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Google KPIs – Q4 2010 financial performance results

Tuesday, January 25th, 2011

Google Inc. recently announced the financial results from Q4 2010, reporting revenues of $8.44 billion, a 26% growth compared to Q4 2009.

Source: Google Inc. (2011)

The financial Key Performance Indicators (KPIs) highlighted in the press release are:

  • $ Revenues: revenues of $8.44 billion in the fourth quarter of 2010, representing a 26% increase over fourth quarter 2009 revenues of $6.67 billion
  • $ Google sites revenues: Sites owned by Google generated revenues of $5.67 billion, or 67% of total revenues, representing a 28% growth over fourth quarter 2009 revenues of $4.42 billion.
  • $ Google network revenues: Google’s partner sites generated revenues, through AdSense programs, of $2.50 billion, or 30% of total revenues, representing a 22% increase from fourth quarter 2009 network revenues of $2.04 billion.
  • $ International revenues: $4.38 billion, representing 52% of total revenues in the fourth quarter of 2010, compared to 53% in the fourth quarter of 2009.
  • $ Paid clicks: Aggregate paid clicks revenue with increased  18% over the fourth quarter of 2009.
  • $ Cost per click: Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 5% over the fourth quarter of 2009.
  • $ Traffic Acquisition Costs (TAC): Revenues shared with Google’s partners, increased to $2.07 billion in the fourth quarter of 2010, compared to TAC of $1.72 billion in the fourth quarter of 2009.
  • $ Stock Based Compensation (SBC): $396 million, compared to $276 million in the fourth quarter of 2009.
  • $ Operating expenses: $2.51 billion, representing 30% of revenues.
  • $ Operating income: $2.98 billion, representing 35% of revenues.
  • $ Income taxes: Effective tax rate was 19%.
  • $ Net income: $2.54 billion, compared to $1.97 billion in the fourth quarter of 2009.
  • $ Cash flow and capital expenditures: Net cash provided by operating activities in the fourth quarter of 2010 totaled $3.53 billion, compared to $2.73 billion in the fourth quarter of 2009.
  • $ Cash: $35 billion.
  • # Headcount: 24.400 employees (Google Inc., 2011).

“Q4 marked a terrific end to a stellar year“, said Eric Schmidt, CEO of Google. “Our strong performance has been driven by a rapidly growing digital economy, continuous product innovation that benefits both users and advertisers, and by the extraordinary momentum of our newer businesses, such as display and mobile. These results give us the optimism and confidence to invest heavily in future growth — investments that will benefit our users, Google and the wider web.” (Google Inc., 2011)

For more information, a live audio webcast of Google’s fourth quarter and fiscal year 2010 earnings release is now available online.

Source: GoogleIR (2011)

For more examples of KPIs in practice reports reflecting financial performance , visit the Finance KPIs and Accounting KPIs sections.

References:

Google Inc. (2011), Google Announces Fourth Quarter and Fiscal Year 2010 Results and Management Changes, available at: http://investor.google.com/earnings/2010/Q4_google_earnings.html (accessed 21st January 2011)

GoogleIR (2011), Q4 2010 Earnings Call, available at: http://www.youtube.com/watch?v=J-jVzQm8kAs (accessed 21st January 2011)

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Employment impact of European ports

Monday, December 27th, 2010

The Dock labour and port-related employment report (Notteboom, 2010), released earlier this year with support from the Institute of Transport and Maritime Management Antwerp, presents a thorough analysis of the key factors to port competitiveness and reform, underlining also the importance of dock labour system implementation and the impact of port-related employment.

Being important job generators, the European ports generate massive direct employment effects within the logistics and industrial cluster in the port system. The vast labour force serving in the port industry covers large loading and unloading operations, ship operations and services (agencies, pilotage, towage and bunkering), land transport, logistics activities, cargo services (e.g. freight forwarding and customs broking) etc. These activities provide people with wages, salaries and other earnings and are a major source of tax revenues for governments at different geographical levels (Notteboom, 2010).

The competitiveness of seaport is influenced by the skills of the port-related employees, as well as by the efficiency and effectiveness of loading and discharging activities. Dock labour systems are highly important for the seaports employment level and the value-added created by the port employees, conferring  the management framework of  the infrastructure projects in European seaports.

