Organizational Alignment using Strategy Maps and Balanced Scorecard

1© Rajesh Naik, 2009

Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license

Organizational Alignment Using Strategy Maps & Balanced Scorecard

Organizational Alignment Using Strategy Maps & Balanced Scorecard

Presented by Rajesh Naik

@ Bangalore SPIN, Nov 2009



Do these sound familiar?

• The organization says it will do business only with Fortune 500 companies

– But keeps signing small projects from small customers

• Cost reduction is a focus

– But you are asked to travel by train, spend billable time and stay in hotels (costlier than airfare!)

• New skills are a must for promotion and growth

– But the best people are busy (fire fighting) with existing projects and the mediocre folks get trained on new technologies



Do these sound familiar?

• CEO says low cycle-time, low-cost and feature-richness are critical to their success– But the project and process goals are

schedule variance, effort variance and defect density – do these match with the critical success factors?

• CEO says we MUST grow in new products– But the sales targets (for salespersons) are

based on total order value – there are no product line specific targets



Initiatives – What Direction?

Lean

Reuse

CMMI

Innovatio

n

Organization

Agile



How Do They All Tie Together?

• Employees

– Do not know why they are doing something

– Do not understand how various initiatives are interlinked

• Management

– Often starts new initiatives without fitting into a bigger picture

– Does not explain relationship between initiatives and overall objectives



We Need to Execute Strategy(not just formulate it…)

Of the strategies effectively formulated, less than 10% are effectively executed”

Fortune

“It better to effectively implement a mediocre strategy, than to ineffectively implement a great strategy”



But what is strategy?

The art or skill of careful

planning towards an

advantage or a desired end

‘Oxford English Dictionary’



Key Elements of Effective Strategy Implementation

• Clarify strategies

• Understand and explain inter-linkages

• Resolve conflicts of alignment

• Communicate to employees

• Relate internal process goals to organizational strategic goals

• Align investments in people, technology and organizational capital for greatest impact on strategic objectives

• Prioritize initiatives based on potential impact



How do we get Breakthrough Results?

World Class Strategy Implementation =

Describe theStrategy

Measure theStrategy

Manage the Strategy+ +

StrategyMaps

BalancedScorecard



A Software Products/ Services Org

Revenue Profits EPS

Financial (Shareholder/ Owner) Perspective



……


Revenue Profits EPS ……

High SpeedImplementation

Cost-EffectiveServices

High QualitySolutions

Fortune 500 Customers

Single Pointfor Insurance

Industry

Customer Perspective



Large Scale Implementations



ProgramManagement

Hi FidelityProcesses

SoftwareProducts


Cost-EffectiveProd/ Svcs


Fo500 C


Industry

Brand Building inInsurance Industry

Reuse

Large AccountManagement

Cross Selling

Internal Perspective

Cost EffectiveInfrastructure

Cost EffectiveFinancingRegulatoryCompliance




Large Scale Implementations


ProgramManagement

Hi FidelityProcesses

SoftwareProducts


Cost-EffectiveProd/ Svcs


Fortune 500 Customers


Industry

Brand Building inInsurance Industry

Reuse

Large AccountManagement

Cross Selling

InsuranceCOE

KnowledgeManagement

IP CreationAutomation

Of Processes

EmployeeEngagement

InnovationTech/ Domain

CompetencyDevelopment

Cost EffectiveInfrastructure

Cost EffectiveFinancing

RegulatoryCompliance

ContinuousImprovement

People, knowledge, systems, innovation and improvement perspective



Vision & Strategy

Financial/ Owners/ Shareholders

Customers

Business Processes

Learning & GrowthPeople, Systems & Technology

The Concept



FINANCIAL PERSPECTIVEFINANCIAL PERSPECTIVE

How should we appear to ourOwners/ shareholders?”

LEARNING PERSPECTIVELEARNING PERSPECTIVE

What do we need to change, learn, innovate and improve?

What business processes must we excel in?

INTERNAL PERSPECTIVEINTERNAL PERSPECTIVE

How should we appear to our customers?• What products/ services?• What markets?

