Balanced Scorecard as a tool for Transformation & Strategy Execution

Master Sun Consulting

Balanced Scorecard - Tool for Value Creation

Business Audit: Agenda for Scorecard Led Transformation

Strategy Maps to Individual Scorecard

Caselet Service Industry : ICICI Bank

Caselet Manufacturing : Texmaco Jakarta

Caselet Marketing & Sales : Tata Steel Wire Division

Why Need a Balanced Scorecard? The Source of Value Has Shifted From Tangible to Intangible Assets Intangible Assets Tangible Assets 38% 62% 85% 38% 15% 62% 1982 1992 1 2000 2 percentage of market value related to… 1. Brookings Institute 2. Baruch Lev analysis of S&P500 companies

Value Creation: Intangible Assets

Intangible Assets Do Not Have A Direct Impact on Financial Results — They Have Second- or Third-Order Impacts

Conventional approach to managing financial & operational indicators insufficient

Balanced Approach to Strategy Implementation should includes focus on customer/stakeholder & learning, growth & innovation

Understanding & managing/leveraging inter-relationships between the above areas necessary for value creation

Service Quality Customer Confidence Revenue Customer Retention Training Information Technology

Balanced Scorecard as a Tool for Business Excellence Malcolm Baldrige Balanced Scorecard Leadership Learning & Growth Perspective Human Resource Capital Business Results Process Management Strategic Planning Strategy Map Learning & Growth Perspective Internal Process Perspective Customer Focus Customer Perspective Targets, Financial Perspective

Balanced Scorecard Balanced Scorecard’s key theme is not about Measurement as the term would outwardly convey Its about Value creation -Execution of Strategy

Balanced Scorecard : Synonym for Managing Performance

Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that companies execute their strategies

Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance.

Balanced Scorecard Links Vision & Strategy to Personal Objectives VISION What we want to be STRATEGY Our game plan PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE BALANCED SCORECARD Translate, Focus and Align TRANSFORMATION OBJECTIVES What we must improve

Strategy Implementation Process Sustained Strategy Strategic Direction Strategic Guidelines Strategy Stage Output Institutionalization of the process Identification & definition of areas of improvement Development of solution and testing Implementation of solution across all units Activity Business Health Check Design Process Rollout Institutionalization

Business Audit Areas

Business Health Check

Depending on the critical needs of a business , at a point of time, the Business Health Check will focus on some or all of the following areas

Business Performance Analysis

Strategy Planning Analysis

Organization Culture Analysis

Process & Systems Analysis

Operations Analysis

Marketing Analysis

Sales & Distribution Analysis

Customer satisfaction analysis

Audit sets an agenda for transformation & also outlines the strategic thrusts for scorecard implementation

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Mobilize change through executive leadership Change people, make strategy everyone’s everyday job Align the organization to create synergies Translate the strategy to operational terms Integrate improvement programmes with scorecard

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Translate the strategy to operational terms

Translate : Strategy into 4 Components Brand / product development, sales, service, operations, logistics.. Activities needed to create the required customer value proposition and differentiation and the desired financial outcomes Organization infrastructure, skills, capabilities, knowledge of employees, working climate.. The ability to execute internal business processes in new differentiated ways Who are the target customers that will generate the revenue growth? What are the objectives and how do we measure success with them? What are the financial objectives for growth and productivity? What are the major sources of growth? Vision and Strategy Financial Perspective Customer Perspective Internal Perspective Learning and growth Perspective

Translate : Terminator Zero Unhappiness

Patent Score for Process Improvements

SWIFT Training to Branches, Terminator Workshops

Performance within TATs

Quality

Productivity

% Complaints to Transactions

Branch Contacts with Customers, Delivery Success Rate %

Research, Education & Teaching Internal Processes Mission To ensure that the all causes of Unhappiness for Customer are Terminated in order for the bank to vie for Service Leadership

