120425_Topic1-ExecutionPremium_Zimbabwe_dpn.ppt

Dr. David P. NortonDirector, Palladium Group, Inc.Author, The Balanced Scorecard

The New Science of Strategy Execution

Topic #1: Creating An Execution Premium

Harare, Zimbabwe25 April 2012

2120425_Topic1-ExecutionPremium_Zimbabwe_dpn

The ability to execute strategy is the issue of greatest concern to CEOs.

© 2012 David Norton and Palladium Group, Inc.

3120425_Topic1-ExecutionPremium_Zimbabwe_dpn © 2012 David Norton and Palladium Group, Inc.

Between 1988 and 1998, only one of eight companies was able to deliver 5.5% annual real growth in revenues and earnings while covering their cost of capitalBetween 1988 and 1998, only one of eight companies was able to deliver 5.5% annual real growth in revenues and earnings while covering their cost of capital

“Less than 10% of Strategies effectively

formulated are effectively executed”

“Less than 10% of Strategies effectively

formulated are effectively executed”

“Only 15% of the 794 (Federal Government) programs reviewed in Fiscal 2005 were rated

effective.”

“Only 15% of the 794 (Federal Government) programs reviewed in Fiscal 2005 were rated

effective.”

- Fortune - Barron’s

- Chris Zook,Profit From the Core

Most organizations have difficulty executing strategy.


Why do organizations fail to execute strategy?

#1. You Can’t Manage Something That You Can’t Describe!

There is no generally accepted way to describe a business strategy

#2. They Don’t Manage Strategy

• 95% of the typical work force doesn’t understand the strategy

• 60% of organizations do not link strategies with budgets

• 70% do not link management incentives to strategy

• 85% of executive teams spend less than one hour per month discussing strategy


Palladium Balanced Scorecard Hall of Fame for Executing Strategy® By Industry 2000-2010


The Execution Premium: Behind every story of shareholder value, there is another story of value creation. That is the real story of strategy execution.

Valuation

Profitable Growth

Brand Value

Customer Satisfaction

Technology Support

“Best Employer”

Key Process Effectiveness

Ranked #1 employer in IT sector (Dataquest)

Ranked India’s best managed company

Innovation (new product revenues) up 48%

Active clients rose from 293 to 500

Big accounts ($20M+) up from 6 to 27

Revenue up 310% EPS up 305% Financial

Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

“Our BSC helped us deliver superior performance consistently and predictably in all facets of our operations.”

Kris Gopalakrishnan – CEO

Execution PremiumInfosys®


The Execution Premium: Behind every story of shareholder value, there is another story of value creation. That is the real story of strategy execution.

Constituents

Profitable Growth

Brand Value


Technology Support

“Best Employer”


Financial Perspective




“We will make the utmost effort for continuous and long-term development of our organization. I am confident that the BSC will support us in this endeavor.”

Mogaha Minister Park

Execution Premium

Knowledge Management System log-ins increased from 9,000 to 375,000 (1 yr)

Received “Best Government Innovator” Award

Reduced civil petition processing time from 9 days to 1 day

Customer satisfaction increased by 12 points (1 yr)

Quality of Life:― # of Hospitals increased from 323

to 427 (6 yrs)― Income levels and property tax grew

MOGAHA

* MOGAHA: Ministry of Government Administration and Home Affairs


The Execution Premium results from aligning key processes, human capital and information with customer and shareholder priorities.

Execution Premium

Valuation

Profitable Growth

Brand Value


Ranked #1 employer in IT sector (Dataquest)

Ranked India’s best managed company

Innovation (new product revenues) up 48%

Active clients rose from 293 to 500

Big accounts ($20M+) up from 6 to 27

Revenue up 310% EPS up 305% Financial

Perspective




Knowledge Management System log-ins increased from 9,000 to 375,000 (1 yr)

Received “Best Government Innovator” Award

Reduced civil petition processing time from 9 days to 1 day

Customer satisfaction increased by 12 points (1 yr)

Quality of Life:— # of Hospitals increased

from 323 to 427 (6 yrs)— Income levels and

property tax grew


Technology Support

“Best Employer”


Our research shows that there is a consistent set of management practices applied by successful BSC users.

1. Mobilize change through executive leadership

2. Translate strategy to operational terms

3. Align the organization to the strategy

4. Motivate to make strategy everyone’s job

5. Govern to make strategy a continual process

Principles of a Strategy-Focused Organization


Managing strategy is managing change.

