Balanced Scorecard Deployment Process Training Module

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The Balanced Scorecard Deployment Training Module v8.0 includes:

1. MS PowerPoint Presentation including 79 slides covering Balanced Scorecard History & Benefits, Four Dimensions of a Balanced Scorecard, Balanced Scorecard Development & Deployment Process, Balanced Scorecard Deployment Challenges & Resolution Strategies, Balanced Scorecard Template & Detailed Instructions, and Project Evaluation & Selection Matrix.

2. MS Excel Balanced Scorecard Template and Example

3. MS Word Workshop Agenda & Evaluation Sheet for a Balanced Scorecard Development Workshop

4. MS Excel Project Evaluation & Selection Matrix to ensure alignment of Operational Excellence, Lean Management, and Six Sigma projects to the Balanced Scorecard

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Balanced Scorecard Deployment Process Training Module

  1. 1. 1 2/11/2013 v8.0 Balanced Scorecard Deployment Process by Operational Excellence Consulting LLC
  2. 2. 2 2/11/2013 v8.0 Achieving Operational Excellence requires the successful implementation of a integrated Business Execution System that effectively and seamlessly integrates the following four building blocks: Strategy Deployment, Performance Management, Process Excellence, and High Performance Work Teams. Strategy or Policy Deployment is the process that aligns and links business strategy and execution. Performance Management is the process that translates strategic initiatives into measurable objectives and goals. Operational Excellence can be achieved and sustained with the right attitude, the right mindset, and the right competencies. Well designed, efficient, and effective Management, Value Chain, and Support Processes are necessary to deliver world- class results. Strategy Deployment Performance Management High Performance Work Teams Process Excellence Operational Excellence Business Execution System
  3. 3. 3 2/11/2013 v8.0 If you are not keeping score, you are only practicing. Tom Malone
  4. 4. 4 2/11/2013 v8.0 There are three types of business leaders:  Those who know the score and know they are winning;  Those who know the score and know they are losing; and  Those who don’t know the score. Modern business managers thirst for information and knowledge while drowning in a sea of data.
  5. 5. 5 2/11/2013 v8.0 Strategy Deployment & Balanced Scorecards  Only 5% of the workforce understands their company strategy.  Only 25% of managers have incentives linked to strategy.  60% of organizations don’t link budgets to strategy.  86% of executive teams spend less than one hour per month discussing strategy. – Source: Balanced Scorecard Collaborative Strategy is an expression of what an organization intents to do to get from a current state to a future state. Strategy is often expressed in terms of a vision statement, initiatives, objectives and goals. It is usually developed at the top levels of the organization, but executed by lower levels within the organization.
  6. 6. 6 2/11/2013 v8.0 Strategy Deployment & Balanced Scorecards Question: Most organizations tend to have good strategic plans, but they fail to successfully implement them. Task: Identify at least two reasons why organizations fail to implement their strategic plans?
  7. 7. 7 2/11/2013 v8.0 Strategy Deployment & Balanced Scorecards According to the Balanced Scorecard Collaborative, there are four barriers to strategic implementation: 1. Vision Barrier – No one in the organization understands the strategies of the organization. 2. People Barrier – Most people have objectives that are not linked to the strategy of the organization. 3. Resource Barrier – Time, energy, and money are not allocated to those things that are critical to the organization. For example, budgets are not linked to strategy, resulting in wasted resources. 4. Management Barrier – Management spends too little time on strategy and too much time on short-term tactical decision-making.
  8. 8. 8 2/11/2013 v8.0 Strategy Implementation & Balanced Scorecards Studies have shown that organizations which are leading in their industry, stellar financial performers, and adept change leaders, distinguish themselves by the following characteristics:  Linking strategic objectives and measures to operational objectives and measures;  Having agreed-upon measures that managers understand;  Balancing financial (lagging) and non-financial (real-time or leading) measures;  Updating and monitor their strategic key performance indicators regularly; and  Clearly communicate measures, progress and challenges to all employees in the organization.
  9. 9. 9 2/11/2013 v8.0 “Tell me how you will measure me, and then I will tell you how I will behave. If you measure me in an illogical way, don’t complain about illogical behavior.” Eli Goldratt – “The Goal”
  10. 10. 10 2/11/2013 v8.0 Balanced Scorecards – Vertical & Horizontal Linkage Organization’s Strategic & Operational Plan and Key Performance Indicators Functional or Work Groups’ Key Process Measures Customers’ Requirements & Satisfaction Suppliers’ Capabilities & Performance Organization’s Balanced Scorecards Balanced Scorecards are not just translating an organization’s strategic initiatives into measurable objectives and goals (vertical linkage), they are also linked and align horizontally to other balanced scorecards in an organization.
  11. 11. 11 2/11/2013 v8.0 Balanced Scorecards – Table of Content  Strategy Deployment & Balanced Scorecards  The History & Benefits of a Balanced Scorecard  Terminology & Definitions  The Balanced Scorecard Development Process  Balanced Scorecard Deployment Challenges & Solutions  Final Multiple Choice Questions & Answers
  12. 12. 12 2/11/2013 v8.0 Balanced Scorecard – History  The first Balanced Scorecard was created by Art Schneiderman in 1987 at Analog Devices.  In 1990, Art Schneiderman participated in an unrelated research study by Robert S. Kaplan and David P. Norton, and during this study described his work on Balanced Scorecard. Subsequently, Kaplan and Norton included anonymous details of this use of Balanced Scorecard in their 1992 article "The Balanced Scorecard - Measures that Drive Performance", Harvard Business Review, February 1992. The paper was a popular success and led to the book “The Balanced Scorecard” published by Kaplan & Nolan in 1996.  The article and the first book spread knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly have lead to Kaplan & Norton being seen as the creators of the Balanced Scorecard concept.
