Implementing a Balanced Scorecard Approach for Manufacturers -Gilroy

Implementing a Balanced Scorecard

Approach for Small/Mid-sized

Manufacturers

Balanced Scorecard Overview with XPP™

Presented by Leo Gilroy Kaplan-Norton Balanced Scorecard Certified Graduate

o General Information

o The Four Perspectives & Strategy Maps

o Execution Premium Process™ (Six stages)

o Leadership, Change and Support

o Certification

Balanced Scorecard w/ XPP™

© Palladium Group, Inc.

a framework that translates an organization's

strategy into a set of objectives and measures and

aligns the organization to them through its

planning and control processes.



1992 - Performance measurement tool

1993 - Connection between performance metrics and strategy

1996 - Performance management system (1st book)

2000 - Strategic management and control system

2004 - Strategy Maps

2005 - Office of Strategic Management

2008 - Integration between strategy and operations



1. Nine out of 10 organizations fail to execute their strategies

2. Research has shown that 70% of organizations that use a formal

process to manage strategy out-perform their peers by:

o Growing Revenue

o Gaining Customer Loyalty

o Strengthening Employee Commitment

o Optimizing Resource Allocation

o Reducing Cycle Times

o Managing Risk


Strategy Maps

&

the Four Perspectives

Perspectives

Strategy Maps & the Four Perspectives

1. FINANCIAL performance, a lag indicator, measures the tangible

outcomes from the strategy.

2. CUSTOMER value proposition defines the source of value.

3. PROCESSES create value for customers and shareholders.

4. LEARNING and GROWTH: intangible assets that drive

improvement in the strategic processes.


Financial Perspective

New Product Sales

Use the preferred

method of selling Develop New

Services

Improve brand

perception

Improve client

satisfaction

Net Income

Gross Profit

Learning & Growth Perspective

Process Perspective

Customer Perspective

Improve core

processes

Promote a culture of

innovation

Attract & retain

people w/key skills

Enhance staff

competencies &

satisfaction

Create new

partnerships aligned

with Core

Ou

tco

mes

Ou

tco

mes

Dri

vers

Dri

vers


Strategic Themes Articulate the Strategy

Help to focus the organization on arriving at the strategic destination

Are usually limited to 3 – 5 major business thrusts

Include a stream of linked objectives

The Execution Premium Process™ (XPP)

Financial

Customer

Internal

Learning & Growth

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Pro

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Inn

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Pro

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© 2010 Palladium Group, Inc.

Strategic Themes Articulate the Strategy



The Execution

Premium Process™

(XPP)

XPP – a management process that describes how the

strategy will be executed.

Stage 1: Develop the Strategy

Stage 2: Translate the Strategy

Stage 3: Align the Organization

Stage 4: Plan Operations

Stage 5: Monitor and Learn

Stage 6: Test and Adapt



Stage 1: Develop the Strategy - an integrated set of

choices that position a firm to earn superior returns over the long run.



1. What will our economic model look like?

2. Which customers will we serve, where, and what will we

provide them?

3. How can our organization serve these customers?

4. What skills do we need to have in our organization?

5. What is the portfolio of initiatives and their timing that we

need to execute?

