In this blog, I wish to apply the Performance Measurement I had discussed in previous blog using the aid of a case. I have applied it in my daily area of operations and found it beneficial in understanding performance
Background
A broking firm has a tie-up with two banks a public sector and private sector bank (let’s call them bank A and Bank B) for sales of their trading account. The banks Savings and demat account is linked with the trading account of the broking firm. This linked accounts enables the bank customers to do seamless share trading i.e. On Buying Shares the shares will come directly into their demat without the need for delivery instruction slip. On selling shares money will come directly into their savings account.
Business Models
In Bank A (public sector bank), the client can trade in two forms,
1) Online with usage of his net banking id and password to transfer funds
2) Offline by calling a dedicated Dealer for these bank clients. Here he need not use his net banking id and funds will be automatically debited (in case of share purchase) from his savings account. The dealer even does outbound calling
In Bank B (Private sector) the client can again trade in two forms
1) Online with usage of his net banking id and password to transfer funds
2) Offline by calling a toll free number, but using his net banking to transfer funds before he calls these numbers, without which he will not be able to place his trades. This is only an inbound calling number
In Bank A’s case, there is a possibility of trading without resorting to net banking or need for internet; Bank B clients have no choice of auto debits
Metrics
I am going to use only one metric here to propound on the application of Performance measurement standards.
Activity ratio is one way of evaluating steady revenues.
Activity ratio is defined as no: of customers traded in a month/total number of customers in the channel*100
Performance measurement(PM)
I am going to measure performance using terms used in the previous blog- actuality, capability and potentiality and apply the same framework to one task at hand(please refer to these terms explained in the previous blog)
Bank A- On an average, the Activity ratio hovers around 45%
Bank B -On an average, the Activity ratio hovers around 10%
My analysis for the difference in activity ratio amongst both bank is due to ease of transferring funds and a dedicated dealer for bank A accounting for these figures
Here the figures 10% and 45% stands for actuality
Applying the framework
I am going to use the PM framework on Bank B
My understanding is that capability for bank B is around 15% (based on activities that can be carried out without any disruption of other metrics)
Suppose the management decides that we need to increase the activity ratio. Then I believe the course of discussion would be as follows
Step 1- the productivity ratio should be increased
Productivity ratio (actuality/capability) for Bank B is 0.66
To increase the productivity ratio, a series of activities that can be carried out without hampering other function. These activities could be as follows
1) Telecalling exercise asking clients to trade, by the sales personnel without affecting his sales calls. Say around One hour a day.
2) Demos to inactive clients by sales personnel’s. (Again without dropping sales calls). Within the given constraints of personnel this cannot be a full time activity in the channel and has to be carried out alongside sales calls.
3) Engaging client by sending trade reports. This can be sent from time to time by sales force to keep the client interested
4) A one time activity involving customer care department to carry a telecalling activity finding out reasons for inactiveness and resolving technical issues etc if any. E.g. client must have lost his trading password, net banking not enabled for shopping mall transactions, not having net banking password etc.
.This would definitely increase the productivity ratio up a few points.
The second course of discussion would be what the extent of Latecy is and how it can be eliminated.
My assumption is that Potentiality would be around 55% active ratio( we already see it at 45% in Bank A) Hence to increase and measure performance of activity ratio without disruption on other metrics the management will have to change its model.
Latency (capability/potentiality) currently is around 0.27
Performance (latency*productivity) is around 0.1782
Now I propose the following steps that can be used to decrease latency
1) Bank B also having the option of trading without resorting to net banking. This can be done changing the product in such manner where customers can block fund instead of transferring fund using netbanking. This is already present in the market.
2) A dedicated dealer who not only can place trades on behalf of client but also block funds in his savings account as soon as a trade is placed.
3) Dealer involved in outbound calling and maintaining relationship
There will be an additional cost of dealer and product upgradation but the benefit will far outweigh the cost.
Conclusion
What I have just proposed is framework that helps in not only measuring performance but the direction one can take with these aids. Also the discussion on numbers is far more solid with these tools.
Definitely there are a lot more factors that can affect activity ratio such as market conditions, but the factors apply to everyone uniformly. Also in such a case, the potentiality itself will change without change in performance numbers. Hence absoluteness on measurement would not be valid.
