Balanced Strategic Focus

Objective

• Logical next step to strategic meets –

• Creating sharp measures for strategic objectives

• Identifying initiatives to drive strategic objectives

• Cascade measures and initiatives to the manager level

Problems of Strategy

Implementation

MEASUREMENT

MANAGEMENT

COMMUNICATION

You can’t measure what you cannot

describe

You can’t manage what you cannot

measure

You can’t communicate what you cannot describe

The Balanced Scorecard

is:A Measurement System

A Strategic Management

System

+

A Communicatio

n Tool

+

Alignment

Focus

“Measurement is the foundation of management.”

What is the Balanced Scorecard?

The BSC Retains the traditional financial measures

The BSC links the financial measures with the drivers of future performance

Financial Perspective

Customer Perspective

Learning and Growth

Internal Perspective

PROFITABLE GROWTH

Current BusinessNew Revenue Productivity Use of Assets

Customer Value Proposition

Best in Product/Service

Best Total Solution

Best Total Cost

Skills Technology Environment

Product Innovation

Customer Intimacy

Operational Excellence

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

People Barrier

One of 4 managers have incentives linked to

strategy

Vision-Mission Barrier

Only 5% of the work force understands the strategy

Management Barrier

Strategy is not regularly discussed and prioritized

Resource Barrier

Budgets not linked to strategy

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

People Barrier

One of 4 managers have incentives linked to

strategy

Vision-Mission Barrier

Only 5% of the work force understands the strategy

Management Barrier

Strategy is not regularly discussed and prioritized

Resource Barrier

Budgets not linked to strategy

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

Vision-Mission BarrierOnly 5% of the work force

understands the strategy

People Barrier

One of 4 managers have incentives linked to

strategy

Management Barrier

Strategy is not regularly discussed and prioritized

Resource Barrier

Budgets not linked to strategy

Vision-Mission BarrierOnly 5% of the work force

understands the strategy

The BSC overcomes Vision-Mission Barrier through the translation of strategy

The BSC is a shared understanding of the Vision-Mission strategy translated into:

Object

ive

sMea

sure

s

Targ

ets

Initi

ative

sAct

ion P

lans

Resou

rces

Financial

Customer

Internal

Learning&Growth

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

Management Barrier

Strategy is not regularly discussed and prioritized

Resource Barrier

Budgets not linked to strategy

Vision-Mission Barrier

Only 5% of the work force understands the strategy

People BarrierOne of 4 managers have

incentives linked to strategy

People BarrierOne of 4 managers have

incentives linked to strategy

‘cascading’ the scorecard overcomes the People Barrier

TOP-DOWN BOTTOM-UP

driving the strategy to

all employees

at all levels

employee sees his/her contribution

to the strategy

“line of sight”

STRATEGY

Internal

New Products

Understand the

Customers

CRM. Productivity .

Efficient Use of Assets

Increase Employee Competence

• Employee Satisfaction

• Revenue per Employee

Skills Systems

Align Personal Goals

Profitable Growth

New Sources

of Revenue

Expand Current

Business

Increase in

Productivity

Efficient Use

of Assets

Product Service

Image

Customer Value Proposition

Total Solutions

Homebuilder

Learning& Growth

Customer

Financial

customer scorecard

process scorecard

personal scorecard

alignment and focus

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

Management BarrierStrategy is not regularly

discussed and prioritized

Resource Barrier

Budgets not linked to strategy

Vision-Mission Barrier

Only 5% of the work force understands the strategy

People Barrier

One of 4 managers have incentives linked to

strategy

Management BarrierStrategy is not regularly

discussed and prioritized

strategic learning overcomes the Management Barrier

The Balanced Scorecard translates the vision and strategy into a coherent set of measures in four balanced perspectives

• Marketing program+30%

• Annual Gross Sales

• Grow Revenue from new products

• Skills Development Program

90%

• Staff Competence

• Acquire, Develop Skills

• Cycle Time Reengineering

from 9 down to 6 months

• Time to Market

• Fast Time to Market

• CRM Program+20%

• Customer Profitability

• Satisfy Customer Needs

InitiativeTargetMeasureObjectiveStrategy Map

Financial

Customer

Internal

Learning & Growth

Revenue Growth

New Products

World-Class Product

Development

Highly Skilled Workforce

The Balanced Scorecard describes how the strategy will be executed

BARRIERS TO

EXECUTION

Source: Kaplan & Norton

STRATEGY

People Barrier

One of 4 managers have incentives linked to

strategy

Vision-Mission Barrier

Only 5% of the work force understands the strategy

Management Barrier

Strategy is not regularly discussed and prioritized

Resource BarrierBudgets not linked to

strategy

Resource BarrierBudgets not linked to

strategy

Strategic Resource Allocation overcomes the Resource Barrier

Financial

Customer

Internal

Learning&Growth

Object

ive

sMea

sure

s

Targ

ets

Initi

ative

sAct

ion P

lans

Resou

rces

Budgetlinked to

the strategy

Balanced Scorecard

Resource BarrierBudgets not linked to

strategy

Strategic Resource Allocation overcomes the Resource Barrier

Selecting and Managing Initiatives

On-going & proposed strategic initiatives re-

examined

1

Screen, assess, and identify “Linked and Strategic” initiatives

2

Select strategic initiative that will grow the

enterprise

3

Other projects

CRM

TQMJIT,QDP

SCMSRM

CSR

Marketing Projects

CRITERIA: strategies should be linked to the overall strategic goals

List of Priorities

HOW?

