PART I
                          CHAPTER 1
     MEASUREMENT & MANAGEMENT IN THE INFORMATION AGE


INTRODUCTION:
   NAVIGA...
COMPETING IN THE INFORMATION AGE
  THE INFORMATION AGE ENVIRONMENT FOR BOTH
    MANUFACTURING & SERVICE ORGANIZATIONS REQ...
o TIME BASED COMPETITION
     o LEAN PRODUCTION / LEAN ENTERPRISE
     o BUILDING CUSTOMER-FOCUSED ORGANIZATIONS
     o AC...
THE BALANCE SCORE CARD
 RETAINS TRADITIONAL FINANCIAL MEASURES
 THESE FINANCIAL MEASURES ARE INADEQUATE FOR EVALUATING
 ...
 THE BSC SHOULD TRANSLATE UNIT’S MISSION / STRATEGY INTO
  TANGIBLE, OBJECTIVES & MEASURES
 THE MEASURES REPRESENT A BAL...
CHAPTER II
                 WHY DOES BUSINESS NEED A BSC?


INTRODUCTION:
 MEASUREMENT SYSTEM AFFECTS THE BEHAVIOR OF IND...
 BSC TRANSLATES MISSION / STRATEGY INTO OBJECTIVES &
  MEASURES
 ORGANIZED INTO FOUR DIFFERENT PERSPECTIVES:
   FINANCI...
 THE BUSINESS PROCESSES IS DIVIDED INTO TWO:
   INNOVATION PROCESS
      WHICH INCLUDES PRODUCT DESIGN / PRODUCT
      ...
 THE LINKAGES SHOULD INCORPORATE BOTH CAUSE & EFFECT
  RELATIONSHIP, & MIXTURES OF OUTCOME MEASURES &
  PERFORMERS DRIVER...
 INCLUDE TRAINING IN K / S IN SCORECARD INTO THE LEARNING /
  GROWTH PERSPECTIVE
 THIS IS HOW AN ENTIRE CHAIN OF CAUSE /...
 THE BSC MUST RETAIN A STRONG EMPHASIS ON FINANCIAL
  OUTCOMES
 ULTIMATELY ALL THE MEASURES ON SCORECARD SHOULD BE
  LIN...
 MISSION & STRATEGY STATEMENTS FOR DEPARTMENTS /
  FUNCTIONAL UNITS CAN BE DEFINED WITHIN THE FRAMEWORK
  ESTABLISHED BY ...
 INTEGRATE SBU SCORECARDS INTO THE BROADER CORPORATE
  FRAMEWORK


 STRATEGIC POSITIONING OR CORE COMPETENCIES / CAPABILI...
TRANSLATING THAT STRATEGY INTO SPECIFIC OBJECTIVES,
  MEASURES, & TARGETS, & MONITORING THE IMPLEMENTATION OF
  THAT STRAT...
LINKING FINANCIAL OBJECTIVES TO BUSINESS UNIT STRATEGY:
 FINANCIAL OBJECTIVES CAN DIFFER CONSIDERABLY AT EACH STAGE
  OF ...
 REVENUE GROWTH & MIX REFER TO EXPANDING PRODUCT /
  SERVICE OFFERINGS, REACHING NEW CUSTOMERS / MARKETS /
  CHANGING THE...
 THE PREFERRED WAY IS FOR THE NEW PRODUCT OR NEW PRODUCT
  EXTENSION TO BE A DRAMATIC IMPROVEMENT ON EXISTING
  OFFERINGS...
 IF NEW PRODUCT APPLICATIONS IS AN OBJECTIVE, THE % OF SALES
  IN NEW APPLICATIONS WOULD BE USEFUL BSC MEASURE


        ...
NEW PRODUCT & SERVICE MIX
 BUSINESS MAY CHOOSE TO INCREASE REVENUES BY SHIFTING
  THEIR PRODUCT & SERVICE MIX
 A BUSINES...
PRICE PER UNIT WILL REVEAL THE TRENDS IN PRICING STRATEGY
  FOR THE COMPANY & THE INDUSTRY


         COST REDUCTION / PRO...
DIFFERENT DEPARTMENTS IN AN ORGANIZATION, AN ACTIVITY
  BASED PROCESS ORIENTED COSTING SYSTEMS WILL LIKELY BE
  REQUIRED F...
TO INCREASE REVENUES, REDUCE COSTS, & INCREASE ASSET
  UTILIZATION.
                     CASH TO CASH CYCLE:
 WORKING CAP...
RISK MANAGEMENT OBJECTIVES & MEASURES
 MOST OS ARE CONCERNED WITH THE RISK & VARIABILITY OF THEIR
  RETURNS
 WHEN IT IS ...
 BUSINESS MUST IDENTIFY THE MARKET SEGMENTS IN THEIR
  EXISTING / POTENTIAL CUSTOMER POPULATIONS & THEN SELECT
  THE SEGM...
 THE SECOND SET OF MEASURES REPRESENTS THE
  PERFORMANCE DRIVERS – DIFFERENTIATORS – OF THE
  CUSTOMER OUTCOMES
 THEY AN...
 MEASURES THE NET PROFIT OF A CUSTOMER / SEGMENT
           AFTER ALLOWING FOR THE UNIQUE EXPENSES REQUIRED
           TO...
CUSTOMER ACQUISITION
 COMPANIES SEEKING TO GROW THEIR BUSINESS WILL HAVE AN
  OBJECTIVE TO INCREASE THEIR CUSTOMER BASE I...
 A MEASURE LIKE CUSTOMER PROFITABILITY HELPS KEEP
  CUSTOMER FOCUSED ORGANIZATIONS FROM BECOMING CUSTOMER
  – OBSESSED
  ...
 ENCOMPASSES THE FUNCTIONALITY OF THE PRODUCT / SERVICE,
  ITS PRICE, ITS QUALITY
CUSTOMER RELATIONSHIP:
 IT INCLUDES TH...
 CUSTOMERS WILL ALWAYS BE CONCERNED WITH THE PRICE THEY
  PAY FOR THE PRODUCT / SERVICE


         INTERNAL – BUSINESS – ...
 IN THE INNOVATION PROCESS, THE BUSINESS UNIT RESEARCHES
  THE EMERGING / LATENT NEEDS OF CUSTOMERS, & THEN CREATES
  THE...
DEVELOPMENTAL EFFORTS TO BRING NEW PRODUCTS /
       SERVICES TO MARKET
 FOR THIS; THE ORGANIZATION HAS TO SPEND MORE MON...
 SERVICE COMPANIES SHOULD ELIMINATE WASTE TIME IN
     SERVICE DELIVERY PROCESS




PROCESS QUALITY MEASUREMENT:
 FOLLOW...
POST SALE SERVICE:
 INCLUDES WARRANTY / REPAIR ACTIVITIES, TREATMENT OF
  DEFECTS & RETURNS, & THE PROCESSING OF PAYMENTS...
 OBJECTIVES IN THE LEARNING & GROWTH PERSPECTIVE ARE THE
  DRIVERS FOR ACHIEVING EXCELLENT OUTCOMES IN THE FIRST
  THREE ...
CORE EMPLOYEE MEASUREMENT GROUP
 THE FOLLOWING ARE THE THREE CORE EMPLOYEE
  MEASUREMENTS:
      EMPLOYEE SATISFACTION
 ...
 AN AGGREGATE INDEX OF EMPLOYEE SATISFACTION COULD BE
  POSTED ON THE BSC


                 MEASURING EMPLOYEE RETENTION...
 OUTSOURCE THE FUNCTIONS. THIS ENABLES THE O TO
       SUPPORT THE SAME LEVEL OF OUTPUT [REVENUE] BUT WITH
       FEWER I...
INFORMATION SYSTEMS CAPABILITIES:
 FOR AN EMPLOYEE TO BE EFFECTIVE IN TODAY’S COMPETITIVE
  ENVIRONMENT THEY NEED EXCELLE...
 & COMMUNICATED A NEW REWARD STRUCTURE FOR
         IMPLEMENTED SUGGESTIONS


                   MEASURES OF IMPROVEMENTS...
 ENGAGE MANAGERS TO DEVELOP & EXECUTE AN IMPLEMENTATION
  PLAN FOR CASCADING THE SCORECARD APPROACH DOWNWARD
  WITHIN THE...
 % OF TOP MANAGERS EXPOSED TO BSC
 % OF STAFF EXPOSED TO BSC
 % OF TOP MANAGERS WITH PERSONAL GOALS ALIGNED TO BSC
 % ...
CHAPTER VII
           LINKING BSC MEASURES TO YOUR STRATEGY


