Transcript The Balanced Scorecard

The Balanced
Scorecard
Planning for long-run
organizational success
The Balanced Scorecard:
A Good Idea in 1992
Balanced Scorecard in 1992
“The Balanced Scorecard –
Measures that Drive
Performance”
Harvard Business Review,
1992
The Balanced Scorecard:
A Great Idea by 2002
Balanced Scorecard by 2002
21 translations
17
translations
50% usage in Fortune 500
Harvard Business Review “Hall of Fame”
50,000+ BSC on-line members
Balanced Scorecard Hall of Fame Implemented
Strategies and Achieved Breakthrough Results…
Fast
Mobil
3 years
Saatchi & Saatchi
+ $2b
• Last to first
• Cash flow +$1.2b
• ROI 6% --> 16%
ATT Canada
3 years
+ $7b
2-5 years
Cigna
Brown & Root
2-5 years
3 years
• #1 in growth &
profitability
+ $3b
Duke Children’s
City of Charlotte
3 years
• Customer Satisfaction = 70%
• Public Official Award
• Customer Satisfaction #1
• Cost/Case
33%
Wells Fargo
Southern Garden
3-5 years
• # Customers 450%
• Best Online Bank
• Least Cost Producer
2 years
Chemical Bank
3 years
• 99% Merged Target
Asset Retention
UPS
Hilton Hotels
• Customer Satisfaction
• Market Revenue Index
• Revenues
• Net Income
9%
33%
2 years
3 years
3 years
Question:
How can complex organizations
achieve results like this in such
short periods of time?
Answer:
Alignment!
The Balanced Scorecard process allows an organization
to align and focus all its resources on its strategy
BUSINESS UNITS
EXECUTIVE TEAM
STRATEGY
INFORMATION
TECHNOLOGY
HUMAN RESOURCES
BUDGETS AND CAPITAL
INVESTMENTS
© 1998 Renaissance Worldwide, Inc. and
Robert S. Kaplan, All rights reserved.
A Gap Exists Between Mission-Vision-Strategy
and Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do
The Balanced Scorecard Links Vision and
Strategy to Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SCORECARD
Translate, Focus and Align
STRATEGIC INITIATIVES
What are the priorities
TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
Motivated & Prepared
WORKFORCE
Balanced Scorecard

Balance between

Financial measures of performance

Long-range competitive abilities
Balanced Scorecard

Four aspects of firm performance




Financial
Customer
Internal business
Innovation and learning
Financial Perspective

How do we look to stockholders?

Survive

Succeed

Prosper
Customer Perspective

How do our customers see us?

New products

Responsiveness

Quality
Internal Business Perspective

At what must we excel currently?

Manufacturing/service excellence

New product/service introduction
Innovation and Learning
Perspective

Can we continue to improve and create
value?



Technological leadership
Time to market
Employee training and satisfaction
Perspectives are Interrelated

Innovation pleases customers which are
necessary for good financial results

Good financial results make financing
improvements possible
The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Financial
Perspective:
the drivers of
shareholder
value
Shareholder Value
ROCE
Productivity Strategy
Improve Cost
Structure
Increase Asset
Utilization
 Cost per Unit
Internal
Perspective:
how value is
created and
sustained
Learning & Growth
Perspective: role for
intangible assets –
people, systems,
climate and culture
Enhance Customer
Value
 Customer
Profitability
 Asset Turnover
•Market and Account Share 
Customer
Perspective:
the
differentiating
value
proposition
Revenue Growth Strategy

Customer Acquisition
Customer Retention

Create Value from
New Products &
Services
 New Revenue
Sources
Customer Satisfaction
Product Leader
Customer Solutions
Customer Value Proposition
Product/Service Attributes
Price
Quality
Time
Operations Theme
(Processes that Produce
and Deliver Products
& Services)
Low Total Cost
Relationship
Function
Service
Customer
Management
Theme
(Processes that
Enhance Customer
Value)
Image
Relations
Brand
Innovation Theme
(Processes that
Create New
Products and
Services)
Regulatory and
Society Theme
(Processes that
Improve the
Environment
and
Communities)
Human, Information, and Organizational Capital
Strategic
Competencies
Strategic
Technologies
Climate for
Action
Overall Concepts

Not just a set of measures

Measures must relate to strategy


Critical success factors
Measures are interrelated

Must understand how the perspectives influence each other
Overall Concepts

Not a quick process

Implementation requires




Thought
Analysis
Data-gathering
Time
Overall Concepts

Thought

What is our strategy?

