Tools for Basic Process Improvement. Operational Definitions

 

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International Business : Role and Processes. Unit 1 - Introduction

 

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Glossary of Strategic Terms

 

It is vitally important to have a common language when working in the area of strategy management. Alternate strategic methodologies seems to have a different set of terms to describe essentially the same thing. Where it would be convenient to have an international standard language, the probability of this happening in the near to mid-term future is remote. The most important thing, therefore, is to ensure that at least within the bounds of a company (and possibly extending to the partner and supplier network) your terminology is consistent.

It does not really matter if the term we use for a metric is a Key Performance Indicator or a Performance Measure or a measure or for that matter a metric. The important thing is to agree on one term, document the definition and use it consistently across your organisation.

The following glossary of strategic terms is in common usage today. Each term has a brief definition. This list is not definitive but it does present a starting point and a resource that will get you on the road to creating your own glossary. Let’s hope in the future we will all agree on a standard set of terms.

Alert – Notifications by email or to a home page, updating users to changes to items that they have subscribed. Examples might include notifications about performance changes or commentary.

Balanced Scorecard – An integrated framework for describing strategy through the use of linked performance measures in four, balanced perspectives ‐ Financial, Customer, Internal Process, and Employee Learning and Growth. The Balanced Scorecard acts as a measurement system, strategic management system, and communication tool.

Benchmarking – The comparison of similar processes across organizations and industries to measure progress, identify best practices, and set improvement targets. Results may serve as potential targets for key performance indicators.

Budget – A description of the funding of existing and/or proposed actions.

Business Plan -These comprise the Corporate, Directorate, Service and Team plans, which specify the key priorities and activities to be undertaken.

Business Performance Management – A type of performance management that includes finance, covering compliance issues, competition, risk and profitability and human resources performance management encompassing employee performance appraisals and incentive compensation and other types of performance management include operational performance management and IT performance management.

Cascading – The process of developing aligned goals throughout an organization, connecting strategy to operations to tactics, allowing each employee to demonstrate a contribution to overall organizational objectives. Methods of cascading include identical (objectives and measures are identical), contributory (translated, but congruent, objectives and measures), unique (unique objectives and measures; do not link directly to parent) and shared (jointly-shared unique objective or measure).

Cause and Effect – The way perspectives, objectives, and/or measures interact in a series of cause-and-effect relationships demonstrate the impact of achieving an outcome. For example, organizations may hypothesize that the right employee training (Employee, Learning and Growth Perspective) will lead to increased innovation (Internal Process Perspective), which will in turn lead to greater customer satisfaction (Customer Perspective) and drive increased revenue (Financial Perspective).

Critical Success factor (CSF) – A CSF is a business event, dependency, product, or other factor that, if not attained, would seriously impair the likelihood of achieving a business objective. This term is always included in a glossary of strategic terms 

Customer-Facing Operations – Encompasses those facets of the organization that interface directly with customers; typically an organization’s sales, service and marketing functions. Also referred to as Demand Chain.

Customer Perspective – Measures are developed based on an organization’s value proposition in serving their target customers. In many organizations, especially public sector and non-profit, the Customer perspective is often elevated above or placed alongside the Financial perspective.

Dashboard – A dashboard is a reporting tool that consolidates, aggregates and arranges measurements, metrics (measurements compared to a goal) and sometimes scorecards on a single screen so information can be monitored at a glance. Dashboards differ from scorecards in being tailored to monitor a specific role or generate metrics reflecting a particular point of view; typically they do not conform to a specific management methodology.

Drill Down – A method of exploring detailed data that was used in creating a summary level of data. Drill Down levels depend on the granularity of the data in the data warehouse.

Economic Value Added (EVA) – A financial performance measure aiming to determine whether a company or activity has truly created shareholder value; in other words, EVA aims to distinguish real profit from paper profit. EVA is determined by calculating a business’s after-tax cash flow minus the cost of the capital it deployed to generate that cash flow.

Financial Perspective – The perspective that looks at bottom line results. In public sector and non-profit organizations, the Financial Perspective is often viewed within the context of the constraints under which the organization must operate.

