Organizational Alignment using Strategy Maps and Balanced Scorecard

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This presentation introduces Strategy Maps and Balanced Scorecard to the audience with examples from IT organizations, based on the presenter’s experience. It also provides a method by which organizations can prioritize various initiatives (like CMMI, People CMM, etc.) in the context of their impact to their strategic goals.

This presentation was used at a talk for Bangalore SPIN on November 19, 2009.

Published in: Business, Technology

Organizational Alignment using Strategy Maps and Balanced Scorecard

  1. 1. Organizational Alignment Using Organizational Alignment Using Strategy Maps & Balanced Scorecard Strategy Maps & Balanced Scorecard Presented by Rajesh Naik @ Bangalore SPIN, Nov 2009 © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 1
  2. 2. Do these sound familiar? • The organization says it will do business only with Fortune 500 companies – But keeps signing small projects from small customers • Cost reduction is a focus – But you are asked to travel by train, spend billable time and stay in hotels (costlier than airfare!) • New skills are a must for promotion and growth – But the best people are busy (fire fighting) with existing projects and the mediocre folks get trained on new technologies © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 2
  3. 3. Do these sound familiar? • CEO says low cycle-time, low-cost and feature-richness are critical to their success – But the project and process goals are schedule variance, effort variance and defect density – do these match with the critical success factors? • CEO says we MUST grow in new products – But the sales targets (for salespersons) are based on total order value – there are no product line specific targets © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 3
  4. 4. Initiatives – What Direction? CM MI an Le Organization Agile tion a ov nn Re I us © Rajesh Naik, 2009 e 4 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license
  5. 5. How Do They All Tie Together? • Employees – Do not know why they are doing something – Do not understand how various initiatives are interlinked • Management – Often starts new initiatives without fitting into a bigger picture – Does not explain relationship between initiatives and overall objectives © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 5
  6. 6. We Need to Execute Strategy (not just formulate it…) Of the strategies effectively formulated, less than 10% are effectively executed” Fortune “It better to effectively implement a mediocre strategy, than to ineffectively implement a great strategy” © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 6
  7. 7. But what is strategy? The art or skill of careful planning towards an advantage or a desired end ‘Oxford English Dictionary’ © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 7
  8. 8. Key Elements of Effective Strategy Implementation • Clarify strategies • Understand and explain inter-linkages • Resolve conflicts of alignment • Communicate to employees • Relate internal process goals to organizational strategic goals • Align investments in people, technology and organizational capital for greatest impact on strategic objectives • Prioritize initiatives based on potential impact © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 8
  9. 9. How do we get Breakthrough Results? World Class Strategy Implementation = Describe the Measure the Manage the Strategy + Strategy + Strategy Strategy Balanced Maps Scorecard © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 9
  10. 10. A Software Products/ Services Org Financial (Shareholder/ Owner) Perspective Revenue Profits EPS © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 10
  11. 11. A Software Products/ Services Org Revenue Profits EPS …… Single Point Fortune High Quality High Speed Cost-Effective …… for Insurance 500 Customers Solutions Implementation Services Industry Customer Perspective © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 11
  12. 12. A Software Products/ Services Org Revenue Profits EPS …… Single Point High Quality High Speed Cost-Effective Large Scale Fo for Insurance Solutions Implementation Prod/ Svcs Industry Implementations 500 C Hi Fidelity Program Brand Building in Large Account Software Processes Management Insurance Industry Management Products Reuse Cross Selling Cost Effective Effective Cost Infrastructure Financing Regulatory Internal Perspective Compliance © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 12
