The Balanced Scorecard - Implementing Strategy Webinar February 2, 2010
Nov 29, 2014
The Balanced Scorecard - Implementing Strategy
WebinarFebruary 2, 2010
Agenda
• Driving growth: need for strategy and effective deployment
• Understanding the Balanced Scorecard (BSC) and its benefits– The four perspectives of the BSC
• Building the BSC: Steps of the BSC process• Cascading the BSC in the organization
Webinar – Ground Rules
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the lower right corner.• Submit questions as they occur to you by typing in the
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end of the presentation.
Webinar – Ground Rules
Questions & Answers• We will do our best to answer as many questions as
possible in the allotted time.• Answer to unanswered questions will be answered on
our website/forum soon.• We shall notify you when they are available
http://www.bmgi.groupsite.comhttp://www.bmgindia.com
Growth: Need for Strategy and Effective Deployment
Where Do We Want to Be in 5 Years?
Vision Statements – Do they really provide the direction needed?
Strategy Is
Intended Strategy Deliberate Strategy
Unrealized Strategy
Realized Strategy
Emergent Strategy
Intended = Realized?
Strategy fails if it is little more than…..
Hope Extrapolation
Rationalization
Self-DefensePaper Exercise
Fabrication Vision?
Strategic Vs Operational Management
STRATEGIC MANAGEMENT
• Long term future horizons
• Building sustainable competitive advantage
• External focus
• Thinking Strategically
OPERATIONAL MANAGEMENT
• Short to medium term
• Seeking operational improvements
• Internal focus
• Fire fighting
10
The Ambidextrous Nature of Business
Managing Current Business
Create the Future Business
Focus: Doing things Better
Focus: Doing things Different
Selectively Abandon the Past
11
The Ambidextrous Apple
Managing Current Business
Finding the Future
12
Preservation and Evolution
Phase1 Innovation
Phase 2 Improving
Phase 3 Maturity
Phase 4 Reinventing the Future
Time
Gro
wth
Growth
13
Channels for Growth
Growth is #1 agenda for almost every CEO
Primary Vehicle for Growth is through Organic Growth or Mergers & Acquisitions (M&A)
Several Studies have shown that most M&A fail (One study showed that over 62% of the time M&A destroy shareholders wealth)
However delivering Organic Growth consistently and repeatedly has been challenging due to poor success rates with implementation of strategy
14
Forbes List of 100 Largest Companies
• To celebrate the 70th anniversary, in 1987 Forbes published its “Forbes 100” list of largest American companies and then compared it to its original list from 1917.
• However, only 18 of the original companies managed to stay in “Top 100” list through 1987. Sixty one of them no longer existed and twenty one fell off the “Top 100” list.
• The overall long-term return to the shareholders from this is group of 18 companies was 20% less than that of the overall market.
• Only two companies, General Electric and Kodak performed better than the overall market. Since then Kodak’s performance deteriorated significantly.
15
Can We Beat The Odds?
Current Business Future Business
• 80% of all venture capital investments fail
• Over 90% of companies fail to sustain above-average shareholder return for longer term
• 75% of all new products that established companies put into their markets fail
Sustaining Growth is Difficult in the Long Term
Classical Management Control System
Designed Around Short-term Control Oriented Financial Framework
BudgetPersonal Incentives
Strategy & Vision
Review & Reorient
Planning & Capital
Allocation
Focus on Financial Measures
The Alignment Paradox
9 of 10 Companies Fail
to Execute Strategy
Only 5% of the work force understands
the strategy
60% of organizations don’t
link budgets to strategy
85% of executive teams spend less than one hour per month discussing
strategy
Only 25% of managers have
incentives linked to strategy
You Can’t Manage Strategy With a System Designed for Operational Control
Source: Fortune Magazine Survey
Strategy Implementation – Need of a Framework
Vision
Long Term Goals
Balanced Framework: End Results and Drivers of
Performance
Strategy Everyone’s Job
Benefits of BSC – Evidence?
