Glossary of terms

Analytics The collection and analysis of data to generate insights that inform fact-based decision making.

Appraisal system A structured process to evaluate employee performance, usually performed once or twice a year.

Balanced scorecard (BSC) A BSC is a strategy execution tool that, at the most basic level, helps companies to:

• clarify strategy – articulate and communicate their business priorities and objectives across four perspectives
• monitor progress – measure to what extent the priorities and strategic objectives are being delivered
• define and manage action plans – ensure activities and initiatives are in place to deliver the priorities and strategic objectives.

A balanced scorecard consists of:

• a strategy map
• key performance indicators
• an action plan.

The four traditional BSC perspectives are:

• financial perspective – outlining the financial objectives
• customer perspective – outlining the objectives related to customers and the market
• internal process perspective – outlining the internal business process objectives
• learning and growth perspective – outlining the objectives related to employees, culture and the information system.

Benchmark Used to put performance data into context by providing a standard or reference point against which performance levels can be evaluated. Benchmarks can be set based on internal baseline data, as well as industry best practice or global best practice.

Benchmarking The process of comparing and improving one company’s performance (and practices) against others.

Big data Refers to the ever-increasing amounts of data we are now generating in the world. It is often characterised using the ‘4 Vs’:

• Volume – the vast amounts of data generated every second.
• Velocity – the speed at which new data are generated and move around (credit card fraud detection is a good example where millions of transactions are checked for unusual patterns in almost real time).
• Variety – the increasingly different types of data (from financial data to social media feeds, from photos to sensor data, from video capture to voice recordings).
• Veracity – the messiness of the data (think of Twitter posts with hash tags, abbreviations, typos and colloquial speech).

Big data analytics Refers to the analysis of data that come in vast volumes, are often fast-moving and are usually varied in formats (structured and unstructured). Big data are too messy for traditional business intelligence and analytics approaches.

BSC See balanced scorecard.

Business intelligence (BI) Refers to technologies, applications, and practices for collecting, integrating, analysing, and presenting business information. It should be defined more widely than just referring to BI software applications and analytics to incorporate a more strategic approach to better decision making.

Cash conversion cycle (CCC) A financial measure to assess the cash-flow position of a company. It measures how long it takes a company from initial resource input into actual cash flowing back in.

CCC See cash conversion cycle.

Chart A visual representation of metrics in symbols, such as bars, slices of a pie, lines, etc.

Customer perspective The customer perspective covers the customer objectives such as customer satisfaction, market share goals and product and service attributes.

Customer profitability A KPI to measure the extent to which a company is generating profits from its customers.

Dashboard Provides an at-a-glance representation of performance information using graphs, charts, gauges, RAG ratings, etc. It is usually presented on a single-page screen to provide a complete overview of the key elements of performance.

Data Data come in a myriad of forms. They include numbers, word, sounds or pictures, but without context (e.g. 15/3, 5, 68).

Data visualisation The visual representation of data using different tools such as graphs and charts.

D/E ratio Debt to equity ratio. A financial metric to assess the extent to which a company is financed through debts versus equity.

EBITDA Earnings before interest, tax, depreciation and amortisation. A financial performance indicator measuring the efficiency of the business’s operations.

Evidence-based management A management approach where decision making is based on data, analysis and facts.

Fact-based decision making Fact-based decision making simply means using good data, business intelligence and analytics to gain insights and then acting on those insights to gain competitive advantages. It is built on the premise that the best decisions are those supported by good data. The overall approach to fact-based decision making is called evidence-based management.

Financial perspective The financial perspective covers the financial objectives of an organisation and allows managers to track financial success and shareholder value.

Graph A graph is a visual representation of a relationship between two or more metrics. It usually compares the metrics along two axes (x and y).

Index A measure of performance that comprises a number of different metrics.

Info-graphic The artistic representation of data and information using different elements, including graphs, diagrams, narrative, timelines, checklists, etc.

Information A collection of words, numbers, sounds, or pictures that have meaning (e.g. on 15 March at 5 p.m., we were all at No. 68 Victoria Street).

Internal process perspective The internal process perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.

Key performance indicator (KPI) KPIs can be defined as measures that provide managers with the most important performance information to enable them or their stakeholders to understand the performance level of the organisation. KPIs should clearly link to the strategic objectives of the organisation and therefore help monitor the execution of the business strategy.

Key performance question (KPQ)  A KPQ is a management question that captures exactly what it is that managers need to know to better understand the performance of the company or organisation. A KPQ articulates the vital information needs and the biggest unanswered questions in relation to strategic business performance.

Knowledge This is acquired when we take in and understand information about a subject, which then allows us to form judgements to support decision making, and then act on it. We do this by using rules about how the world works that we have worked out based on lots of information from the past.

KPI See key performance indicator.

KPI library A free online library of key performance indicators at www.ap-institute.com.

KPQ See key performance question.