The figure presented subsequently illustrates a framework for the organization of port labour, in terms of both internal and external organization. For internal organization, Notteboom (2010) underlines the importance of  performance indicators in terms of labour cost and productivity, that can influence the outputs of dock labour systems.  External organization regards mainly legal and social conditions, required by external parties.

Source: Notteboom (2010)

The report also presents various socio-economic indicators to evaluate the impact of employment within the European ports, such as the employment level and its added value. Employment figures can serve as criteria for budget allocation of public infrastructure funds, as well as a criteria in awarding terminals to private terminal operators or as public relations tool in dealing with stakeholders and the general public.

A summary of the employment impact of ports is presented below, based on the Dutch ports example during 2002 – 2007. The economic significance is defined in terms of added value, employment, business establishments, business dynamics and private investments.

Source: Notteboom (2010)

Offering a broader perspective upon the port competitiveness and reform, Dock labour and port-related employment report provides a deeper understanding of the dynamics behind port employment and labour. Aiming for a balanced approach, the analysis takes into account considerations and development related to the general employment impact of ports as well as those at the level of dock labour. The findings of the report serve as input for the ongoing discussion on the role of the human factor in the European port system (Notteboom, 2010).

References:

Notteboom, T. (2010), Dock labour and port–related employment in the European seaport system, available at: http://www.espo.be/ (accessed 20 December 2010)

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Measuring performance in non-profit organisations

Thursday, September 2nd, 2010

A recent www.smartKPIs.com blog post, ‘Social and Financial Performance of Microfinance Institutions’, outlined that Microfinance Institutions (MFIs) are strongly associated with a social mission, therefore MFIs performance focuses both on social impact and financial outcomes (smartKPIs.com, 2010).

In turn, Non-profit organisations manage and measure performance using various KPIs in order to cover social impact performance, financial and grant performance, as well as effectiveness and other operational aspects. However, in comparison to MFIs, non-profit organisations use specific KPIs for their domain and less customer oriented indicators.

A newly published KPI in practice, The Global Fund to Fight AIDS, Tuberculosis and Malaria, presents a customized approach regarding performance management, by developing its own performance framework with annual KPIs for review.

Their performance framework is shaped as a pyramid, building from an assessment of the core functions of the Global Fund Secretariat at the base, through evaluation of grant performance and the effectiveness of Global Fund financing, to measuring the impact achieved on the three epidemics: AIDS, Tuberculosis and Malaria (The Global Fund, 2010).

Framework Overview

Source: The Global Fund (2010)

The performance framework implementation presents the following benefits:

  • differentiating the organizational performance of the Global Fund and the performance of the Secretariat’s internal operations
  • facilitating the assignment of responsibilities to different teams
  • offering a stable and comprehensive measurement framework over time
  • grouping KPIs into different areas of performance
  • aligning the reporting frequencies with the data availability and reporting systems (The Global Fund, 2010).

For additional information with regards to The Global Fund KPI in practice and for further examples of non-profit performance reports explore the Non-Profit / Non-governmental KPIs in practice section of smartkpis.com (smartKPIs.com 2010).

References:

The Global Fund 2010, Key Performance Indicators, available at: http://www.theglobalfund.org/en/performance/kpi/ (accessed 1 September 2010)

smartKPIs.com 2010, Social and Financial Performance of Microfinance Institutions, available at: http://www.smartkpis.com/blog/2010/06/02/social-and-financial-performance-of-microfinance-institutions/ (accessed 1 September 2010)

smartKPIs.com 2010, Non-Profit / Non-governmental KPIs in practice, available at: http://www.smartkpis.com/kpi_examples_in_practice/industries/non-profit-non-governmental/ (accessed 1 September 2010)

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Gallup Potential Net Migration Index – Singapore – New Zealand – Saudi Arabia – Canada – Switzerland – Australia – Kuwait atop

Wednesday, August 25th, 2010

A study recently released by Gallup, on the topic of the Potential Net Migration Index shows that nations such as Singapore, New Zealand, Saudi Arabia, Canada, Switzerland and Australia are atop the list of countries that could see the highest net adult population growth from international migration. In the scenario in which all the borders are opened and population can move freely from one country to another, following their wishes as expressed in the survey, some of these countries could double their population according with the study.