Saturday, July 12, 2008
Monday, June 9, 2008
PERFORMANCE LED GROWTH VS PROFILE LED GROWTH
On an average, people with profiles on the revenue side of the organization have more importance within the system than others. Simple rule is the more revenue the department brings into the system, the more its relative importance.
But the next question comes to mind is whether Revenue contribution is equal to performance and should employees be evaluated or promoted based on their revenue contribution or Performance.
One cannot rule out the possibility that certain profiles have an inherent advantage in contributing growth as well as revenue to their organization, primarily due to external circumstances (industry growth, city, policy change etc) rather than the talent of those employees. So, if revenue led promotion is the norm which according to me is in most cases, than talent assessment itself is a myth.
Partly the reason for Revenue Led promotion is the norm is due to the extremely difficult nature of measuring performance. For e.g., unless the understanding and application of Statistical Variation (special and common causes) is not there, one cannot judge two salespersons in different markets/regions based on revenue contribution and pass a decision on their performance without factoring things such as client base, purchasing power of clients, etc. etc.
So is there a way out and more importantly what is Performance. I have come across the closest definition of performance proposed by the legendary cybernetician – Stafford Beer. The explanation in terms of ratios is as below
ACTUALITY/CAPABILITY = PRODUCTIVITY
CAPABILITY/POTENTIALITY = LATENCY
PRODUCTIVITY*LATENCY=PERFORMANCE
(Note: 1) Capability stands for given the constraints, what is the ability of the system?
2) Potentiality stands for, if certain processes/constraints are addressed, what would be the ability of the system? )
The closer the answer for performance is to 1 the more effective the individual, department is.
I admit the fact that determining the capability, potentiality is a itself a complicated task, but the above ratios gives us a framework to measure performance and have a fair evaluation for individual/departments.(as sated above, statistical variation can be good start for measuring sales performance across regions and determining capability)
Perhaps than talent assessment and Performance Measurement systems would lead to a fairer performance led growth.
But the next question comes to mind is whether Revenue contribution is equal to performance and should employees be evaluated or promoted based on their revenue contribution or Performance.
One cannot rule out the possibility that certain profiles have an inherent advantage in contributing growth as well as revenue to their organization, primarily due to external circumstances (industry growth, city, policy change etc) rather than the talent of those employees. So, if revenue led promotion is the norm which according to me is in most cases, than talent assessment itself is a myth.
Partly the reason for Revenue Led promotion is the norm is due to the extremely difficult nature of measuring performance. For e.g., unless the understanding and application of Statistical Variation (special and common causes) is not there, one cannot judge two salespersons in different markets/regions based on revenue contribution and pass a decision on their performance without factoring things such as client base, purchasing power of clients, etc. etc.
So is there a way out and more importantly what is Performance. I have come across the closest definition of performance proposed by the legendary cybernetician – Stafford Beer. The explanation in terms of ratios is as below
ACTUALITY/CAPABILITY = PRODUCTIVITY
CAPABILITY/POTENTIALITY = LATENCY
PRODUCTIVITY*LATENCY=PERFORMANCE
(Note: 1) Capability stands for given the constraints, what is the ability of the system?
2) Potentiality stands for, if certain processes/constraints are addressed, what would be the ability of the system? )
The closer the answer for performance is to 1 the more effective the individual, department is.
I admit the fact that determining the capability, potentiality is a itself a complicated task, but the above ratios gives us a framework to measure performance and have a fair evaluation for individual/departments.(as sated above, statistical variation can be good start for measuring sales performance across regions and determining capability)
Perhaps than talent assessment and Performance Measurement systems would lead to a fairer performance led growth.
Sunday, May 25, 2008
Absolute Surety And Sales
Carlos Castaneda has beautifully described that every individual who seeks knowledge has to approach it as a warrior. He mentions 4 conditions that have to be satisfied for the same viz.
1) High Alertness
2) Fear
3) Respect
4) Absolute surety
The interesting point to notice is the 4th point which mentions that if an individual does not believe, he is going to win, he/she will surely loose. One cannot have the time to entertain thoughts of loss et al when you are in the firing zone.