  13. 13. 13 2/11/2013 v8.0 Balanced Scorecards – An Integrated Approach “Balanced Scorecards tell you the knowledge, skills and systems that your employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer) which will eventually lead to higher shareholder value (financial).” “Having Trouble with Your Strategy? Then Map It.” by Robert S. Kaplan and David P. Norton - Harvard Business Review
  14. 14. 14 2/11/2013 v8.0 Balanced Scorecard – Benefits The implementation and ongoing refinement of the Balanced Scorecard Development & Deployment Process described in the course will  Help the management team focus on the execution of their business strategy  Focus and align an organization towards common goals and objectives  Enable an organization to understand the relationship between measures and performance  Improve communication of organizational priorities across an organization  Help employees to understand and focus on organizational priorities and realize relevant results  Reduce the number of metrics to the few vital key performance indicators  Strengthen and formalizing the project selection process to focus on key capabilities and enablers
  15. 15. 15 2/11/2013 v8.0 “People and their managers are working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things.” Stephen R. Covey
  16. 16. 16 2/11/2013 v8.0 Balanced Scorecard vs. Dashboards In the Performance Management discipline, we often hear people refer to the terms “Dashboard” and “Scorecard” rather indiscriminately. However, there exist some rather critical distinctions between the two which are important to recognized.
  17. 17. 17 2/11/2013 v8.0 Balanced Scorecard vs. Dashboards  Purpose: Dashboards are about helping you navigate the journey. Scorecards are about how successful the journey was.  Type of Indicators: Scorecards generally contain outcome results, Dashboards are usually comprised of leading or predictive indicators.  Timeframe: Scorecards are periodic and longer term (weekly, monthly, annual trends) in the review horizon, while Dashboards are shorter term and can even be real time.  Reaction: Scorecards should provoke next steps that involve introspection and analysis (drill downs, mining insights, etc.) where dashboards usually are designed to “signal” or “provoke” immediate actions or course corrections.  Targets: Scorecards usually report against a target, threshold or benchmark as a percentage gap and trend. Dashboards generally report metrics within or against tolerance ranges, outside of which signal a required change.
  18. 18. 18 2/11/2013 v8.0 Balanced Scorecards – Table of Content  Strategy Deployment & Balanced Scorecards  The History & Benefits of a Balanced Scorecard  Terminology & Definitions  The Balanced Scorecard Development Process  Balanced Scorecard Deployment Challenges & Solutions  Final Multiple Choice Questions & Answers
  19. 19. 19 2/11/2013 v8.0 Balanced Scorecard – Terminology Part I Strategy: An expression of what the organization intents to do to get from a current state to a desired state. Strategy is often expressed in terms of a mission statement, vision, goals, and objectives. Strategy is usually developed at the top levels of the organization, but executed by lower levels within the organization. Vision or Intent: An overall statement of how the organization wants to be perceived by it’s stakeholders over the long-term (3 to 5 years). Goal: An overall achievement that is considered critical to the future success of the organization and to achieve its vision. Goals express broadly where the organization wants to be. Strategic Focus Area or Objective: What specifically must be done to execute the strategy; i.e. what is critical to the future success of our strategy? What the organization must do to reach its goals! Strategic Model: The combination of all objectives over a strategic grid, well connected and complete, providing one single model or structure for managing the strategic objective or focus area.
  20. 20. 20 2/11/2013 v8.0 Strategic Planning: Vision, Goals & Objectives Vision: Have the most advance and successful Space Program in the world. Goal #1: Land on the moon and return safely to earth by the end of the decade. Objective #1.1 Develop safe launch and reentry vehicles Objective #1.x Maintain a ground infrastructure…
  21. 21. 21 2/11/2013 v8.0 Balanced Scorecard – Terminology Part II Strategic Grid - Strategy Map: A logical framework for organizing a collection of strategic objectives over four or more dimensions. Everything is linked to capture a cause and effect relationship. Strategic grids are the foundation for building the Balanced Scorecard. Dimensions or Perspectives: Four or more different views of what drives the organization. Perspectives provide a framework for measurement. The four most common perspectives are: Financials (final outcomes), Customers, “Internal” Processes, and Learning & Growth. Cause & Effect Relationship: The natural flow of business performance from a lower level to an upper level within or between dimensions. For example, training employees on customer relation’s leads to better customer service which in turn leads to improved financial results. One side is the leader or driver, producing an end result or effect on the other side. Measurement or Metrics: A way of monitoring and tracking the progress of strategic objectives. Measurements can be leading indicators of performance (leads to an end result) or lagging indicators (the end results). Target: An expected level of performance or improvement required in the future. Initiatives, Programs & Projects: Major initiatives, programs or projects that must be undertaken in order to meet one or more strategic objectives.
  22. 22. 22 2/11/2013 v8.0 Balanced Scorecards – Table of Content  Strategy Deployment & Balanced Scorecards  The History & Benefits of a Balanced Scorecard  Terminology & Definitions  The Balanced Scorecard Development Process  Balanced Scorecard Deployment Challenges & Solutions  Final Multiple Choice Questions & Answers
  23. 23. 23 2/11/2013 v8.0 Balanced Scorecard – Development & Deployment Process Phase I - Strategic Foundation Step 1: Strategic Alignment Step 2: Key Strategic Focus Areas & Objectives Step 3: Strategic Grid & Model Phase II - Three Critical Components Step 4: Key Performance Indicators Step 5: Goals & Targets Step 6: Initiatives & Programs Phase III – Deployment Process Step 7: Integrate Step 8: Cascade Step 9: Manage
  24. 24. 24 2/11/2013 v8.0 Balanced Scorecard – Development Process Phase I - Strategic Foundation Step 1: Strategic Alignment: Communicate and align the organization around a clear and concise vision and strategy. The strategy is what “feeds” the Balanced Scorecard. Step 2: Key Strategic Focus Areas & Breakthrough Objectives: Determine or review the strategic focus areas and objectives for getting the organization focused on those things the organization MUST do to execute it’s strategy and achieve it’s vision. Step 3: Strategic Grid & Model: Build or review the strategic grid or map for each strategic focus area and objective of the organization. Out of all the steps in the entire process, this can be the most difficult since you must take our entire strategy and transform it into specific terms and initiatives that everyone can understand. And everything must be linked to form one complete strategic model.