Forecast – Forecast usually refers to a projected value for a metric. Organizations will often create a forecast that is different than their target for a given metric. There are multiple types of forecasting methods for creating forecasts based on past data and usage of them varies widely across organizations.

Goal – An observable and measurable end result having one or more objectives to be achieved within a more or less fixed time-frame

Goal Diagram – Generically used to describe the one-page visualization that shows the different goals of the organization and how they are related. Examples of goal diagrams include strategy plans, strategy maps and process diagrams.

Human Capital – A metaphor for the transition in organizational value creation from physical assets to the capabilities of employees. Knowledge, skills, and relationships, for example. Closely related to terms such as intellectual capital and intangible assets. Some experts suggest that as much as 75% of an organization’s value is attributable to human capital.

Initiatives – Initiatives organize people and resources and dictate which activities are required to accomplish a specific goal by a particular date; initiatives provide the how while goals provide the what. As differentiated from projects, initiatives directly support an organization’s strategic goals; projects may or may not have strategic impact.

Inputs – Commonly used within the Logic Model to describe the resources an organization invests in a program, such as time, people (staff, volunteers), money, materials, equipment, partnerships, research base, and technology, among other things.

Internal Process Perspective – Internal Process Perspective: The perspective used to monitor the effectiveness of key processes at which the organization must excel in order to achieve its objectives and mission.

IT Performance Management – A type of performance management that assists organizations with the increasing demands of maximizing value creation from technology investments; reducing risk from IT; decreasing architectural complexity; and optimizing overall technology expenditures. Other types of performance management include operational performance management and business performance management.

Key Outcome Indicator (KOI) – Often used in the public sector to describe key performance indicators, those metrics most critical to gauging progress toward objectives. KOIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.

Key Performance Indicator (KPI) – Distinguished from other metrics, key performance indicators (KPIs) are those metrics most critical to gauging progress toward objectives. KPIs are metrics that are: tied to an objective; have at least one defined time-sensitive target value; and have explicit thresholds which grade the gap between the actual value and the target.

Lagging Indicator – Backward-looking performance indicators that represent the results of previous actions. Characterizing historical performance, lagging indicators frequently focus on results at the end of a time period; e.g., third-quarter sales. A balanced scorecard should contain a mix of lagging and leading indicators.

Leading Indicator – Forward-looking in nature, leading indicators are the drivers of future performance. Improved performance in a leading indicator is assumed to drive better performance in a lagging indicator. For example, spending more time with valued customers (a leading indicator) is hypothesized to drive improvements in customer satisfaction (a lagging indicator).

Learning and Growth Perspective – May also be termed “Skills and Capability.” Measures in this perspective are often considered enablers of measures appearing in other perspectives; therefore, this perspective is often placed at the bottom or foundation of a strategy plan. Employee skills and training, availability of information, and organizational culture are often measured in this perspective.  More latterly, this perspective has included ‘Capacity’ to indicate that it is concerned with more than the human aspect and all includes other physical resources.

Logic Model – Having gained prominence in the ’90s largely in response to the Government Performance and Results Act (GPRA), the Logic Model is now a widely accepted management tool in the public and non-profit sectors as well as the international arena. The model is a roadmap or picture of a program that shows the logical relationships among resources or inputs (what an organization invests); activities or outputs (what an organization gets done); and outcome-impacts (what results or benefits happen as a consequence).

Malcolm Baldridge – Established by the U.S. Congress in 1987, the Malcolm Baldridge performance framework is a rating tool that assesses management systems and helps identify major areas for improvement in seven categories of performance criteria: Leadership; Strategic Planning; Customer and Market Focus; Measurement, Analysis, Knowledge Management; Human Resource Focus; Process Management; and Business Results.

Measure (also called metric) – Term to describe a standard used to communicate progress on a particular aspect of a program. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information.

