1.ELEMENTS OF BALANCED SCORECARD APWBSC BALANCED SCORECARD IS A PERFORMANCE MEASUREMENT SYSTEM THAT TRANSLATES ORGANISATIONAL VISION,MISSION, INTO CRITICAL SUCCESS FACTORS,STRATEGIC OUTCOMES,MEASURES AND MAPS RESULTS AGAINST THESE PARAMETERS Instrument which covers both financial and non financial measures was called THE BALANCED SCORECARD by Professors Kaplan and Norton. BSC IS o A measurement system o A strategic management system o A communication tool Balanced scorecard provides balance between o -Short and Long term objectives o -Financial and non financial measures o -Lagging and Leading indicators o -External and Internal performance perspectives o -Tangible and Intangible assets ELEMENTS OF BALANCED SCORECARD are o CORPORATE VISION,MISSION,VALUES Vision - What we aspire to be Picture of organization future Details where organization sees itself few years down the line Vision translated into objectives and strategies

Mission - What we are and what we want to do Identifies a reason for existing A set of tangible statements of tangible statement of organizational purpose Declares joint purpose between Company and stakeholders

Values - What are our ethics in business Foundation on which company is built Vision and values are mirror of business and should stand the test of time Values should support vision and reflect in the daily operations of the company Value system may be influenced by external factors Vision charts future direction while values provide motor to get there

o SBU VISION,MISSION o FUNCTIONAL VISION FOR IT,HR,HO,FINANCE,S&M,MFG,QLTY o CRITICAL SUCCESS FACTORS FOR EACH OF 4 PERSPECTIVES IN EACH SBU Financial How do we look to stockholders? o Survive o Succeed o Prosper Customer How do our customers see us? o New products o Responsiveness o Cost leadership o Quality o Added value services Internal processes At what must we excel currently? o Manufacturing/service excellence o Target pricing o Agility and flexibility in products and services o New product/service introduction Innovation and learning Can we continue to improve and create value? o Technological leadership o Time to market o Employee training and satisfaction o Human capital sustanance and growth o o STRATEGIES FOR EACH PERSPECTIVE IN EACH SBU o DESIRED OUTCOMES FOR EACH KEY PROCESS IN EACH PERSPECTIVE /SBU o INDEX IS MEASURE OF SUCCESS FOR DESIRED OUTCOME o TARGETTED VALUE FOR DESIRED OUTCOME

o RESULT OF EACH OUTCOME Signifies current value of metric measurement of activity If objectives have to be met some or all of the following outcomes have to mature: -Satisfied Shareholders -Delighted Customers -Effective Processes -Motivated and prepared work force

o INITIATIVES REQUIRED TO BE SUCCESSFUL Change process or activity designed to achieve one or more objectives Initiative helps move a measure towards target value

2. IMPLEMENTATION METHODOLOGY OF BALANCED SCORECARDFOUR PROCESSES to implement BSC TRANSLATING VISION -vision and strategy need to be expressed in terms that can provide practical guidance for action at local level -definition of standard measures as translation of vision and strategy for middle management COMMUNICATING AND LINKING -executives link strategy with department and indivisual goals and objectives -framework of standard operational measures acting as leading indicators of financial results gives a starting point for aligning strategy with action points BUSINESS PLANNING

-connection between strategy and financial planning w.r.t budgets -BSC outlines a logical process for integrating business plans with financial budgeting FEEDBACK AND LEARNING -Process allows managers to monitor short term results from non financial perspectives -By tracking events strategy evaluated and fine tuned -Cause and effect relationship between business strategy and financial performance selected to monitor results

Alternate answer

The methodology examines performance in four areas: financial analysis, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return-on-investment; customer analysis looks at customer satisfaction and retention; internal analysis looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity; and finally, learning and growth analysis explores the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance. As a structure, balanced scorecard methodology breaks broad goals down successively into vision, strategies, tactical activities, and metrics. As an example of how the methodology might work, an organization might include in its mission statement a goal of maintaining employee satisfaction. This would be the organization's vision. Strategies for achieving that vision might include approaches such as increasing employee-management communication. Tactical activities undertaken to implement the strategy could include, for example, regularly scheduled meetings with employees. Finally, metrics could include quantifications of employee suggestions or employee surveys.

Nine steps to implement a balance score card successfully are

Step One: Assessment Step One of the scorecard building process starts with an assessment of the organizations Mission and Vision, challenges (pains), enablers, and values. Step One also includes preparing a change management plan for the organization, and conducting a focused communications workshop to identify key messages, media outlets, timing, and messengers.

Step Two: Strategy

In Step Two, elements of the organizations strategy, including Strategic Results, Strategic Themes, and Perspectives, are developed by workshop participants to focus attention on customer needs and the organizations value proposition.

Step Three: Objectives In Step Three, the strategic elements developed in Steps One and Two are decomposed into Strategic Objectives, which are the basic building blocks of strategy and define the organization's strategic intent. Objectives are first initiated and categorized on the Strategic Theme level, categorized by Perspective, linked in cause-effect linkages (Strategy Maps) for each Strategic Theme, and then later merged together to produce one set of Strategic Objectives for the entire organization.

Step Four: Strategy Map In Step Four, the cause and effect linkages between the enterprise-wide Strategic Objectives are formalized in an enterprise-wide Strategy Map. The previously constructed theme Strategy Maps are merged into an overall enterprise-wide Strategy Map that shows how the organization creates value for its customers and stakeholders

Step Five: Performance Measures In Step Five, Performance Measures are developed for each of the enterprise-wide Strategic Objectives. Leading and lagging measures are identified, expected targets and thresholds are established, and baseline and benchmarking data is developed.

Step Six: Initiatives In Step Six, Strategic Initiatives are developed that support the Strategic Objectives. To build accountability throughout the organization, ownership of Performance Measures and Strategic Initiatives is assigned to the appropriate staff and documented in data definition tables.

Step Seven: Automation In Step Seven, the implementation process begins by applying performance measurement software to get the right performance information to the right people at the right time. Automation adds structure and discipline to implementing the Balanced Scorecard system, helps transform disparate corporate data into information and knowledge, and helps communicate performance information. In short, automation helps people make better decisions because it offers quick access to actual performance

data.

Step Eight: Cascade In Step Eight, the enterprise-level scorecard is cascaded down into business and support unit scorecards, meaning the organizational level scorecard (the first Tier) is translated into business unit or support unit scorecards (the second Tier) and then later to team and individual scorecards (the third Tier). Cascading translates high-level strategy into lower-level objectives, measures, and operational details. Cascading is the key to organization alignment around strategy. Team and individual scorecards link day-to-day work with department goals and corporate vision. Cascading is the key to organization alignment around strategy. Performance measures are developed for all objectives at all organization levels. As the scorecard management system is cascaded down through the organization, objectives become more operational and tactical, as do the performance measures. Accountability follows the objectives and measures, as ownership is defined at each level. An emphasis on results and the strategies needed to produce results is communicated throughout the organization.

