Chapter 4: Measuring the Success of Strategic Initiatives

Measuring Information Technology’s Success

• Key performance indicator measures that are tied to business drivers.
• Metrics are detailed measures that feed KPIs.
• Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals.

Efficiency and Effectiveness

• Efficiency IT metric measures the performance of the IT system itself including throughput, speed, and availability. It focuses on the extent to which an organization is using its resources in an optimal way, “Doing things right”.
• Effectiveness IT metric measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Effectiveness focuses on how well an organization is achieving its goals and objectives, “Doing the right things”.

Benchmarking – Base lining Metrics

• Regardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks – baseline values the system seeks to attain.
• Benchmarking is a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance.
• E-government benchmarks

The Interrelationships of Efficiency and Effectiveness IT Metrics

• Efficiency metrics monitor technology.
• Efficiency metrics are easier to measure and monitor than effectiveness metrics.
• Efficiency IT metrics focus on technology and include:

1. Throughput - the amount of information that can travel through a system at any point.

2. Transaction speed - the amount of time a system takes to perform a transaction.

3. System availability - the number of hours a system is available for users.

4. Information accuracy - the extent to which a system generates the correct results when executing the same transaction numerous times.

5. Web traffic - includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page.

6. Response time - the time it takes to respond to user interactions such as a mouse click.

·         Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include:

1. Usability - The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information.

2. Customer satisfaction - Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.

3. Conversion rates - The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.

4. Financial - Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

• Effectiveness metrics are more difficult to measure and monitor, for example, how do you measure customer satisfaction?
• Which metrics are more important to a company like eBay – efficiency or effectiveness? Both, eBay continuously measures both efficiency and effectiveness. The company must ensure constant availability and reliability of its systems.

• Security is an issue for any organization offering products or services over the Internet.
• It is inefficient for an organization to implement Internet security, since it slows down processing. However, to be effective it must implement Internet security. Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser).
• Ideally, an organization should operate in the upper right-hand corner.
• Operating in the upper left-hand corner or the lower right-hand corner may be in line with an organization's particular strategies.
• No organization would want to operate in the lower left-hand corner.

Metrics for Strategic Initiatives

• Metrics for measuring and managing strategic initiatives include:

1.    Web site metrics.

2.    Supply chain management (SCM) metrics.

3.    Customer relationship management (CRM) metrics.

4.    Business process reengineering (BPR) metrics.

5.    Enterprise resource planning (ERP) metrics.

Web Site Metrics

• Abandoned registrations: Number of visitors who start the process of completing a registration page and then abandon the activity.
• Abandoned shopping carts: Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise.
• Click-through: Count of the number of people who visit a site, click on an ad, and are taken to the site of the advertiser.
• Conversion rate: Percentage of potential customers who visit a site and actually buy something.
• Cost-per-thousand (CPM): Sales dollars generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine.
• Page exposures: Average number of page exposures to an individual visitor.
• Total hits: Number of visits to a Web site, many of which may be by the same visitor.
• Unique visitors: Number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web sites.

Supply Chain Management Metrics

• Back order: An unfilled customer order. A back order is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand.
• Customer order promised cycle time: The anticipated or agreed upon cycle time of a purchase order. It is a gap between the purchase order creation date and the requested delivery date.
• Customer order actual cycle time: The average time it takes to actually fill a customer’s purchase order. This measure can be viewed on an order or an order line level.
• Inventory replenishment cycle time: Measure of the manufacturing cycle time plus the time included to deploy the product to the appropriate distribution center.
• Inventory turns (inventory turnover): The number of times that a company’s inventory cycles or turns over per year. It is one of the most commonly used supply chain metrics.

Customer Relationship Management Metrics

• Customer relationship management metrics measure user satisfaction and interaction and include:

BPR and ERP Metrics

• The balanced scorecard is a management system, (in addition to a measurement system), that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise
• The balanced scorecard views the organization from four perspectives, and users should develop metrics, collect data, and analyze their business relative to each of the perspectives.