Metric (also called measure) – A framework to establish and collect measurements of success/failure on a regulated, timed basis that can be audited and verified. The term used in commercial organizations to describe a standard used to communicate progress on a particular aspect of the business. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (e.g., $ of revenue, headcount number, % increase, survey rating average, etc.) though they may be describing either quantitative (e.g., sales made) or qualitative (e.g., employee motivation) information.

Milestone – The set of specific deadlines or hurdles that signal progress in completing an Initiative. Milestones include progress/completion dates or % completion rates, key presentations/meetings, and key decision points.

Mission – Concise statement that describes, in motivating and memorable terms, the current top-level strategic goal of the organization. A mission provides both an internal rallying cry and external validity. Usually financial-, process-, or customer service-oriented, with a mid-term (three to five years) horizon, an effective mission is inspiring as well as easily understood and communicated.

Mission Statement – A mission statement defines the core purpose of the organization ‐ why it exists. The mission examines the “raison d’etre” for the organization beyond simply increasing shareholder wealth, and reflects employees’ motivations for engaging in the company’s work. Effective missions are inspiring, long‐term in nature, and easily understood and communicated.

Objective or Outcome Scorecard – A specific application of a scorecard/objective scorecards monitor progress toward a given set of objectives or outcomes using a threshold-based rating scale. Typically, objective status is determined by normalizing one or many key performance indicators and comparing it to a given rating scale.

Objective – A concise statement describing specific, critical, actionable and measurable things an organization must do in order to effectively execute its strategy and achieve its mission and vision. Objectives often begin with action verbs such as increase, reduce, improve, achieve, etc. Whereas the vision and mission statements provide an organizing and mobilizing “rallying cry,” objectives translate the vision and mission into measurable and actionable operational terms.

Operational Alignment – The means to and/or state of alignment of an organization’s day-to-day activities with its strategic goals or objectives, operational alignment helps ensure that an organization’s daily activities are advancing its longer-term goals and mission.

Operational Performance Management – A type of performance management that addresses the growing pressure to increase revenue while managing costs, while meeting ever-evolving and expanding customer demands. Other types of performance management include business performance management and IT performance management.

Operational Reviews – Usually used to describe the regularly scheduled internal status meetings of an organization. Going by different names based on the organization, manufacturing companies typically call them Operational Excellence (OPX) meetings, other organizations sometimes just refer to them as Performance reviews.

Outcome – Commonly used within the Logic Model, outcomes (also called outcome-impacts) describe the benefits that result as a consequence of an organization’s investments and activities. A central concept within logic models, outcomes occur along a path from shorter-term achievements to medium-term and longer-term achievements. They may be positive, negative, neutral, intended, or unintended. Examples of outcomes include changes in knowledge, skill development, behaviour, capacities, decision-making, and policy development.

Output – Commonly applied within the Logic Model, outputs describe what an organization gets done; e.g., “what we do” or “what we offer” and may include workshops, delivery of services, conferences, community surveys or facilitation.

Performance Driver – Measures that indicate progress against a process or behaviour. These measures are helpful in predicting the future outcome of an objective.

Performance-Based Budgeting – A performance budget is an integrated annual performance plan and budget that shows the relationship between program funding levels and expected results. It indicates that a goal or a set of goals should be achieved at a given level of spending.

Performance Gap – The “difference” between actual and target, the trend of the performance or target gap shows an organization’s momentum.

Perspective – Representing the various stakeholders, internal and external, critical to achieving an organization’s mission. Together, the perspectives provide a holistic, or balanced, framework for telling the “story of the strategy” in cause-and-effect terms. While the traditional Balanced Scorecard includes the four perspectives of Financial, Customer, Internal Process, and Employee Learning and Growth, an organization may choose to modify and/or add to these to adequately translate and describe their unique strategy.

Process Diagram – Process diagrams typically are used to represent specific processes that are undertaken in an organization and the key steps involved in the process. An example might be a high-level diagram that highlights the customer experience.