CUSTOMER PERSPECTIVECUSTOMER PERSPECTIVE

The Four Perspectives



Learning & Growth

Business Processes

Customer

Financial

Cause & Effect Relationship

ROCE

Customer Loyalty

On Time Delivery

Process Quality Process Cycle Time

Employee Skills



Successful Balanced Scorecards start with a strategy map Example Mobil (US Marketing & Refining)

Growth Theme

Improve quality of revenue by understanding customer

needs and differentiating ourselves accordingly.

Productivity Theme

Maximize utilization of existing assets and integrate

the business to reduce total delivered cost.

Financial Perspective

Return on Capital

Increased from 6% to 16%

Competitive Position(profitability)

From last (1993)to first (95, 96, 97, 98)

Volume Growth

Exceeds industry by 2-2.5% annually

Reduce Cash Expenses

Down by 20%

Improve Cash Flow

From -$500 M/Yr to +$700 M/Yr

Customer Perspective

Internal Perspective

Customer Satisfaction

Continuous improvement for 3 consecutive years

Speedpass Active

Increasing at rate of 1M per year

Dealer Quality Perfect Orders


Learning & Growth

Perspective

Quality Capacity Utilization Safety

Lost work incidents down from 150 to 30

per year

Environmental

Number of incidents reduced by 63%


Annual value of lost yield reduced from

$175m to $50m

Product Innovation Customer Management

Operational Excellence Good Neighbor

Motivated & Prepared Workforce


Strategic Awareness

Annual employee survey shows awareness of strategy increased from 20% to 80%

Source:Source:

The Balanced ScorecardThe Balanced Scorecard

D. Norton & R. KaplanD. Norton & R. Kaplan



Cascading and Layering of Goals

Delivery Group

HR Group

Organization



Purpose of Strategic Measures

–Convert a strategic objective (stated in English) into a measurable target (stated in numbers)



Objectives

• Fast ground turnaround

Statement of the strategy

Target

• 30 Minutes• 90%

Performance Needed

• Cycle time optimization

Key action programs

InitiativeMeasurement

• On Ground Time• On-Time

Departure

How success will be

measured

Strategic Theme: Operating Efficiency

ProfitabilityFinancial

Learning

Morecustomers

Ground crew alignment

Lowest prices

Fewer planes

Customer

Internal

Fast ground turnaround

Strategy Map: Cause-and-effectbetween strategic objectives

Flight Is on time

Balanced Scorecard: Airline example



Objectives


Statement of the strategy

Target


Performance Needed

• Cycle time optimization

Key action programs

InitiativeMeasurement


Departure

How success will be

measured

Strategic Theme: Operating Efficiency


Learning

Morecustomers

Ground crew alignment

Lowest prices

Fewer planes

Customer

Internal

Fast ground turnaround

Strategy Map: Cause-and-effectbetween strategic objectives

Flight Is on time

Balanced Scorecard: Airline example

INITIATIVE

LEAD MEASURE

LAG MEASURE

© Rajesh Naik, 2009


• % Ground crew trained

• % Ground crew stockholders

Objectives Measurement

• Market Value• Seat Revenue• Plane Lease Cost

• FAA On Time Arrival Rating

• Customer Ranking (Market Survey)

• On Ground Time• On-Time Departure

Strategic Theme:Operating Efficiency

Initiative

• Cycle time optimization program

• ESOP

• Ground crew training

• Quality management

• Customer loyalty program

Target

• 30% CAGR• 20% CAGR• 5% CAGR

• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers

Ground Crew Alignment

Lowest Prices

Fewer Planes

Customer

Internal

Fast Ground Turnaround

Flight Is on Time

• Profitability• More Customers• Fewer planes

• Flight is on -time

• Lowest prices


• Ground crew alignment

Balanced Scorecard: Airline Example



The Balanced Scorecard Measures

Lag MeasuresEg : Year-end-sales,

Market Share

Strategic Objective

Outcome MeasuresAt the end of a

time period

Lead MeasuresEg : Hours spent,

Product Mix

Performance DriversIntermediate

Processes

Hours Studied forEntrance Exam

Marks/ Rank inEntrance Exam

College Admitted to

Efforts inCollege

Marks/ Rank in College

CategoryOf

HiringCompany

PreparationFor Job Interview



Selecting BSC Measures

•Caution

•Do not select what can be measured: select what “should” be measured

•Ensure balance between lead and lag measures

•Have a practical number of measures



Attributes of Measures in BSC

• Identify measure(s) for each goal

• Each measure will have the following elements– The corresponding goal/ objective in the strategy

– The measure

– The operational definition of the measure

– Type (Lead or Lag)

– Past values for measure (for defined time period)

– Target (values and time periods they correspond to)• For different periods (1 year, 2 year, 5 year)

– Reporting Vehicle and Frequency

– Person responsible for measuring and reporting

– Person responsible for meeting target



A completed Balanced Scorecard example

Obj

No.Objective Measure Type Unit Frq.

