Strategic Measurement in the Lean Enterprise October 30, 2002 Professor Debbie Nightingale.
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Strategic Measurement in the Lean EnterpriseStrategic Measurement in the Lean Enterprise
October 30 2002Professor Debbie Nightingale
Debbie Nightingale MIT copy 2001 2
Metrics Serve Multiple PurposesMetrics Serve Multiple Purposes
ldquoPerformance control systems can servetwo purposes to measure and to
motivaterdquo
H Mintzberg The Structure of Organizations (1979)
Debbie Nightingale MIT copy 2001 3
Metrics Are Measurements You Can UseMetrics Are Measurements You Can Use
bull Metrics are meaningful quantified measuresbull To be meaningful a metric must present data or information that allows us to take action ndash Helps to identify what should be done ndash Helps to identify who should do itbull Metrics should be tied to strategy and to ldquocorerdquo processes - they should indicate how well organizational objectives and goals are being met through disciplined ldquocorerdquo processesbull Metrics should foster process understanding and motivate individual group or team action to continually improve the way they do business (Measurement does not necessarily result in process improvement Good metrics always do)
Debbie Nightingale MIT copy 2001 4
When Assessing a Metric System AskWhen Assessing a Metric System Askthe Following Types of Questionsthe Following Types of Questions
bull Does it clearly define what constitutes business excellencebull Does it provide the information required to set aggressive yet achievable strategic objectives and stretch goalsbull Does it accurately portray our progress and probability of achieving both long-term strategic objectives and near-term milestonesbull Does it identify the root causes of barriersbull Does it focus the organization on the priority improvement needsbull Does it drive the behavior and actions required to achieve the objectivesbull Does it align work with valuebull Is it easy to usebull Does it involve everyone
Debbie Nightingale MIT copy 2001 5
What Are The Characteristics of aWhat Are The Characteristics of aldquoldquoGoodrdquo MetricGoodrdquo Metric
bull Easy to getbull Answers the questionsbull Produces the desired results
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
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- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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- Slide 14
- Slide 15
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- Slide 17
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- Slide 21
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- Slide 30
- Slide 31
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- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 2
Metrics Serve Multiple PurposesMetrics Serve Multiple Purposes
ldquoPerformance control systems can servetwo purposes to measure and to
motivaterdquo
H Mintzberg The Structure of Organizations (1979)
Debbie Nightingale MIT copy 2001 3
Metrics Are Measurements You Can UseMetrics Are Measurements You Can Use
bull Metrics are meaningful quantified measuresbull To be meaningful a metric must present data or information that allows us to take action ndash Helps to identify what should be done ndash Helps to identify who should do itbull Metrics should be tied to strategy and to ldquocorerdquo processes - they should indicate how well organizational objectives and goals are being met through disciplined ldquocorerdquo processesbull Metrics should foster process understanding and motivate individual group or team action to continually improve the way they do business (Measurement does not necessarily result in process improvement Good metrics always do)
Debbie Nightingale MIT copy 2001 4
When Assessing a Metric System AskWhen Assessing a Metric System Askthe Following Types of Questionsthe Following Types of Questions
bull Does it clearly define what constitutes business excellencebull Does it provide the information required to set aggressive yet achievable strategic objectives and stretch goalsbull Does it accurately portray our progress and probability of achieving both long-term strategic objectives and near-term milestonesbull Does it identify the root causes of barriersbull Does it focus the organization on the priority improvement needsbull Does it drive the behavior and actions required to achieve the objectivesbull Does it align work with valuebull Is it easy to usebull Does it involve everyone
Debbie Nightingale MIT copy 2001 5
What Are The Characteristics of aWhat Are The Characteristics of aldquoldquoGoodrdquo MetricGoodrdquo Metric
bull Easy to getbull Answers the questionsbull Produces the desired results
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 3
Metrics Are Measurements You Can UseMetrics Are Measurements You Can Use
bull Metrics are meaningful quantified measuresbull To be meaningful a metric must present data or information that allows us to take action ndash Helps to identify what should be done ndash Helps to identify who should do itbull Metrics should be tied to strategy and to ldquocorerdquo processes - they should indicate how well organizational objectives and goals are being met through disciplined ldquocorerdquo processesbull Metrics should foster process understanding and motivate individual group or team action to continually improve the way they do business (Measurement does not necessarily result in process improvement Good metrics always do)
Debbie Nightingale MIT copy 2001 4
When Assessing a Metric System AskWhen Assessing a Metric System Askthe Following Types of Questionsthe Following Types of Questions