Stage 1: Develop the Strategy

Affirm Mission and Values & Quantify the Vision

Perform Strategic Analysis

Formulate the Strategy

Develop Value Gap

Implement Planning Cycle

Enhance Vision with Themes



Stage 2: Translate the Strategy

Design Strategy Map

Define Measures

Define Targets

Prioritize Strategic Initiatives

Authorize and Protect Strategy Funding

Assign Accountability

Identify Key Risk Indicator




Theme: operating efficiency Objective Measurement Target Initiative Budget

∙ Profitability

∙ Grow revenues

∙ Fewer planes

∙ Market value

∙ Seat revenue

∙ Plane lease cost

∙ 30% CAGR

∙ 20% CAGR

∙ 5% CAGR

∙ Flight is on-

time

∙ Lowest prices

∙ Attract &

retain more

customers

∙ FAA on-time arrival

rating

∙ Customer ranking

∙ # Repeat customers

∙ # Customers

∙ #1

∙ #1

∙ 70%

∙ Increase

12% annually

∙ Customer

loyalty program

∙ $XXX

∙ Fast ground

turnaround

∙ On ground time

∙ On-time departure

∙ 30 minutes

∙ 90%

∙ On ground

cycle time

optimization

∙ Quality Mgmt

∙ $XXX

∙ $XXX

∙ Ground crew

aligned with

strategy

∙ Develop the

necessary skills

∙ Develop the

support system

∙ % ground crew

stakeholders

∙ Strategic awareness

∙ Strategic readiness

∙ Info systems

available

∙ 100%

∙ Yr 1 - 0%

∙ Yr 3 - 90%

∙ Yr 5 - 100%

∙ 100%

∙ ESOP

∙ Ground crew

training

∙ Crew

scheduling

system rollout

∙ CRM system

∙ $XXX

∙ $XXX

∙ $XXX

∙ $XXX

Total Budget

Strategy Map Balanced Scorecard Action Plan

Communicate Measure Execute

Profit

Grow RevenuesFewerPlanes

Atract & Retain More Customers

Lowest pricesOn-time Service

Fast Ground Turnaround

Ground Crew Alignment

Strategic Systems Crew Scheduling

Strategic Job Ramp agent



Align Business Units to Corporate Strategic Priorities

Align Support Units

Communication Strategy

Align Individual Goals

Align Key Customers

Align Key Suppliers

Align Board

Align Compensation



applies to large organizations



Identical Cascading Method - objectives and measures are Transferred "One for One" Where They Apply.


Stage 3: Communication Strategy


Statement of intent

Scope - could include

sequence (Corporate, SBU’s,…)

Purpose and objectives

Communications measures

and targets:

Overall nature and tone of

delivery (e.g., formal or

informal)

Communicate that organization will use the BSC Communicate the strategy

Corporate and cascaded scorecards

North America region first

Get commitment from the organization to execute

the strategy

Process: multiple feedback channels to check understanding of the BSC and of the organization's strategy: Test understanding among executives in the short-term Periodically survey the organization for understanding

in the long term - 90% Understanding of Strategy

Tailored messages: tone will vary based on who is receiving the message and through what medium

Message tone should confirm the fact that the BSC is not optional


Stage 3: Communication Strategy The Execution Premium Process™ (XPP)

Executive Sponsor/Champion Leadership Team/Rollout Champion(s) BSC Communications Lead Managers/Supervisors All Employees

Takes visible role as primary BSC champion including

obtaining budget approval

Approves the final communications plan and materials

Provides information about target audiences within their

organization

Validates the viability of proposed plans for their

organization

Actively participates in communications

Visible champion and point-person for ongoing scorecard

Coordinates process of ongoing communications effort Ensures that project milestones are achieved (drives the execution of the plan) Presents ideas/materials to Executive Sponsor for review Presents and supports a consistent message Takes primary responsibility for communicating departmental strategy and role of the individual

Provide timely feedback on the effectiveness of

communications program

Role Responsibilities




A One-Up Review - Ensures Alignment of the Unit/Group Strategy Map, Measures, Targets and Next Steps

Describe contribution to

corporate objectives

Identify objectives that are

not relevant to the unit's

strategy

Recommend additional

objectives relevant to the unit

Confirm contribution to

corporate objectives

Reconcile objectives not

thought relevant to the unit's

strategy

Approve new objectives

relevant to the unit

Unit/Group will: Corporate Group will:


Stage 3: Align the Organization (Compensation)


Questions - when designing a balanced paycheck program

1. What is the current compensation philosophy?

2. Is it compatible with the Balanced Scorecard?

3. Will the compensation program be a team or individual based?

4. Will it be an incentive pay program or base pay program?

5. What will be the payout frequency - long term, annual, quarterly, …?

6. How will the compensation be tied to the achievement of the BSC?


Gain 1-2 years experience with BSC before linking to compensation

Stage 4: Plan Operations: What process change

does the strategy require?

Integrate Financial and Resource Capacity Planning w/the Strategy

Use Process/Driver Models to Operationalize the Strategy

Perform HR Planning

Perform IT Planning

Create Operational Dashboards

Develop Risk Mitigation Initiatives



The Execution Premium Process™ (XPP) Stage 4: Use Process Models to Operationalize the Strategy


The Execution Premium Process™ (XPP) Developing the Driver Relationships and Validating the Models is an

ITERATIVE PROCESS!!


