A Measurement System?A Management System?A Management Philosophy?

Definition: The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its business strategic goals

The Balanced Scorecard:

Balances financial and non-financial measures

Balances short and long-term measures

Balances performance drivers (leading indicators) with outcome measures (lagging indicators)

Should contain just enough data to give a complete picture of organizational performance and no more!

Leads to strategic focus and organizational alignment.

Vision andStrategyObjectivesMeasuresTargetsInitiativesFINANCIALTo succeed financially, how should we appear to our shareholders?ObjectivesMeasuresTargetsInitiativesLEARNING AND GROWTHTo achieve our vision, how will we sustain our ability to change and improve?ObjectivesMeasuresTargetsInitiativesCUSTOMERTo achieve our vision, how should we appear to our customers?ObjectivesMeasuresTargetsInitiativesINTERNAL BUSINESS PROCESSTo satisfy our shareholders and customers, what business processes must we excel at?

.Traditional financial reports look backwardReflect only the past: spending incurred and revenues earnedDo not measure creation or destruction of future economic value

The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example:Customer Focus: satisfy, retain and acquire customers in targeted segmentsBusiness Processes: deliver the value proposition to targeted customersinnovative products and serviceshigh-quality, flexible, and responsive operating processesexcellent post-sales supportOrganizational Learning & Growth: develop skilled, motivated employees;provide access to strategic informationalign individuals and teams to business unit objectives

Answering these questions is the first step to develop a Balanced ScorecardWhat must we do to satisfy our financial contributors?What are our fiscal obligations?

Who is our customer?What do our customers expect from us?

What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission?

How must our people learn and develop skills to respond to these and future challenges?Profit DrivenMission DrivenWhat must we do to satisfy our shareholders?

What do our customers expect from us?

What internal processes must we excel at to satisfy our shareholder and customer?

How must our people learn and develop skills to respond to these and future challenges?Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

ChangeFormulate and communicate a new strategy for a more competitive environmentGrowthIncrease revenues, not just cut costs and enhance productivity

ImplementFrom the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations

Less than 10% of strategies effectively formulated are effectively executedFortuneBusiness Strategy is now the single most important issue and will remain so for the next five yearsBusiness Week

Todays Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That Were Changing IncrementallyYou Cant Manage Strategy With a System Designed for TacticsOnly 5% of the work force understands the strategy60% of organizations dont link budgets to strategyOnly 25% of managers have incentives linked to strategy85% of executive teams spend less than one hour per month discussing strategy9 of 10 companies fail to execute strategyThe People BarrierThe Vision BarrierThe Management BarrierThe Resource Barrier

Builds a consensus around the organizations vision and strategy

Describes the long-term drivers of success

Expresses integrated set of objectives and measures

Provides useful guides in operational terms at the local level

Means upward and downward communication of strategy

Ensures understanding of long-term strategy at all levels

Helps in setting up of departmental and individual objectives in alignment of long-term business strategy

Board of DirectorsCEONew Business & GrowthBusiness Process CouncilProfessional Development RoundtableStrategic Management SystemCommercial ServicesRetail ServicesCOOCFOStrategic PlanningHuman ResourcesStrategic ThemesTraditional Organization Units

Enables companies to integrate their business and financial plans

Helps undertake those initiatives that take managers closer towards long-term strategic objectives.

Cuts down wasteful allocation of resources and faulty setting of priorities

Gives companies the capacity for strategic learning in a real-time manner

Eliminates over reliance on budgeted financial goals for feedback and review processes

Three additional perspectives customers, internal business processes and learning and growth -- for the evaluation and modification of strategies

Provides foundation for an integrated and iterative strategic management system to:clarify and update strategycommunicate strategy throughout the companyalign unit and individual goals with strategylink strategic objectives to long-term targets and budgetsidentify and align strategic initiativesconduct periodic performance reviews for strategic learningSucceeds because of the inherent cause-and-effect linkages in the balanced scorecard framework.

Allows for implementation of strategy while it evolves

(USM&R)1993#6 in profitability199519961997#1 in profitability#1 in profitability#1 in profitabilityMobil1993Property & CasualtyRetail Bank1993Profits = $x199419951996Profits = $8xProfits = $13xProfits = $19xBrown & Root Engineering (Rockwater)1993Losing money1996#1 in growth and profitabilityProfitStock$275M loss Stock Price = $591994199519961997$15M$60M$80M$98M$74$114$146$205

The Solution Was Already ThereBeat the Odds9 of 10 companies fail to execute their strategiesFast2 to 3 years to achieve breakthrough resultsThe BSC helped create focus and alignment to unlock the organizations hidden assets

STRATEGYHUMAN RESOURCESBUSINESS UNITSEXECUTIVE TEAMINFORMATIONTECHNOLOGYBUDGETS AND CAPITAL INVESTMENTSThe Balanced Scorecard process allows an organization to align and focus all its resources on its strategyAnswer:Alignment!