Obj.

Resp.

Data

Resp.Actual Target Initiatives

PBT Lag Rs Cr m TS

Revenue Market Share Lag % q TS

Revenue Lag Rs Cr m TS P1

Monthly Churn Lag nos m MK

Subscriber base Lag nos m OM

F3 Manage risk effectively Average collections/bill cycle after 25 days Lag % m TA AR P5

Average collections/bill cycle after 60days Lag % m SNK

Bad Debt Lag % 1/2y CP

Acquisition cost per subscriber Lag Rs 1/2y KS P4

Cost to serve per subscriber Lag Rs 1/2y KS

Cost of funds Lag % q KSC1 Offer VFM & reward loyalty Average customer lifetime Lag Months q MI DS P2

Calls per 1500 subscribers Lead nos m GA

Complaints per 1500 subscribers Lead nos m GA

Customer survey index Lag Index q GA

Average acquisitions/dealer Lead nos m GA P11

Average activations & recharges/ distributor Lead nos m GA

C4 Receive superior training for team Dealer Satisfaction Index Lag Index q AA CR P10, P6

C5 Get HR support for identification & recruitment of sales executives Dealer Satisfaction Index Lag Index q CS BB P9,P11

C6 Receive adequate ROI opportunity Average ROI for dealers Lag % q RN KSK P22

I1 Significantly reduce churn Monthly Churn YK P14,15

# sales executives per dealer Lag % q VS

# outlets per distributor Lag % q VS

% penetration of new products, services Lag % q DS

Average channel cost/acquisition Lag Rs q KSK

Advtg & promo cost as % of sales revenue Lead % q KSK

I4 Target product to appropriate segments Penetration in targeted segment Lag % q TK RD

Customer service delivery index Lead Index q ON

Network service delivery index Lead Index q MK

I6 Improve collection

processes

Average collection period IM

Subscribers/employee Lag nos q RCX

Revenue/employee Lag Rs. q RC

Employee Satisfaction Survey Rating Lead Index 1/2y RC

L2 Close skill gaps by regular training Skill gaps closed Lead % q OR RC

L3 Rationalize organizational structure KMS achieved Lead % q MK RF

L4 Build strong systems support & knowledge-base IT Delivery Index Lag Index 1/2y SR PP

L5 Improve coordination between all departments # forum meetings held Lead nos q OJ KK

AR

RJ

GS

KD

PL

C3 Receive sustained demand

Ensure superior service delivery levels at contact points

MRD

AS

UP

LK

F1

I3 Create and execute a coordinated sales & marketing plan by key segments

F4

Achieve sustained profitability (PBT) from March 2000

Improve operating efficiency

C2 Get reliable & consistent service

Meet volume & revenue targets by significantly increasing subscriber baseF2

L1 Improve employee motivation & productivity

I2 Grow dealer sales force to increase customer reach; and increase width in retail

I5

Illustrative



Initiatives and the Strategy

• We need initiatives to achieve the objectives

• Initiatives may impact different objectives in different ways

– Strongly or weakly

– Directly or indirectly

– Positive or negatively

– In the short-term and the long-term

• We must evaluate each proposed initiative, and prioritize and select

LeanLean



Where do Strategy Maps and BSC fit in the overall scheme of things?

