Performance Metrics - Duke Computer Science · Operations – quality of entire supply Postsale...
Transcript of Performance Metrics - Duke Computer Science · Operations – quality of entire supply Postsale...
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Performance MetricsPerformance Metrics
CPS 181sOct 30, 2001
MetricsMetricsMetricsAssessing the progress and health of their on-linebusinessesFinancial progress: sales, margins, profit, market shareStrategic metrics require entire examination of thecompany: perception of value proposition, marketplaceoffering, effectiveness of implementationPerformance Dashboard – five categories of theframework
opportunitybusiness modelbranding and implementationcustomer interface and outcomesfinancial metrics
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Metrics...Metrics...Metrics...
Senior and stock market analysts tend to have a biastoward financial metrics
providing history of the company in the marketplacedo not reflex the strategy of the company
Managers need early warning system – metricsBranding and implementation metrics focus on
supply-chain performanceorganizational dynamicsmarketing communication effectiveness – including branding
QuestionsQuestionsQuestions
Should senior managers be concerned aboutmetrics?
How can we assess the health of NewEconomy firms?
What are the steps to implement thePerformance Dashboard?
What are three sources of metrics informationthat firms can sue to chart their progress?
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Should Senior Managers beConcerned About Metrics?Should Senior Managers beShould Senior Managers beConcerned About Metrics?Concerned About Metrics?Organization metrics represent performance targets ofthe companyPercent increase in revenuePercent increase in unique visitorsLength of time visitors remain on siteCost of customer acquisitionMetrics valuable as employee reward or taking strategicactionChange processesChange strategyChange product strategies
Metrics Drive Behavior in aNumber of Ways
Metrics Drive Behavior in aMetrics Drive Behavior in aNumber of WaysNumber of Ways
Help define the business modelConcrete goals with precise measurementsFocusing on measurement can increase the precision of the valuepreposition
Help communicate strategyDocument performance targetsCommunicates strategy to workforceCreates buy-in to the metric-setting processes
Help track performanceInstantaneous feedback concerning site performance real-timeUsage, visitors, length of time on site, average sales, page views
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Metrics Drive Behavior in aNumber of Ways...
Metrics Drive Behavior in aMetrics Drive Behavior in aNumber of Ways...Number of Ways...
Help increase accountabilityMetrics must be linked to the performance appraisal systemIndividual performance can be appraisals tied to companywide,team-specific, and individual metricsSite usability can be tied to the interactive design functionCustomer service metrics can be tied t the customer servicedepartment
Help Align ObjectivesAlign precise objectives, departmental functional goals,companywide strategic activities as a whole
Current Challenges to SpecifyingMetrics for Online Businesses
Current Challenges to SpecifyingCurrent Challenges to SpecifyingMetrics for Online BusinessesMetrics for Online Businesses
Companies Strategies Change Rapidly – Internet timerequires rapid changeMeasurement is resource intensive
Setup and maintenance of capital intensive/human resourceintensive systems and proceduresData capture, data mining, and information use require time andcommitment of senior executives
Online measurement systems are vulnerable – easy tomanipulate final results
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Current Challenges to SpecifyingMetrics for Online Businesses...
Current Challenges to SpecifyingCurrent Challenges to SpecifyingMetrics for Online Businesses...Metrics for Online Businesses...
Soft metrics are not valued by the investment communityInvestment community looks at revenues, margins, number ofvisitors, length of time on site, customer acquisition costsBut, ease of customer use, best value perception, and other marketresearch measures are frequently early warning indicators of siteperformanceMeaningful metrics change on Internet time – often as quickly asthe time it takes to learn best how to interpret the retained originaldata
How Can We Assess the Healthof e-Commerce Firms?...
How Can We Assess the HealthHow Can We Assess the Healthof e-Commerce Firms?...of e-Commerce Firms?...
The Balanced ScorecardIntroduced by Kaplan and NortonFinance balanced by other domains of the businessIncludes internal business processes and customer responsesFour categories of financial, customer, internal businesssystems, learning and growth
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The Balanced Scorecard - Strategy Into Operational TermsThe Balanced Scorecard - Strategy Into Operational TermsThe Balanced Scorecard - Strategy Into Operational Terms
FINANCIAL
To succeed financially, howshould we appear to our
shareholders?