Step Nine: Evaluation In Step Nine, an Evaluation of the completed scorecard is done. During this evaluation, the organization tries to answer questions such as, Are our strategies working?, Are we measuring the right things?, Has our environment changed? and Are we budgeting our money strategically?

http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

3. TYPES OF PERFORMANCE MEASUREMENT SYSTEMS KEY PROCESS MEASURES TO QUANTIFY PERFORMANCE INCLUDE: -EFFICIENCY -ADAPTABILITY -AGILITY -RESILIENCE PROCESS EFFICIENCY MEANS SKILLFUL UTILIZATION OF RESOURCES -EFFECTIVENESS -RELIABILITY -FLEXIBILITY

ORGANIZATION MUST REDUCE WASTES AND NON VALUE ADDED ACTIVITIES IN PROCESS TO BE EFFICIENT TYPICAL EFFICIENCY MEASURES INCLUDE CYCLE TIME/UNIT,COST/ UNIT,WAIT TIME/UNIT ETC IMPROVED EFFICIENCY CALLS FOR REDUCTION IN PROCESS ERRORS CRITICAL METRIC OF WASTE IS % OF TOTAL CYCLE TIME SPENT IN WAITING OR NON VALUE ADD ACTIVITIES AND HOW MUCH IS PROCESS WASTE PROCESS CYCLE EFFICIENCY (PCE)= VALUE ADDED TIME/TOTAL LEAD TIME PCE OF LESS THAN 25% SHOWS THAT PROCESS HAS LOTS OF NVA

Process Effectiveness COMPLIANCE TO CUSTOMER NEEDS AND EXPECTATIONS IMPROVED EFFECTIVENESS LEADS TO HAPPY CUSTOMERS, IMPROVED SALES AND INCREASED MARKET SHARE LACK OF EFFECTIVENESS OF A PROCESS INCLUDE INCREASED CUSTOMER COMPLAINTS,RISING WARRANTY COSTS ,DECREASING MARKET SHARE POSITIVE INDICATORS OF EFFECTIVENESS INCLUDE ACCURACY,TIMELINESS,DEPENDABILITY,RESPONSIVENESS,RELIABILITY ,DURABILITY,ROI,ADAPTABILITY,COST EFFECTIVENESS ABOVE EXERCISE IS ALSO CALLED VOICE OF CUSTOMER

Limitations in Process Effectiveness VARIABILITY OF PROCESS THROUGHPUTS -ALL PROCESSES ARE VARIABLE AND OUTPUT IS NEVER IDENTICAL -VARIABILITY IS DUE TO INHERENT FACTORS WITHIN PROCESS (CONSTRAINTS) ESPECIALLY THE EXTERNAL FORCES WHICH INFLUENCE PROCESS OUTCOMES eg EFFECTS OF FUEL PRICE HIKE -PROCESS OUTPUTS SHOULD BE KEPT WITHIN DEFINED LIMITS OF VARIABILITY TO ENSURE CONSISTENCY OF OUTPUT UNCERTAINTY IN PROCESS EXECUTION -PRESENCE OF IDENTIFIED AND UNIDENTIFIED RISKS WHICH TAKE A TOLL ON COMPANY PERFORMANCE eg TATA MOTORS AT SINGUR CONSTRAINTS -ALL PROCESSES HAVE SOME CONSTRAINT OR OTHER PRESENCE OF ONE CONSTRAINT CAN CAUSE ANOTHER CONSTRAINT TO APPEAR - CONSTRAINTS ARE VERY OFTEN RELATED TO INADEQUACY OF RESOURCES REQUIRED TO EXECUTE PROCESS

-

Process Reliability RELIABILITY MEASURES THE ABILITY OF A PROCESS ,SYSTEM,PRODUCT OR SERVICE TO MEET OPERATIONAL PERFORMANCE COMPONENTS OF RELIABILITY INCLUDE -AVAILABILTY EFFICIENCY FLEXIBILITY -INTEGRITY BUILDING REDUNDANCY IN OPERATIONS IMPROVES PROCESS RELIABILITY TO ENHANCE RELIABILITY IT IS IMPORTANT TO HAVE A BUSINESS CONTINUITY PLAN IN PLACE

Process Resiliance Resilience provides a paradigm or framework for thinking about an organisation survival potential Risk Management, Business Continuity Planning, are initiatives for achieving greater resilience. A Resilient Organization is one that is not only able to survive but to thrive, still achieving its core objectives, even in the face of adversity. Four Pillars of Organizational Resilience Resilience Ethos , Situation Awareness, Management of Keystone Vulnerabilities, Adaptive Capacity Process Adaptability REFLECTS HOW WELL PROCESS REACTS TO CHANGING REQUIREMENT OR SPECIAL REQUESTS REQUIRES NON STANDARD ACTIVITIES AND STANDBY COMPETENCES TO COMPLY TO REQMNT ADAPTABLE PROCESSES HAVE CAPACITY TO ADJUST TO CHANGING NEEDS AND DESIGN INTELLIGEMCE INTO THE PROCESS TO ACCOMMODATE INDIVISUAL SPECIAL NEEDS AND EXPECTATIONS OF CUSTOMERS EG MASS CUSTOMISATION ADAPTABLE PROCESSES ARE NOT RIGID EG CLOSURE OF CHECK IN 30 MIN BEFORE DESPITE ROAD BLOCK EMPOWERMENT TO EMPLOYEES TO MEET SPECIAL REQUESTS MEASURE IS TIME TAKEN TO PROCESS SPECIAL NEEDS CTR

Process Agility Process agility is the capability of a process to effectively manage and deliver value as per changing velocity of customer demands

Examples of process agility include increase in service facility during rush hour to maintain the time to serve metric , adequate stocking to ensure that there are no stock out situations

Process Flexibility Process flexibility is the ability to deliver products and services to the precise requirements of individual customers Flexibility is a case of mass customization wherein goods are manufactured or services rendered in mass but customized to the individual needs of each customer Examples include the bhel walla , personalized banking services and the magic eye color dispenser in Asian paints

Alternate Answer Performance measures are divided into five types. These five types are: Input Measures - Used to understand the human and capital resources used to produce the outputs and outcomes. Process Measures - Used to understand the intermediate steps in producing a product or service. In the area of training for example, a process measure could be the number of training courses completed as scheduled. Output Measures - Used to measure the product or service provided by the system or organization and delivered to customers. An example of a training output would the number of people trained. Outcome Measures - Evaluate the expected, desired, or actual result(s) to which the outputs of the activities of a service or organization have an intended effect. For example, the outcome of safety training might be improved safety performance as reflected in a reduced number of injuries and illnesses in the workforce. In some instances, such as the training example above, establishing a direct cause and effect relationship between the output of the activity and its intended outcome, can be difficult. Impact Measures - Measure the direct or indirect effects or consequences resulting from achieving program goals. An example of an impact is the comparison of actual program outcomes with estimates of the outcomes that would have occurred in the absence of the program. You may also hear of performance measures categorized as leading, lagging, and/or behavioral. These types of measures are defined below:

Lagging Measures - Measure performance after the fact. Injury and illness measures such the Lost Workday Case Rate and the Total Recordable Case Rate are examples of lagging measures commonly used to measure environment, safety and health performance. Project cost performance is an example of a lagging indicator used to measure program performance. Leading Measures - Are more predictive of future performance and include measures such as near misses, procedural violations, or estimated cost based on highly correlated factors. Behavioral Measures - Measure the underlying culture or attitude of the personnel or organization being measured. Examples would include management walk-throughs, safety program implementation, or employee satisfaction questionnaires. 4. CRITICALITY OF PERFORMANCE MEASUREMENT SYSTEMS From the beginning, it is important to understand why measuring an organizations performance is both necessary and vital. An organization operating without a performance measurement system is like an airplane flying without a compass, a Formula One race car driver guiding his car blindfolded, or a CEO operating without a strategic plan. The purpose of measuring performance is not only to know how a business is performing but also to enable it to perform better. The ultimate aim of implementing a performance measurement system is to improve the performance of an organization so that it may better serve its customers, employees, owners, and stakeholders. If one gets performance measurement right, the data generated will tell the user where the business is, how it is doing, and where it is going. In short, it is a report card for a business that provides users with information on what is working well and what is not. A performance measurement system enables an enterprise to plan, measure, and control its performance according to a pre- defined strategy. In short, it enables a business to achieve desired results and to create shareholder value. The major performance measurement systems in use today are profiled below (in order of global adoption) and include The Balanced Scorecard Activity-based Costing and Management Economic Value Added (EVA) Quality Management Customer Value Analysis/Customer Relationship Management Performance Prism The balanced scorecard (BSC) is the most widely applied performance management system today.1 The BSC was originally developed as a performance measurement system in 1992 by Dr. Robert Kaplan and Dr. David Norton at the Harvard Business School. Unlike earlier performance measurement systems, the BSC measures performance across a number of different perspectivesa financial perspective, a customer perspective, an internal business process perspective, and an innovation and learning perspective. Through the use of the various perspectives, the BSC captures both leading and lagging performance measures, thereby providing a more balanced view of company performance. Leading indicators include measures, such as customer satisfaction, new product development, ontime delivery, employee competency development, etc. Traditional lagging indicators include financial measures, such as revenue growth and profitability. The BSC performance management systems have been widely adopted globally, in part, because this approach enables organizations to align all levels of staff around a single strategy so that it can be executed more successfully.

