1. Multidimensional
Performance Measurement
HOW WELL ARE WE DOING?
Module Code: AF3S127 | Student Nr: 16069757

2. Table of Content
Performance management and measurement
 The Performance Prism
Real world example: DHL
 Balanced Scorecard
Real world example: Veolia Water
Planning and forecasting
 Activity-Based Budgeting (ABB)
 Cash Flow Modelling
Marks & Spencer real world case
Product and service delivery
 Activity based costing (ABC)
Real world case:
Norwegian state railway’s passenger transport
 Quality Management Tools - Including TQM, Six Sigma and Cost of Quality
Value recognition
 Value Chain Analysis
Starbucks real life case
 Customer Relationship Management (CRM)
Wells Fargo real world example

3. Introduction
Traditionally the performance measurements were mostly financial, but is it
enough to have a precise overview of how well a company is doing?
The report takes into consideration several models related to different aspects of
accounting management such as: performance management and
measurement, planning and forecasting, product and service delivery and value
recognition.
Performance management and measurement
1.1 Balanced scorecard
What is it?
Robert Kaplan and David Norton thought about another management
approach which included non-financial aspects.
It mainly covers four aspects of the business performance:
 Learning and Growth perspective
Employees need to be constantly learning and growing in order to add
value to the company and create a competitive advantage.
 Business process perspective
The internal business needs to be measured in order to meet the
customers’ requirements.
 Customer perspective
Customers are the key of the business. Without them there is no money
inflow, that is why it is important to track their satisfaction in relation to the
service or product provided.
 Financial perspective
Last but not least the financial measurement in order to have an overview
of their economic performance is also relevant for a business.

4. (Robert & Norton, 1996)
(Arkieva, 2015)
Real world example: Veolia Water in North America
One of the largest water and wastewater provider for municipal and industrial
clients, in 2008 they extended in the market and they knew about the challenges
they had to face since the power management was decentralized towards the
regions.
How did they implement the Balanced Scorecard?
Veolia increased and improved its “portfolio of innovative solutions”, and their
initiatives were filtered according to their resource requirements against their
impact on the business; number of goals achieved from the initiatives and their
necessities.
In order to train their employees and let them understand the importance of
BSC, Veolia introduced a six module e-learning program, this let the workers be
aware of how they can create value to the company.

5. The customers were divided by groups in order to be better focus their strategy.
The financial KPI introduced was calculated dividing the operation cash flow,
instead of EBIT, by the revenue, in this way Veolia could have a better and more
accurate understanding of their disposable cash.
Which benefits did they get out of it?
 Improved business portfolio
 More efficient labor
 Increased operating cash flow
 Better communication among the departments
(Institute, 2010)
1.2 Performance Prism
You can’t manage what you can’t measure can you? Performance prism aims
to cover other aspects of the business and not only owners and customers of a
firm.
What is it precisely?
It is a five sided measurement for business performance which takes into
consideration:
 Stakeholder satisfaction
 Stakeholder contribution
 Strategies
 Processes
 Capabilities

6. (CGMA, 2002)
The stakeholders are investors, regulators, employees, customers and suppliers, so
the main parties which a company needs to work properly with.
Why is the stakeholder satisfaction important?
Investors want their gains from their capital, regulators want the company to act
transparently and legally. Employees want to be fairly remunerated and
motivated to do the job. Customers expect a proper service in return of the
money they spend and suppliers want the business to grow in order to increase
their profitability.
Stakeholders must be satisfied in order to ensure the business survival.
Performance prism includes also stakeholder contribution, as an aspect of the
business performance, because the company has to be precise regarding what
they want from their stakeholders in order to build up a better relationship with
them.

7. Every company needs to adopt and implement their strategy in order to fulfill
and generate the demand with product or service development. All of it done
with the right capabilities that the firm is required to have.
(Andy, Chris, & Mike, 2002)
How does it really work?
Real world examples DHL
One of the most famous international express courier company, 1999 they
started implementing the Performance Prism model when they started to
expand worldwide reaching £300m of sales in 50 different locations. They were
losing the view of the bigger picture getting focused on details.
Implementation
In order to implement the model, DHL firstly identified the questions and then
their measurements, in practice they asked and measured the following points
 Who are the key stakeholders, what do they need and what do we want
from them?
DHL customers can be identified as external and internal (DHL networks),
these points are related to their external ones.
Questions arisen might be “how are the customers feeling about our service
provided?” or “what are our competitors doing?”
The key measurements for those questions might be the number of complains
and feedbacks received by the customers and the market share the
company owns.
 Which strategies do we have to implement to meet their needs?
Customer research has been done by DHL in order to measure their position
in the market, additionally the customer and product mix strategies have
been also implemented. In this way of differentiation the company can grow.
 Which processes are needed for the strategies application?

