Creating a Balanced Scorecard Danz Training

8/3/2019 Creating a Balanced Scorecard Danz Training

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Building the Balanced Scorecard

Dan Feliciano


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01/18/2008DanFeliciano.com

Illegal aliens have always been aproblem in the United States. Ask any Indian.- Robert Orben


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What is Strategic Planning?

Process to establish priorities on what you will

accomplish in the futureForces you to make choices on what you will

do and what you will not do

Pulls the entire organization together arounda single game plan for execution

Broad outline on where resources will get

allocated


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What do you think?

Only 5% of the workforce understands their companystrategy.

Only 25% of managers have incentives linked to strategy.

60% of organizations dont link budgets to strategy.

86% of executive teams spend less than one hour per

month discussing strategy. Balanced Scorecard Collaborative

Up to 50% of resources of an organization are not beingeffectively applied to the mission and vision of theorganization


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Also

90% of well-formulated strategies fail due to

poor execution

75% of business improvement initiatives to

solve this problem fail due to lack ofsustainability.


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Why do Strategic Planning?

If you fail to plan, then you plan to fail be

proactive about the futureStrategic planning improves performance

Counter excessive inward and short-term

thinkingSolve major issues at a macro level

Communicate to everyone what is most

important


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Fundamental Questions to Ask

Where are we now? (Assessment)

Where do we need to be? (Gap / Future EndState)

How will we close the gap (Strategic Plan)

How will we monitor our progress (BalancedScorecard)


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A Good Strategic Plan should . . .

Address critical performance issues

Create the balance between what theorganization is capable of doing vs. what the

organization would like to do

Cover a sufficient time period to close theperformance gap

Visionary convey a desired future end state

Flexible allow and accommodate change Guide decision making at lower levels

operational, tactical, individual


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Why Adopt a Balanced Scorecard?

ChangeChangeChangeChange Formulate and communicate a new strategy

for a more competitive environment

AlignmentAlignmentAlignmentAlignment Each staff members actions are guide by

the strategies and goals of the organization

FocusFocusFocusFocus Provides management with a tool formonitoring progress towards achieving theorganizations vision


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Introduction

Balanced Scorecards provide a framework for

communicating strategy in operating terms(measurements and targets).

You must communicate strategy in operatingterms if you expect people to execute on your

strategy.

When people are asked about strategy, theyreach for their balanced scorecard.


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Making Strategy Everyones Job

Creating a Climate

to Support

Strategic Change

Create StrategicAwareness

Align PersonalObjectives

Align IncentiveCompensation

1

2

3

Insure that each individual has sufficientunderstanding of the strategy (You cant execute

what you dont understand)

Insure that each individual knows where they fitinto the overall game plan

Reinforce desired behavior and increase

intensity of awareness


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Agenda

This slide presentation will outline the major

steps for building a balanced scorecard.

How you execute these steps will depend upon

many factors: Company culture, tolerance forchange, leadership, etc.


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Overview

Balanced Scorecards are constructed from

strategic maps

Throughout the process, we will refer back to

these maps, making sure everything is linked.This is very important since we want to capture

a cause and effect relationship in building the

scorecard.


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Start with Strategy

Begin with your strategic plan what things are

critical to future success?

Focus on customers what values will we addto our customers

Define the processes how will we deliver theseservices to our customers

Build the organization what capabilities mustwe put in place


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Strategic Goals

The first components of your strategy are goals.

Strategic goals establish direction in concrete

terms.

Strategic goals anchor the rest of the process.

Strategic goals should fit with the vision and

mission of the organization.


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Goal Attributes

Very short statement

Directly relates to the mission

Broad in scope

Covers long time period (such as 3 years)Examples:

Improve Customer Service

Leverage Core Competencies Develop more innovative products


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Strategic Objectives

Once we establish our first anchor (goals), we

can develop a set of strategic objectives.

Strategic objectives define what actions must be

taken to reach the strategic goals.Objectives are critical to future success. For

example, in order to grow revenues, we must

introduce new products and expand our marketshare.