Program Assessment Rating Tool – Developed by the Office of Management and Budget within the Office of the President of the United States, the Program Assessment Rating Tool (PART) was developed to assess and improve program performance so that the federal government can achieve better results. A PART review helps identify a program’s strengths and weaknesses to inform funding and management decisions aimed at making the program more effective. The PART therefore looks at all factors that affect and reflect program performance including program purpose and design; performance measurement, evaluations, and strategic planning; program management; and program results.

Qualitative – Subjective, as opposed to quantitative (measured). A common source of qualitative metrics are surveys of customers, stakeholders or employees.

Quantitative – Measured, as opposed to qualitative (subjective). Quantitative measures often come from transactional systems.

Readiness Scorecard – A specific application of a scorecard, a readiness scorecard can be used to evaluate an organization’s state of readiness/acceptance of a given strategy.

Reports – Typically show the details of performance for a metric or multiple metrics. Reports are often used to drill down to the root cause of performance issues.

Scorecard – A scorecard is a visual display of the most important information needed to achieve one or more objectives, consolidated and arranged on a single screen so the information can be monitored at a glance. Unlike dashboards that display actual values of metrics, scorecards typically display the gap between actual and target values for a smaller number of key performance indicators.

Six Sigma – A quality management and process improvement methodology particularly well suited to process intensive industries like manufacturing. Six Sigma measures a given process by its average performance and the standard deviation (or variation) of this performance, aiming to reduce the occurrence of defects in a given process to a level of “Six Sigma” outside the norm; no more than 3.4 times per million.

Strategic Management System – Describes the use of the Balanced Scorecard in aligning an organization’s short‐term actions with strategy. Often accomplished by cascading the Balanced Scorecard to all levels of the organization, aligning budgets and business plans to strategy, and using the Scorecard as a feedback and learning mechanism.

Strategy – Strategy is the way an organization seeks to achieve its vision and mission. It is a forward-looking statement about an organization’s planned use of resources and deployment capabilities. Strategy becomes real when it is associated with: 1) a concrete set of goals and objectives; and 2) a method involving people, resources and processes.

Strategy Map – A specific version of a strategy plan that adheres to the Balanced Scorecard methodology. Strategy maps depict objectives in multiple perspectives with corresponding cause and effect linkages.

Strategy Plan – A visual representation of an organization’s strategy and the objectives that must be met to effectively reach its mission. A strategy plan can be used to communicate, motivate and align the organization to ensure successful execution.

Target – A target is the defining standard of success, to be achieved over a specified time period, for the key performance indicators associated with a particular strategic objective. Providing context to make results meaningful, targets represent the organization’s “stretch goals.”

Task – Represents details activities or tasks to be carried out to achieve each initiative. It captures information like resources, time , constraints, risk, budgets, milestone, duration to complete the tasks.

Theme – Descriptive statement representing a major component of a strategy, as articulated at the highest level in the Vision. Most strategies can be represented in three to five themes. Themes are most often drawn from an organization’s internal processes or the customer value proposition, but may also be drawn from key financial goals. The key is that themes represent vertically linked groupings of objectives across several scorecard perspectives (at a minimum, Customer and Internal). Themes are often stated as catchy phrases that are easy for the organization to remember and internalize. For example: Operational Excellence or Customer Intimacy or Strategic Partnering.

Threshold – A means of describing and/or depicting the performance gap in easily understandable terms. Examples of threshold methods include “letter-grade” (A/B/C/D/F) and “traffic-light” (green/yellow/red). Values – Representing an organization’s deeply-held and enduring beliefs, an organization’s values openly declare how it expects everyone to behave and are often embedded in its vision.

Value Chain – The process steps by which a company moves from the identification of its customer needs to customer fulfilment.

Value Proposition – Describes how an organization intends to differentiate itself in the marketplace and what particular value it will deliver to customers. Many organizations choose one of three “value disciplines” operational excellence, product leadership, or customer intimacy.

Vision – A concise statement defining an organization’s long-term direction, the vision is a summary statement of what the organization ultimately intends to become five, 10 or even 15 years into the future. It is the organization’s long-term “dream,” what it constantly strives to achieve. A powerful vision provides everyone in the organization with a shared mental framework that helps give shape to its abstract future.