INTRODUCTION:
 THE OBJECTIVE OF ANY MEASUREMENT SYSTEM SHO...
 CAUSE & EFFECT
      PERFORMERS DRIVERS
      LINKAGE TO FINANCIALS


                        CAUSE & EFFECT:
 STRATE...
 THE PERFORMANCE DRIVERS THE LEAD INDICATORS ARE THE ONES
  THAT TEND TO BE UNIQUE FOR A PARTICULAR BUSINESS UNIT.
 THE ...
 THE BSC IS NOT A REPLACEMENT FOR AN O’S DAY-TO-DAY
  MEASUREMENT SYSTEM. THE SCORECARDS MEASURES ARE
  CHOSEN TO DIRECT ...
CONCLUSIONS:
 THE BEST BSC SHOULD TELL THE STORY OF THE STRATEGY, SO
  WELL THAT THE STRATEGY CAN BE INFERRED BY THE COLL...
CHAPTER VIII
STRUCTURE & STRATEGY:


BUSINESS UNIT VERSUS CORPORATE STRATEGY:
 THE DEVELOPMENT OF CORPORATE – LEVEL SCORE...
MANAGING BUSINESS STRATEGY:


INTRODUCTION:
 SCORECARD ENABLES AN O TO BRIDGE A MAJOR GAP
  [DEVELOPMENT & FORMULATION OF...
 THE SCORECARD TRANSLATES A VISION INTO KEY STRATEGIC
  THEMES THAT CAN BE COMMUNICATED & ACTED UPON
  THROUGHOUT THE O

...
 A FEEDBACK IS COLLECTED ABOUT THE PERFORMANCE,
     RELATIONSHIP BETWEEN STRATEGIC OBJECTIVES & INITIATIVES
     TAKEN I...
 EVERY ONE IN THE O SHOULD UNDERSTAND THE STRATEGY &
       THE REQUIRED BEHAVIOR TO ACHIEVE THE STRATEGIC
       OBJECTI...
 THERE ARE FOUR STEPS NEEDED TO USE THE SCORECARD IN AN
  INTEGRATED LONG RANGE STRATEGIC PLANNING & OPERATIONAL
  BUDGET...
MUST BE CREATED IF THE AMBITIOUS FINANCIAL TARGETS ARE TO
  BE ACHIEVED
 THE SCENARIO PLANNING PROCESS ENABLES A SEEMINGL...
THE MISSING MEASUREMENT PROGRAM:
 EVERY ACTIVITY SHOULD RESULT IN ACHIEVING A PURPOSE
 FOR THIS WE NEED DATA. IF THE DAT...
DEVELOP OR REENGINEER PROCESSES THAT WILL BE CRITICAL FOR
  THE O STRATEGIC SUCCESS
 AND UNLIKE CONVENTIONAL REENGINEERIN...
IDENTIFY CRITICAL CROSS BUSINESS & CORPORATE INITIATIVES:
 AN IMPORTANT ELEMENT IN THE PLANNING PROCESS IS TO IDENTIFY
  ...
 IT ENABLES THESE DEPARTMENTS TO UNDERSTAND THE
  STRATEGIES OF THE ENTIRE CORPORATION & THE INDIVIDUAL SBUS
  SO THAT TH...
CHAPTER 11
        FEEDBACK & THE STRATEGIC LEARNING PROCESS:


      FROM COMMAND & CONTROL TO STRATEGIC LEARNING
 STRAT...
 MANAGEMENT PROCESSES BUILT AROUND THE STRATEGY
  ARTICULATED IN THE BSC MUST PROVIDE REGULAR OPPORTUNITIES
  FOR DOUBLE ...
 BSC ESTABLISHES A COMMON MODEL OF PERFORMANCE &
  COMMUNICATES A HOLISTIC APPROACH TO LINKING INDIVIDUAL
  EFFORTS & ACC...
CORRELATION ANALYSIS:
 VALIDATE CAUSE & EFFECT RELATIONSHIPS BY MEASURING THE
  CORRELATION BETWEEN TWO OR MORE MEASURES
...
ANECDOTAL REPORTING
 STRATEGIC LEARNING SHOULD PROVIDE EARLY INDICATORS AS TO
  WHETHER THE STRATEGY IS WORKING
 SUPPLEM...
 ANOTHER EFFECTIVE MECHANISM FOR LEARNING IS TO GAIN
  PERSPECTIVE FROM INDEPENDENT OUTSIDERS. CALL SENIORS
  FROM OTHER ...
 BESIDES FOCUSING ON OPERATIONAL ISSUES ALSO FOCUS ON
  STRATEGIC ISSUES
 FOR STRATEGIC REVIEW MEETINGS TO BE EFFECTIVE,...
 FACE-TO-FACE CONTACT AT THE STRATEGIC REVIEW MEETING IS
  IMPORTANT ELEMENT OF THE TEAM BUILDING & PROBLEM SOLVING
  PRO...
a. FORM A NEW EXECUTIVE TEAM TO WORK TOGETHER FOR A
       PERIOD OF 3 MONTHS
     b. LET THE TEAM MEMBERS BE THE FUNCTION...
a. THE CEO & THE EXECUTIVE TEAM REVIEW THE INDIVIDUAL
        BUSINESS UNITS’ SCORECARDS
     b. THE REVIEW PERMITS THE CE...
12. CONDUCT ANNUAL STRATEGY REVIEW:
       a. AT THE START OF THE THIRD YEAR, THE INITIAL STRATEGY
          HAS BEEN ACHI...
STRATEGY FORMULATION & STRATEGIC ISSUE UPDATE:
 SENIOR MANAGEMENT CAN EITHER INITIATE THE DEVELOPMENT OF
  A BSC LINKED T...
SOME CAUTIONS: IT’S NOT AS SIMPLE AS IT SEEMS:
 THE FOLLOWING FACTORS CONTRIBUTE TO THE FAILURE OF BSC:
   STRUCTURAL DE...
 BOTH THE TRANSITIONAL LEADER & MANAGER OF THE ONGOING
  SYSTEM HAVE TO WORK FULL TIME ON EMBEDDING THE BSC AS A
  STRATE...
b. THE NEW STRATEGIES REQUIRES NEW VALUES, & WAYS OF
           DOING WORK, THAT ARE BUILD AROUND THE FOUR
           PERS...
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Bsc Complete