INTERNAL BUSINESSPROCESS
To satisfy our shareholders andcustomers, what businesses
must we excel at?
CUSTOMER
To succeed financially, howshould we appear to our
shareholders?
LEARNING AND GROWTH
To succeed financially, howshould we appear to our
shareholders?
Visionand
Strategy
Source: Kaplan, Robert S. and David P. Norton. 1996. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review 74 (January-February): 76.
Financial and CustomerMetrics
Financial and CustomerFinancial and CustomerMetricsMetrics
Financial MetricsRevenue, revenue growth, gross margins, operating income,net margin, earnings per share, cash flowReflect recent planning period , to some degree all previousplanning periods
Customer MetricsManagement relationship of customers by the firmMarket shareCustomer acquisitionCustomer satisfactionCustomer profitabilityCustomized by the target segment
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Internal Business ProcessMetrics
Internal Business ProcessInternal Business ProcessMetricsMetrics
Internal Business Process MetricsInnovation includes customer’s perception ofinnovativeness of the companyOperations – quality of entire supplyPostsale service – quality being offered tocustomer
Learning and Growth MetricsLearning and Growth MetricsLearning and Growth Metrics
Employee, information systems, innovationLimitations to the Balanced Scorecard in the NewEconomyNo clear definition of strategy or business modelsUnclear location of organizational capabilities orresources in frameworkUnclear where partnerships reside in framework
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The Performance Dashboardand Strategy Framework
The Performance DashboardThe Performance Dashboardand Strategy Frameworkand Strategy Framework
The Performance Dashboard - intended to reflect thehealth of the businessThe Strategy Framework Drives the Necessary Metrics
Utilized the strategy framework to derive necessary metricsSix critical steps
> opportunity assessment> business-model metrics> customer-interface design> market communications and branding> implementations> evaluation
Introducing the Performance DashboardIntroducing the Performance DashboardIntroducing the Performance Dashboard
FinancialMetrics
FinancialMetrics
Steps of Strategy:
Customer InterfaceCustomer Interface Implementation and Branding
Implementation and Branding
PerformanceDashboard:
AreasAddressed:
Size of marketopportunity
Attractiveness oftarget segments
Competitivelandscape
Customer acquisition
Changes in customerbehavior
Site experience andusability
Branding
Technologyinfrastructure
Internal organization
Relationship withsuppliers andpartners
Fulfillment capability
Revenue
Profit
Cost
Balance sheet
Market OpportunityAssessment
Market OpportunityAssessment Business ModelBusiness Model
Implementation & Branding
Metrics
Implementation & Branding
Metrics
CustomerInterface &
Outcome Metrics
CustomerInterface &
Outcome Metrics
Business ModelMetrics
Business ModelMetrics
OpportunityMetrics
OpportunityMetrics
Uniqueness of valueproposition
Attractiveness ofoffering
Firm capabilitiesrelative tocompetition
Sustainability ofcompetitive position
EvaluationEvaluation
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Capabilities and PartnershipsCapabilities and PartnershipsCapabilities and Partnerships
Capabilities are Featured in theResource System of the BusinessModelPartnerships are Featured in theResource System of the BusinessModel
Components of thePerformance Dashboard
Components of theComponents of thePerformance DashboardPerformance Dashboard
Opportunity MetricsAbility to discern unfulfilled needs in the market place is criticalMarket-opportunity metrics asses the degree to which the firmcan accurately gauge the market opportunity
Business-model MetricsCapture subcomponents of the business model: egg diagram,resource systems, financial metricsValue Proposition or Cluster Benefits Metrics