  25. 25. 25 2/11/2013 v8.0 Balanced Scorecard – Development Process Phase II - Three Critical Components Step 4: Key Performance Indicators: For each strategic initiative on each strategic grid, there needs to be at least one measurement. Measurements provide the feedback on whether or not an organization meets its objective for this strategic initiative. Step 5: Goals & Targets: For each measurement in an organization’s scorecard, establish a corresponding baseline, target and stretch goal. Step 6: Initiatives, Programs & Projects: Things will not happen unless the organization undertakes formal programs, initiatives or projects. Identifying, defining and launching strategic initiatives, programs and projects effectively closes the loop and links the process back to where it started – driving the strategy formulated and mapped in Phase I.
  26. 26. 26 2/11/2013 v8.0 Balanced Scorecard – Development Process Phase III – Deployment Process Step 7: Integrate: Action plans need to be developed and managed. Perform periodic scorecard reviews to validate and verify that measurements are relevant and targets are challenging, but achievable. Individual performance plans need to be developed and the organization’s reward and recognition linked to the scorecards. Establish a bi-annual and/or annual performance review process and conduct individual performance review and coaching sessions. Step 8: Cascade: Once the initial scorecard has been verified and validated, an organization needs to push the entire process into other parts of the organization until it constructs a single coherent performance management system. Measurements and targets need to be established and linkage between scorecards need to be verified at each level of the organization. Step 9: Manage: Use Balanced Scorecards to manage Business Performance. Prioritize and execute improvement opportunities based on their impact on the Balanced Scorecards. Improve your measurement systems and data sources. Renew your Balanced Scorecard every 6 or 12 months to ensure that the KPIs are still aligned with the strategic and business objectives.
  27. 27. 27 2/11/2013 v8.0 Balanced Scorecard – Phase I: Strategic Foundation Inputs: • Organization’s Vision • Organization’s Strategic Focus Areas and Breakthrough Objectives • Organization’s existing Key Performance Indicators (KPI), Baseline and Goals • Customer Expectations & Feedback • Supplier Requirements & Capabilities • Competitor Analysis • High-Level Process Flow for Core Processes (e.g. Enterprise Process Model) • Organization’s SWOT Analysis Activities: • Build the Strategic Grids & Model • Define Organization’s Strategic Initiatives & Tactics • Prepare Communication Material • Organize Functional “Catchball” and Alignment Workshops Outputs: • Strategic Grids & Model • Organization’s Strategic Initiatives & Tactics • Strategy Communication Plan Preparation Phase Strategic Foundation Step 1: Strategic Alignment Step 2: Strategic Focus Areas & Objectives Step 3: Strategic Grids & Model
  28. 28. 28 2/11/2013 v8.0 Balanced Scorecard – Strategic Focus Areas & Objectives Strategic Breakthrough (Hoshin) Objective Strategic Focus Area(s)  By the year 2012, our organization will have the most innovative product line of smart phones.  Product Innovation  By the year 2014, customer turnover will decline by 30% through newly created customer service representatives and pro-active customer maintenance procedures.  Customer Satisfaction  Customer Support Processes  Operating downtimes will get cut in half by cross training front line personnel and combining all four operating departments into one single service center.  Operational Efficiency  Competence Development  Organizational Design  Over the next six months, delivery times will decrease by 15% through more localized distribution centers.  Lead Time Reduction  Operational Efficiency  Distribution Management Collectively, you want to limit our strategic objectives and focus areas to no more than four to five. This helps ensure successful implementation of your organization’s strategic vision. Some common strategic focus areas are: Customer Service, Shareholder Value, Operational Efficiency, Product Innovation, and Social Responsibility.
