creating a balanced scorecard danz training
TRANSCRIPT
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Building the Balanced Scorecard
Dan Feliciano
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Illegal aliens have always been aproblem in the United States. Ask any Indian.- Robert Orben
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What is Strategic Planning?
Process to establish priorities on what you will
accomplish in the futureForces you to make choices on what you will
do and what you will not do
Pulls the entire organization together arounda single game plan for execution
Broad outline on where resources will get
allocated
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What do you think?
Only 5% of the workforce understands their companystrategy.
Only 25% of managers have incentives linked to strategy.
60% of organizations dont link budgets to strategy.
86% of executive teams spend less than one hour per
month discussing strategy. Balanced Scorecard Collaborative
Up to 50% of resources of an organization are not beingeffectively applied to the mission and vision of theorganization
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Also
90% of well-formulated strategies fail due to
poor execution
75% of business improvement initiatives to
solve this problem fail due to lack ofsustainability.
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Why do Strategic Planning?
If you fail to plan, then you plan to fail be
proactive about the futureStrategic planning improves performance
Counter excessive inward and short-term
thinkingSolve major issues at a macro level
Communicate to everyone what is most
important
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Fundamental Questions to Ask
Where are we now? (Assessment)
Where do we need to be? (Gap / Future EndState)
How will we close the gap (Strategic Plan)
How will we monitor our progress (BalancedScorecard)
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A Good Strategic Plan should . . .
Address critical performance issues
Create the balance between what theorganization is capable of doing vs. what the
organization would like to do
Cover a sufficient time period to close theperformance gap
Visionary convey a desired future end state
Flexible allow and accommodate change Guide decision making at lower levels
operational, tactical, individual
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Why Adopt a Balanced Scorecard?
ChangeChangeChangeChange Formulate and communicate a new strategy
for a more competitive environment
AlignmentAlignmentAlignmentAlignment Each staff members actions are guide by
the strategies and goals of the organization
FocusFocusFocusFocus Provides management with a tool formonitoring progress towards achieving theorganizations vision
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Introduction
Balanced Scorecards provide a framework for
communicating strategy in operating terms(measurements and targets).
You must communicate strategy in operatingterms if you expect people to execute on your
strategy.
When people are asked about strategy, theyreach for their balanced scorecard.
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Making Strategy Everyones Job
Creating a Climate
to Support
Strategic Change
Create StrategicAwareness
Align PersonalObjectives
Align IncentiveCompensation
1
2
3
Insure that each individual has sufficientunderstanding of the strategy (You cant execute
what you dont understand)
Insure that each individual knows where they fitinto the overall game plan
Reinforce desired behavior and increase
intensity of awareness
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Agenda
This slide presentation will outline the major
steps for building a balanced scorecard.
How you execute these steps will depend upon
many factors: Company culture, tolerance forchange, leadership, etc.
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Overview
Balanced Scorecards are constructed from
strategic maps
Throughout the process, we will refer back to
these maps, making sure everything is linked.This is very important since we want to capture
a cause and effect relationship in building the
scorecard.
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Start with Strategy
Begin with your strategic plan what things are
critical to future success?
Focus on customers what values will we addto our customers
Define the processes how will we deliver theseservices to our customers
Build the organization what capabilities mustwe put in place
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Strategic Goals
The first components of your strategy are goals.
Strategic goals establish direction in concrete
terms.
Strategic goals anchor the rest of the process.
Strategic goals should fit with the vision and
mission of the organization.
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Goal Attributes
Very short statement
Directly relates to the mission
Broad in scope
Covers long time period (such as 3 years)Examples:
Improve Customer Service
Leverage Core Competencies Develop more innovative products
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Strategic Objectives
Once we establish our first anchor (goals), we
can develop a set of strategic objectives.
Strategic objectives define what actions must be
taken to reach the strategic goals.Objectives are critical to future success. For
example, in order to grow revenues, we must
introduce new products and expand our marketshare.
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Objective Attributes
Longer statement than goal statement
More specific than goal statement
Indirect relationship to mission
Covers shorter time period than goal (such as 6 monthsor 1 year)
Example:
We will expand call center services to includetechnical support
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Whats the Difference Between
Goals and Objectives?
