Transcript Balanced Scorecard - Midlands State University

Balanced Scorecard
An Integrated Approach to Performance
Management
Creating competitive advantage through our people
Presentation by
M Nguwi
Group Human Resources Manager
BALANCED SCORECARD
LINKING STRATEGIES TO ACTIONS
LINKS FOUR PERSPECTIVES:
Growth &
Profitability
Human Capital
Clients
Operational
Excellence
SOURCE: KAPLAN AND NORTON
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What is a Balanced Scorecard
At the highest level, it is a framework that helps
organisations translate strategy into operational
goals/objectives that drive both behaviour and
performance.
ORIGIN

Concept developed by Robert Kaplan &
David Norton
 Essentially A Strategic Management
system
 Also a Corporate Performance Management
System

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The Balanced Scorecard

Aligns strategies, processes, resources and
behaviour
– Defines what to measure

Identifies lag and lead indicators metrics
– Defines how to measure

Provides objective and feedback to each
employee
– Operationalise the measures
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The Premise Behind the Balanced Scorecard Is that
Measurement Motivates Behavior
The Premise
Measurement Communicates
Values, Priorities And Direction
The Conclusion
Measurement Must Be Linked To Strategy
Strategy
Balanced
Scorecard
Measurement To Communicate, Not To Control
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The Balanced Scorecard Is Based on an
Understanding of the Basic Building Blocks of the
Strategy
Financial Perspective
Return on
Investment
Revenue
Strategy
Productivity
Strategy
Sources of Growth
Sources of Productivity
Customer Perspective
2. The value proposition of
target customers
Value Proposition
Price
Quality
Time
Function
1. The economic model of
key levers driving financial
performance
Image
Relatioship
Internal Process Perspective
“Build the
Brand”
“Make the
Sale”
“Deliver the
Product”
“Service
Exceptionally”
Learning & Growth Perspective
Staff
Competencies
+
Technology
Infrastructure
+
Climate for
Action
3. The value chain of core
business processes
4. The critical enablers of
performance improvement,
change and learning
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We Use the Scorecard to Articulate Strategic
Hypotheses in Cause-effect Terms
And Realize
the Vision
Financial
Results
Customer
Benefits
Internal
Capabilities
Knowledge, Skills, Systems, and Tools
To Drive Financial
Success...
Needed to Deliver Unique
Sets of Benefits to Customers...
To Build the Strategic Capabilities..
Equip our People...
BSC Terminology
Strategy Map: Diagram of the
cause-and-effect relationships
between strategic objectives
Strategic Theme:
Operating Efficiency
Financial
Profitability
Fewer planes
More
customers
Statement of
what strategy
must achieve
and what’s
critical to its
success
How success
in achieving
the strategy
will be
measured and
tracked
The level of
performance
or rate of
improvement
needed
Key action
programs
required to
achieve
objectives
Customer
Flight
Is on time
Internal
Fast ground
turnaround
Lowest
prices
Goals
Measurement
Target
• Fast ground
• On Ground Time
• On-Time
• 30 Minutes
• 90%
turnaround
Initiative
• Cycle time
optimization
Departure
Learning
Ground crew
alignment
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Some of the Indicators of Good Balanced
Scorecard
1. Executive Involvement
Strategic decision makers must validate and own
the strategy and related measures
2. Cause-and-Effect Relationships
A good Balanced
Scorecard will
“tell the story” of
your strategy in
actionable terms.
Every objective selected should be part of a chain of
cause and effect linkages that represent the
strategy
3. Balance between outcome and leading
measures There should be a balance of outcome
measures and leading measures to facilitate
anticipatory management
4. Financial Linkage
Every objective can ultimately be related to financial
results
5. Linkage of Initiatives and Measures: Each
initiative should be based on a gap between
baseline and target.
Some Goals of the Balanced
Scorecard
 Provide a generic framework to translate strategy into
operational terms
 Create a systems approach to form an integrated Strategic
Management Process
 Provide a clear line of sight to the vision and strategy of the
company
 Provide a tool for communicating the :
• strategy, and
• processes and systems required for implementing the
strategy
 Draw a cause and effect roadmap to stakeholder value –
shareholder, customer, and employee.
How Does the Scorecard Benefit Your
Organization?

