Strategic

performance
measurement
Creating a common
language to drive
execution
Contacts

Boston New York

Vladislav Gil V. Chandrashekhar

Director, PwC US Principal, PwC US
+1-617-530-7095 +1-917-734-3801
vladislav.gil@pwc.com v.chandrashekhar@pwc.com

Prateek Jain Arjun Saxena

Manager, PwC US Principal, PwC US
+1-402-972-6085 +1-917-543-6256
p.jain@pwc.com arjun.saxena@pwc.com

2 Strategy&
About the authors

V. Chandrashekhar advises technology-intensive businesses on

strategy development, operating model design, and large-scale
transformation programs for Strategy&, PwC’s strategy consulting
business. Based in New York, he is a principal with PwC US.

Arjun Saxena advises large financial-services clients (including banks,

wealth managers, and asset managers) on business strategy, pricing,
customer experience, risk management, and cost transformation–
related engagements for Strategy&. Based in New York, he is a
principal with PwC US.

Vladislav Gil advises financial-services clients (including insurers,

investment managers, and capital markets firms) on strategy
development and articulation, market entry strategies, business and
cost transformation, and operating model design for Strategy&.
Based in Boston, he is a director with PwC US.

Prateek Jain works with financial institutions on strategy, digital

transformation, performance improvement, and operating model
design for Strategy&. Based in Boston, he is a manager with PwC US.

Strategy& 3
Executive summary

The execution of strategy is often difficult and always critical to a

company’s success. Companies that excel in execution consistently
stand above their peers. To help drive strategy execution and
performance improvement, executives in a range of industries should
consider using strategic performance measurement (SPM). SPM is an
approach that makes an organization’s strategic goals more transparent
to line executives and provides an ongoing mechanism to monitor
progress toward these goals through simple and intuitive performance
measures. SPM creates a common language among all parts of the
organization so they can interact transparently and effectively, thus
helping to break down silos. SPM has four elements: (1) aligning and
cascading strategic objectives down to day-to-day operational goals;
(2) developing balanced scorecards for reporting; (3) making reporting
easier and focusing on “metrics that matter”; and (4) testing and
validating operational and strategic decisions.

Choosing the right metrics to track is the key to successful SPM

implementation. In this report, we share several best practices for
determining the correct metrics for a company’s specific strategic goals.
We also elaborate on some of the common challenges that companies
confront when trying to put SPM into action — such as ineffective
communication, an excess of data, and the need for executive buy-in —
along with possible solutions. Three case studies involving global
financial institutions describe in detail how CEOs have employed SPM
to align strategic goals with day-to-day operations and on-the-ground,
agile decision making.

4 Strategy&
The key to 21st-century growth

As the U.S. and world economies continue to grow, we are gradually

entering a period where many companies in a variety of industries and
geographies are finally able to shift from a cost-cutting agenda to a
growth-focused, capabilities-building agenda. But for any new growth
strategy to succeed, all levels of the organization must clearly
understand enterprise and corporate goals, how they cascade down to
individual executive goals, and the strategy to achieve those goals.
Senior leaders are expected — and need — to make fact-based decisions
at all levels of the value chain, and align incentives across the
organization and achieve traction against strategic objectives.

Indeed, what sets a firm apart from its peers is how well it executes
its strategy. In a recent Strategy& survey of more than 500 senior
executives, nearly two-thirds of the CEOs said executing a strategy is
more difficult than developing the strategy and 80 percent felt that
their overall strategy was not well understood even within their own
company. (For more information, please refer to the book Strategy That
Works: How Winning Companies Close the Strategy-to-Execution Gap.)
With this need for execution in mind, executives should consider
strategic performance measurement (SPM), an approach that makes an
organization’s strategic goals more transparent to line executives and
provides an ongoing mechanism to monitor the achievement of these
goals through simple, intuitive performance measures.

All companies have some performance measurement practices in place,

yet many common challenges persist. These include a lack of clear
linkage between strategic objectives and operational performance
measures, limited accountability for outcomes at the operational level,
an unmanageable number of sometimes random metrics, fragmented
and redundant systems and efforts, and a greater focus on metric
analysis than on management decision making.

