balanced scorecard overview - actionable strategiesscorecard.pdf“the balanced scorecard...
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The Balanced Scorecard
Background Discussion
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History and Evolution
Important Business Drivers
Key Concepts
Case Studies & Success Stories
Contents
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Potential knowledge
People
Data
Bus. Intelligence
Business Intelligence (BI) and
Knowledge Management (KM)
Delivering Useful Knowledge to People
Tacit knowledgeExplicit knowledge
PeopleInformation
CollaborationContent Mgmt.
KM
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Double-entry
Bookkeeping
Management
Accounting
Shareholder
Value
Balanced Scorecard
15th
Century
19th
Century
Late20th
Century
Financial Strategic Operational
Competencies/
Capabilities
Competitive
Advantage
Operational
ImprovementComparative
Benchmarking
Customer
Satisfaction
Baldrige
Six Sigma
Business Process
Reengineering
Source: Howard Rohm, U.S. Foundation for Performance Measurement
The Evolution Of Measurement
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Brief History of the BSC
Articles in Harvard Business Review:
“The Balanced Scorecard
— Measures that Drive
Performance” Jan-Feb
1992
“Putting the Balanced
Scorecard to Work” Sept-Oct
1993
Measurement &
Reporting
1992
“Using the Balanced Scorecard
as a Strategic Management
System” Jan-Feb 1996
Alignment &
Communication
1996 2000
“Having Trouble With Your Strategy?
Then Map It” - Sept-Oct 2000
Enterprise Strategic
Management
Recognized by the Harvard
Business Review as one of the
“most important management
practices of the past 75 years.“
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What is the Balanced Scorecard?
Strategic
Measurement
System
Strategic
Management
System
Strategic
Communication
Tool
BSC
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BSC as a Strategic Measurement System
Strategic
Measurement
System
Strategic
Management
System
Strategic
Communication
Tool
BSC
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Shortcomings with Typical Measures
Most financial measures are lagging
People don’t know how to impact them
They can motivate unwise, short-term behaviors
They do a poor job at measuring intangible assets
They are poor at measuring value creation
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Four “Balanced” Perspectives
Financial
Customer
Internal Business Processes
Learning & Growth
Perspective Key Question
To succeed financially, how
should we appear to our
stakeholders?
To achieve our vision, how
should we appear to our
customers?
To satisfy our customers and
shareholders, what business
processes must we excel at?
To achieve our vision, how will
we sustain our ability to
change and improve?
Cau
se &
Eff
ect
The drivers of
Shareholder Value
The differentiating
value proposition
How value is created
and sustained
Role for intangible assets – people,
systems, climate and culture
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Leading vs. Lagging Measures
Lagging—measures that report outcomes after they have happened
Most financial measures
Outcomes of Cause & Effect chains
Leading—measures that indicate future results
Number of Lean initiatives implemented
Workforce turnover
Training provided
Defects in products shipped
Product development cycle time
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What is the Balanced Scorecard?
Strategic
Measurement
System
Strategic
Management
System
Strategic
Communication
Tool
BSC
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The Need for the Balanced Scorecard
“If you can’t measure it, you
can’t manage it.”
Robert Kaplan and David Norton
Authors of “The Balanced Scorecard”
“You can’t manage something
that you can’t describe!”
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Underlying Business Concerns
Increased competition
Changing market conditions
More demanding customers
Greater need for alignment and communication
Need to make better decisions faster
Difficulty in implementing strategies
Understanding non-financial factors
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The Gap
MissionWhy we exist
ValuesWhat’s important to us
VisionWhat we want to be
StrategyOur game plan
Total Quality ManagementWhat we want to improve
Empowerment / Personal Objectives
What I need to do
How do you communicate and operationalize strategy?
