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2GC LimitedAlbany HouseMarket StreetMaidenheadBerkshireSL6 8BE UK
+44 (0) 1628 [email protected]
2009 2GC Limited. All rights reserved. This document is protected under copyright by 2GC Limited. The following terms and conditions apply to its use: Photocopying - singlephotocopies may be made for personal use as allowed by national copyright laws. Permission from 2GC and payment of a fee is required for all other photocopying, including multiple orsystematic copying, copying for advertising or promotional purposes, resale, and all forms of document delivery; Derivative Works Permission from 2GC is required for all derivativeworks, including compilations and translations; Electronic Storage or Usage - Permission from 2GC is required to store or use electronically any material contained in this document.Except as outlined above, no part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying,recording or otherwise, without prior written permission of 2GC Limited.
Performance Management &the 3rd Generation Balanced ScorecardAn Introduction
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
1 2GC Limited, 2009
Performance Management & 3rd Generation Balanced ScorecardPurpose of this slide pack Welcome this 2GC slide pack has been
produced to introduce you to PerformanceManagement and the Balanced Scorecard
This pack should help you to improve yourunderstanding of
What is Performance Management
What is Balanced Scorecard
Why use Balanced Scorecard
How to design a modern Balanced Scorecard
How to implement your Balanced Scorecard
The Balanced Scorecard fills the void that exists in most management systems - thelack of a systematic process to implement and obtain feedback about strategy.
Robert Kaplan & David NortonThe Balanced Scorecard, HBS Press, 1996
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- April 2004 Performance Management & 3rd Generation BalancedScorecard
2 2GC Limited, 2009
General Management Issues
Section Summary:
In most organisations thecommunication of strategic goals andobjectives is poor so it is hard forpeople in the organisation to know whatto do . . .
. . . and it is therefore hard for seniormanagers to check that the right thingsare being done what are the rightthings?
The result: only one third oforganisations believe they are successfulin implementing their strategic goals
Strategic success therefore requires thatpeople are clear about what needs tohappen, and that managers get usefulinformation about this activity.
General Management Issues
Performance Management Key to StrategicSuccess
3rd Generation Balanced Scorecard
Designing and Deploying Balanced Scorecard Best Practice Insights
Next Steps Getting ready to Implement inYour Own Organisation
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- April 2004 Performance Management & 3rd Generation BalancedScorecard
3 2GC Limited, 2009
General management issuesWhat are the issues?
Dilbert
From: Dilbert - A Treasury Of Sunday Strips: Version 00 by Scott Adams, (Andrews McMeel Publishing 2000)
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- April 2004 Performance Management & 3rd Generation BalancedScorecard
4 2GC Limited, 2009
General management issuesThe management challenge
How to decide what to do?
How to balance the actionsrequired over time?
How to effectively communicatewhat is needed to the widerorganisation?
How to make these decisionsrelevant to the rest of theorganisation?
How to confirm that the necessaryactions are actually being taken?
Simply measuring anorganisations performance does
not by itself ensure that theorganisation will begin to
perform as either it should do orcould do
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
5 2GC Limited, 2009
General management issuesImplementing strategic goals is difficult
Vision
97%
Vision
97%97%
Significant strategic success
33%
Significant strategic success
33%33%
Clear strategic
plans
80%
Clear strategic
plans
80%80%
Some strategic success
52%
Some strategic success
52%52%
From: Strategic Performance Measurement & Management
Business Intelligence / Renaissance Worldwide, 1997
Percentage of organisations having . . . .
Almost all organisations have astrategic vision . . .
but few manage to realise it
You have got tosucceed at doing
what is necessary
Sir Winston Churchill
How do successful organisations achieve their strategic goals?
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
6 2GC Limited, 2009
Performance Management
Section Summary:
To be able to design a performance managementsystem, you must first be clear about what it is youare trying to achieve - i.e. what is good performance
To know if good performance is being achieved youneed a process to supply useful information about
Whether the actions needed to improveperformance are being carried out
Whether the actions being carried out are havingthe desired impact
Carried out poorly, the activity to collect performanceinformation is focused on too many (of the wrong)things, and the organisation then struggles to usefullydefine targets, evaluate performance, or use theavailable information to drive improved behaviours
Some of these issues can be addressed by using astandard framework for the PerformanceManagement system design.
Performance Management systems have evolved tosupport the articulation, communication, monitoringand updating of strategic goals as part of an efficient,proven management process
The most commonly used Performance Managementframework is the Balanced Scorecard
General Management Issues
Performance Management Key toStrategic Success
3rd Generation Balanced Scorecard
Designing and Deploying Balanced Scorecard Best Practice Insights
Next Steps Getting ready to Implement inYour Own Organisation
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
7 2GC Limited, 2009
Performance ManagementHow successful organisations drive strategyimplementation
Traditional Performance Management has focused on the last two steps
Articulate the
Strategy
Communicatethe
Strategy
MonitorActivity
ManageActivity
1 2 3 4StrategicSuccess
Management checksthat actions
are being completedand results arebeing achieved
Managementcommunicates these
decisions to therest of the
organisation
Managementdecides what needsto be achieved, anddocuments these
decisions
Managementtakes action when
results aredifferent from those
expected
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- April 2004 Performance Management & 3rd Generation BalancedScorecard
8 2GC Limited, 2009
Performance ManagementWhat happens when strategy is unclear?
Frameworks are helpful in deciding what to measure . . .
Articulate the
Strategy
Communicatethe
Strategy
MonitorActivity
ManageActivity
1 2
?