  1. 1. PART I CHAPTER 1 MEASUREMENT & MANAGEMENT IN THE INFORMATION AGE INTRODUCTION:  NAVIGATING TODAY’S ORGANIZATIONS THROUGH COMPLEX COMPETITIVE ENVIRONMENTS IS AS COMPLICATED AS FLYING A JET  WE NEED TO MONITOR THE ENVIRONMENT & PERFORMANCE OF THE ORGANIZATION FOR OBTAINING EXCELLENT FUTURE OUTCOMES  BSC IS THE KEY IN THIS JOURNEY  BSC TRANSLATES ORGANIZATION’S MISSION & STRATEGY INTO A COMPREHENSIVE SET OF PERFORMANCE MEASUREMENT  THE SCORECARD MEASURES ORGANIZATION PERFORMANCE ACROSS FOUR BALANCED PERSPECTIVES: o FINANCIAL o CUSTOMERS o INTERNAL BUSINESS PROCESS o LEARNING & GROWTH  BSC ENABLES COMPANIES TO TRACK FINANCIAL RESULTS, WHILE SIMULTANEOUSLY MONITORING PROGRESS IN BUILDING THE CAPABILITIES & ACQUIRING THE INTANGIBLE ASSETS THEY NEED FOR FUTURE GROWTH
  2. 2. COMPETING IN THE INFORMATION AGE  THE INFORMATION AGE ENVIRONMENT FOR BOTH MANUFACTURING & SERVICE ORGANIZATIONS REQUIRES NEW CAPABILITIES FOR COMPETITIVE SUCCESS  THE ABILITY OF THE COMPANY TO MOBILIZE & EXPLOIT ITS INTANGIBLE ASSETS HAS BECOME FAR MORE DECISIVE THAN INVESTING & MANAGING PHYSICAL, TANGIBLE ASSETS  INTANGIBLE ASSETS ENABLE AN ORGANIZATION TO: o DEVELOP CUSTOMER RELATIONSHIPS THAT RETAIN THE LOYALTY OF EXISTING CUSTOMERS, & ENABLE NEW CUSTOMERS SEGMENTS & MARKET AREAS TO BE SERVED EFFECTIVELY / EFFICIENTLY o INTRODUCE INNOVATIVE PRODUCTS & SERVICES DESIRED BY TARGETED CUSTOMER SEGMENTS o PRODUCE CUSTOMIZED HIGH-QUALITY PRODUCTS / SERVICES AT LOW COST & WITH SHORT LEAD TIMES o MOBILIZE EMPLOYEE SKILLS / MOTIVATION FOR CONTINUOUS IMPROVEMENTS IN PROCESS CAPABILITIES, QUALITY, & RESPONSE TIMES o DEPLOY INFORMATION TECHNOLOGY, DATA BASES & SYSTEMS  INFORMATION AGE ORGANIZATION ARE BUILT ON A NEW SET OF OPERATING ASSUMPTIONS: o CROSS FUNCTIONS / LINKS TO CUSTOMERS & SUPPLIERS / CUSTOMER SEGMENTATION / GLOBAL SCALE / INNOVATION / KNOWLEDGE WORKER  AS ORGANIZATIONS ATTEMPT TO TRANSFORM THEMSELVES TO COMPETE SUCCESSFULLY IN THE FUTURE, THEY ARE TURNING TO A VARIETY OF IMPROVEMENT INITIATIVES LIKE: o TOTAL QUALITY MANAGEMENT o JUST IN TIME [PRODUCTION / DISTRIBUTION SYSTEMS]
  3. 3. o TIME BASED COMPETITION o LEAN PRODUCTION / LEAN ENTERPRISE o BUILDING CUSTOMER-FOCUSED ORGANIZATIONS o ACTIVITY BASED COST MANAGEMENT o EMPLOYEE EMPOWERMENT o REENGINEERING  BREAKTHROUGHS IN PERFORMANCE REQUIRE MAJOR CHANGE, & THAT INCLUDES CHANGES IN MEASUREMENT / MANAGEMENT SYSTEMS USED BY ORGANIZATION  NAVIGATING TO MORE COMPETITIVE, TECHNOLOGICAL, & CAPABILITY DRIVEN FUTURE CANNOT BE ACCOMPLISHED MERELY BY MONITORING & CONTROLLING FINANCIAL MEASURES OF PAST PERFORMANCE TRADITIONAL FINANCIAL ACCOUNTING MODEL  THE TRADITIONAL FINANCIAL ACCOUNTING MODEL IS BEING USED BY INFORMATION AGE COMPANIES AS THEY ATTEMPT TO BUILD INTERNAL ASSETS & CAPABILITIES & TO FORGE LINKAGES & STRATEGIC ALLIANCES WITH EXTERNAL PARTIES  THE LIMITATION WITH THIS TRADITIONAL FINANCIAL ACCOUNTING SYSTEM IS DOES NOT INCORPORATE THE VALUATION OF A COMPANY’ S INTANGIBLE / INTELLECTUAL ASSETS, SUCH AS HIGH QUALITY PRODUCTS / SERVICES MOTIVATED & SKILLED EMPLOYEES. RESPONSIVE & PREDICTABLE INTERNAL PROCESSES, & SATISFIED & LOYAL CUSTOMERS  THIS VERY ASSET & CAPABILITIES ARE CRITICAL FOR SUCCESS IN TODAY’S & TOMORROW’S COMPETITIVE ENVIRONMENT
  4. 4. THE BALANCE SCORE CARD  RETAINS TRADITIONAL FINANCIAL MEASURES  THESE FINANCIAL MEASURES ARE INADEQUATE FOR EVALUATING & GUIDING THE JOURNEY, THAT INFORMATION AGE COMPANIES MUST MAKE TO CREATE FUTURE VALUE THROUGH INVESTMENT IN CUSTOMERS / SUPPLIERS / EMPLOYEE / PROCESS / TECHNOLOGY / INNOVATION  BSC COMPLEMENTS FINANCIAL MEASURES OF PAST PERFORMANCE WITH MEASURES OF THE DRIVERS OF FUTURE PERFORMANCE  THE OBJECTIVES & MEASURES OF THE SCORECARD ARE DERIVED FROM ORGANIZATION’S VISION / STRATEGY  THE FOUR PERSPECTIVE PROVIDE THE FRAMEWORK FOR THE BSC  THE BSC REVEALS THE VALUE DRIVERS FOR SUPERIOR LONG TERM FINANCIAL / COMPETITIVE PERFORMANCE THE BSC AS A MANAGEMENT SYSTEM  BSC EMPHASIZES THAT THE FINANCIAL / NON FINANCIAL MEASURES MUST BE PART OF THE INFORMATION SYSTEM FOR EMPLOYEES AT ALL LEVELS OF THE ORGANIZATION  FRONT LINE EMPLOYEE MUST UNDERSTAND THE FINANCIAL CONSEQUENCES OF THEIR DECISIONS & ACTIONS, WHILE SENIOR EXECUTIVES MUST UNDERSTAND THE DRIVERS OF LONG TERM FINANCIAL SUCCESS  THE OBJECTIVES & THE MEASURES ARE DERIVED FROM TOP DOWN PROCESS DRIVEN BY THE MISSION & STRATEGY OF THE BUSINESS UNIT
  5. 5.  THE BSC SHOULD TRANSLATE UNIT’S MISSION / STRATEGY INTO TANGIBLE, OBJECTIVES & MEASURES  THE MEASURES REPRESENT A BALANCE BETWEEN EXTERNAL MEASURES FOR SHAREHOLDERS & CUSTOMERS & INTERNAL MEASURES OF CRITICAL BUSINESS PROCESSES, INNOVATION, & LEARNING & GROWTH CONCLUSIONS:  TODAY ORGANIZATIONS OPERATE IN A TURBULENT ENVIRONMENT  SENIORS NEED FEEDBACK ABOUT THE STRATEGIES WHICH ARE BEING IMPLEMENTED  STRATEGIES THOUGH FORMULATED WITH GOOD INTENTIONS, SOMETIMES ARE NOT VALID IN CONTEMPORARY CONDITIONS  SENIORS SHOULD RECEIVE FEEDBACK FROM VARIOUS SOURCES TO TAKE ADVANTAGE OF ENVIRONMENTAL CHANGES & TO COUNTER COMPETITOR BEHAVIOR  WITH THE CHANGE IN ENVIRONMENTS, NEW STRATEGIES HAVE TO BE EVOLVED FOR CAPITALIZING ON OPPORTUNITIES OR TO COUNTER THREATS  ASSUMPTION ON WHICH STRATEGIES HAVE TO CONSTANTLY EXAMINED WHETHER IT IS VIABLE & VALID  THIS CAN BE DONE ONLY IF THOSE IMPLEMENTING THE STRATEGY GIVE A FEEDBACK  THIS IS KNOWN AS DOUBLE LOOP FEEDBACK  THE SCORECARD SHOULD BE BASED ON A SERIES OF CAUSE & EFFECT RELATIONSHIPS DERIVED FROM THE STRATEGY, INCLUDING ESTIMATES OF THE RESPONSE TIMES & MAGNITUDES OF THE LINKAGES AMONG THE SCORECARD MEASURES  THE OUTCOMES IS TO ADJUST THE QUANTITATIVE RELATIONSHIP AMONG STRATEGIC MEASURES ON THE BSC