The question is, do all the conditionalities mentioned above apply while approaching Sales Targets? To a large extent, my answer is Yes. There has to be alertness to Sales opportunities, Fear of no knowing where it’s going to come from, Respect – Well not sure how this applies, But definitely, without the belief and surety that Sales targets are going to be met, it is difficult to consistently meet expectations (The role of target setting and shaping of belief/surety can be debated but perhaps in a later blog)
1) High Alertness
2) Fear
3) Respect
4) Absolute surety
The interesting point to notice is the 4th point which mentions that if an individual does not believe, he is going to win, he/she will surely loose. One cannot have the time to entertain thoughts of loss et al when you are in the firing zone.
The question is, do all the conditionalities mentioned above apply while approaching Sales Targets? To a large extent, my answer is Yes. There has to be alertness to Sales opportunities, Fear of no knowing where it’s going to come from, Respect – Well not sure how this applies, But definitely, without the belief and surety that Sales targets are going to be met, it is difficult to consistently meet expectations (The role of target setting and shaping of belief/surety can be debated but perhaps in a later blog)
Saturday, April 26, 2008
On Models Reality and Models
Since any business is too complex to comprehend, each and every employee has a model of the realities of business in his head. Most conflicts or solutions are a clash or agreement of the models we hold.
I believe there are two broad ways every manager comes to a decision of the model he holds.
The first types are those who bring their personalities, values, taste, background etc into the model of the business they operate in. This model in their head bears their imprint very sharply. Typically these managers would keep harping the same point and same solutions as they face their day to day difficulties. E.g. I come across sales managers saying we need to increase pressure if sales are not happening. The model here being that pressure is everything and there can be no other complexities of the business that can be addressed.
The second types are those who wrestle with the realities and likewise go through the stage of developing, modifying re-developing and solidifying the models in their head. Their model factors the realities faced on ground and role of their belief system is to a large extent minimized in the formation of the model. The second type acknowledges that there is more to business than what meets the eye and hence would bring the same out in the open.
My take is that the second approach has a capacity to deal and hence direct energies in more productive manner bearing better results. In the first case, the manager can impinge on the solutions without the critical issue being taken care of.
I believe there are two broad ways every manager comes to a decision of the model he holds.
The first types are those who bring their personalities, values, taste, background etc into the model of the business they operate in. This model in their head bears their imprint very sharply. Typically these managers would keep harping the same point and same solutions as they face their day to day difficulties. E.g. I come across sales managers saying we need to increase pressure if sales are not happening. The model here being that pressure is everything and there can be no other complexities of the business that can be addressed.
The second types are those who wrestle with the realities and likewise go through the stage of developing, modifying re-developing and solidifying the models in their head. Their model factors the realities faced on ground and role of their belief system is to a large extent minimized in the formation of the model. The second type acknowledges that there is more to business than what meets the eye and hence would bring the same out in the open.
My take is that the second approach has a capacity to deal and hence direct energies in more productive manner bearing better results. In the first case, the manager can impinge on the solutions without the critical issue being taken care of.
Sunday, February 17, 2008
SALARY TRAP AND ATTRITION
In every organization, revenue is generated by the most frontline Sales staff. Hence these soldiers of organizations are subjected to more stress and accountability than any other personnel’s in the entire organization. A level up and everything is an exercise in creative vocabulary. (Except in cases where managerial talent is well rounded)
In a recent article I read in economic time, it was mentioned that 90% of financial jobs are comprised of Sales function. We also see a very high attrition amongst the same group. Since demand exceeds supply for these jobs in financial sector, there has been an explosion in salary offered to the sales employees.
Here comes the interesting part. Being revenue generators, every sales staff has not only to justify his salary but also justify the salary of his seniors and higher ups. With rising salaries, there has been an exponential increase in targets set for this group. My take on retail sales is that there are limitations in the extent of target that can be achieved since the there is hardly any scope for innovation in sales function. It is an exercise in discipline rather than mental agility (such as creating new channels or product innovations leading to windfall earnings). The job of a frontline sales staff is to run and his running is limited by the time available to him. Since his targets are huge, he has to keep running till the time he is completely exhausted. Yet the salary offered is not justified. This leads to frustrations leading to these employees looking for change.