Individual Performance Goals(What I need to do)

Values(What is important to us)

Vision(What we want to be)

Strategy(Our Game Plan)

Strategy Maps(How the strategy translates)

Balanced Scorecard(Measure and Focus)

Initiatives(What we need to do and change)

Mission(Why we exist)

Adapted from Strategy Maps by Kaplan and Norton



BSC and Individual Performance Goals

Individual Performance GoalsFor Shredni VashtaarBNS LOB Goals1. Revenue2. Profits 3. New Orders4. Repeat Orders5. Order of New Services6. Compliance to Statutory ..7. Productivity8. Cycle Time9. Customer Satisfaction10. Attrition11. Employee Engagement12. Competency Growth13. Ready Successors14. Patents RegisteredShared Goals1. Company Revenue2. Company Profits3. Success of eMAGE project4. Making Shegdeng facility operationalAdditional Goals1. Learning and Developing …




• Market Value• Seat Revenue• Plane Lease

Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Custome

r

Interna

lFast Ground Turnaround

Flight Is on Time

• Profitability• More

Customers• Fewer planes


• Lowest prices







Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Custome

r

Interna

lFast Ground Turnaround

Flight Is on Time




• Lowest prices



LOB BSC





Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices







Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices



Org BSCeMAGE Scorecard

Shengdeng Scorecard





Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices







Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices







Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices







Cost




Departure


Initiative


• ESOP




Target


• #1

• #1


• yr. 1 70%yr. 3 90%yr. 5 100%


Learning

MoreCustomers


Lowest Prices

Fewer Planes

Customer

Internal


Flight Is on Time




• Lowest prices



Personal development

Other Scorecards

An individual’s performance targets should be derived from all relevant scorecards.Depends on

•roles and responsibilities, •initiatives involved in



Elements to Balance and Align

• Align objectives across multiple perspectives (financial, customer,…)

• Align measures to the objectives

• Ensure balance between lead and lag measures

• Align initiatives to the objectives

• Maintain alignment while cascading

– Org� division/ dept � projects � individuals



Success Factors for Strategy Implementation

• Roll–out needs to be driven as a “Project”

• Initial co-ordination

• Integration amongst the individual objectives, measures & initiatives

• Senior level Strategy Implementation Project Leader

• A Strategy Implementation Core Team



Common Pitfalls

• Middle Management Team: Lack of Senior Management Commitment

• Done by One or Two Individuals

• Held at the Top: For Senior Management

Only

• Too Long a Development Process: “Best Becomes the Enemy of the Good”

• Done Only for Compensation

• Ignoring the aspect of Change Management

• Lack of communication & awareness



Communication and Awareness

• Every employee should be able to related his/ her goal to a higher level goal

• Every action by the management is a communication – many actions need explicit communication to provide a perspective– Why did we take up the retail supply chain

management project when we said we are specializing in the insurance domain?

– Why are we hiring so many senior level managers when we said that we will promote internal talent?

– Why have we signed up many projects with small customers when we said we will focus on Fortune 500 companies?



The Journey - How Balanced Scorecard has evolved

Measurement

System

Strategy Implementat

ion

Total Strategy Management

Articles in Harvard Business Review:

� “The Balanced Scorecard —Measures that Drive Performance” January -February 1992

� “Putting the Balanced Scorecard to Work”September - October 1993

� “Using the Balanced Scorecard asStrategic Management

System” January - February 1996 1996 2000 2004

1992 1996 2000 2004

Managing

Alignment

2006

2006

Note: Concepts in this presentation have been sourced from these books



About this Presentation

More resources on the subject are available from the creator of this presentation at:

http://www.rajeshnaik.com

© Rajesh Naik, 2009

This work is released under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license. This means you can use it for non-commercial purposes so long as you include the copyright line “© Rajesh Naik, 2009". If you create derivative works using this work, they should also be made available under a similar license. For further information go to http://creativecommons.org/licenses/by-nc-sa/3.0/ For uses outside the scope of the license, contact Rajesh Naik at [email protected]

Author: Rajesh NaikConsulting Partner

QAI India Limited

[email protected]

[email protected]

+91 9845488767



Thank YouRajesh Naik

Consulting PartnerQAI India Limited

Email

[email protected]

[email protected]

Mobile

+91 9845488767

Website

www.rajeshnaik.com

Also, have a look at the latest “business novel”:

Aligning Ferret: How an Organization MeetsExtraordinary Challenges

By Swapna Kishore & Rajesh Naik

Website: http://www.postscript-impressions.com

Organizational Alignment using Strategy Maps and Balanced Scorecard

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