Without a consistent framework for measuring performance that is

explicitly and clearly linked to the overall strategy and anchored in
strategic goals, organizational units often don’t understand what is

Strategy& 5
expected of them to achieve strategic alignment. At a more basic level,
there is often no uniform approach to describe the performance of a
business unit, a functional organization, or a department. Consequently,
performance-related conversations are often based on anecdotes rather
than a common fact base of outcome measures and a common
understanding of causal drivers.

6 Strategy&
The SPM methodology

SPM creates a common language for the various parts of the

organization to interact transparently and effectively, thus helping to
break down silos. SPM has four key elements (see Exhibit 1).

First, SPM creates a clear line of sight that links and integrates all levels
of the organization, thus aligning strategic objectives to day-to-day
operational goals. At the highest level, SPM measures overall progress
toward the organization’s vision and strategic goals. It can measure
execution in individual parts of the organization all along the value
chain, which helps identify those areas that are contributing to strategic
goals and those that are not. This line of sight includes assessing how
organizational measures influence individual and managerial
performance appraisals.

Exhibit 1
Key elements of SPM

Align strategic objectives to Develop balanced scorecards

day-to-day operational metrics for reporting

SPM

Make reporting easy, and focus Test and validate

on “metrics that matter” strategic decisions
Source: PwC Strategy&
experience and analysis

Strategy& 7
Another element of SPM is the balanced scorecard — i.e., measures of
both financial and nonfinancial aspects of the business. To ensure that
strategic objectives are not too narrowly focused, SPM balanced
scorecards should capture measures of performance against four
dimensions: financial, customer, internal business or operations, and
innovation/growth. This balanced model helps executives make smart
trade-offs between competing objectives (e.g., lowering unit costs
versus increasing service standards).

The third element of SPM is making performance measurement easy

and a part of your daily life. The first step toward this goal is improving
the structure, production, and consumption of reports. Instead of
having hundreds of reports hitting executives’ inboxes with critical
information scattered across multiple pages/screens, companies should
present senior executives with weekly, monthly, and quarterly
streamlined reports focusing on “metrics that matter” that executives
can review while sipping their morning coffee. Companies should also
make the same simple metrics available at all levels of the organization
(across business units and supporting functional areas).

Last but not least, SPM provides a medium for the senior leadership to
test and validate organizational changes and strategic business
decisions and can also help with change management. Examples
include restructuring lines of businesses, developing P&L statements for
business units and products, and transitioning from a sales-focused
organization to a product-focused organization. Leaders can use SPM to
stress-test these decisions before committing to them.

8 Strategy&
Choosing and using metrics
for SPM

Besides providing a common taxonomy, SPM offers the advantage of

agility. A company can shed old metrics and adopt new ones as goals
change, such as targeting a new market or making an acquisition.
Metrics too often become hardwired into an organization and continue
to be tracked even when they no longer capture useful or actionable
information. For this reason, SPM is a powerful tool for creating
everything from a five-year strategic plan to an accelerated 90-day
program that a new CEO or division head might use to jump-start
the change.

There is no set list of metrics appropriate for all companies at all times.
And we’ve learned that determining the right metrics for a particular
company’s strategy is part art and part science. In our work with clients,
we have identified several best practices for picking the right metrics for
all dimensions of the balanced scorecard (financial, customer, internal
business, and innovation/growth).

First, metrics must be tied to strategic objectives and must be

translatable into business unit (BU) goals and individual actions.
Metrics need to balance visibility into both current and future
performance. They should also be “benchmarkable” so senior leaders
can compare performance across client segments, products, and
divisions, and even against peers. And, ideally, the company should
start with focusing on metrics that can be collected with existing or
easy-to-implement processes and systems. SPM should not require a
wholesale technology overhaul; indeed, ease of implementation is one
of its major benefits.