> target segments, benefits offered, capabiliti4s that drive benefits> focus on customer’s perceptions> performance relative to the competitor’s benefits
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Marketspace-Offering MetricsMarketspace-Offering MetricsMarketspace-Offering Metrics
Capture all phases of the customer decision processCapture features and attributes of the offering
PrepurchasePurchasePostpurchase
Offering metrics focus on nuts-and-bolts features,attributes, and functionality of the site
Customer evaluationsFAQ’sMember specials
Marketspace-Offering MetricsMarketspace-Offering MetricsMarketspace-Offering Metrics
Resource-system metricsBenefits offered to customersTrack performance on themost critical capabilities andassociated activities
Financial-model metrics
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Customer-Interface MetricsCustomer-Interface MetricsCustomer-Interface Metrics
Customer-interface and customer-outcome metricsCustomer’s perception of the firm’s performance oneach level of the 7 C’s of the customer interface
Example: customer’s rating of customization compared tocompetitors’
Other critical interface metricsIncluding value proposition
Customer-Outcome MetricsCustomer-Outcome MetricsCustomer-Outcome Metrics
Capture process measures that the firm will producefavorable customer responses such as satisfactionand loyaltyFocus on subjective customer-outcome metrics
satisfactionlength of stay at site (stickiness)overall evaluation of the experience
Focus on objective customer-outcome metricscustomer acquisition costsaverage order sizecustomer profitabilitynumber of visits per month
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Branding and ImplementationMetrics
Branding and ImplementationBranding and ImplementationMetricsMetrics
Focus on the supply-chain performance,organizational dynamics, marketingcommunication effectiveness (includingbranding)Fulfillment of the brand process metrics:customer awareness of the brandInnovation metrics: ability to rapidly innovate,even if in a potentially discontinuous fashion
Financial MetricsFinancial MetricsFinancial Metrics
RevenuesCostsProfitsBalance–sheet metrics
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POV: Bill Gurley on the Power ofConversion Rates
POV: Bill Gurley on the Power ofPOV: Bill Gurley on the Power ofConversion RatesConversion Rates
Conversion Rate 2% 4% 8%
Advertising Spend 10,000$ 10,000$ 10,000$
Visitors 5000 5000 5000
Transactions 100 200 400
Cost/Transaction 100$ 50$ 25$
Revenue 10,000$ 20,000$ 40,000$
Marketing/Revenue (%) 100% 50% 25%
Average transaction size = $100 Source: J William Gurley
Source: Gurley, J. William. 2000. The Most Powerful Metric of All. CNET News.com, 21 February. URL: http://www.news.com/Perspectives/Column/0,176,403,00/html?tag=st.ne.
Life Cycle of a CompanyLife Cycle of a CompanyLife Cycle of a Company
Four stages of development of the life cycle of acompany
Startup/Beta – emphasis on market opportunity metricsCustomer accusation – emphasis on customer acquisitionand financialMonetizationMaturity – customer retention and cost control
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Life Cycle of a CompanyLife Cycle of a CompanyLife Cycle of a Company
STARTUP/BETA
STARTUP/BETA
CUSTOMERACQUISITION
CUSTOMERACQUISITION MONETIZATIONMONETIZATION MATURITYMATURITY
Develop aplatform for rapidgrowth bybuilding a strongteam andcreating a flexiblesite.
Build marketshare as quicklyas possible byaggressivelyspending onpartnerships andpromotion.
Increaserevenues andcustomer lock-inby developingnew revenuestreams.
Control costs andoptimizemarketingexpenditures toachieve profitablegrowth.
6 Months- 1 Year 1 Year - 2 Years 2 Years - 5 years > 5 Years
Strategy
Business.comTNBT.com
mValue.comPaypal.comEvite.com
Yahoo.comAmazon.com
SchwabAOL
Examples*
* At time of writing (3/2000)
What are the Steps to Implementthe Performance Dashboards?
What are the Steps to ImplementWhat are the Steps to Implementthe Performance Dashboards?the Performance Dashboards?
