The big management reporting challenge: KPIs

In the first of our series of challenges, we're inviting members to pit their wits against each other to solve a selection of puzzles and case studies for a chance to win a bottle of wine.

The following case study comes from the Chartered Institute of Management Accountants (CIMA). Read through the text below and then post your answers to the questions that follow as comments below. We'll post the answers back on this thread next week and the member judged to have given the best answer will win a bottle of wine.

RCH, an international hotel group with a very strong brand image has recently taken over TDM, an educational institution based in Western Europe. RCH has a very good reputation for improving the profitability of its business units and prides itself on its customer focus. The CEO of RCH was recently quoted as saying ‘Our success is built on happy customers: we give them what they want’. RCH continually conducts market and customer research and uses the results of these researches to inform both its operational and longer term strategies.

TDM is well-established and has always traded profitably. It offers a variety of courses including degrees both at Bachelor and Masters levels and courses aimed at professional qualifications. TDM has always concentrated on the quality of its courses and learning materials. TDM has never seen the need for market and customer research as it has always achieved its sales targets. Its students consistently achieve passes on a par with the national average. TDM has always had the largest market share in its sector even though new entrants continually enter the market. TDM has a good reputation and has not felt the need to invest significantly in marketing activities. In recent years, TDM has experienced an increasing rate of employee turnover.

RCH has developed a sophisticated set of Critical Success Factors which is integrated into its real-time information system. RCH’s rationale for the take-over of TDM was the belief that it could export its customer focus and control system, based on Critical Success Factors, to TDM. RCH believed that this would transform TDM’s performance and increase the wealth of RCH’s shareholders.

Questions:

  • (i)    Identify four Critical Success Factors which would be appropriate to use for TDM.
  • (ii)    Recommend, with reasons, two Key Performance Indicators to support each of the four Critical Success Factors you have identified.
     
Comments

The big management reporting challenge: KPIs

Andrewmurtha | | Permalink

Assumes nothing being changed in TDM so CSF and KPI for existing business on ‘readily available’ information not fundamental change.

1)      Pass performance

 

a)      Index Quantity Passes             TDM Average : Peer Average

i)        Reliance upon past performance to underpin future performance, without understanding why (market research), and ignoring increasing strength of new entrants to market when considered against potential performance implications of ‘latent problem’ of staff turnover, risks pass performance and so reputation which appear, in the absence of marketing, a key buyer decision.

ii)      High pass rate must be guaranteed to secure future interest of marketplace.

 

b)      Index Quality   Passes              TDM Weighted: Peer Average

i)        TDM is only an ‘average’ performer.

ii)      For reasons in a) above and additionally that higher index quality increases yield potential (fee levels positioning)

 

Nb. Index to ‘Peer’ not ‘National’ because ‘Western Europe’ location not necessarily relevant to market ‘Batchelor/Masters/Professional’ and ‘National Average’ less meaningful than benchmarking to competition.

NB. Would have to take into account quality of raw materials (student).

 

2)      Market interest - Enrollment and Retention of students

a)      Enquiries Received (index) and : Converted (relative to historical)

 

i)        Early Warning system

ii)      Without market research or marketing there is no failsafe to appreciate if staff turnover is affecting performance which is effecting market perception and interest (Reputation). Due to life cycle of product it will be too late to act if wait for downturn to happen.

iii)    Also infers reputation and market share

 

b)      Enrolled : Completed (benchmarked to historical and peers)

i)        A more ‘Real time’ indication of product at point of delivery.

 

3)      High quality staff / Student

a)      Staff turnover: Pass Performance

i)        Identify if there is any potential negative relationship

NB. Would have to take into account quality of raw materials (staff).

 

b)      User (Staff / Student) in placement and Exit ‘experience’ interview index

i)        Weighted reasons for staying / leaving to focus on drivers and understand any correlation of 4) a) i)

ii)      Also enables recruited/left and enrolled/completed KPI’s as a bi product which would have to take into account quality of raw materials (staff).

 

4)      Course type (product) Interest and profitability

a)      Sales / Profitability x Course

b)      Course league table interest (Cut by Historical/Student quality)

i)        For RCH financial objectives, early warning of trends as may effect 80/20 principles and strengths / weaknesses for future strategy.