bull Does it clearly define what constitutes business excellencebull Does it provide the information required to set aggressive yet achievable strategic objectives and stretch goalsbull Does it accurately portray our progress and probability of achieving both long-term strategic objectives and near-term milestonesbull Does it identify the root causes of barriersbull Does it focus the organization on the priority improvement needsbull Does it drive the behavior and actions required to achieve the objectivesbull Does it align work with valuebull Is it easy to usebull Does it involve everyone
Debbie Nightingale MIT copy 2001 5
What Are The Characteristics of aWhat Are The Characteristics of aldquoldquoGoodrdquo MetricGoodrdquo Metric
bull Easy to getbull Answers the questionsbull Produces the desired results
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
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- Slide 30
- Slide 31
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- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 4
When Assessing a Metric System AskWhen Assessing a Metric System Askthe Following Types of Questionsthe Following Types of Questions
bull Does it clearly define what constitutes business excellencebull Does it provide the information required to set aggressive yet achievable strategic objectives and stretch goalsbull Does it accurately portray our progress and probability of achieving both long-term strategic objectives and near-term milestonesbull Does it identify the root causes of barriersbull Does it focus the organization on the priority improvement needsbull Does it drive the behavior and actions required to achieve the objectivesbull Does it align work with valuebull Is it easy to usebull Does it involve everyone
Debbie Nightingale MIT copy 2001 5
What Are The Characteristics of aWhat Are The Characteristics of aldquoldquoGoodrdquo MetricGoodrdquo Metric
bull Easy to getbull Answers the questionsbull Produces the desired results
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 5
What Are The Characteristics of aWhat Are The Characteristics of aldquoldquoGoodrdquo MetricGoodrdquo Metric
bull Easy to getbull Answers the questionsbull Produces the desired results
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 6
A ldquoGoodrdquo Metric Satisfies 3 Broad CriteriaA ldquoGoodrdquo Metric Satisfies 3 Broad Criteria
1 Strategic
2 Quantitative
3 Qualitative
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
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- Slide 11
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- Slide 15
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- Slide 18
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- Slide 24
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- Slide 28
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- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 7
StrategicStrategic
A good metric shouldbull Enable strategic planning and then drive deployment of the actions required to achieve strategic objectivesbull Ensure alignment of behavior and initiatives with strategic objectivesbull Focus the organization on its priorities
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Example How fast do we need to develop and market newproducts to grow 20 percent per year
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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- Slide 33
- Slide 34
- Slide 35
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- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 8
Quantification of Metrics is CriticalQuantification of Metrics is Critical
ldquoWhen you can measure what you are speakingabout and express it in numbers you know
something about it but when you cannotmeasure it when you cannot express it in
numbers your knowledge is of a meager andunsatisfactory kindrdquo
- Lord Kelvin
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 9
QuantitativeQuantitative
A good metric should
bull Provide a clear understanding of progress toward strategic objectives
bull Provide current status rate of improvement and probability of achievement
bull Identify performance gaps and improvement
opportunities
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Example What is the cycle time of our product developmentprocess Where does the process need improving the most
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
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- Slide 14
- Slide 15
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- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 10
QualitativeQualitative
A good metric should
bull Be perceived as valuable by your organization and the people involved with the metric
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Example Is the effort and cost of collecting the data reasonableIs the information timely and actionable
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 11
Process ManagementProcess ManagementA Paradigm ShiftA Paradigm Shift
Go fromMeasure the process and manage the results(Inspection and Corrective Action Approach)
ToManage the process and measure the results
(Prevention Approach)
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 12
Major Categories of Hard Data forMajor Categories of Hard Data forNon-Financial Performance MetricsNon-Financial Performance Metrics
PrimaryMeasurements of
Process Improvement
QualityImprovement
TimeSavings
ProductivityImprovement
(Output Increases)
CostSavings
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 13
Two EdictsTwo Edicts
ldquoEffective measurement must be an integralpart of the management processrdquo
ldquoWhat you measure is what you getrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 14
The Balanced Scorecard AddressesThe Balanced Scorecard AddressesFour Key PerspectivesFour Key Perspectives
The balanced scorecard allows managers to look at the business fromfour important perspectives providing the answer to four basic questions