  6. 6. CHAPTER II WHY DOES BUSINESS NEED A BSC? INTRODUCTION:  MEASUREMENT SYSTEM AFFECTS THE BEHAVIOR OF INDIVIDUALS; BOTH INSIDE / OUTSIDE THE ORGANIZATION  THE BSC RETAINS ITS FINANCIAL MEASUREMENT, AS A CRITICAL SUMMARY OF MANAGEMENT, & BUSINESS PERFORMANCE, BUT IT HIGHLIGHTS A MORE GENERAL / INTEGRATED SET OF MEASUREMENTS THAT LINK CURRENT CUSTOMER, INTERNAL PROCESS, EMPLOYEE, & SYSTEM PERFORMANCE TO LONG TERM FINANCIAL SUCCESS FINANCIAL MEASUREMENT  FINANCIAL MEASURES ARE INADEQUATE FOR GUIDING / EVALUATING ORGANIZATIONS TRAJECTORIES THROUGH COMPETITIVE ENVIRONMENT  THEY TELL US ABOUT THE PAST ACTIONS; FAIL TO PROVIDE ADEQUATE GUIDANCE FOR THE ACTIONS TO BE TAKEN THE BSC  PROVIDES COMPREHENSIVE FRAMEWORK THAT TRANSLATES COMPANY’S VISION / STRATEGY INTO A COHERENT SET OF PERFORMANCE MEASURES  MISSION STATEMENTS ADDRESSES CORE BELIEFS & IDENTIFIES TARGET MARKETS & CORE PRODUCTS  MISSION STATEMENT SHOULD BE INSPIRATIONAL  THEY SHOULD SUPPLY ENERGY / MOTIVATION TO THE ORGANIZATION
  7. 7.  BSC TRANSLATES MISSION / STRATEGY INTO OBJECTIVES & MEASURES  ORGANIZED INTO FOUR DIFFERENT PERSPECTIVES:  FINANCIAL / CUSTOMER / INTERNAL BUSINESS PROCESS / LEARNING & GROWTH  BSC SHOULD BE USED AS A COMMUNICATION, INFORMING, & LEARNING SYSTEM & NOT A CONTROL SYSTEM  USES MEASUREMENT TO INFORM EMPLOYEES ABOUT THE DRIVERS OF CURRENT & FUTURE SUCCESS  THE FOUR PERSPECTIVES OF THE SCORECARD PERMIT A BALANCE BETWEEN SHORT / LONG TERM OBJECTIVES, BETWEEN OUTCOMES DESIRED & THE PERFORMANCE DRIVERS OF THOSE OUTCOMES FINANCIAL PERSPECTIVE  FINANCIAL PERFORMANCE MEASURES INDICATE WHETHER A COMPANY’S STRATEGY, IMPLEMENTATION, & EXECUTION ARE CONTRIBUTING TO BOTTOM LINE IMPROVEMENT CUSTOMER PERSPECTIVE:  CORE OUTCOME MEASURES CUSTOMER SATISFACTION / RETENTION & NEW CUSTOMER ACQUISITION / CUSTOMER PROFITABILITY / MARKET / ACCOUNT SHARE IN TARGETED SEGMENTS  IT SHOULD ALSO INCLUDE SPECIFIC MEASURES OF VALUE THAT THE COMPANY WILL DELIVER TO ITS CUSTOMER IN TARGETED SEGMENTS INTERNAL BUSINESS PROCESS PERSPECTIVE  IDENTIFY THE CRITICAL INTERNAL PROCESS  THESE PROCESSES SHOULD ENABLE THE BUSINESS UNIT TO  DELIVER THE VALUE PROPOSITIONS THAT WILL ATTRACT & RETAIN CUSTOMERS IN TARGETED SEGMENTS &  SATISFY SHAREHOLDERS EXPECTATIONS  THESE PROCESS SHOULD HAVE GREATER IMPACT ON CUSTOMER SATISFACTION & IN ACHIEVING FINANCIAL OBJECTIVES
  8. 8.  THE BUSINESS PROCESSES IS DIVIDED INTO TWO:  INNOVATION PROCESS  WHICH INCLUDES PRODUCT DESIGN / PRODUCT DEVELOPMENT  OPERATIONS PROCESS  WHICH INCLUDES MANUFACTURING / MARKETING / POST SALE SERVICE LEARNING & GROWTH PERSPECTIVE:  IT IDENTIFIES INFRASTRUCTURE THAT THE ORGANIZATION MUST BUILD TO CREATE LONG TERM GROWTH / IMPROVEMENT  ORGANIZATIONAL LEARNING / GROWTH COME FROM THREE PRINCIPLE SOURCES:  PEOPLE / SYSTEMS / ORGANIZATIONAL PROCEDURES  THE ABOVE THREE PARAMETERS WILL REVEAL LARGE GAPS BETWEEN THE EXISTING & REQUIRED CAPABILITIES TO ACHIEVE BREAKTHROUGH PERFORMANCE  TO CLOSE THESE GAPS BUSINESS WILL HAVE TO INVEST IN RE- SKILLING EMPLOYEES, ENHANCING INFORMATION TECHNOLOGY & SYSTEMS, & ALIGNING ORGANIZATIONAL PROCEDURES / ROUTINES LINKING MULTIPLE SCORECARD MEASURES TO SINGLE STRATEGY  THE MULTIPLE MEASURES ON A PROPERLY CONSTRUCTED BSC SHOULD CONSIST OF A LINKED SERIES OF OBJECTIVES /MEASURES THAT ARE BOTH CONSISTENT & MUTUALLY REINFORCING  THE SCORECARD SHOULD INCORPORATE THE COMPLEX SET OF CAUSE & EFFECT RELATIONSHIPS AMONG THE CRITICAL VARIABLES, INCLUDING LEADS, LAGS, & FEEDBACK LOOPS TRAJECTORY, THE FLIGHT PLAN OF THE STRATEGY
  9. 9.  THE LINKAGES SHOULD INCORPORATE BOTH CAUSE & EFFECT RELATIONSHIP, & MIXTURES OF OUTCOME MEASURES & PERFORMERS DRIVERS CAUSE & EFFECT RELATIONSHIP  A STRATEGY IS A HYPOTHESIS OF CAUSE & EFFECT  THERE SHOULD BE A RELATIONSHIP AMONG THE OBJECTIVES & PERFORMANCE DRIVERS  THE CHAIN OF CAUSE & EFFECT SHOULD PERVADE ALL FOUR PERSPECTIVE OF A BSC  FOR EXAMPLE RETURN ON CAPITAL EMPLOYED MAY BE SCORECARD MEASURE IN THE FINANCIAL PERSPECTIVE  THIS DRIVER SHOULD EXPAND SALES FROM EXISTING CUSTOMERS  THIS WILL RESULT IN HIGH DEGREE OF LOYALTY AMONG THOSE CUSTOMERS  SO CUSTOMER LOYALTY IS INCLUDED IN SCORECARD INTO THE CUSTOMER PERSPECTIVE  NEXT FIND OUT WHAT IS VALUED BY A LOYAL CUSTOMER?  IT IS ON TIME DELIVERY OF ORDERS [OTD]  INCLUDE ON TIME DELIVERY IN SCORECARD INTO CUSTOMER PERSPECTIVE  NEXT FIND OUT SHOULD THE COMPANY DO IN ITS INTERNAL PROCESS TO ACHIEVE OTD?  TO ACHIEVE OTD; ORGANIZATION SHOULD ACHIEVE SHORT CYCLE TIME IN OPERATING PROCESSES  INCLUDE SHORT CYCLE TIME / QUALITY IN SCORE CARD INTO THE INTERNAL PROCESSES PERSPECTIVE  NEXT FIND OUT WHAT SHOULD THE ORGANIZATION DO TO REDUCE CYCLE TIME / HAVE HIGH QUALITY IN INTERNAL PROCESSES  TO ACHIEVE THIS THE ORGANIZATION SHOULD TRAIN & IMPROVE SKILLS OF ITS EMPLOYEES
