"Benchmarking: Aligning Strategic Performance Measurement to Key Stakeholders", Donald Baer, Nov. 21, 2002, 9:50 a.m.

Donald Baer, Senior Manager, Strategic Planning, at "Strategy on the Edge: Charting the course in turbulent times", Strategic Leadership Forum, at the Design Exchange, Toronto, Nov. 21, 2002, 9:50 a.m.

These participant's notes were created in real-time during the meeting, based on the speaker's presentation(s) and comments from the audience. These should not be viewed as official transcripts of the meeting, but only as an interpretation by a single individual. Lapses, grammatical errors, and typing mistakes may not have been corrected. Questions about content should be directed to the originator. These notes have been contributed by David Ing (daviding@systemicbusiness.org) at the IBM Advanced Business Institute ( http://www.ibm.com/abi).

Introduction by Bob Angel, Vice-President of Marketing for the Strategic Leadership Forum, and president of the Gilford Group

Donald Baer:

• Ph.D. in economics from U. of Illinois
• Research office, Federal Bank
• Professor, U. of Illinois
• At RBC in 1981
• Implementation of performance management system, related to their strategy

[Donald Baer]

A case study

• Performance management, link to measurements.

RBC banking -- 50% to 60% of the business.

• 35,000 employees
• Assets of $155B
• Income of $1.5B
• A major company within RBC.

How performance management can provide, if linked to strategy, alignment up and down the organization, and across it.

• Can result in a performance-driven culture.
• A good way to link strategy and execution

Four steps

• 1. Who:  Identify key stakeholders
• 2:  What:  Set medium term strategic objectives aligned to stakeholder groups
• Think about how you're going to measure performance
• 3. How:  Thinking about performance drivers that drive results
• Not bottom-line focused, but what are drivers?
• 4. How:  Performance measures

Key stakeholders

• Shareholders
• Customers
• Employees
• Communities

Five strategic objectives, held over the medium term:

• For shareholders:
• Sales and business performance
• Management of risk
• For customers:
• Customer loyalty
• Not a transaction-focused bank
• For employees:
• Capability to perform jobs and engagement with institution
• For communities:
• Corporate reputation and image

With the above objectives, how do you measure performance?

• For shareholders:
• Sales and business performance
• Sales and revenue growth
• Net income
• Return on equity
• Efficiency, as non-interest expenses / revenue
• Management of risk
• Credit quality ratio
• Fraud and other operational risk losses
• For customers:
• Customer loyalty:
• Overall customer satisfaction (% in the top box scores, i.e. 5 out of 5 in surveys).
• Rank in customer satisfaction, compared to other major financial institutions
• For employees:
• Employee capability (composite of % in top box), e.g. can meet needs of customers, enough time, ...
• Employee engagement (composite of % in top box), e.g. would recommend RBC as a place to work, would stay with RBC, ...
• For communities
• Overall reputation amongst other financial institutions (% top box)
• Financial reputation rank in overall reputation
• Represents both financial and non-financial measures.

Can set external benchmarks for strategic objectives

• e.g. customer loyalty:  who is your primary financial institution; then on a scale of 1 to 5, how do you rank yourself?
• We don't just look at history, we use it as part of the planning processes

Can also set internal benchmarks

• Five geographic regions
• Can look at customer satisfaction by area, e.g. Quebec in #1, but Ontario #3 would cause some questions.
• Similarly on customer attrition.
• Not only geographically, can do this at a business unit level, e.g. Toronto versus Kingston or Ottawa

Most interesting part of performance management is looking at drivers, not just bottom-line numbers.

• Which are drivers, that are most popular?
• The driver ...
• needs to impact the bottom line.
• should be a leading indicator.
• should be measureable
• even down to a business level
• should actionable
• should influence behavior
• can be actively managed for improved performance

An example, sales and business performance, have three performance drivers

• Why only three?  To keep focus on the highest priority drivers.
• Three are:
• Retention
• Growth
• Pricing effectiveness
• Retention is important, as have 10.5M customers in Canada
• Relationship focus means growth within the customer set
• Pricing of loan portfolio etc.

Next step deeper:  measures under each driver.

• Retention
• Most important products within the mix, that needs focus, e.g. % of mortgages that are renewed
• Can compare performance in Barrie with Kingston
• Growth:
• Share of wallet, as # of product per customer
• Can be done for personal customers, and business customers
• Have 15 overall customer segments, e.g. mid-career, borrowers, ...
• Pricing effectiveness
• e.g. mortgage rate competitiveness

Can look at trends, compared region by region

The performance management framework can be driven to different units

• National, geographic, business unit, to individual level.

Aligning individual plans to performance management framework

• Depending on the job, can measure individual goals
• e.g. customer loyalty
• employee commitment and engagement
• sales / business performance
• management of risk
• corporate reputation and image
• This is a form of balanced scorecard
• Takes four stakeholder groups, not just financial performance
• Some measures are quantitative, others are qualitative.

Have a short-term incentive program

• Within an employment band, can project the amount of money
• (Incentive award) x (RBC performance, both financial and customer sat) x (personal performance) x (personal performance) --> incentive award
• Removed the measurement reward in the incentive system to stop influence!

Relationship between one group of stakeholders, and others.

• We know there's a correlation between (employee capability and employee engagement) and the result of customer loyalty and satisfaction.
• Customer satisfaction influences (sales/business performance and customer reputaiton and image).
• Customers not only talk within the bank, but also in the corporate community.

Suggest:  keep it simple and focused.

• Have had this method since 1994.
• Can help to align to a performance-driven culture.

Questions

How to ensure the managers are incented to raise the bar?

• Yes, get employee measures at the business unit level, and down to the manager that the individual reports to.
• Since have comparative rankings, there will be discussions.
• For a long time, did employee surveys and customer surveys, but they weren't linked.  They were ad hoc.
• Now integrating them into a system.
• Originally had just financial performance, now get a balanced focus.

See a lot of measures along revenue and contribution.  Has anything been done on the capital investment side, e.g. how much money or how many people does it take?

• Yes, haven't covered the entire strategic planning framework.
• Have a rigourous prioritization process.
• Always have twice as many projects as what could be invested.
• Need to prioritize on biggest areas of concern.
• Can't just change priorities year over year.
• Feel good that measures can be maintained over a long period.
• Jim Collins, Good to Great:  a hedgehog approach
• This measurement system is a hedgehog.
• Can look at a continued business, and what requires investment.

Whys?  e.g. what's behind customer retention?

• Yes, didn't show this.
• Have drivers behind customer retention.
• • Depends on products, some are account-managed.
  • Can look at retention and attrituion with account managers.
  Also have product experts, on mortgages.

[Thanks]

Don had pioneered the idea of a book group at the Strategic Leadership Forum, which has become a successful program.