marketing and Branding:

a) How effective and efficient is the Marketwatch.com’s marketing efforts at attracting new users?

b) How is the MarketWatch.com brand perceived in the market?

• Implementation:

a) Does Marketwatch.com have an infrastructure that enables it to reliably distribute financial content across multiple platforms?

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Marketwatch.com Metrics(cont’d)Marketwatch.com Metrics(cont’d)

• Customer: a) What is the perception of the online user experience?

a) How satisfied and loyal is the user base?

8-33

- Step Four: Link Metrics to leading and Lagging indicators.

• The fundamental question is “How do we link the metrics to each other?”

• Knowledge of this interrelation will help management understand which groups of leading indicators it needs to focus on in order to achieve its target performance on lagging indicators.

• A unique value proposition that is marketed successfully will lead to creation of a strong brand and high brand awareness among users. This will stimulate usage which will lead to an increase in ad revenue because there will be more users viewing more pages resulting in profitability.

Marketwatch.com Metrics(cont’d)Marketwatch.com Metrics(cont’d)

8-34Exhibit 8-12: Leading/Lagging Exhibit 8-12: Leading/Lagging Indicators for MarketWatch.comIndicators for MarketWatch.com

Market Opportunity

Market Opportunity

Business Model

Business Model

Implementation and Branding

Implementation and Branding

Customer Interface

Customer Interface FinancialFinancial

Competition underserving

market

Competition underserving

market

Unique value

proposition

Unique value

propositionBuild brandBuild brand Brand

awareness

Brand awareness

Attractive segments

that company can serve well

Attractive segments

that company can serve well

Attractive offering to

users

Attractive offering to

users

Develop improved offering to

users

Develop improved offering to

users

Satisfaction and loyalty

Satisfaction and loyalty

Leverage capabilities to deliver offering

Leverage capabilities to deliver offering

Invest in IT infrastructure

Invest in IT infrastructure

Optimized system costs

Optimized system costs

Ad revenueAd revenue

Other revenue sources

Other revenue sources

UsageUsage

ProfitProfit

System reliability

System reliability

8-35

- Step Five- Calculate Current and Target Performance.

• A successful strategy needs to be implemented by setting targets and taking actions to reach those targets.

• In many cases, the target performance is to become the best performer in a metric.

Marketwatch.com Metrics(cont’d)Marketwatch.com Metrics(cont’d)

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17

T a b le 9 -4 : M a rk e tW atc h .c o m - C u rren t a n d B es t-in -C las s (T a rg e t) M e tric s

a t Tw o T im e P o in ts

M a rk e tW a tc h V a lu e

M a rk e t P o s itio n

B e s t P e rfo rm e r M a rk e tW a tc h

V a lu e M a rk e t

P o s itio n B e s t P e rfo rm e r

U n iq u e V is ito rs (0 0 0 s )

3 ,6 98 1 N /A 3 ,7 24 1 N /A

R e a c h 4 .8 % 1 N /A 4 .7 % 1 N /A

A ve ra g e M in u te s S p e n t p e r U s a g e

8 .8 9 3 5 .6

(C N B C .co m ) 1 2 .6 9

2 8 .5 (C N B C .co m )

A ve ra g e U n iq u e P a g e s p e r V is ito r

7 .1 1 0 2 8 .9

(C N B C .co m ) 1 0 .4 7

2 3 .0 (m o ne y

ce n tra l.com )

M etr ic

S ep tem b er 2000 O cto b er 2000

S ource : M arke tW atch.com , M ed ia M e tr ix

8-37Exhibit 8-13: MarketWatch.com Exhibit 8-13: MarketWatch.com Best-in-Class MetricsBest-in-Class Metrics

Source: comScore Media Metrix

June 2002 MarketWatch

Value Market

Position Best Performer

Unique visitors (in thousands)

5,080 4 Yahoo Finance

Average daily

unique visitors (in thousands)

520 4 Yahoo Finance

Reach 4.3% 4 Yahoo Finance

Average minutes

spent per visitor per

day

4.1 17 Hoover’s webites

Average unique

pages per visitor per

day

3.3 15 Hoover’s websites