  10. 10.  INCLUDE TRAINING IN K / S IN SCORECARD INTO THE LEARNING / GROWTH PERSPECTIVE  THIS IS HOW AN ENTIRE CHAIN OF CAUSE / EFFECT RELATIONSHIPS ARE ESTABLISHED THROUGH THE FOUR PERSPECTIVE  EVERY MEASURE SELECTED FOR A BSC SHOULD BE AN ELEMENT IN A CHAIN OF C / E RELATIONSHIPS THAT COMMUNICATES THE MEANING OF THE BUSINESS UNIT’S STRATEGY TO THE ORGANIZATION PERFORMANCE DRIVERS:  A GOOD BSC SHOULD HAVE A MIX OF OUTCOME MEASURES & PERFORMANCE DRIVERS  PD PROVIDES INFORMATION AS TO HOW THE OUTCOMES ARE TO BE ACHIEVED  PD ARE INDICATORS WHETHER THE STRATEGY IS BEING IMPLEMENTED SUCCESSFULLY SHOULD FINANCIAL MEASURES BE SCRAPPED?  PERIODIC FINANCIAL STATEMENTS / FINANCIAL MEASURES MUST CONTINUE TO PLAY AN ESSENTIAL ROLE; FOR IMPROVEMENTS IN QUALITY / RESPONSE TIME / PRODUCTIVITY / NEW PRODUCTS ARE MEANS TO AN END; NOT THE END ITSELF  SUCH IMPROVEMENTS ONLY BENEFIT A COMPANY WHEN THEY CAN BE TRANSLATED INTO IMPROVED SALES, REDUCED OPERATING EXPENSES OR HIGHER ASSET UTILIZATION  NOT ALL LONG TERM STRATEGIES ARE PROFITABLE STRATEGIES  A FAILURE TO CONVERT IMPROVED OPERATIONAL PERFORMANCE INTO IMPROVED FINANCIAL PERFORMANCE, SHOULD MAKE THE EXECUTIVE RETHINK THE COMPANY’S STRATEGY OR ITS IMPLEMENTATION PLANS
  11. 11.  THE BSC MUST RETAIN A STRONG EMPHASIS ON FINANCIAL OUTCOMES  ULTIMATELY ALL THE MEASURES ON SCORECARD SHOULD BE LINKED TO FINANCIAL OBJECTIVES FOUR PERSPECTIVES: ARE THEY SUFFICIENT?  THE FOUR PERSPECTIVE SHOULD BE CONSIDERED AS TEMPLATE, & NOT A STRAIT JACKET  NO MATHEMATICAL THEOREM EXISTS THAT FOUR PERSPECTIVES ARE BOTH NECESSARY / SUFFICIENT  THE SCORECARD OUTCOMES / PERFORMANCE DRIVERS SHOULD MEASURE THOSE FACTORS THAT CREATE COMPETITIVE ADVANTAGE, & BREAKTHROUGH FOR AN ORGANIZATION  THE BSC SHOULD TELL THE STORY OF THE BUSINESS UNIT’S STRATEGY ORGANIZATIONAL UNIT FOR A BSC  BSC ARE BEST DEFINED FOR STRATEGIC BUSINESS UNITS [SBUS]  AN IDEAL STRATEGIC BUSINESS UNIT FOR BSC CONDUCTS ACTIVITIES ACROSS AN ENTIRE VALUE CHAIN:  INNOVATION  OPERATIONS  MARKETING  DISTRIBUTION SELLING  SERVICE  SUCH A SBU HAS ITS OWN PRODUCTS & CUSTOMERS, MARKETING & DISTRIBUTION CHANNELS, & PRODUCTION FACILITIES  AND MOST IMPORTANT IT HAS A WELL DEFINED STRATEGY  ONCE A BSC HAS BEEN DEVELOPED FOR A SBU IT BECOME THE BASIS FOR BSC FOR DEPARTMENTS / FUNCTIONAL UNITS WITHIN A SBU
  12. 12.  MISSION & STRATEGY STATEMENTS FOR DEPARTMENTS / FUNCTIONAL UNITS CAN BE DEFINED WITHIN THE FRAMEWORK ESTABLISHED BY THE BUSINESS MISSION / STRATEGY / SCORECARD  MANAGERS IN DEPARTMENTS / FUNCTIONAL UNITS CAN THEN DEVELOP THEIR OWN SCORECARDS THAT WILL BE CONSISTENT WITH & HELP DELIVER THE SBU MISSION / STRATEGY  IN THIS WAY THE SBU SCORECARD IS CASCADED DOWN TO LOCAL RESPONSIBILITY CENTERS WITHIN THE SBU ALLOWING ALL RESPONSIBILITY CENTERS TO WORK COHERENTLY TOWARD THE SBU OBJECTIVE  THE RELEVANT QUESTION FOR WHETHER A DEPARTMENT / FUNCTIONAL UNIT SHOULD HAVE A BSC IS  “WHETHER THAT ORGANIZATIONAL UNIT HAS / SHOULD HAVE A MISSION / STRATEGY / CUSTOMERS / INTERNAL PROCESSES THAT ENABLE IT TO ACCOMPLISH ITS MISSION / STRATEGY”  IF IT DOES THE UNIT IS A VALID CANDIDATE FOR A BSC  IT IS SIMPLER TO CONSTRUCT SCORECARDS FOR THE INDIVIDUAL SBUS DEFINED BY THEIR UNIQUE DISTRIBUTION CHANNELS  CORPORATIONS CONTAINING SEVERAL SOMEWHAT INDEPENDENT SBUS HAVE STARTED BY DEVELOPING A BSC AT THE CORPORATE LEVEL  SUCH A CORPORATE-LEVEL SCORECARD ESTABLISHES A COMMON FRAMEWORK, A CORPORATE TEMPLATE ABOUT THEMES & COMMON VISIONS THAT MUST BE IMPLEMENTED IN THE SCORECARDS DEVELOPED AT THE INDIVIDUAL SBUS  THE CORPORATE SCORECARD ALSO ESTABLISHES HOW THE CORPORATION ADDS VALUE BEYOND THE VALUE CREATED BY THE COLLECTION OF SBUS OPERATING AS INDEPENDENT UNITS  THIS VALUE CREATING ROLE OF THE CORPORATION IS CALLED AS “PARENTING ADVANTAGE”
  13. 13.  INTEGRATE SBU SCORECARDS INTO THE BROADER CORPORATE FRAMEWORK STRATEGIC POSITIONING OR CORE COMPETENCIES / CAPABILITIES – DRIVEN:  STRATEGY FOCUSES AT MARKET / CUSTOMER SEGMENTS THE BUSINESS UNIT INTENDS TO SERVE, IDENTIFYING THE CRITICAL INTERNAL BUSINESS PROCESSES THAT THE UNIT MUST EXCEL TO DELIVER THE VALUE PROPOSITIONS TO CUSTOMERS IN THE TARGETED MARKET SEGMENTS & SELECTING THE INDIVIDUAL / ORGANIZATIONAL CAPABILITIES REQUIRED FOR THE INTERNAL CUSTOMER, & FINANCIAL OBJECTIVES  ALTERNATIVELY SOME COMPANIES COMPETE BY EXPLOITING UNIQUE CAPABILITIES / RESOURCES / CORE COMPETENCIES  COMPANIES DEPLOYING A STRATEGY BASED ON A CORE COMPETENCIES / UNIQUE CAPABILITIES MAY WISH TO START THEIR STRATEGIC PLANNING PROCESS BY IDENTIFYING THESE CRITICAL COMPETENCIES / CAPABILITIES FOR THEIR INTERNAL BUSINESS PROCESS PERSPECTIVE, & THEN FOR THE CUSTOMER PERSPECTIVE, SELECTING CUSTOMER & MARKET SEGMENTS WHERE THESE COMPETENCIES / CAPABILITIES ARE MOST CRITICAL FOR DELIVERING CUSTOMER VALUE  THE BSC IS PRIMARILY A MECHANISM FOR STRATEGY IMPLEMENTATION & NOT FOR STRATEGY FORMULATION  IT CAN ACCOMMODATE EITHER APPROACH FOR FORMULATING BUSINESS UNIT STRATEGY [STARTING FROM CUSTOMER PERSPECTIVE] OR START FROM EXCELLENT INTERNAL BUSINESS PROCESS CAPABILITIES  WHATEVER APPROACH THAT SBU USES TO FORMULATE THEIR STRATEGY THE BSC WILL PROVIDE AN INVALUABLE MECHANISM FOR
  14. 14. TRANSLATING THAT STRATEGY INTO SPECIFIC OBJECTIVES, MEASURES, & TARGETS, & MONITORING THE IMPLEMENTATION OF THAT STRATEGY DURING SUBSEQUENT PERIODS MEASURING BUSINESS STRATEGY CHAPTER III FINANCIAL PERSPECTIVE INTRODUCTION:  IT SERVES AS THE FOCUS FOR THE OBJECTIVES & MEASURES IN ALL THE OTHER SCORECARD PERSPECTIVES  EVERY MEASURE SHOULD BE A PART OF A LINK OF CAUSE-AND- EFFECT RELATIONSHIPS THAT CULMINATE IN IMPROVING FINANCIAL PERFORMANCE  THE SCORECARD SHOULD TELL THE STORY OF THE STRATEGY, STARTING WITH THE LONG RUN FINANCIAL OBJECTIVES, & THEN LINKING THEM TO THE SEQUENCE OF ACTIONS THAT MUST BE TAKEN WITH THE FINANCIAL PROCESSES, CUSTOMERS, INTERNAL PROCESSES, & FINALLY EMPLOYEES & SYSTEMS TO DELIVER THE DESIRED LONG RUN ECONOMIC PERFORMANCE  IT WOULD BE UNLIKELY FOR ONE FINANCIAL METRIC & ESPECIALLY A SINGLE TARGET FOR A SINGLE FINANCIAL METRIC, TO BE APPROPRIATE ACROSS A WIDE RANGE OF BUSINESS UNIT  FINANCIAL OBJECTIVES & MEASURES MUST PLAY A DUAL ROLE:  DEFINE THE FINANCIAL PERFORMANCE EXPECTED FROM THE STRATEGY,  & THEY SERVE AS THE ULTIMATE TARGETS FOR THE OBJECTIVES & MEASURES OF ALL THE OTHER SCORECARD PERSPECTIVES