What is critical to implementing the strategy?

How can we measure our progress?
Overall Concepts

Analysis

What are the linkages between functions?

What drives the achievement of goals?

What measures correlate with the drivers?
Overall Concepts

Data-gathering

What data is available? What isn’t?

How should it be gathered? Reported?
Overall Concepts

Time

Cannot be done in an afternoon

Successful implementation may take several months

Never-ending process
Implementation Steps

Initiative must start at the top

Only senior management has grasp of overall strategy


And the authority to make strategic decisions
Doomed without commitment from the top
Implementation Steps

Requires teamwork, collaboration

Different perspectives, expertise required

Not a one-person job

Won’t produce buy-in
Implementation Steps

Interview senior managers

Input on strategic objectives

Input on critical success factors

Input on possible measures
Implementation Steps

Gain consensus

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Senior managers develop tentative scorecard as a group
Individual reactions

Suggested refinements
Implementation Steps

Expand consensus


Larger group refines tentative scorecard
Finishing touches

Consensus on vision, objectives, measures, targets,
implementation program, etc.
Implementation Steps

Selection of metrics






Must relate to strategic goals
Both leading and lagging
May not be “exact”
May come from external sources
Not too many
Not too few
Implementation Steps

Roll-out

Link to data bases and information system

Communicate to employees

Develop scorecards for lower levels
Implementation Steps

Periodic reviews





Has strategy changed?
Are the objectives valid?
Are the activities valid?
Are the measures valid?
The scorecard evolves with the organization
The Road to Disaster

Senior management not committed


No one else will be either
Lack of consensus

Lack of commitment
The Road to Disaster

Consultants

Good


Provide needed expertise
Bad

Take over the project

Consensus, commitment of employees is lost
The Road to Disaster

Failure to communicate

Employees don’t understand:



Strategy
Their roles
Importance of the scorecard measures
The Road to Disaster

Lack of “push-down”

Lower levels operating as before

Operations are not tied to corporate scorecard

Scorecard is ignored at lower levels
The Road to Disaster

Carve it in stone

It won’t be perfect, ever


Must evolve
Delay implementation until perfect

See above
The Road to Disaster

The compensation issue


Powerful motivator of performance
Poorly designed scorecard will not show
strategic improvements even if individual
measures show progress
The Scorecard as a Change
Agent

Four steps


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
Translating the vision into action
Communicating and linking
Business planning
Feedback and learning
Translating the Vision

Strategy must be reduced to a set of
objectives and measures which can be
operationalized

“We want to be the best” won’t do
Communicating and Linking

Corporate strategy must be communicated to
all levels

Lower levels must have objectives linked to
corporate objectives
Business Planning

Integrate the financial plan with the business
plan

Use the scorecard to allocate resources to critical
activities

Avoids the short-term spending mentality
Feedback and Learning

Monitor short-term results to determine if
progress is being made toward long-term
objectives