Only 2/3* of seniorexecutives understand
how the strategy relatesto their own job . . .
. . . and only 1/10* ofshop floor staff
understand how thestrategy relates to their
own job
With the strategy unclear, managers: Select unhelpful performance measures Select too many performance measures Attempt to monitor everything Dont really know what is going on across the organisation
When monitoring is done poorly, managers: Cant see the wood for the trees Attempt to manage with inadequate intelligence Struggle to exercise control over organisational activities Fail to realise organisational potential
* Survey, Business Intelligence / Renaissance Worldwide, 1997
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
9 2GC Limited, 2009
3rd Generation Balanced Scorecard
Section Summary:
The original Balanced Scorecard concepts weredeveloped in the late 1980s and werepublicised by Kaplan & Norton in a 1992 HarvardBusiness Review paper
Early Balanced Scorecard focused on strategyand vision, but said little about how to design oruse effectively
Over last decade the understanding of BalancedScorecard has improved Balanced Scorecarddesign and design methods have evolved toaddress the shortfalls inherent in the originalapproach
The latest version of Balanced Scorecard is 3rdGeneration it offers major benefits to usersand developers over prior versions
Quicker to develop, more reliable, easier touse, set targets for, and to cascade withinorganisation
General Management Issues
Performance Management Key to StrategicSuccess
3rd Generation Balanced Scorecard
Designing and Deploying Balanced Scorecard Best Practice Insights
Next Steps Getting ready to Implement inYour Own Organisation
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
10 2GC Limited, 2009
3rd Generation Balanced ScorecardBalanced Scorecard first appeared in 1992
Kaplan & Nortons1st GenerationBalanced Scorecard
Objectives InitiativesTargetsMeasuresTo achieve our vision, how will we sustain our ability to change and improve?
Learning & Growth
Objectives InitiativesTargetsMeasuresTo satisfy our shareholders & customers, what business processes must we excel at??
Internal Business Processes
Vision & Strategy
Objectives InitiativesTargetsMeasuresTo succeed financially, how should we appear to our shareholders?
FinancialObjectives InitiativesTargetsMeasuresTo succeed
financially, how should we appear to our shareholders?
FinancialObjectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo succeed
financially, how should we appear to our shareholders?
Financial
Objectives InitiativesTargetsMeasuresTo achieve our vision, how should we appear to our customers?
CustomerObjectives InitiativesTargetsMeasuresTo achieve our
vision, how should we appear to our customers?
CustomerObjectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo achieve our
vision, how should we appear to our customers?
Customer
Objectives InitiativesTargetsMeasuresTo achieve our vision, how will we sustain our ability to change and improve?
Learning & GrowthObjectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo achieve our
vision, how will we sustain our ability to change and improve?
Learning & Growth
Objectives InitiativesTargetsMeasuresTo satisfy our shareholders & customers, what business processes must we excel at??
Internal Business ProcessesObjectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasures
To satisfy our shareholders & customers, what business processes must we excel at??
Internal Business Processes
Vision & Strategy
But 10 years have seen some major improvements to this framework
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
11 2GC Limited, 2009
3rd Generation Balanced ScorecardBest practice Balanced Scorecard has evolved
2GC Limited, 2003.
Strategic Linkage Model
Fina
ncia
l Pe
rspe
ctiv
eC
usto
mer
Per
spec
tive
Lear
ning
& G
row
th
Pe
rspe
ctiv
eIn
tern
al
Per
spec
tive
DBX Understands and Responds to my Needs
DBX Products are my First Choice Products
DBX Products are Good Value for Money
DBX Products are Visible and Available
DBX has an Excellent Consumer Franchise
Drive Trade Terms by Channel
Implement Major Account Management
Programme
Effective Control of Business (No Surprises)
Sales Growth (by City by Product)
Gross Contribution (After City Sales and
Marketing)Asset Turn Overheads as a % of
NSV
Improved Shareholder Value (ROCE)
I Have a Good Relationship with DBX
Develop Better Work Practices and IS
Develop and Retain Professional Managers
Develop Service Agreements
Effective Management of Company Assets
Deliver Excellent Internal Customer
ServiceDeliver Customer Service Standards
Develop Professional, Customer Oriented, Skilled
Sales Force
Deliver Excellent Consumer
Propositions
Understand Impact Of Various Marketing Levers
2GC Limited, 2003.
1st Generation Balanced Scorecard
Objectives InitiativesTargetsMeasuresTo achieve our vision, how will we sustain our ability to change and improve?
Learning & Growth
Objectives InitiativesTargetsMeasuresTo satisfy our shareholders & customers, what business processes must we excel at??
Internal Business Processes
Vision & Strategy
Objectives InitiativesTargetsMeasuresTo succeed financially, how should we appear to our shareholders?
Financial
Objectives InitiativesTargetsMeasuresTo succeed financially, how should we appear to our shareholders?
Financial
Objectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo succeed financially, how should we appear to our shareholders?
Financial
Objectives InitiativesTargetsMeasuresTo achieve our vision, how should we appear to our customers?
Customer
Objectives InitiativesTargetsMeasuresTo achieve our vision, how should we appear to our customers?
Customer
Objectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo achieve our vision, how should we appear to our customers?
Customer
Objectives InitiativesTargetsMeasuresTo achieve our vision, how will we sustain our ability to change and improve?
Learning & Growth
Objectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo achieve our vision, how will we sustain our ability to change and improve?
Learning & Growth
Objectives InitiativesTargetsMeasuresTo satisfy our shareholders & customers, what business processes must we excel at??