  15. 15. LINKING FINANCIAL OBJECTIVES TO BUSINESS UNIT STRATEGY:  FINANCIAL OBJECTIVES CAN DIFFER CONSIDERABLY AT EACH STAGE OF A BUSINESS’S LIFE CYCLE  FOLLOWING ARE THE THREE STAGES:  GROWTH / SUSTAIN / HARVEST CONCLUSIONS:  A BUSINESS UNIT EVEN IN A MATURE HARVEST STAGE MIGHT UNEXPECTEDLY FIND ITSELF WITH A GROW OBJECTIVE  SUCH A TRANSFORMATION WOULD COMPLETELY SHIFT THE FINANCIAL / INVESTMENT OBJECTIVES FOR THE BUSINESS UNIT  THAT’S WHY THE FINANCIAL OBJECTIVES SHOULD BE REVIEWED PERIODICALLY, TO REAFFIRM / CHANGE THE UNIT’S FINANCIAL STRATEGY RISK MANAGEMENT  EFFECTIVE FINANCIAL MANAGEMENT ADDRESS RISK AS WELL AS RETURN  BUSINESS SHOULD BALANCE EXPECTED RETURNS WITH THE MANAGEMENT & CONTROL OF RISKS  RISK MANAGEMENT SHOULD BE AN ADDITIONAL OBJECTIVE THAT SHOULD COMPLEMENT WHATEVER EXPECTED RETURN STRATEGY THE BUSINESS UNIT HAS CHOSEN STRATEGIC THEMES FOR THE FINANCIAL PERSPECTIVE:  FOR EACH OF THE THREE STRATEGIES OF GROWTH / SUSTAIN / HARVEST; THERE ARE THREE FINANCIAL THEMES THAT DRIVE THE BUSINESS STRATEGY:  REVENUE GROWTH / MIX  COST REDUCTION / PRODUCTIVITY IMPROVEMENT  ASSET UTILIZATION / INVESTMENT STRATEGY
  16. 16.  REVENUE GROWTH & MIX REFER TO EXPANDING PRODUCT / SERVICE OFFERINGS, REACHING NEW CUSTOMERS / MARKETS / CHANGING THE PRODUCT / SERVICE MIX TOWARD HIGHER VALUE ADDED OFFERINGS, & RE-PRICING PRODUCTS / SERVICES  THE COST REDUCTION / PRODUCTIVITY OBJECTIVE REFERS TO EFFORTS TO LOWER THE DIRECT COSTS OF PRODUCTS / SERVICES, REDUCE INTEREST COSTS, & SHARE COMMON RESOURCES WITH OTHER BUSINESS UNITS  FOR THE ASSET UTILIZATION THEME, REDUCE THE WORKING CAPITAL LEVELS REQUIRED TO SUPPORT A GIVEN VOLUME & MIX OF BUSINESS. IT CAN ALSO BE DONE BY DIRECTING NEW BUSINESS TO RESOURCES CURRENTLY NOT USED TO CAPACITY, USING SCARCE RESOURCES MORE EFFICIENTLY & DISPOSING OF ASSETS THAT PROVIDE INADEQUATE RETURNS ON THEIR MARKET VALUE  ALL THESE ACTIONS ENABLE THE BUSINESS TO INCREASE THE RETURNS EARNED ON ITS FINANCIAL / PHYSICAL ASSETS REVENUE GROWTH & MIX  THE MOST COMMON REVENUE GROWTH MEASURE, BOTH FOR GROWTH / HARVEST STAGE BUSINESS UNITS, WOULD BE SALES GROWTH RATES & MARKET SHARE FOR TARGETED REGIONS, MARKETS, & CUSTOMERS NEW PRODUCTS  GROWTH STAGE BUSINESS WILL USUALLY EMPHASIZE EXPANSIONS OF EXISTING PRODUCT LINES OR OFFERING ENTIRELY NEW PRODUCTS / SERVICES  A COMMON MEASURE FOR THIS OBJECTIVE IS THE % OF REVENUE FROM NEW PRODUCTS / SERVICES INTRODUCED WITHIN A SPECIFIED PERIOD.
  17. 17.  THE PREFERRED WAY IS FOR THE NEW PRODUCT OR NEW PRODUCT EXTENSION TO BE A DRAMATIC IMPROVEMENT ON EXISTING OFFERINGS SO THAT IT CAPTURES NEW CUSTOMERS / MARKETS, NOT JUST REPLACES SALES OF EXISTING PRODUCTS  BUT IF TOO MUCH PRESSURE IS PLACED ON THIS MEASURE ALONE, A BUSINESS UNIT COULD SCORE WELL ON THIS MEASURE BY MAKING A CONTINUING SERIES OF INCREMENTAL IMPROVEMENTS THAT REPLACE EXISTING PRODUCTS BUT NONE OF WHICH OFFERS DISTINCT ADVANTAGES TO CUSTOMERS.  OR ALTERNATIVELY & MORE DYSFUNCTIONALLY, A BUSINESS UNIT COULD SIMPLY CEASE SELLING A HIGH-VOLUME MATURE PRODUCT, ALLOWING RECENT PRODUCT SALES TO REPRESENT A HIGHER FRACTION OF TOTAL SALES  TO CAPTURE WHETHER THE NEW PRODUCT / SERVICE REPRESENTS A DISTINCT IMPROVEMENT FROM EXISTING OFFERINGS, SOME COMPANIES FOCUS ON THE PRICES OR GROSS MARGINS FROM NEW PRODUCTS / SERVICES, ANTICIPATING THAT OFFERINGS WITH SIGNIFICANTLY MORE FUNCTIONALITY & CUSTOMER VALUE WILL LIKELY COMMAND A HIGHER MARGIN THAN MATURE EXISTING PRODUCTS NEW APPLICATIONS:  DEVELOPING ENTIRELY NEW PRODUCTS CAN BE VERY COSTLY & TIME CONSUMING WHERE THE PRODUCT DEVELOPMENT CYCLES IS LONG  BUSINESS IN THE SUSTAIN STAGE MAY FIND IT EASIER TO GROW REVENUES BY TAKING EXISTING PRODUCTS & FINDING NEW APPLICATIONS FOR THEM  TAKING EXISTING PRODUCTS TO NEW APPLICATIONS REQUIRES THAT A COMPANY DEMONSTRATE EFFECTIVENESS IN NEW APPLICATION
  18. 18.  IF NEW PRODUCT APPLICATIONS IS AN OBJECTIVE, THE % OF SALES IN NEW APPLICATIONS WOULD BE USEFUL BSC MEASURE NEW CUSTOMERS / MARKETS  TAKING EXISTING PRODUCTS / SERVICES TO NEW CUSTOMERS / MARKETS ALSO CAN BE DESIRABLE ROUTE FOR REVENUE GROWTH  MEASURES SUCH AS % OF REVENUES FROM NEW CUSTOMERS / MARKET SEGMENTS / GEOGRAPHIC REGIONS WOULD EMPHASIZE THE IMPORTANCE OF INVESTIGATING THIS SOURCE OF REVENUE ENHANCEMENT NEW RELATIONSHIPS:  SOME COMPANIES HAVE ATTEMPTED TO REALIZE SYNERGIES FROM THEIR DIFFERENT STRATEGIC BUSINESS UNITS BY HAVING THEM COOPERATE TO DEVELOP NEW PRODUCTS OR TO SELL PROJECTS TO CUSTOMERS  WHETHER THE COMPANY STRATEGY IS TO INCREASE TECHNOLOGY TRANSFER ACROSS DIVISIONS OR TO INCREASE SALES TO INDIVIDUAL CUSTOMERS FROM MULTIPLE BUSINESS UNITS WITHIN THE COMPANY, THE OBJECTIVE CAN BE TRANSLATED INTO THE AMOUNT OF REVENUE GENERATED FROM COOPERATIVE RELATIONSHIPS ACROSS MULTIPLE BUSINESS UNITS  IN SUCH CASE THE COMPANIES NEED TO DISTINGUISH HOW MUCH OF THEIR SALES IS COMING FROM COMPETITIVELY PRICED OFFERINGS VERSUS THE SALES MADE AT A PREMIUM OR THROUGH LONG TERM RELATIONSHIPS BECAUSE OF VALUE ADDED FEATURES & SERVICES