8. An example of process can be the revenue quantity and quality measured
with sales account planning, or the CRM (Customer Relationship
Management) monitored with call rates.
 Which capabilities do we need to make the processes work?
What does DHL need to work? Capital, HR and the right products. An
improved IT system can facilitate the company and the capabilities it needs.
Benefits gained out of it
 Enhanced decision-making
 Focused on action to improve the performance
 Clearer understanding of the “big picture”
(Andy, Chris, & Mike, 2002)
Which of the two model is better?
Both of the models present a range of financial and non-financial indicators.
performance prism is more stakeholder orientated, BSC gives importance to the
internal business process and employees.
The right model for a company is chosen according to the firm’s product or
service type and the objectives they want to achieve.
Planning and forecasting
2.1 Activity Based Budgeting (ABB)
As the name suggests, Activity Based Budgeting associates the costs with the
activities and the budgeted expenditures rely on them. Therefore it focuses on
overhead activities and the cost related to them. This process follows three main
steps.
 Activity identification and therefore its cost drivers
 Expected number of units of the driver related to the activity

9.  Cost Driver Rate calculation (cost x unit of activity)
Why should a company implement it?
 The budgeting process is under an higher control
 Revenue and expense planning is more precise
 Facilitates reaching the company’s goal
What should a company be aware of?
× It is highly costly
× Time consuming
× Inaccurate in case of wrong assumptions
× Needs to be done along with ABC costing
(CGMA, Essential Tools For Management Accountants, 2013)
2.2 Cash flow modeling
Cash is the fuel of the business, without it the firm cannot run. Cash flow
modeling involves the planning the source and use of cash. It aims to increase
the efficiency of disposable cash and maximize the free cash flow, in order to
ensure the investments of the company for its development.
What are the advantages of Cash Flow Modeling?
 Solvency is easier manageable
 Improves decision-making
 Cash driver target facilitated
 Capital access enhanced
What are the concerns we should be taking into consideration?
× Not the only model a company should rely on
× Optimistic perspectives might not be a good idea
Real world example: Marks & Spencer

10. Cash flow modeling let Marks & Spencer’s cash flow increase by £185 m
between 2007 and 2010. (Report, 2008)
2007 was a tough year due to the global financial crisis, but the company with
this model, managed its net debt which considerably increased from 2007 to
2008 (from £1,949,5m to £3,094.9m in 2008 as their financial report states) and in
this way it kept high its credit rating, borrowings and profit. (CGMA, Essential Tools
For Management Accountants, 2013)
In this way Marks & Spencer improved their value especially during a recession
time when cash is essential for a business and the access to capital market is
tighter.
Product and service delivery
3.1 Activity Based Costing (ABC)
As it was mentioned above the Activity Based Budgeted, ABC model is focused
on cost drivers which are the activities that make the cost increase. More
practically the overheads are allocated to the products.
Why can this help the firm?
 Gives a precise overview of the costs since overheads are allocated
 Helps the pricing decision
 Cost-optimization facilitated
The firm should watch out…
× Too details might disrupt the firm from its strategic goals
× Not relevant for all of the decisions
× Considerably costly
(Economist, 2009)
Real world example: Norwegian State Railway’s passenger’s transport

11. Norwegian State Railway (NSR) is a limited liability state- owned company, since
they do not owe the monopoly in the railway sector, and their competitors have
the same access to railways designer areas as them, they wanted to increase
emphasis on their profitability.
They allocated the revenue according to the 1) Number of travelers 2) Average
journey length and 3) average revenue per passenger kilometer.
Since the costs are related to the product, cost allocation was based on 1)
passenger (cost due for the number of travellers) 2) kilometer (cost of travel
distance) 3) departure (cost of number of departures) and 4) time (cost of time
consumption).
Due to the high number of cost drivers they are specified for the activities with
the identification of the factors affecting the cost and examples of activities
involved, such as: repair and maintenance according to the equipment type;
train conductor according to distance and time; cleaning services based on
number of departures and sales and marketing related to the number of
travellers.
The capital gained from the operation is calculated dividing the revenue before
public buying by the total costs.
NSR had a much clearer overview of the revenue made out of the operations
and they could identify which products were more profitable. When there is a
wide range of products and different costs full absorption costing might not be a
good idea to have a precise understanding of the situation.
On the other hand allocating the capital cost for equipment is still a problem,
because of the equipment replacements the new ones require low
maintenance costs than old ones and the revenue might be fluctuating and
therefore give a misleading overview of the product’s profitability.
(Tom & Kari, 2000)

12. 3.2 Quality Management Tools
3.2.1 TQM
Total Quality Management (TQM) aims to minimize the errors in the process in
order to improve the customer ratings and the employees are keeping up with
the training. The main goal is to increase the quality of the product or service
provided and therefore it involves the parties which take part in that process.
(CGMA, Essential Tools For Management Accountants, 2013)
Real world example: Tesco
UK retail company which sets as priority number one the high quality service.
Their policies are focused on is:
- Quality assurance (inspections and quality control)
- Products free of defects or damages
- Total hygiene
How do they achieve it?
- Choosing the right supplier which deliver the items in good conditions
- Raw material selection and inspection
- Motivating employees in order to keep the customers satisfied of the
service
What did they accomplish?
- Higher revenues even during recession
- Strong brand image
(Tesco, 2009)
3.2.2 SIX SIGMA
Six Sigma follows the DMAIC approach:
 Define