How do customers see us Customer perspective
What must we excel at Internal perspective
Can we continue to improve
and create value
Innovation and learning
perspective
How do we look to
shareholders
Financial perspective
While giving senior managers information from four different perspectivesthe balanced scorecard minimizes information overload by limiting thenumber of measures used
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
15
The Balanced Scorecard TranslatesThe Balanced Scorecard TranslatesStrategy into Operational TermsStrategy into Operational Terms
CustomerTo achieve customer satisfaction
how should we appear to customers
ShareholderTo increase shareholder value
How should we appear toour shareholders
ProcessTo sustain competitive advantage
what business processes mustwe excel at
PeopleTo have a winning team
what competenciesamp behaviors must we excel at
Visionand
Mission
STRATEGIES
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
16
Balanced Scorecard Provides aBalanced Scorecard Provides aStrategic Framework for ActionStrategic Framework for Action
Clarifying and Translating theVision and StrategybullClarifying the visionbullGaining consensus
Planning and Target SettingbullSetting targets
bullAligning strategic initiativebullEstablishing milestones
Strategic Feedback amp LearningbullArticulating the shared visionbullSupplying strategic feedback
bullFacilitating strategy review and learning
Communicating amp LinkingbullCommunicating and educating
bullSetting goalsbullLinking rewards to performance
measures
BalancedScorecard
Debbie Nightingale MIT copy 2001
Source From Kaplan and Norton The Balanced Scorecard
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 17
Balanced Scorecard IntegratesBalanced Scorecard IntegratesCompanyrsquos Reporting ProcessCompanyrsquos Reporting Process
ldquoThe scorecard brings together in a single reportmany of the disparate elements of the
companyrsquos competitive agenda eg becomingcustomer oriented shortening response time
improving quality emphasizing team-workreducing new product launch times and
managing for the long termrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 18
The Balanced Scorecard HierarchyThe Balanced Scorecard Hierarchy
Financial1048698bullCash flow ROI
1048698bullResidual income1048698bullPercent revenue from
innovation1048698bullResidual cash flow1048698bullRevenue growth
Customer1048698bullCustomer 1048698bullCustomer 1048698bullCustomersatisfaction loyalty service
Internal Business Processes1048698bullThroughput 1048698 bullReduction 1048698 bullOn-time
Time in waste deliveryInnovation and Learning
1048698bullNumber of new products 1048698bullReturn on innovation 1048698bullEmployee skills1048698bullTime-to-market (new products) 1048698bullTime spent talking to customers
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
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- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
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- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 19
The Balanced ScorecardThe Balanced ScorecardPerformance Measurement HierarchyPerformance Measurement Hierarchy
bull Performance measurement hierarchies are structured to provide the right level of performance-related informationbull Hierarchies are frequently formed in response to the need for the same measure to measure a similar aspect of performance but at different levels
H(F + G)
F(A + B)
G(C + D + E)
A B C D E
Level 1(eg Top Management)
Level 2(eg Middle Management)
Level 3(eg Workers)
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001
20
The Balanced ScorecardThe Balanced ScorecardRelationship Between Process Improvement Strategy Vision amp MetricsRelationship Between Process Improvement Strategy Vision amp Metrics
VisionTop Management
Middle Management
Workers
Indices andindividual metrics
Indices andIndividual metrics
Individualmetrics ampsupportingcross-sectiondataand statistics
Source Adapted from R Simons Levers of Control (1995) p 63
Targets
Inputs Process Outputs
Feedback for process improvement
StrategyObjectives
Goals
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 21
Primary Purposes of the BalancedPrimary Purposes of the BalancedPerformance Metrics ScorecardPerformance Metrics Scorecard
bull Align a balanced set of performance metrics with business strategy and visionbull Provide management and work teams with the information necessary and sufficient to meet their objectives and goalsbull Create ldquoline-of-sightrdquo at lower levels of the organizationbull Foster and support process continuous improvemen
tinitiatives
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
- Slide 12
- Slide 13
- Slide 14
- Slide 15
- Slide 16
- Slide 17
- Slide 18
- Slide 19
- Slide 20
- Slide 21
- Slide 22
- Slide 23
- Slide 24
- Slide 25
- Slide 26
- Slide 27
- Slide 28
- Slide 29
- Slide 30
- Slide 31
- Slide 32
- Slide 33
- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 22
Alignment of Strategic Objectives andAlignment of Strategic Objectives andMetrics is a Powerful ForceMetrics is a Powerful Force
ldquoWhen the critical success factors of a strategyare quantified and used as a measure of policydeployment they can become a powerful forcefor aligning organizational priorities actions
and behavior with strategic objectivesrdquo
- Raytheon Systems Metrics Team
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
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- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
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- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 23
Align Priorities Metrics and PeopleAlign Priorities Metrics and Peoplewith Your Strategywith Your Strategy
Process Use of Metrics
1 Define business excellence
for your business
Strategic measures of