Customer Complaints

Customer Feedback Scores

Repeat Contacts

Request Closure beyond 24 Hours

Customer

Cost of Complaints

% of Business through Cross Selling

Average Revenue Per Customer

Financial

Translate: Types of Measurements Leading Definition Lagging Input Output Outcome Objective / Quantitative Example Intermediate outcomes that predicts or drive bottom-line performance results Measure Type Bottom-line performance results resulting from actions taken Amount of Investments, assets, equipment, labor hours, or budget dollars used Units of a product or service rendered - a measure of yield Resulting effect (benefit) of the use or application of an output Empirical indicators of performance Subjective / Qualitative Perceptions and evaluations of major customers and stakeholders Employee turnover rate Employee satisfaction rating Number of Value Meal orders fulfilled Customer satisfaction rating Wait time Customer complaints received as a % of total customers served Number of cashiers

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Align the organization to create synergies

Align: Use Strategy Map to Build Cause & Effect Relationships Improve ROCE Revenue Growth Strategy Productivity Strategy Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization A Motivated and Prepared Workforce

New Revenue Sources

Customer Profitability

Cost per Unit

Asset Utilization

Price Financial Perspective Customer Perspective Internal Perspective Learning & Growth Perspective Product/Service Attributes Strategic Competencies Strategic Technologies Climate for Action “ Build the Franchise” “ Increase Customer Value” “ Achieve Operational Excellence” (Innovation Processes) (Customer Management Processes) (Operations & Logistics Processes) Customer Value Proposition Quality Operational Excellence Product Leadership

Customer Satisfaction

Customer Acquisition

Customer Retention

Time Function Service Relations Brand Relationship Image

Market Share

Align : Flow of the Scorecard Along The Organization Review Review Review Review Review Review Review Review Review Production Shift Scorecard Packing Shift Scorecard Production Daily Scorecard Maintenance Daily Scorecard Department Weekly Scorecard Packing Daily Scorecard PC/QC Daily Scorecard Maintenance Weekly Scorecard PC/QC Weekly Scorecard Plant Head :Weekly Value Loss Scorecard & Analysis

Align :KPI Roll Down – Oil Refinery Manpower Index (SMI) Non Energy Cash Costs (NECC) Maintenance Index (MI) Man Hours Unit of Hardware Unit of Hardware is a constraint Man Hours is not a constraint Man Hour Categories Standard Hours Turnaround Hours (Outside of current scope) Other Hours (Outside of Maintenance Engineering Services) Contractor Hours Shell Hours Skills constraint Risk constraint Profit constraint Equipment constraint Shell hours constraint Response Time = Sigma [Job Time Raised – Job Time Closed] No. of Jobs Availability = (Total m/c hrs) - (m/c downtime hrs) x 100 (Total m/c hrs) Reliability (MTBF) = (Total m/c hrs) - (m/c downtime hrs) No. of Breakdowns Maintainability (MTTR) = (m/c downtime hrs) No. of Breakdowns PM Index = No. of m/c for which PM is carried out No. of m/c due for PM Crew Utilization = Total earned hrs x 100 Actual available hrs MMTR = Mean Time To Repair MTBF = Mean Time Between Failures Versus MTBM = Mean Time Between Maintenance? Backlog Hours = Sigma [Job in queue x standard time] Cost = Actual Job Cost + Lost Opportunity Routine Index (MI) Turnaround Index (MI) Maintenance Capex Maintenance Costs Inspection Costs Routine Costs Plant transformations Extraordinary Costs Operating Costs Contractor Costs Turnaround Cost (Outside of current scope) Equipment Constraint Hours Risk Constraint Hours Skills Constraint Hours Profit Constraint Hours Non Constraint Hours RCA Design % RCA Installation/ Repair % RCA Utilization % RCA Preventative % RCA Planned % Maintenance Schedule Adherence Planning Accuracy = Actual Hours/Estimated Hours