Furthermore, companies need to be able to aggregate the metrics to

some degree so they can be rolled up across the enterprise and so people
can slice and dice the data for different views. Finally, companies should
begin acting on metrics as soon as sufficient data is available, and not
become stalled by trying to get to the perfect set of metrics. Good
metrics are good enough.

Strategy& 9
Once chosen, these metrics can power dashboards that drive business
management and decision making (e.g., for better dialogue between
business and functional leaders, to understand gaps in client services
and/or performance, and to set more achievable stretch targets);
performance improvements (e.g., to understand linkages between
metrics, to benchmark performance, and to prioritize resources); and a
positive feedback loop across management processes (e.g., to align metrics
with strategic planning and annual budgeting processes, and to link
executive incentives to operating performance). Exhibit 2, next page,
shows how elements of the SPM framework and time lines can be linked
to the annual planning, budgeting, and incentive management
processes typical at large corporations, and with the stakeholders that
would typically need to be involved across BUs and key staff functions.

Choosing metrics can be easier than getting everyone in the

organization to adopt them. Senior leaders often have their own ideas
about the “right” metrics and goals. There is also a preference for
metrics that paint a good story (especially when compensation and
other rewards are at stake), and people generally dislike being
measured on metrics they did not help develop. For these reasons, the
selection of metrics should be as transparent and inclusive as possible,
with care and time devoted to syndication and achieving executive
buy-in.

10 Strategy&
Exhibit 2
Linking SPM to BAU management processes

Annual BU International financial

BU strategy plan budgets and plans reporting standards
and reporting and
CEO and CFO corporate plan 3 Link to
executive
incentives
BU/line of business heads

1 2
Update business
Management reporting Provide oversight review templates

1
Business unit CFOs Revise
performance
Line of business metrics (financial)
business financial officers
(if applicable)
1 Revise 3
Function management performance metrics Link to executive
(nonfinancial) incentives (HR)

Indicative time frame Jun–Oct Oct–Dec Dec–Jan

Revise BU, line of business, Update business review Link to executives’ annual
and function performance metrics templates to reflect changes goals and incentives

Annually

CEO and CFO 6

Business
review
sessions
BU/line of business heads
6 Remediation
plan
5 development
Data Collate business
Management reporting extraction review templates

4
Business unit CFOs
Populate business
review templates
Line of business (financial)
business financial officers
(if applicable)
4 Populate business
Function management review templates
(nonfinancial)
Monthly/quarterly business reviews

Conduct business review sessions

Develop remediation plans and follow-through

Monthly

Source: Strategy&

Strategy& 11
SPM in action

We have worked closely with several large, global financial institutions

to put the SPM methodology into practice at relatively low cost.
Although all three case studies in this report involve financial
institutions (see Exhibit 3, next page), SPM has broad applicability
across industries. SPM can be used in a variety of situations, from
implementing a growth-driven agenda to addressing challenges with
existing reporting methods. Implementing SPM, including metrics and
alignment with business-as-usual (BAU) processes, is a two- to three-
year journey depending on the organization’s readiness — although
some SPM benefits can be visible in 12 to 18 months.

In these cases, and in our general experience working with clients,

virtually all of the executives’ initial goals were met. We translated
strategic objectives into desired outcomes and developed key
performance indicators (KPIs) to improve executives’ ability to
proactively manage their business and achieve those strategic
objectives. The SPM methodology also reduced reporting overlap, as
well as variations in formats and frequency. New monthly reports were
designed with both financial and nonfinancial dimensions to build a
balanced scorecard, and executive reporting was streamlined by report
production through a shared-services center of excellence.

Some of the KPIs we developed helped executives understand the

true profitability of customer segments, products, and channels, which
allowed a client to refine its cost allocation methodology and develop
multidimensional P&Ls (e.g., direct activity costs, indirect activity costs,
and enterprise-sustaining costs by customer segments and products).