Source: Adapted from Gallup, 2010

At the other end of the table, the countries that potentially could lose the biggest population number, in some countries the values going as high as half of the current population size are: Sierra Leone, Haiti, Zimbabwe, Nigeria, Ethiopia or El Salvador.

Source: Adapted from Gallup, 2010

Definition of the index

# Potential Net Migration Index (PMMI): “Measures the estimated number of adults who express their wishes to move permanently out of a country if the opportunity arose subtracted from the estimated number who would like to move into it and calculated as a proportion from the total adult population currently residing in the country.”

Calculation formula

[(A-B)/C]*100, where

  • A = # Estimated adults who express their wishes to move into it
  • B = # Estimated adults who express their wishes to move out from a country
  • C = # Adult population currently residing in the country

Methodology

The study is survey based and uses for the calculation Gallup’s Potential Net Migration Index. The methods used for the survey data collection are telephone interviews and face to face interviews.

Data collection

The survey takes in consideration 148 countries, which represent almost 95% of the global population and was conducted between 2007 and 2010 on more than 350,000 adults.

Survey questions

The survey data is subtracted from two questions:

• “Ideally if you had the opportunity, would you like to move permanently to another country, or would you prefer to continue living in this country? If Yes

• To which country would you like to move?

Study limitations

• The Gallup’s findings reflect people wishes rather than their intentions.

• Index scores are not reported for countries were the sample was smaller than 500, such as Belize, Cyprus or Iceland, due to the index volatility

• In Gulf Cooperation Council countries only Arab nationals and Arab expatriates were surveyed

• Index scores are not reported for countries such as Qatar or United Arab Emirates where the expat population make up more than 50% of the adult population.

• Most importantly, the rankings are powerfully influenced by the size of the current population. Countries such as USA, which is the most preferred country for immigration doesn’t show up in the top ranking spots due to its high population size.

Conclusion

Though is based mostly on the interviewed people’s wishes and on an ideal situation or hypothesis in which the population is free to move from one country to another without any restriction, the study raise important questions for the world countries leaders. A couple of them could be:

  • What would be the real implications if these desires become reality?
  • What future actions need to be pursued to keep a state of equilibrium in the world?

References

Gallup (2010),  Migration Could Triple Populations in Some Wealthy Nations, article by Neli Esipova and Julie Ray, released on 20 August 2010, available at http://www.gallup.com/poll/142364/Migration-Triple-Populations-Wealthy-Nations.aspx#1, (accessed 25 August 2010)

* data based on www.wikipedia.com, Country Reports

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From Canon to HP: values, objectives and press releases

Saturday, August 21st, 2010

smartKPIs.com Performance Architect update 33/2010

In my previous blog post I reviewed the approach Canon Inc. has to strategic planning and how its actions reflect the corporate strategic direction. While researching the topic I came across the Hewlett-Packard Company (HP) website. HP is considered today the world’s largest IT company, with 304,000 employees worldwide, 1 billion customers in 170 countries, revenue totaling $114.6 billion for fiscal 2009 (HP, 2010a) and a market capitalization of $86.81 billion (Google Finance).

For the last few weeks HP has been in a turmoil with the abrupt resignation of the CEO, so I started comparing the press releases of the two companies for the month of August 2010:

Canon, 2010 (4 releases for the period, I have selected 3 in the list below):

HP, 2010b (15 press releases for the period, I have selected 6 in the list below):

In the case of Canon, as my previous blog post “Canon – kyosei, humanity and excellence” illustrated, empirical observations of secondary data available on the company website suggest alignment between the corporate philosophy, actions and results.

The situation is different in the case of HP. The corporate philosophy lists the usual elements you would expect to find (HP, 2010c):

  • Passion for customers – We put our customers first in everything we do.
  • Trust and respect for individuals – We work together to create a culture of inclusion built on trust, respect and dignity for all.
  • Achievement and contribution – We strive for excellence in all we do; each person’s contribution is critical to our success.
  • Results through teamwork – We effectively collaborate, always looking for more efficient ways to serve our customers.
  • Speed and agility – We are resourceful and adaptable, and we achieve results faster than our competitors.
  • Meaningful innovation – We are the technology company that invents the useful and the significant.
  • Uncompromising integrity – We are open, honest and direct in our dealings.

