Balanced Scorecard

Business Process Knowledge DocumentBusiness Process Knowledge Document

Integrating Measurement, Plan-Do-Review Integrating Measurement, Plan-Do-Review and Communicationand Communication

The Balanced ScorecardThe Balanced ScorecardSTRATEGYSTRATEGY

FINANCIALSFINANCIALS EXTERNALEXTERNAL

INTERNALINTERNAL LEARNINGLEARNING

Balanced Scorecard - T&T

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CONTENTS

What is included in this document. . .

• Traditional Measurement- Benefits and Concerns

• Balanced Scorecard:– Unique Features

– How it works

• Getting Started - The First Steps

• Integrating Balanced Scorecard and Plan-Do-Review

• Application Across the Business


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INTERNALINTERNAL LEARNINGLEARNINGTraditional measures, measures, measures, measures. . .

• Traditionally dominated by Financial add-ups, after the event

• Great for business turnarounds

• A good place to start if the business has nothing - look after the cash

. . . and we seldom stop to think “what are the key priorities”?

Benefits Concerns

• Crucial elements to deliver Strategies are overshadowed

• Proliferation of measures to ‘check-up’ on lower levels

• Weak alignment of all measures to the Strategy for the group/ business

• Characterised as ‘driving forward looking in the rear view mirror’

TRADITIONALLY


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Strategy is at the centre of the management system

The focus is on factors that create long-term value Measurement is

used to communicate, not to control

The Balanced Scorecard has unique features as opposed to traditional measurement approaches. . .

Measures and indicators are cascaded and tested for alignment through the organisation

The Scorecards are an integral part of the Plan-Do-Review management process

. . .with the emphasis on drivers of forward performance!

FEATURES


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To drive forward Performance you need some Lead Indicators and Lag Measures. . .

. . . where INDICATORS control and communicate BEHAVIOUR which will lead to a measurable result!

HeadingLEAD INDICATORSLEAD INDICATORS• Text•

HeadingLAG MEASURESLAG MEASURES• Text•• Petrol consumption• Oil consumption• Tyre wear• Washer levels• Scratches and bumps • Engine wear• Speeding fines

• Speed• Engine revs• Engine temperature• Fuel level indicator• Oil level indicator• Warning light status• Defensive driving• Tiredness breaks

EFFECTEFFECT

HOW IT WORKS

These These may may

impact impact onon

CAUSECAUSEThese are These are measures measures of effectof effect


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Balanced ScorecardBalanced Scorecard

Our Strategy is at the centre of the Measurement System, reflected in 4 balanced critical success factors. . .

Financial Quadrant

“How do we look toour shareholders?”

STRATEGYSTRATEGY

Customer Quadrant

“How do we look to our customers?”

Internal Quadrant“What business

processes are the value drivers?”

Organisational Learning Quadrant“Are we (our people) able to sustain innovation, change

and improvement?”

Reference: “The Balanced Scorecard — Measures That Drive Performance, “Robert S. Kaplan, David P. Norton, Harvard Business Review, Jan-Feb ‘92.

HOW IT WORKS


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INTERNALINTERNAL LEARNINGLEARNINGOur BSC ‘operationalises’ our Strategy. . .

Balancing Four Critical Success FactorsBalancing Four Critical Success Factors

If we succeed, how

will we look to our

shareholders?

FinancialProfitability

GrowthShareholderValue

To satisfy our customers,

what business processes must we excel at?

InternalCycle Time

Quality

Productivity

To achieve our vision, how will we

sustain innovation, change and

improvement?

LearningInnovationContinuousLearningIntellectualAssessment

To achieve our vision,

how must we look to our customers?

CustomerCycle TimeQualityService

Price /Cost

The Vision

. . . by distilling Strategic Objectives

down into Key Result Areas then into Indicators and

Measurements

HOW IT WORKS


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Criteria For A Good Balanced ScorecardCriteria For A Good Balanced Scorecard

A Good BSC will “tell the story” of your Strategy

Cause and Effect RelationshipsEvery measure selected should be part of a chain of cause and effect that represents the strategy

Linked to FinancialsEvery measure selected can ultimately be related to financial indicators

Performance DriversA balance of lead measures and lag indicators

Measures that Create ChangeSome measures which cause the organisation to change its behaviour in some way

A STRATEGY is a Set of Hypotheses

about Cause & Effect

HOW IT WORKS


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The real value of a Balanced Scorecard comes from a focus on “Performance Drivers” not past results

FinancialF1 - Meet Shareholder ExpectationF2 - Improve Operating PerformanceF3 - Achieve Profitable GrowthF4 - Reduce Shareholder Risk

CustomerC1 - Improve Agents PerformanceC2 - Satisfy Target Policyholders

InternalI 1 - Develop Business in Target Markets

I 2 - Underwrite Profitably

I 3 - Align Claims with the Underwriting

I 4 - Improve Productivity

LearningL1 - Upgrade Staff CompetenciesL2 - Improve Access to Strategic Info

• Return on Equity• Combined Ratio

Acquisition/Retention (vs. plan)