At most of these institutions, the following activities were required to

drive adoption of the SPM framework:

• Cascading strategic enterprise- and corporate-level objectives down

to BU and functional objectives

• Defining a KPI library aligned to the BU and functional objectives

12 Strategy&
Exhibit 3
Three firms that adopted SPM

Leading discount U.S. bank holding

brokerage company Global asset servicer

Business situation Business situation Business situation

– New CEO trying to establish – Regulatory pressures around – Significant pressure on cost and
new strategic agenda reporting for the company and managing operational risk
the BUs
– Fast-paced growth and – Limited transparency into
upcoming acquisition – Increased focus on performance, productivity, and
client-centric model and value added
– Change in customer
product offerings
expectations – Reactive approach to
management

Management reporting transformation

through SPM

Impact Impact Impact

– Strategic objectives translated – Consistent reporting structure – Metrics aligned to strategic
into KPIs to enable quick, and standards across six objectives
fact-based decision making business units
– Uniform standards across
– Enterprise KPIs cascaded to – Balanced scorecards to move operations organization and
functional areas for proactive away from financial-only metrics lines of business
progress tracking on strategy
– Reporting prototype to test and – Fewer and simplified reports,
– Multidimensional profitability validate product-centric with focus on “metrics that
framework with segment-level organization structure matter”
P&Ls
– Automated and streamlined
production of reports

Source: Strategy&

Strategy& 13
• Developing a consistent and detailed calculation methodology,
benchmarking requirements, and functional data requirements
for all KPIs

• Developing a KPI dashboard for each business unit and functional

area

• Creating mock-up monthly operating reports using the KPI library

as a proof of concept

• Refining the revenue and cost allocation methodology to develop

multidimensional P&Ls (client view, product view, and channel view)

• Identifying technology and infrastructure requirements, and

developing an execution and change management road map
encompassing approximately 12 to 18 months

14 Strategy&
Challenges with
implementing SPM

Although SPM offers enormous institutional benefits, any changes

that touch on accountability, incentives, and compensation inevitably
present challenges. First and foremost is the need to build executive
buy-in. SPM focuses on performance indicators rather than traditional
performance drivers, and executives need to agree on tracking,
reporting, and following these metrics.

To ensure this buy-in, the CEO or CFO must own the initiative and make
sure that executives accept the new or modified metrics. That said,
there must be a reasonable transition period — usually three to six
months depending on the readiness and maturity of the organization —
during which executives report on both the old and new metrics while
they get comfortable with the new reporting.

Another common hurdle to SPM adoption is ineffective top-down

communication on the importance, purpose, and objectives of SPM.
The root of this problem is often that senior leaders haven’t clearly
defined the strategy for themselves and therefore cannot articulate it
convincingly to others. Not surprisingly, this leads to confusion about
leaders’ goals and the rationale behind SPM adoption, and middle
management may interpret SPM as just one more report and not a
strategic initiative. Senior leaders need to develop something akin to
the classic elevator pitch.

Senior leaders must also guard against drowning in data by making

sure they focus on the “metrics that matter.” A company cannot be the
best at everything — at least not right away. So leaders need to
prioritize five to eight strategic objectives, choose a manageable handful
of metrics for each, and assign them to different leaders so no one
person becomes overwhelmed. It’s also important not to confuse SPM
metrics with operational reporting. SPM must inform operations — the
two sets of metric can’t be siloed, but they shouldn’t be conflated either.

Strategy& 15
Conclusion

To seize growth opportunities today, companies across industries must

become much nimbler. In large organizations, success has always
depended on all levels of the organization understanding corporate
strategy and how it translates into their day-to-day actions. The
difference now is that the business environment is in constant flux and
changes so rapidly. Agility is essential to keep up, and that means being
able to quickly change performance benchmarks and cascade those
changes down through the organization so the entire company can
work in concert to deliver on strategic goals. SPM is a powerful
methodology that can close the gap between strategy and execution.