Align : Lowest Organism in the Food Chain

Mobil – Truck Drivers

Truck drivers were initially skeptical about how they could affect any of the corporate strategic themes. They knew that their job was to deliver to customers

By driving safely and avoiding accidents truck drivers could improve performance on all internal measures that were identified… lower costs, reliable, on time, environmentally friendly

ICICI-Fire in the Branch

Every single mistake by a branch added up to a lot of failures countrywide

Single complaint in a branch will bring the branch to a standstill

Would track to one activity not being done by a single person

Refer to Drawer syndrome

Align : Balanced Scorecard with Organizational Design

Job based on the Scorecard Matrices rather than on position descriptions, reporting relationships, and title transformations?

To what extent does your organization encourage individuals, regardless of job description, to search for innovation & growth ?

Brief on how your job impacts the KPIs of other department?

Extent you feel you receive a sufficient amount of feedback from internal and external sources to help you improve what you do?

Extent balanced scorecard tied to the transformation initiative?

Extent performance appraisal system integrated with balanced scorecard KPIs?

Extent does your current compensation/promotion system support/promote balanced scorecard KPIs?

Extent do you understand what you must do to satisfy the customer’s needs?

Align :Mission Zero Unhappiness All complaints to be resolved with root fix Complaints Get it right first time. Call up a customer if error is noticed Transactions Ensure First Contact Resolution Contacts Close SR Within TAT Good Closure Quality Service Requests Root Cause Analysis & Review Reduce Service Failure Flow Delivery Failure

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Change people, make strategy everyone’s everyday job

Change : Minds Path Matrix Conscious Unconscious Incompetent Competent Direct Delegate Support Coach The Four States of Mind! Minds Path Matrix … No shortcuts possible... Conscious Unconscious Incompetent Competent Compliance Culture Understanding Usage

Change : Minds Path Matrix Compliance Culture Understanding Usage

People understand that they are “being told” to do something new.

God knows why because they don’t see the use of it !!

This is normally viewed as extra non-value added responsibility.

If you stop checking, they will stop trying.

People start realising why the data recorded in the system might be of use to them and the business in the future. Process transformation begin to inspire confidence

There is some light at the end of the tunnel .

You still need to keep them on close track however.

Recording this new or extra data and working in a new way has now become a fact of life. Process compliance is high

They now start using (read : analyzing) the scorecards.

Meetings are held to review the data. The wheel starts turning!

Change: Minds Path Matrix Compliance Culture Understanding Usage

People understand that they are “being told” to do something new.

God knows why because they don’t see the use of it !!

This is normally viewed as extra non-value added responsibility.

If you stop checking, they will stop trying.

People start realising why the data recorded in the system might be of use to them and the business in the future. Process transformation begin to inspire confidence

There is some light at the end of the tunnel .

You still need to keep them on close track however.

Recording this new or extra data and working in a new way has now become a fact of life. Process compliance is high

They now start using (read : analyzing) the scorecards.

Meetings are held to review the data. The wheel starts turning!

People don’t think about the new system& processes anymore. It is THEIR system now.

They fully optimize the usage of data gathered at all levels.

They use the Scorecards to drive improvements in business performance.

They improve details of the systems as per the requirements.

Change Management Success Hope Problem Definition Solution Development Solution Implementation Culture Change Pain The Mind’s Path To Success

Change : Keep Scorecards Focused

At least one objective/measure per perspective

No more than 15 measures

Personal scorecard must support supervisor’s scorecard

Every supervisor must have an objective and measure for coaching and employee development

Scorecard must include an objective and measure that supports another part of the business

Change : RCA Deliverables Not Received

Key Issue : RTO returns would sit at the branches, waiting for customer to collect them

Solution : Outbound Calling

Every deliverable cleared resulted in a happy customer, lesser rework & cost savings

Average Contact Ratio:65%

Data :Nov04-Jun 05

Change Management : Link to Incentives

ICICI

Zero Unhappiness Branches

VNC

Incremental Performance over Base Performance is rewarded

Sales Reps often make incentive over and above salary

Performance observed over a quarterly period to avoid monthly manipulations

Change : Assessment Management System

“ If you can’t measure it, you can’t manage it.”