  29. 29. 29 2/11/2013 v8.0 Balanced Scorecard – Four Perspectives or Dimensions FINANCIALS How do you want to look to your shareholders? - Indicators focus on whether your strategic and operational plan contributes to your top-line, bottom-line and/or market share. CUSTOMERS How do you want to look to your Customers? - Indicators focus on the specific measures that matter the most to your Customers. INTERNAL BUSINESS PROCESSES At which internal processes and capabilities do you want to excel? - Indicators focus on internal operations that enable Customer satisfaction, growth and profitability. LEARNING AND GROWTH What skills and competencies do you need to implement your strategic and operational plan? - Indicators focus on your organization’s ability to innovate, improve and execute. Objectives Indicators Targets Projects Objectives Indicators Targets Projects Objectives Indicators Targets Projects Objectives Indicators Targets Projects Vision & Strategy
  30. 30. 30 2/11/2013 v8.0 Balanced Scorecard – Strategic Focus Areas & Dimensions Basic Flow of a Strategic Focus Area across the Balanced Scorecard Dimensions Notice how each lower perspective layer supports and enables the upper perspective layer; such as “Acquire More Customers” will enable “Revenue Growth”. Keep in mind that we are trying to link everything together. This is critical to building an effective Balanced Scorecard; i.e. capturing the cause & effect relationship. Strategic Focus Area: Increase Shareholder Value Financials Revenue Growth of 20% by 2014 Customers Acquire More Customers “Internal” Processes Customer Marketing & Service Program Learning & Growth Develop Support Systems & Personnel Perspectives
  31. 31. 31 2/11/2013 v8.0 Balanced Scorecard – Strategic Grid & Model Basic Flow of a Strategic Focus Area within the “Financials” Dimension We will flow our strategic objectives down each balanced scorecard perspective within a grid of boxes, making sure everything is linked. This grid will serve as the foundation for constructing the Balanced Scorecard. Strategic Focus Area: Increase Shareholder Value Financials Revenue Growth of 20% by 2014 Operating Cost Improvements of 15% by 2014 New Sources of Revenue Increase Customer Profitability Lower Operating Costs High Utilization of Assets
  32. 32. 32 2/11/2013 v8.0 Balanced Scorecard – “Customers” Dimension After the “Financials” dimension has been defined, we move down to the “Customers” dimension. In order to construct the “Customers” dimension, an organization needs to understand who their Customers could be and the value(s) it provides or could provide to them. Operational Excellence: Companies that emphasize operational efficiency usually provide certain value attributes, such as competitive pricing, on-time delivery, or superb quality. Customer Intimacy: These companies create value for Customers through their great relationship with the Customer, e.g. through integration. Product Leadership: Finally, these companies create value by emphasizing innovative and unique products and services, e.g. technology leaders in their industry. It is extremely important to define your Customer and the values you provide; otherwise you run the risk of building a Balanced Scorecard that does not match the capabilities the organization needs to develop to compete in the future.
  33. 33. 33 2/11/2013 v8.0 Balanced Scorecard – Strategic Grid & Model Strategic Objectives defined for all Four Balanced Scorecard Dimensions Strategic Focus Area: Increase Shareholder Value Financials Revenue Growth of 20% by 2014 Customers Acquire More Customers Become the Price Leader “Internal” Processes Improve Operational Efficiency Cost Reduction Program Knowledge Based System Reduce Non-Core Activities Learning & Growth Training – Lean Six Sigma Program Database Network on Operational Performance Re-Align Organization with Core Competencies Once you have completed the strategic grid, go back and make sure everything fits with your overall strategy. A set of strategic grids should provide the strategic model for running the business, outlining the specifics of the strategy. All stakeholders should be able to look at the grids and follow the flow of the organization’s strategy. DimensionsorPerspectives
  34. 34. 34 2/11/2013 v8.0 Balanced Scorecard – Basic Communication Plan “I sure wish I’d done a better job of communicating with GM people. I’d do that differently a second time around and make sure they understand and shared my vision for the company. Then they would know why I was tearing the place up, taking out whole divisions, changing our whole production structure . . . I never got this across.” Roger Smith, CEO of General Motors (1981 - 1990)
  35. 35. 35 2/11/2013 v8.0 Balanced Scorecard – Basic Communication Plan Stakeholder Group Form of Communication  Senior Management Team  Presentation during next Monthly Meeting  Department Management Teams  One Day Off-site with Presentation and Action Planning  Operation Staff  Presentation during next Monthly Communication Meeting & Communication Boards  Customers  Personal Contact & Mailing  Suppliers  Personal Contact & Quarterly Business Reviews
  36. 36. 36 2/11/2013 v8.0 Balanced Scorecard & Strategic Grids - Feedback State of Michigan Department of the Treasury – A Case Study Deputy Treasurer Julie Croll: "Although the Department had been through a series of 'reengineering projects' and 'quality initiatives', the strategy mapping session of the Balanced Scorecard development process was the first time I had witnessed managers from all parts of the Department really understand what it meant to identify the core mission and functions of the Department. I think it made us all realize that strategic planning for the big picture isn't so scary (or impossible for Bureaucrats) once you understand that the big picture is made up of a lot of little pictures that fit together in some logical way."
  37. 37. 37 2/11/2013 v8.0 Balanced Scorecard & Strategic Grids - Feedback State of Michigan Department of Management and Budget (DMB) initiated the Strategy Mapping and Balanced Scorecard concepts in the late 1990's. Coordinator Kathe Carter: "Our management team evaluates potential new programs/initiatives by seeing how they fit in with our strategy. In the past we would continue stacking new projects on everyone's plates, but now if it doesn't fit with our strategy we don't do it." Just as important for the DMB is that "whenever a new project or initiative is proposed, our people ask 'how does this fit in with our strategy map /scorecard?' They feel that this connection attaches a higher level of importance to the initiative."
  38. 38. 38 2/11/2013 v8.0 Balanced Scorecard – Phase II: Three Critical Components Inputs: • Organization’s Strategic Focus Areas and Objectives • Strategic Grids & Model • Organization’s existing Key Performance Indicators (KPI), Baseline and Goals • Strategy Communication Plan Key Activities:  Review Strategic Grids & Model  Review existing Key Performance Indicators (KPI), Baseline and Goals  Brainstorm & Select KPIs – Financials, Customers, Internal Processes & Learning & Growth aligned with the Strategic Grids & Model  Establish Balanced Scorecard (KPIs, Baseline, Targets, Stretch Goals, Weights, …)  Nominate Business Leader for each KPI  Identify, Define & Launch Strategic Initiatives, Programs and Projects Outputs: • Initial Draft of Organization’s Balanced Scorecard including KPI Name, Definition, Business Leader, Measurement Frequency, Data Source, Baseline, Target, Stretch Goal and Weight • Launch of Strategic Programs, Initiatives, and Projects Development Phase Three Critical Components Step 4: Key Performance Indicators Step 5: Goals and Targets Step 6: Initiatives and Programs
  39. 39. 39 2/11/2013 v8.0 Why do we measure Performance? The reason why we measure performance in organizations is often reduced to simple homilies, such as ‘you can’t manage anything unless you measure it’ or ‘what gets measured gets done’. The three main reasons for measuring performance are:  To learn and improve  To report externally and demonstrate compliance  To control and monitor people Of these three the first is the most important, the second is something organizations just have to do and the third one can cause major problems. Learning & Performance Improvement External Reporting & Compliance Controlling & Monitoring People
  40. 40. 40 2/11/2013 v8.0 Performance Measures & Indicators – Feedback vs. Levers Think of Performance Measures or Indicators as Feedback, NOT Levers  A key to an effective Performance Measurement System is to think of measures in terms of feedback, not as the traditional lever to motivate behavior. This often devolves into keeping score, which is where the dark side of measures starts — avoid it.  Feedback is something you seek to improve your own performance. Levers are used to influence others. The difference is more in how you use the measure than the measure itself. vs.
