BalancedScorecardTECMarch62005

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Balanced Scorecard Collaborative, Inc. 55 Old Bedford Road Lincoln, MA 01773 Tel: 781.259.3737 Fax: 781.259.3389 bs col.com

An Introduction to the BalancedScorecard and the Strategy FocusedOrganization

TEC March 6, 2005


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22003Balanced Scorecard Collaborative, Inc. bscol.comBSCol01497 COE Document 02/18/03

Why Do Organizations Struggle So Hard WithStrategy?

1 in 10 organizationsexecute their strategies

successfully

72% of CEOs believe thatexecuting their chosen

strategy is more difficult

than developing a goodstrategy

Fortune Magazine, 1998

Malcolm Baldrige CEO Survey, 2002


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Strategy Development or Strategy Execution?Organizations Need Both

Strategic

Success

At RiskDoomed From

The Start

Missed

Opportunity

StrategyFormulation

Flawed Sound

Flawed

Sound

Strategic success requires going beyond successful strategyformulation to successful strategy execution

Source: 1Execution: The Discipline of Getting Things Done, by Larry Bossidy, 2002.

Strategy Execution

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Strategy Execution Challenge

There are generally accepted tools to manage finances, customers,

processes, and people. But what about strategy?

The Balanced Scorecard is the vehicle that fills the

Strategy Management Gap

Financial Management Tools

EVA

Balance Sheets

Income Statements

Shareholder Value Analysis

Customer Management Tools

Customer Satisfaction Measurement

Customer Relationship Management

Segmentation Analysis

One-to-One Marketing

Process Management Tools

Six Sigma

Supply Chain IntegrationCycle Time Reduction

TQM

People Management Tools

Core Competencies

Knowledge ManagementPay for Performance

HRIS

Strategy Management Tools

?


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Balanced Scorecard Organizations Are AchievingBreakthrough Results

Public Sector

SMDC Health System

Profitability up $23m Customer Satisfaction

City of Charlotte

Customer Satisfaction =70%

Public Official Award

Duke Childrens Hospital

Customer Satisfaction #1 Cost/Case 33%

Defense LogisticsAgency

$130MM in Savings in FY2002 Processed $2.2B more requisitions

for its customers

Private Sector

Hilton Hotels

From last to first in industry ROI 6% --> 16%

Customer Loyalty 5% EDITDA margins 3% above

average

UPS

Revenues 9% Net Income 33%

Wendys

International

Mkt. Cap $2.5 --> $4b Stock Price up 75%

Mobil

BREAKTHROUGHRESULTS

ShareholderValue

ProfitableGrowth

CostReduction

OrganizationalAlignment

CustomerSatisfaction


7/1072003Balanced Scorecard Collaborative, Inc. bscol.comBSCol01497 COE Document 02/18/03

STRATEGY:They made strategy the centralorganization agenda

FOCUSED:

They created incredible focus on thestrategy

ORGANIZATION:They mobilized their employees to actin fundamentally different ways,

guided by the strategy

The Balanced Scorecard Is a Performance ManagementProgram That Puts Strategy at the Center of the Process

How Did They Do It?They Created Strategy-Focused Organizations

STRATEGY



Knowledge, Skills, Systems, and Tools

FinancialResults

To Build the Strategic Capabilities..

Needed to Deliver UniqueSets of Benefits to Customers...

To Drive Financial

Success...

And Realizethe Vision

Equip our People...

InternalCapabilities

CustomerBenefits

Reflecting a Natural Cause and Effect Logicof Business Performance



Strategic Theme:Operating Efficiency

ProfitabilityFinancial

Learning

Morecustomers

Ground crewalignment

Lowestprices

Fewer planes

FlightIs on time

Customer

Internal

Fast groundturnaround

Illustrative Example: Southwest Airlines

The Balanced Scorecard Should Tell the Storyof the Strategy

What will drive operating efficiency?

More customers on fewer planes

How will we do that?

Attract targeted customer segments whovalue price and on time arrivals

What must the internal focus be?

Fast turnaround

Will our people do that?

Educate and compensate ground crewregarding how they contribute to the firms

success

Employee stockholder program



Lets Take a Minute to Agree Upon SomeCommon Vocabulary

Objectives


Statement of

whatstrategymust

achieve andwhats

critical to itssuccess

Target

30 Minutes 90%

The level ofperformance

or rate ofimprovement

needed

Strategic Theme:Operating Efficiency

ProfitabilityFinancial

Learning

Morecustomers

Ground crewalignment

Lowestprices

Fewer planes

Customer

Internal


Diagram of the cause and effect

relationships between strategicobjectives (Strategy Map)

FlightIs on time

Cycle timeoptimization

Key actionprogramsrequired to

achieveobjectives

InitiativeMeasurement

On Ground Time On-Time

Departure

How successin achievingthe strategy

will bemeasured and

tracked

BalancedScorecardTECMarch62005

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