“Execution is the most unappreciated skill of an effective business leader”Lou Gerstner , Former CEO, IBM

“Execution is the most unappreciated skill of an effective business leader”Lou Gerstner , Former CEO, IBM

Principle 1:Mobilize Change Through Executive Leadership

1.1 Leaders drive strategy execution

1.2 Executives make the case for change

1.3 Well articulated strategy exists

1.4 Leaders reinforce strategic priorities

1.5 Office of Strategy Management established

Management Best Practice


It is not a simple process for a CEO to mobilize transformation.

Graham SherCEO, Canadian Blood ServicesHBR, October 2005

“While many people believe that chief executives wield direct

and easy influence, the reality is that any CEO has a difficult

time influencing his or her organization”

• “A CEO’s attempts at command and control undermine

the authority of senior executives”

• “Bad news is filtered before it gets to me”


Organizations must simultaneously balance process with leadership.

“Leaders inspire employees to make day-to-day decisions that enhance an organization’s long-term viability. Managers institute systems to ensure that all employees conform with top-down policies.”

“Organizations, however, require more than just great leaders. They need executives who can simultaneously lead and manage.

Lead and Manage Your Organization with The Balanced Scorecard, Robert S. Kaplan, BSR, July-August 2002

“Leaders inspire employees to make day-to-day decisions that enhance an organization’s long-term viability. Managers institute systems to ensure that all employees conform with top-down policies.”

“Organizations, however, require more than just great leaders. They need executives who can simultaneously lead and manage.

Military Officers Attracted to The Balanced Scorecard ……. Why?


We Must Change! Why?

Burning Platform

CompetitiveThreat

ShareholderExpectation

Appeal to Excellence

• ATT Canada • GE • Ingersoll Rand • Wells Fargo• US Postal

Principle 1: Mobilize Change Through Executive Leadership

We Must Develop a New Way of Managing Our Strategy

9/10 FailThe New Science

of Strategy Execution

Office of Strategy Management

We Must Act as a Team

Strategy Map

Executive Team

Held together bya shared view of

the strategy

CIO

SMO

CFO

CEO

MKTG

OPS

R&D

HRO

We Must Clarify Our Strategy


Principle 2:Translate Strategy to Operational Terms

2.1 Strategy translated to strategy map

2.2 Strategy described in Balanced Scorecard

2.3 Targets identified for all measures

2.4 Strategic initiatives rationalized

2.5 Accountability assigned

You can’t manage what you can’t describe.



Price Quality Time Function Relation Brand

Product/Service Attributes Relationship Image

A strategy map describes how the enterprise creates value for shareholders and customers.

#1. Financial performance, a lag indicator, measures the tangible outcomes from the strategy.

#2. The customer value proposition defines the source of value.

#3. Strategic processes create value for customers and shareholders.

Process Perspective



SustainedShareholder

Value

Operations Management

Processes

Customer Management

Processes

Innovation Processes

Productivity Revenue Growth

Regulatory and Social Processes


Human Capital

Information Capital

Organization Capital

#4. Aligned intangible assets drive improvement in the strategic processes


Organization: Mobil NAM&R Practice: 2.1 – Strategy Map Developed

Increase ROCE to 12%

Revenue Growth Strategy Productivity Strategy

New Sources of Non-Gasoline Revenue

Increase Customer Profitability Through Premium Brands

Become Industry Cost Leader

Maximize Use of Existing Assets

Speedy Purchase

• Clean• Safe• Quality Product• Trusted Brand

Friendly Helpful Employees

Fina

ncia

l Pe

rspe

ctiv

eC

usto

mer

Pe

rspe

ctiv

e

Help Develop Business Skills

More Consumer Products

Recognize Loyalty

Differentiators

“Delight the Consumer” “Win-Win Dealer Relations”

Basic

Create Non-Gasoline Products

& Services

“Build the Franchise” “Increase Customer Value” “Operational Excellence” “Good Neighbor”

Improve Environmental,

Health and Safety

Understand Consumer Segments

Best-In-Class Franchise Teams

Improve Hardware

Performance

Improve Inventory

Management

On-SpecOn-Time

Industry Cost LeaderIn

tern

al P

ersp

ectiv

e

A Motivated and Prepared Workforce

AlignedPersonal Growth

Climate for Action

Functional ExcellenceLeadership SkillsIntegrated View

Competencies

Process Improvement

Technology

Lear

ning

& G

row

th

Pers

pect

ive


Organization: Mobil NAM&R Practice: 2.2 – Balanced Scorecard Created

Employee SurveyPersonal BSC (%)Strategic Competency AvailabilityStrategic Information Availability