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Why Strategies Fail
Adapted from Kaplan and Norton - The Strategy-Focused Organization, 2000 And Paul Niven, BSC Step-by-Step 2003
Only 10% of Strategies are Successfully Executed
Vision Barrier
Only 5% of the workforce
understandsthe strategy
People Barrier
Only 25% of managers have
incentiveslinked to strategy
Management Barrier
85% of executiveteams spend less
than one hour per month discussing
strategy
Resource Barrier
60% of organiz-ations don’t link
budgets tostrategy
Barriers to Strategy Execution
Communication
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The Need for a Descriptive Framework
“The first task of any theory is to clarify terms and
concepts that are confused… Only after agreement
has been reached regarding terms and concepts can
we hope to consider the issues easily and clearly, and
expect to share the same viewpoint with (others).
On War, Carl von Clausewitz, 1832
“From Art to Science: Formulating, Describing
and Executing Strategy”
Title of the 2002 Balanced Scorecard Collaborative Summit
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The BSC Fills the Gap
MissionWhy we exist
ValuesWhat’s important to us
VisionWhat we want to be
StrategyOur game plan
Balanced ScorecardTranslate, Focus and Align
Total Quality ManagementWhat we want to improve
Empowerment / Personal Objectives
What I need to do
Source: Kaplan, 2002
Begin Using BSC Terms
& Techniques
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The BSC Fills the Gap
MissionWhy we exist
Values - What’s important to us
Vision - What we want to be
Strategy - Our game plan
Balanced ScorecardTranslate, Focus and Align
Strategic InitiativesWhat are the priorities?
Total Quality Management - What we want to improve
Empowerment / Personal Objectives
What I need to do
Strategic Outcomes
Satisfied
Shareholders
Delighted
Customers
Efficient & Effective
ProcessesMotivated & Prepared
Workforce
Source: Kaplan, 2002
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David Norton’s Definition
“A balanced scorecard is a system of linked
objectives, measures, targets, and initiatives
which collectively describe the strategy of an
organization and how the strategy can be
achieved.
It can take something as complicated and
frequently nebulous as strategy and translate it
into something that is specific and can be
understood.”
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Borrowing from Military Strategy
Military
War
Territory
CampaignA
CampaignB
CampaignD
CampaignC
Campaigns
Engagements
G1:Personnel +
G2: Intelligence +
G3: Operations +
G4: Logistics +
Initiatives
Strategy
“Strategy is the use of
engagements to achieve the
objectives of the war”
“Strategy determines the
plans for individual
campaigns, and orders the
engagements within them.”
Tactics
“Tactics deal with the forms
of individual engagements”
References: On War, von Clausewitz, 1832Clausewitz on Strategy BCG Strategy Institute 2001
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Describing Business Strategy
Enterprise
Mission
Customers
InnovationCustomer
Mgmt.Social
CitizenshipOperations
Mgmt.
Themes
Programs
Process +
Competencies +
Technologies +
Climate for Action
Initiatives
Mission: To create sustained value for
the stakeholders, consistent with the
mission
Customer Value Proposition: The
set of objectives which create value for the
customers
Themes: The complimentary, enduring
classes of action required to sustain value.
Themes cross multiple perspectives and
scorecards.
Strategic Initiatives: Specific actions
designed to help accomplish the strategic
objectives.
Source: Balanced Scorecard Collaborative
Outcomes
Drivers
FinancialPerspective
CustomerPerspective
InternalPerspective
Learning & GrowthPerspective
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Private Sector Strategy Map
Increase
Customer Satisfaction
Through Superior
Execution
Increase Customer
Confidence in Our
Advice
Financial
Customer
Internal Processes
Learning & Growth (Employees)
Improve
Operating
Efficiency
Improve
ReturnsBroaden
Revenue Mix
Provide
Access to
Strategic
Information
Develop
Strategic
Skills
Increase
Employee
Productivity
Align
Personal
Goals
Cross-Sell
the Product
Line
Develop
New
Products
Understand
Customer
Segments
Provide
Rapid
Response
Minimize
Problems
Shift to
Appropriate
Channel
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Measures, Targets & Initiatives
Increase customer
confidence in our
advice
% of customers
surveyed who rate
us as their top
source of advice.