Objective:Objective:Objective:Objective:
Longer than goal statement
More specific than goal statement
Indirect relationship to mission
Covers shorter time period than
goal (such as 6 months or 1 year)
Example: We will expand call
center services to includetechnical support
Goal:Goal:Goal:Goal:
Very short statement
Directly relates to the mission
Broad in scope
Covers long time period (such
as 3 years)
Examples: Improve Customer
Service, Leverage CoreCompetencies, Develop more
innovative products
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Break-out Session
Develop another example for Goal, Objective and
Strategy
Goal:
Objective:
Strategy
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Example of Goal and Objectives
Reduce identified re-
activities within primary
processes by 80% over
the next 3 years
Reduce Operational
Service Costs by 50%
over the next 5 years
Achieve Agency
operational
efficiencies with
best practices in the
private sector
ObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal
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Strategic Themes
Based on strategic goals, three to five strategic
themes should emerge.
From these themes, we will develop a strategic
map.Four common strategic themes are: Operating
Efficiencies, Customer Relations, Product
Innovation, and Growing the Business.
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Strategic Model
Strategic Models can emerge from four
principles:
1. Translate strategies into operating terms.
2. Link strategies throughout the entireorganization.
3. Commit everyone to implementing strategy.
4. Make strategizing a continuous process oflearning and adjusting to change.
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Four Perspectives
Before we build strategic maps, we need to define four
perspectives:FinancialFinancialFinancialFinancial: Top layer in the map, represents financialoutcomes (profits, revenues, etc.)
CustomerCustomerCustomerCustomer: Next layer down, enables financial results(service, image, price, quality, etc.)
Internal ProcessesInternal ProcessesInternal ProcessesInternal Processes: The values added to customers,
such as delivery, production, distribution, etc.Learning & GrowthLearning & GrowthLearning & GrowthLearning & Growth: The people, systems, andorganization that enable processes.
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Strategic Perspectives
"If we succeed, how will we look to our
shareholders?
Financial Perspective
"To achieve our vision, how must we look
to our customers?
Customer Perspective
"To satisfy our customers, at which
processes must we excel?
Internal Perspective
"To achieve our vision, how must our
organization learn and improve
Learning & Growth
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Strategic Mapping
Strategic Maps are the foundation of the
Balanced Scorecard.
You will need one strategic map for each
strategic theme.
Maps are constructed over four perspectives.
Strategic objectives are mapped over the four
perspectives, linked together.
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Airline Example
Strategic Theme:Operating Efficiency
ProfitabilityFinancial
Learning
MoreCustomers
Ground CrewAlignment
Lowest
Prices
Fewer Planes
Customer
Internal
Fast Ground
Turnaround
Flight
Is on Time
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Strategic Mapping:
a framework
Increase Shareholder value
Build the
franchise
New markets
New products
New customers
Increase value
to customers
Deepen the relation
through expanded
sales
Improve cost
structure
Operating cost perunit produced
Improve use
of assets
Asset utilization
Revenue growth strategy Productivity strategy
Financial perspective
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Linking
Strategic objectives need to be placed in the
Strategic Map according to which perspectivefits with the objective.
Objectives may cross over more than one
perspective.
We usually start at the top with outcomes and
work our way down, looking at what enables(drives) the outcome.
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Linking Strategic Themes &
ObjectivesObjectivesStrategic Theme:
Operating Efficiency
ProfitabilityGrow Revenues
Fewer planes
More CustomersFlight is on -timeLowest prices
Fast ground turnaround
Ground crew alignment
Strategic Theme:Operations Excellence
Profits and
RONA
Financial
Learning
Fewer planes
Customer
InternalFast ground
turnaround
Attract & Retain MoreCustomers
GrowRevenues
Lowestprices
On-timeService
Ground crewalignment
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Approval
Once you have completed the strategic maps,
you will need to get approval from executivemanagement. Does this map accurately tell the
story of our strategy?
If management disagrees with the map, go back
and redo the maps. We need to get this step
right since it represents the foundation for the
entire scorecard.
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Measurements
For each strategic objective, you need one
measurement.