L1 Climate for Action

L2 Core Competencies and SkillsL3 Access to Strategic

Motivated and Prepared Workforce

New Product ROINew Product Acceptance Rate

Dealer Quality Score

Yield GapUnplanned Downtime

Inventory LevelsRun-out Rate

Activity Cost vs. Competition

Perfect Orders

Number of Environmental IncidentsDays Away from Work

I1 Innovative Products and Services

I2 Best-in-Class Franchise Teams

I3 Refinery Performance

I4 Inventory Management

I5 Industry Cost Leader

I6 On Spec - On Time

I7 Improve Environmental, Health & Safety

Build the Franchise

Increase Customer Value

Operational Excellence

Good Neighbor

Share of Segment in Selected Key MarketsMystery Shopper Rating

Dealer Gross Profit GrowthDealer Survey

C1 Delight Targeted Consumer

C2 Improve Dealer Profitability

Delight the Customer

Win-Win Dealer Relations

ROCECash FlowNet Margin Rank (vs. Competition)Full Cost / Gallon Delivered (vs. Competition)Volume Growth Rate vs. IndustryPremium RatioNon-Gasoline Revenue and Margin

Strategic Measures

F1 Return on Capital EmployedF2 Existing Asset UtilizationF3 ProfitabilityF4 Industry Cost LeaderF5 Profitable Growth

Strategic ObjectivesStrategic Themes

Fina

ncia

lC

usto

mer

Inte

rnal

Lear

ning

&

Gro

wth

Financially Strong


Strategy describes how an organization intends to create value for its stakeholders.

Strategy maps are simple models of the value creation process.Strategy maps are simple models of the value creation process.

"If we succeed, how will we look to our shareholders?”

The Shareholder

Private Sector Organizations

The Mission Stakeholder

Government & Non-Profit Organizations


"To achieve our vision, how must we look to our

customers?”


"To satisfy our customers, at which processes must we

excel?”


"To achieve our vision, how must our organization learn

and improve

Learning & Growth

“To satisfy our customers, financial donors and mission, what business

processes must we excel at?”


“To achieve our vision, how must our people learn, communicate, and work

together?”

Learning & Growth

"If we succeed, how will we look to our taxpayers

(or donors)?”

"To achieve our vision, how must we look to our

customers?”

Customer PerspectiveFiduciary Perspective


Strategy maps and scorecards are being used in non-profit as well as for-profit organizations.

Student Achievement

Customer and Stakeholder

Involvement and Satisfaction

Efficient and Effective Instructional and

Administrative Processes

Staff Learning and Growth

Financial Performance

Sound Fiscal Management

Staff are Competent

Parents are Involved and

Satisfied

Students are Nationally

Competitive

Teachers and Other Employees are

Satisfied

School Climate is Safe and Enriching

Transportation is Safe and Efficient

Instruction is Effective

Resources are in Place for the First Day of

School

Facilities are Safe and Well-

Maintained

Students have Nutritious Meals

Community is Involved and has

Positive Perception

Students Master Curriculum

Fulton County School System Strategy Map


Strategy maps and scorecards are being used in non-profit as well as for-profit organizations.

Strategic Objectives Performance Measurement

StudentAchievement

1. Mastery of Curriculum

2. Nationally Competitive

3. Safe and Enriching Climate

1.1 Curriculum-referenced texts1.2 High school graduation tests1.3 High completion rate2.1 Norm-referenced tests2.2 SAT2.3 AP enrollment2.4 AP exam scores2.5 Joint/post secondary option enrollment2.6 Performance of graduates: technical & college or employment in first year2.7 Remediation in first year2.8 HOPE retention in second year3.1 Attendance - % of students absent 10 days or less3.2 Attendance - average days tardy (ES)3.3 Student ratings of climate3.4 Participation in extra-curricular activities3.5 Recognition in state and national programs for music, art, dance, civics, and academics3.6 Parents perceptions of safety3.7 Students perceptions of safety

Stakeholder Involvement &

Satisfaction

4. Involved and Satisfied Parents5. Positive Image Within the Community

4.1 Perceptions of: quality, responsiveness, communication5.1 Perception of quality, communications and safety5.2 Volunteer hours5.3 Dollars, service, and product donations5.4 Number of community organizations and businesses involved

Instruction & Administrative

Processes

6. Instruction

7. Transportation

8. Facilities and Construction

9. Readiness for Start of School

10. Nutrition

6.1 Teachers trained on the 8-Step Instructional Process6.2 Teachers using student assessments for instructional planning and adjustment6.3 Use of technology7.1 Preventable accidents7.2 On-time bus delivery8.1 Facility inspection reports8.2 Backlog of maintenance requests9.1 Required items in schools by start of school: Textbooks9.2 Teacher vacancies at start of school - 1st day9.3 Classroom teacher vacancies at the 15th day9.4 Student enrollment forecast9.5 Cost center budgets to school on time10.1 Meals per labor hour10.2 Participation rate