The secret to successful change management is to be able to assess and measure your progress through the ‘minds path’

Change Management Assessment System

The four mindsets must be measured by Auditing. Auditing is a quantitative measure of a qualitative

Change :Assessment Management System (CAMS)

Audit questionnaires are developed to assess the mindset levels using a structured approach:

Closed ended questions for compliance.

Open ended questions for understanding.

Demonstrative questions for usage.

The audit questionnaire answers get converted into a scoring scheme…

0 for wrong or not done.

1 for partially right or partly done.

3 for correct or demonstrated .

The percentages of each system performance category are plotted

The target is 100%.

Change : Assessment Management System(CAMS) Installation Status 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% -5 -4 -3 -2 -1 0 Current Period Achievement Installed Partially Installed Not Installed Installation Status System Utilization Status 0% 20% 40% 60% 80% 100% -5 -4 -3 -2 -1 Current Period Achievement Mechanical Understanding Usage

Change : Training & Communication Ask the Head Bulletin Boards Newsletters Classes Training Workshops Company Intranet

Change : Training in Problem Solving –Decision Making

Objective:

The Program intends to provide an insight to the participants in to the techniques for confronting the issues and arrive at alternatives to resolve them effectively using various tools and techniques. The program is structured to provide an exposure to the systematic approach to logical decision making for attaining most optimal use of resources and enhance effectiveness.

Proposed Program Contents:

Problem Solving

A conscious, systematic approach for analyzing situations and articulating problems, underlying assumptions and expected outcomes

Root Cause Analysis : A structured investigation that aims to identify the true cause of a problem and the actions necessary to eliminate it. Covers tools & techniques for problem understanding, cause generation, data collection, cause-and-effect analysis

Six Hat Thinking: Harness lateral thinking capabilities to unearth the resources available and make optimal use of them to gain expected outcomes. Avoiding ten mental creative locks

Force Field Analysis : Identifying potential risks and opportunities inherent in the situations

80-20 Analysis or Pareto Principle: Prioritizing & focusing problem solving exercise on key issues

Decision Making

Even Swaps : A rational method for analyzing decision options & making swaps

Hidden Traps of Decision Making & how to avoid them

Group Decision Making: Using group decision making techniques like consensus & NGT. Avoiding usual traps of decision making like Groupthink

Decision Implementation: Decision implementation plan, monitoring, feedback & change management

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Integrate improvement programmes with scorecard

Scorecard’s Role in Transformation

Scorecard is an indispensable tool to manage & monitor a transformation/business performance improvement programme

Scorecard Implementation needs to be supported by functional/departmental initiatives

Scorecard supported by a Transformation Initiative drives Business Results

Integrate : Goals, Measurement & Improvement Initiatives Lean / Six Sigma Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75% Waste Volume Charts, Rework Tracking, Cycle Time End to End in S-LX (5 of 7 Regions) Reduce identified re-activities within primary processes by 80% 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 operational efficiencies with best practices in Initiative Target Measurement Objective Goal

Integrate :Going from Output to Outcome When you first launch your Initiative, you probably want to use an Output Measurement. Once the Initiative is up and running, integrate your measurement to an Outcome to see if the Initiative is really having strategic impact. Higher skill levels of employees using the models % of Employees who have a Competency Model in place Employee Competency Models Overall reductions in errors, reworks, and cycle times Number of Projects Defined by Region Lean Process / Six Sigma Outcome Measurement Output Measurement Initiative