ACTIVITY-BASED MANAGEMENT (ABM) Traditional cost accounting permeates most organizations and is characterized by arbitrary allocations of overhead costs to items being produced. Typically, the companys total overhead is allocated to goods produced based on volume-based measures (labor hours, machine hours, etc.). The underlying assumption is that there is a relationship between overhead and the volume-based measure. Activity-based costing (ABC) was developed to provide better insight into how overhead costs should be allocated to individual products or customers. Businesses that do not use ABC typically only make simple adjustments to allocate overhead costs that do not accurately fit elsewhere. Businesses that use ABC link expenses related to resources supplied to the company to the activities performed within the company. Through the use of ABC, expenses are allocated from resources to activities and then to products, services, and customers. ECONOMIC VALUE ADDED (EVA) Stern Stewart Corporation developed in 1982 the Economic Value Added (or, more simply EVA) as an overall measure of organizational performance. EVA is both a specific performance measure and the basis for a larger performance measurement framework. According to Stern Stewart, EVA is a financial performance metric that is most directly linked to the creation of shareholder value over time. The definition of EVA is net operating profit less an appropriate charge for the opportunity cost of all capital invested in an enterprise. Mathematically it is EVA = Net Operating Profit After Taxes ( Capital x Cost of Capital )

QUALITY MANAGEMENT Over the past few decades, many firms have adopted various quality programs, such as Total Quality Management (TQM), Six Sigma, European Foundation Quality Management (EFQM), and The Baldridge National Quality Program. Such Quality Programs aim to assist organizations to improve the quality of the manufacturing and service offerings. A central tenet for all of these programs is business performance measurement. CUSTOMER VALUE ANALYSIS AND CRM Customer Value Analysis (CVA) and Customer Relationship Management (CRM) techniques are enabling businesses to improve performance, to measure that improvement, and to focus a firm on the value of its customers. Moreover, CVA and CRM technologies are providing firms with better data integration and, hence, better measurement regarding customers. Given the obvious strategic importance of customers, it is natural for businesses to begin exploring more robust ways of measuring customer and business activities directly related to customers. PERFORMANCE PRISM Many alternative and customized frameworks continue to be developed based on the breakthrough BSC framework developed by Kaplan and Norton in 1992. The Performance Prism is anexample of one such customized BSC framework. In the Performance Prism, companies view their organizations from five perspectives, rather than the four traditional perspectives of the BSC. These five perspectives are Stakeholder Satisfaction Who are the key stakeholders and What do they want and need?

Strategies What strategies do we have to put in place to satisfy the wants and needs of these key stakeholders? Processes What critical processes do we require if we are to execute these strategies? Capabilities What capabilities do we need to operate and enhance these processes? Stakeholder Contribution What contributions do we require from our stakeholders if we are to maintain and develop these capabilities? PERFORMANCE MEASUREMENT ALSO PLAYS A MAJOR ROLE IN MEASURING PROGRESS VERSUS ORGANIZATIONAL GOALS IDENTIFYING OPPORTUNITIES FOR IMPROVEMENT BENCHMARING PERFORMANCE AGAINST EXTERNAL PARAMETERS Alternate Answer Acc o to ppt MEASUREMENTS ARE CRITICAL TO UNDERSTAND WHAT IS HAPPENING EVALUATING NEED TO CHANGE EVALUATING IMPACT OF CHANGE CORRECTING OUT OF CONTROL SITUATIONS SETTING PRIORITIES AND PROVIDING REALISTIC SCHEDULES PLANNING TO MEET ENHANCED CUSTOMER EXPECTATIONS Acc to net http://www.orau.gov/pbm/pbmhandbook/volume%202.pdf

5. RELATIONSHIP OF PERFORMANCE MEASUREMENT SYSTEMS WITH EACH OTHER 6. UTILITY OF STRATEGY MAPS Strategy Map Graphical translation of business plan into action Diagram depicting operational functions and strategy Map has financial objective as final goal

Strategic objectives from each perspective connected by arrows Provides overall strategy overview of business units Defines relation between objectives Balanced scorecards constructed from strategy maps by development of causeeffect relationship

Makes vision a reality

Tool for translating strategy into specific objectives in operational terms Strategy maps along with BSC provide a new framework for describing and implementing strategy Strategy map helps establish the cause effect relationship for measures across perspectives as well as linkages to tangible/intangible assets Provides framework to illustrate how strategy links intangible assets to value creating processes Financial perspective describes tangible outcomes of strategy in financial terms and are lag indicators showing whether strategy is successful Customer perspective defines value proposition for targetted customers Internal perspective identifies critical processes which impact strategy Learning and growth perspective identifies intangible assets that are vital to strategy Possible to define multiple strategies and map for each strategy Common strategy maps: - Improved shareholder value -Maximized operational efficiency

Strategy maps helps providing increased granularity for executives to describe and manage strategy at an operational level of detail.

Tool helped for translating strategy into specific objectives in operational terms Strategy maps along with BSC provide a new framework for describing and implementing strategy

A strategy map provides a visual framework for an organizations strategy how it intends to create value

Specifically, a good strategy map will link together: 1. The desired productivity and growth outcomes. 2. The customer value proposition which will be needed. 3. Outstanding performance in internal processes.

4. The capabilities required from intangible assets. Strategy Maps are a summary of what a company plans to do in order to improve its business. They are the interface between strategy and the Balanced Scorecard. Conceptually, a strategy map links the highlevel goals of the organization its mission, values and vision with meaningful and actionable steps each an employee can take Strategy maps are built around the structure of these four perspectives. Financial, Customer, Internal (business) Process, Learning and Growth, following the Balanced Scorecard divisions..

http://www3.mruni.eu/~int.economics/3nr/Isoraite.pdf

7. HIERARCHIES OF BALANCED SCORECARD http://www.flatworldknowledge.com/pub/1.0/principles-management/29157# BSC to be applied at all levels Set up hierarchy to communicate strategic objectives to all operating levels Cascading Score Card makes strategy transparent to all levels Score card broken down to level of individual employee

DRILL DOWN VISION TO STRATEGIES AND STRATEGIC OUTCOMES FOR ACTIVITIES To be the leading provider of management consulting services

Vision

Mission

We are a company, focused on providing value added services in BPR, ERM, TQM, IT Risk, TPM, TOC and lean operations

Long term Strategy

Achieve market leadership in the above areas by provided differentiated, personalised services

Tactical Strategy

Build and hone competencies in above areas to build a brand and human capital in above areas and be a solution provider to the market by popular choice

Operational Strategies

Optimise asset utilization, maximise profitability, skills and increase customer happiness

Finance Strategy Revenue Growth

Customer Strategy Customer Delight

Internal Strategy Operational Excellence

HR Strategy Highly Competent Workforce

STRATEGIC OUTCOMES - Maximised Profit - Maximised Slaes - Minimised Loss

METRIC Profit % Sales Loss STRATEGIC OUTCOMES -Increased Repeat Business -Min Complaints METRIC Repeat %

STRATEGIC OUTCOMES -Max Project Profit -Max Ontime proj Delivery -max Proj Qlty

METRIC Project Profit Delivery % Qlty % STRATEGIC OUTCOMES -Max sales/head -Max HCROI -Min Attrition -Max HCVA METRIC Sales/head count Count HCROI Attrition % HCVA

Reduced Complaints -Incr. Seg Share Mkt Share -Max Customer Return Return %

Cascading of senior management strategy down the organization so that at each succeeding level(as activities become more operational and detailed) they are aligned and derived from higher goals

Vertical integration includes everyone from CEO to the receptionist Everybody understands his role in achievement of organizational objectives

8. MCKINSEY 7S MODEL INCLUDING HARD AND SOFT METRICS The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help you:

Improve the performance of a company. Examine the likely effects of future changes within a company. Align departments and processes during a merger or acquisition. Determine how best to implement a proposed strategy.

