Session 12

VERY IMPORTANT SESSION….KNOW WELL…..

Dr. Mona L. Sabuco, MBA

 Performance Management & Metrics
Objectives
 Gain an understanding of PM and
Shareholder Wealth Creation
 Continue to build a tool kit of items
that will be helpful for you in your
career development for PM
 Continue to work on your PM PLAN
project due in Session 15
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Check List & Due Dates:
End of 12th Session Week
 Reading Assignment
• PM –Part 8 - Chapter 27, 28 and 29
• BD – #41 Twitter
 Discussion Submitted
 Journal Worked On
 Article Due: Locate a current article on
ANY topic in the reading assignment. Provide
a 1-3 slide PPT on: Key Area's of the article,
Relevance to PM – how would you apply what
you learned from the article to your firm;
References –if applicable
 Part 8:
 The three most important things you need to measure in a business are
customer satisfaction, employee moreale, and cash flow. If you are growing
customer satisfaction, your global market share is sure to grow. Employee
satisfaction gets you productivity, quality, pride and creativity. Cash flow is
the pulse – the vital sign of life in a company.
 Jack Welch, CEO (retired), General Electric Inc.

• Chapter 27
• Chapter 28
• Chapter 29
• #41 Twitter
VERY IMPORTANT PART….KNOW ALL WELL…..
NOTE: For the duration of the class PM
will mean Performance Management

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 Chapter 27 – VERY IMPORTANT CHAPTER
Can PM Accomplish what Einstein Could Not?

 PM in commercial organizations has its own HUGE intellectual

challenge….that of reconciling customer value improvements with
shareholder value creation.
 Important to follow this logic: Value is ambiguous, relative term.
Hypothetically, firms can increase customer satisfaction (here they say
“satisfaction” is the same as “value perceived to the customer”…I am
not sure that is true. What do you think?) by adding additional product
features or service offerings. BUT if they do not raise prices, increase
their market share, or grow the market, then they may have increased
value to existing customers but will have destroyed their shareholder’s
wealth.
 Economic value from shareholders view can be seen in 2 ways….1. the
MACRO level (by the finance function) or 2. the MICRO level (by the
marketing and sales functions)

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 Chapter 27 - VERY IMPORTANT CHAPTER
Can PM Accomplish what Einstein Could Not?

 1. the MACRO level (by the finance function)

• Book says to look at ROI as the key measurement to view economic value. Today, in the
information age, there are intangible measurements that also need to be understood.
Think of UBER’s business model…is ROI important? What about companies that are B-
Corp (if you don’t know what this is, look it up…it is something you need to know well as
many companies are moving there.

 2. the MICRO level (by the marketing and sales functions)

• Book says that looking at the customer is key here. Having a CRM might help in
describing the equation that shows the economic value of a firm. In addition, a new focus
is on keeping the customer coming back…so measuring the value of a customer TODAY vs
TOMORROW or 10 years from now help to develop the appropriate customer strategy.

 For PM, you must understand how your Finance/Sales/Marketing

defines their economic value to determine what needs to be measured
and controlled via PM. Without the holistic understanding of business,
your PM will be worthless as it will not be measuring the key
performance indicators that drive the business.

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 Chapter 27 - VERY IMPORTANT CHAPTER
Can PM Accomplish what Einstein Could Not?

 Firms no longer drive to grow sales but to grow them PROFITABILY.

They look to 2 connected factors:
• 1. If they could accurately measure the current profit contribution from their different
types of existing customers, AND
• 2. If they could reliably predict and calculate the potential long-term stream of revenues
and expenses from customers, THEN
• 3. Companies would view existing customers with an additional factor
 The result would be that companies could be able to segment for
differentiation service-level treatment strategies (support, self-service,
loyalty and retention programs for example) and targeted more
appropriately for up-sell and cross-sell opportunities
 Firms would be more prudent about which types of NEW customers to
acquire via marketing (note: marketing costs are usually very high so
to be more accurate would reduce marketing budgets and thereby help
increase the bottom line)

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 Chapter 27 - VERY IMPORTANT CHAPTER
Can PM Accomplish what Einstein Could Not?

 Important to know: Analytical tools, such as customer segmentation,

forecasting, and activity based costing for calculating customer
segmentation exist today. They are needed to reduce internal debates
and fights over budget dollars and must be used for making trade-off
decisions to analyze customers.
 Further, a firm’s executive team MUST navigate shareholder wealth
creation based on FACTS and not hunches and intuition. This is why
knowing what to measure is so critical and it MUST be well understood
prior to building a tool to capture and monitor…
 In short, “Data is data but Data to Information is value….”(mls)

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 Chapter 27 - VERY IMPORTANT CHAPTER
Can PM Accomplish what Einstein Could Not?

 Discussion Discussion &

Assignments
• Slide 3: How do you think a company might reconcile
customer value improvement with shareholder value
creation? What does that look like? How would PM begin
to manage that?
VERY
• Slide 4: Do you agree with the logic shown in the second IMPORTANT
bullet point of this slide? Also, finance is about ROI…but is DISCUSSION
AND
there other measurements that might also work? ASSIGNMENT
• Slide 6: How would PM play in this all? ACTIVITY…A
MUST DO
 Assignment – Not to be turned in…
• Take the equation in slide 6 and try to see if you can think
of 3-5 sources of data that you might go after within a
company to provide you enough to “solve” this equation
for the unique firm.