Of course the employee will change provide he gets a better package? Profile change is not that easy (90% jobs comprised of sales). Organisations are left with little choice but offer higher salaries or else struggle to cope with lack of personnel’s. Which means the cycle of higher salaries and proportionate targets for the personnel is again reinforced leading to same events being repeated. It appears a never ending cycle till industry stabilizes.
In a recent article I read in economic time, it was mentioned that 90% of financial jobs are comprised of Sales function. We also see a very high attrition amongst the same group. Since demand exceeds supply for these jobs in financial sector, there has been an explosion in salary offered to the sales employees.
Here comes the interesting part. Being revenue generators, every sales staff has not only to justify his salary but also justify the salary of his seniors and higher ups. With rising salaries, there has been an exponential increase in targets set for this group. My take on retail sales is that there are limitations in the extent of target that can be achieved since the there is hardly any scope for innovation in sales function. It is an exercise in discipline rather than mental agility (such as creating new channels or product innovations leading to windfall earnings). The job of a frontline sales staff is to run and his running is limited by the time available to him. Since his targets are huge, he has to keep running till the time he is completely exhausted. Yet the salary offered is not justified. This leads to frustrations leading to these employees looking for change.
Of course the employee will change provide he gets a better package? Profile change is not that easy (90% jobs comprised of sales). Organisations are left with little choice but offer higher salaries or else struggle to cope with lack of personnel’s. Which means the cycle of higher salaries and proportionate targets for the personnel is again reinforced leading to same events being repeated. It appears a never ending cycle till industry stabilizes.
Sunday, December 16, 2007
Evolving nature of financial sales
I have observed that selling retail financial services is getting tougher with the passage of time.
My feel is the way in which financial industry has evolved has led to these difficulties
On one hand the sheer number of financial companies with their equally larger product/services offering has made this industry highly competitive.
On the other, customers are more savvy about the choices available to them. They are also wary about the financial salesmen showing them the moon and delivering very little on them. Hence customers go with the assumption that the salesman is lying until proven otherwise, keeping other factors in check for the moment.
From a sales personnel’s point of view, the sheer pressure from top management to sell leaves them no option but to promise stars and hope the customer falls in the trap.
Since customers have become very choosy, the only option left for them is to keep meeting more and more client with the objective that a larger sample size would help them in achieving their targets.
Now for every financial company, the effort to reward ratio (for salesman) would vary based on brand image, size, sector etc. Hence an ICICI would be a lot easier to sell than a DCB product.
So for every salesman, his sample size for achieving his targets would vary based on above parameters. E.g. Keeping things same (sales skill, target audience etc), An LIC salesman would have to meet 10 customers to achieve 1 closure, The salesman from Bharati AXA would have to meet 30 customers for achieving the same.
Hence it is important for each prospective employee to know the effort to reward ratio of the company he is joining. After all just as he would promise the stars, the company might just be doing the same to him at the time of joining.
My feel is the way in which financial industry has evolved has led to these difficulties
On one hand the sheer number of financial companies with their equally larger product/services offering has made this industry highly competitive.
On the other, customers are more savvy about the choices available to them. They are also wary about the financial salesmen showing them the moon and delivering very little on them. Hence customers go with the assumption that the salesman is lying until proven otherwise, keeping other factors in check for the moment.
From a sales personnel’s point of view, the sheer pressure from top management to sell leaves them no option but to promise stars and hope the customer falls in the trap.
Since customers have become very choosy, the only option left for them is to keep meeting more and more client with the objective that a larger sample size would help them in achieving their targets.
Now for every financial company, the effort to reward ratio (for salesman) would vary based on brand image, size, sector etc. Hence an ICICI would be a lot easier to sell than a DCB product.
So for every salesman, his sample size for achieving his targets would vary based on above parameters. E.g. Keeping things same (sales skill, target audience etc), An LIC salesman would have to meet 10 customers to achieve 1 closure, The salesman from Bharati AXA would have to meet 30 customers for achieving the same.
Hence it is important for each prospective employee to know the effort to reward ratio of the company he is joining. After all just as he would promise the stars, the company might just be doing the same to him at the time of joining.
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