success are established
2 Assess your progress Progress is compared to
world class to
competitors and to
strategic objectives
Gaps are quantified
3 Identify improvement
opportunities
Quantify potential gains
Set improvement
priorities goals and
timetables
4 Establish and deploy an
action plan
Key performance
indicators are aligned with
priorities and are
deployed at all levels of
the organization
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 24
Companies are Using the BalancedCompanies are Using the BalancedScorecard toScorecard to
bull Clarify and update strategybull Communicate strategy throughout the companybull Align unit and individual goals with the strategybull Link strategic objectives to long-term targets and annual budgetsbull Identify and align strategic initiativesbull Conduct periodic performance reviews to learn
about and improve strategy
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
Companies are expanding their use of the balancedscorecard employing it as the foundations of an integrated
and iterative strategic management system
RS Kaplan and DP Norton Harvard Business Review January-February 71-79 (1992)
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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- Slide 34
- Slide 35
- Slide 36
- Slide 37
- Slide 38
Debbie Nightingale MIT copy 2001 25
No One ldquoRightrdquo Set of MetricsNo One ldquoRightrdquo Set of Metrics
bull The balanced scorecard has to be tailored to each specific company
bull The resulting scorecard of indicators should be driven by the firmrsquos strategy if it is not to consist merely of a listing of indicators
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
ldquohellipalthough there may be a potentially long list of non-financialindicators individual firms have to be selective by linking
explicitly their choice of indicators to their corporate strategyrdquo
RS Kaplan and DP Norton Harvard Business Review January-February 75-85 (1996)
Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
- Slide 4
- Slide 5
- Slide 6
- Slide 7
- Slide 8
- Slide 9
- Slide 10
- Slide 11
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Debbie Nightingale MIT copy 2001 26
Metrics Must Be Changed to MaintainMetrics Must Be Changed to MaintainAlignment With New StrategiesAlignment With New Strategies
Typical causes of metric misalignment are
1 The metric is wrong and must be changed to align with the strategy2 The right things are being measured but the strategy is out of date and must be realigned with the changing market3 Management perspective and policy are wrong and must change with the strategy and market4 The process has matured and new metrics are required
Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
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Debbie Nightingale MIT copy 2001 27
Best Life Cycle MetricsBest Life Cycle Metrics
METRICS Phase-IV
Business-Declining Product-PhaseOut Process-Optimize People-Expert
METRICS Phase-III
Business-Mature Product-In Market Process-Formalize People-Practice
METRICS Phase-II
Business-Growth Product-Development Process-Test People-Learn
METRICS Phase-1
Business-Emerging Product-Concept Process-Develop People-Competency
Customer
Product Development
Manufacturing
Supplier Relations
Support
Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
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Debbie Nightingale MIT copy 2001 28
Metrics Will Change Over an Itemrsquos Life CycleMetrics Will Change Over an Itemrsquos Life CycleEntity Phases Attributes
Business Emerging
Growth
Mature
Declining
bull Cash flow
bull Competitive advantage
bull Market share
bull Critical Mass
Product Concept
Development
In market
Phase-ou
bull Creative backlog
bull Potential product revenue
bull Cost per feature
bull Time to market
bull Performance requirements
bull Predicted product quality
bull Design to cost
bull Profitability
bull Market expansion rate
bull Volume impact on cost
bull Inventory
bull Customer support
Core
Competency
Recognition
Learn
Practice
Expert
bull Inventory of skills and capabilities
bull Competitive advantage
bull Acquire knowledge
bull Cycles of learning
bull Use
bull Apply
bull Levels of use in organization
bull Deployment
bull Teach
bull Leverage advantage
bull Combine and evaluate
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
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- Slide 38
Debbie Nightingale MIT copy 2001 29
Process and Metric Maturity ModelProcess and Metric Maturity Model
Little or no process focus Thatwhich exists is primarily directedinternally toward local operations
bullBusiness process management whichbegins amp ends with the customer isestablished in control and in theconscious thinking of management
bullCommon process language ampspecificationsbullIntegrated core processes allow aseamless flow of work across processboundaries
bullSupport processes are integrated withand enable core business processes toprovide competitive advantagebull Customer-focused processmanagement is applied unconsciously
bullProcess management hasprovided world-class competitiveadvantage (eg nodal influenceagile amp forward looking)
bullMetric-driven actions simulatedduring strategy setting process toensure organizational alignmentbefore metrics are implemented
bullAll metrics (process resultsorganizational geographic etc)align with strategic objectivesprovide competitive advantage ampoptimize the wholebullMetrics reinforce amp leverageactivities across all core businessprocessesbullLocal interests are subordinatedto the good of the whole
bullProcess metrics added ampintegrated with result metricsbullMetrics aligned betweenstrategy amp daily activities in coreprocesses
Metrics are ad hoc andprimarily results oriented
Raytheon Systems 1998
Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
- Slide 1
- Slide 2