  41. 41. 41 2/11/2013 v8.0 Where do we measure Performance? Input Process Output Outcome Input – Information & Resources Process – Activities & Workflow Output – Products & Services Outcome – Results & Impact Performance Indicators Are we Doing the Things Right? Execution Planning – How? Are we Doing the Right Things? Strategic Planning – What?
  42. 42. 42 2/11/2013 v8.0 The Three Rights - Doing the Right Things, Doing them at the Right Time, and Doing Them Right.
  43. 43. 43 2/11/2013 v8.0 How do we measure Performance? Try to balance your Performance Indicators:  Do it fast.  Do it right.  Do it on time.  Keep doing it.
  44. 44. 44 2/11/2013 v8.0 Leading Indicators
  45. 45. 45 2/11/2013 v8.0 Balanced Scorecard – Leading & Lagging Indicators  Some measurements will lead to change in your organization. These types of measurements are called leading indicators since they drive final outcomes within the organization. Examples include customer contracts executed, service response time, and time spent with customers. A common place to use leading measurements is within the “Internal Processes” and “Learning & Growth” dimensions.  The other side of measurement is looking back, historical type measurements that show a final outcome or result. These measurements are referred to as lagging indicators and they dominate most performance measurement systems. Examples include most financial type measurements (return on equity, sales growth, etc.) and many non-financial type measurements (production breakeven, customer retention, employee productivity index, etc.). Lagging type measurements are common within the “Customers” and “Financials” dimensions since these are outcome related.
  46. 46. 46 2/11/2013 v8.0 Some Best-in-Class Criteria for Performance Metrics An Organization’s Performance Indicators need to be:  Robust  Stable  Understandable  Accurate  Cannot be manipulated  Must be “intelligence”  Have drill-down capability  Know cause and effect (drivers)  Must be accessible  Metric guru not necessary to obtain data  Reports developed and published with pertinent information  Frequency of reporting must be balanced with effort  Single point of responsibility  Don’t have to chase people to get information  Direct access to data and reports
  47. 47. 47 2/11/2013 v8.0 Balanced Scorecard – Key Performance Indicators Strategic Focus Area: Increase Shareholder Value Financials Revenue Growth of 20% by 2014 Customers Acquire More Customers Become the Price Leader “Internal” Processes Improve Operational Efficiency Cost Reduction Program Knowledge Based System Reduce Non-Core Activities Learning & Growth Training – Lean Six Sigma Program Database Network on Operational Performance Re-Align Organization with Core Competencies For each objective on your strategic grids, you need at least one performance indicator. Can you have an objective without a performance indicator? Yes, it is possible, but not having a measurement makes it difficult to manage the objective. It’s best to revisit this objective and ask the question: Why is this an objective? DimensionsorPerspectives
  48. 48. 48 2/11/2013 v8.0 Balanced Scorecard – Software Application 1/2 Should you consider investing in a Balanced Scorecard software application, we suggest considering at a minimum the following five selection criteria: 1. Total Cost of Ownership - that would be the costs ($) and work volume (e.g. in man-days) required to configure the software, not just at the beginning, but along the following years. Of such costs and work volume, how much would be required by (a) external IT consultants and (b) your own IT department? 2. Ease of Use for your entire Organization - More than 2/3 of both initial Balanced Scorecard implementation work volume and of the adaptation work during each yearly cycle afterwards is taken by the alignment of the organizational Balanced Scorecard at divisional and individual level. Is your software environment going to facilitate this, or hinder it? 3. Integrated Software Environment - Integrated, from the point of view of what is called 'the single version of truth' (central database vs. the same data in multiple places), as well as regarding the ETL (Extract-Transform-Load) integration with other IT systems supplying your Balanced Scorecard data.
  49. 49. 49 2/11/2013 v8.0 Balanced Scorecard – Software Application 2/2 4. Use for both Scorecards (strategic) and Dashboards (operational) - Since Balanced Scorecard is very often used in conjunction with Performance Management at both strategic and operational levels, having a single integrated environment for both levels will save you a lot of headaches along the way. 5. Collaborative Environment - The Balanced Scorecard operation is not a simple thing, especially if you use it as an aligned management system throughout the entire organization. Think of the top-down alignment of Strategy Maps, Scorecards and Initiatives portfolios, as well as of the bottom-up Strategic Review process, where you need to have your departmental Strategy Review Meetings each month and a couple of days later the organizational Strategy Review Meeting, using the rolled-up status data & decisions from the divisional level.
