2016 steering your strategy with a balanced scorecard

STEERING YOUR STRATEGY WITH A BALANCED SCORECARD

Philippe Husser

A strategy is an integrated set of choices that position a firm (an organization), in an industry (in research, government, hospital…), to earn superior returns (results) over the long run

How to close a value gap (the difference between an organization’s aspiration and its reality) is the essence of a strategy

Strategy has only value when executed successfully

What is Strategy

Source : R. Kaplan, D. Norton

Each Entity should develop a strategy contributing to the Group Strategy

Entité A

Entité B

Entité BU

Entité C

EntitY CORPORATE

Entity FUNCTION F

Entité BU

Entité BU

Entity FUNCTION G

A BALANCED STRATEGY MAP DESCRIBES OUR

VALUE CREATION PROCESS ON 4 DIMENSIONS

Stakeholders

Processes

People & Systems

Resources

To fulfill our mission, what customer / stakeholder needs must we serve ?

To satisfy our customers and stakeholders, in which internal business processes must we excel ?

To drive effectively our processes, which intangible assets are necessary (people, culture, systems)

To satisfy our stakeholders, what resources / budget objectives must we have ?


What are

strategic themes

?

Strategic themes articulate the strategy. Examples are Customer Centricity,

Operational Excellence, Digitization…

– Help to focus the organization on arriving at the strategic destination

– Are usually limited to 3-5 major business thrusts

– Include a stream of linked objectives

– May slice across all four business perspectives

Strategic Theme

Customers

Processes

People

Finance


EXAMPLE – STRATEGY MAP / THEME OPERATIONAL

EXCELLENCE OF A LOW COST AIRLINE

Strategic Theme Operational Excellence

What will drive operating efficiency ? More customers on fewer airplanes

Financial

How will we do that ? Attract targeted customer segments that value price and on-time arrival

Customer

What must the internal focus be ? Fast ground turnaround

Internal

Will our people do that ? Educate and compensate ground crew regarding how they contribute to the firm’s success Employee stockholder program

Learning

Increase profitabilit

y Use fewer

planes Add more customers

Flights on time

Lowest prices

Provide fast ground turnaround

Empower ground crew


EXECUTING STRATEGY REQUIRES A HOLISTIC SYSTEM

BRIDGING STRATEGY AND OPERATIONS


Why a BSC?

Strategic Plan

• Strategy Map • Strategic Initiatives • Strategic Budget

Operating Plan

• Activity • Resources • Budget

EXECUTION

Processes

Projects

Performance Measures

designed for Operational

Reviews

Results

Performance Measures

designed for Strategy Reviews

Dashboard

Balanced Scorecard

A Management System is built upon two key processes, strategic and

operational

A BSC is at the heart

of the strategy

execution system

A Balanced Scorecard operationalizes a Strategy with Measures, Targets, Initiatives

Strategic Theme

Customers & Stakeholders

Processes

People

Financials

Objectives

Measures

Targets Initiativ

es

Key action and programs

required to achieve

objectives

Statement of what strategy

must achieve

and what’s critical to its success

How success in achieving

the strategy will be

measured and

tracked

The level of performance

or rate of improvement

needed

MISSION


EXAMPLE – BSC / THEME OPERATIONAL

EXCELLENCE OF A LOW COST AIRLINE


CRITERIA FOR SELECTING STRATEGIC

MEASURES

Strategic communication Strategic measures show how we go from A to B (different from operational measures)

The strategic learning loop : Are we doing the right things ? The operational control loop : Are we doing the things right ?

Do the measures adequately focus on the strategic issues (vs. SWOT) or do they dilute attention, distort performance and/or sub-optimize behavior ?

Repeatable and reliable Are the measures quantifiable (frequently enough), reliable, and repeatable over time in your industry or market ?

Frequency of update Is frequency of update and review meaningful on a monthly or quarterly basis ? How will strategic review cycles be handled ?

Usefulness for target setting Can meaningful targets for improvement be established ?


BSC SHOULD HAVE LEAD MEASURES OFFERING

FORWARD LOOKING PERSPECTIVES

Lag (outcome) measure Lead (driver) measure

Purpose

Assess / evaluate the performance

results at the end of the time period or

activity

Examples

Customer retention

Strategic skill coverage

Issues

Lag measures reflect success of past,

not current, activities and decisions

Generally standard within specific industries

Do not reinvent,

Allows benchmark

Rather assigned to the stakeholder

perspective

Purpose

Measure intermediate processes,

activities and behaviors

Examples

Hours spent with Customer

Strategic people readiness

Issues

Based on hypothesis of strategic

« cause and effect »

Often difficult to collect data

More reflective of the organization’s strategy

Communicate how we want to accomplish

the objective (with confidentiality issues)

Rather assigned to process and people

perspectives (and to resources / budget)


USE MEASURES FROM MANY DIFFERENT

FORMS

Absolute numbers Pros : Clear and simple, unambiguous

Cons: one dimensional, does not consider context

Indices Pros : allow multi-variate analysis

Cons: masks underlying individual variable

Percentages Pros : good indicators of relative change, used in measurement over time

Cons: sometimes misunderstood or improperly used

Rankings Pros : easy to compute and to understand objective

Cons: category definition often inconsistent

Ratings Pros : good for nominal data

Cons: can be biased

Ratios Pros : depict critical relationships to be managed

Cons: can be difficult to understand how to manage cause / effect relationship


A BSC MUST ALSO IDENTIFY THE PORTFOLIO OF THE

VITAL FEW INITIATIVES REQUIRED TO MAKE THE

STRATEGY SUCCESSFUL

Define strategic objectives and KPIs

Strategic Process

Identify vital few projects to input in

portfolio

Portfolio Process

Manage projets and deliver outputs

Project Process

Run governance process

Governance Process 1 2 3 4

Steering your strategy with a Balanced Scorecard

Philippe Husser - 2016

2016 steering your strategy with a balanced scorecard

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