Staff Learning& Growth

11. Competent Staff

12. Employee Satisfaction

13. Teacher Satisfaction

11.1 Teachers with at least 7 years of experience11.2 Teachers with advanced degrees11.3 Nationally board certified teachers12.1 Staff attendance12.2 Staff attrition13.1 Staff ratings of communication, teamwork and morale

FinancialPerformance

14. Sound Fiscal Management 14.1 Expenditures: direct instruction support, instruction, pupil services, instructional services, media services, general administration

14.2 Variance of budget to actual: revenue, expense14.3 Fund balance

Fulton County School System Balanced Scorecard


Principle 3:Align the Organization to the Strategy

3.1 Corporate role defined3.2 Enterprise scorecard guides business

units3.3 Business unit scorecards guide

support units3.4 Scorecards align suppliers and/or

customers3.5 Scorecards align Board of Directors

Making the whole greater than the sum of the parts.



Corporate Scorecard

Business Units

Scorecard Cascade

Departments

Shared Services

Teams & Individuals

Corporate Scorecard

Business Units

Scorecard Cascade

Departments

Shared Services

Teams & Individuals

Use strategic themes to achieve vertical and horizontal alignment.


Dubai Electricity & Water Authority


Dubai Electricity & Water Authority:Cascading Flow Plan from Corporate to Divisions


Principle 4:Make Strategy Everyone’s Job

4.1 Strategic awareness created

4.2 Personal goals aligned

4.3 Personal incentives aligned

4.4 Competency development aligned

Strategy is formulated at the top and executed from the bottom.


“A real and revolutionary opportunity lies in studying and assessing how well-prepared a company’s people, systems and culture are to carry out its strategy.”“A real and revolutionary opportunity lies in studying and assessing how well-prepared a company’s people, systems and culture are to carry out its strategy.”

Tom Stewart, Editor, Harvard Business Review


How Do We Create Strategic Readiness?

Make StrategyEveryone’s Job

Create Strategic Awareness Communicate Communicate Communicate

Align Personal Goals Personal Scorecard

Provide Necessary Skills Strategic Job Families Strategic Readiness

Align Personal Incentives Variable pay Team based

You need a formal process to improve workforce readiness. Strategy should be linked to existing HR programs for performance management.


Case Study: Making Strategy Everyone’s Job at Hilton Hotels

Education

Communication

Personal Goals

Incentive Compensation

Balanced Scorecard


To make strategy management sustainable, strategy must be imbedded in the governance process.

Principle 5:Make Strategy a Continual Process

Resource Management5.1 Budget is linked to the strategy5.2 Planning for HR/IT linked to strategy5.3 Portfolio of strategic initiatives linked

to themes

Key Process Management5.4 Process improvement linked to strategy5.5 Best practice sharing in place

Learning and Control5.6 Strategy reviewed and adapted on a regular

basis5.7 Data and analytics guide strategy


THE EXECUTION PREMIUM


How can we make “strategy management” a sustainable competitive advantage?

Bank of Tokyo 2 yrs

Canadian Blood Service 2 yrs

Marriott VC 2 yrs

Mobistar 2 yrs

Tata Motors 2 yrs

China Micro Resource 3 yrs

Coffee Growers Assoc. 3 yrs

HSBC Rails 3 yrs

KeyCorp 3 yrs

Ricoh 3 yrs

Thai Carbon Black 3 yrs

Most Balanced Scorecard Hall of Fame companies achieve dramatic results in 2-3 years

1

The Solution:

Imbed the BSC strategy management approach into the governance structure Integrated system (XPP) Common platform (BSC) Responsible specialist (OSM)

3

The Problem:

The executive sponsor of the BSC program leaves. The new executive had his/her own approach to strategy management. The BSC approach is abandoned.

2

Mobilize Align Sustain

(3-6 mos) (6-12 mos) 12-24 mos)

Execution Premium

($)

1 2

3


Process Matters! Organizations with a formal strategy execution process in place are dramatically outperforming organizations without formal processes.

© 2012 David Norton and Palladium Group, Inc.

Do you have a formal strategy execution process in place?

Describe your organization’s current performance.