Integrate: Retail Management Control System Forecast Plan Control Report Manager Retail Distributor DSM Retailer / Customer Sales Plan Route plan Contact Plan Customer / Retail Card DSM Daily Score Card Territory Sales Target Retail Manager Contact Plan Distributor Coverage Target DSM Target DSM Weekly Score Card DSM Monthly Score Card Distributor Weekly Score Card Distributor Monthly Score Card Review Distributor Sales Target Market Intelligence Retail Mgr Segment Manager Marketing Department Review Review Segment Mgr Monthly Score Card Retail Mgr Ride with Segment Mgr Weekly Score Card Segment Sales Target Review Distributor Daily Score Card Review Direct Sales input Retail Mgr Daily Score Card Review Review Review Review Segment Mgr Daily Score Card Review Review Review Distributor Quarterly ROI Analysis Marketing Ride with Retail Mgr Weekly Score Card Retail Mgr Monthly Score Card

Integrate : ICICI Transformation Control System Budget for Key Metrics for Mar 05 Daily Measurement of Metrics:Alarm Express Daily Review & Course Correction Weekly comparison of Budget vs. Actual Root Cause Analysis Fortnightly Review Zero Unhappiness Scorecard & RCA Improvement Implementation Plan Senior Management Junior & Middle Management Planning Control Analysis & Review Focus on Short Interval Measurement, Analysis &Review

Scorecard Design & Rollout BALANCED SCORECARD S T R A T E G Y Mobilize change through executive leadership

Mobilize : Top Management Commitment

1.Creating the Climate for Change

Unfreeze the organization

Show the need for change

2. Creating the Leadership Team

Breaking down functional bias

3. Creating the Vision and Strategy

BSC as a “visioning process”

BSC to clarify the strategy

4. Creating Team Accountability

Accountability for cross-functional strategic themes at Executive Team level

A successful Balanced Scorecard program starts with a recognition that it is not a “metrics” project, it’s a “change” process.

Mobilize :Tight Focus & Extensive Review Strategic Learning Loop Initiatives & Programs test the hypotheses Output (Results) reporting Management Control Loop funding Input (Resources) update the strategy PERFORMANCE 85% of management teams spend less than one hour per month on strategy issues 92% of organizations do not report on lead indicators 60% of organizations don’t link strategy & budgets 78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget STRATEGY BALANCED SCORECARD BUDGET

Mobilize : Red Buttons to Avoid

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”

Treating the Balanced Scorecard as a Systems Project

Done Only for Compensation

Not Treated as a Change Management Project

Context

Focus on Top line. ICICI Bank perceived to be very aggressive on sales , very poor on service.

For bottom-line to improves it was important for the bank to be a service leader.

Improved Service

Leads to improved productivity & profit

Generates a positive word of mouth. Attracts new customers

Provides a competitive advantage.

More difficult and slower for a competitor to respond to service improvement than to price change.

Help us retain customers.

Cheaper to retain customers than to acquire new ones

Terminator : Zero Unhappiness

Quality

Productivity

Research, Education & Teaching Internal Processes Mission To ensure that the all causes of Unhappiness for Customer are fully Terminated in order for the bank to vie for Service Leadership

Customer Complaints

Repeat Contacts

Customer

Cost of Complaints

Financial

Zero Unhappiness Scorecard Branches-Sample

Sample Scorecard

Scorecard presented & reviewed in fortnightly reviews

All variances are linked to RCA

Comparison of Monthly Performance Vs. Budget

Focus on Top Service Failures

Key Indicators Focused On : Number of Service Failures, Quality, Service Request Closed within TAT

Scorecard Related RCA : Deliverables Not Received Apart from wrong creation, dispatch/delivery related issues needed focus

RCA: Deliverables Not Received

Key Issue : RTO returns would sit at the branches, waiting for customer to collect them

Solution : Outbound Calling

Every deliverable cleared resulted in a happy customer, lesser rework & cost savings

Average Contact Ratio:65%

Data :Nov04-Jun 05

RCA : Deliverables Not Received

Issue :E-search Update

E-search information for certain deliverables not updated/ available resulting in inadequate /incomplete information to customers & Service Request creation errors