16 Strategy&
Case study 1: A leading discount brokerage

A large discount brokerage had Second, these KPIs were cascaded

integrated several acquisitions down to all functional areas — such as
successfully over the previous 10 years, marketing, technology, operations, and
fueling fast growth, and its newest other supporting functions — by creating
acquisition was poised to increase the drill-down views of the metrics, thus
company’s revenues by 50 percent. The linking strategic goals to operational-
new CEO and CFO wanted to connect level actions and performance.
their strategy to day-to-day operations Dashboards were aligned by using a
more effectively — particularly when common language: for example, using
it came to meeting the changing the same definitions and parameters to
expectations of customers for more calculate the metrics across different
digital and self-service offerings. They business units and functional areas.
also wanted to better understand
profitability by each client segment, Finally, KPIs were designed to better
product, and geography. evaluate client segments. In the past,
the company understood revenue, but
The company rolled out strategic costs were more difficult to calculate and
performance measurement to allocate as there were many common
accomplish three key goals. First, it costs spread across the organization.
translated strategic objectives into The new set of KPIs allowed leaders
outcomes so it could measure using a to allocate costs more precisely to
limited number of key performance determine the true profitability of
indicators. business units and client segments.

Strategy& 17
Case study 2: A U.S. bank holding company

New U.S. regulations required an businesses on a regular basis. One of

international bank with large U.S. the big changes for this institution was
operations to create a U.S. bank holding to delve much deeper into nonfinancial
company for all its business units, metrics, such as client segments,
which included a commercial bank, products, and operations. In the past,
retail bank, wealth management unit, it had focused only on financial income
auto lending unit, and investment statements.
banking arm. In the past, these business
units reported results independently The executive also wanted to evaluate
with little uniformity. But the new switching the business strategy from
holding company structure required branch-based sales to product-based
that these BUs report results as a bank sales. That required organizational
holding company so results could be changes and the implementation of
rolled up. new metrics to measure profitability
by branch, client, and product. SPM
The new CEO settled on three strategic offered a way to stress-test the idea
objectives: creating a common language and various scenarios before full
among the BUs; driving consistency of implementation. A prototype of the
reporting across business units; and reporting templates for the executives
using uniform monthly reporting to was tested and refined before being
understand performance across the moved into production.

18 Strategy&
Case study 3: A global asset servicer

The CEO of this global asset servicer client experience. The metrics selected
felt that the company’s strategy was not to measure progress against that goal
well connected to the operational goals. were a client satisfaction index and a net
Moreover, there was little consistency advocacy score (which measures current
in reporting among business units, and customers’ willingness to promote the
executives were being sent too many institution to others).
reports on a daily basis — anywhere
from five to 10 — that did not aid One specific operational goal the
decision making. company settled on to improve those
two metrics was to drive average hold
Here, the SPM framework was used to time in the inbound customer service
streamline the reporting process, help call center to less than one minute. This
the company focus on “metrics that led to internal debates on whether the
matter,” and execute the strategy better company should hire more customer
by drawing a clear line from strategic service reps or invest in making the
goals to the outcomes. KPIs were defined process more efficient, questions that
to measure the progress against the were resolved through some rigorous
outcomes and the specific on-the-ground financial modeling and cost-benefit
operational initiatives that drove the analysis — a good example of connecting
KPIs. For example, one of the company’s strategic goals to day-to-day operational
strategic goals was to improve the decisions.

Strategy& 19
Strategy& is a global team These are complex and charting your corporate We are part of the PwC
of practical strategists high-stakes undertakings strategy, transforming a network of firms in 157
committed to helping you — often game-changing function or business unit, or countries with more than
seize essential advantage. transformations. We bring building critical capabilities, 223,000 people committed
100 years of strategy we’ll help you create the to delivering quality in
We do that by working consulting experience value you’re looking for assurance, tax, and advisory
alongside you to solve your and the unrivaled industry with speed, confidence, services. Tell us what
toughest problems and and functional capabilities and impact. matters to you and find out
helping you capture your of the PwC network to the more by visiting us at
greatest opportunities. task. Whether you’re strategyand.pwc.com.

www.strategyand.pwc.com
© 2017 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further
details. Mentions of Strategy& refer to the global team of practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com.
No reproduction is permitted in whole or part without written permission of PwC. Disclaimer: This content is for general purposes only, and should not be used as a substitute for consultation
with professional advisors.