65% #1
90% #1 or #2
Website Resource
Center,
Consultative
Selling Training
Program
Objectives Measures Targets Initiatives
What is the
strategy trying
to achieve?
How will the
performance of
the Objectives
be monitored?
What
performance
level is
required?
What are the
actions or
programs to
achieve the
target?
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Balanced vs. KPI Scorecards
KPI Scorecards generally show measures that are not specifically tied to a strategy
The process of developing a BSC often leads to objectives and measures not previously considered
KPI Scorecards tend to be a summary level of data analysis
KPI Scorecards are often used by executives to monitor behavior.
Balanced Scorecards should be widely communicated to drive strategy.
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What is the Balanced Scorecard?
Strategic
Measurement
System
Strategic
Management
System
Strategic
Communication
Tool
BSC
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Strategy Focused Organization
Mobilize change
through Executive
Leadership
Mobilization/Communication
Strategic Management Make Strategy a
Continual
Process
Learning Organization
Analytics and IS
Link budgets & strategy
Make Strategy
Everyone’s Job
Strategic awareness
Personal scorecard & compensation
Cascading the Balanced Scorecard
Align the Organization
to the Strategy
Corporate role
Business Unit synergies
Support Unit synergies
Translate the Strategy
into Operational Terms
Strategy Maps
Balanced Scorecard
Integrate operational tools
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BSC Hall of Fame
Mobil Oil Marketing & Refining DivisionWorst (’93) to first in their industry (’95-98)
Contributed several hundred million $/year
How did they do this?Most of the same leaders
Almost no change in facilities
Competitors had the same market
What gets the credit?Executives credit the Balanced Scorecard
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Wendy’s Int’l: 2002 Hall of Fame Winner
About Wendy’s Int’l$8.3 billion in sales. 8400 restaurants
Competitive fast food market
BSC created focus on Non-financial objectivesStrategy that emphasized speed at the drive-thru
Reduce staff turnover
Results in 2 yearsCrew turnover & drive-thru speed dramatically improved to best in the industry
Big financial rewardsBig boost in profits
Stock price increased 75%
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Financial Services Success Stories
Chemical Bank: Retained 85-90% of targeted
customer accounts in spite of massive branch
closings resulting from a merger.
Cigna P&C: Within six years, changed from a
company with negative value to one with a 3.5
billion dollar price tag.
At Skandia: Sales were up 48% for the year
2000, operating profit was up 22%, and share
price rose 19% in 2000.
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Financial Services Success Stories
Unibanco: Client based more than tripled as
resources in their business units aligned around
a common strategy.
Wells Fargo, the industry leader in electronic
banking, implemented a Balanced Scorecard in
its online financial services group (OFS) that
enabled them to strategically prioritize an array
of new initiatives.
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High Percentage of Failures
Misunderstanding of the concept
Not easy to implement
Pioneers lacked tools and techniques
“The biggest mistake that organizations make is
thinking that the scorecard is just about
measures. Quite often they will develop a list of
financial and non-financial measures and
believe they have a scorecard. This, I believe, is
dangerous.” Dr. Norton
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The Success at Mobil
The dynamics of a Strategy-Focused Organization
Key LessonsEducate people on the strategies
Show people the measures regularly
Cascade the scorecards down
Encourage people to think ―out of the box‖
Reward creative suggestions
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The Journey
Source: Howard Rohm
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Valuable Resources
Books The Strategy Focused Organization (Norton & Kaplan)
Balanced Scorecard: Step by Step (Paul Niven)
Winning Score (Mark Graham Brown)
www.bscol.comNetconferences – Free, Valuable
www.bscf-toolkit.comBSCF White PaperMore information
Other good resourceswww.balancedscorecard.org