13.  Measure
 Analyze
 Improve
 Control
The main objective is to maximize labor efficiency and reduce inventory,
therefore costs and increase the cash flow, and delivery time. How does it do it?
Through the process of defining the problem, measuring the initial company’s
performance mostly with statistical methods. Afterwards an analysis is made by
exclusion in order to find out the potential error that affects the process. From this
point the firm needs to improve its performance and increase the control to not
repeat the mistake again. (Peter, Robert, & Roland, 2000)
Real world example: Motorola
Motorola was the inventor of the six sigma. Originally the company experienced
huge quality issues, so they converted the model’s requirements to the
conformance level they had to keep.
With Six Sigma the company could measure its performance and relate it to the
customers’ requirements. Over five years they experienced a ten times
improvements (10X).
This leaded a stronger brand awareness of Motorola, an increase in sales and in
their stock prices. (Peter, Robert, & Roland, 2000)
3.2.3 Cost Of Quality
If a company wants to avoid to provide poor quality product or service, it has to
calculate the cost of the activities which prevent it, such as:
 Prevention costs in order to avoid quality problems
 Appraisals with monitoring the activities connected to quality
 Internal failure if the product shows defects before delivered
 External failure if the customer found out the defect afterwards

14. (CGMA, Essential Tools For Management Accountants, 2013)
Real world example: Samsung
Samsung, the multinational Korean IT company, experienced recently a
considerable reputational damage.
After the Samsung’s galaxy note 7’s launch, it was figured out that the
smartphone’s batteries were catching fire, causing the firm a huge reputational
hit.
The analysis estimated approximately $5 billion loss in revenue.
The mistake probably occurred because of poor quality control and their rush to
compete against Apple, which leaded to massive reputational and financial
losses of the company. (Fortune, 2016)
Value Recognition
4.1 Value Chain Analysis
First of all what is a value chain?
A value chain is a variety of activities split in primary and secondary as the image
below shows.

15. (SF, 2013)
The analysis consists in finding out if the company can make any improvements
out of this process combination in order to optimize the costs, give customers a
better service and be successful in the long run. (SF, 2013)
Real world example: Starbucks
Primary activities:
1) Inbound logistic: green coffee beans directly taken from the farms
by Starbucks buyers in order to provide unique high quality
product, then roasted, packed and sent to distribution centers.
(Starbucks, 2015)
2) Operations: Starbucks operates in 65 countries and has more than
21,000 stores worldwide.
3) Outbound logistic: few or no intermediaries because products are
sold directly to their shops.
4) Marketing and sales: aggressive marketing and free samples of a
new product are always given.
5) Service: they aim the provide a “unique Starbucks experience” by
providing flawless customer service. (Corporation, 2015)
Secondary activities:
6) Infrastructure: the company focuses on the areas designed for
customers which are considerably pleasant and cozy.
7) Human Resource Management: Starbucks aims to keep its
employees motivated and efficient. They are the key for
company’s success.
8) Technology: free Wi-Fi in their stores, iBeacon system implemented:
an iOS app from which the customers can order drinks and the
notification was sent when they walked in the store. (iBeacon,
2013)

16. 9) Procurement: the raw materials are carefully chosen in order to
provide the best quality. (Starbucks, 2015)
Starbucks successfully implemented its strategies indeed it is world widely
recognized and valued.
(Lee, 2013)
4.2 Customer Relationship Management (CRM)
Companies should adopt Customer Relationship Management in order to
implement strategies and technologies in order to analyze customer relations in
their lifecycles aiming to strengthen the business relationships with them and
therefore the sales growth. Focusing on customer means providing assistance
with telephone, chat or mail. (CGMA, Essential Tools For Management
Accountants, 2013)
Real world example: Wells Fargo
The American Wells Fargo Wholesale Banking adopted CMR software in order to
keep its customers.
The benefits gained are several:
- Customer data is protected, saved and stored forever
- The database management is facilitated since there is “all in one place”
- Cost decisions are improved
- Customer’s preferences are better identified
(Ray, 2012)
Finance also matters
After the analysis of different models which include financial and non-financial
measurement indicators and their wider implementations among the firms, how
much does finance actually matters for the managers?

17. Financial measurement more important 71%
Both equal important 18%
Non-financial more important 11%
(Peter & Atrill, 2012)
A study made by Drury and El-Shishini shows that managers consider financial
measurements more relevant. If we see a company as a car and we consider
money as fuel to make it able to be driven and the motor as the internal business
process, how can we state that the fuel is the most important component to
make “the car” work?
Concluding the report took into consideration different real world examples with
different strategies. It can be seen that relevant companies in the market do not
only consider the financial aspects to measure their performances, but combine
both methods. The keys of success and longevity might not be in their high ROI
but in the employee satisfaction feedbacks or customers loyalty. The strength of
the brand as we saw for Tesco or Starbucks is based on competitive advantages
and investments on non-financial aspects.
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