  19. 19. NEW PRODUCT & SERVICE MIX  BUSINESS MAY CHOOSE TO INCREASE REVENUES BY SHIFTING THEIR PRODUCT & SERVICE MIX  A BUSINESS MAY FEEL THAT IT HAS A SUBSTANTIAL COST ADVANTAGE IN SELECTED SEGMENTS, WHERE IT CAN WIN BUSINESS AWAY FROM COMPETITORS BY OFFERING SIGNIFICANTLY LOWER PRICES  IF IT FOLLOWS THIS LOW COST STRATEGY, IT SHOULD MEASURE THE GROWTH OF SALES IN THE TARGETED SEGMENTS  ALTERNATIVELY A BUSINESS MAY CHOOSE A MORE DIFFERENTIATED STRATEGY, DE-EMPHASIZING LOW PRICE OFFERINGS & ATTEMPTING TO SHIFT ITS PRODUCT / SERVICE MIX MORE TOWARDS PREMIUM PRICED ITEMS  THIS BUSINESS COULD CHOOSE TO MEASURE THE GROWTH IN SALES & THE % OF TOTAL SALES IN THE PREMIUM SEGMENTS NEW PRICING STRATEGY  REVENUE GROWTH ESPECIALLY IN MATURE / HARVEST STAGE BUSINESS UNITS MAY BE REALIZED BY RAISING PRICES ON PRODUCTS / SERVICES & CUSTOMERS WHERE REVENUES ARE NOT COVERING COSTS  FOR THIS COMPANIES IMPLEMENT ACTIVITY BASED COST SYSTEMS THAT TRACE COSTS / PROFITS & EVEN ASSETS EMPLOYED DOWN TO INDIVIDUAL PRODUCTS / SERVICES & CUSTOMERS  FOR SPECIALIZED, NICHE PRODUCTS OR PARTICULARLY DEMANDING CUSTOMERS THAT PRICES CAN BE INCREASED, OR EQUIVALENTLY LARGE DISCOUNTS ELIMINATED, WITHOUT LOSING SHARE, TO COVER THE COSTS OF FEATURES & SERVICES ON CURRENTLY UNPROFITABLE PRODUCTS & CUSTOMERS  FOR HIGHLY HOMOGENEOUS PRODUCTS / SERVICES, A SIMPLE PRICE INDEX, SUCH AS NET REVENUE PER TON, PRICE PER CALL, OR
  20. 20. PRICE PER UNIT WILL REVEAL THE TRENDS IN PRICING STRATEGY FOR THE COMPANY & THE INDUSTRY COST REDUCTION / PRODUCTIVITY IMPROVEMENT  IN ADDITION TO ESTABLISHING OBJECTIVES FOR REVENUE GROWTH & MIX, A BUSINESS MAY WISH TO IMPROVE ITS COST & PRODUCTIVITY PERFORMANCE INCREASE REVENUE PRODUCTIVITY  EFFORTS TO REDUCE COSTS THROUGH DEDICATED AUTOMATION & STANDARDIZED PROCESSES MAY CONFLICT WITH THE FLEXIBILITY REQUIRED TO CUSTOMIZE NEW PRODUCTS / SERVICES FOR NEW MARKETS  IN GROWTH STAGE THE BUSINESS INSTEAD OF FOCUSING ON COST REDUCTION, SHOULD FOCUS ON REVENUE ENHANCEMENT; SAY REVENUE PER EMPLOYEE; TO ENCOURAGE SHIFTS TO HIGHER VALUE ADDED PRODUCTS / SERVICES & TO ENHANCE THE CAPABILITIES OF THE ORGANIZATION’S PHYSICAL / PERSONAL RESOURCES REDUCE UNIT COSTS:  FOR SUSTAIN STAGE BUSINESS, ACHIEVING COMPETITIVE COST LEVELS IMPROVING OPERATING MARGINS, & MONITORING INDIRECT & SUPPORT EXPENSE LEVELS WILL CONTRIBUTE TO HIGHER PROFITABILITY & RETURN ON INVESTMENTS RATIOS  REDUCE THE UNIT COST OF PERFORMING WORK OR PRODUCING OUTPUT  FOR FIRMS WITH RELATIVELY HOMOGENEOUS OUTPUT, SUPPLYING A SIMPLE TARGET FOR REDUCING COST PER UNIT CAN SUFFICE  SINCE THE COST OF PERFORMING ACTIVITIES OR PRODUCING OUTPUTS MAY USE RESOURCES & ACTIVITIES FROM MANY
  21. 21. DIFFERENT DEPARTMENTS IN AN ORGANIZATION, AN ACTIVITY BASED PROCESS ORIENTED COSTING SYSTEMS WILL LIKELY BE REQUIRED FOR ACCURATE MEASUREMENT OF THE UNIT COST OF PROCESSING TRANSACTIONS & PRODUCING OUTPUT IMPROVE CHANNEL MIX  TO REDUCE COSTS SHIFT CUSTOMERS / SUPPLIERS FROM HIGH COST MANUALLY PROCESSED CHANNELS TO LOW COST ELECTRONIC CHANNELS  THIS COST REDUCTION STRATEGY CAN BE MEASURED BY % OF BUSINESS IT TRANSACTS THROUGH THE VARIOUS CHANNELS, WITH A GOAL OF SHIFTING THE MIX FROM HIGH TO LOW COSTS CHANNELS  BY SHIFTING TO MORE EFFICIENT PROCESSING CHANNELS CAN SIGNIFICANTLY INCREASE PRODUCTIVITY & LOWER THE COST OF DOING BUSINESS REDUCE OPERATING EXPENSES:  LOWER SELLING / GENERAL / ADMINISTRATIVE EXPENSES  THE SUCCESS OF THESE EFFORTS CAN BE MEASURED BY TRACKING THE ABSOLUTE AMOUNT OF THESE EXPENSES OR THEIR % TO THE TOTAL COSTS / REVENUES  OBJECTIVES TO REDUCE SPENDING & EXPENSES LEVELS SHOULD BE BALANCED, BY OTHER MEASURES SAY OF CUSTOMER RESPONSIVENESS, QUALITY, & PERFORMANCE, SO THAT COST CUTTING DOES NOT INTERFERE WITH ACHIEVING IMPORTANT CUSTOMER & INTERNAL PROCESS OBJECTIVES ASSET UTILIZATION / INVESTMENT STRATEGY:  OBJECTIVES SUCH AS RETURN ON CAPITAL EMPLOYED, RETURN ON INVESTMENT, & ECONOMIC VALUE ADDED PROVIDE OVERALL OUTCOME MEASURES OF THE SUCCESS OF FINANCIAL STRATEGIES
  22. 22. TO INCREASE REVENUES, REDUCE COSTS, & INCREASE ASSET UTILIZATION. CASH TO CASH CYCLE:  WORKING CAPITAL ESPECIALLY ACCOUNTS RECEIVABLE, INVENTORY, ACCOUNTS PAYABLE, IS AN IMPORTANT ELEMENT OF CAPITAL FOR MANY MANUFACTURING / RETAIL / WHOLESALE / DISTRIBUTION COMPANIES  ONE MEASURE OF THE EFFICIENCY OF WORKING CAPITAL MANAGEMENT IS THE CASH TO CASH CYCLE. IT REPRESENTS THE TIME REQUIRED FOR THE COMPANY TO CONVERT CASH PAYMENTS TO SUPPLIERS OF INPUTS TO CASH RECEIPTS FROM CUSTOMERS  REDUCING THE CASH CYCLE FROM CURRENT LEVELS CAN BE EXCELLENT TARGET FOR IMPROVING WORKING CAPITAL EFFICIENCY IMPROVE ASSET UTILIZATION:  IMPROVE THE PRODUCTIVITY FROM CAPITAL INVESTMENT PROJECTS & ACCELERATE THE CAPITAL INVESTMENTS PROCESS SO THAT THE CASH RETURNS FROM THESE INVESTMENTS ARE REALIZED EARLIER  REDUCTION IN THE CASH TO CASH CYCLE FOR INVESTMENTS IN PHYSICAL / INTELLECTUAL CAPITAL  PHYSICAL CAPITAL INCLUDES EQUIPMENTS / BUILDINGS / PHYSICAL FACILITIES  INTELLECTUAL CAPITAL INCLUDES HUMAN BEINGS  MANY OF AN ORGANIZATION’S RESOURCES SUPPLY THE INFRASTRUCTURE FOR ACCOMPLISHING WORK  THESE RESOURCES REQUIRES CONSIDERABLE CAPITAL INVESTMENTS  INVESTMENTS IN INTELLECTUAL ASSETS SUCH AS R & D, EMPLOYEES, / SYSTEMS WILL INCREASE AN ORGANIZATION’S OVERALL RETURN ON INVESTMENT