Internal Business Processes
Objectives InitiativesTargetsMeasuresObjectives InitiativesTargetsMeasuresTo satisfy our shareholders & customers, what business processes must we excel at??
Internal Business Processes
Vision & Strategy
First Generation Balanced Scorecardsbroke new ground by combining financial andnon-financial performance measures groupedinto four perspectives
Second Generation Balanced Scorecardsdefined strategic objectives, linked togetherusing a causal strategy map to help identify theactivities and results that needed to bemeasured
Third Generation Balanced Scorecardsuse the creation of a Destination Statement asthe starting point for choosing StrategicObjectives, selecting measures and setting targets
Building a modern Balanced Scorecard requires a good design process
2GC Limited, 2003.
Destination Statement
Sales Volume:50,000 MT
Distribution:50 Cities
Sales Revenue : 50 Million
One Manufacturing Site
ROCE: 7%Capital Employed: No more than 45 million
Product Manager
Marketing Director
Factory Director
Manufacturing Director
Regional Sales Manager
Sales Director
Managing Director
No more than 6 Core Brand ProductsMinimum sales volumes: 5,000 MT for each core brand 2,000MT for each product
Employer of Choice: (# 1 in industry and ranked in FMCG top 10)
Marketing Sales
Branding: Clear brand propositi / systems established for the six core brands
DBX has two of the top five category product brands Product/house brand awareness targets in DBX city
strategies achieved
Media and promotional strategy: City market share targets achieved within agreed budget
Models and measures of the relative impact of all marketing levers available to assist in the evaluation / targeting of marketing activity
Improved Skills and Processes: Standardised and transparent marketing processes developed and agreed within DBX and with Group
Marketing team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)
Overall: DBX seen as one of top 10 FMCG Co. s servicing key accounts in the country (and #1 in category)
Customer Market Focus: Sales staff achieving set targets in line with city strategies for focus on customer and market issues
Assess using distribution by channel, visibility and trade promotions
Improved Skills and Processes: Standardised and transparent sales processes developed and agreed within DBX and with Group
Sales team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)
Organisational Structure Clear scope and role statem ents exist for all functi(including Sales
& Marketing): Supporting functi(including supply chain) will be achieving all
agreed service level targets with sales & m arketing
Supply ChainCost efficient supply chain based on flexible production lines w ill deliver: Increased responsiveness to m arket dem ands Lower cycle tim es Product / channel freshness targets
Information SystemsAppropriate inform ation system s that will m eet DBX s needs All necessary m anagem ent inform ation produced within pre - agreed tim elines and
scales Management Senior m anagem ent will be com m itted to working on strategy and e valuated on
their ability to coach / advise / guide and ensure that tasks ar e delegated effectively.
Professional m iddle m anagem ent will exist that will be able to act m ore independently within defined guidelines, and have the skills req uired for their job / role
Succession plans for key positiwill exist Recruiting and training policies will aim to raise middle manage ment
competence to meet international standards
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- April 2004 Performance Management & 3rd Generation BalancedScorecard
12 2GC Limited, 2009
2GC Limited, 2003.
Balanced Scorecard Measures & Targets
F1.1
F1.2
-30p
8
150p
18Dividend expected kept at 28 p. for whole year, but share price still around 1,000 pence leading to low P/E compared with sector and results from previous years
NG
Measure Value Target Performance comments for objective Objective OwnerObjective Status
Outperform capital markets
F4.1
F4.2
17
257
24
600No major M&A targets in sight yet. Pipeline cover - 50% due to aggressive growth targets combined with severe scarcity of targets. Profit mix and growth market numbers not available yet
NGSuccessful deal doing
F3.1
F3.2
F3.3
1,550
652
93%
1,442
488
90%
Division E still far behind budgets. C positive, but below budget. A on budget (flat budgets). L4L sales positive in D driven by brands. C index 120 on L4L
NGSales & profit growth from
existing businesses
F5.1 7.65% 7.44%Cost on average 10% > Category 1 competitors. On level with category 2 competitors NG
F2.1
F2.2
200
-6
185
4 Increasing cash inflow from divisions A and D but levels of investments in B,C and E makes the group cash negative for at least another 12 months NGCash & asset management
Competitive cost of capital via
capital structure
Rsh1.1
Rsh1.2
65%
8More shareholders vary about our future earnings potential due to drop in TSR and general negative press. All is down to next big announcement indicating new thrust and direction
ESShareholders
support and back strategies
7
74
3rd Generation Balanced ScorecardKey components
Destination Statement
To build management consensus
To articulate the intended results of implementingthe chosen strategy
Strategic Linkage Model
To identify what actions must be taken, and whatinterim outcomes are required, to deliver thestrategy
Measures & Targets
To track whether objectives are being achieved
To drive the right management actions
2GC Limited, 2003.
Strategic Linkage Model
Out
com
esAc
tiviti
es
A4: Develop our people (ROC3, ROC4)
A2: Maintain Quality (14001 / 9001) (ROC1, AP6)
A1: Deliver Procurement
Improvements (ROC3, RO5)
A6: Improve Health and
Safety (ROC1)
A5: Implement Change
Programmes (ROC1, AP1)
A8: Improve Productivity
(ROC5, AP2, AP7)
A7: Change our Systems (ROC4, ROC5, ROC7, AP7,
AP8)
A3: Better Processes for
Better Services (ROC5, AP7)
A9: Go and meet people
O4: Environmental Footprint (EO2)
O9: Delivery of Programme
(EO6)
O2: Environmental
Impact (EO7)
O8: EA is Trusted Advisor / Partner
(ER2,ER4,ER6)
O3: Agency Estate (EO8)
O1:Partners & Customers use EA
eBusinesssolutions(ER7)
O13: Environmental Incidents (EO4)
O12: Awareness (EO5)
O6: Customers rate EA as Best in
Class (ER3)
O5: Partners & Customers
influenced by EA (ER1)
O10: Informing Government
(EO3)
O11: Advocacy (EO1)
O7: Brand(s) known by
clients (ER5)
2GC Limited, 2003.