Step One: articulate business strategymarket opportunity assessmentbusiness modelcustomer-interface designbrandingimplementationevaluation
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Steps Two and ThreeSteps Two and ThreeSteps Two and Three
Step Two: translate strategy into desired outcomesnot settling target levels but specifying outcomes
Step Three: devise metricsidentifies specific metrics that reflect the desiredoutcomeslook-to-book ratios
Steps Four and FiveSteps Four and FiveSteps Four and Five
Step Four: link metrics to leading and laggingindicators
map entire set of indicatorsincluding focal and leading indicators
Step Five: calculate current and target performancecurrent conversion rtesadvertising expendituresdegree of positive word of mouth
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Blueprint to the Performance DashboardBlueprint to the Performance DashboardBlueprint to the Performance DashboardStep One:ArticulateBusinessStrategy
Step One:ArticulateBusinessStrategy
Step Two:Translate
Strategy IntoDesired
Outcomes
Step Two:Translate
Strategy IntoDesired
Outcomes
Step Three:DeviseMetrics
Step Three:DeviseMetrics
Step Four:Link MetricsTo Leading
And LaggingIndicators
Step Four:Link MetricsTo Leading
And LaggingIndicators
Step Five:Calculate
Current AndTarget
Performance
Step Five:Calculate
Current AndTarget
Performance
Def
ine
goal
s an
d va
lue
prop
ositi
onD
efin
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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?•The customer experience?
Customer•How to acquire customers?•How will customers change?•The customer experience?
Implementation andBranding
•How to develop brand?•How to go to market?
Implementation andBranding
•How to develop brand?•How to go to market?
Financial•Financial consequences interms of revenue, profit, costand balance sheet?
Financial•Financial consequences interms of revenue, profit, costand balance sheet?
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 / year•Success rate•Service requests / customer
Customer•Market share•Purchases / year•Success rate•Service requests / customer
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio
Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio
•For each metric,determine themetrics that it affectsand that affect it
•Map the linked set ofmetrics, indicatingleading and laggingindicators
•Ensure that there is abalance betweenleading and laggingindicators
•For each metric,determine themetrics that it affectsand that affect it
•Map the linked set ofmetrics, indicatingleading and laggingindicators
•Ensure that there is abalance betweenleading and laggingindicators
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 currentlevel of performance
•Determine targetlevel required tomeet outcomesdescribed in Step 2
•Ensure that targetsare consistent witheach other
•For each metric,calculate currentlevel of performance
•Determine targetlevel required tomeet outcomesdescribed in Step 2
•Ensure that targetsare consistent witheach other
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vscompetition
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vscompetition
What are the Three Sources ofMetrics Information That Firms Can
Use to Chart Their Progress?
What are the Three Sources ofWhat are the Three Sources ofMetrics Information That Firms CanMetrics Information That Firms Can
Use to Chart Their Progress?Use to Chart Their Progress?
Industry standardMetricsBenchmark values
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Online InformationOnline InformationOnline Information
Market research – primary customer dataAnalysts reports – blending market dataFinancial information – income statement, balance sheet,statement of cash flowUse of Bizrate – use of dimensions of serviceUse of Forrester Reports – e-commerce reports –competitors, consumers, technology evolution in a segmentof the industryUse of Hoover’s Online – financial and market information forboth online and offline companies
U.S. Top 25 Web & Digital Media Properties (March 2000)U.S. Top 25 Web & Digital Media Properties (March 2000)U.S. Top 25 Web & Digital Media Properties (March 2000)
Source: Media Metrix (www.mediametrix.com/usa/press/releases/20000424.jsp) March 31, 2000