Yes No

(54%) (46%)

….We have breakthrough results…we are performing better than our peer group Sub-Total

12%58%70%

7%20%27%

…performing at the same level as our peer group.…performing at a lower level than our peer group…not performing at a sustainable level Sub-Total

18%9%3%30%

30%27%16%73%

Winners

Losers

Source: BSCol Research (Survey of 143 performance management professionals, drawn from BSCol On-Line Community, March 2006)


Strategy Management – State of the Art

Do you have a formal management process in place?

Translate: Clear articulation of the corporate strategy and measures

Initiatives: Manage a limited number of key strategic initiatives

Update: Regular update of strategy to account for changing conditions

Reviews: Regular meetings to report on and to manage the strategy

Communicate: Communications about the strategy

Align: Alignment of business units/support units to strategy

ProcessPercentage of Companies with a Formal Process

10 20 30 40 50 60 70 80 90 100

WinnersLosers

43

46

43

33

26

36

41

28

28

HR: Organization Development

Finance: Link strategic initiatives to the budget

IT: Service Level Agreements

(Survey of 143 performance management professionals, BSC Research, 2006)

TheExecution

Gap

76

75

75

73

64

77

64

60

63


The New Strategy Management System – What does it look like?

results

performance measures

Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan

• Strategy Map• Balanced Scorecard• Stratex

Operating Plan

• Sales Forecast• Resource Requirements• Dashboards• Budgets

2

• Key process improvement• Sales planning• Resource capacity plan• Budgeting

PLAN OPERATIONS4

• Business Units• Support Units• Employees

ALIGN THE ORGANIZATION

• Strategy Reviews• Operating Reviews

MONITOR & LEARN

• Profitability Analysis• Strategy Correlations• Emerging Strategies

TEST & ADAPT

• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex

TRANSLATE THE STRATEGY

• Mission, Values, Vision • Strategic Analysis• Strategy Formulation

DEVELOP THE STRATEGY


Strategy Management requires a new way of managing. You must build a center of competence to lead these changes.

“Execution is a specific set of behaviors and techniques that companies need to master in order to have competitive advantage. It is a discipline of its own.”

Larry Bossidy and Ram CharanExecution: The Discipline of Getting Things Done

“A New Way of Managing”

Enterprise

Office of Strategy Management

Financial Management Human Resource

Management

Marketing / Communications

Technology Management

Strategic Planning

Organizational Unit A

Organizational Unit B

Organizational Unit C

Organizational Unit D


Overview – BSC Hall of Fame Strategic Performance Composite

* Results achieved over a 3 year interval

Fina

ncia

l + 150%

+ 180%Profits Moody / S+P

Cus

tom

er- 50%

Customer Dissatisfaction

Proc

ess + 50%

Key Process Execution

External Performance

Awards

Lear

ning #1 – Best

Employer

External Awards

+ 120%Revenue

#1Market Share

#1Brand

Ranking

#1 – Best Process

+20%Employee

Satisfaction

-50%Employee Turnover

P/E Ratio

HoF Strategic Results *

EXECUTION MEASURES ACHIEVEMENT MEASURES Long term external measures

that indicate a sustainable ability to grow

Measures that drive performance (drivers) or reflect performance within the action cycle (outcomes)

Shareholder Value


The Balanced Scorecard Management System, built upon a consistent philosophy of management, permits sustainable organization performance.

1. MOBILIZE: Executive Leadership to Mobilize Change

2. TRANSLATE: Translate Strategy to Operational Terms

3. ALIGN: Align the Organization to the Strategy

4. MOTIVATE: Make Strategy Everyone’s Job

5. GOVERN: Make Strategy A Continual Process

The Balanced Scorecard Management System

results


Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan


Operating Plan


2

• Key process improvement

• Sales planning• Resource capacity plan• Budgeting

PLAN OPERATIONS4




MONITOR & LEARN


TEST & ADAPT





results


Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan


Operating Plan


2



PLAN OPERATIONS



PLAN OPERATIONS4






MONITOR & LEARN


MONITOR & LEARN


TEST & ADAPT


TEST & ADAPT









Four measurement perspectives balance lag and lead indicators

Measures and targets define performance gaps

Strategic initiatives close performance gaps

Strategy is…– A hypothesis of value creation– Multiple complimentary themes– A customer value proposition– Alignment of business processes– Readiness of intangible assets

An Integrated Management System

The Balanced Scorecard Management Philosophy

The Balanced Scorecard Value Creation Model

A Philosophy of Management

An Economic Model of Value Creation

120425_Topic1-ExecutionPremium_Zimbabwe_dpn.ppt

Documents

active clients

government

key process

dubai electricity

mobil namamp

leaders inspire

execution

income levels