The Seven Elements The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:

Hard Elements Strategy Structure Systems

Soft Elements Shared Values Skills Style Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems.

"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful.

The way the model is presented in Figure below depicts the interdependency of the elements and indicates how a change in one affects all the others.

Let's look at each of the elements specifically: 1. Strategy Plan or course of action leading to the allocation of firms resources to reach identified goals. 2. Structure The ways people and tasks relate to each other. The basic grouping of reporting relationships and activities. The way separate entities of an organization are linked. 3. Shared Values The significant meanings or guiding concepts that give purpose and meaning to the organization. 4. Systems Formal processes and procedures, including management control systems, performance measurement and reward systems, and planning and budgeting systems, and the ways people relate to them. 5. Skills Organizational competencies, including the abilities of individuals as well as management practices, technological abilities, and other capabilities that reside in the organization. 6. Style The leadership style of management and the overall operating style of the organization. A reflection of the norms people act upon and how they work and interact with each other, vendors, and customers. Eg X THEORY

7. Staff Recruitment, selection, development, socialization, and advancement of people in the organization. Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements. The hards Strategy: the direction and scope of the company over the long term. Includes purpose, mission, objectives, goal, action plans & policies. 7S model emphasize - Development easy execution Structure: the basic organization of the company, its departments, reporting lines, areas of expertise and responsibility (and how they inter-relate). The way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. Systems: formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call center systems, online systems, etc). The softs Skills: the capabilities and competencies that exist within the company. What it does best. Distinctive competencies what the company does best, ways of developing or shifting competencies Shared values: the values and beliefs of the company. Ultimately they guide employees towards 'valued' behavior. Guiding concepts, fundamental ideas around which a business is built simple, usually stated at abstract level, have great meaning inside the organization, although outsiders may not see or understand them Staff: the company's people resources and how the are developed, trained and motivated. The people/human resource management ways of shaping basic management values, processes used to develop managers, ways of introducing new employees and managing careers, socialization processes Style: the leadership approach of top management and the company's overall operating approach.The culture of the organization, consisting of

Organizational culture: the dominant values, beliefs and norms which develop over time and become relatively enduring features of organization life Management style: what managers do rather than what they say (where they spend their time and attention, what they allow, what they reward, etc)

The McKinsey 7Ss model is one that can be applied to almost any organizational or team effectiveness issue. If something within your organization or team isn't working, chances are there is inconsistency between some of the elements identified by this classic model. Once these inconsistencies are revealed, you can work to align the internal elements to make sure they are all contributing to the shared goals and values.

The process of analyzing where you are right now in terms of these elements is worthwhile in and of itself. But by taking this analysis to the next level and determining the ultimate state for each of the factors, you can really move your organization or team forward.

9. WHAT ARE THE ELEMENTS OF BLUE OCEAN STRATEGY Blue ocean strategy is o to go where profits and growth are and where the competition isnt o to Create uncontested market space and Make the competition irrelevant o to Create and capture new demand o to Break the valuecost tradeoff o Align the whole system of a companys activities in pursuit of differentiation and low cost o Element of bos are o Create uncontested market space : by reconstructing market boundaries, focusing on the big picture, reaching beyond existing demand and getting the strategic sequence right o Make the competition irrelevant: by creating Differentiation,Broadcast Your Unique Selling Point, Adding Value to Products and Services,keep on Promote Innovation in Your Business, Discover New Marketing Alternatives, Joint Venture with Competitors, Set Up Cross-Industry Strategic Alliances o Create and capture new demand o Break the value/cost tradeoff o Pursue differentiation and low cost simultaneously.

Building blocks o Value Innovation - Thinking in new ways to create high profit growth o Tipping Point Leadership - Accelerating change of any type, including wide-spread transformation

o In order to execute Blue Ocean Strategy, companies must overcome 4 organizational hurdles o The principle is different from conventional thinking in that rather than focusing on transforming the masses, it focuses on the people, acts and activities that exercise a disproportionate influence on performance o Fair Process - Building a robust organization based on commitment, harmony and trust o the Three E Principles of fair processes are engagement Involving individuals in the strategic decisions that affect them by asking for their input and allowing them to refute the merits of one anothers ideas and assumptions Communicates managements respect for individuals and their ideas

Explaination Everyone involved and affected understands why the final strategic decisions are made as they are Develops trust between employees and managers

expectation clarity Clear statement of the new rules of the game Clarifies standards by which employees will be judged as well as penalties for failure

10. WHAT ARE THE 5 PRINCIPLES AND 6 STRATEGIES OF HARDBALL STRATEGY Strategy: Business is full of companies that have strategies and those who do not. Consider the dot.coms.

Hardballs: There are those who say that strategy is imperative and that competitive advantage is king. Its important to be not too distracted with soft issues.

The five principles of hardball. Today there are two extremes in business competition. Companies can play softball, relying on weak tactics that look like strategies, but do little more than keep the company in the game for the short term. Or, they can play hardball, employing tough strategies designed to rout, not simply beat, competitors. Which of today's companies are playing hardball? What strategies are they using to win? And what will it take for firms to adopt and execute these strategies successfully? Hardball players focus relentlessly on competitive advantage : Competitive advantage is something I have that you don't. Too bad for you. But too bad for me, too. When I have the advantage, you are forced to accept defeat or find a way around my advantage to build your own. So, hardball competitors are never satisfied with today's competitive advantage-they want tomorrow's. They strive to convert competitive advantage into decisive advantage: Competitive advantage, as essential as it is, can be fleeting. That's why hardball players seek to put themselves out of reach of their competitors by building their competitive advantage into decisive, or unassailable, advantage. Decisive advantage is systemically reinforcing. The better you get at it, the harder it is for competitors to compete against it or take it away. And the more likely it is that your competitors will 'pick up their marbles' and leave that particular playing field.

They employ the indirect attack: When a company makes a direct attack, it does exactly what its opponent expects and is prepared for. The attacker hopes that superior resources and persistence will carry the day. An indirect attack means surprising a competitor with your actions and applying resources where the opponent is least able to parry them.

Hardball players exploit employees will to win. (action oriented, impatient with status quo) : To achieve competitive advantage, people must be action-oriented, and always impatient with the status quo. The will to win can be fostered; softball players can be transformed into hardball players. But as your competitive advantage grows, it gets harder to exploit your employees' will to win.

Hardball players draw a bright line at the edge of the caution zone : To play hardball means being aware of when you are entering the "caution zone"-that area, so rich in possibility, that lies between the place where society clearly says you can play the game of business and the place where society clearly says you can't. Generally, hardball strategies do not require entry into the caution zone. Company leaders are responsible for drawing a bright line that defines the boundary, and for letting everybody know when they're getting close to it. In rare instances, however, a hardball player will deliberately enter the caution zone. When they do, they must take extra care.

Six Hardball Strategies. Any strategy that provides a decisive competitive advantage is a hardball strategy. In our book, we describe six classic hardball strategies that have proved, over the decades, to be particularly effective in generating competitive advantage Unleash massive and overwhelming force. Frito Lay and Eagle. Although hardball players prefer the indirect attack, they sometimes surprise and overcome their competitors with a full frontal assault. Massive and overwhelming force must be deployed like the blow of a hammer-accurate, direct, and swift. It must not be used until the company is ready to put all its energy behind it. The company must also be certain that the competitive advantage it believes it has is actually available for action.