May need to refine measures, activities,
objectives, even strategy
Building Strategy Focused Organizations
with the Balanced Scorecard
Dr. Robert S. Kaplan
Marvin Bower Professor of Leadership Development
HARVARD BUSINESS SCHOOL
and
Chairman
BALANCED SCORECARD COLLABORATIVE
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
• Mission / Vision
• Strategy Maps
• Balanced
Scorecard
• Targets
• Initiatives
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
•
•
•
•
•
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
•
•
•
•
•
Linked to Budgeting
Linked to Ops. Mgmt.
Management Meetings
Feedback System
Learning Process
#1
Principles of the Strategy Focused Organization:
TRANSLATE THE STRATEGY TO OPERATIONAL
TERMS
The Strategy
Financial Perspective
 Measurement is the
language that gives clarity
to vague concepts.
"If we succeed, how will
we look to our
shareholders?”
Customer Perspective
 Measurement is used to
communicate, not to
control.
 Building the scorecard
develops consensus and
teamwork throughout the
organization
"To achieve my vision,
how must I look to my
customers?”
Internal Perspective
"To satisfy my customer,
at which processes must
I excel?”
Organization Learning
"To achieve my vision, how
must my organization learn
and improve?”
Mobil NAM&R Strategy Map
Increase ROCE to 12%
Financial
Perspective
Revenue Growth Strategy
Increase Customer
Profitability Through
Premium Brands
New Sources of NonGasoline Revenue
Customer
Perspective
 Share of
Targeted
Segment
 Mystery
Shopper
Score
 Non-Gasoline
Revenue & Margin
Become Industry
Cost Leader
 Volume vs. Industry
 Premium Ratio
 Cash Flow
“Win-Win Dealer Relations”
Basic