Destination Statement
Sales Volume:50,000 MT
Distribution:50 Cities
Sales Revenue : 50 Million
One Manufacturing Site
ROCE: 7%Capital Employed: No more than 45 million
Product Manager
Marketing Director
Factory Director
Manufacturing Director
Regional Sales Manager
Sales Director
Managing Director
No more than 6 Core Brand ProductsMinimum sales volumes: 5,000 MT for each core brand 2,000MT for each product
Employer of Choice: (# 1 in industry and ranked in FMCG top 10)
Marketing Sales
Branding: Clear brand propositi / systems established for the six core brands
DBX has two of the top five category product brands Product/house brand awareness targets in DBX city
strategies achieved
Media and promotional strategy: City market share targets achieved within agreed budget
Models and measures of the relative impact of all marketing levers available to assist in the evaluation / targeting of marketing activity
Improved Skills and Processes: Standardised and transparent marketing processes developed and agreed within DBX and with Group
Marketing team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)
Overall: DBX seen as one of top 10 FMCG Co. s servicing key accounts in the country (and #1 in category)
Customer Market Focus: Sales staff achieving set targets in line with city strategies for focus on customer and market issues
Assess using distribution by channel, visibility and trade promotions
Improved Skills and Processes: Standardised and transparent sales processes developed and agreed within DBX and with Group
Sales team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)
Organisational Structure Clear scope and role statem ents exist for all functi(including Sales
& Marketing): Supporting functi(including supply chain) will be achieving all
agreed service level targets with sales & m arketing
Supply ChainCost efficient supply chain based on flexible production lines w ill deliver: Increased responsiveness to m arket dem ands Lower cycle tim es Product / channel freshness targets
Information SystemsAppropriate inform ation system s that will m eet DBX s needs All necessary m anagem ent inform ation produced within pre - agreed tim elines and
scales Management Senior m anagem ent will be com m itted to working on strategy and e valuated on
their ability to coach / advise / guide and ensure that tasks ar e delegated effectively.
Professional m iddle m anagem ent will exist that will be able to act m ore independently within defined guidelines, and have the skills req uired for their job / role
Succession plans for key positiwill exist Recruiting and training policies will aim to raise middle manage ment
competence to meet international standards
Strategic Objectivesdeveloped directly
from a detailedvision of the
organisation at afuture date called a
DestinationStatement
Causality isshown bylinkages
between theobjectivesselected
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
13 2GC Limited, 2009
3rd Generation Balanced ScorecardBenefits of 3rd Generation design
Efficiently builds management teamconsensus
Faster to develop than earlier designs
Easier to use for target setting
Identifies linkages between the strategicactivities required and the strategicoutcomes desired
Better for communicating strategic prioritieswithin organisation
Drives selection of meaningful performancemeasures
Enables better strategic alignment:Vertically between organisational units - BalancedScorecard cascades are now practicable
Horizontally, between organisational units at samelevel
Between people and their organisational unit
Produces a Balanced Scorecard with greaterlongevity
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
14 2GC Limited, 2009
Best Practice Design & Deployment
Section Summary:Requirements of a best practice design process
Short
Engaging
Efficient use of managers time
Designed by the eventual users of the Balanced Scorecard /Performance Management system
Developed in the round transparent, not magic!
Deployment
Cascade is a powerful mechanism for alignment, even incomplex organisation
Integrate fully with other business processes
Need to build maintenance ability into organisation duringdesign process
Knowledge Transfer Support Tools Automation if required
Using
First six months are critical to establish behaviour patternsthat use Performance Management information effectively
Strong sponsorship is critical
Changes to key processes (e.g. the Board Agenda) help toensure the tool is used
Linking the use of the Balanced Scorecard to budgets is apowerful mechanism for getting organisational units toparticipate
Be wary of using to align personal goals with organisationalobjectives this is too expensive for most purposes, plusincentives undermine the dynamic nature of BalancedScorecard
General Management Issues
Performance Management Key to StrategicSuccess
3rd Generation Balanced Scorecard
Designing and Deploying BalancedScorecard Best Practice Insights
Next Steps Getting ready to Implement inYour Own Organisation
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
15 2GC Limited, 2009
Best Practice Design & DeploymentRequirements of an excellent Balanced Scorecard designprocess
Actively involves Balanced Scorecardowners in the design
Makes efficient use of managers time
Understandable and transferable
Easily aligned and cascaded acrossthe organisation
Compatible with existing process
Only the responsible managers knowthe answer
Management time is a scare resource
Must be communicated and drivendownward
To help the entire organisation workto a common purpose
Other management processes andtools must be usefully retained
Characteristics Logic
3rd Generation design processes can deliver these characteristics
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
16 2GC Limited, 2009
Best Practice Design & DeploymentA proven, six-step design process
Document Review & Interviews Meeting 1 Homework 1 Meeting 3Meeting 2 Homework 2
Review of strategicdocumentation toidentify strategicchoices
Structured interviewswith responsiblemanagement team toidentify areas ofagreement anddivergence
What is involved
Facilitated discussionbetween all membersof the managementteam to identify thestrategic choicesfacing the organisationand to select amongthese choicesWorking sessions todescribe theorganisation at somefuture point in time