  50. 50. 50 2/11/2013 v8.0 Balanced Scorecard – A Template From: January 2010 ORGANIZATION: TBD Until: December 2010 Current Month: TBD 2010 KPI KPI Name (Unit) KPI First Name Champion Last Name 10 STRETCH 9 8 7 GOAL 6 5 4 3 BASE 2 1 0 ZERO WEIGHT 0 2010 TOTAL SCORE JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER CURRENT SCORE 3 4 7 2 3 5 6 9 Stretch 2010 1000 Goal 2010 700 Base 2009 300 Actual 0 ORGANIZATION OPERATIONAL EXCELLENCE BALANCED SCORECARD FINANCIALS CUSTOMERS PROCESSES RESULTS 1 2 5 7 4 12 11 8 9 3 6 10
  51. 51. 51 2/11/2013 v8.0 Balanced Scorecard – A Template 1 2 5 7 4 3 6 Name of the Organization Scorecard Time Frame (e.g. 6 or 12 Months) KPI Categories (e.g. Financials – Customers – Processes – Learning & Growth) KPI Name and Unit (e.g. On-Time-Delivery in %) KPI Champion or Business Leader Each KPI on the scorecard is important. Otherwise, it should not be on the scorecard. However, not every KPI is equally important. Define the weight (1 to 100) of each KPI using this row. The sum of all the weights needs to add up to 100. Define Level 3 = Baseline – Level 7 = Goal – Level 10 = Stretch Goal for each KPI. The Baseline is usually the lowest acceptable performance level for a specific KPI or the performance during the past 3, 6 or 12 months.
  52. 52. 52 2/11/2013 v8.0 Balanced Scorecard – A Template 12 11 9 10 Define KPI Performance Levels for the levels 0 - 2, 4 - 6, and 8 – 9, so that each level represents an improvement in the KPI. Track monthly performance for each Balanced Scorecard KPI and record actual performance. Enter the current Performance Level (0 to 10) for each KPI, based on last month’s performance. Use the colors “red”, “yellow”, and “green” to visualize if the performance improvement for the specific KPI is on track or not. Use the Markers (circles) to visualize current performance level for each KPI in . Automatic calculation of overall scorecard score for the current month, e.g. All KPIs perform at Baseline Level -> Total Score 300 Points All KPIs perform at Target Level -> Total Score 700 Points All KPIs perform at Stretch Goal Level -> Total Score 1000 Points Track Monthly Total Score, as calculated in . Use the colors “red”, “yellow”, and “green” to visualize if overall performance improvements are on track. 8 8 11
  53. 53. 53 2/11/2013 v8.0 Balanced Scorecard – An Example From: January 2015 ORGANIZATION: Company ABC (Americas Region) Until: December 2015 Current Month: January 2015 LEARNING & GROWTH Product A Gross Margin EBITDA Net Promotor eCommerce Orderfulfillment Order-to-Cash Annualized # of Certified KPI Market Share Score (NPS) Revenue Lead Time Lead Time Field Failure Rate Lean Six Sigma Belts (%) (% YTD) (% YTD) (%) ($M YTD) (Hours) (Days) (%) (Points) KPI Tim Smith Jen Meyer Klaus Adler Edgar Winter Jen Meyer Klaus Adler Ellen Grinder Tim Smith Helen Barns Champion SVP Engineering SVP Sales SVP Operations CEO SVP Sales SVP Operations CFO SVP Engineering SVP HR 10 20.00% 60.0% 20.0% 38.0% $1,000 100 60 6.5% 150 STRETCH 9 18.00% 56.6% 18.0% 37.0% $900 110 70 7.0% 140 8 16.00% 53.3% 16.0% 36.0% $700 115 80 7.5% 120 7 14.00% 50.0% 14.0% 35.0% $500 120 90 8.0% 100 GOAL 6 12.00% 45.0% 13.0% 32.5% $450 150 110 9.0% 80 5 10.00% 40.0% 12.0% 30.0% $400 180 140 10.0% 60 4 8.00% 35.0% 11.0% 27.5% $350 210 170 11.0% 40 3 6.00% 30.0% 10.0% 25.0% $300 240 200 12.0% 20 BASE 2 4.00% 25.0% 9.0% 22.5% $200 260 225 13.0% 10 1 2.00% 20.0% 8.0% 20.0% $100 280 250 14.0% 5 0 ZERO WEIGHT 10 10 20 15 10 10 15 5 5 100 2011 TOTAL SCORE JANUARY 0.00% 42.1% 8.9% 31.50% $42 220 179 14.5% 12 230 FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER CURRENT SCORE 0 5 1 5 0 3 3 0 2 Stretch 2014 1000 Goal 2014 700 Base 2014 300 Actual 230 RESULTS FINANCIALS CUSTOMERS PROCESSES
  54. 54. 54 2/11/2013 v8.0 Balanced Scorecard – Project Selection Matrix Balanced Scorecard Project Selection Matrix KPI#1 KPI#2 KPI#3 KPI#4 KPI#5 KPI#6 KPI#7 KPI#8 Weights 20 10 15 10 5 20 10 10 100 50 30 20 100 70 30 100 Project Definition 1 Project #1 10 0 5 0 0 3 0 0 3.4 5 0 5 3.5 0 5 1.5 2 Project #2 0 3 0 5 0 0 0 0 0.8 0 5 0 1.5 3 0 2.1 3 Project #3 5 5 10 10 3 3 8 8 6.4 3 8 5 4.9 5 8 5.9 4 Project #4 0 0 10 5 0 0 5 0 2.5 0 0 10 2.0 3 3 3.0 5 Project #5 5 10 0 0 1 0 0 3 2.4 10 5 3 7.1 3 5 3.6 Ranking 0 = none Not Started 3 = low On Track 5 = medium At Risk 8= high Behind Schedule 10= very high CORRELATION MATRIX MANAGEMENTRISK TOTALRISK PROJECTSTATUS CAPITALRESOURCES DURATIONOFPROJECT TOTALEFFORT TECHNICALRISK EFFORT RISK PEOPLERESOURCES IMPACT FINANCIALS CUSTOMERS PROCESSES LEARNING& GROWTH TOTALIMPACT
  55. 55. 55 2/11/2013 v8.0 Balanced Scorecard – Project Ranking Matrix 10 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8 9 10 EFFORT IMPACT Size of the Ball = Size of the Risk 1 2 3 4 5
  56. 56. 56 2/11/2013 v8.0 Balanced Scorecard – Phase III: Deployment Process Inputs:  Initial Draft of Organization’s Balanced Scorecard including KPI Name, Definition, Business Leaders, Measurement Frequency, Data Source, Baseline, Target, Stretch Goal, and Weight  Definition & Launch of Strategic Initiatives, Programs and Projects Key Activities:  Perform monthly Reviews.  Validate and verify that KPIs are relevant and Targets are challenging, but achievable. Modify if necessary.  Develop Balanced Scorecard for each Department (next level)  Establish and Verify Linkage between Scorecards (KPIs and Targets) at each Level of the Organization  Integrate Balanced Scorecard into Incentive Programs  Manage Strategy Deployment Outputs:  Minutes and Action Plan from monthly Balanced Scorecard & Strategy Deployment Review Meetings  Updated Project Selection Matrix and prioritized Improvement Opportunities Deployment Phase Deployment Process Step 7: Integrate Step 8: Cascade Step 9: Manage