Stage 4: Plan Operations - Create Operational Dashboards


The Organizational struggle to explicitly link Strategy and Operations

manifests itself in numerous ways:

Organization lacks a standardized framework for reporting, analyzing, and

executing proactive action plans

Tendency to "manipulate the numbers" vs. "manage the business“

Limited "institutional" knowledge about the operational levers (business

drivers) and causal relationships impacting strategic objectives

Leading organizations embrace best practices and deploy

strategic and operational dashboards as an integral

component of a world class performance management


Stage 4: Plan Operations - Create Operational Dashboards



Stage 5: Monitor and Learn

Conduct Strategy Review Meetings

Manage Initiatives

Review Risk Management Plans and Processes



Conduct Strategy Review Meetings

1. Focus on big picture – long term horizon

2. Balanced Scorecard report

3. Strategic themes

o Objectives

o Measures (RYG)

o Initiatives (RYG)

5. Strategic Issue Review

6. Strategic Risks Review



Stage 5: Leader's Role in Strategy Review Meeting


Leadership Focus

Comprehend root cause of performance

issues

Test the hypothesis that underpins your

strategy - are we still doing the right

things?

Promote cross-functional problem

solving - how can we resolve this issue as

a TEAM?

Management Focus

Provide an early warning system

Generate action plans

Create a record of next steps


Stage 5: Manage Initiatives



Stage 5: Initiatives Link Strategy to Tactical Planning & Budgeting


OBJECTIVE: Develop Spandex Manufacturing

INITIATIVE: Joint Venture Program

Executive Sponsor: John Smith

Project Duration: January - August

Dedicated Resources: (1) 5 people half time (2) 5 x $1,500 = $9,500

Year 1 Year 2

Anticipated Benefits (Total) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Revenue $80k $100K $200K

Cost $9.5K $9.5K $9.5K $12K $12K $15K $15K $20K

Capital

Cumulative Cash Flow

Impact on Objective & Theme: Develop ability to meet 70% of our product requirements internally by Q1.


Stage 5: Value of Initiative Management Process

Companies that align initiatives to strategic objectives can

achieve significant savings - up to 20%.

- Palladium research

Companies that actively manage their initiative portfolios

can create significantly more value - up to 30% more.

-McKinsey research



Stage 6: Test and Adapt

Test the Strategy's Cause and Effect Relationships

Test Robustness of the Strategy

Use Decision Analytic Models



Stage 6: Test the Strategy's Cause and Effect Relationships



Fishbone/Ishikawa Driver tree diagram - 5 Why’s

It is important to test the cause-and-effect relationships underlying the

strategy assumptions and drivers in order to make adjustments and adapt

the strategy as necessary

Stage 6: Test the Strategy's Cause and Effect Relationships


TYPICAL DRIVERS

Confidence in Senior Leadership

Company Direction and Role/Fit

Relationship with Supervisor

Praise & Recognition

Support - Tools and Information

Job Skills Levels

Teamwork

Career Growth Opportunities

RESULTS a. Employee Commitment b. Employee Productivity

c. Employee Retention

d. Growth of Valued Employee

Skills/ Competencies


People drivers and results

Stage 6: Test Robustness of the Strategy

Perform scenario modeling, war gaming, stress testing and

other analyses to assess the risk and robustness of the strategy

Scenario planning and war games are two methods for testing

how the strategy might be affected based on changes in the external

environment, for example the potential effect of a competitor's action

Scenario planning describes "alternative futures"- the plausible range

of changes in the environment A



Stage 6: Use Decision Analytic Models - the discipline of

evaluating complex alternatives in terms of values and uncertainty, using

statistical techniques and business data which, to derive probabilities

Some common techniques include:

Statistical Analyses like Regression Analysis, Correlation Analysis

Decision Trees and Diagrams

Influence Diagrams

Sensitivity Analysis

Time-series Analysis and Forecasting

Activity-based Costing

Industry Benchmarking

Economic Profit Tree



Leadership, Change

and Support

Lead the Campaign – Lead the campaign

Executive leadership takes an ownership/active role in

leading the campaign to formulate, drive and execute the

strategy (Model necessary behavior)

Defining the organization's vision, mission and core values

Driving strategy execution

Achieving commitment across the executive and top leadership team

Defining an agenda of strategic change



Lead the Campaign – align executive team behavior

Consensus - means fostering and achieving general

agreement among members of a group

Principles for building Commitment:

Use actions and words to demonstrate your own commitment

Create consequences for non-support

Clarify what will happen if leadership-team members don't commit

Follow through with action, if necessary

Define meaningful stakes



Lead the Campaign – create strategic change agenda



As is…Change / Performance

Dimension"To be…"

Undifferentiated, unknown, individual pockets of

renownReputation

Pre-eminent national lab renowned for its focus

on nuclear energy and national security

"small potatoes", "job shop" mentality, practical

orientation, opportunisticFocus Mission-driven research, larger scale, focused

Low cost provider, under investingFinancial management

Cost effectiveness, reinvestment AND meeting

growth objectives

Aging, poorly maintained, inadequate Physical infrastructure Premier, world class R&D campus of the future