OutputsProject & WorkshopPlan
Homework to reviewand amend the DraftDestination Statementand to begin proposingrelated StrategicObjectives
One-on-one meetingswith participants toreview Meeting 1 andto support completionof homework
Homework tocomplete StrategicObjectives definitionsand to begin definingpotential Measures foreach Objective
1-on-1 meetings withparticipants to reviewMeeting 2 and tosupport completion ofhomework
Revisit and updatethe Draft DestinationStatement fromMeeting 1,incorporatingHomework outputDebate and developthe medium termStrategic ObjectivesDevelop a DraftStrategic LinkageModel (SLM)
Obtain finalagreement on contentsof DestinationStatement and SLMReview and finaliseStrategic ObjectivesDevelop Measuredefinitions and targets
Draft DestinationStatement
Revised DestinationStatementDraft StrategicObjectives
Updated DestinationStatementDraft StrategicObjectives and SLM
Draft ObjectiveDefinition Forms
Final DestinationStatementFinal SLMCompleted ObjectiveDefinitionsDraft MeasuresDefinitions and Targets
3 monthdesign
Managementengagement
Smallfacilitation
team
Low techprocess
3-5Meetings
1 2 3 4 5 6
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
17 2GC Limited, 2009
Best Practice Design & DeploymentKey learnings
Realisation of organisational strategy requiresthat managers have access to appropriateinformation and to the interventions neededto control organisational activity
3rd Generation Balanced Scorecard givesmanagement this ability
Control is greatly enabled when the followingelements are in place:
Clarity of direction (Destination Statement)
Agreement on how to achieve the strategy(Strategic Objectives)
Understanding of causal relationships betweenObjectives (Strategic Linkage Model)
A well considered set of Performance Measures
An effective design process is a pre-requisiteto building a modern Balanced Scorecard
The design process can be straight-forward,but requires genuine managementinvolvement
Design can be completed in about 3 months;embedding the Balanced Scorecard typicallyrequires another 3 months
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
18 2GC Limited, 2009
Best Practice Design & DeploymentIntegrate Balanced Scorecard with existing frameworks
Balanced Scorecard can be seen as an umbrella concept that linkstogether organisational philosophies and management tools
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
19 2GC Limited, 2009
Best Practice Design & DeploymentBalanced Scorecard complements other management toolsand processes
BalancedScorecard
RiskManagement
Process
StrategicPlanningProcess
EFQMBEM EVA
Balanced Scorecard identifiesthe organisations strategic
objectives. Risk managementprocesses then evaluates
these objectives to identifyrisks to their achievement andmitigation activities required;
these activities are thenmonitored through the
Balanced Scorecard reviewprocess
Balanced Scorecard helpsorganisations to do the rightthings, while BEM helps to
do things right usedtogether they can ensure that
the organisation does theright things right
Economic Value Add (EVA)uses specific financialmeasures to evaluate
organisational unitperformance Balanced
Scorecards financialperspective can accommodate
these particular measures
Balanced Scorecard identifiesthe high level strategicobjectives and actions
required to deliver these thestrategic planning process
translate these objectives andactions into detailed
implementation plans
-
- April 2004 Performance Management & 3rd Generation BalancedScorecard
20 2GC Limited, 2009
Best Practice Design & DeploymentUse multiple Scorecards to align the organisation
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 9
2GCActive
Management 2GC Limited, 2000
SatisfyHMG
Out
com
esA
ctiv
ities
Defence Logistics Organisation Balanced ScorecardStrategic Linkage Model (draft)
Do performance management
Improve asset management
Improve planning
Do customer relationships
Improve financial
management
Sort out the organisation
Relationship with suppliers
Communicate with external stakeholders
Do process reviews
Satisfied Front line commands
Improved process doing things
better
In -year financial
management
Support to current ops
Reduce TOCs by 1.225 bn March 2006
DLO has a good reputation
Appropriate org. and skills in
place
Deliver outputs to customers
(CSAs)
Deliver strategic plan
Bought - in goods & services are
good value
Deliver outputs within budget
Training
Set up performance management
system
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 9
2GCActive
Management 2GC Limited, 2000
SatisfyHMG
Out
com
esA
ctiv
ities
Defence Logistics Organisation Balanced ScorecardStrategic Linkage Model (draft)
Do performance management
Improve asset management
Improve planning
Do customer relationships
Improve financial
management
Sort out the organisation
Relationship with suppliers
Communicate with external stakeholders
Do process reviews
Satisfied Front line commands
Improved process doing things
better
In -year financial
management
Support to current ops
Reduce TOCs by 1.225 bn March 2006
DLO has a good reputation
Appropriate org. and skills in
place
Deliver outputs to customers
(CSAs)
Deliver strategic plan
Bought - in goods & services are
good value
Deliver outputs within budget
Training
Set up performance management
system
Top Level
ExternalStrategicFactors
Second Level
LocalStrategicFactors
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 9
2GCActive
Management 2GC Limited, 2000
SatisfyHMG
Out
com
esA
ctiv
ities
Defence Logistics Organisation Balanced ScorecardStrategic Linkage Model (draft)
Do performance management
Improve asset management
Improve planning
Do customer relationships
Improve financial
management
Sort out the organisation
Relationship with suppliers
Communicate with external stakeholders
Do process reviews
Satisfied Front line commands
Improved process doing things
better
In -year financial
management
Support to current ops
Reduce TOCs by 1.225 bn March 2006
DLO has a good reputation
Appropriate org. and skills in
place
Deliver outputs to customers
(CSAs)
Deliver strategic plan
Bought - in goods & services are