 

 

Gina Dyer's picture

Solution from CIMA

Gina Dyer | | Permalink

Here's the official answer to the question: 

Critical Success Factors (CSFs) are ‘those components of strategy where the organisation must excel to outperform competition’ (Johnson, Scholes and Whittington). It is implicit in the definition that any organisation will not have a great number of CSFs: six or fewer CSFs have been suggested as an appropriate number.

In the case of TDM, CSFs have to be identified which are specific to it and which are crucial for its success. The following CSFs are recommended:

CSF: Customer satisfaction
This CSF could be supported by such KPIs as:

  • Student satisfaction: most UK universities now carry out such surveys into this area and TDM could imitate this practice.
  • Rate of repeat business: many of TDM’s students will be sponsored by their employers. This KPI will measure if employers continue to use TDM.

CSF:  Employee attitudes
This CSF could be supported by such KPIs as:

  • Rate of staff turnover: a high rate of staff turnover is suggestive of dissatisfaction, a low rate of contentment.
  • Rate of staff absence: a high rate indicates poor staff morale; a low rate suggests staff that are happy to come to work.

CSF:  Product quality
This CSF could be supported by such KPI’s as:

  • Market share: TDM has consistently had the largest market share in its sector and both its absolute market share and trends in market share (Is it increasing?  Is it decreasing?) are strongly indicative of success.
  • Accreditations: TDM’s courses are open to scrutiny by professional and academic bodies.  TDM could measure the accreditations it receives which reflect outside opinion as to the level of quality it is achieving.

CSF: Brand image
This CSF could be supported by such KPIs as:

  • Brand recognition: this KPI could be assessed by means of survey with its customers, past, present and potential. This KPI would indicate the proportion of customers who are aware of TDM’s brand.
  • Brand reputation: as in the case of brand recognition, brand repute could be investigated to discover customers’ feelings about TDM’s brand. It could be that recognition and repute are contrary. It is possible for many people to know about your brand but not to like it.  Alternatively, few people may know about a brand but those that do like it very much.

Requirement (b)(ii)

Customer satisfaction
It is important that RCH knows how its customers feel about its services. As the CEO of RCH commented ‘...success is built on happy customers: we give them what they want’.  TDM has to ensure that it is getting this aspect right if it is to continue to be successful. It is a truism that without customers TDM will not have a business. However, it appears to have had a production focus rather than a customer focus and has neglected this area in the past. One important indicator of customer satisfaction will be the students’ pass rates.

Employee attitudes
Employees are important in every business but this is particularly the case for TDM where its employees come into contact with its customers. It is vital that TDM’s employees continue to perform at a high level and so TDM should monitor their morale and the KPIs above will give an indication of this.

Product quality
Customers will only continue to use TDM’ s services if it can demonstrate it is providing courses of a high quality. This can be measured, to an extent, by the endorsement of external bodies in the form of accreditations. It can also be tracked more immediately by the market share which TDM has gained. This KPI can be routinely calculated, perhaps at monthly intervals, unlike accreditations which will be granted intermittently.

Brand image
TDM does not have a strong customer focus and it is in a market where there are continually new entrants. Although it has had satisfactory performance in the past, ‘it has constantly achieved its sales targets and its students achieve passes on a par with the national average’ it seems to be an introspective organisation. It may not be performing to the best of its ability. In order to counteract these tendencies, TDM could benefit from an awareness of how it appears to the outside world.

The answer in this section is not exhaustive, other CSFs and KPIs could be discussed. However, candidates will always be given credit for appropriate contributions,

Gina Dyer's picture

CIMA assessment

Gina Dyer | | Permalink

The winner of this challenge is Andrewmurtha. Here was the CIMA assesor's response to his answer:

"The CIMA study pack defines CSF as ‘The limited number of areas in which results , if they are satisfactory, will enable successful competitive performance’ . The assessor would expect sustainable advantage to be featured also.

The respondent offers a range of areas for consideration (see 1-4  below) however more depth and differentiation and a clear link to their stated strategy needs to be made.  Is it pile them high or LBS that they are aspiring to?

  1. Pass performance
  2. Market interest
  3. High staff/student satisfaction
  4. Course type

KPIs should be metrics of a financial and or non financial nature that can be measured and come via  the processes established to achieve these, based on forward looking strategy. Possibly they are considered in a vacuum in the sector – so do not specifically illustrate a clear answer based on strategy.

The answer shows  knowledge of the sector but not of strategy and clearly related specific metrics".