Even the objectives of the organization have some similarities to the ones from Canon, such as leadership and global citizenship. However, according to HP, they were first written in 1957 by co-founders Bill Hewlett and Dave Packard:

  • Customer loyalty – We earn customer respect and loyalty by consistently providing the highest quality and value.
  • Profit – We achieve sufficient profit to finance growth, create value for our shareholders and achieve our corporate objectives.
  • Growth – We recognize and seize opportunities for growth that builds upon our strengths and competencies.
  • Market leadership – We lead in the marketplace by developing and delivering useful and innovative products, services and solutions.
  • Commitment to employees – We demonstrate our commitment to employees by promoting and rewarding based on performance and by creating a work environment that reflects our values.
  • Leadership capability – We develop leaders at all levels who achieve business results, exemplify our values and lead us to grow and win.
  • Global citizenship – We fulfill our responsibility to society by being an economic, intellectual and social asset to each country and community where we do business.

When it comes to how HP press releases reflect these statements, a mixed picture emerges. A settlement with the U.S. Department of Justice (regarding an award schedule contract investigation) and the resignation of the CEO (after a sexual harassment probe uncovered subterfuge with company expenses) are actions largely misaligned with the stated values and objectives. No doubt HP is a successful company. Its financial results, commercial performance and innovation capability all contribute to making it the number 1 IT company in the world.

However the question of how important is the alignment between the corporate philosophy (vision, values, objectives) and actions is a valid one. Further research would be useful to uncover these relationships. Or perhaps only time will tell.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,

www.smartKPIs.com


References

Canon, 2010, Canon News / Press Releases 2010, available at http://www.canon.com/news, accessed 21 August 2010.

Google Finance, 2010, HPQ Stock price graph, available at: http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1284363992211&chddm=24633&chls=IntervalBasedLine&cmpto=NYSE:CAJ&cmptdms=0&q=NYSE:HPQ&ntsp=0, accessed 21 August 2010.

HP, 2010a, Fast Facts about HP, available at http://www8.hp.com/us/en/hp-information/about-hp/index.html, accessed 21 August 2010.

HP, 2010b, HP 2010 news releases, available at http://www.gartner.com/technology/media-products/reprints/hpipg/article1/article1.html, accessed 21 August 2010.

HP, 2010c, HP corporate objectives and shared values, available at http://www8.hp.com/us/en/hp-information/about-hp/corporate-objectives.html, accessed 21 August 2010.

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

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Canon – kyosei, humanity and excellence

Saturday, August 14th, 2010

smartKPIs.com Performance Architect update 32/2010

Canon Inc. is today one of the largest electronics manufacturers in the world. They produce paper copying machines, printers, projectors, binoculars and calculators and cameras among others. While their products are widely appreciated for their quality and demonstrated craftsmanship, the business philosophy of the organization is truly intriguing. It is characterized by simplicity, long term thinking, humanism and harmony. It is also well communicated and most importantly, it works.

Discovering this philosophy is easy: it is two clicks away from the homepage: “Corporate info” and “About Canon”. The emphasis on people and dialogue starts with a message from top management. It shows that the company is made of people and thrives on the relationship with people. Messages from both Fujio Mitarai (Chairman and CEO) and Tsuneji Uchida (President and COO) conclude with the same phrase “…look forward to your continued understanding and support.” Both messages are brief and the key themes are illustrated by several keywords: Excellent Global Corporation Plan, total optimization and profit, Improved management quality, corporate philosophy of kyosei, overwhelming No.1 market position in all current business areas, “cross-media imaging”, joining the ranks of the world’s top 100 companies in terms of all key business performance indicators, spirit of “Speed and Quality”.