  57. 57. 57 2/11/2013 v8.0 Balanced Scorecard – Integrate, Cascade, Manage Activities:  Use Balanced Scorecards to Manage Your Business Performance  Prioritize and Execute Improvement Opportunities based on their Impact on your Balanced Scorecards  Improve your Measurement Systems and Data Sources  Renew your Balanced Scorecard every 6 or 12 Months to ensure that the KPIs are still aligned with your Strategic and Business Objectives Manage Activities:  Develop Balanced Scorecard for each Department (next level)  Establish and Verify Linkage between Scorecards (KPIs and Targets) at each Level of the Organization  Define Process for Collecting, Reporting and Reviewing Scorecard Results and Strategic Initiatives  Establish Individual Performance Plans & Link Reward and Recognition Process to Balanced Scorecards Cascade Activities:  Conduct monthly Balanced Scorecard Performance & Strategy Deployment Reviews  Establish Individual Performance Plans & Link Reward and Recognition Process to Balanced Scorecards  Establish bi-annual and/or annual Individual Performance Review Process Integrate
  58. 58. 58 2/11/2013 v8.0 Balanced Scorecard – Vertical Linkage of Performance Indicators Organization’s Customer Satisfaction measured through the Net Promoter Score Order Management Customer Satisfaction measured through Order Confirmation Lead Time Customer Service Customer Satisfaction measured through First Call Resolution Production Customer Satisfaction measured through Order Fulfillment Lead Time Purchasing Performance measured through Material Replenishment Lead Time Sales & Marketing Performance measured through 90-Days Forecast Accuracy
  59. 59. 59 2/11/2013 v8.0 Balanced Scorecard – Horizontal & Vertical Linkage • Performance Indicators vary according to the Organizational Level. Task 1 Task 2 Task 3 Task 4 Task 5 Process Outcome Customer M4 M4 M3M3 M2 M1 M1 – Organizational Level – Executive Scorecard Indicator M2 – Process or Functional Level – VP/Director Scorecard Indicator M3 – Sub-Process or Departmental Level – Manager Scorecard Indicator M4 – Task or Activity Level – Work Group Scorecard Indicator
  60. 60. 60 2/11/2013 v8.0 Balanced Scorecards – Table of Content  Strategy Deployment & Balanced Scorecards  The History & Benefits of a Balanced Scorecard  Terminology & Definitions  The Balanced Scorecard Development Process  Balanced Scorecard Deployment Challenges & Solutions  Final Multiple Choice Questions & Answers
  61. 61. 61 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 1/6 Fear • Symptoms: Concern about how performance indicators are used to evaluate team and individual performance, resulting in resistance to measurement • Strategies: Involve individuals in setting targets – Invite the whole team to the first scorecard reviews – Rotate team members through scorecard reviews - Implement a well defined Performance Management Process - ... Fudging • Symptoms: Individuals are manipulating results to pretend that they achieve or exceeded their target • Strategies: Clearly define data source – Minimize need for data manipulation to obtain performance indicator results – Rotate the assignment to collect scorecard data - Display scorecards publicly on boards or the intranet – Have departments present their scorecards to each other - ...
  62. 62. 62 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 2/6 Finger Pointing • Symptoms: Individuals are blaming other departments for their ability to reach the target • Strategies: Focus on understanding the processes that impact performance indicator results – Provide training in process mapping, problem solving, and root cause analysis - Have departments present their scorecards to each other asking for support where needed - ... Overreacting • Symptoms: Individuals are acting on normal day-to-day or month-to-month variation without understanding random variation, creating an unproductive spiral of actions, investigation, and process tempering • Strategies: Provide training in statistical thinking and the concept of assignable causes – Define control limits and patterns that require investigations versus patter that may just be caused by random variation - ...
  63. 63. 63 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 3/6 Prima Donna Syndrome • Symptoms: Individual insist that their particular activity is unique and cannot be measured • Strategies: Explain that if they produce a work output of any type, they can be measured – Help them by listing their outputs, customer (internal or external) requirements, and work processes – ... Linus Syndrome • Symptoms: Individuals are measuring things because they have always measure them, independent of the relevance of these measures to the strategic objectives and goals • Strategies: Reiterate business objectives and goals – Keep the number of performance indicators to vital 6-10, eliminating irrelevant indicators – Question how a specific performance indicators will support achieving the business objectives - ...