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 Chapter 28 - VERY IMPORTANT CHAPTER
Why do Capital Market Organizations
Underachieve their planned ROI?
 Acquiring firms are called Capital Market Firms and their ultimate
financial gain is realized from buy-sell spread when they divest each
investment. Research shows that less than half achieve their
targeted ROI…why?
 Important to know: Reaching true economic value from M&A
(mergers and acquisitions) is a “high juggling act”.
 Lots of things need to be executed to maximize the potential
economic value.
 See next slide: There are 5 value-capture categories that EACH
contribute to lifting the shareholder value from a firm’s initial
conditions.

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 Chapter 28 - VERY IMPORTANT CHAPTER
Why do Capital Market Organizations
Underachieve their planned ROI?
 Exhibit 28.1 shows 5 categories where “lift” may come but most
think it will come from Operating Expense savings only.

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 Chapter 28 - VERY IMPORTANT CHAPTER
Why do Capital Market Organizations
Underachieve their planned ROI?
 How can PM methodologies unlock potential value?
 PM is about the integration of multiple managerial methodologies
(CRM, LS, balanced scorecard as examples) with an emphasis on
analytics of all flavors – particularly risk management and predictive
analytics
 True PM deploys the power of business intelligence (BI) to enable
decision-making using multiple tools
 To achieve superior results, executive leaders MUST exhibit vision
and inspiration…that is what the workforce responds to…

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 Chapter 28 - VERY IMPORTANT CHAPTER
Why do Capital Market Organizations
Underachieve their planned ROI?
 PM has interdependency across all the 5 categories of value-capture
but some are more predominate in certain places
 1. Integration strategy and management: Main one here is HCM or
Human Capital Management - employee selection and retention
system to reduce turnover and select the right person for the job.
This is CRITICAL in the current work environment
 2. Revenue Growth: Several PM systems help here:
• A. Enterprise Risk Management Systems
• B. Business Strategy Management and Execution – Balanced scorecard
 Integration of: Strategy Maps, Scorecards, Dashboards, Incentives, Analytics

See page 190-192….KNOW

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 Chapter 28 - VERY IMPORTANT CHAPTER
Why do Capital Market Organizations
Underachieve their planned ROI?
 2. Revenue Growth: Several PM systems help here:
• C. Price Optimization
• D. Product, service line, channel, and customer profitability – ABC maybe
helpful here
• E. Customer Value Management – see RFM triad
 3. Operating Expense Savings – Lean Six Sigma may help here
 4. Asset Efficiency – focus to minimize stock outs, shortages, and
surplus unsold items, also looking at infrastructure technology
 5. Cost of Capital Reduction – with a focus on
• Amount required
• Composite Rate
 Finally…overall having a ERP software helps firms to get operational
control See page 190-192….KNOW

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 Chapter 28
Why do Capital Market Organizations
Underachieve their planned ROI?
 Discussion
Discussion &
• Slide 10: How can all five of the arrows generate the lift? Assignments
What would the PM of a M&A look like? What would you
control for-give me two items?

 Assignment – Not to be turned in…

• CRITICAL: As you begin to leave this class, you will know
WHAT you need for an effective PM. The next step is to
figure out where to get the data and how to build the system
so that the date is refreshed and utilized. Take slides 12-13
and create an Excel spreadsheet of all the 5 categories and
the PM tools. Then begin to fill out this Excel template with
each class you take in this program…this is important for
you to have…it will be your treasure chest for Business
Analytics

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 Chapter 29
Will Private Equity Funds Turbocharge
Applying PM?
 Private equity funds are displacing public capital markets managed by
international stock exchanges (What does this mean to you?)
 3 Capital Markets that profit-oriented firms tap to fuel their growth:
• 1. Public Capital Markets – stock exchanges
• 2. Internal Capital Markets – parent company funds operations in SBU
• 3. Private Capital Markets – An emerging player – Angels (individuals mostly), Venture Capitalists
(investors betting on entrepreneurs), Private equity funds, and Hedge funds

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 Chapter 29
Will Private Equity Funds Turbocharge
Applying PM?
 Private equity funds are displacing public capital markets managed by
international stock exchanges (What does this mean to you?)
 3 Capital Markets that profit-oriented firms tap to fuel their growth:
• 1. Public Capital Markets – stock exchanges
• 2. Internal Capital Markets – parent company funds operations in SBU
• 3. Private Capital Markets – An emerging player – Angels (individuals mostly), Venture Capitalists
(investors betting on entrepreneurs), Private equity funds, and Hedge funds

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 Chapter 29
Will Private Equity Funds Turbocharge
Applying PM?
 Why will private equity funds turbocharge the adoption of PM?
 Managers of private equity funds do 3 things:
• 1. They hire talented senior execs to transform the acquired business
• 2. They have relatively higher performance targets and higher investment hurdle rates
• 3. They equip these execs with technology/tools that constitute and support the performance
management suite of methodologies….this is why PM will be turbocharging Private Equity Funds.

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 Chapter 29
Will Private Equity Funds Turbocharge
Applying PM?
 Discussion
Discussion &
• Slide 15: Which of these is being sought after and why? Assignments
Hint: P. 196
• Slide 17: How can you be ready in your career for these
three things to happen? Picture yourself being told from
your manager that a Private Equity Fund is now investing
in your company and they want a PM process…what would
you do? Provide me with the first 3-5 things you would
do.

 Assignment – Not to be turned in…

• Slide 16: Try to calculate this for a customer segment in
your firm. What are your findings? Do you believe this
to be helpful?

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 Performance Management & Metrics

Additional
 Additional Resources Resources

• None at this time

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41: Twitter

Big Data In Practice….

 41: Twitter

Discussion &
Assignments

 Name 3 things that you learned from this example of Big

Data In Practice…
 How do these things relate to your company?
 How do these things relate to PM? What is the impact?

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 Questions…

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