good value
Deliver outputs within budget
Training
Set up performance management
system
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 5
2GCActive
Management 2GC Limited, 2000
Defence Logistics Organisation Balanced ScorecardDraft Destination Statement Text 2007/08FINANCIAL & RESOURCES (FR)
FR1 [11 votes] DLO have reduced total operating costs by at least 1.225 billion achieving an up to 17% reduction in annual outputcosts from the STP02 baseline (CR to provide figure to update to 2008)
FR2 [14 votes] The value of DLO balance sheet assets is 50% lower than the STP02 baseline
FR3 [14 votes] DLO has 20,000 staff (against STP02 Baseline) with no more than 5% in HQs
FR 4 [19 votes] DLO understands the cost of its outputs and can explain them
FR5 [4 votes] Irreducible spare capacity is 80% utilised by third partiesORGANISATION & CULTURE (OC)
OC1 [27 votes] DLO has reduced layers of management to enable a leaner, flatter less bureaucratic organisation to emerge
OC2 [4 votes] DLO has an effective workforce with high levels of satisfaction and motivation
OC3 [2 votes] DLO has a suitable skill and experience profile to meet current and future business needs
OC4 [15 votes] DLO has defined accountabilities and responsibilities for and between all layers of management (e.g. HQ functions, ServiceProviders, IPTs)
OC5 [] DLO has responded to and exploited new opportunities and threatsEXTERNAL RELATIONSHIPS (ER)
ER1 [8 votes] DLO has achieved its SDA targets (of %) ER1a [8 votes] DLO has achieved its CSA targets (of %) ER2 [6 votes] DLO has delivered the agreed levels of logistic support to
current operations ER3 []DLO has complied with legislation, departmental regulations, and
directives ER4 [8 votes] DLO has demonstrated year on year increases in the
effectiveness and efficiency of its supplier base. ER4a [8 votes] DLO has an effective strategic approach to future
procurement across the business ER5 [12 votes] The DLO provides expert logistic advice and operational
planning to contribute to MOD decision making
ACTIVITIES & PROCESSES AP1 [20 votes] Performance and risk management is, timely, accurate
and objective, and is the basis of decision-making by the DLO Management Board
AP2 [1 vote] DLO has in place capabilities and processes to manage its relationship with key customers, suppliers and other stakeholders
AP3 [14 votes] Coherent end-to-end logistic processes provide the most cost effective support to customers whilst delivering full operational capability
AP4 [9 votes] DLO maintains the optimum decider-provider split to maximise operational capability at minimum cost
AP5 [6 votes] All common DPA-DLO activities have common processes in place
AP6 [8 votes] The DLO has coherent knowledge management and information systems to meet its defined business needs
AP7 [12 votes] DLO has financial systems that allow timely, comprehensive, and accurate financial data including output costing to be widely communicated
AP8 [1 vote] The DLOs STP process properly captures all support costs and we capture STP costs for EP options
AP9 [6 votes] All business change initiatives are presented with full business cases and tracked to ensure benefits are delivered
AP10 [3 votes] All IPTs have costed through life management plans inplace
AP11 [] DLO has effective electronic business processes in place AP12 [] DLO has maximised its opportunities for collaborative support
with its allies AP13 [] The DLO has a business plan that will deliver its strategic plan
and logistic vision
[votes are explained on next page]
Third Level
LocalStrategicFactors
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 5
2GCActive
Management 2GC Limited, 2000
Defence Logistics Organisation Balanced ScorecardDraft Destination Statement Text 2007/08FINANCIAL & RESOURCES (FR)
FR1 [11 votes] DLO have reduced total operating costs by at least 1.225 billion achieving an up to 17% reduction in annual outputcosts from the STP02 baseline (CR to provide figure to update to 2008)
FR2 [14 votes] The value of DLO balance sheet assets is 50% lower than the STP02 baseline
FR3 [14 votes] DLO has 20,000 staff (against STP02 Baseline) with no more than 5% in HQs
FR 4 [19 votes] DLO understands the cost of its outputs and can explain them
FR5 [4 votes] Irreducible spare capacity is 80% utilised by third partiesORGANISATION & CULTURE (OC)
OC1 [27 votes] DLO has reduced layers of management to enable a leaner, flatter less bureaucratic organisation to emerge
OC2 [4 votes] DLO has an effective workforce with high levels of satisfaction and motivation
OC3 [2 votes] DLO has a suitable skill and experience profile to meet current and future business needs
OC4 [15 votes] DLO has defined accountabilities and responsibilities for and between all layers of management (e.g. HQ functions, ServiceProviders, IPTs)
OC5 [] DLO has responded to and exploited new opportunities and threatsEXTERNAL RELATIONSHIPS (ER)
ER1 [8 votes] DLO has achieved its SDA targets (of %) ER1a [8 votes] DLO has achieved its CSA targets (of %) ER2 [6 votes] DLO has delivered the agreed levels of logistic support to
current operations ER3 []DLO has complied with legislation, departmental regulations, and
directives ER4 [8 votes] DLO has demonstrated year on year increases in the
effectiveness and efficiency of its supplier base. ER4a [8 votes] DLO has an effective strategic approach to future
procurement across the business ER5 [12 votes] The DLO provides expert logistic advice and operational
planning to contribute to MOD decision making
ACTIVITIES & PROCESSES AP1 [20 votes] Performance and risk management is, timely, accurate
and objective, and is the basis of decision-making by the DLO Management Board
AP2 [1 vote] DLO has in place capabilities and processes to manage its relationship with key customers, suppliers and other stakeholders
AP3 [14 votes] Coherent end-to-end logistic processes provide the most cost effective support to customers whilst delivering full operational capability
AP4 [9 votes] DLO maintains the optimum decider-provider split to maximise operational capability at minimum cost
AP5 [6 votes] All common DPA-DLO activities have common processes in place