A unique characteristic of Canon’s corporate profile is having a declared corporate philosophy – kyosei. This was announced in 1988 and now used in Japan to express a range of meanings. Canon’s interpretation of the term is stated as: “All people, regardless of race, religion or culture, harmoniously living and working together into the future.” While a big ask coming from an electronics manufacturer, it outlines a commitment to cut across traditional boundaries of corporate priorities and operate using an integrative approach. This desiderate is more than corporate discourse, as it is supported by a long term plan to get closer to it.

The “Excellent Global Corporation Plan” was launched in 1996 and is now in the final year of its third phase. Five key strategies characterize this phase:

  • Achieve the overwhelming No.1 position worldwide in all current core businesses
  • Expand business operations through diversification
  • Identify new business domains and accumulate required technologies
  • Establish new production systems to sustain international competitiveness
  • Nurture truly autonomous individuals and promote effective corporate reforms

Of these, the most intriguing one is the inclusion of a people oriented strategy along with strategies that fall in the traditional business domain. This latter strategy is described as aiming at nurturing future global leaders and cultivating individuals society can rely on. It may sound surprising coming from an electronics manufacturer, as such aims are generally in the realm of educational institutions. It is however a type of thinking that should perhaps be embraced by more organizations committed to improving the quality of life in the 21st century.

Canon’s corporate DNA is simply illustrated by three elements: respect for humanity, emphasis on technology and enterprising spirit.

At an individual level, three guiding principles form the “San-ji spirit”, which dates back to the establishment of the company:

  • Self-motivation - Take the initiative and be proactive in all things;
  • Self-management – Conduct oneself with responsibility and accountability;
  • Self-awareness - Understand one’s situation and role in all situations.

The Key Performance Indicators used by Canon in managing its growth are illustrated in a separate section of the Annual Report:

  • Net sales
  • Gross profit to net sales ratio
  • R&D expense to net sales ratio
  • Operating profit to net sales ratio
  • Inventory turnover measured in days
  • Debt to total assets ratio
  • Canon Inc. stockholders’ equity to total assets ratio

While they are dominated by financial ratios, they reflect the same approach as with the corporate strategy – simple and informative. Each KPI is explained in detail in the 2009 Annual Report (p.44-45), outlining the reasons for selecting them, the value they add and the way they are calculated.

Illustrating how Canon’s business philosophy goes beyond discourse to making a difference, the latest press releases featured on the homepage this month, represent a sincere combination of humanity and excellence:

All part of a forward looking corporate philosophy:

“…the presence of imbalances in the world in such areas as trade, income levels and the environment hinders the achievement of kyosei. Addressing these imbalances is an ongoing mission, and Canon is doing its part by actively pursuing kyosei. True global companies must foster good relations, not only with their customers and the communities in which they operate, but also with nations and the environment. They must also bear the responsibility for the impact of their activities on society. For this reason, Canon’s goal is to contribute to global prosperity and people’s well-being, which will lead to continuing growth and bring the world closer to achieving kyosei”

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,

www.smartKPIs.com

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

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The Quest for Quality and Improved Performance – an initiative of The Health Foundation

Tuesday, July 20th, 2010

The Health Foundation, the independent charity working to achieve high quality healthcare for people in the UK, has celebrated this year the conclusion of one of their main research programs: Quest for Quality and Improved Performance (QQUIP).

The research has been conducted during 2005-2010, to provide independent results about the quality and performance of the healthcare provision. Its purpose is to provide answers to three questions regarding healthcare, considered fundamental (The Health Foundation 2010):

  1. What is the current state of healthcare and performance?
  2. What works to improve quality and performance?
  3. Is value for money obtained from what is spent in the National Healthcare System (NHS)?

The program has had three different streams of research, as shown below:

Source: The Health Foundation, 2010

The Quality Enhancing Interventions were identified as six main areas where efforts should be put so as to improve quality and performance:

  • Patient focused interventions
  • Regulatory interventions
  • Incentives
  • Data-driven and IT based interventions (which was broken into Performance Reporting & Accountability and Information & Knowledge Management)
  • Organizational interventions
  • Healthcare delivery models.

Source: The Health Foundation, 2010

During the time interval of the research, several outputs in the shape of reports were produced, studying issues such as:

  • Patient and public experience in the NHS
  • Value from money in the English NHS
  • Regulation and quality improvement
  • Costs and benefits of health information technologies
  • Safe and risk management in hospitals.

