Chapter 4 : Measuring the success of strategic initiatives.
Learning outcomes:
4.1. Compare efficiency IT Metrics and effectiveness IT Metrics.
4.2 List and describe five common types of efficiency IT Metrics.
4.3 List and describe four types of Effectiveness IT Metrics
4.4 Explain customer metrics and their importance to an organization.
Measuring information Technology’s Success.
l Metrics are the measurements that evaluate results to determine whether a project is meeting its goal.
l Two core metrics are Critical Success Factors (CSFs) and Key Performance Indicators (KPIs).
l Critical Success Factors (CSFs) are the crucial steps companies perform to achieve their goals and objectives and implement their strategies.
l Key Performance Indicators (KPIs) are the quantifiable metrics a company uses to evaluate progress toward critical success factors.
l KPIs are far more specific than CSFs.
l KPIs can focus on external and internal measurements.
l Common measurement for KPIs is market share or the proportion of the market that a firms captures.
l Common internal KPI is return on investment (ROI), which indicates the earning power of a project.
l 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 of IT Metrics.
l Efficiency IT metrics measure the performance of the IT systems itself such as throughput, transaction speed, and system availability.
l Effectiveness IT metric measures the impact IT has on business processes and activities such as customer satisfaction, conversion rates and sell-through increase.
Efficiency IT metric.
ü Efficiency IT metrics focus on technology and include:
- Throughput
- Transaction Speed
- System availability
- Information Accuracy
- Web traffic
- Response time.
I. Throughput
- The amount of information that can travel through a system at any point.
II. Transaction speed
- The amount of time a system takes to perform a transaction.
III. System availability
- The number of hours a system is available for users.
- For example, how long the system is available for customers or users can visit.
IV. Information accuracy
- the extent to which a system generates the correct results when executing the same transaction for a numerous times.
V. Web traffic
- Includes a host of benchmark such as the number of page views, the number of unique visitors, and the average time spent viewing a web page.
VI. Response time
- the time it takes to respond to user interactions such as mouse click.
Effectiveness of IT metrics
ü Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include :
- Usability
- Customer satisfaction
- Conversion rates
- Financial.
i. 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.
ii. Customer satisfaction
- measured by such benchmarks as satisfaction surveys, percentage of existing customer retained and increases in revenue dollars per customer.
iii. Conversion rate
- the number of customers an organization touches for the first time and persuades to purchase its products or services.
- It is use for evaluating the effectiveness of banner, pop-up, and pop-under ads on the internet.
-For example, once people open the website there will be a lot of advertisement, so it is used to measure how many people who visited the website will click, read and buy the ads. If clicking, reading and buying happened on the ads only than the conversion rate can be measured.
iv. Financial
- such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and cost including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).
The interrelationships of efficiency and effectiveness IT metrics.
l Security is an issues for any organization offering products or services over the internet.
l It is inefficient for an organization to implement internet security, since it slow down processing.
- However to be effective it must implement internet security to protect all the customers and organization from being hacked by the hackers.
- Secure internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser)
Metrics for strategic initiatives
l metrics for measuring and managing strategic initiatives include:
- Web sites metrics
- Supply chain management metrics
- Customer relationship management metrics
- Business process re-engineering metrics
- Enterprise resource planning (ERP) metrics.
A. Web site metrics.
l - Abandoned registrations
- Also known as uncompleted customers.
- Numbers of visitors who start the process of completing a registration page and then abandon the activity.
l - Abandoned shopping carts
- Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for merchandise.
l - Click-through
- Count of the number of people who visit a site, click on ad, are taken to the site of the advertiser.
- For example, one website such as Beautifu Nara that has been linked with others website.
l - Conversion rate
- Percentage of potential customers who visits a site and actually buy something from the visited website.
l -Cost-per-thousand
- Sales dollars generated per dollar of advertising.
- This is commonly used to make the case for spending money to appear on a search engine.
- How much money that the owner spent to keep his or her website always appear on a search engine.
l - Page exposures
- Average number of page exposures to an individual visitors.
- For example, which pages that can attract the visitors or users to click on and how much the visitors or users will be exposed with various kind of information.
l - Total hits
- Number of visits to a website, many of which may be by the same visitors.
l - 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 websites.
- it also work as an indicator to trace the visitor.
B. Supply chain management metrics.
l Back order
- An unfilled customer order, meaning that the order that the organization cannot fulfill.
- A back order is a demand ( immediate or past due) against an item whose current stock level is insufficient to satisfy demand.
- If back order happened it means the systems is not really effective and efficient.
- it is also an indicator for CRM systems.
l 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.
- In other words, promise that had been done by the organizations to the customers.
l 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.
- It is also indicates the real time that the order being accomplished or passed to the customers.
- for example, the order that have been made delivered to the customer at the right time as has promised by the organization.
l Inventory replenishment cycle time.
- Measure of manufacturing cycle time plus the time included to deploy the product to the appropriate distribution center.
- Meaning that, the supplier or the producer re-stock their items for their organization.
- Usually re-stock item will be done by the stock keeper in a store or In the warehouse.
l Inventory turns (inventory turnover)
- The numbers of time that a company’s inventory cycles or turns over per year.
- It is one of the most commonly used in a supply chain metrics.
- It also indicate, the more the item have restocked by the producer or supplier, the higher the sale that the organization gain.
C. Customer Relationship Management metrics
- If all the CRM component have applied in the systems that’s mean the IT metric is efficient and effective.
D. Business Process Reengineering (BPR) and Enterprise Resource Planning (ERP) Metrics.
l Business process rengineering and enterprise resource planning are large, organizationwide initiatives.
l Measuring this type of strategic initiatives Is extremely difficult.
l One of the best method is the balance scorecard.
l The Balance Scorecard is a management system in addition to a measure system, that enables organizations to clarify their vision and strategy and translate them into action.
l It provides feedback around both the internal business process and external outcomes in order continuously improves strategic performance and results.
l When fully deploy, the balance scorecard transforms strategic planning from academic exercise into the nerve center of an enterprise.
l The balance scorecard views the organization from four perspectives.
l From these perspective, users should develop metrics, collect data, and analyze their business relative to each of it.
l The four perspectives are:
- The learning and growth perspective.
- The internal business process perspective.
- The customer perspectives.
- The financial perspectives.
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