Acquisition/Retention

(by segment)

Staff Productivity

Loss Ratio

Claims Frequency

Claims Severity

Expense Ratio

Business Mix (by segment)

Strategic Objectives Outcome Measures (Lag Indicators) Performance Drivers (Lead Indicators)

UnderwritingQuality Audit

Business Portfolio Mix Catastrophic

Losses

Authority levelsfor spending

Mgt of Budget assumptions

Velocity coefficients

Development &Training Plan

HOW IT WORKS


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There are some initial steps required to implement the Balanced Scorecard process . . .

• Establish the Key Objectives for the Business/Supply Chain/Site/Function to deliver the Strategy, in each of the BSC critical success factors

• Distil the ‘precious few’ Key Result Areas (KRAs) to achieve the deliverables within each Objective

• For each KRA, agree the Lead Indicators & Lag Measures which will indicate progress to the deliverables

• Share and cascade these steps down through the Organisation, and check for alignment and consistency

• Use the BSC as an integral part of the ‘Teams’ regular Plan-Do-Review throughout the Organisation

. . . it is crucial to avoid ‘Analysis Paralysis!’

FIRST STEPS


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The power of the process will speak for itself!

• Form a team and just get started!

• Get an “Executive Champion” who really believes - and is willing to role model the plan-do-review process

• Work top-down and bottom-up and involve middle managers

• Brown paper the as-is and to-be using the “Scorecard” framework

• Keep it simple

• Don’t get bogged down with jargon or theory

• Make KPI charts and graphics visible

• Pilot and create a role model - you’ll be amazed at how fast people copy it

• Establish a review process quickly

Some tips for successful implementationFIRST STEPS


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OBJECTIVES• Development of a single aligned

set of business performance measures for M&S and the supply chain

• Gain commitment for BSC among M&S management team/client group

• Clarify the framework for implementation and management processes to follow construction of initial scorecard

• Implement balanced scorecard principles and associated measures throughout M&S

• Ensure smooth transition from existing measures to KPIs

• Ensure we build on what is already in place and focus on the new measures needed for supply chain differentiation

ACTIVITIES• Share best practice in balanced

scorecards and implementation ‘watch-outs’

• Agree with RBB process for development of BSC alongside supply chain vision and principles and their order of implementation

• Create work plan and Gantt chart

• Review current KPIs and targets• Assist in delivery of KPIs at

M&S management team/client level

• Define and initiate a PDR process for M&S management team/client group

• Pilot BSC using key individual product supply chains

• Obtain timely actual data for agreed KPIs

• Discuss targets with M&S management team/client group

• Develop roll-out plan for cascading

DELIVERABLES• Creation and delivery of BSC

and KPIs aligned to the business strategy

• Communication of activities to core team and executives

• Documented linkages • vision• SBOs• CSFs• KPIs and targets

• Plan for roll-out/cascade of KPIs/PDR to other product supply chains at all levels in M&S organisation

• Mechanism for alignment of top down KPIs to bottom up KPIs

• Pilot run for key individual product supply chains

• Plan for transition from existing measures to KPIs

CSFs• Creation of key

‘to be’ supply chains

• Articulation of the supply chains into clear business objectives

• Commitment by M&S management team to implement PDR, based on agreed vision and SBOs

• Commitment by GPM to BSC implementation (as clients of the supply chain)

• Clearly defined management accountabilities for the measures

The change/project team will need a charter for their BSC. . . ExampleFIRST STEPS


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The KPIs need to be prioritised in order to establish the Top 3 measures per quadrant for focus

Question: Which measures have the highest impact?

Ease of Implementation

High

Low

Performance

Plan and Process to Reach 50% increase in

sales

ImpactLow High

FIRST STEPS


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INTERNALINTERNAL LEARNINGLEARNINGThe “Balanced Scorecard” principles brought to life. . .

. . . and cascaded through teams and individuals, to be aligned to the Strategy!

VISIONARY

LEADERSHIP

CUSTOMER

SATISFACTION

COST

EFFECTIVE

ORGANISATION EFFECTIVE

RESOURCES

OBJECTIVE

LEADERSHIP

CUSTOMER

REQUIREMENTS

EFFICIENT

OPERATIONS

EFFECTIVE

PROCESSES

TEAM

LEADERSHIP CUSTOMER

DELIVERABLES

EFFICIENT

PROCEDURESEFFECTIVE

MANAGEMENT

Senior ManagementTeam

Operations ManagementTeamAsset

ManagementTeam

‘Group’Strategy

BSC & PDR


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Objectives• To invest wisely and thereby ensure

outstanding returns on capital investment at minimal risk

A BSC cascade can be directed through the line

Project manager

Project engineer

Engineering team

Individual engineer

PTD Progress of engineeringaspects of project

Progress of all mechanical engineering work

Progress of an engineering activity

Individual contribution to progress

Progress of capital project

Procurement

Measures• Successful implementation of capital

projects, on time, within budget

BSC & PDR

Example


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Supply Chain Balanced Supply Chain Balanced Scorecard(Overall Strategic Objectives)Scorecard(Overall Strategic Objectives)