  64. 64. 64 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 4/6 Panacea Syndrome • Symptoms: Individuals believe that measuring alone will ensure that things get done and goals will be achieved, without analysis, planning and execution • Strategies: Perform at least monthly scorecard reviews – Implement a well defined Performance Management Process - ... Big Stick Syndrome • Symptoms: Individuals are using performance indicators to “beat up” on poorly performing managers, instead of focusing on the underlying processes, systems and policies that need to be improved • Strategies: Focus on understanding the processes that impact performance indicator results – Provide training in process mapping, problem solving, and root cause analysis - ...
  65. 65. 65 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 5/6 Denial • Symptoms: Individuals deny that the performance indicator represents actual performance and refuse to act on facts • Strategies: Implement a well defined Performance Management Process - Provide training in process mapping, problem solving, and root cause analysis - ... Hyperactivity • Symptoms: Individuals measure activities that are unrelated and have no correlation with the actual objectives and desired results • Strategies: Reiterate business objectives and goals - Question how a specific performance indicator will support achieving the business objectives - ...
  66. 66. 66 2/11/2013 v8.0 Balanced Scorecard Deployment Challenges – 6/6 Fuzz Factor • Symptoms: Measures are so complicated that no one actual understands what is being measured and what causes results • Strategies: Keep it Simple - Use performance indicators that are industry standards, as this also enables you to benchmark your performance against other companies - Explain that an indicator that is not understood cannot be act upon and thus not be improved - ... Measure Mania • Symptoms: Individuals are measuring too many things, just in case, and are unable to determine or focus on the vital few performance indicators • Strategies: Reiterate business objectives and goals – Keep the number of performance indicators to vital 6-10, eliminating irrelevant indicators – Question how a specific indicator will support achieving the business objectives - Implement a well defined Performance Management Process, focusing on the business objectives and goals - ...
  67. 67. 67 2/11/2013 v8.0 Balanced Scorecards – Table of Content  Strategy Deployment & Balanced Scorecards  The History & Benefits of a Balanced Scorecard  Terminology & Definitions  The Balanced Scorecard Development Process  Balanced Scorecard Deployment Challenges & Solutions  Final Multiple Choice Questions & Answers
  68. 68. 68 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #1 In order to get the most out of the Balanced Scorecard, it should not be thought of as a: a. Stand alone performance measurement program. b. Framework for communicating and executing strategy. c. Tool for shifting emphasis from short term thinking to strategic thinking. d. Strategic management system. Note: Answers will be available at the end of this section.
  69. 69. 69 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #2 The Balanced Scorecard process captures a cause and effect relationship based on having all parts linked together. Strategic areas link down to goals, strategic goals link down to strategic objectives, and strategic objectives are linked to: a. Mission b. Goals c. Budgets d. Measurements
  70. 70. 70 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #3 Balanced scorecards consist of four inter-related perspectives. Which perspective or layer will be the main driver or enabler for outcomes within the financial perspective? a. Learning & Growth b. Customer c. Programs d. Templates
  71. 71. 71 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #4 There are two types of measurements: Leading Indicators (lead to end results) and Lagging Indicators (the end results). Which perspective of the Balanced Scorecard would most likely use leading type measurements? a. Financial b. Customer c. Internal Business Processes d. Learning & Growth
  72. 72. 72 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #5 Mason Corporation has developed the following three strategic objectives for its balanced scorecard: A = Employee involvement will be enhanced through a new matrix realignment of the organization. B = Customer confidence will be expanded through more personal approaches to service. C = The product delivery system will be expanded to include all new product lines. Where should Mason Corporation place these three objectives within its strategic grid? Customer Internal Processes Learning & Growth a. A C B b. C B A c. B C A d. B A C
  73. 73. 73 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #6 Triple K Construction is developing a balanced scorecard. One of the goals for Triple K Construction is: We will meet or exceed the expectation of our customers by providing commercial construction projects that are on time and on budget. Which of the following strategic areas fits with this goal? a. Commitment to Community b. Customer Satisfaction c. Shareholder Value d. Employee Productivity
  74. 74. 74 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #7 The very bottom dimension of the Balanced Scorecard is the ultimate "enabler" for the three top layers. This bottom perspective is called: a. Internal Processes b. Market Share c. Learning & Growth d. Shareholder Value
  75. 75. 75 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #8 ______________ are tools (usually spreadsheets) for capturing and organizing much of the data that goes into building the Balanced Scorecard. a. Templates b. Indexes c. Goals d. Ratios
  76. 76. 76 2/11/2013 v8.0 Balanced Scorecard Process – Review Question #9 Balanced scorecards are appropriate for which type of organization? a. Private sector businesses. b. Non-profit organizations. c. Government agencies. d. Any organization concerned about the execution of its strategy.
  77. 77. 77 2/11/2013 v8.0 Balanced Scorecard Process – Answers to Question #1 to #9 Q #1 A Q #2 D Q #3 B Q #4 C Q #5 C Q #6 B Q #7 C Q #8 A Q #9 D
  78. 78. 78 2/11/2013 v8.0 The End … “Perfection is not attainable, but if we chase perfection we can catch excellence.” - Vince Lombardi
  79. 79. 79 2/11/2013 v8.0 Terms & Conditions After you have downloaded the training material to your own computer, you can change any part of the course material and remove all logos and references to Operational Excellence Consulting. You can share the material with your colleagues and re-use it as you need. The main restriction is that you cannot distribute, sell, rent or license the material as though it is your own. These training course materials are for your — and your organization's — usage only. Thank you.

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