Maximize Use of
Existing Assets
 Cash Expense (cpg)
vs. Industry
“Delight the Consumer”
Differentiators
Clean
Safe
Quality Product
Trusted Brand
Speedy
Purchase
“Build the Franchise”
Internal
Perspective
Productivity Strategy
ROCE
Net Margin (vs. industry)
Friendly Helpful
Employees
“Increase Customer Value”
Create NonGasoline
Products &
Services
Understand
Consumer
Segments
 New Product
Acceptance Rate
“Achieve Operational Excellence”
Improve
Hardware
Performance
 Yield Gap
 Unplanned
Downtime
Best-In-Class
Franchise
Teams
More
Consumer
Products
Recognize
Loyalty
On-Spec
On-Time
Improve
Inventory
Management
“Be a Good Neighbor”
Improve
Environmental,
Health and
Safety
 Inventory
Levels
 Run-Out Rate
Industry Cost
Leader
 Activity Cost
vs. Competition
 Dealer Quality
Rating
Help Develop
Business
Skills
 Environment
Incidents
 Safety Incidents
A Motivated and Prepared Workforce
Climate for Action
Learning &
Growth
Perspective
• Aligned
• Personal Growth
 Personal BSC
 Employee Feedback
Competencies
• Functional Excellence
• Leadership Skills
• Integrated View
 Strategic Skill
Coverage Ratio
 Dealer Profit
Growth
 Dealer
Satisfaction
Technology
• Process Improvement
 Systems Milestones
The Balanced Scorecard Framework Is Readily
Adapted to Non-Profit and Government
Organizations
The Mission
"If we succeed, how will
we look to our
taxpayers (or donors)?”
”To achieve our vision,
how must we look to
our customers?”
“To satisfy our customers,
financial donors and mission,
what business processes
must we excel at?"
“To achieve our vision, how
must our people learn,
communicate, and work
together?”
The Mission, rather than the financial / shareholder
objectives, drives the organization’s strategy
Boston Lyric Opera Strategy Map
Our mission is to ensure the long-term future of opera in Boston and New England by (1) producing the highest quality professional productions of diverse opera
repertoire that are artistically excellent as well as musically and theatrically innovative; (2) developing the next generation of opera talent; (3) engaging and educating
a diverse community about opera to become enthusiastic audience members, educators, supporters, and volunteers.
(HBS Case #9-101-111)
National/International Opera Scene
Supporters/Subscribers
CUSTOMER
Target
Generous and Loyal
Contributors/
Prospects
Focus on
Board
Investment and
Recruitment
Build Artistic
Reputation
for High
Standards
Launch Unique
Residency
Program for
Artists
Enhance Customer Relationships
INTERNAL
BUSINESS
PROCESSES
Streamline
Ticketing/Gift
Acknowledgement
Processes
Increase
One-on-One
Contact
Improve
Board Support
Systems
Provide
Staff with
Skill
Training
Promote
Collaborations
Insure Operational Excellence
Develop
Web-based
Service/
Products
Contract
“Best”
Talent
Develop Strategic Job Competencies
LEARNING
AND
GROWTH
Present
Diverse
Repertory
Community
Leverage Board
Effectiveness with
Education and
Fundraising Training
Develop
Innovation
Review
Process
Increase Brand Awareness
Increase Cost
Efficiency/Quality
Assurance
Increase
Revenue
Systematize
Financial
Processes
Launch
Comprehensive
PR Campaign
Develop
New
Products/
Program
Strengthen Strategic Alignment
Build Growth-Enabling Infrastructure
Develop
Strategic
Communications
Plan
Create
HR Plan
Incorporate
Milestone
Evaluations
Fiscal Health
FINANCIAL
Focus on
Educ./Comm.
Programs for
Greater Boston
Build
Community
Support
Build
Multi-Year
Support
Invest in
Strategic
Technologies
Growth Planning
Create
Long-Term
Investment
Strategy
Develop
Realistic
Pro Formas
Institutionalize
Multi-Year
Budgeting
Develop
Administrative
Residency
Program
•
A KPI Scorecard: The Four
“P’s”
Profits
•
Portfolio (loan volume)
•
Process (ISO certification)
•
People (diversity)
What’s missing from the 4P’s KPI scorecard?
•
Where are the customers?
•
What is the value proposition?
•
How does ISO certification lead to increases in loan
volume?
•
How does a more diverse work force lead to ISO
certification?
•
Is there no role for information technology?
•
Is innovation not important?
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)
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
•
•
•
•
•
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
•
•
•
•
•
Linked to Budgeting
Linked to Ops. Mgmt.
Management Meetings
Feedback System
Learning Process
Principles of the Strategy-Focused Organization:
LINK AND ALIGN THE ORGANIZATION AROUND ITS
STRATEGY
#3.
#1.
Each Support Unit develops a
plan and BSC for “best
practice” sharing to create
synergies across SBUs.
A Corporate Scorecard defines
overall strategic priorities.
CORPORATE
LINE BUSINESSES
CORPORATE SCORECARD
(Shared Strategic Agenda)
Themes
Measures
SBU
A
SBU
B
SBU
C
SUPPORT UNITS
EXTERNAL PARTNERS