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Objective Attributes

Longer statement than goal statement

More specific than goal statement

Indirect relationship to mission

Covers shorter time period than goal (such as 6 monthsor 1 year)

Example:

We will expand call center services to includetechnical support


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Whats the Difference Between

Goals and Objectives?

Objective:Objective:Objective:Objective:

Longer than goal statement

More specific than goal statement

Indirect relationship to mission

Covers shorter time period than

goal (such as 6 months or 1 year)

Example: We will expand call

center services to includetechnical support

Goal:Goal:Goal:Goal:

Very short statement

Directly relates to the mission

Broad in scope

Covers long time period (such

as 3 years)

Examples: Improve Customer

Service, Leverage CoreCompetencies, Develop more

innovative products


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Break-out Session

Develop another example for Goal, Objective and

Strategy

Goal:

Objective:

Strategy


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Example of Goal and Objectives

Reduce identified re-

activities within primary

processes by 80% over

the next 3 years

Reduce Operational

Service Costs by 50%

over the next 5 years

Achieve Agency

operational

efficiencies with

best practices in the

private sector

ObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal


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Strategic Themes

Based on strategic goals, three to five strategic

themes should emerge.

From these themes, we will develop a strategic

map.Four common strategic themes are: Operating

Efficiencies, Customer Relations, Product

Innovation, and Growing the Business.


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Strategic Model

Strategic Models can emerge from four

principles:

1. Translate strategies into operating terms.

2. Link strategies throughout the entireorganization.

3. Commit everyone to implementing strategy.

4. Make strategizing a continuous process oflearning and adjusting to change.


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Four Perspectives

Before we build strategic maps, we need to define four

perspectives:FinancialFinancialFinancialFinancial: Top layer in the map, represents financialoutcomes (profits, revenues, etc.)

CustomerCustomerCustomerCustomer: Next layer down, enables financial results(service, image, price, quality, etc.)

Internal ProcessesInternal ProcessesInternal ProcessesInternal Processes: The values added to customers,

such as delivery, production, distribution, etc.Learning & GrowthLearning & GrowthLearning & GrowthLearning & Growth: The people, systems, andorganization that enable processes.


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Strategic Perspectives

"If we succeed, how will we look to our

shareholders?

Financial Perspective

"To achieve our vision, how must we look

to our customers?

Customer Perspective

"To satisfy our customers, at which

processes must we excel?

Internal Perspective

"To achieve our vision, how must our

organization learn and improve

Learning & Growth


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Strategic Mapping

Strategic Maps are the foundation of the

Balanced Scorecard.

You will need one strategic map for each

strategic theme.

Maps are constructed over four perspectives.

Strategic objectives are mapped over the four

perspectives, linked together.


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Airline Example

Strategic Theme:Operating Efficiency

ProfitabilityFinancial

Learning

MoreCustomers

Ground CrewAlignment

Lowest

Prices

Fewer Planes

Customer

Internal

Fast Ground

Turnaround

Flight

Is on Time


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Strategic Mapping:

a framework

Increase Shareholder value

Build the

franchise

New markets

New products

New customers

Increase value

to customers

Deepen the relation

through expanded

sales

Improve cost

structure

Operating cost perunit produced

Improve use

of assets

Asset utilization

Revenue growth strategy Productivity strategy

Financial perspective


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Linking

Strategic objectives need to be placed in the

Strategic Map according to which perspectivefits with the objective.

Objectives 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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Linking Strategic Themes &

ObjectivesObjectivesStrategic Theme:

Operating Efficiency

ProfitabilityGrow Revenues

Fewer planes

More CustomersFlight is on -timeLowest prices

Fast ground turnaround

Ground crew alignment

Strategic Theme:Operations Excellence

Profits and

RONA

Financial

Learning

Fewer planes

Customer

InternalFast ground

turnaround

Attract & Retain MoreCustomers

GrowRevenues

Lowestprices

On-timeService

Ground crewalignment


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Approval

Once you have completed the strategic maps,

you will need to get approval from executivemanagement. Does this map accurately tell the

story of our strategy?

If management disagrees with the map, go back

and redo the maps. We need to get this step

right since it represents the foundation for the

entire scorecard.