For more about the QQUIP initiative, visit The Health Foundation’s webpage, or directly download the research reports.

References:

The Health Foundation 2010, Quest for Quality and Improved Performance, available at: http://www.health.org.uk/current_work/research_development/qquip.html (accessed 3 July 2010).

The Health Foundation 2010, Quest for Quality and Improved Performance Brochure, available at: http://www.health.org.uk/document.rm?id=1178 (accessed 3 July 2010).

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Executive compensation and performance

Tuesday, July 13th, 2010

The compensation of the top executives represents an important aspect of administrative science, as it links together aspects that relate to corporate governance, human capital, organizational culture and performance management. Ideally, the executive remuneration philosophy of the organization should ensure that the remuneration properly reflects the duties and responsibilities of its executives and that remuneration is competitive in attracting, motivating and retaining people of the highest caliber.

Top executives are increasingly negotiating formal contracts that typically last 3-5 years and that specify minimum base salaries, target bonus payments, severance arrangements.

Most senior executive pay packages contain four basic elements:

  • Base Salary
  • Annual Bonus
  • Share Options
  • Long Term Incentive Plans

Additional components of pay can include:

  • Restricted Stock
  • Retirement Plans

An example of such a reward program mix is illustrated below. It contains elements specific to the industry in which the organisation operates, in this case aviation (Qantas Group, 2007):

  • Fixed Annual Remuneration (FAR)
  • The Performance Plan, comprising:
    • the Performance Cash Plan (PCP) – a short term cash incentive; and
    • the Performance Equity Plan – made up of a medium-term incentive, the Performance Share Pln (PSP) and a long-term incentive, the Performance Rights Plan (PRP);
  • Concesionary Travel Entitlements, some targeted retention arrangements and other discretionary benefits considered appropriate from time to time.

    • Source: Qantas Group, 2007

Another important issue is the retention aspect and the fact that executives have more job options than other employees. They also tend to have relatively high levels of confidence in their abilities and may be more willing to leave the organization (Bacal, 2004). The importance of motivating executives through a proper reward system in place is essential in this context.

However, common perceptions regarding executive compensation can also be surprising. In an interview with Forbes magazine (Forbes, 2010), compensation expert Robin A. Ferracone identified two characteristics of executive compensation in the 1500 S&P companies reviewed:

  • only 5% of S&P 1500 executives receive on a performance adjusted basis of over $25-100 million per year. These are considered the extremes that attract a lot of media attention.
  • only about 8% of the differences in pay are driven by performance. The size of the company and industry are bigger influencers of the CEO compensation package compared to the influence performance has.

Additional resources

The 2009 report of the Conference Board Task Force on Executive Compensation.

The smartKPIs.com library of remuneration and compensation KPIs examples.

References

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Sport Management Performance Case Study: Competitive balance in the major football european leagues

Thursday, July 1st, 2010



Several months ago, Ernst & Young Global Media & Entertainment center launched the 6th edition of the ‘Football meets finance study’. In this latest edition the analysts from Ernst & Young are continuing a much debated topic in European football, the media rights and the impact on competitive balance.

According with the Ernst & Young analysts, competitive balance or CB in team sports refers to “the equilibrium of the sporting competition between different leagues of one sport or within a league or competition”.

The importance of competitive balance for team sports, as proved by a multitude of empirical studies comes from the fact that the uncertainty on the match results has a positive impact in the number of spectators coming at stadiums as well as television viewers. An unbalanced competition will have a negative impact on keeping the excitement of the competition at high levels and thus it will not be able to maximize the number of spectators and viewers. This in turn creates a double negative impact both on clubs who will earn less from their tickets sales and TV rights and for the public, as football is one of the most followed sports by people.

