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Balanced Scorecard & Strategic Management Strategic Planning Model 1. Where are we now? 2. Where do we want to be? 3. How do we measure our progress? 4. How do we get there? AND 5. How do we track our progress? 2 Strategic Planning Model Vision & Mission SWOT Analysis Balanced Scorecard Strategic Objectives Key Performance Indicators Initiatives Objectives & Measures Outputs and Outcome Budgets & Resources 3 Strategic Plan Strategy Map (Logic Model) Perspective Strategy Map Objective Corporate Scorecard Measure Target Action Plan Initiative Budget Financial Run the Business Customer Serve the customer Internal Process Manage the process Learning & Growth Build capacity 4 Chem-Pro Corporate Scorecard Objective Measurement Target Initiative F1:Exceed market growth Sales growth F2: Profitable growth Margin Growth +2% +5 points C1: Perceived value for money Customer survey Rated #1 by 75% Focus group program C2: Relationship at multiple levels #contacts with targeted sponsors 100% Account penetration program I1: Maximum retention Win/loss rate I2: Develop regional market Potential revenue in sales pipeline #potential customers arrived first #surprises Exceed 60% in targeted segments Increase by 30% Critical opportunity sales support Reference sell program Double current # in 2 years Reduce by 50% in 2 years Pull marketing and image program Target marketing program 100% in 2 years Selling skills program 80% in 2 years Customer database Sales learning system I3: Identify profitable new market L1: Develop marketing skill L2: Develop customer database Kaplan and Norton, 1996 Percent of strategic skills available Percent of customers with key attributes known 5 Strategy Map A diagram describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationship with each other in the four BSC perspectives. All of the information is contained on one page; this enables relatively easy strategic communication. 6 Strategy Map Max. Profit Financial Perspective Customer Perspective Inc. Rev. Inc. rev New Cust Cust Acquisition On-time Delivery Internal Process Perspective Learning & Growth Cust Mgt. Process Motivated Culture Reduce Cost Inc. rev per Cust Cust Satisfaction Fast Service Product Quality Logistic Process Skill Personnel Production Process Excellent IT/IS 7 What are the main principles behind Strategy Maps? Strategy balances contradictory forces. Strategy is based on a differentiated customer value proposition. Value is created through internal business processes. Strategy consists of simultaneous, complementary themes. Strategic alignment determines the value of intangible assets. 8 www.valuebasedmanagement.net 9 Strategy map 10 Kaplan and Norton, 2004 Strategic Alignment Strategic Alignment “Alignment is the essence of management” (Smith, Chairman of Federal Express, cited in Labovitz and Rosansky, 1997) Strategic Alignment—the process of linking strategy with corporate vision, goals, objectives, and actions—fit and integration Using Balance Scorecard to create corporate synergies 12 Question: Answer: How can complex organizations achieve results like this in such short periods of time? 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 13 Kaplan and Norton, 2001 Strategy-focused Organizations Operationalizing the strategy – use balanced scorecard and strategy to map and identify significant strategies for creating sustainable competitiveness. Aligning the organization to the strategy – align both strategic units and shared service units with organizational strategy. Making strategy everyone’s everyday job – facilitate top down communication that helps employees understand how their dayto-day jobs contribute to strategy. Making strategy a continual process – build double-loop process to manage strategy by (1) linking strategy to the budgeting process, (2) making effective management meeting to reviewing strategy, and (3) learning and adopting strategies as they evolve. Mobilizing the leadership for change – leaders must enable their staff to understand why change is needed and lead them through 14 the stated vision to its accomplishment. #1 Translate the strategy to operational terms The Strategy Measurement is the language that gives clarity to vague concepts. Financial Perspective "If we succeed, how will we look to our shareholders?” Customer Perspective Measurement is used to communicate, not to control. "To achieve my vision, how must I look to my customers?” Internal Perspective Building the scorecard develops consensus and teamwork throughout the organization Kaplan and Norton, 2001 "To satisfy my customer, at which processes must I excel?” Organization Learning "To achieve my vision, how must my organization learn and improve?” 15 #2 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 16 Integrated If Organization Purpose and Synergies Are to Be Achieved. Kaplan and Norton, 2001 #3 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 Bottom-Up Process to Internalize & Execute the Strategy • BALANCED PAYCHECKS The Strategy Focused Workforce 17 Kaplan and Norton, 2001 Strategy Deployment Who are responsible for the targets? Strategic Goals Measures Strategic Goals Measures Unit Strategic Goals Measures Team Strategic Goals Measures Individual 18 Issues on Strategy Deployment Corporate/Department KPI Matrix Cascade to department or staff Mandatory KPI How to Weight KPIs Routine/Administrative Job 19 Making Strategy a Continual Process #4 Imbed the Strategy in Ongoing Management Processes with Planning and Budgeting • Establish stretch targets; Select initiatives, Align operational improvement programs (TQM, Six Sigma, Activity Based Management); Allocate resources to projects Introduce the New Reporting System • Develop systems for data collection, analysis, and reporting 1 Integrate Strategy 2 3 Conduct the New Management Meeting Kaplan and Norton, 2001 • Open discussion of performance shortfalls; team problem-solving; adapting and learning 20 #5 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 Breakthrough and Sustain Align and focus the Institutionalize capabilities organization on change and culture required for breakthrough results “Early Wins” “Irreversible Momentum” “A successful Balanced Scorecard program is a transformation process not a “metrics” project.” 21 Kaplan and Norton, 2001 Strategic Learning Learning as a new paradigm of control Command & Control Learn & Adapt Ultimate intent of managing by measuring is not to control people but to influence them to make decisions and take actions that are likely to be consistent with organizational goals 23 Strategic Learning System Strategy map Financial Perspective Customer Perspective Internal Perspective Learning Perspective Update the Strategy 2. Strategy Management Test the Hypothesis L&G 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 1. Project Management Resource Reporting Review Managing Operations Loop Inputs Kaplan and Norton, 2001 OPERATIONS Output 24 Strategy Map as a Learning Device Max. Profit Financial Perspective Customer Perspective Inc. Rev. Inc. rev New Cust Cust Acquisition On-time Delivery Internal Process Perspective Learning & Growth Cust Mgt. Process Motivated Culture Reduce Cost Inc. rev per Cust Cust Satisfaction Fast Service Product Quality Logistic Process Skill Personnel Production Process Excellent IT/IS 25 Double Loop Learning System Strategic Management: Strategic Planning + Strategy Implementation Monitoring and Learning Strategy Content Management Project Management 26 Management Cockpit A Dashboard—Management Information System for effective making decision Information will be updated regularly and presented in the clarity, summary, and predetermined and sequenced basis 27 Management Cockpit Source: Chulalongkorn University, Thailand 28 29 Suwit Srimai Faculty of Technology & Management Prince of Songkla University, Thailand e-mail : [email protected]