1.A Process to Mobilize the Organization and Lead Ongoing Change2.Scorecards That Describe the Strategy3.Linking Scorecard to Create an Organization Alignment4.Continuous Communication to Empower the Workforce5.Aligning Personal Goals, Incentives, and Competencies With the Strategy6.Aligning Resources, Budgets and Initiatives With the Strategy7.A Feedback Process That Encourages Learning and Experience SharingThe Seven Ingredients of Highly Successful Balanced Scorecard Programs

1.Leadership From the TopCreate the Climate for ChangeCreate a Common Focus for Change ActivitiesRationalize and Align the Organization3.Unlock and Focus Hidden AssetsReengineer Work ProcessesCreate Knowledge Sharing Networks2.Make Strategy Everyones JobComprehensive Communication to Create AwarenessAlign Goals and IncentivesIntegrate Budgeting with Strategic PlanningAlign Resources and Initiatives4.Make Strategy a Continuous ProcessStrategic Feedback That Encourages LearningExecutive Teams Manage Strategic ThemesTesting Hypotheses, Adapting, and Learning

Every measure is part of a chain of cause and effect linkages

A balance exists between outcome measures and the performance drivers or desired outcomes

Correction AppliedVariance DetectedManagementFeedback & Control Loop

correctionsresultinputoutputPioneers Balanced ScorecardStrategic MeasuresStrategic ObjectivesFinancially StrongDelight the ConsumerWin-Win RelationshipSafe & Reliable

Competitive Supplier Good NeighborQualityMotivated & PreparedReturn on Capital EmployedMystery Shopper RatingDealer / Pioneer Gross Profit SplitManufacturing Reliability IndexDays Away from Work RateLaid Down Cost vs. Best Competitive Ratable SupplyEnvironmental IndexQuality IndexStrategic Competency AvailabilityFINANCIALCUSTINTERNALL&GPerformanceReplacing the budget with the Balanced Scorecard is a step in the right directionIt creates strategic focus but not strategic learningInitiatives & Programs

PerformanceInitiatives & Programsstrategic learningloopoperational control loopThe StrategyTHE MANAGEMENT MEETINGTeam Problem Solvingresultsdialogupdate the strategyreallocate prioritiesINSIGHTHARVESTINGTesting hypotheses and capturing learningFOLLOW-UP ACTIONClosing the loop

Board of DirectorsCEOCase Study: TelecommNew Business & GrowthBusiness Process CouncilProfessional Development RoundtableStrategic Management SystemCommercial ServicesRetail ServicesCOOCFOStrategic PlanningHuman ResourcesStrategic ThemesTraditional Organization Units

1.Leadership From the TopCreate the Climate for ChangeCreate a Common Focus for Change ActivitiesRationalize and Align the Organization3.Unlock and Focus Hidden AssetsReengineer Work ProcessesCreate Knowledge Sharing Networks2.Make Strategy Everyones JobComprehensive Communication to Create AwarenessAlign Goals and IncentivesIntegrate Budgeting with Strategic PlanningAlign Resources and Initiatives4.Make Strategy a Continuous ProcessStrategic Feedback That Encourages LearningExecutive Teams Manage Strategic ThemesTesting Hypotheses, Adapting, and Learning

Balanced Scorecard must be driven from the top:CEO/COO as sponsorExecutive leadership team commitmentA clear sense of purpose is required to:Drive changeClarify and gain consensus about strategyBuild a senior executive teamFocus the organization: align programs and investmentsIntegrate cross-functionallyEducate and empower the organizationThe dynamics of the senior executive team will determine whether the Balanced Scorecard becomes a strategic management system

Middle management task forceNot driven by senior executive teamOnly one or a few individuals involved Too long a development process (allowing the best to be the enemy of the good)Delay introduction because of missing measurementsStatic not dynamic processTreating the BSC as an EISMeasurement to control; not to communicateManagement dictating actions vs. employee improvisation to achieve desired outcomesFor management only, not shared with all employeesProcessPhilosophy

THE BALANCED SCORECARD MANAGEMENT SYSTEMSignificant results can be achieved in relatively short periods of time...Implement a framework to align and focus the organization from top to bottom on its strategy

Identify the related key change initiatives required to realize the strategy and mobilize the organization

Create feedback processes at all levels to evaluate progress against strategy, monitor and manage issues and priorities, and measure performance and contribution to the business.

Thanks!

?Q & A

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