Measurement provides us with feedback onmeeting the strategic objective.
Most organizations will use many of theirexisting measurements.
Organizations requiring major change should
include driver type measurements.
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Airline Example
% Ground crewtrained
% Ground crewstockholders
Objectives Measurement
Market Value
Seat Revenue
Plane Lease Cost
FAA On Time ArrivalRating
Customer Ranking(Market Survey)
On Ground TimeOn-Time Departure
Strategic Theme:Operating Efficiency
ProfitabilityFinancial
Learning
MoreCustomers
Ground CrewAlignment
LowestPrices
Fewer Planes
Customer
Internal
Fast GroundTurnaround
FlightIs on Time
Profitability
More Customers
Fewer planes
Flight is on -timeLowest prices
Fast groundturnaround
Ground crewalignment
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Measurement Criteria
Measurements should drive change, providing
teeth to our strategy.
Measurements define objectives in specific
terms. A good measurement should tell you
what your objective is this is an indicator of
good linkage.
Measurements should be repeatable,quantifiable, and verifiable.
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Good Measurements
Customer satisfaction:
Retention rate
Organic growth
Satisfaction metric
Process Efficiency:
Cycle time, lead time, on-time,
Employee Utilization Number of defectives / Percentage Defective
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Lead and Lag Measurements
Leading measurements are drivers behind
performance and provide some predictability(forward looking)
Lagging measurements are usually final
outcomes that look back, such as customer
satisfaction or return on investment
Balanced scorecards should include bothleading and lagging type measurements
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Example of Goal, Objectives &
Measurements
Waste Volume Charts,
Rework Tracking, CycleTime End to End in S-LX
(5 of 7 Regions)
Reduce identified re-activities
within primary processes by80% over the next 3 years
Cost per Outlet Office,
Cost per Region, Cost per
FTE
Reduce Operational Service
Costs by 50% over the next 5
years
Achieve Agency
operational
efficiencies
MeasurementMeasurementMeasurementMeasurementObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal
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Targets
Once you establish measurements, you need to
set a target for each measurement.Targets push the organization to a required levelof performance.
Targets put focus on the strategy, expressing thespecifics of the strategy.
When an organization hits its targets, then it hassuccessfully implemented its strategy.
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Examples of Targets
Total Time to Recruit New Employees: Less than
40 days by year-endUtilization of rental facilities: Increase to 85%during peak summer months
Growth in top line revenues: 10% increase overlast year
Improve overall customer satisfaction: Totalscores exceed 90%
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Initiatives
In order for things to happen in an organization,
you must initiate major projects or programs.For example, improving customer service may
require a new customer management system.
Once you launch appropriate initiatives, you
should be able to meet your strategic objectives.
This closes the loop, everything is now linked
and away we go!
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Initiative Attributes
Sponsored by senior management
Designated owners manage project(s)
Includes deliverables or milestones
Usually has some time deadlines
Could be difficult to launch lack of support, no
funding, poorly defined, etc.
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Airline Example
% Ground crewtrained
% Ground crewstockholders
Objectives Measurement
Market Value
Seat RevenuePlane Lease
Cost
FAA On TimeArrival Rating
CustomerRanking (MarketSurvey)
On Ground TimeOn-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
Cycle timeoptimizationprogram
ESOP
Ground crewtraining
Qualitymanagement
Customerloyaltyprogram
Target
30% CAGR
20% CAGR5% CAGR
#1
#1
30 Minutes90%
yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground CrewAlignment
Lowest
Prices
Fewer Planes
Customer
Internal
Fast GroundTurnaround
Flight
Is on Time
Profitability
More CustomersFewer planes
Flight is on -time
Lowest prices
Fast groundturnaround
Ground crewalignment
Optimizeroutes
Standardizeplanes
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Airline Example
Strategic Theme:Operating Efficiency
ProfitabilityFinancial
Learning
MoreCustomers
Ground CrewAlignment
Lowest
Prices
Fewer Planes
Customer
Internal
Fast GroundTurnaround
Flight
Is on Time
E l f G l Obj i
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Example of Goal, Objectives,
Measurements, Targets &Initiatives
Lean / Six
Sigma
Waste stream
reductions of
5% each year,
Reworks cut in
half for next 3years, cycle
time cut by 75%
Waste Volume
Charts, Rework
Tracking, Cycle
Time End to End
in S-LX (5 of 7Regions)
Reduce
identified re-
activities within
primary
processes by80% over the
next 3 years
Activity Based
Costing /
Management
5% - Year 1
10% - Year 2
15% - Year 3
Cost per Outlet
Office, Cost per
Region, Cost per
FTE
Reduce
Operational
Service Costs by
50% over the
next 5 years
Achieve
Agency
operational
efficiencies
InitiativeInitiativeInitiativeInitiativeTargetTargetTargetTargetMeasurementMeasurementMeasurementMeasurementObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal
Oth I t t St
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Other Important Steps
Scorecards are built around three teams:
Leadership Team (upper level management),Core Team (middle level management) and
Measurement Team (lower level functional
personnel).