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Measurements

For each strategic objective, you need one

measurement.

Measurement provides us with feedback onmeeting the strategic objective.

Most organizations will use many of theirexisting measurements.

Organizations requiring major change should

include driver type measurements.


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Airline Example

% Ground crewtrained

% Ground crewstockholders

Objectives Measurement

Market Value

Seat Revenue

Plane Lease Cost

FAA On Time ArrivalRating

Customer Ranking(Market Survey)

On Ground TimeOn-Time Departure



Learning

MoreCustomers


LowestPrices

Fewer Planes

Customer

Internal

Fast GroundTurnaround

FlightIs on Time

Profitability

More Customers

Fewer planes

Flight is on -timeLowest prices

Fast groundturnaround



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Measurement Criteria

Measurements should drive change, providing

teeth to our strategy.

Measurements define objectives in specific

terms. A good measurement should tell you

what your objective is this is an indicator of

good linkage.

Measurements should be repeatable,quantifiable, and verifiable.


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Good Measurements

Customer satisfaction:

Retention rate

Organic growth

Satisfaction metric

Process Efficiency:

Cycle time, lead time, on-time,

Employee Utilization Number of defectives / Percentage Defective


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Lead and Lag Measurements

Leading measurements are drivers behind

performance and provide some predictability(forward looking)

Lagging measurements are usually final

outcomes that look back, such as customer

satisfaction or return on investment

Balanced scorecards should include bothleading and lagging type measurements


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Example of Goal, Objectives &

Measurements

Waste Volume Charts,

Rework Tracking, CycleTime End to End in S-LX

(5 of 7 Regions)

Reduce identified re-activities

within primary processes by80% over the next 3 years

Cost per Outlet Office,

Cost per Region, Cost per

FTE

Reduce Operational Service

Costs by 50% over the next 5

years

Achieve Agency

operational

efficiencies

MeasurementMeasurementMeasurementMeasurementObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal


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Targets

Once you establish measurements, you need to

set a target for each measurement.Targets push the organization to a required levelof performance.

Targets put focus on the strategy, expressing thespecifics of the strategy.

When an organization hits its targets, then it hassuccessfully implemented its strategy.


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Examples of Targets

Total Time to Recruit New Employees: Less than

40 days by year-endUtilization of rental facilities: Increase to 85%during peak summer months

Growth in top line revenues: 10% increase overlast year

Improve overall customer satisfaction: Totalscores exceed 90%


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Initiatives

In order for things to happen in an organization,

you must initiate major projects or programs.For example, improving customer service may

require a new customer management system.

Once you launch appropriate initiatives, you

should be able to meet your strategic objectives.

This closes the loop, everything is now linked

and away we go!


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Initiative Attributes

Sponsored by senior management

Designated owners manage project(s)

Includes deliverables or milestones

Usually has some time deadlines

Could be difficult to launch lack of support, no

funding, poorly defined, etc.


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Airline Example

% Ground crewtrained

% Ground crewstockholders

Objectives Measurement

Market Value

Seat RevenuePlane Lease

Cost

FAA On TimeArrival Rating

CustomerRanking (MarketSurvey)

On Ground TimeOn-Time

Departure


Initiative

Cycle timeoptimizationprogram

ESOP

Ground crewtraining

Qualitymanagement

Customerloyaltyprogram

Target

30% CAGR

20% CAGR5% CAGR

#1

#1

30 Minutes90%

yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest

Prices

Fewer Planes

Customer

Internal


Flight

Is on Time

Profitability

More CustomersFewer planes

Flight is on -time

Lowest prices

Fast groundturnaround


Optimizeroutes

Standardizeplanes


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Airline Example



Learning

MoreCustomers


Lowest

Prices

Fewer Planes

Customer

Internal


Flight

Is on Time

E l f G l Obj i


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Example of Goal, Objectives,

Measurements, Targets &Initiatives

Lean / Six

Sigma

Waste stream

reductions of

5% each year,

Reworks cut in

half for next 3years, cycle

time cut by 75%

Waste Volume

Charts, Rework

Tracking, Cycle

Time End to End

in S-LX (5 of 7Regions)