When a company chooses the direct attack strategy, it may be necessary to completely overhaul its business in order to unleash the force. The process can feel like the turnaround of a successful company, a paradoxical situation that is uncomfortable for entrenched leaders. Only those with vision and courage should engage in this bold, and often very public, hardball strategy. And companies must be careful not to put their competitors out of business

and into bankruptcy protection, from which they may emerge stronger than ever.

When the president of Frito-Lay, Roger Enrico, had enough of Eagle Snack's incursion into its customers for salty snacks he, first, slimmed and focused the organization to reduce costs and concentrate investments. He then launched an all out attack on Eagle's stronghold, the supermarkets: increasing promotions and advertising, upping in-store service and where necessary reducing prices. He wrote a check larger than Eagle could afford to match. Eagle crumpled under the assault and withdrew. Exploit anomalies. Burberry. Sometimes a growth opportunity lies hidden in a phenomenon that, at first glance, seems irrelevant to the business or contradictory to current practice. But anomalies-such as idiosyncratic customer preferences, unexpected employee behaviors, or odd insights from another industry-can show the way to competitive advantage, even decisive advantage.

When Rose Marie Bravo took over Burberry, the English manufacturer of raincoats that was dead in the water, she noticed that Burberry's sales in Spain were inexplicitly strong. Her interest was piqued because, as she reflected, " It doesn't rain in Spain?" She learned that the country manager had extended the Burberry brand into many other categories. She took this insight to the US, Asia and throughout Europe. Burberry's sales have more than tripled and its EBITDA has increased seven fold.

Softball players want to ignore anomalies or to suppress them because they don't conform to standard practice. Hardball executives, however, relish anomalies. They know there may be opportunity hidden in them and they look for ways to exploit anomalies. Threaten competitions profit sanctuaries. Toyota v. Ford, GM, Chrysler. Profit sanctuaries are the parts of a business where a company makes the most money and steadily accumulates wealth. In certain circumstances, the hardball player can influence a competitor's behavior and gain competitive advantage by attacking a competitor's profit sanctuaries.

This strategy is risky. It can take you deep into the caution zone, so each use must be considered on its own legal merits. Also, your competitor is likely to retaliate by attacking your profit sanctuaries. And he may have greater financial resources than you thought, or a "sugar daddy" waiting in the wings to save his hide. Toyota has overrun its opponents' sanctuaries. The profit sanctuaries of GM, Ford and Chrysler are light trucks and SUVs

where they earn between $10 and $15 thousand dollars per vehicle. Toyota now offers equivalent vehicles and has enough cash to give them away if they want to. Instead it is plowing its earnings back into hybrid vehicles and capacity expansions. Toyota effectively controls the strategies of the Big 3 by occupying their profit sanctuaries. Take it and make that idea your own. Batesville Casket. Softball competitors like to think their bright ideas are sacred. Hardball players know better. They're willing to take any good idea they see (any one that isn't nailed down by a patent or other legal protection) and use it to create competitive advantage for themselves.

This needn't be restricted to borrowing from competitors. You can pick up ideas from one geographic market and transplant them to another. Ideas can also transplant between industries. But the "making it your own" part is just as important as the "taking it." Every hardball company finds a way to build on, improve, and customize the borrowed idea so that it's not just a me-too copy.

Batesville Casket is the world-leading manufacturer of welded steel caskets. In the 1970s, Batesville transplanted automotive manufacturing techniques to its industry to reduce manufacturing costs with stunning effects on its less sophisticated competitors. In the 1990s, Batesville set its sights on those competitors with positions in major metropolitan markets. To get at them, Batesville had to offer greater variety, faster response times at affordable prices. Batesville casket transplanted the Toyota production System to accomplish this with remarkable success. Entice competitors to retreat. Federal Mogul Sometimes, through a superior understanding of your business and your industry, you can take actions that confuse your competitors and entice them to behave in ways that they believe will be beneficial to them but that actually will weaken them. This opportunity hinges on the existence of certain customers that are not worth having because they are high cost to serve. These customers may be willing to pay a premium for your offering, but it usually is not enough to be truly worth the effort. These are the customers you want your competitors to have.

Federal Mogul discovered that smaller engine manufacturers were not as profitable as large OEMs despite having higher gross margins. The cost impact of smaller production runs and higher service needs were hidden from management by its standard costing system. Federal Mogul repriced its small OEM business high enough to make money if it won the bid but low

enough that if a competitor won the bid it would not, in the end, earn enough to recover the true higher costs of the business. Over time, as competitors won more business with smaller OEMs the worst became their cost position.

Enticing your competitors toward business that drives up their costs is one of the most complex strategies of hardball competition. You must have a superb understanding of your own costs and how customers make purchase decisions. For example, you can set prices so your competitors respond by seeking business that they think will be profitable for them, but that will, in fact, drive up their costs and depress their profits. This is a risky, bet-thecompany strategy. It works best in complex businesses where costs may be misallocated. There is lots of potential for error. Your analysis of the actual versus apparent costs associated with a product, service, or customer-and the strategy that grows out of that analysis-has to be right. Break Compromises. Wausau Paper When a hardball player wants to achieve explosive growth, he looks for a compromise to break. A compromise is a concession that an industry forces on its customers, who often accept it because they have come to believe it is endemic-"just the way things work"?like the never-changing 3 P.M. check-in time at hotels.

Wausau Paper bet that the industry standard practice of requiring its paper merchants to accept long and unreliable deliveries and large minimum order quantities was a huge compromise resulting in higher inventories and greater costs for the merchants. Wausau 'retooled' its business to provide merchants with 10 times faster delivery times, 3 times the variety and 1/20 the minimum order quantities. Wausau merchants loved the new model and Wausau grew like a weed and in the last 15 years created more shareholder value than any paper company.

If compromises can be identified and the business altered to break them the result is often fast and profitable growth. A broken compromise usually confuses your competitors because they remain locked in the business mindset that generated the compromises to begin with. http://www.sterlinghoffman.com/newsletter/articles/article137.html

11 NEED TO CREATE BLUE OCEAN STRATEGIES o supply exceeds demand o globalization o accelerated commoditization of products and services o increasing price wars o shrinking profit margins o brands are becoming more similar - select based on price o So that we go where profits and growth are and where the competition isnt o We Create uncontested market space and Make the competition irrelevant o We Create and capture new demand o We Break the valuecost tradeoff o We Align the whole system of a companys activities in pursuit of differentiation and low cost.

12 DEFINE ELEMENTS OF BLUE OCEAN STRATEGY Same as 9

13 WHAT ARE THE FOUR ACTIVITIES IN CREATING A BLUE OCEAN STRATEGY To reconstruct buyer value elements in crafting a new value curve,we have developed the four actions framework. As shown in gure 2-2, to break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industrys strategic logic and business model: Which of the factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industrysstandard? Which factors should be raised well above the industrys standard? Which factors should be created that the industry has never offered