• Survey conducted with the US Institute of Management Accountants’ members in 2006, the results of which included:– 88% of members from organizations regularly using the
Balanced Scorecard reported improvements in performance; and
– 66% stated that they also achieved increase in profits
The Balanced Scorecard
Strategy ImplementationUsingUsing
MeasurementToTo
Communicate, Focus, Review And Align
Background
Conceived In 1991 Robert Kaplan: Harvard Professor
David Norton: Management Consultant
Several insights into the process based on work done
Balanced Scorecard: Evolved Framework
Internal Business ProcessTo satisfy our customers, in which internal business processes must we excel?
To satisfy our shareholders, what financial objectives must we accomplish?
Financial
The Vision & StrategyThe Vision & Strategy
CustomerTo achieve our financial goals, what customer needs must we satisfy?
Innovation, Learning & GrowthTo achieve and maintain a competitive position, how must the organization learn and improve?
Cause
Effect
Results
Actions
The Strategy Map
Constructing The Scorecard
BSC Addresses Barriers to Strategy Implementation
Balanced Scorecard
A Management System Built On Strategy: Goal is to enable effective corporate management
Translation Through Objectives and
measures
Translating Vision & Strategy
Planning & Resource Allocation Driven By Strategy
Business Planning
Review Strategy In The Light Of Recent
Performance
Feedback & LearningAligning
Organization, Departmental and
Individual Objectives
Communicating & Linking
Benefits of Implementing BSC
• It makes strategy operational • Translates strategy into performance measures
and targets• Brings to focus drivers of future performance
– Focused measurement for “success”
• Umbrella/filter for a variety of diverse corporate programs
• Aligns employees to strategy execution
Keeping Up With Change
Ongoing business
Change
Failure of changemanagement systems
to exploit benefits
Sustaining mechanismsto build on success
Benefit of Balanced Scorecard
The Four Perspectives of BSC
The Financial Perspective
“Results”
The Financial Perspective
Return On Investment
Productivity StrategyRevenue Strategy
Asset UtilizationStrategy Cost Strategy
Consideration of risk management strategies is critical
Financial Objectives – Examples
• Increase product portfolio• Establishing new services• Reduce cost• Improve asset utilization• Increase revenue (organic/ inorganic)• Improve productivity
The Customer Perspective
The Customer Perspective
Market Share
CustomerRetention
CustomerAcquisition
CustomerSatisfaction
CustomerProfitability
Enhancing Customer Value
Relationship
Image
CustomerValue
Product / Service Attributes
Functionality
Quality
Price
Schedule
Basic Differentiators
Customer Objectives – Examples
• Increase geographical reach• Increase customer base• Enhance brand image• Build end to end solutions• Enhance client relationships• Providing value-added services
The Internal Process Perspective
Internal Process Perspective
ProductService
Leadership
CustomerIntimacy
OperationalExcellence
GoodNeighbor
% New Product Sales
New Product Intro. Vs Competitors’
Process Capability
Time to Market
Target SegmentShare
ContactManagement
Complaints
Quality
Cost
Schedule
Regulatory
Legal / Ethical
Community
InnovationManagement
CustomerManagement
Supply ChainManagement
RegulatoryManagement
Internal Process Objectives – Examples
• Improve supply chain performance• Reduce waste• Improve value creation• Improve regulatory compliance• Improve technology absorption• Improve NPD performance (time to market/
success rate)
The Learning & Growth Perspective