Improves management effectiveness by having a
shared and actionable view of the strategy

Optimizes and ensures strategic outcomes for a
given set of resources

Enables employees to work in a coordinated,
collaborative fashion towards organizational goals

Speeds time to value through faster more
informed decision-making on time and resource
allocation

Accelerates the approach, and its accuracy to the
strategic destination
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CONCEPT
Imagine entering the cockpit of a jet airplane and
observing that that there is only a single
instrument
 ability to exploit intangible assets has become far
more decisive than their ability to invest in and
manage physical assets



Most companies operational and management
control systems are built around financial
measures and targets
The scorecard introduces four new management
processes that contribute to linking long term
strategic objectives with short term actions
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What is on the dashboard?
“The financial success of our organisation
increasingly depends on intangibles:
our relationship with clients

our organisational effectiveness

our ability to attract, leverage and retain the
best people
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WHERE DO WE START?
Guiding Principles of Performance
Management




Develop and Articulate a Clear Strategy
Create a Continuous, Flexible Performance
Management Process
Actively Communicate Performance Goals and
Targets
Establish Specific, Ambitious Targets Based on
Benchmarks
Identify and Focus on the “Vital Few”:
 Establish a Balanced Measurements Portfolio
 Monitor Results at Specific, Regular Intervals to
Assess Progress
 Align Reward Systems with Measures to
Reinforce Desired Behaviours

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Why is Performance Important?





PERFORMANCE is about RESULTS…
measurable results
Need for the organisation to benchmark
performance against world class standards
Enables efficient and effective use of
resources
Motivate high performers
Identify inadequate performance early
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CREATING A WINNING STRATEGY
Critical
Questions:
–Are we doing the right things?
–Are we doing it right.
Plot your Value Chain First
Identify your customers and what they
want?
 What is the process to satisfy customer’s
wants?
 What kind of input to the process do you
need?
 And who supplies that?
 Everyone must understand who our
customers are and what their requirements
are.

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What is our Value Proposition?
Existence of our business relies on two
important elements;
– The value proposition that we offer different
stakeholders(clients, shareholders,
employees etc.)
– The ability to deliver that value, both in the
short and long term
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“If you don’t know where you
want to go, it does not matter
what root you take.”
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Managing Strategy: Four processes
Translating the
vision
• Clarifying the vision
• Gaining consensus
Communicating &
Linking
• Communicating &
educating
• Setting goals
•Linking rewards to
performance measures
Feedback & Learning
Balanced
Scorecard
• Articulating the shared
vision
• Supplying strategic
feedback
• Facilitating strategy
review and learning
Business planning
• Setting targets
• Aligning Strategic
initiatives
•Allocating resources
•Establishing milestones
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Four Barriers to Strategy
Vision Barrier – strategy not understood by
those who must implement it … and not
translated into objectives/goals
 People Barrier – personal goals are not linked
to strategy implementation
 Management Barrier – Management systems
are designed for operational control and not
strategy
 Operational Barriers – key processes are not
designed to leverage the drivers of business
strategy