The rst question forces you to consider eliminating factors that companies in your industry have long competed on. Often those factors are taken for granted even though they no longer have value or may even detract from value. Sometimes there is a fundamental change in what buyers value, but companies that are focused on benchmarking one another do not act on, or even perceive, the change. The second question forces you to determine whether products or services have been overdesigned in the race to match and beat the competition. Here, companies overserve customers, increasing their cost structure for no gain. The third question pushes you to uncover and eliminate the compromises your industry forces customers to make. The fourth question helps you to discover entirely new sources of value for buyers and to create new demand and shift the strategic pricing of the industry. It is by pursuing the rst two questions (of eliminating and reducing) that you gain insight into how to drop your cost structure vis--vis competitors. Our research has found that rarely do managers systematically set out to eliminate and reduce their investments in factors that an industry competes on. The result is mounting cost structures and complex business models. The second two factors, by contrast, provide you with insight into how to lift buyer value and create new demand. Collectively, they allow you to systematically explore how you can reconstruct buyer value elements across alternative industries to offer buyers an entirely new experience, while simultaneously keeping your

cost structure low. Of particular importance are the actions of eliminating and creating, which push companies to go beyond value maximization exercises with existing factors of competition. Eliminating and creating prompt companies to change the factors themselves, hence making the existing rules of competition irrelevant. When you apply the four actions framework to the strategy canvas of your industry, you get a revealing new look at old perceived truths. http://www.sms.org.ir/portal/files/articles/eBooks/BlueOceanStrategy.pdf 14 WHAT ARE PROFIT ZONES PATTERNS AND PROFIT POOLS Profit Zones / Profit Pools o Gadiesh and Gilbert (1998) offer the concept of a Profit Pool. o Based upon the notion that Successful companies understand that profit share is more important than market share, o a profit pool is defined as the total profits earned in an industry at all points along the industrys value chain. o Understanding an industrys profit pool is critical to understanding where, how and how much money is being made throughout the industry. o More effective strategic decisions can be made once the industry profit pool has been mapped and analyzed. o Profit pools provide another way to analyze industry-specific performance. o By analyzing profit pools, firms are better equipped to make strategic decisions since they will know specifically where profit maximizing opportunities lie throughout the value chain. o Mapping an industrys profit,while conceptually simple, can prove challenging in practice. o Mapping the pool requires four steps. o Define the Pools Boundaries. The first step in the mapping process entails identifying the detailed activities that comprise the industry value chain. Analysis first begins at the individual firm level (i.e. the mapping creators specific value chain) and then expands to include suppliers, customers and competitors. The intent is to define orin some case redefinethe traditional boundaries of the industry for purposes of including different business models and non-traditional activities that might constitute future sources of profits. The ultimate definition of the boundaries should take into account the issues faced by the firm creating it. o Estimate the Pools Overall Size. Next, the overall size of the industry profits needs to be estimated. Analyst reports offer a useful starting point; however, because the boundaries have been redrafted per the first step, these will likely be insufficient to develop a full picture. A build up of profits can be created by aggregating the

performance of individual companies. Public company information can be easily captured, while private company data may have to be estimated from public data. Industry profits can also be developed using other approaches such as product build ups. No matter which path to profit estimation is used, the method employed must provide a reasonable estimate of industry-wide performance. o Estimate the Size of Each Value Chain Activity in the Pool. Per the concept creators, this step is the most challenging in the process. For each activity in the value chain, the profit for that activity needs to be estimated. The first step often comes from analyzing the performance of the firm doing the analysis to help understand baseline economics.Pure play companies in the industry are then examined, followed by mixed players (i.e.firms that participate in different links in the value chain). By focusing the analysis on the largest players, a preponderance of the analysis will have been created. The process is iterative and takes advantage of analyze and public company data available. o Check and Reconcile Calculations. The final step entails summing the profit estimates of the individual activities and comparing the total to the aggregate estimate of industry profitability. Significant variances between the amounts need to be reconciled. These variances likely stem from estimates made during the process of assessing the size of each value chain activity in the pool 15 WHAT ARE THE ORGANIZATIONAL CULTURES IN MCKINSEYS 7S MODEL Culture is to organizations what personality is to individuals

All companies have cultures: o Culture by default o Culture by design thoughtful choices based on values and core beliefs

How does a company consciously create its culture?

Types of Organizational Cultures Control cultures Drive for predictability and order Collaboration cultures Pursue close relationship with customers Competence cultures Pursue excellence and innovation Cultivation cultures Pursue life enrichment for customers and employees Observable Evidence: Symbols Ceremonies Stories Behaviors Language Dress

Underlying Roots: Values, Assumptions, Beliefs, Attitudes, Feelings MCKINSEYS APPROACH TO PROBLEM-SOLVING The problem is not always the problem Dont reinvent the wheel Every client is unique Dont make the facts fit your solution Make sure your solution fits your client Sometimes let the solution come to you No problem is too tough to solve

16 DESCRIBE HOW BALANCED SCORECARD CAN BE USED TO MONITOR INDIVIDUAL EMPLOYEE PRODUCTIVITY The balanced scorecard philosophy need not apply only at the organizational level. A balanced approach to employee performance appraisal is an effective way of getting a complete look at an employees work performance, not just a partial view. Too often, employee performance plans with their elements and standards measure behaviors, actions, or processes without also measuring the results of employees work. By measuring only behaviors or actions in employee performance plans, an organization might find that most of its employees are appraised as Outstanding when the organization as a whole has failed to meet its objectives. By using balanced measures at the organizational level, and by sharing the results with supervisors, teams, and employees, managers are providing the information needed to align employee performance plans with organizational goals. By balancing the measures used in employee performance plans, the performance picture becomes complete. http://www.opm.gov/perform/wppdf/handbook.pdf

Cascading of senior management strategy down the organization so that at each succeeding level(as activities become more operational and detailed) they are aligned and derived from higher goals

Vertical integration includes everyone from CEO to the receptionist Everybody understands his role in achievement of organizational objectives

17 WHAT IS THE DIFFERENCE BETWEEN PERFORMANCE MEASUREMENT SYSTEMS AND BALANCED SCORECARDS

Solving the Performance Management Dillema Through Strategy Maps Your companys performance management system is not just about annual reviews and bonuses, it is essential to implementing your corporate strategy. With many organizations currently tightening their belts and demanding high performance, how can you make sure that your system is optimized for results? An answer lies in using the balanced scorecard. Many organizations struggle with performance management because their system consists of little more than a form managers use to conduct annual employee evaluations. This doesnt work because performance management should be an ongoing conversation between supervisors and employees that supports the accomplishment of strategic objectives. Rather than only considering the process once a year, managers should be using it year-long to set clear objectives, evaluate results and deliver continual feedback to employees about their performance. What a great performance management system does: Illustrate how employees job contributes to the success of the organization by linking work efforts with companys mission, vision and objectives Helps employee know what needs to be done to be successful on the job by focusing attention on setting clear performance expectations (results + actions & behaviors) Focuses department on what needs to get done and provides a solid rationale for eliminating unnecessary work though the use of objectives, standards, and performance metrics Gives employees a clear path for growth by defining job-mastery and career development goals as part of the process Enables employees to quickly identify problems and change course of project or work assignment through regular check-in discussions, which include status updates, coaching and feedback Shifts focus from performance as an annual event and sets it as an ongoing process by basing performance evaluations on the summary of check-ins & status updates

So, how do you make sure thats happening in your organization? First, an organizations strategic plan must give high priority to performance management, since their employees are the ones actually implementing the tactics necessary to achieve corporate objectives. A powerful tool for crafting a strategy that takes this into account is the Strategy Map, part of the Balanced Scorecard concept. Popularized by Robert S. Kaplan and David P. Norton through a series of articles in the Harvard Business Review as well as their popular 1996 book by the same name, The Balanced Scorecard is a strategic planning and reporting methodology that takes a companys objectives and splits them between 4 equally important perspectives: Financial, Customer, Operational, People. Organizational objectives then cascade down those four perspectives, giving the company a clear path of implementation. Following the strategy map, the financial perspective is at the top and contains objectives that contribute to the bottom line. Next, the customer perspective supports those goals with objectives that lead to meeting customer needs which drive increased sales. Operational goals are needed in place to better meet the customer needs, and finally the people perspective contains the objectives that support the operational goals. For example, a lawn care business may have a corporate vision to become the most sought after landscaper in their region. That could lead to a financial objective to increase sales. In order to increase sales, an objective must be placed in their customer perspective that includes being seen as providing the most superior customer service. This would cascade down to creating an operational objective to grow their customer service department by 6 employees. Their people perspective would then need an objective to train an additional 4 reps. How the Balanced Scorecard Keeps you on Track

With objectives cascading down throughout the four perspectives of the map, a strategy is considered balanced. The Scorecard portion consists of leading and lagging metrics that the company, or even departments and individuals can be evaluated on to determine whether they are on track. By forcing executives to put as much thought into performance management as the financial objectives of the organization and tying performance management goals all the way up to the mission and vision of the company the strategy map solves the performance dilemma. Once a scorecard is in place to manage performance, employees see how their job makes a difference to your company by illustrating how their tasks contribute to departmental goals, which drive financial accomplishments that push the company closer to its vision. This lays the foundation for clear performance expectations and the elimination of ambiguity concerning employee priorities. With a complete scorecard in place, employees know where they stand, and can easily determine what areas they can contribute to the success of an organizations strategy. Employee evaluations and status reports, now focused on the results of the scorecard give supervisors and employees structure for evaluation and coaching, and help keep everyone informed.