In order to determine the level of competitive balance in the five major European Leagues and rank them accordingly by computing an average score, the analysts from Ernst & Young based their study on a set of 7 unique Key Performance Indicators. The indicators analyze:

• # Level of excitement - based both on seasonal and teams components

• # Standard deviation of the top 5 clubs over 15 years

• # Competition for the title

• # Champions League qualifications

• # Swift relegation

• # Volatility among top five and bottom three clubs – from each analyzed league

According with the overall ranking that can be viewed in the figure below, Germany has the most balanced football competition, followed at a very close range by France. The football leagues from Spain and Italy trail well behind on the third and fourth spot, while the English football league was the lowest rated. This means that English league is the most unbalanced and predictable in terms of match results expectations.

Source: Ernst & Young, 2009

One of the main impact factors for the unbalanced competitions as identified by the Ernst & Young analysts is the growing gap between clubs in terms of their financial earnings.

While top clubs participating in rich competitions such as the UEFA Champions League strengthen their power and achieve more constant results, small clubs become more and more fragile. In this case one solution could be to level up the earnings from European Club Competitions. A step was already taken in this direction by rebranding the UEFA Cup competition in the UEFA Europa League and by increasing the prize money of the competition.

Another problem is the decentralized marketing versus centralized marketing policies for the broadcasting rights. While teams in leagues with centralized marketing of broadcasting rights earn about half of what the strongest club win (France, Germany), small clubs in leagues with centralized marketing of broadcasting rights earn only 6%- 7% from what the big clubs earn. This is the situation for clubs in Spain and Italy. The indicator used to measure these aspects is:

• # Ratio of minimum to maximum revenue within the league

Source: Ernst & Young, 2009

As the graph above shows, England is a special case. While rated as the most unbalanced league, it has the most leveled distribution of earnings for broadcasting rights. This level distribution of earnings is associated with the large amounts of money injected into clubs by their owners, mostly at Premiership level (the name of the first echelon for the English Football League).

Ultimately, the main effects of the balanced versus unbalanced leagues is on how the team’s performance is distributed between the internal and external competitions. Teams from leagues with an unbalanced competition (Spain and Italy) have the most to gain from the external competitions, as they are generally winners of the UEFA Champions League. Clubs coming from balanced competitions usually stop in the first knockout rounds of the competition.

There is one questions that decision makers will have to continuously analyze: “What is best for the teams and the public?” A balanced internal competition with a centralized marketing of broadcasting rights, or an unbalanced one, with decentralized marketing of broadcasting rights and huge success on the international stage.

References:

  • Ernst & Young, 2010 – Football meets finance, Edition VI, Global Media & Entertainment Center, available at http://www.ey.com, (accessed 01 July 2010)

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Indicators Measuring the Equity of European Educational Systems

Friday, June 25th, 2010

Equity of the European Educational Systems. A Set of Indicators is a project that attempted to demonstrate the feasibility of building a set of indicators regarding the equity of education. The publication reports on a two-year period work on the issue of the equity of educational systems and covers three main parts:

  • The concepts of equality and equity, and the framework of indicators and its guiding principles.
  • A set of twenty-nine indicators on the equity of the educational systems, built in the context of this project and organized according to the framework.
  • An interpretation of the 29 indicators in an analytical interpretation of the equity indicators.

The European Group of Research on Equity of the Education Systems (GERESE) has been constituted in 2001 for developing a set of indicators for measuring the equity of education systems in the European Union Member States. The final report presents the 29 indicators developed as an informative tool to support decision-makers to redefine the educational politics.

The matrix of indicators

The matrix of indicators (GERESE, 2005)

The indicators presented are intended to provide input to the debate on justice in education, by offering some elements of response to the following questions:

  • What are the causes and the consequences of the individual educational inequalities ?
  • What is the importance of educational inequalities between girls and boys or between groups of different social, economic or national origins ? To what extent are they due to the societal context or rather due to the process of the educational system ?
  • How being below a minimum skill threshold can have important consequences for the individuals in and outside the school context ?

An approach to the fairness of European education systems

An approach to the fairness of European education systems (GERESE, 2005)

The table above shows that in some education systems, the inequalities in education are homogeneous, being pronounced (Germany and to a lesser extent Belgium) or small (Finland, Sweden, and to a less marked extent, Spain and Ireland) according to the three criteria at the same time:

  • inequalities between individuals (2)
  • inequalities between groups (3 and 4)
  • proportion below the threshold (5).