- Slide 3
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Debbie Nightingale MIT copy 2001 30
Level One InitialLevel One Initial
Enterprise does not manage its business with a processfocus
bull Many metrics sub-optimized by local organizational interests rather than having them aligned with customer interests and with the strategic objectives of the enterprisebull Organizations measure the results of past actionsbull Results-oriented metrics cannot provide the leading indicators needed for timely corrective action to change outcomes
Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 31
Level Two Vertical AlignmentLevel Two Vertical Alignment
Definition
bull The business enterprise applies a process focus so it can measure leading indicators of the expected process outputbull Defective process output is viewed as a process-capability problem not a people problembull Carefully chosen metrics ensure that all levels of the organization align with strategic objectives
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Vertical alignment is the alignment and reinforcement of strategicobjectives with supportive goals and progress measures at all
levels of the organization
Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 32
Level Two ExampleLevel Two Example
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
A core process related to product development activitiesmight be documented be in control (repeatable) be
consistently deployed across the organization and havemeasurable improvement gains If so that process is
probably at or near Level 2 maturity If the metrics indicatevariations in the process results then they are still at Level
1 because the process is not in control
Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 33
Level Three Horizontal AlignmentLevel Three Horizontal Alignment
Two phases1 The global optimization of work flow across all process boundaries These boundaries become transparent to the flow of work Metrics are customer-focused and assess the enterprise-level capability of a process to provide value from the customerrsquos perspective
2 The global optimization of work flow across all organizational boundaries that support or use a particular process Metrics are customer-focused and assess how well the infrastructure enables execution of customer-focused processes
Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 34
Level Three ExampleLevel Three Example
Level 3 characteristics includebull Integrated core processes that customers see as seamlessbull Minimized hand-offs or delays as work moves among processes and sub-processesbull Management focus primarily on early process activities in a product life cyclebull Metrics insure local organizational interests (functional or business unit) are subordinated to customer needs and what is best for the entire business
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
The enterprise may have several core customer-related processessuch as winning new business and developing new products Also
the enterprise may have many functions that support or executethese core processes
Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 35
Level Four Total AlignmentLevel Four Total Alignment
Definition
bull All employees clearly see where the business is headed and how they can make a differencebull Horizontal integration (Level 3) provides employees with ldquoline of sightrdquo to customer value Dramatic performance improvements can occur at this levelbull Total enterprise-level alignment (Level 4) is required to overcome the major systemic barriers to great performance and to embed the long-term gains into the fabric of the organizationrsquos culture
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Total alignment is the synergistic interaction of metrics from allsupport processes with metrics from all core process to reinforce
the strategy and to drive business excellence
Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 36
Level Four ExampleLevel Four Example
bull Total enterprise alignment is required to overcome the major
systemic barriers to great performance
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
At Level 4 the enterprise begins asking howenabling processes create competitive
advantage for the core customer-relatedprocesses rather than what they do to improve
themselves
Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 37
Level Five OptimizingLevel Five Optimizing
bull From a process perspective the enterprise will have much greater influence on the market than its size might indicate The agile and forward-looking enterprise will be able to foresee events and respond to those events before they occur
bull From a metrics perspective the enterprise will be able not only to simulate and predict the outcome of a strategy before its deployment but also to predict the effect of specific metrics on the outcome of that strategy before choosing metrics
Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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Debbie Nightingale MIT copy 2001 38
How One Company Built a StrategicHow One Company Built a StrategicManagement SystemManagement System
Clarify the Vision (months 1-4) Communicate to Middle Managers (months 4-5) Develop Business Unit Scorecards (months 6-9) Eliminate Non-strategic Investments (months 6) Launch Corporate Change Programs (months 6) Review Business Unit Scorecards (months 9-11) Refine the Vision (months 12) Communicate the Balanced Scorecard to the Entire Company (months 12-) Establish Individual Performance Objectives (months 13-14) Upgrade Long-Range Plan and Budget (months 15-17) Conduct Monthly and Quarterly Reviews (months 18-) Conduct Annual Strategy Review (months 25-26) Link Everyonersquos Performance to the Balanced Scorecard (months 25-26)
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