  13. 13. A Software Products/ Services Org Revenue Profits EPS …… Single Point High Quality High Speed Cost-Effective Large Scale Fortune for Insurance Solutions Implementation Prod/ Svcs Implementations 500 Customers Industry Program Brand Building in Large Account Software Hi Fidelity Management Insurance Industry Management Products Processes Cost Effective Cost Effective Reuse Infrastructure Financing Cross Selling Regulatory Compliance People, knowledge, systems, innovation and improvement perspective Knowledge Employee Insurance Innovation Management Engagement COE Tech/ Domain Automation Competency Continuous IP Creation Of Processes Development Improvement © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 13
  14. 14. The Concept Financial/ Owners/ Shareholders Customers Business Processes Learning & Growth People, Systems & Technology Vision & Strategy © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 14
  15. 15. The Four Perspectives FINANCIAL PERSPECTIVE How should we appear to our Owners/ shareholders?” CUSTOMER PERSPECTIVE How should we appear to our customers? • What products/ services? • What markets? INTERNAL PERSPECTIVE What business processes must we excel in? LEARNING PERSPECTIVE What do we need to change, learn, innovate and improve? © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 15
  16. 16. Cause & Effect Relationship Financial ROCE Customer Customer Loyalty On Time Delivery Business Processes Process Quality Process Cycle Time Learning & Growth Employee Skills © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 16
  17. 17. Successful Balanced Scorecards start with a strategy map Example Mobil (US Marketing & Refining) Growth Theme Productivity Theme Improve quality of revenue by understanding customer Maximize utilization of existing assets and integrate needs and differentiating ourselves accordingly. the business to reduce total delivered cost. Return on Capital Financial Increased from 6% to 16% Perspective Competitive Position (profitability) From last (1993) to first (95, 96, 97, 98) Volume Growth Reduce Cash Expenses Improve Cash Flow Exceeds industry by 2-2.5% annually Down by 20% From -$500 M/Yr to +$700 M/Yr Customer Perspective Customer Satisfaction Continuous improvement for 3 consecutive years Product Innovation Customer Management Internal Speedpass Active Dealer Quality Perfect Orders Perspective Increasing at rate of Continuous Continuous 1M per year improvement for 4 improvement for 4 consecutive years consecutive years Operational Excellence Good Neighbor Quality Capacity Utilization Safety Environmental Continuous Annual value of lost Lost work incidents Number of incidents improvement for 4 yield reduced from down from 150 to 30 reduced by 63% consecutive years $175m to $50m per year Learning & Motivated & Prepared Workforce Source: Growth Strategic Awareness Perspective The Balanced Scorecard Annual employee survey shows awareness of strategy increased from 20% to 80% D. Norton & R. Kaplan © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 17
  18. 18. Cascading and Layering of Goals Organization Delivery Group HR Group © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 18
  19. 19. Purpose of Strategic Measures –Convert a strategic objective (stated in English) into a measurable target (stated in numbers) © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 19
  20. 20. Balanced Scorecard: Airline example Strategy Map: Cause-and-effect between strategic objectives Strategic Theme: Operating Efficiency Financial Profitability How success Statement of will be Performance Key action More the strategy measured Needed programs Fewer planes customers Customer Flight Lowest Is on time prices Objectives Measurement Target Initiative Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time Fast ground turnaround • On-Time • 90% optimization turnaround Departure Learning Ground crew alignment © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 20
  21. 21. Balanced Scorecard: Airline example Strategy Map: Cause-and-effect between strategic objectives INITIATIVE Strategic Theme: Operating Efficiency Financial Profitability How success Statement of will be Performance Key action More the strategy measured Needed programs Fewer planes customers Customer Flight Lowest Is on time prices Objectives Measurement Target Initiative Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time Fast ground turnaround • On-Time • 90% optimization turnaround Departure Learning LEAD MEASURE Ground crew alignment LAG MEASURE © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 21