Learning & Growth Perspective
Employee capability
Information systemscapability
Motivation, empowermentand alignment
TechnologyInfrastructure
Learning & Growth Objectives – Examples
• Enhance employee morale• Develop leadership• Improve knowledge management• Build key/strategic competencies• Improve communication• Build required infrastructure• Institutionalize strategic thinking
Building the Balanced Scorecard: Steps
MissionWhy we exist
VisionWhat we want to be
Core ValuesWhat we believe in
StrategyOur game plan
Personal ObjectivesWhat I need to do
Strategic OutcomesStrategic OutcomesStrategic
ShareholdersDelighted
CustomersEffective
ProcessesMotivated and
Prepared Workforce
Balanced ScorecardImplementation and focus
Strategic InitiativesWhat we need to do
Building the BSC
Translating the Mission and Vision into Desired Outcomes
Step 1: LT Goals – Definition
• Long Term Goals (LT Goals)– Statements (quantitative/ qualitative) that give tangible
shape to aspirations based on the Vision• 3 to 5 year time horizon• Directional• Will not include aspects of actions/ how to
– Example• Achieve revenues of 1000 cr• Be a global player/ number one in market
– Not a LT Goal• Increasing sales• Improve market share• Enter a new market
Step 2: Strategic Objectives – Definition
• Strategic Objectives– Provide a direction for meeting the Long-Term goals– They are high level how's which can hold in there
umbrella a series of strategic initiatives
• Example– Expanding geographical reach– Entering into strategic alliances– Deliver first time on time
• Not Objectives– Open an office– Appoint an agent– Change a vendor
This assumes that the strategy of the
organization is articulated based
on which the objectives can be
defined.
Step 3: Strategic Metrics – Definition
• Finalization of Strategic Metrics and Targets– For each strategic objective
• The targets associated with each metric will need to be finalized based on baseline performance which will need to be ascertained
Types Of Strategic Measures
Lagging Measures
To Gauge Outcomes OfStrategy
Strategic Objective
Outcome Measures
Common MeasuresAcross The Industry
Leading Measures
To Understand processesAnd Activities
Performance Drivers
Strategy DependentUnique Measures
Selecting Measures
• Caution
• Do not select what “can” be measured: select what “should” be measured
• Counter balance the measures to prevent strategy distortion
• Restrict the number of measures to the level of control / action
Lag / Lead Existing / New
Strategic Impact
Measure Cycle
Degree Of Diff
Cultural Shift
Change Quantum
Step 4: Strategic Initiatives – Definition
• Strategic Initiatives– Specific actions which help realize the strategic objective
and achieve associated target – Operationalize objectives on a daily work / project level
basis– One or more initiatives will be typically needed for
achieving an objective
• Example– Objective is: Improve project management– Initiatives could be:
• Create project planning templates• Establish method for tracking risks• Establish method for interdependency management
LT Goals – Objective – Initiatives
Sales – 1.5 bn USD
Increase win-rate
LT Goals
Customer Objective
• Hiring people from customer/competition• Influence design of tender document so that it favours USP of Organization
Initiatives
Quality Organization & International
Standards on QHSE
Deliver first time on time
Process Objective
• Set up interdependency management• Reduce execution defects in process
– 1 –Identify
InitiativesMarketing Projects,
Activities, etc.
Development Projects,
Activities, etc.Quality
Projects, Activities, etc. Corporate
Projects, Activities, etc.