ObjectivesMeasures

F1 Maximise profit xF2 Manage working capital effectively xF3 Invest wisely x

O1 Build better & simpler for less xO2 Operate betters & simpler for less xO3 Supply better & simpler for less xO4 New technology better & simpler for less xP1 Retain the best xP2 Develop people to be the best xP3 Recruit the best xP4 Live the values

Our Supply Chain BSC cascaded to include both line and support functions within the project

Sitesxxx

xxxxxxx

Prc’mentxxx

xxxxxxx

Distr.xxx

xxxxxxx

Tollingxxx

xxxxxxxxEach function/site

develops a scorecard consistent with the

overall scorecard and objectives

Financexxx

xxxxxxx

ITxxx

xxxxxxx

PTDxxx

xxxxxxx

Line ActivitiesLine Activities Support ActivitiesSupport Activities

C1 Retain customer loyalty x xC2 Increase customer spend x x x xC3 Attract new customers x x x x x x

Departments, teams and individuals can develop

plans consistent with the functional objectives and

scorecard as well as supply chain objectives

Balanced scorecards for

support activities promote “Best

Practice” sharingManagement TeamManagement Team

Steering GroupSteering Group

BSC & PDR

ExampleThe supply chain

balanced scorecard defines overall

strategic priorities


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BSC & PDR

The BSC is a solid foundation for our Plan-Do-Review processes. . .

Review

Plan

DoEstablish targets and definitions

Assign/agree actions to resolve variances:

What By whom

When

Examples of key meetings

Board

Business Unit

Operations

Production

…with differing

Frequencies

E.G. Monthly/Quarterly

Monthly

Weekly

Daily

Focus on variances to

plan

Focus on variances to

target

Agree accountabilities

and KPIsRACI

Establish meetings charters Charter

Balancing 4 Critical Success Factors


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BSC & PDR

We then linked the BSC with the PDR “traffic light” system

RRAAGG In control - On targetSome slippage, should be able to recover. No immediate action

Problems with process, immediate action required

Report not due Report not yet developed

Compliance and best

Perf. Measure "A" "R"s Target for 2000 Explanation of Current Status Jan Feb

Engage sites

SNO Stretch SL Huddersfield

Deliver or better Seneffe resource issues are a concern Team launch NWT resources OK.

SNO Implementation BTT the 2000 SNO re. Bips implementation.Argentina amber. Guatemala meeting. PDR/RACI in place

programme Benefits down die to Syngenta effect. Draft cost reporting Mak deal signed.

Establish Asset Confirm PMP RACI Update site capacity

Asset Review Process JDH Review process Publish plan data and key drivers.

On hold till post merger Agree strategic

Manufacturing Strategy JDH principles.Agree bench-

marking for 2000.

Basis of Safety review

Global Processes MAK practice.

Establish GMST

Product Siting JDH as key decisionforum.

Budget $497m

Fixed Costs CB Target $486m

ExamplePDR


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We are making extensive use of the Balanced Scorecard unique process right across the business. . .

. . . to drive forward and achieve extraordinary results!

Planning Manufacturing

HR SHE

Senior Management, Asset Management and Shift Hand-over levels

Management of the SHE 2000 improvement plan deliverables, by the SHE Committees

The ISOP, Supply Chain ROPS, Yalding YROP

International Supply Chain Career Working Party

APPLICATION


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Please contact Andrew Thurston

For further information or help. . .

1. ‘The Balanced Scorecard’ Robert S. Kaplan, David P. Norton Harvard Business Review, Jan-Feb ‘92


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INTERNALINTERNAL LEARNINGLEARNINGGlossary of Terms

Balanced Scorecard Set of measures, split into 4 sections or quadrants - Financial, Internal, External and People - which are all taken into account to ensure balance in achieving objectives

Plan-Do-Review A formal, low technology way of mobilising people to follow an ongoing planning, implementation and review change process which is activity oriented

Lead indicators Indicators which show projected performance - present tense

Lag Measures Measures which show how well something has performed - past tense

Hypothesis A statement describing a state which needs to be proved or disproved

CharterA summary, agreed by the team, of the Rational, Emotional, Political influences of their task OR The mission statement of a Natural Work Team which defines the primary areas of opportunity to be addressed and worked.

RACI Technique used in charting roles and responsibilities within a group/team. (R-Responsible. A- Accountable, C-Consulted, I-Informed)

Balanced Scorecard

Documents

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