Contractor oversight and micromanagement,

operational "clean-up", too largeOperations Office Relationship

Broad contract oversight and R&D oversight,

right size

Transactional relationship Customer relationships Solution provider, partner, anticipate needs

Maverick. lone wolf, insular External Collaboration Rich, collaborative, mutual interdependence

Best kept secret, bureaucratic obstacles, not

relevant

Industry relationship

Partnering, sharing-risk, commercializing ideas,

easy to do business with, relevant and needs based

programs

Dogs and cats, small, disconnected programs Sources of growth Large multi-year programs

Disconnected, silos, lack of standards Process management Integrated and aligned, flawless execution

Disconnected, individual efforts Problem solving Holistic, solutions oriented

Burdensome processesOperational excellence

Cost effective, attack process barriers that get in

our way

Requirement, "Star status"Safety

Essential, flawless, unrelenting, recognized world

leader

Multiple, fragmented, "clean and close" cultureCulture

Forward focus, one team, nuclear focus, best

practice

Aging workforce, integrating clean-up staffPeople

Bring in young blood, diversity, world famous

scientists in key areas

1. INCREASE URGENCY Raise a feeling of urgency so that people

say “let’s go,” making a change effort well positioned for launch

2. FORMING A POWERFUL COALITION help form a group

that has the capability-in membership and method of operating-to guide a

very difficult change process.

3. CREATING A VISION and strategies to guide action in all of the

remaining stages of change.

4. COMMUNICATE CHANGE VISIONS and strategies effectively

so as to create both understanding and a gut-level buy-in.

John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999

Leading Change

5. EMPOWERING ACTION - deal effectively with obstacles that block

action, especially disempowering bosses, lack of information, the wrong

performance measurement and reward systems.

6. PRODUCE SUFFICIENT SHORT-TERM WINS sufficiently

fast, to energize the change helpers, enlighten the pessimists, defuse the cynics,

and build momentum for the effort.

7. DON’T LET UP Continue with wave after wave of change, not

stopping until the vision is a reality.

8. MAKE CHANGE STICK - changes are embedded in the very

culture of the enterprise so the new way of operating will stick.

John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999

Leading Change

Leading Change

EXPLORATION

RESISTANCE

COMMITMENT

DENIAL

Change Curve

Build Technology Infrastructure

Information Management Delivery

Data Governance



Information Management Delivery



Departmental Focus Enterprise Focus

Historical Focus Real-time

Tactical Decision Strategic, Tactical, Operational

Analysts Users Enterprise

Reactive Orientation Proactive

Strategic Analysis Output Strategic Action

Open-ended Process Closed Loop

Metrics Measures KPI's

Generic Views Personalized

Tables/Charts Visuals Dashboards/Scorecards

Informal/Email Collaboration Built-in

Pull (adhoc) Interaction Push (alerting)

Trends Analysis Exceptions

Numeric Data Numeric, Text

FROM TO

Data Governance - is the collection of decision rights, processes,

standards, policies and technologies required to manage, maintain and

exploit information as an enterprise resource.



o Data governance is a cross-functional process and is NOT owned,

operated or managed by anyone business unit

o The goal of Data Governance is to implement mechanisms that ensure

accuracy, integrity, accessibility and security of information across the

enterprise

o Data Governance requires accountability cascaded through multiple

levels of the organization

o Data Governance is NOT a one-time project that has an end date, it is an

ongoing process and competency


Critical Success Factors

Ensure that project sponsorship is from a high enough

level to command the organization's attention

Make sure the ENTIRE Leadership Team has a real

understanding and gives endorsement of time

commitment

Involve the right people


The Palladium Kaplan-

Norton Balanced Scorecard

Certification Program


The Palladium Kaplan-Norton Balanced

Scorecard Certification Program


The number of Certified Candidates in the Program is now over

1,200 strategy management professionals globally, with over 400

having successfully earned the distinction of Kaplan-Norton

Balanced Scorecard Certified Graduate™



1. *Balanced Scorecard Certified Practitioner™ - BSC Boot Camp course

and exam completion + application: one letter of testimonial and BSC work

examples

2. *Balanced Scorecard Certified Graduate™ - BSC Boot Camp course

and exam completion

3. Balanced Scorecard Certified Candidate – BSC Boot Camp course

*Annual renewal required to maintain Kaplan-Norton Balanced Scorecard Certification


Thank you!

Questions??

Implementing a Balanced Scorecard Approach for Manufacturers -Gilroy

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