AP6 [8 votes] The DLO has coherent knowledge management and information systems to meet its defined business needs
AP7 [12 votes] DLO has financial systems that allow timely, comprehensive, and accurate financial data including output costing to be widely communicated
AP8 [1 vote] The DLOs STP process properly captures all support costs and we capture STP costs for EP options
AP9 [6 votes] All business change initiatives are presented with full business cases and tracked to ensure benefits are delivered
AP10 [3 votes] All IPTs have costed through life management plans inplace
AP11 [] DLO has effective electronic business processes in place AP12 [] DLO has maximised its opportunities for collaborative support
with its allies AP13 [] The DLO has a business plan that will deliver its strategic plan
and logistic vision
[votes are explained on next page]
Ensuring all BalancedScorecards add up to
deliver higher level needs isa collective responsibility of
the level
Strategic LinkageModels relate todelivery of the
Destination Statement
26 November, 2002 DLO / Balanced Scorecard Project 2002 / Outputs from 2 Day workshop (14 - 15 November 2002)Page 5
2GCActive
Management 2GC Limited, 2000
Defence Logistics Organisation Balanced ScorecardDraft Destination Statement Text 2007/08FINANCIAL & RESOURCES (FR)
FR1 [11 votes] DLO have reduced total operating costs by at least 1.225 billion achieving an up to 17% reduction in annual outputcosts from the STP02 baseline (CR to provide figure to update to 2008)
FR2 [14 votes] The value of DLO balance sheet assets is 50% lower than the STP02 baseline
FR3 [14 votes] DLO has 20,000 staff (against STP02 Baseline) with no more than 5% in HQs
FR 4 [19 votes] DLO understands the cost of its outputs and can explain them
FR5 [4 votes] Irreducible spare capacity is 80% utilised by third partiesORGANISATION & CULTURE (OC)
OC1 [27 votes] DLO has reduced layers of management to enable a leaner, flatter less bureaucratic organisation to emerge
OC2 [4 votes] DLO has an effective workforce with high levels of satisfaction and motivation
OC3 [2 votes] DLO has a suitable skill and experience profile to meet current and future business needs
OC4 [15 votes] DLO has defined accountabilities and responsibilities for and between all layers of management (e.g. HQ functions, ServiceProviders, IPTs)
OC5 [] DLO has responded to and exploited new opportunities and threatsEXTERNAL RELATIONSHIPS (ER)
ER1 [8 votes] DLO has achieved its SDA targets (of %) ER1a [8 votes] DLO has achieved its CSA targets (of %) ER2 [6 votes] DLO has delivered the agreed levels of logistic support to
current operations ER3 []DLO has complied with legislation, departmental regulations, and
directives ER4 [8 votes] DLO has demonstrated year on year increases in the
effectiveness and efficiency of its supplier base. ER4a [8 votes] DLO has an effective strategic approach to future
procurement across the business ER5 [12 votes] The DLO provides expert logistic advice and operational
planning to contribute to MOD decision making
ACTIVITIES & PROCESSES AP1 [20 votes] Performance and risk management is, timely, accurate
and objective, and is the basis of decision-making by the DLO Management Board
AP2 [1 vote] DLO has in place capabilities and processes to manage its relationship with key customers, suppliers and other stakeholders
AP3 [14 votes] Coherent end-to-end logistic processes provide the most cost effective support to customers whilst delivering full operational capability
AP4 [9 votes] DLO maintains the optimum decider-provider split to maximise operational capability at minimum cost
AP5 [6 votes] All common DPA-DLO activities have common processes in place
AP6 [8 votes] The DLO has coherent knowledge management and information systems to meet its defined business needs
AP7 [12 votes] DLO has financial systems that allow timely, comprehensive, and accurate financial data including output costing to be widely communicated
AP8 [1 vote] The DLOs STP process properly captures all support costs and we capture STP costs for EP options
AP9 [6 votes] All business change initiatives are presented with full business cases and tracked to ensure benefits are delivered
AP10 [3 votes] All IPTs have costed through life management plans inplace
AP11 [] DLO has effective electronic business processes in place AP12 [] DLO has maximised its opportunities for collaborative support
with its allies AP13 [] The DLO has a business plan that will deliver its strategic plan
and logistic vision
[votes are explained on next page]
Cascading is primarilythrough Destination
Statements
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Best Practice Design & DeploymentMaintain your Balanced ScorecardFor a Balanced Scorecard to continue to beuseful over time, several elements must be inplace:
Reporting tools
This needs to be owned, managed andresourced explicitly by the organisation:automation should be a cost-benefit driven
Supporting ongoing use
The organisation needs the ability to respondto problems with the use and management ofBalanced Scorecard (e.g. train new users)
Annual reset capability
The organisation needs to be able to resource,manage and co-ordinate periodic updates /reviews of the Balanced Scorecard
Evolution of use and implementation
The provision for expertise that understandsthe wider picture of Balanced Scorecard andhow it might integrate with future and currentprocesses and how it can be improved
Ongoing Use /Support
Evolutionof Use andImplementation
ResetCapability
BSCSystem
Reporting Tools
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Best Practice Design & DeploymentFive actions to realise the benefits
Strategies must be updated as the internal and external environments evolve Strategic Objectives and Measures must evolve to stay relevantMaintain
Balanced Scorecard can be an effective top-down and bottom-up communicationtool:
Use it to communicate: This is what we expect of you
Communicate
Balanced Scorecard is a vehicle to drive behavioural change If the status quo is maintained, the Balanced Scorecard is adding little valueAct on
Only through discussion can the causes and implications of the performanceresults be fully understood
Make it an item on the management agenda!