Rank Digital Media/Web Unique Visitors (000)1 AOL Network 59,8582 Yahoo Sites 48,3363 Microsoft Sites 46,5814 Lycos 32,8995 Excite @ Home 28,5716 Go Network 23,0067 NBC Internet 17,1698 Amazon 15,2179 Time Warner Online 13,63610 Real.com Network 13,48211 Go2Net Network 13,04112 AltaVista Network 12,55713 About.com Sites 12,32914 Ask Jeeves 12,26915 eBay 11,15516 LookSmart 10,55717 ZDNet Sites 10,22618 CNET Networks 10,02319 eUniverse Network 9,19820 JUNO/JUNO.COM 9,17721 EarthLink 8,52622 Infospace Impressions 8,30523 Viacom Online 8,13924 FortuneCity Network 7,80925 CitySearch-TicketMaster
Online7,689
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Market Research Source - Bizrate.comMarket Research Source - Bizrate.comMarket Research Source - Bizrate.com
Analyst Source - ForresterAnalyst Source - ForresterAnalyst Source - Forrester
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Financial Information Source - Hoovers OnlineFinancial Information Source - Hoovers OnlineFinancial Information Source - Hoovers Online
POINT-COUNTERPOINT
Off-Line Research On-Line Research
Advantages
• Allows richer interactions, such as focus groupsand in-depth phone interviews
• Can address an unbiased group of respondents- does not only address on-line respondents
Disadvantages• Labor and time intensive - questions asked in
person by telephone or by filling out surveys
• Data collection is costly and not scalable - verydifficult to conduct extensive survey at the pointof purchase
• Data must be entered for analysis – resourceintensive process, subject to human error
• Cannot measure people’s behavior – onlyopinions
• Only allows for low or highly costly interactivity -interactivity requires highly trained phoneinterviewers
Advantages
• Fixed cost with almost no variable cost andhence is highly scalable
• Automatic data entry, eliminating unnecessarylabor, cost and potential for human error
• Easy-to-conduct point of purchase research
• Can ensure higher level of data completenessand accuracy by performing automatic error andgap checks
Disadvantages
• Selection bias for people with Internet access
• Concerns over privacy, since many users arenot aware of how their data can or will be used
Which is Better? Online or Off-line Data SourcesWhich is Better? Online or Off-line Data SourcesWhich is Better? Online or Off-line Data Sources
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POINT-COUNTERPOINT
User-Based Research Content Expert-Based Research Content
• Users buy, use and rate often, keeping reviewsup to date
• Extensive customer base reaches and rates asignificantly larger number of sites than limitedgroup of experts
• Users tend to trust the opinion of other usersmore than the opinion of experts
• Bias may be introduced because users aremost likely to complete a survey if they have astrongly positive or negative opinion
• Can analyze all aspects of interface experience,including features that users might be unawareof
• Consistent rating scheme, ensuring that samecriteria are enforced when comparing betweenweb sites
Which is Better? User-Based or Expert-BasedResearch Content
Which is Better? User-Based or Expert-BasedWhich is Better? User-Based or Expert-BasedResearch ContentResearch Content
Mapping Internet Research ontothe Performance Dashboard
Mapping Internet Research ontoMapping Internet Research ontothe Performance Dashboardthe Performance Dashboard
Data sources tend to specialize on different types of dataMedia Metrix and ACNielsen emphasize marketinformation and trafficCustomer purchase process
Prepurchase> awareness> knowledge> evaluation of alternatives
PurchasePost purchase
> satisfaction> loyalty> disposal
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Mapping Internet Research Onto The Performance DashboardMapping Internet Research Onto The Performance Dashboard
MediaMetrix
ACNielsen
BizRate Forrester Gomez Jupiter CreativeGood
Hoovers
Market Info
Traffic
Fulfillment
Implemen-tation
Privacy
Usability
Content
CustomerSatisfaction
CustomerService
FinancialPerformance
Market
Implementation
Customer
Financial
Market Research AnalystFinancial
Information
Metrics for Seamless On-line/Off-line Customer Purchase ProcessMetrics for Seamless On-line/Off-line Customer Purchase ProcessMetrics for Seamless On-line/Off-line Customer Purchase ProcessAwareness of off-line offer vs awareness ofon-line offer
Perceived benefits of web vs off-line offer
InformationAvailable offering information on-line vs off-lineCurrency of information on-line vs off-line
Security and privacy associated with purchasing
Customer serviceResponse time on-line vs off-line
Customer loyalty incentive programs on-line vsoff-line
Exchange policies on-line vs off-line
AWARENESSAWARENESS