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Translate a Strategy into Operational Terms
Targets
Measures
“To satisfy our
stakeholders,
what financial
objectives must
we accomplish?
Goals
Financial/Profit & Growth
Targets
Measures
Targets
What do wee need
to change in our
Infrastructure or
intellectual capital
to achieve
Our operational
excellence goals
Measures
Human Capital
Objectives
Targets
Measures
Objectives
What is the customer
Value Proposition
That will create the
financial rewards
we are seeking
“To satisfy our
shareholders
and customers,
what business
processes must
we excel at?”
Vision
and
Strategy
Goals
Operational Excellence
Client
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The Four Perspectives
Feedback / Results
Strategy Deployment
Strategy Implementation
Financial or Profit & Growth
To satisfy our stakeholders,
what financial objectives must
we accomplish?
Clients
What is the customer Value Proposition
That will create the financial rewards we
are seeking
Operational Excellence
In which internal business processes must
we excel in order to deliver our value
proposition as described in the client
perspective and finally reach the goals in
the financial perspective
Human Capital
Actions
What do wee need to change in our
Infrastructure or intellectual capital
to achieve
Our operational excellence goals
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Balanced Scorecard: Evolved
Framework
The Vision & Strategy
Financial
To satisfy our shareholders, what
financial objectives must we
accomplish?
Effect
Customer
To achieve our financial goals, what
customer needs must we satisfy?
Results
Internal Business Process
Cause
To satisfy our customers, in which
internal business processes must we
excel?
Innovation, Learning & Growth
To achieve and maintain a competitive
position, how must the organization
learn and improve?
Actions
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A Good Balanced Scorecard Tells The Story
of Strategy
To satisfy our
shareholders we
must…...
How do we wish to
be perceived by our
customers?
Financial Perspective
Return on
Investment
Increase Revenue
Streams
Reduce Costs /
Improve Productivity
Customer Perspective
Price
Quality
Time
Functionality
Image
Relations
Internal Process Perspective
What must
we excel at?
How can we continue
to grow and
create value?
Build the
Brand
Make
the
Sale
Setup
the
Service
Service
the
Customer
Learning and Growth Perspective
Staff
Competencies
Technology
Infrastructure
Change Agenda
Critical Success Factors and Measures need to be developed across the four perspectives
Figure 5.3
Strategy Interpretation – Simplified
Business Model of FSC
Management Actions - Cause
Business Results Required - Effect
Improvement &
Learning Perspective
Internal Process
Perspective
Increase Employee
skills and productivity
Cross - sell products
and services through
lifetime relationships
Build up large
customer portfolio
with more sales
and customers
Achieve dramatic
sales goal
Technology
enabled
revenue growth
Dealing with
members efficiently
and effectively
High Customer
Satisfaction
Achieve
lower cost ratio
vs competition
Learn and embed
compliance disciplines
Develop full range
of competitive products
Innovative approach
to maximise
investment returns
Customer Perspective
Financial Perspective
Increase value of
members fund in line
with all share index
Balanced Scorecard Benefits
•
Improved Long-Term Financial Performance
•
Improved Level of Customer Satisfaction
•
Focused Communications on What’s Important
•
Improved Level of Employee Satisfaction Based
on Better Understanding of Value of Individual’s
Contributions
•
Improved Mechanism to Identify Performance
Variances of Key Processes
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Financial Perspective





This indicate if company strategy, implementation
and execution are contributing to the bottom line.
Measurement of operating income, returns on
capital or more recently EVA.
Strategic themes include revenue growth and mix,
cost reduction and, asset utilisation and
investment strategy.
Our revenue normally grow from finding new
sources or by increasing the client/customer value
proposition
Looks at things like;
– Revenue growth
– Increase market share
– Improve cost structure
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– Reduce admin costs
Client Perspective



This is the most important one because it’s the one that
facilitates the funding of all others
Some of the most valuable Customer Propositions are;
– Product leadership
– Customer intimacy
Measure performance in growth and identified market
segments:
- customer satisfaction.
- customer retention.
- new customer acquisition.
- fast credit approval.
- market and account share in targeted segments.
- specific measures on the value proposition that the
company will deliver to
customers in targeted market
segments e.g.. short lead times, on time delivery,
innovative products and services, anticipation of
emergency needs, new products.
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Operational Excellence



Identify critical internal process in which the business must
excel to enable:
-delivery of the value proposition that will attract and
retain customers in targeted market segments.
-satisfy shareholder expectations of excellent financial
returns.
The measure should focus on internal processes that will
have the greatest impact on customer satisfaction and
achieving an organisations financial objectives.
Traditional approaches attempt to monitor and improve
existing business processes. The scorecard will usually
identify new processes at which the organisation must excel
to meet customer and financial objectives (innovation).
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Human Capital
Identifies the infrastructure that must be built to create long
term growth and improvement.
 Three principle sources:
– people
- reskilling
– Management skills compensation competitiveness
– systems - enhance IT (real time, accuracy)
– organisational procedures
- retention, training, skill,
satisfaction.
** Unlike buildings and machinery support functions are
intangible assets worth nothing unless they succeed in their
mission.
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Some examples of Key BSC themes
& measurements