Lagging indicator A lagging indicator is a performance indicator that is influenced by changes in other leading indicators. Lagging indicators measure performance outcomes that are determined by other input factors. For example, today’s financial performance is a lagging indicator of customer satisfaction, which in turn is a lagging indicator of product quality.

Leading indicator A leading indicator is a performance indicator that predicts or influences changes in other performance indicators. For example, customer satisfaction and customer loyalty could be leading indicators for future sales and market share.

Learning and growth perspective The learning and growth perspective covers the intangible drivers of future success, such as human capital, organisational capital and information capital, including skills, training, organisational culture, leadership, systems and databases.

Measure A measure is a defined and agreed unit to quantify the size, amount or degree of something.

Metric A metric is any type of measure that is used to assess elements of performance.

Net profit A financial KPI measuring bottom-line performance.

Net promoter score (NPS) A customer satisfaction KPI based on a single question: How likely is it that you would recommend [company X, product Y, etc.] to a friend or colleague?

NPS See net promoter score.

Performance management A set of management processes, often supported by information technology, that help to improve the management, strategy execution and decision making in organisations. Performance management processes help companies define strategic objectives, measure performance, analyse and report performance as well as align people and culture.

Performance management framework A performance management framework is used to organise KPIs. The balanced scorecard is a popular performance management framework.

Performance measurement The process of measuring business performance. It usually involves collecting, analysing and reporting KPIs and performance metrics.

Performance report A report that communicates the performance of an organisation (or sub-division). It usually contains narrative, performance indicators, and graphs or charts. Increasingly, performance reports include RAG ratings and show trends and predictions of future performance. Performance reports can be delivered in hard copy or electronic format.

Predictive analytics The collection and analysis of data to make predictions about otherwise unknown events or the future.

RAG rating RAG rating stands for Red, Amber and Green rating, also referred to as traffic light reporting. It is a way of scoring performance indicators into three categories, where:

• Green indicates that performance is on or above target.
• Amber indicates that performance is below target but within acceptable levels.
• Red indicates that performance is below target and below acceptable levels.

Ratio A ratio is a comparison of two quantities to show how many times one quantity is contained within the other.

Return on assets (ROA) A financial performance indicator used to assess how well a company is able to generate profits from the assets it controls.

Return on capital employed (ROCE) A financial performance indicator used to assess how well a company is able to generate earnings from its capital investments

Return on equity (ROE) A financial performance indicator used to assess how well a company is using the investments made by shareholders to generate profits.

Return on investment (ROI) A financial measure used to evaluate the efficiency of an investment.

Scorecard Displays a collection of KPIs with some visual tools (e.g. RAG ratings, trend arrows, symbols) to indicate performance versus targets and benchmarks.

Six Sigma The Six Sigma metric (which was pioneered by Motorola in the late 1980s and later adopted very successfully by global giants such as General Electric and Honeywell as well as many other companies of various sizes) informs managers as to the stability and predictability of process results. The goal is that process defect or error rates will be no more than 3.4 per 1 million opportunities. As an analogy, consider a goalkeeper of a football team who plays 50 games in a season and who faces 50 shots from the opposing team in each game. If a defect is when the team scores, then a Six Sigma goalkeeper would concede one goal every 147 years!

Strategy A high-level plan outlining the most important objectives that have to be delivered in order to succeed or improve performance.

Strategy map A strategy map is a visual one-page representation of a company’s strategy. A strategy map places the four BSC perspectives in relation to each other to show that the strategic objectives in each perspective support each other.

A strategy map highlights that delivering the right performance in one perspective (e.g. financial success) can only be achieved by delivering the objectives in the other perspectives (e.g. delivering what customers want). You basically create a map of interlinked objectives. For example:

• The objectives in the learning and growth perspective (e.g. developing the right competencies) underpin the objectives in the internal process perspective (e.g. delivering high-quality business processes).
• The objectives in the internal process perspective (e.g. delivering high-quality business processes) underpin the objectives in the customer perspectives (e.g. gaining market share and repeat business).
• Delivering the customer objectives should then lead to the achievement of the financial objectives in the financial perspective.

Strategy maps therefore outline what an organisation wants to accomplish (financial and customer objectives) and how it plans to accomplish it (internal process and learning and growth objectives). This cause-and-effect logic is one of the most important elements of best-practice balanced scorecards. It allows companies to create a truly integrated set of strategic objectives on a single page. For a large number of real-world best-practice examples, please visit our website: www.ap-institute.com

Survey A survey is used to collect data from a specific group of people (e.g. your customers or employees). Surveys can be used to gather data from the entire set of customers, employees, etc. (the population) or a sub-set (a sample) and can be administered by mail (in hard copy) or in electronic format (e.g. e-mail or web-based).

Target Every KPI needs a target or benchmark to put current performance levels into context.

Traffic light reporting See RAG rating.