SBU
D
1. Financial Growth
xxx
•
Finance
2. Delight the Consumer
xxx
•
Marketing
•
Customer Scorecards
3. Win-Win Relationships
xxx
•
Distribution
•
Distributor Scorecard
4. Safe & Reliable
xxx
•
Procurement
•
Joint Venture Scorecard
5. Competitive Supplier
xxx
•
Purchasing
•
Vendor Scorecard
6. Good Neighbor
xxx
•
Safety
•
New Venture Scorecard
7. Motivated & Prepared
xxx
•
Human Resources
•
Outsourcer Scorecard
8. Quality
xxx
•
Information Technology
xx
xx
xx
xx
#2.
#4.
Each SBU develops a
long-range plan and BSC
consistent with corporate
strategic agenda.
Plans and BSC’s define
relationships with external
partners consistent with
SBU strategy.
Strategies Are Executed Through Business Units. The Strategies of the Business
Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.
Summary: Top-to-Bottom Strategy Alignment
Unleashes Full Organization Potential
• The Corporate Strategy is communicated to business
units and agencies through key themes, opportunities
for integration and synergies, and shared measures
• Cooperation and greater synergy between business
units, staff and shared service functions, and across
diverse organizational units becomes formalized
through the Scorecard
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
•
•
•
•
•
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
•
•
•
•
•
Linked to Budgeting
Linked to Ops. Mgmt.
Management Meetings
Feedback System
Learning Process
#3
Principles of the Strategy Focused Organization:
MAKE STRATEGY EVERYONE’S EVERYDAY JOB
HR Processes Are Essential for Moving Strategy
From the Top to the Bottom
CORP
SBU
Top-Down “Bridging
Process” To Share
the Strategy & Align
the Workforce
• EDUCATION
• PERSONAL GOAL
ALIGNMENT
• BALANCED PAYCHECKS
The Strategy Focused Workforce
Bottom-Up Process
to Internalize &
Execute the Strategy
Making Strategy Everyone’s
Job
Creating a Climate
to Support
Strategic Change
1
Create Strategic
Awareness
• Insure that each individual has sufficient
understanding of the strategy (You can’t execute
what you don’t understand)
Align Personal
Objectives
• Insure that each individual knows where they fit
into the overall game plan
Align Incentive
Compensation
• Reinforce desired behavior and increase
intensity of awareness
2
3
USM&R Strategic Themes ...
Win/Win Relationship
Good Neighbor
will guide us to our vision and are defined above
each graph.
Improve Dealer/Wholesale Marketer profitability through
customer-driven products and services and by
developing their business competencies.
Protect the health and safety of our people, the
communities in which we work, and the environment we
all share.
Dealer/Mobil Gross Profit
USM&R Strategic Measures ...
that will keep us focused on achieving USM&R’s
strategic themes are explained in the graphs
and the bulleted text accompanying them.
Environmental Index
• Total profit earned at
Mobil outlets and
split between our
dealers/whole-sale
marketers and
Mobil.
• Composite of:
- reportable releases
to air and water
- reportable spills
- community reported
incidents.
1993
1994
Target
1993
1994
Target
Financially Strong
Safe & Reliable
On Spec On Time
Reward our shareholders by providing a superior longterm return which exceeds that of our peers.
Maintain a leadership position in safety while keeping our
refineries fully utilized.
Provide quality products supported by quality business
processes that are on time and done right the first time.
USM&R Days Away
From Work
ROCE
• Income divided by
capital employed
including all
allocations.
Manufacturing
Reliability Index
Quality Index
• Composite of incidents
of:
12%
- product off spec
8%
- order shipped late
7%
- business process errors
- customer complaints
- cost of rework.
1993
1994
Target
1993
1994
Target
1993
1994
Target
1993
1994
Target
Delight the Customer
Competitive Supplier
Motivated & Prepared
Understand our consumers’ needs better than anyone
and offer them products and services which exceed their
expectations.
Provide product to our terminals at a cost equal to or better
than the competitive market maker.
Develop and value teamwork and the ability to think Mobil,
act locally.
Mystery Shopper
Laid-down Cost
• The Mystery Shopper
program rates how well
each of our stations is
delivering the “best
buying experience.”
Climate Survey
• Our cost to deliver
product to the terminal
vs. lowest cost
provider.
1993
1994
Target
• Survey of employees
to measure how
people perceive the
Mobil workplace
environment.
1993
1994
Target
1993
1994
Target
Employee Innovations: Mobil
Speedpass™
Making Strategy Everyone’s
Job
Creating a Climate
to Support
Strategic Change
1
Create Strategic
Awareness
• Insure that each individual has sufficient
understanding of the strategy (You can’t execute