A tool that brings strategy and performance management all together Fortunately, tools like MyStrategicPlan exist to guide executives in crafting a balanced corporate strategy as well as manage performance management on a regular basis. Based on the balanced scorecard and strategy map, MyStrategicPlan enables any organization, regardless of size and budget, to build their comprehensive plan in a matter of weeks (or even days) and monitor implementation all year long.

18 DEFINE THE FOCAL POINTS IN A STRATEGY FOCUSED ORGANIZATION Strategy is a key element for growth and success Strategy is communicating in a easy manner Strategic focus on navigation of activities to align with strategy Organizing is mobilization of employees to act towards achievement of corporate objectives Balanced scorecard provides framework to look at strategy from different perspectives

THREE BUSINESS FOCUSSES Cost focus Product focus Customer focus

COST FOCUSSED STRATEGY: Directed at minimizing operations cost Company must command prices that are lower but close to industry average and render goods/services that are equal to industry standards Achievement of strategy through reduction of cycle time, labor cost, manufacturing cost

PRODUCT FOCUSSED STRATEGY: Provides customer with unique value added services/features at premium price Fills niche area not served by cost leaders Tactics include better customer service

CUSTOMER FOCUSSED STRATEGY: Provides customer with high service levels and product functions Premium commanded for product/services

The Strategy Focused Organization Is Used To Execute Strategy for Breakthrough Results

19 WHAT ARE THE WAYS IN WHICH A BALANCESD SCORECARD CAN BE USED 20 WHAT ARE THE CRITERIA FOR SELECTION OF PERFORMANCE MEASUREMENT SYSTEMS Effective PMS Must be balanced Financial and non-financial measures Leading and lagging measures

Must be relatively simple Limit measures to critical success factors Too many measures lead to confusion, redundancy, wasted effort, irrelevance

Employees may ignore or subvert complex system

Ineffective PMS Performance is acceptable on all dimensions except profit Measures are not aligned with strategy Measures do not reflect critical success factors

Competitive price, but customers do not buy Functionality or quality may be more important to the customers

21 WHAT SHOULD WE MEASURE AND CONTROL TO ACHIEVE BUSINESS RESULTS Same as 3 22 IMPORTANCE OF PERFORMANCE MEASUREMENT SYSTEMS Same as 4

23 CAUSE EFFECT LINK IN PERFORMANCE MEASURES

24 HOW TO DEFINE PERFORMANCE MEASURES KEY ISSUES IN MEASUREMENT INCLUDE: WHAT TO MEASURE WHERE TO MEASURE WHEN SHOULD YOU MEASURE MEASUREMENTS FOCUS ON FACTORS CONTRIBUTING TO ACHIEVEMENT OF MISSION,SHOWS HOW EFFECTIVELY RESOURCES ARE BEING USED,DISPLAYS TREND OF EVENTS,HELPS MONITOR TRENDS,IDENTIFIES OPPOETUNITIES FOR ONGOING IMPROVEMENT AND HELPS MONITOR PROGRESS A MEASURE IS AN INDICATOR OF THE EFFECTIVENESS OF A PARTICULAR ASPECT OF AN ACTIVITY AN ACTIVITY HAS AN OUTCOME WHICH IS TRANSLATED INTO ACTIVITY RESULT WHICH FINALLY AFFECTS THE COMPANY BUSINESS RESULTS ACTIVITY OUTCOMES CAN BE FAILED TO START; ABORTED WHILE WAITING FOR RESOURCES; ABORTED WHILE EXECUTING DUE TO EXTERNAL OR INTERNAL REASONS;COMPLETED SUCCESSFULLY

Ex1 MEASURE NAME EG CUSTOMER COMPLAINTS PURPOSE WHY ARE WE MEASURING (TO UNDERSTAND WHAT UPSETS CUSTOMERS) RELATE TO MEASURES RELATE TOP WHICH BUSINESS OBJECTS(eg SDATISFYING AND RETAINING CUSTOMERS) TARGET WHAT IS TO ACHIEVED BY WHEN (CUSTOMER COMPLAINTS < 3% PA) FORMULA FOR MEASUREMENT CALCULATION FREQUENCY HOW OFTEN IT SHOULD BE MEASURED Ex2 MEASURE NAME EG OVERALL PROCESS EFFECTIVENESS PURPOSE TO MEASURE ECONOMIC EFFECTIVENESS OF ASSETS RELATE TO CALCULATING THE OVERALL ASSET EFFECTIVENESS TARGET OEE > 75% FORMULA (UPTIME * EFFICIENCY * QUALITY)*100 FREQUENCY SHIFTWISE SOURCE OF DATA PRODUCTION DATA WHAT DO THEY DO ANALYZE 6 BIG LOSSES OF EQUIPMENT AND CALCULATE COST OF NON CONFORMITY Ex3 MEASURE NAME EG HUMAN CAPITAL RETURN ON INVESTMENT PURPOSE TO MEASURE ECONOMIC EFFECTIVENESS OF THE HR FUNCTION RELATE TO CALCULATING THE RETURN ON INVESTMENT OF THE HR FUNCTION TARGET HCROI > 3 FORMULA (REVENUE (EXPENSES WAGES))/WAGES

FREQUENCY MONTHWISE SOURCE OF DATA TRIAL BALANCE SHEET OF MONTH WHAT DO THEY DO CALCULATE PROFITABILITY OF HR FUNCTION

A quantifiable, enduring indicator of output, outcomes, efficiency or cost A statistic or metric chosen as a gauge Usually expressed as a number or percent A signal for planning, monitoring and evaluating results A tool to help improve performance, achieve objectives and ensure accountability

25 LEADING AND LAGGING MEASURES Leading - What might be performance drivers - inputs & outputs

Lagging - What has transpired outcomes & impacts

Lagging/Leading indicators have cause-effect relationship

People often ask whats the difference between a Leading and a Lagging indicator?. When developing a Balanced Scorecard (or any other performance management system), it is recommended to use a combination of Leading and Lagging Indicators. Kaplan and Norton call these Performance Drivers and Outcome Measures. The idea is that Lagging Indicators without Leading Indicators tell you nothing about how the outcomes will be achieved, nor can you have any early warnings about being on track to achieve your strategic goals. Similarly, Leading Indicators without Lagging Indicators may enable you to focus on short-term performance, but you will not be able to confirm that broader organisational outcomes have been achieved. Leading Indicators should enable you to take pre-emptive actions to improve your chances of achieving strategic goals. Implicit in the design of any balanced performance management framework, such as the Balanced Scorecard (BSC), is the cause and effect chain of goals and strategies. So, investing