  22. 22. Balanced Scorecard: Airline Example Strategic Theme: Objectives Measurement Target Initiative Operating Efficiency Financial • Profitability • Market Value • 30% CAGR Profitability • More Customers • Seat Revenue • 20% CAGR • Fewer planes • Plane Lease Cost • 5% CAGR More Fewer Planes Customers Customer • Flight is on -time • FAA On Time Arrival • #1 • Quality management Flight Lowest • Lowest prices Rating • Customer loyalty Is on Time • Customer Ranking (Market program Prices • #1 Survey) Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time Fast Ground turnaround • On-Time Departure • 90% optimization Turnaround program Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP alignment trained yr. 3 90% Ground Crew • % Ground crew yr. 5 100% • Ground crew training Alignment stockholders © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license
  23. 23. The Balanced Scorecard Measures Strategic Objective Outcome Measures Performance Drivers At the end of a Intermediate time period Processes Lag Measures Lead Measures Eg : Year-end-sales, Eg : Hours spent, Market Share Product Mix Hours Studied for Entrance Exam College Admitted to Marks/ Rank in Entrance Exam Efforts in Preparation College For Job Interview Category Of Hiring Company Marks/ Rank in College © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 23
  24. 24. Selecting BSC Measures •Caution •Do not select what can be measured: select what “should” be measured •Ensure balance between lead and lag measures •Have a practical number of measures © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 24
  25. 25. Attributes of Measures in BSC • Identify measure(s) for each goal • Each measure will have the following elements – The corresponding goal/ objective in the strategy – The measure – The operational definition of the measure – Type (Lead or Lag) – Past values for measure (for defined time period) – Target (values and time periods they correspond to) • For different periods (1 year, 2 year, 5 year) – Reporting Vehicle and Frequency – Person responsible for measuring and reporting – Person responsible for meeting target © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 25
  26. 26. A completed Balanced Scorecard example Illustrative Obj Obj. Data Objective Measure Type Unit Frq. Actual Target Initiatives No. Resp. Resp. F1 Achieve sustained profitability (PBT) from March 2000 PBT Lag Rs Cr m MRD TS Revenue Market Share Lag % q TS F2 Meet volume & revenue targets by significantly increasing subscriber base Revenue Lag Rs Cr m AS TS P1 Monthly Churn Lag nos m MK Subscriber base Lag nos m OM F3 Manage risk effectively Average collections/bill cycle after 25 days Lag % m TA AR P5 Average collections/bill cycle after 60days Lag % m SNK Bad Debt Lag % 1/2y CP F4 Improve operating efficiency Acquisition cost per subscriber Lag Rs 1/2y UP KS P4 Cost to serve per subscriber Lag Rs 1/2y KS Cost of funds Lag % q KS C1 Offer VFM & reward loyalty Average customer lifetime Lag Months q MI DS P2 C2 Get reliable & consistent service Calls per 1500 subscribers Lead nos m LK GA Complaints per 1500 subscribers Lead nos m GA Customer survey index Lag Index q GA C3 Receive sustained demand Average acquisitions/dealer Lead nos m RJ GA P11 Average activations & recharges/ distributor Lead nos m GA C4 Receive superior training for team Dealer Satisfaction Index Lag Index q AA CR P10, P6 C5 Get HR support for identification & recruitment of sales executives Dealer Satisfaction Index Lag Index q CS BB P9,P11 C6 Receive adequate ROI opportunity Average ROI for dealers Lag % q RN KSK P22 I1 Significantly reduce churn Monthly Churn YK P14,15 I2 Grow dealer sales force to increase customer reach; and increase width in retail # sales executives per dealer Lag % q GS VS # outlets per distributor Lag % q VS I3 Create and execute a coordinated sales & marketing plan by key segments % penetration of new products, services Lag % q KD DS Average channel cost/acquisition Lag Rs q KSK Advtg & promo cost as % of sales revenue Lead % q KSK I4 Target product to appropriate segments Penetration in targeted segment Lag % q TK RD I5 Ensure superior service delivery levels at contact points Customer service delivery index Lead Index q PL ON Network service delivery index Lead Index q MK I6 Improve collection Average collection period IM processes L1 Improve employee motivation & productivity Subscribers/employee Lag nos q AR RCX Revenue/employee Lag Rs. q RC Employee Satisfaction Survey Rating Lead Index 1/2y RC L2 Close skill gaps by regular training Skill gaps closed Lead % q OR RC L3 Rationalize organizational structure KMS achieved Lead % q MK RF L4 Build strong systems support & knowledge-base IT Delivery Index Lag Index 1/2y SR PP L5 Improve coordination between all departments # forum meetings held Lead nos q OJ KK © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 26