what you don’t understand)
Align Personal
Objectives
• Insure that each individual knows where he
or she fits into the overall game plan
2
3
Align Incentive
Compensation
• Reinforce desired behavior and increase
intensity of awareness
Ultimately, Team and Individual Goals and
Objectives Are Aligned to the Strategy
A performance model provides
the framework for cascading and
aligning personal goals
Customer Example
A personal scorecard focuses individuals
on the part of the performance model they
can impact
Financial Example
Corporate Measures
Corporate
Parent
• Customer
Satisfaction
• Operating Margin
1994
1995
1997
100
120
160
180
250
• Earnings
100
450
200
210
225
• Net Cash Flow
100
85
80
75
70
• Overhead & Operating Expense
64
• Overhead & Operating Costs
• Finding & Development Costs
• Operating Margin
VP of Opns
• Variable Costs
• Period Expenses
100
75
73
1994
Financial
Operating
Targets
70
100
97
93
90
82
100
105
108
109
110
Individual Goals
Business Unit Measures
1993
Targets
Division
• Customer
retention
1996
Balanced Scorecard
1993
1995
1996
1997
And Near Term Action Steps
Targets
1.
Targets
2.
• Total Annual Production
(Indexed: 1993=100)
3.
Plant Manager
• On time
delivery
• Variable Costs
• Mfg Overhead
Shift Supervisor
• First Pass Yield
• Schedule
Adherence
• Line
Availability
• Schedule
adherence
• Scrap
rate
• Labor/
Unit
Corporate Objectives
•
Double our value in 10 years.
•
Increase our earnings by an average of 20% a
year
•
Achieve an internal rate of return 2% above the
cost of capital.
•
Reduce our overhead & operating costs by a
further 30% by 1997.
•
Reduce our 5-year average finding &
development costs by 20%.
•
Reach the top quartile of industry profitability by
1997.
•
Increase production by 10% by 1997.
Individual Measures
1.
2.
3.
4.
4.
5.
If we can achieve all these
business objectives, we will be
a top quartile competitor
Name:
Location:
5.
Making Strategy Everyone’s
Job
Creating a Climate
to Support
Strategic Change
1
Create Strategic
Awareness
2
Align Personal
Objectives
3
Align Incentive
Compensation
• Insure that each individual has sufficient
understanding of the strategy (You can’t execute
what you don’t understand)
• Insure that each individual knows where he or
she fits into the overall game plan
• Reinforce desired behavior and increase
intensity of awareness
Mobil USM&R Incentive Plan
Poor
Average
Best-in
Industry
Base Pay
90%
90%
90%
Corporate Award
(Return-on-Capital,
Earnings Growth)
0-1
3-6
10
0
5-8
20
91%
98-104%
120%
USM&R/SBU
M&R (30%)
SBU (70%)
Total Pay
(% of Market)
Linking Compensation to the
Balanced Scorecard
Experience with successful BSC users indicates that
linking the BSC to incentive compensation is
essential to success
Executive Perspectives
“People got that scorecard out and did
the calculations to see how much
money they were going to get. We
could not have got the same focus on
the scorecard if we didn’t have the link
to pay.”
Brian Baker, Mobil
“It would be hard to get people to
accept a totally different way of
measurement - which the BSC is - if
you don’t reinforce that change
through incentive compensation.”
Gerry Isom, CIGNA
Supported by Research
Mercer survey of compensation
practices in 214 companies (1999)
• 88% of responding companies
consider the use of balanced
scorecard measures linked to
reward systems to be effective.
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
•
•
•
•
•
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
• Linked to Budgeting
• Linked to
Operational
Improvements
• Management
Meetings
• Feedback System
• Learning Process
Making Strategy a Continual Process
Imbed the Strategy
in Ongoing
Management
Processes
1 Integrate Strategy
with Planning and
Budgeting
2
Introduce the New
Reporting System
3 Conduct the New
Management
Meeting
• Establish stretch targets; Select initiatives, Align
operational improvement programs (TQM, Six
Sigma, Activity Based Management); Allocate
resources to projects
• Develop systems for data collection, analysis,
and reporting
• Open discussion of performance shortfalls;
team problem-solving; adapting and learning
Mobil NAM&R: Setting Targets and
Performance Factors
Business Group Variable Pay Opportunity . . . . . .
Variable
Pay
Percent
Performance
Factor
Qualitative
20
1.25
BEST IN CLASS
1.20
Well
Above
Average
1.15
1.12
How to think about
performance factors:
 Objective:
1.09
1.06
Above Average
1.03
7
1.00
Average
0.90
0.80
1
0.75
Below Average
External Benchmark
1.00 means target equals
the average of competition
1.25 means target equals the
top of the competitive group
 Subjective:
Internal Benchmark
1.00 means the difficulty
of the dive is average
- 13 -
Achieving Stretch Target Performance May
Require