Revenue Growth

Quality Production

Quality Materials

Quality Product

Loyal Customers

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

Cause and Effect Relationships and the Balanced Scorecard

STRATEGY MAPS – a chain of cause-and-effect logic that connects the desired outcomes with the drivers

WHAT?

WHAT?

HOW?WHAT?

HOW?WHAT?

HOW?

Revenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

Skilled Workforce + Technology

CAUSE

Quality Production

Quality Materials EFFECTCAUSE

Quality Product EFFECTCAUSE

Loyal Customers EFFECTCAUSE

Revenue Growth

EFFECT

Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

• A chain of cause and effect relationships can be established

as a vertical dimension through the four BSC perspectives.

• The BSC tells the story of the strategy

Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

CAUSE AND EFFECT ANALOGIES:

cause effect

driver outcome

if then

how what

Revenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

Skilled Workforce + Technology

CAUSE

Quality Production

Quality Materials EFFECT

Loyal Customers

Quality ProductEFFECT

CAUSE

CAUSE

Revenue Growth

EFFECT

The ‘Balance’ in the Balanced Scorecard

… TANGIBLE and INTANGIBLE Assets

BALANCE BETWEEN …

… FINANCIAL and NON-FINANCIAL Measures

… EXTERNAL and INTERNAL Constituents

… LAG and LEAD Indicators of Performance

TANGIBLE Assets INTANGIBLE Assets

FINANCIAL Measures•Financial Perspective

NON-FINANCIAL Measures•Customer Perspective•Internal Perspective•Learning and Growth Perspective

EXTERNAL Constituents•Financial Perspective•Customer Perspective

INTERNAL Constituents•Internal Perspective•Learning and Growth Perspective

LAG Indicators of Performance

LEAD Indicators of Performance

r1 – Balance between the tangible assets and intangible assets

The ‘Balance’ in the Balanced Scorecard

Revenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

tangible assets

intangible assets

In order to extract value from the intangible assets, these must be transformed.

The ‘Balance’ in the Balanced Scorecard

Non-Financial

FinancialRevenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

Objectives Measures Targets Initiatives

r2 – Balance between the financial measures and non-financial measures

The ‘Balance’ in the Balanced Scorecard

External – where we want to go

Internal – what we have to

do

(cause)

(effect)

Revenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

r3 – Balance between the internal and external constituents

The ‘Balance’ in the Balanced Scorecard

Revenue Growth

Loyal Customers

Quality Product

Quality Production

Quality Materials

Skilled Workforce + Technology

Financial

Customer

Internal

Learning & Growth

Objectives Measures Targets Initiatives

vertical dimension of the BSC

horizontal dimension of

the BSC

lag lead

r4 – Balance between lag and lead indicators of performance

Performance Measures in the BALANCED SCORECARD

Objectives

1

Financial

Customer

Internal

Learning &Growth

Performance Measures

• number of sales calls• hours spent with customers

• sales

historical

lag lead

measures the results of an action after a time period

measures the ‘lead’ or driver to the lag measures, can measure intermediate processes & activities

predictive

after the fact can make adjustments

Strategy Maps

Financial

Customer

Process

Capability

Long Term Shareholder Value

Long Term Shareholder Value

GrowthStrategy

GrowthStrategy

ProductivityStrategy

ProductivityStrategy

Value Proposition

CostCost

QualityQuality

TimeTime

FunctionFunction

RelationshipRelationship

Value Chain: Path to Performance

Innovation Processes

Innovation Processes

Business Performance Levers

Skills andcompetencies

Skills andcompetencies

Technology and databasesTechnology

and databasesKnowledge assets,

best practicesKnowledge assets,

best practices+ + +

Enabling Capabilities

Context, Climate, Culture

Context, Climate, Culture

Customer Management

Processes

Customer Management

ProcessesOperational

Processes

Operational Processes

RegulatoryProcesses

RegulatoryProcesses

Assess Effectivenessin Meeting

Need

Assess Effectivenessin Meeting

Need

Perspectives

How do we contribute to business success?

What do our customers expect and value?

To satisfy our customers, what processes must we excel at?

To achieve our vision, how must we learn and improve?

“Adapted from Kaplan, Robert S. and David P. Norton; The Balanced Scorecard: Translating Strategy Into Action. Boston: Harvard Business School Press, 1996”

<FRANCHISE> Strategy Map

Balanced Scorecards

Strategic Objectives Metrics and Targets

Financial Objectives

Strategic Objectives

Customer Objectives

Metrics and Targets

Strategic Objectives

Process Objectives

Metrics and Targets

Strategic Objectives

Capability Objectives

Metrics and Targets

Cascade to Goals – how it impacts you

Company Performance Measures

Financial Customer

Process Capability

Financial Customer

Process Capability

Franchise Measures

Financial Customer

Process Capability

Franchise Measures

Financial Customer

Process Capability

Franchise Measures

Measures

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Targets

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Individual & Team Measures

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