Discuss
Performance reports must be regularly reviewed by the accountable managementteam
Anything less is pure bureaucracy!
Report
LogicRequirement
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Preparing for implementation
Section Summary:
Not a trivial exercise need to get sponsorship andsupport at highest level
Implementation must involve all managers, so needto get consensus about project before you start
Will take at least three months up to 2 years inlarge / complex organisations so make sure youhave time / budget / will power to do this
Project design is critical to success
Only get one shot at this type of project you needto be very sure that youll get it right first time
Clever design of the methods used can lead tosubstantial improvements in ownership of BalancedScorecards, plus save lots of time and money
External Expertise can be very valuable
External consultants will not be able to tell you whatthe right measures are only you know that butthey will be able to share the benefit of theirexperience of carrying out similar projectselsewhere.
Typically projects with external support use lessinternal time / resources, are completed morequickly, and result in higher levels of ownership andsatisfaction than projects done by internal teams
Something else?
General Management Issues
Performance Management Key to StrategicSuccess
3rd Generation Balanced Scorecard
Designing and Deploying Balanced Scorecard Best Practice Insights
Next Steps Getting ready to Implement inYour Own Organisation
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Preparing for implementationGet it right first timeBuilding a Balanced Scorecard requiressignificant management time and energy
Failure to get the design right typically resultsin the project failing, or the BalancedScorecard being abandoned over time
You only get one shot at glory you must getthe design right first time!
Management teams will only make thisinvestment once every few years
Dont start too soon plan properly andensure full involvement of all key resources:
Content experts (the management team)
Process experts (internal or external)
A simple checklist helps get you into the rightframe of mind:
Question 1 - What are you managing?
Question 2 - Who is managing (what)?
Question 3 - What do you want performancedata for?
Question 4 Will using a framework help?
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Preparing for implementationSponsorship and communicationsEffective communication is not generated bya one-off effort it requires dedication,commitment and patience to ensure it issustained throughout the change
Visible commitment and active communicationfrom key sponsors
Project sponsor: ~50% of project time oncommunications initially
Executive team: ~30% of project time oncommunications initially
Clearly defined communication roles withdedicated time allocated
Clearly outlined areas of communicationresponsibility
Input from all content experts driving thechange
Core team to co-ordination and ensureconsistency
Listen to concerns at all levels in theorganisation and act to rectify them
Prompt responses to feedback
Integrate into Board/Steering CommitteeAgendas
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Preparing for implementationFacilitation is always better than consultancyWhy is facilitation better than consultancy?
The management team will always know moreabout what they want to achieve than anexternal (or internal) consultant
The guess comment edit approach leadsto very generic outcomes being adopted asthese are the only ones that can be clearlycommunicated both ways
The same problem applies in reverse when itcomes to signing off the externally driven design
However long you spend trying to work outwhat is in the proposed design
You wont really work it out the way thedesigners did
Your colleagues will work it out differently(or may, but you wont easily find out)
Example: Only one of the pictures on the right isthe right way up
Which one is it?
You cant know for sure only an insider (theartist for example) can tell us
Use consultants to facilitate your project ratherthan do it for you
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Preparing for implementationJoint teams bring the necessary mix of skills
Knowledge of companystrategy
Intimacy of the boardPolitical understanding
Access to the managementteam
Credibility with managementteam
Sponsor (senior)
Facilitation skillsProject design skills
Workshop designProcess knowledge
ExperienceExpertise
Time available to do thisOrganisational liaison
+
Management Team(Scorecard Owners)
brings:
Project Team(Internal Team + External Support)
brings:
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Preparing for implementationHow 2GC can help
If you are exploring Balanced Scorecard for the 1st time wecan help:
Building a case for change
Giving basic training
Providing board briefings (or simply call for a chat)
If you are starting a Balanced Scorecard project we can help:
Supplying advanced training
Designing the Balanced Scorecard project/programme
Giving presentations and briefings
Providing facilitation / project support
If you already have a Balanced Scorecard we can help:
Briefing the Board on the latest Balanced Scorecarddevelopments
Auditing existing Balanced Scorecards
Redesigning / resetting existing Balanced Scorecards
Providing coaching support
Integrating Balanced Scorecard with existing managementsystems
Supplying independent advice on software selection
2CG Project Locations
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3rd Generation Balanced ScorecardTo find out moreVisit 2GCs Web Site
We focus specifically on strategic controland performance measurement issues,and have a wide range of workingpapers, FAQs, and presentations todownload on these topics
The site also has a recommendedreading list that covers relevant topics,and the Weblinks database of relevantInternet sites
Contact 2GC
Let us know if you have a question youcant answer, well do what we can tohelp email to [email protected] orcall on+44 (0) 1628 421 506