Strategic Initiatives

Capital Investments

New Products/Services

New Customers

New Regions

New Partners
The Scorecard Process Provides Rigor for
Selecting and Managing Initiatives
—1—
Identify All Potential
Candidates for
Strategic Initiative
Consideration
Development
Projects,
Activities, etc.
OFS Projects,
Activities, etc.
Marketing
Projects,
Activities, etc.
Other Projects,
Activities, etc.
Criteria
—2—
Screen Candidates to
Identify Those That
Qualify as “Strategic”
—3—
Select Strategic
Initiatives
Initiative:
Strategic Thrust(s):
E-Bill Presentment
AC/IR/RC
Area
Strategic
Importance
Required for Other
Initiativ es/
Time to Implement
Dependencies
Ranking
Initiiativ e
Strategic Thrust(s)
and Obj ectiv es(s)
1
E-Bill
Presentment
AC/IR/RC
Cont. Leadership in
Superior Products
2
A
9
3
B
8
4
C
8
5
D
7
6
E
7
7
F
7
N
G
X
Cost
Benefit
Ov erall Score
Score
Primary Strategic Objective:
Continue Leadership in Superior
Products
Points
Comments
Strategic Importance
8
• The “killer” application
•X
Cost
-2
•$
Benefit
4
•$
Required for Other
Initiatives/Dependencies
1
•X
Time to Implement
-2
• # months
Overall Score
9
•X
Ov erall
Points
9
Prioritized List of
Strategic Initiatives
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
•
•
•
•
•
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
• Linked to Budgeting
• Linked to
Operational
Improvements
• Management Meetings
• Feedback System
• Learning Process
Using the BSC to Link Strategy to Operational
Management
Activity-Based Costing
•
Cost of Internal Processes
•
Customer Profitability
Shareholder Value
•
Explicit Value Proposition
•
Path for Revenue Growth Strategy
Quality Programs
•
Link to Customer and Financial Outcomes
•
Identify New Processes; Set Priorities
•
Integrated Strategic Management Approach
BSC Adds to Total Quality Programs

Explicit Causal Links from Operational Improvements to
a Customer-Based Value Proposition

Explicit Linkages to Productivity Enhancements and
Financial Outcomes

Identify Entirely New Processes for Improvement

Set Priorities among Processes to Improve
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
•
•
•
•
•
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
• Linked to Budgeting
• Linked to Operational
Improvements
• Management
Meetings
• Feedback System
• Learning Process
Reporting and Feedback:
Monthly Scorecard Summary
Financial
Maximize Shareholder
Value
Meet or Exceed
Commitments
Customer
Satisfaction
and Loyalty
Customer
Competitive
Price
Service Quality
Priority On Safety
Internal Processes
Learning & Growth
Manage Investment
Base
Reputation,
Brand and
Trust
Reliability and
Cost Excellence
Develop, Acquire
and Retain
Profitable Supply
Positions
Favorably Positioned for
Success in a Competitive
Environment
Profitably Acquire,
Retain and
Manage
Customers
Legend
Priority on Safety
and Environmental
Excellence
Develop,
Acquire and
Retain
Needed Skills
Above target
On Track (within limits)
Significantly below target
Data Not Available
Effectively
Manage Risks
Promote
Innovation and
Best Practices
Sharing
Promote
Diversity
Live Co
Values
(common
version)
Regulatory
and
Legislative
Compliance
Effective Strategic Management Is Based Upon a
“Double Loop” Learning Approach
The Strategy
Financial
Perspective
Strategic Feedback That
Encourages Learning
Customer
Perspective
Internal
Perspective
update the
strategy
Learning
Perspective
incorporate
learning
Strategic Learning Loop
L&G
corrections
Internal
Cust
Financial
Balanced Scorecard
Strategic Objectives
Strategic Measures
 Financially Strong
 Return of Capital Employed
 Delight the Consumer
 Mystery Shopper Rating
 Win-Win Relationship
 Dealer/Pioneer Gross Profit Split
 Safe & Reliable
 Manufacturing Reliability Index
 Days Away from Work Rate
 Competitive Supplier
 Laid Down Cost vs. Best
Competitive Ratable Supply
 Motivated & Prepared
 Strategic Competency Availability
result
Operational Control Loop
Performance
input
Initiatives & Programs
output
 Test
hypotheses
about your
strategy
 Assess changes
in the
environment
 Identify
emerging
strategies
The Principles of a StrategyFocused Organization
TRANSLATE
STRATEGY
•
•
•
•
•
Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives
EXECUTIVE
LEADERSHIP
BALANCED
SCORECARD
ORGANIZATION
ALIGNMENT
•
•
•
•
Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners
•
•
•
•
•
CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS
EVERYONE’S
JOB
• Strategic Awareness
• Goal Alignment
• Linked Incentives
• Linked to Budgeting
• Linked to Operational
Improvements
• Management Meetings
• Feedback System
• Learning Process
To Succeed, the Executive Leader Must be
Engaged in the Strategic Change Process…
Unfreeze
Achieve commitment and
momentum at the top
“The Case for Change”
Change
Align and focus the
organization on change
“Early Wins”
Breakthrough
and Sustain
Institutionalize capabilities
and culture required for
breakthrough results
“Irreversible Momentum”
“A successful Balanced Scorecard program is a
transformation process not a “metrics” project.”
Pitfalls