Financial/Profit &
Growth
– Return On Investment
– Revenue growth
percentage
– Economic Value Added
– Market Share

Client
– Customer satisfaction
– Customer Retention &
referrals
– maintaining highest
reputation
– Value
– Customer payment
patterns
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Key BSC themes & measurements
Examples

Operational Excellence  Human Capital
– Error, waste & rework
– Reducing Cycle time
– Yield
– On-time delivery
– Project Deadlines
– Core Competence deployment
–
–
–
–
–
rates
Employee Satisfaction
Employee turnover
Training
Rewards, Recognition &
Compensation patterns
Quality Improvement rates
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The Cause & Effect Relationship in the BSC

There is an important sequence between the
four perspectives
– Financial/Profit and Growth – (Make a profit)
– Clients(By satisfying your customers needs)
– Operational Excellence(through being able to deliver
value)
– Human Capital (by having the necessary knowledge
and tools available)
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Linkages to the Group Balanced Scorecard
Financial/Profit & Growth
Client Service
Operational Excellence
Human Capital
Influences
Financial/Profit & Growth
Client Service
Operational Excellence
Human Capital
Group BSC
RFH
Business Unit
BSC
RBF, RFS, RDH,RSB
Support Functions
Teams &
Individuals
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Alignment using the Balanced Scorecard
Corporate
Financial/Growth &
Profitability
Client
Operational
Excellence
Strategic
Capability- Human
Capital
SBU’s
Individual
Financial/Growth &
Profitability
Client
Key Result Areas
Operational
Excellence
Strategic CapabilityHuman Capital
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Translating Group Objectives for each Level




Step 1 – a group scorecard defines overall
strategic priorities and context
Step 2 – Each SBU develops a develop BSC
consistent with the corporate strategic agenda
Step 3 – Each support department develops a
scorecard to support the internal customers
Step 4 – Teams and individuals develop scorecards
consistent with their SBU and group strategy
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Linking

Objectives/goals 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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Strategic Goals

Establishing strategic goals is the first step in
building the Balanced Scorecard.
 Strategic goals establish direction in concrete
terms. For example: “By the year 2003, we will
grow revenues by 45%.”
 Strategic goals anchor the rest of the process.
 Strategic goals should fit with the vision and
mission of the organization.
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Set Goals for Each Strategic Perspective
Strategic
Perspective
Client Service
delivery and
demonstrating
value to our clients
Human Capital
Develop and utilize
resources
intelligently
Financial
Achieving profitable
revenue growth
Operational Excellence
Developing and driving
improved common
business processes
Goals
Develop effective client care
meetings
Devote substantial time to
people development
Grow revenue
Ensure smooth handover of spectrum
Measures
Client feedback
No: of people
trained in
essential skills
Revenue growth
Time frame
Targets
Average rating of 4
5% of the
employees to have
gone for
customers service
training
By 45%
Handover to be
effected by end of
March 2002
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Strategic Goals

Goals need to be expressed in concrete
terms
 You can look at past performance or future
performance to establish goals
 Goals need to be agreed upon and
communicated within the organisation.
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“If you don’t know where you’re
going any road will take you there.”
Goals are Roadmaps to the Vision
‘If you can’t measure it, you can’t manage it’
‘Measuring the success(or “failure” of your
strategy”





Measure - How performance against set goals is
monitored
For each strategic Goal, you need one
measurement.
Measurement provides us with feedback on
meeting the strategic goals
Most organizations will use many of their existing
measurements.
Organizations requiring major change should
include driver type measurements.
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Measurements

A good balanced scorecard should consists
both outcome and driver measures
 Financial and Customer will have mostly
outcome type goals
 Operational Excellence and Learning &
Growth may include several driver type
goals
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Measurements

Outcome measures
– Advantage - objective and easy to capture
– Disadvantage - focused on the past, not current