KNOWLEDGEKNOWLEDGE
EVALUATION OF ALTERNATIVES
EVALUATION OF ALTERNATIVES
PURCHASEPURCHASE
SATISFACTIONSATISFACTION
LOYALTYLOYALTY
DISPOSALDISPOSAL
Pre
-Pur
chas
eP
ost-
Pur
chas
eP
urch
ase
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Seamless Internal BusinessProcesses and Operations
Seamless Internal BusinessSeamless Internal BusinessProcesses and OperationsProcesses and Operations
Ability to perform internal processes and operations,regardless of interacting within the companyWhether a customer is interacting through its online oroffline channelInformation sharingFulfillment systems
Metrics for Seamless Internal BusinessProcesses and Operations
Metrics for Seamless Internal BusinessMetrics for Seamless Internal BusinessProcesses and OperationsProcesses and Operations
Ability to open accounts on-line and off-line
Ability to access accounts on-line andoff-line
Integrated customer databases
InformationSharing
InformationSharing
FulfillmentSystems
FulfillmentSystems
Seamless order processing
Seamless order tracking
Integrated inventory keeping
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Step One: Articulate SchwabStrategy
Step One: Articulate SchwabStep One: Articulate SchwabStrategyStrategy
Value propositionSchwab’s OfferResource system – three layers
Benefits delivered to customersCapabilities in place to deliver functionalityResources need to be retained to deliver thee capabilities
Steps Two and Three: TranslateStrategy into Outcomes and Metrics
Steps Two and Three: TranslateSteps Two and Three: TranslateStrategy into Outcomes and MetricsStrategy into Outcomes and Metrics
Market opportunityIs the market opportunity significant? – desired outcome #1 – locate asignificant market opportunity in the financial services industry
Metrics to track:discount brokerage firms share of total retail brokerage fundspercentage growth rat of discount brokerage fundsIs the target segment financially attractive? – desired outcome #2locate financially attractiveness target segment(s) within the financialservices industry
Metrics to track:medium to high-net-worth individuals in segmentpercent of customers in target segment versus other segmentspercent of target customers with Internet access
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Competition in the SegmentCompetition in the SegmentCompetition in the Segment
How intense is the competition in thesegment? – desired outcome – locatecompetitively attractive segmentMetrics to track:
Schwab market share relative to competitionrate of competitors entry and exit in the market
Charles Schwab -- Customer Acquisition StageStep 1: Articulate the Business Strategy
Charles Schwab -- Customer Acquisition StageCharles Schwab -- Customer Acquisition StageStep 1:Step 1: Articulate the Business Strategy Articulate the Business Strategy
“Use technology to offer innovativeproducts and superior service atlower prices to investors unwilling topay for investment advice”
Schwab Learning CenterLive EventsPrinciples of InvestingUnderstanding MarketCycles“Did You Know” Q&A
Schwab SignatureServicesSchwab AdvisorSourceOptions ServiceGlobal InvestingService
Online chat with CustomerService RepresentativesCustomer Service via phoneCustomer Service via emailCustomer Service at BranchMy Watch List
Margin LoansMoney TransfersAutomaticInvestingOptions ServiceAfter HoursTradingAccountProtectionBill Payment
OverallGeneral GoalPlannerInvestor ProfileSampleInvestmentPlans
RetirementRetirementPlannerIRA Analyzer
Product Offering
On-Line Investment Process
Get educatedabout
investing
Planinvestments
Decide onInvestment
PerformInvestment
Post InvestmentSupport
PerformResearch
EstateEstate Tax andProbate CalculatorAlternativesComparison
CollegeCollege Planner
TaxTax StrategiesIRS WithholdingCalculator
OverallQuotes and ChartsAnalyst Center
Stocks and OptionsStock Analyzer
Bonds and TreasuriesSchwab BondSourceServices
CDs and Money MarketsSchwabOne
AnnuitiesSchwab SelectAnnuity
Life InsuranceInsurance NeedsCalculator
1. ValueProposition
2. MarketspaceOffering
High quality Investment Information
High quality Investment Information
Innovative productsInnovative products
Low priceLow price
Technology LeadershipTechnology Leadership
Superior serviceSuperior service
3. ResourceSystem
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Business ModelBusiness ModelBusiness ModelHow is the Schwab value proposition perceived versuscompetition? – desired outcome #4 Schwab value propositionoutperforming competitionMetrics to track:
number of competitors offering any combination ofSchwab’s benefitscustomers’ perceptions of Schwab’s performance on the four criticalbenefits versus the competition
Is the Schwab offer perceived as more attractive versuscompetition? – desired outcome – Schwab offer perceived asmore attractive than competitionMetrics to track:
importance to target customer of innovative products, high-qualityinformation, service, and low priceextent to which customer perceived that Schwab was outperformingcompetition on the stage of the customer decision process (inner ringof the egg diagram)extent to which the sites product, services, and information wereviewed as superior to the competition (outer ring of egg diagram)
Capabilities and PartnershipsCapabilities and PartnershipsCapabilities and Partnerships
Are Schwab’s firm capabilities and partnershipssignificantly better when compared to competition? –desired outcome #6: market street perceives Schwab’scapabilities and partnerships superior to competitionMetrics to track:
dollar invested in technology relative to competitioncustomer brand awareness relative to competitionnumber of distribution channels relative to competitionnumber of strategic alliances (and associate customer base)relative to competition
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Value Proposition Relative toCompetition
Value Proposition Relative toValue Proposition Relative toCompetitionCompetition
How sustainable is Schwab’s value proposition relativeto competition? – desired outcome – factors that drivesustainability are in excellent condition
increased branchesincreased partnershipsexpand into international markets
Metrics to track:exclusivity and length of partnershipsnumber and remaining duration of patents held for offeredproducts and servicesaverage switching cost for customers
Branding and ImplementationBranding and ImplementationBranding and ImplementationHow is the Schwab brand perceived in the market? – desiredoutcome #8: Schwab maintains best brand associations andequity in financial services industryMetrics to track:
customer-unprompted brand awarenesscustomer associations with the Schwab brandcustomer perceptions of Schwab brand in online investing (versuscompetition)
Does Schwab have the “best of class” in IT infrastructure? –desired outcome #9: to process the “best of class” ITinfrastructure.Metrics to track:
trade capacity to volume rationumber of possible simultaneous Web sessions that the system canhandleuptime of system (versus competition)cut-over time (time to route information between mainframes)
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Branding andImplementation...
Branding andBranding andImplementation...Implementation...
Does Schwab have the best organization in place? –desired outcome #10: ability to deliver on the brandpromise versus competitionMetrics to watch:
number of branchesaverage number of staff per branchnumber of hours of training per year per salespersonaverage time to respond to and resolve problempercent of time order not fulfilled or fulfilled inaccurately
Customer Interface and OutcomesCustomer Interface and OutcomesCustomer Interface and OutcomesHow effective and efficient is Schwab’s new customeracquisition? – desired outcome #11: lower customeracquisition costs versus competitionMetrics to track:
customer acquisition costdollars spent on marketing (percent online and offline)number of new accounts openedcustomer churn rate
Can Schwab Transition Customers Online? – desiredoutcome #12: seamless transition of customer base fromoffline to online tradingMetrics to track:
average user account balancenumber of trades per year per customertotal assets in online an offline accountspercent of Schwab customers online and offline
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Customer Interface andOutcomes...
Customer Interface andCustomer Interface andOutcomes...Outcomes...
What is the perception of the online customer experience?– desired outcome #13: Schwab will outperform thecompetition on interface and usability metricsMetrics to track:
original impression - customer evaluation of the 7Cs versuscompetitionsite usability metrics – goal-based success rateconversion ratenumber of occurrences of critical failuresservice recover metricsnumber of service requests per user – percentage of users wholeave the site before requesting service
Customer Interface andOutcomes...
Customer Interface andCustomer Interface andOutcomes...Outcomes...