Middle Management Team: Lack of Senior
Management Commitment (“Bacon and Eggs
Breakfast”)

Done Only by One or Two Individuals

Held at the Top: For Senior Management Only

Too Long a Development Process: “Best Becomes the
Enemy of the Good”
“Just Do It!”

Treating the Balanced Scorecard as a Systems Project

Just a “checklist” for compensation purposes (the 4
P’s)
Typical Balanced Scorecard
Project Schedule
Week
Task 1: Define Strategic
Architecture
Project Kickoff
Task 2: Draft the Balanced
Scorecard
Workshop I
Task 3: Develop Measures,
High Level Targets &
Initiatives
Workshop II
Task 4: Develop
Implementation Plan
Workshop III
1
2
3
4
5
6
7
8
9
10
11 12
2 Wks
4 Wks
4 Wks
2 Wks
13 14
15
16
Balanced Scorecard Project Team
BSCol
Engagement
Officer/
Principal
(part-time)
BSCol
Project
Leader
(full-time)
BSCol
Project
Team
1-2
Consultants
(full-time)
Executive
Sponsor/
Steering
Committee
• Overall project ownership
• Consultations/pre-presents
as needed
• 2 days/week
Client
Project
Leader
Client
Core
Team
Staff
knowledgeable
of business
strategies and
organization
Executive
Leadership
Team
• 1-2 staff
• 2-3 days/week
• Briefings with others
as needed
• 3 half- to full-day
workshops
• One 90-minute
briefing/
interview
• Consultations/
pre-presents
as needed
How are Organizations Doing on the
Journey?
A survey of online members of the BSCol:
500 responses; 250 reported, “Yes, we have BSC.”
50% of these: too early to tell about impact.
Of the 125 who had sufficient experience with the program:
Achieved breakthrough results
Some progress
No or limited results
15%
64%
21%
(n = 19)
(n = 80)
(n = 26)
What Separates the Winners
from the Losers?
Executive Team has created a
sense of urgency
Strategy translated to a strategy
map and Balanced Scorecard
Corporate/Business Unit
measures are linked & aligned
Employees are aware of the
strategy
Individual and team goals are
aligned with the strategy
The BSC is an integral part of the
strategic planning process
The budget is driven by the
strategy
Breakthrough Results
Some Progress
No Results
84%
53%
20%
84%
41%
0%
72%
39%
0%
56%
32%
0%
42%
26%
0%
100%
40%
0%
42%
29%
0%
For further information, visit www.bscol.com
Our Mission:
“To facilitate the worldwide awareness,
use, enhancement, and integrity of the
Balanced Scorecard as a value-added
management process”
Conferences
Membership
Research
Consulting
Training
Networking
Publications
Certification