Reduce

identified re-

activities within

primary

processes by80% over the

next 3 years

Activity Based

Costing /

Management

5% - Year 1

10% - Year 2

15% - Year 3

Cost per Outlet

Office, Cost per

Region, Cost per

FTE

Reduce

Operational

Service Costs by

50% over the

next 5 years

Achieve

Agency

operational

efficiencies

InitiativeInitiativeInitiativeInitiativeTargetTargetTargetTargetMeasurementMeasurementMeasurementMeasurementObjectiveObjectiveObjectiveObjectiveGoalGoalGoalGoal

Oth I t t St


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Other Important Steps

Scorecards are built around three teams:

Leadership Team (upper level management),Core Team (middle level management) and

Measurement Team (lower level functional

personnel).

Scorecards are built around at least four group

meetings: Kick Off Meeting followed by at least

one meeting for each of the three teams.

I l t ti


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Implementation

The minimum time for developing a balanced

scorecard is three months.Full deployment of scorecards throughout theentire organization can take more than one

year.The best place to start building a scorecard iswhere all components of the value chain are in

place: Customer, Innovation, Production,Delivery, Services, etc.

M g U th S d t


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1Identify All Potential

Candidates for StrategicInitiative Consideration

2Screen Candidates toIdentify Those That

Qualify as Strategic

3Select and fund

Strategic Initiatives

Initiative:

E-Bill PresentmentStrategic Thrust(s):

AC/IR/RC

Primary Strategic Objectiv :

Continue Leadership in SuProducts

Area Score

Strategic Importance

Cost

Benefit

Required for OtherInitiatives/Dependencies

Time to Implement

Points

8

-2

4

1

-2

Comments

The killer application X

$

$

X

# months

Overall Score 9 X

Ranking

1

2

3

4

5

6

7

N

Initiiative

E-BillPresentment

A

B

C

D

E

F

G

Strategic Thrust(s)andObjectives(s)

AC/IR/RCCont. Leadership inSuperiorProduc ts

StrategicImportance

Cost BenefitRequiredfor Other

Initiatives/Dependencies

Time toImplement Overall ScoreOverallPoints

9

9

8

8

7

7

7

X

Site Selection

Projects,Activities, etc.

DevelopmentProjects,

Activities, etc.

MIS Projects,Activities, etc.

Other Projects,

Activities, etc.

PrioritizedList of Strategic

fundedInitiatives

Criteria

Managers Use the Scorecard to

Select and Manage Initiatives

Its Abo t E ec tion


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Its About Execution

(Work Tracking and Monitoring)

Goals

#1

#2

#3

#4

#5

#6

.

B

alanced

S

corecard

(Ope

rationalPlan)

WHY? WHAT?

Processes

Outcomes

ActionPlans

(ProjectCharters,

Initiatives,

Departm

entWorkPlan

s)

HOW?

Budget

Process &Allocation

PerformanceManagement

Process

ProjectManagement

Process

Monitoring

BoardReporting

Why Do Organizations Fail to Get


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y g

Results from Their Balanced Scorecard

Programs?1. No Executive Ownership (done

by middle management team only; long

development process)

2. Scorecard Not Linked toStrategy (no strategy map - just KPIs in4 perspectives; mostly financial measures;

done as a systems project; done only forcompensation)

3. Scorecard Not Linked toManagement Processes

(Mobilize, Translate, Align, Motivate,Govern)

4. Too many metrics!!!!

NOTUsingBSC

Using It

WRONG

Using ItRIGHT

Summary


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Summary

Balanced Scorecards are the best way of

communicating strategy.Scorecards rely on a fully integrated approach:Goals, Objectives, Mapping, Measurements,

Targets, and Initiatives.The building of a balanced scorecard can beexperimental, whereby you test your strategies,

refine, and make changes as you get feedbackand learn what works.


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Credits


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Credits

Matt H. Evans at www.exinfm.com

Lawrence Serven The Buttonwood Groupwww.ButtonwoodLLP.com

Rick Rozzelle CELT Corporation [email protected]

Creating a Balanced Scorecard Danz Training

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