How satisfied and loyal is the customer base versuscompetition? – desired outcome #14: maintain thehighest customer satisfaction and loyalty scores inthe industryMetrics to track:
overall customer satisfaction relative to competition as wellas a number of key attributes including quality of information,price, reliability, quality of servicepercentage of users in frequent trader programs
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FinancialFinancialFinancialAre we outperforming competition in Financial Metrics thatmatter in the Financial Service Industry? – desired outcome#15: Schwab outperformed competition on both top-line(revenue growth) and bottom-line (net or operating profit)measures of financial performanceMetrics to track:
revenue - total revenue and revenue growth, revenue breakdownby offering, total transaction volumeprofit – total profit and profit growth, profit breakdown, earnings pershare and growthcost – total cost, cost breakdown by department, cost pertransactionbalance sheet – debt to equity ratio, corporate credit rating, totalmargin loans, margin loans spread
Management must be able to track all relevant business-model metrics
Schwab Desired Outcome SummarySchwab Desired Outcome SummarySchwab Desired Outcome SummaryMARKET OPPORTUNITY
•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment
BUSINESS MODEL
•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition
CUSTOMER INTERFACE &OUTCOMES
•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition onInterface Perceptions
•Customer Satisfaction & Loyalty
IMPLEMENTATION &BRANDING
•Brand Associations vs.Competition•Best-in-class IT Infrastructure•Ability to Deliver Brand Promise
FINANCIAL EVALUATION
•Revenue•Profit•Cost•Balance Sheet
BusinessModel
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Step Four: Link Metrics to Leadingand Lagging Indicators
Step Four: Link Metrics to LeadingStep Four: Link Metrics to Leadingand Lagging Indicatorsand Lagging Indicators
Knowledge of the leading and lagging indicators willhelp management understand which groups ofleading indicators it needs to focus on in order toachieve its target performance on lagging indicatorsMetrics to avoid crowded markets and target attractivesegments increase the probability that Schwab willprovide unique value proposition
Charles Schwab -- Customer Acquisition StageCharles Schwab -- Customer Acquisition StageCharles Schwab -- Customer Acquisition Stage
BusinessModel
BusinessModel
Implementation& Branding
Implementation& Branding CustomerCustomer FinancialFinancial
Buildbrand
Buildbrand
Increasesystemuptime
Increasesystemuptime
Trainbranch
staff
Trainbranch
staff
Improvecustomerservice
Improvecustomerservice
Increasecustomer
loyalty
Increasecustomer
loyalty
Increaseprofit
Increaseprofit
Optimizecost
Optimizecost
Increaserevenue
Increaserevenue
Investin
technology
Investin
technology
Increasenumber of
IT staff
Increasenumber of
IT staff
Increasecustomer
satisfaction
Increasecustomer
satisfaction
Increaseusage
Increaseusage
Acquirenew
customers
Acquirenew
customers
MarketOpportunity
MarketOpportunity
Avoidcrowdedmarkets
Avoidcrowdedmarkets
Play inattractivemarket
Play inattractivemarket
Targetattractivesegments
Targetattractivesegments
Leveragecapabilitiesto deliveroffering
Leveragecapabilitiesto deliveroffering
Provideunique VP
Provideunique VP
Provideattractiveoffering
Provideattractiveoffering
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Charles Schwab -- Customer Acquisition Stage Current and Target Levels for Select MetricsCharles Schwab -- Customer Acquisition Stage Current and Target Levels for Select Metrics
Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$
Revenue growth 24% 10%
Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate
Revenue breakdownTrading 62%Non-Trading 38%
Trading 59%Non-Trading 41%
An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues
Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume
Average fee per trade 64.27$ $51.41
1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%
Profit
Post tax proft margin 19.50% 19.50%
Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs
Pre tax profit growth 14% 10%Profit breakdown
Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution
Earnings per share growth 14% 8%Non-Traditional Metrics * 13-Mar-00
Advice and Market Info 9.29Customer Service 9.84
8.83Transacting 10.81
9.7511.4459.95Overall
Features
UsabilityValue
*Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard BusinessSchool Publishing.
Step Five: Calculate Currentand Target Performance
Step Five: Calculate CurrentStep Five: Calculate Currentand Target Performanceand Target Performance
Strategy needs to be implemented bysetting targets and by taking actions toreach these targets
Management may have to move down onemore level to leading indicators