  27. 27. Initiatives and the Strategy • We need initiatives to achieve the objectives Lean • Initiatives may impact Lean different objectives in different ways – Strongly or weakly – Directly or indirectly – Positive or negatively – In the short-term and the long- term • We must evaluate each proposed initiative, and prioritize and select © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 27
  28. 28. Where do Strategy Maps and BSC fit in the overall scheme of things? Mission (Why we exist) Values (What is important to us) Vision (What we want to be) Strategy (Our Game Plan) Strategy Maps (How the strategy translates) Balanced Scorecard (Measure and Focus) Initiatives (What we need to do and change) Individual Performance Goals (What I need to do) © Adapted from Strategy Maps by Kaplan and Norton Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 28
  29. 29. BSC and Individual Performance Goals An individual’s performance targets should be derived from all relevant scorecards. Depends on •roles and responsibilities, •initiatives involved in Individual Performance Goals LOB BSC For Shredni Vashtaar Strategic Theme: Objectives Measurement Target Initiative Operating Efficiency Financial Profitability • Profitability • More • Market Value • Seat Revenue • 30% CAGR • 20% CAGR BNS LOB Goals Customers • Plane Lease • 5% CAGR Fewer Planes More Customers • Fewer planes Cost 1. Revenue • • Quality • Flight is on -time • FAA On Time Arrival #1 2. Profits Custome r • Lowest prices Rating management Flight Lowest Is on Time Prices • Customer Ranking • #1 • Customer loyalty (Market Survey) program Interna l • Fast ground turnaround • On Ground Time • 30 Minutes • Cycle time • On-Time • 90% optimization 3. New Orders Fast Ground Turnaround Departure program 4. Repeat Orders Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP alignment trained yr. 3 90% • Ground crew 5. Order of New Services Other Scorecards Ground Crew • % Ground crew yr. 5 100% Alignment training stockholders Strategic Theme: 6. Compliance to Statutory .. Objectives Measurement Target Initiative Operating Efficiency Financial Profitability • Profitability • More Customers • Market Value • 30% CAGR • Seat Revenue • 20% CAGR • Plane Lease • 5% CAGR 7. Productivity Strategic Theme: Fewer Planes Custome Financial More Operating Efficiency Customers • Objectives Fewer planes Cost Measurement • Profitability -time • • Market Value • Arrival Profitability • Flight is on • More FAA On Time Seat• #1 Revenue Target • 30% CAGR • •20% CAGR Quality Initiative 8. Cycle Time • Plane Lease • 5% CAGR 9. Customer Satisfaction management r Flight Lowest Theme: • Customers Strategic • Lowest prices Rating More Fewer planes Objectives Cost • Customer Target Measurement loyalty Initiative Is on TimeFewer Planes Operating Efficiency • Customer Ranking • #1 Prices Customers (Market Survey) program Financial • Profitability • Market Value • 30% CAGR • Arrival Profitability • Flight is on • More FAA On Time Seat• #1 • •20% CAGR 10. Attrition Custome -time • Revenue Quality Interna r Flight • Fast ground• Lowest prices Time • 30 Minutes •Lease time• 5% CAGR Lowest • On Ground Rating Customers • Plane Cycle management l Fast GroundTimeFewer Planes Is on turnaround More • On-Time • Customer Ranking optimization Customer loyalty • Fewer planes • 90% Cost • Departure (Market Survey) • #1 Prices Turnaround Customers program program Learning Interna l Custome r Lowest Is on alignment Prices trained Fast GroundTime Ground Crew Turnaround turnaround • On • yr. 1 70% ESOP Flight • Ground crew Fast ground• Lowest prices Rating • • Flight is on -time • FAA On Time Arrival #1 • • % Ground crew Ground Time •• 30 Minutes • Cycle time • On-Time 3 •90% •• 90% crew optimization • % Ground crew yr. Departure5 100% yr. Customer Ranking • #1 Ground program • • Quality management Customer loyalty 11. Employee Engagement (Market training Survey) program Alignment Learning Interna l stockholders • Ground crew Fast % Ground crew Ground Time •• 30 Minutes • Cycle time alignment • • ground trained turnaround • On • yr. 1 70% ESOP • On-Time 3 90% •• 90% crew optimization yr. 12. Competency Growth Fast Ground Ground 13. Ready Successors Ground Crew Turnaround • % Ground crew Departure5 100% yr. program Alignment training stockholders Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP 14. Patents Registered alignment trained yr. 3 90% Ground Crew • % Ground crew yr. 5 100% • Ground crew Alignment training stockholders Shengdeng Scorecard Shared Goals 1. Company Revenue eMAGE Scorecard 2. Company Profits Org BSC 3. Success of eMAGE project 4. Making Shegdeng facility operational Additional Goals 1. Learning and Developing … Personal development © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 29
  30. 30. Elements to Balance and Align • Align objectives across multiple perspectives (financial, customer,…) • Align measures to the objectives • Ensure balance between lead and lag measures • Align initiatives to the objectives • Maintain alignment while cascading – Org division/ dept projects individuals © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 30
  31. 31. Success Factors for Strategy Implementation • Roll–out needs to be driven as a “Project” • Initial co-ordination • Integration amongst the individual objectives, measures & initiatives • Senior level Strategy Implementation Project Leader • A Strategy Implementation Core Team © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 31
  32. 32. Common Pitfalls • Middle Management Team: Lack of Senior Management Commitment • Done by One or Two Individuals • Held at the Top: For Senior Management Only • Too Long a Development Process: “Best Becomes the Enemy of the Good” • Done Only for Compensation • Ignoring the aspect of Change Management • Lack of communication & awareness © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 32
  33. 33. Communication and Awareness • Every employee should be able to related his/ her goal to a higher level goal • Every action by the management is a communication – many actions need explicit communication to provide a perspective – Why did we take up the retail supply chain management project when we said we are specializing in the insurance domain? – Why are we hiring so many senior level managers when we said that we will promote internal talent? – Why have we signed up many projects with small customers when we said we will focus on Fortune 500 companies? © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 33
  34. 34. The Journey - How Balanced Scorecard has evolved Measurem Strategy Total Strategy Managing ent Implementat Management Alignment System ion 1992 1996 2000 2004 2006 Articles in Harvard Business Review: “The Balanced Scorecard — Measures that Drive Performance” January - February 1992 “Putting the Balanced Scorecard to Work” September - October 1993 “Using the Balanced Scorecard as Strategic Management System” January - February 1996 1996 2000 2004 2006 Note: Concepts in this presentation have been sourced from these books © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 34
  35. 35. About this Presentation Author: Rajesh Naik Consulting Partner QAI India Limited rajesh.naik@qaiglobal.com naik.rajeshnaik@gmail.com +91 9845488767 More resources on the subject are available from the creator of this presentation at: http://www.rajeshnaik.com © Rajesh Naik, 2009 This work is released under a Creative Commons Attribution- NonCommercial-ShareAlike 3.0 Unported License license. This means you can use it for non-commercial purposes so long as you include the copyright line “© Rajesh Naik, 2009". If you create derivative works using this work, they should also be made available under a similar license. For further information go to http://creativecommons.org/licenses/by-nc-sa/3.0/ For uses outside the scope of the license, contact Rajesh Naik at naik.rajeshnaik@gmail.com © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 35
  36. 36. Thank You Rajesh Naik Consulting Partner QAI India Limited Email rajesh.naik@qaiglobal.com OR naik.rajeshnaik@gmail.com Mobile +91 9845488767 Website www.rajeshnaik.com Also, have a look at the latest “business novel”: Aligning Ferret: How an Organization Meets Extraordinary Challenges By Swapna Kishore & Rajesh Naik Website: http://www.postscript-impressions.com © Rajesh Naik, 2009 Released under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license 36

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