The two main overall conclusions stated in the report and emerged from this analysis:

  1. Education systems have clear differences in equity. The data does not confirm the premise according to which inequalities are low in countries where education has few external rewards.
  2. Some education systems that seem more (or less) fair than others on a large majority of the criteria, but for many the judgement of their fairness varies, sometimes considerably, depending on how we read the data. This study opted for a comparative and distinctive approach, pursuing a single principle of equity in the labyrinth of indicators, comparing equity, effectiveness and efficiency. (GERESE 2005)

References:

European Group of Research on Equity of the Education Systems (GERESE) 2005, Equity of the European Educational Systems. A Set of Indicators, available at http://www.okm.gov.hu/download.php?ctag=download&docID=296 (accessed 10 June 2010)

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Benchmarking, Rank Xerox and Canon

Friday, June 18th, 2010

smartKPIs.com Performance Architect update 24/2010

Benchmarking as a management concept is reported to have its roots in land surveying, where the altitude of objects is estimated based on a pre-established point of reference on an arbitrary landmark (McNary, 1994). Frederick Taylor is reported to be the first to use benchmarking along with other principles in a business enterprise to improve performance. Elements of benchmarking can be recognized in Taylor’s scientific management approach applied during his time at Bethlehem Steel Company (McNary, 1994), popularized in “The Principles of Scientific Management” .

Benchmarking as we know it today was first applied by the Xerox Corporation in later 70s, early 80s. Faced with increased competition from Japanese imports, Xerox set upon improve its order fulfillment process and other processes deemed unproductive. One of the first accounts of the “competitive benchmarking” approach at Xerox was given in 1992 by Rob Walker, the Director of Business Management Systems and Quality at Rank Xerox (U.K.) Ltd. at the time. In his article “Rank Xerox – Management Revolution”, he describes in detail the challenges, changes made and impact of the “competitive benchmarking” approach at the company. Under the “competitive benchmarking” initiative. Xerox compared itself to its Japanese competitors as well as large organizations operating outside of the industry: “American Express for billing and collections, American Hospital Supply for automated inventory control, LL Bean for distribution, warehousing and order-taking” (Walker, 1992).

The ascent of benchmarking in the 80s resulted in numerous books and articles published, reflected in the business environment by an increase in the use of benchmarking around the world. Comparing to others is natural to humans, so benchmarking was rather easy to understand in theory. Applying it in practice and generating value from it is a different story.

In sports and tennis in particular, performance metrics are monitored by players and coaches to track progress and how the game plan was executed. In terms of benchmarking KPIs between players, this needs to be explored with care. The playing style is different from one player to another. One player might have a very powerful serve, but generally inaccurate. Another might have a high percentage of net approaches, but ineffective. On top of this, in tennis the concentration power and determination is in many instances more important than game statistics. Similarly, in business, many companies zoom to a different tune. While benchmarking sounds good in theory, there are many practical issues relating to data accuracy and relevance of results. There are many questions organisations need to clarify before embarking on such a road:

a. Who may the beneficiaries of such an exercise be?

b. What is the added value?

c. Who has done this well?

The graph below raises another question:

Source: Google Finance, 2010

Did it ultimately work for Rank Xerox?

or even

What did Canon differently to generate such a gap between the stock price performance over the last 10 years?

Comparing performance across entities is even easier today. Availability of information technology and rich datasets facilitates benchmarking across multiple dimensions. However, embarking on benchmarking initiatives  because “it seems to be a popular tool” or because it was recommended by a consultant can be risky. Same as if it is pursued  “just because we can” or with unreliable data. Done properly, it might still be a good idea overall, but then another question needs to be asked:

Are there any other better ideas?

Yet again, Study puts initiatives management in a new light.

Stay smart! Enjoy smartKPIs.com!

Aurel Brudan

Performance Architect,
www.smartKPIs.com


References

McNary, Lisa D. 1994, “Thinking about excellence and benchmarking”, The Journal for Quality and Participation, July-August 1994, v17, n4, p90(1)

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

Walker, Rob 1992, “Rank Xerox – Management Revolution”, Long Range Planning, Vol. 25, No. 1, pp. 9 to 21

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