in organisational capability leads to efficient and effective processes, which deliver the products and services that satisfy customers and ultimately lead to profit in the private sector, or positive stakeholders/funders in the public sector. Because there is this cause and effect chain, there is a corresponding chain of Leading and Lagging Indicators. For example, Satisfied/Motivated Employees is a (well-proven) Leading Indicator of Customer Satisfaction. Similarly, high-performing processes (e.g. to 6 Sigma levels) would be expected to be a Leading Indicator of Cost Efficiency. Arguably, the BSC perspectives focussed on Organisational Capability (or Learning & Growth) and Processes contain Leading Indicators of external performance that are contained within the Finance and Customer perspectives. However, its not as easy as that, because within each BSC perspective, you will usually want a combination of Leading and Lagging Indicators. For example, you are likely to want to measure Employee Satisfaction and could readily identify a Leading Indicator of this such as an index of Leadership Capability, or maybe No. of days training per employee. It is sometimes said that Leading Indicators will be measured more frequently than Lagging Indicators, but that may not be helpful as a definition. You could measure Complaints Received or Customer Satisfaction every day, both of which might be described as Lagging Indicators. Equally, you could measure process Error Rates, or On-Time Delivery every day and these are probably Leading Indicators. The view that Lagging Indicators cannot be adjusted until it is too late is also not necessarily very helpful. In the example above, knowing that you have an error rate of 25% is already too late! One definition that might help is that Leading Indicators are often captured at the level of individual processes, whereas Lagging Indicators may be the result of changes in a number of Leading Indicators. So, a process cycle-time or error rate might be Leading Indicators, measured at the process level and Customer Satisfaction would be a Lagging Indicator, measured at the organisation level. If you are measuring activity (i.e. at a process level), it is more likely that you are using Leading Indicators. The closer you move to process inputs and activities, the closer you get to Leading Indicators of downstream, (Lagging) performance. If you are measuring aggregated effects, or outcomes, at an organisational level, you are more likely to be using Lagging Indicators. Remember, the overall purpose of selecting metrics is to enable you to track performance towards your goals. So, you should aim to identify and then control those metrics that drive you towards your ultimate goals.

26 SELECTION OF PERFORMANCE MEASUREMENT SYSTEMS Very often people use multiple measures to manage a process This creates a confusion in the minds of the decision makers as to which measures are critical to the success of the activity or process Such measures should be selected which are critical to the outcome of the activity or process For example: In real life it is not the examination marks that should be the real measure of a persons potential/capability but his depth of knowledge and ability to apply into real scenarios For example: In an industrial environment, there are multiple measures like temperature, vibration etc. by measuring the bearing temperature and vibration it is possible to forecast bearing failure. Same activity can be looked at with different views by different people. Eg. Mfg activity measure for sales is time to deliver; for mfg it is mfg contribution; for finance it is mfg and sales contribution Critical measures should be arrived at and monitored on a real time basis Also a cause effect outcome chart should be drawn

27 CHARACTERISTICS OF A GOOD MEASUREMENT SYSTEM Quantifiable Results oriented Reliable Comparable Feasible Relational with respect to target

28 ROLE OF MEASUREMENT IN CONTINUOUS IMPROVEMENT In cycle of continuous improvement measurement plays an important role in: identifying opportunities for improvement in quality cost comparing performance against internal standards (process control) comparing performance against external standards (benchmarking)

Performance measurement systems should provide relevant accurate timely information Generate financial and non financial information in time along with trends and root cause analysis for mid course correction

Address customer perspectives proactively Assist management in implementing strategy Provide behavior that reflects the achievement of the strategic objectives for each business process

Performance measurement also plays a major role in: measuring progress versus organizational goals identifying opportunities for improvement benchmarking performance against external parameters

29 BUSINESS CONTINUITY PLANNING Risk Management, Business Continuity Planning, are initiatives for achieving greater resilience. Business Continuity Management: An ongoing management and governance process, supported by senior management, and resourced to ensure that the necessary steps are taken to identify the impact of potential losses, maintain viable recovery strategies and plans, and ensure continuity of products/services, through exercising, rehearsal, testing, training, maintenance and assurance. It is a methodology to preserve critical business functions in the face of a disaster or to recover a failed process post disaster with minimum disruption effects. BCP Objectives: Recover critical business processes at the earliest Minimize impact of disruption

BCP Phases: Identification of destructive elements that could disturb business Business impact analysis (reduce maximum tolerable downtime and quantification of losses due to impact of disruption) Recovery strategies

Components Of CP:

Incidents response planning - focuses on immediate response -time to respond. Processes anticipate, detect and mitigate impact of an unexpected event. Incident response is a set of instructions which need to be followed when an incident takes place

Disaster recovery planning -focuses on restoring operations at the primary site after disaster occurs. It is the preparation for and recovery from a disaster

Business continuity planning - facilitates establishment of operations at an alternative site. Ensures continuance of critical business functions after a disaster. Eg. LIC fire

30 FAILURE OF MEASUREMENT SYSTEMS Performance definition is not linked to strategic objectives and risks of non performances are not highlighted Boundaries of processes not well defined Too many measures in a process Measures not reflective of activity purpose

Measures not linked in a cause effect chain Risk assessment of process outcomes rarely done and if done the root cause of the gap not identified analyzed and eliminated

Measurement targets unreasonable and not linked to process capability Lack of performance review mechanisms Obsolete measures

31 BALANCING ACT OF BALANCED SCORECARD Balanced scorecard provides balance between : Short and Long term objectives Financial and non financial measures Lagging and Leading indicators External and Internal performance perspectives Tangible and Intangible assets

Each perspective contains indices linked as cause and effect to other indices & finally leading to a top management outcome.

Each index has standard expected value against which actual performance measured with alarms

32 WHY IMPLEMENT BALANCED SCORECARDS Link current action plans with short term and long term objectives Reduce focus on financial measures Monitor and achieve strategic outcomes Use scorecard as benchmarking tool Track progress Increase accountability Creating a view of what future can bring

Increase focus on strategy and results Improve organizational performance by measuring what matters Align organization strategy with the work people do on a day-to-day basis Focus on the drivers of future performance Improve communication of the organizations Vision and Strategy Prioritize Projects / Initiatives

A Gap Exists Between Mission-Vision-Strategy and Employees Everyday Actions

The Balanced Scorecard Links Vision and Strategy to Employees Everyday Actions

A Good Balanced Scorecard Tells the Story of Your Strategy Every measure is part of a chain of cause and effect linkages All measures eventually link to organizational outcomes A balance exists between outcome measures (financial, customer) and performance drivers (value proposition, internal processes, learning & growth)

33 CHALLENGES IN IMPLEMENTING BALANCED SCORECARD Choosing correct strategies(kingfisher airways) Choosing correct leading and lagging indicators Concentration on key indicators Balancing financial & non- financial indicators Applying measures consistently across business units Using appropriate number of measures Applying measures consistently across regions

34 WHAT TO MEASURE IN BALANCED SCORECARDS Stake holder desired outcomes Strategies required to fulfill outcomes Customer desired matrix Product and service matrices Process characteristics in terms of criticality and requirement for success Capabilities required to operate and enhance processes How is balance achieved FINANCIAL STAKEHOLDERS ARE IMPORTANT IN BALANCED SCORECARD BUT WANTS/NEEDS BALANCED AGAINST NEEDS OF CUSTOMER COMPANIES NEED TO MAKE MONEY WHILE KEEPING CUSTOMERS HAPPY ALIGNMENT OF INTERNAL PROCESSES WITH CUSTOMER REQUIREMENT

FOCUS ON KEY ATTRIBUTES CUSTOMER VALUES AND DESIGNING, EXECUTING PROCESSES THAT REPEATEDLY DELIVER THESE ATTRIBUTES

THIS ALIGNMENT IS CRITYICAL TO FINANCIAL SUCCESS

35 WHY BALANCED SCORECARDS FAIL Wrong measures used. Eg. Marks instead of measuring capability Unrealistic targets. Eg. Greater than capability Measurement not aligned with goals. Eg. Targets not correlated resulting in achievement of goals. Eg. Finance expects 15% contribution when market shows else wise Data difficult to acquire. Eg. Market research data People dont relate to measures. Eg. Stock market parameters No performance review mechanism Outdated measures. Eg. demographic