– 2 –Screen
Initiatives
FinancialFinancial PerspectivePerspective
CustomerCustomer PerspectivePerspective
InternalInternal PerspectivePerspective
OrganizationOrganization LearningLearning
Output: Short List of Strategically Aligned InitiativesOutput: Short List of Strategically Aligned Initiatives
Prioritizing Strategic Initiatives
Managing Dependencies
XYZ Strategy MapFi
nanc
ial
Cus
tom
er
Pers
pect
ive
Inte
rnal
Pr
oces
sLe
arni
ng
& G
row
thLT Goals
Objective 1 Objective 2
Objective 1
Objective 2 Objective 3
Objective 1
Objective 2
Objective 2 Objective 3
Objective 3
Objective 1
Objective 4
Initiative 1
Initiative 2
XYZ Group Strategy Map
Financial
Learning & Growth
BusinessProcesses
Customer
Enhance Long-termShareholder Value
Double Sales In 4 Yrs No. 1, 2 or 3 Market Player Double Profits In 3 yrs
New Customers / Markets
Business Review Process
Strategic Thinking
Brand Equity
Reputation Management Business Excellence
Finance Review Process
Code Of Conduct Internal Communication
Company / EmployeeAlignment
Talent Retention /Mobilization
LeadershipDevelopment
Customer loyalty / value
BSC – Example
Objective Initiative Owne r &
Team
Lead Metric
Target Lag Metric Target
Industry wise focused selling
Identifying and developing industrial specialist (Pilot in one area- Power/ Defense )
a) % sales increase / industry b) No of application s transplante d / industry
a) 15% b) 25 % hit rate > 1L business
a) No of new applications developed / Industry b) No of applications shown for transplant/ Industry
a) 5 / industry / annum b) 100 % where applicabl e
Enhance product portfolio through new agencies
Identification and finalization of agencies (> 100L potential business )
Business generated through new agency
> 100 L / annum
a) No of agencies interacted / month b) No of agencies identified and launched
a) 10 / month b) 2/ annum
Enhance business by JV workshops
Formation of JVs % increase in turnover from JVs
Rs 50 L / JV / annum
No of JVs / Division / Year
1/Annu m
Cascading the BSC
Step 1. A Corporate Scorecard defines overall strategic
priorities and context
Step 2. Each SBU develops a long-range plan
and BSC consistent with the corporate strategic agenda
Step 4. Departments, teams
and individuals develop scorecards consistent
with their organization’s strategy
Corporate / GroupCorporate / Group
SBU CSBU CSBU SBU BB
SBU SBU AA
Teams and Individuals
Support FunctionsSupport Functions
Step 3. Each Support Unit
develops a scorecard to support the internal
customers
Align All Levels Of The Organization
Org Strategy Map Final DraftFi
nanc
ial
Cus
tom
er
Pers
pect
ive
Inte
rnal
Pr
oces
sLe
arni
ng
& G
row
thTarget 2012
•XY bn USD Turnover •12% + PBIT /Year•ROCE – 40%
C1 - Focus on new products, services and
regions
F1 - Increase revenue
(international & domestic)
Target 2012•Major Player in rrr regions•International standard on QHSE•New products - mnp
F2 - Cost competitiveness
P3 - Reduce cost and time over-run
Indicate cause and effect linkage
Sample SBU - Strategy Map: Cascaded from Corporate
Fina
ncia
lC
usto
mer
Pe
rspe
ctiv
eIn
tern
al
Proc
ess
Lear
ning
&
Gro
wth
Target 2012•ZZ Bn USD Turnover •8% + PBIT /Year•Best regional service provider (MENA)
F1 - Establish the presence in the segment
(grow revenue)
P3 - Improve adherence to internal
project milestones
F3 – Cost Competitiveness
Example of Strategic Initiatives for Procurement
1. Identify and source from low cost countries (including India) for competitive sourcing, and establish and implement the process
2. Create the infrastructure to make skids in-house3. Develop alternate vendors in single source situation
P F1 Enable Cost Competitiveness for
Organization
Strategic KRAs Routine KRAs
Performance Planning for
Appraisal
Development Planning
Strategic
CompetenciesOther Skill
Gaps
Performance Appraisal Aligned to BSC
BSC Routine Job based on JD
BSC Tracking
BSC – Performance Tracking
Initiatives
Objectives
SBU/ JV/ BE BSC
Initiatives
Objectives
SBU/ JV/ BE BSC
Initiatives
Objectives
Corporate BSC
Validation of Assumptions
• Collect information on actual status on assumptions made at the time of defining each Objective/ initiative
• Ratify assumption– Assumption incorrect
• Possibility of initiative failure
BSC – Performance Tracking
• Review mechanism– Integrated with business review– Coordinated by BSC coordinators– Use of defined templates and presentations– Compilation prior to review meet
• Outcomes– Mid-course corrections