Building the Balanced Scorecard. Introduction Balanced Scorecards provide a framework for communicating strategy in operating terms (measurements and.

Building

the

Balanced Scorecard

Introduction

Balanced Scorecards provide a framework for communicating strategy in operating terms (measurements and targets).

You must communicate strategy in operating terms if you expect people to execute on your strategy.

When people are asked about strategy, they reach for their balanced scorecard.

Why do we need Balanced Scorecard…???

Improves how you communicate strategy

Superimposes a discipline whereby you capture cause-effect; otherwise you create pockets of under-performance.

Forces to think about strategic measurement as opposed to tactical or operating type measurements

HOW TO BEGIN….!!

Begin with strategic plan – what things are critical to future success?

Focus on customers – what values will we add to our customers

Define the processes – how will we deliver these services to our customers

Build the organization – what capabilities must we put in place

Strategic Goals

The first components of any strategy are goals.

Strategic goals establish direction in concrete terms.

Strategic goals anchor the rest of the process.

Strategic goals should fit with the vision and mission of the organization.

Attributes of a Goal

Should be a very short statement

Directly relates to the mission

Broad in scope

Covers long time period (such as 3 years)

Examples:- Improve Customer Service- Leverage Core Competencies- Develop more innovative products

Strategic Objectives

Once first anchor (goals) are established, develop a set of strategic objectives.

Strategic objectives define what actions must be taken to reach the strategic goals.

Objectives are critical to future success. For example, in order to grow revenues, we must introduce new products and expand our market share.

Objective Attributes

Longer statement than goal statement

More specific than goal statement

Relationship to mission

Covers shorter time period than goal (such as 6 months or 1 year)

Example: - We will expand call center services to include technical support

Strategic Themes

o Based on strategic goals, three to five strategic themes should emerge.

o From these themes, develop a strategic map.

o Four common strategic themes are: Operating Efficiencies, Customer Relations, Product Innovation, and Growing the Business.

Strategic Model

Strategic Models can emerge from four principles:

1. Translate strategies into operating terms.

2. Link strategies throughout the entire organization.

3. Commit everyone to implementing strategy.

4. Make strategizing a continuous process of learning and adjusting to change.

4 Perspectives of BSC

Financial: Top layer in the map, represents financial outcomes (profits, revenues, etc.)

Customer: Next layer down, enables financial results (service, image, price, quality, etc.)

Internal Processes: The values added to customers, such as delivery, production, distribution, etc.

Learning & Growth: The people, systems, and organization that enable processes.

Strategic MappingStrategic Maps are the foundation of the

Balanced Scorecard.

You will need one strategic map for each strategic theme.

Maps are constructed over four perspectives.

Strategic objectives are mapped over the four perspectives, linked together.

Linking BSC to Business Strategy

Strategic objectives should be placed in the Strategic Map according to which perspective fits with the objective.

Objectives may cross over more than one perspective.

Start at the top with outcomes and work our way down, looking at what drives the outcome.

Approval of Maps

After strategic maps are done, get approval from executive management. Ask questions likes….“Does this map accurately tell the story of our strategy?”

If management disagrees with the map, go back and redo the maps.

Measurements

For each strategic objective, you need one measurement.

Measurement provides us with feedback on meeting the strategic objective.

Measurement Criteria

Measurements should drive change, providing teeth to our strategy.

Measurements define objectives in specific terms. A good measurement should tell you what your objective is.

Measurements should be SMART..!!

Examples of Good Measurements

Customer satisfaction:- Response Time to service customer- Customer Satisfaction Survey Scores

Process Efficiency:- Cycle time- Downtime (time / ratio)- No. of Restarts

Targets Setting

Once measurements are established, you need to set a target for each measurement.

Targets push the organization to a required level of performance.

Targets put focus on the strategy, expressing the specifics of the strategy.

When an organization hits its targets, then it has successfully implemented its strategy.

Examples of Targets

Total Time to Recruit New Employees: Less than “x” days by 2005

Utilization of rental facilities: Increase to 90% during peak summer months

Growth in top line revenues: 12% increase than 2004

Improve overall customer satisfaction: Total scores on satisfaction exceed 85%

Initiatives Takers

In order for things to happen in an organization, you must initiate major projects or programs.

Once you launch appropriate initiatives, you should be able to meet your strategic objectives. This closes the loopholes and everything is linked.

Initiative Attributes

Sponsored by Top Management

Designated project(s) owners

Includes deliverables or milestones

Has some deadlines

Templates

Throughout this process, use templates to capture, analyze and document data. Templates are used for strategic mapping, defining measurements, etc.

Strategic Map for Strategic Theme #1:

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Pointers to keep in mind….!!

Scorecards are built around three teams: Leadership Team (upper level management), Core Team (middle level management) and Measurement Team (lower level functional personnel).

Scorecards are built around frequent group meetings: Kick Off Meeting followed by one meeting for each of the three teams.

Implementation

The minimum time for developing a balanced scorecard is 3 months.

Full deployment of scorecards throughout the entire organization can take one year or even more than that.

The best place to start building a scorecard is where all components of the value chain are in place: Customer, Innovation, Production, Delivery, Services, etc.

Summary

Balanced Scorecards are the best way of putting organization in its place.

Scorecards rely on a fully integrated approach: Goals, Objectives, Mapping, Measurements, Targets, and Initiatives.

The building of a balanced scorecard can be experimental, whereby you test your strategies, refine, and make changes as you get feedback and learn what works.

THANK YOU