Initiative :E-Search Update (CTD Initiative)

Identified mandatory uploads for First Contact Resolution related to RPC/ CPC processes

Designed and finalized the file formats for all mandatory uploads - easy reading for front end

National Co-ordinator appointed to tracking e-search open cases and timely uploads

I-KIT AOF Rejections,Modification Request Rejections,Nomination Rejection Letters Nomination Registration Request Rejections,Non I-Kit SB/FD-RD AOF Rejections,Transfer of Account- Rejections,Transfer Cheque Returns, ATM Retained Cards,TDS - Form 15G Rejections etc.

Terminator Results- Cost Saving Through Failure Reduction

Results - Service Failures as % of Transactions

Results – Quality of Request Handling

Results-Customer Feedback Scores

Indonesian Textile Giant Caselet

The company is one of the largest Textile company in Indonesia

Company had been hit heavily by currency crash

In order to improve bottom-lines a plan to reduce the various kind of value losses in production, quality, packing, utility etc.

Ambitious target of USD 4 Million in Value Loss Reduction was set

Initiatives like TQM, Setting up Management Control Systems Organizational re-structuring were pioneered

Balanced Scorecard was used as a strategy implementation tool to support Strategy Implementation

Project Zero Value Loss

Quality

Productivity

Research, Education & Teaching Internal Processes Mission To ensure that the all causes of Unhappiness for Customer are fully Terminated in order for the bank to vie for Service Leadership

Customer Complaints

Repeat Contacts

Customer

Cost of Complaints

Financial

Weekly CEO Scorecard – Value Loss Strategy: Reduction of Value Loss became the central agenda

Scorecard Reporting Flow- Plant Review Review Review Review Review Review Review Review Review Production Shift Scorecard Packing Shift Scorecard Production Daily Scorecard Maintenance Daily Scorecard Department Weekly Scorecard Packing Daily Scorecard PC/QC Daily Scorecard Maintenance Weekly Scorecard PC/QC Weekly Scorecard Weekly Value Loss Scorecard & Analysis Focused: Incredible focus on “value loss reduction” strategy was created by linking scorecards of all departments into the CEO ‘ Value Loss Scorecard’

Weekly Dept. Manager Scorecard Organization: Mobilize employees to act in fundamentally different ways, guided by ‘value loss’ strategy with each employee having an individual scorecard & action plan

Packing Superintendent Scorecard Superintendents of Departments like Packing had individual Scorecards. These flowed into Production Manager’s Scorecard

Utility Generation Scorecard Support functions like Utilities also were giving cost saving targets which were monitored through utility scorecard

Results- Cumulative Savings The Strategy Implementation Programme supported by the Balanced Scorecard produced significant Savings for the Company

Approach: Retail Management Control System Forecast Plan Control Report Manager Retail Distributor DSM Retailer / Customer Sales Plan Route plan Contact Plan Customer / Retail Card DSM Daily Score Card Territory Sales Target Retail Manager Contact Plan Distributor Coverage Target DSM Target DSM Weekly Score Card DSM Monthly Score Card Distributor Weekly Score Card Distributor Monthly Score Card Review Distributor Sales Target Market Intelligence Retail Mgr Segment Manager Marketing Department Review Review Segment Mgr Monthly Score Card Retail Mgr Ride with Segment Mgr Weekly Score Card Segment Sales Target Review Distributor Daily Score Card Review Direct Sales input Retail Mgr Daily Score Card Review Review Review Review Segment Mgr Daily Score Card Review Review Review Distributor Quarterly ROI Analysis Marketing Ride with Retail Mgr Weekly Score Card Retail Mgr Monthly Score Card

Distributor Weekly/Monthly Scorecard

Retail Manager Weekly/Monthly Scorecard

Chief of Sales & Marketing- Weekly Scorecard

Results