Drivers
– Advantage - Predictive and leading the
organisation
– Disadvantage - Difficult to drive and support
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Measures: Lag/Lead Comparison
Strategic Goal
Lag / Outcome Measure
Lead / Driver Measure
Excellence
Human Capital
Operational
Client
Financial
Most of your financial
measures are outcomes
*Operating Profit
* Percentage Growth in Revenues
*Return on Capital
*Net Profit
Most of your customer
measures are outcomes
* No: of new customers
* Customer Satisfaction Rating
*Customer Retention Rate
* Market Share
Mix of outcomes
* Revenue Mix
* Hours Spent with Customers
* Competetive Pricing Variance
and drivers
* Waste as a % of total value
Most of your Learning and
Growth measures will be
drivers
* Employee satisfaction index
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* Training Hours Completed
Lead/Lad Measures
Leading and lagging indicators only makes
sense relative to one particular strategic goal.
A lagging measure for one goal may
therefore be used as a leading indicator for
another objective
Targets





The term used to describe what is
expected for the measured
results/required level of performance
Once you establish measurements, you
need to set a target for each
measurement.
Targets push the organization to a
required level of performance.
Targets put focus on the goal, expressing
the specifics of the goal.
When an organization hits its targets, then
it has successfully achieved its goals.
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Targets
Establish financial related targets first
Continuously review targets
 Target setting enables the organisation to:


- quantify the long term outcomes it wishes to
achieve.
-identify mechanisms and provide resources for
achieving those outcomes.
-establish short term milestones for the
financial and non-financial measure
on the scorecard.
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Sources for Determining Targets



Strategic goals
Industry benchmarks/best practice
Incremental improvements to existing
performance levels
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Reporting Issues

How often should the Balanced Scorecard
measures be collected?

Who should collect?
 Collection process – owner and collector
 Who should trend and analyse the Balanced
Scorecard measures?
 How often should measures be changed?
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Best practice in global Corporations
• Use a balanced set of performance metrics
• Have quantifiable or verifiable (qualitative) goals
• Support the values of the organisation
• Align goals to strategy, and focus on development
• Use multi-rater feedback as part of the process
• Have a global philosophy/approach, but allow for local
adaptation
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Everybody Wins
 Customers win because… every employee understands the importance of customer
satisfaction and the part they each play in delivering it.
 Senior management win because… corporate performance is improved through the
alignment of effort behind the strategy, and the visibility of the drivers for
corporate performance.
 Middle management wins because… there is better information at their fingertips
to make resource allocation and prioritisation decisions, changes in priorities are
communicated more rapidly and consistently, team management is easier and morale
improved.
 All staff benefit because… they see how they fit in and how to succeed, they know
their contribution is recognised and valued and...
 We no longer expect a job for life - we do want employability for life!
 Skills and competencies of all staff are clearly valued, and can be updated and
developed.
 The importance of personal development can be clearly recognised and valued,
including personal development plans and tracking of progress, and the impact that
skills development has on achieving objectives can be appreciated.
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Implementation
Presentation to
Executive & Management
Contributions by
Executives
And Management
Project Team:
– GF Chinamasa
– E Chikaka
– L Mkuzvazva
– Dube
– T Samusodza
– C Vengesa
– M Nguwi
– Mapenzauswa
Design
Meetings
Executive
& Senior
Managers
Strategy
Workshop
&
Goal Setting
Other
Managers
& Employees
Perf Mgt
Training
& Roll Out
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Implementation Issues & Concerns
Change management comes first
 Ensure all employees share in the understanding of
our performance management strategy
 Employees need to know how the road looks ahead,
which route to follow and how far we have come
 Pilot project ideal in big organisations
 Apart from BSC project team, involvement of Line
managers is crucial
 Data collection – in developed counties and big
organisation software support used
 Involvement of both management and employees
critical

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Pitfalls
Getting bogged down in too many goals and
measures
 Vocal, but not real commitment from management
or – simply no commitment as all
 Failing to realize that the scorecard like any
management instrument is based on assumptions

e.g if our strategy is based on the assumption that
people want quality, and our measures assures us
that we have that quality, but people still don’t buy
use our products – then maybe it’s time to change
the assumption.
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BENCHMARK INFORMATION
Performance Ratios
Financial Institutions
60
Thank You
61
QUESTIONS
62