Scorecards are built around at least four group
meetings: Kick Off Meeting followed by at least
one meeting for each of the three teams.
I l t ti
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Implementation
The minimum time for developing a balanced
scorecard is three months.Full deployment of scorecards throughout theentire organization can take more than one
year.The best place to start building a scorecard iswhere all components of the value chain are in
place: Customer, Innovation, Production,Delivery, Services, etc.
M g U th S d t
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1Identify All Potential
Candidates for StrategicInitiative Consideration
2Screen Candidates toIdentify Those That
Qualify as Strategic
3Select and fund
Strategic Initiatives
Initiative:
E-Bill PresentmentStrategic Thrust(s):
AC/IR/RC
Primary Strategic Objectiv :
Continue Leadership in SuProducts
Area Score
Strategic Importance
Cost
Benefit
Required for OtherInitiatives/Dependencies
Time to Implement
Points
8
-2
4
1
-2
Comments
The killer application X
$
$
X
# months
Overall Score 9 X
Ranking
1
2
3
4
5
6
7
N
Initiiative
E-BillPresentment
A
B
C
D
E
F
G
Strategic Thrust(s)andObjectives(s)
AC/IR/RCCont. Leadership inSuperiorProduc ts
StrategicImportance
Cost BenefitRequiredfor Other
Initiatives/Dependencies
Time toImplement Overall ScoreOverallPoints
9
9
8
8
7
7
7
X
Site Selection
Projects,Activities, etc.
DevelopmentProjects,
Activities, etc.
MIS Projects,Activities, etc.
Other Projects,
Activities, etc.
PrioritizedList of Strategic
fundedInitiatives
Criteria
Managers Use the Scorecard to
Select and Manage Initiatives
Its Abo t E ec tion
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Its About Execution
(Work Tracking and Monitoring)
Goals
#1
#2
#3
#4
#5
#6
.
B
alanced
S
corecard
(Ope
rationalPlan)
WHY? WHAT?
Processes
Outcomes
ActionPlans
(ProjectCharters,
Initiatives,
Departm
entWorkPlan
s)
HOW?
Budget
Process &Allocation
PerformanceManagement
Process
ProjectManagement
Process
Monitoring
BoardReporting
Why Do Organizations Fail to Get
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y g
Results from Their Balanced Scorecard
Programs?1. No Executive Ownership (done
by middle management team only; long
development process)
2. Scorecard Not Linked toStrategy (no strategy map - just KPIs in4 perspectives; mostly financial measures;
done as a systems project; done only forcompensation)
3. Scorecard Not Linked toManagement Processes
(Mobilize, Translate, Align, Motivate,Govern)
4. Too many metrics!!!!
NOTUsingBSC
Using It
WRONG
Using ItRIGHT
Summary
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Summary
Balanced Scorecards are the best way of
communicating strategy.Scorecards rely on a fully integrated approach:Goals, Objectives, Mapping, Measurements,
Targets, and Initiatives.The building of a balanced scorecard can beexperimental, whereby you test your strategies,
refine, and make changes as you get feedbackand learn what works.
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Credits
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Credits
Matt H. Evans at www.exinfm.com
Lawrence Serven The Buttonwood Groupwww.ButtonwoodLLP.com
Rick Rozzelle CELT Corporation [email protected]