  23. 23. RISK MANAGEMENT OBJECTIVES & MEASURES  MOST OS ARE CONCERNED WITH THE RISK & VARIABILITY OF THEIR RETURNS  WHEN IT IS STRATEGICALLY IMPORTANT THESE O WILL WANT TO INCORPORATE EXPLICIT RISK MANAGEMENT OBJECTIVES INTO THEIR FINANCIAL PERSPECTIVE CHAPTER IV CUSTOMER PERSPECTIVE INTRODUCTION  IN THE CUSTOMER PERSPECTIVE OF THE BSC, COMPANIES IDENTIFY THE CUSTOMER & MARKET SEGMENTS IN WHICH THEY HAVE CHOSEN TO COMPETE  THESE SEGMENTS REPRESENTS THE SOURCES THAT WILL DELIVER THE REVENUE COMPONENT OF THE COMPANY’S FINANCIAL OBJECTIVES  THE CUSTOMER PERSPECTIVE ENABLES COMPANIES TO ALIGN THEIR CORE CUSTOMER OUTCOME MEASURES – SATISFACTION, LOYALTY, RETENTION, ACQUISITION, & PROFITABILITY – TO TARGETED CUSTOMERS & MARKET SEGMENTS  IT ALSO ENABLES THEM TO IDENTIFY & MEASURE EXPLICITLY THE VALUE PROPOSITIONS THEY WILL DELIVER TO TARGETED CUSTOMERS & MARKET SEGMENTS  THE VALUE PROPOSITION REPRESENT THE DRIVERS, THE LEAD INDICATORS, FOR THE CORE CUSTOMER OUTCOME MEASURES  IN THE CUSTOMER PERSPECTIVE OF THE BSC THE COMPANIES SHOULD TRANSLATE THEIR MISSION / STRATEGY STATEMENTS INTO SPECIFIC MARKET & CUSTOMER BASED OBJECTIVES
  24. 24.  BUSINESS MUST IDENTIFY THE MARKET SEGMENTS IN THEIR EXISTING / POTENTIAL CUSTOMER POPULATIONS & THEN SELECT THE SEGMENTS IN WHICH THEY CHOOSE TO COMPETE  THUS THE CUSTOMER PERSPECTIVE OF THE SCORECARD TRANSLATES AN O’S MISSION / STRATEGY INTO SPECIFIC OBJECTIVES ABOUT TARGETED CUSTOMERS & MARKET SEGMENTS THAT CAN BE COMMUNICATED THROUGHOUT THE O MARKET SEGMENTATION  IN GENERAL, EXISTING & POTENTIAL CUSTOMERS ARE NOT HOMOGENEOUS  THEY HAVE DIFFERENT PREFERENCES & VALUE THE ATTRIBUTES OF THE PRODUCT / SERVICE DIFFERENTLY  THE COMPANY’S STRATEGY SHOULD BE DEFINED BY THOSE CUSTOMER & MARKET SEGMENTS THAT I CHOOSES TO TARGET  THE BSC SHOULD IDENTIFY THE CUSTOMER OBJECTIVES IN EACH SEGMENT  IF YOU TRY TO SATISFY ALL THE CUSTOMERS’ PREFERENCES, WE RUN THE RISK OF DOING NOTHING WELL FOR ANYBODY  THE ESSENCE OF STRATEGY IS NOT JUST CHOOSING WHAT TO DO; IT ALSO REQUIRES CHOOSING WHAT NOT TO DO  ONCE A BUSINESS HAS IDENTIFIED & TARGETED ITS MARKET SEGMENTS, IT CAN ADDRESS THE OBJECTIVES & MEASURES FOR ITS TARGETED SEGMENTS  COMPANIES GENERALLY SELECT TWO SETS OF MEASURES FOR THEIR CUSTOMER PERSPECTIVE.  THE FIRST SET REPRESENTS GENERIC MEASURES THAT VIRTUALLY ALL COMPANIES WANT TO USE; LIKE: CUSTOMER SATISFACTION / MARKET SHARE / CUSTOMER RETENTION.  THESE APPEAR IN MANY BSC, & IT IS REFERRED AS CORE MEASUREMENT GROUP
  25. 25.  THE SECOND SET OF MEASURES REPRESENTS THE PERFORMANCE DRIVERS – DIFFERENTIATORS – OF THE CUSTOMER OUTCOMES  THEY ANSWER THE QUESTION: WHAT MUST THE COMPANY DELIVER TO ITS CUSTOMERS TO ACHIEVE HIGH DEGREE OF SATISFACTION, RETENTION, ACQUISITION, & EVENTUALLY MARKET SHARE  THE PERFORMANCE DRIVER MEASURES CAPTURE THE VALUE PROPOSITION THAT THE COMPANY WILL ATTEMPT TO DELIVER TO ITS TARGETED CUSTOMER & MARKET SEGMENTS CUSTOMER CORE MEASUREMENT GROUP  IT IS GENERIC ACROSS ALL KINDS OF ORGANIZATIONS  THE CORE MEASUREMENT GROUP INCLUDES MEASURES OF:  MARKET SHARE  IT REFLECTS THE PROPORTION OF BUSINESS IN A GIVEN MARKET THAT A BUSINESS UNIT SELLS  CUSTOMER RETENTION  TRACKS THE RATE AT WHICH A BUSINESS UNIT RETAINS / MAINTAINS ONGOING RELATIONSHIPS WITH ITS CUSTOMERS  CUSTOMER ACQUISITION  MEASURES THE RATE AT WHICH A BUSINESS UNIT ATTRACTS / WINS NEW CUSTOMERS / BUSINESS  CUSTOMER SATISFACTION  ASSESS THE SATISFACTION LEVEL OF CUSTOMERS ALONG SPECIFIC PERFORMANCE CRITERIA WITHIN THE VALUE PROPOSITION  CUSTOMER PROFITABILITY
  26. 26.  MEASURES THE NET PROFIT OF A CUSTOMER / SEGMENT AFTER ALLOWING FOR THE UNIQUE EXPENSES REQUIRED TO SUPPORT THAT CUSTOMER MARKET & ACCOUNT SHARE  ONCE THE TARGETED CUSTOMER GROUP / MARKET SEGMENT HAS BEEN SPECIFIED, MEASURING MARKET SHARE IS A STRAIGHTFORWARD EXERCISE  THERE ARE MANY SOURCES WHICH PROVIDES ESTIMATES OF THE TOTAL MARKET SIZE  WHEN COMPANIES HAVE TARGETED PARTICULAR CUSTOMERS / MARKET SEGMENTS, THEY CAN USE A SECOND MARKET SHARE MEASURE: THE ACCOUNT SHARE OF THOSE CUSTOMERS’ BUSINESS  SUCH A MEASURE PROVIDES A STRONG FOCUS TO THE COMPANY WHEN TRYING TO DOMINATE ITS TARGETED CUSTOMERS’ PURCHASES OF PRODUCTS / SERVICES IN CATEGORIES THAT IT OFFERS CUSTOMER RETENTION  FOR MAINTAINING / INCREASING MARKET SHARE IN TARGETED CUSTOMER SEGMENTS, IS TO START BY RETAINING EXISTING CUSTOMERS IN THOSE SEGMENTS  CUSTOMER RETENTION CAN BE MEASURED FROM PERIOD TO PERIOD  CUSTOMER LOYALTY CAN ALSO BE MEASURED BY THE % GROWTH OF BUSINESS WITH EXISTING CUSTOMERS
  27. 27. CUSTOMER ACQUISITION  COMPANIES SEEKING TO GROW THEIR BUSINESS WILL HAVE AN OBJECTIVE TO INCREASE THEIR CUSTOMER BASE IN TARGETED SEGMENTS  CUSTOMER ACQUISITION MEASURES THE RATE AT WHICH A BUSINESS UNIT ATTRACTS / WINS NEW CUSTOMERS / BUSINESS  IT COULD BE MEASURED IN EITHER THE NUMBER OF NEW CUSTOMERS OR TOTAL SALES TO NEW CUSTOMERS IN THESE SEGMENTS CUSTOMER SATISFACTION  IT PROVIDES FEEDBACK ON HOW WELL THE COMPANY IS DOING  JUST SCORING ADEQUATELY ON CUSTOMER SATISFACTION IS NOT SUFFICIENT FOR ACHIEVING HIGH DEGREES OF LOYALTY / RETENTION / PROFITABILITY  ONLY WHEN CUSTOMERS RATE THEIR BUYING EXPERIENCE AS COMPLETELY / EXTREMELY SATISFIED CAN A COMPANY COUNT ON THEIR REPEAT PURCHASING BEHAVIOR  TO GET FEEDBACK ON CUSTOMER SATISFACTION, THREE TECHNIQUES ARE EMPLOYED:  MAIL SURVEYS / TELEPHONE INTERVIEWS / PERSONAL INTERVIEWS  THE IMPORTANT THING IN SURVEYS IS GETTING VALID RESPONSES FROM A HIGH % OF CUSTOMERS. THIS IS AN EXPERTISE JOB CUSTOMER PROFITABILITY  MEETING THE FOUR MEASURES OF SHARE / RETENTION / ACQUISITION / SATISFACTION DOES NOT GUARANTEE THAT A COMPANY HAS PROFITABLE CUSTOMERS  COMPANIES WANT MORE THAN SATISFIED / HAPPY CUSTOMERS, THEY WANT PROFITABLE CUSTOMERS
  28. 28.  A MEASURE LIKE CUSTOMER PROFITABILITY HELPS KEEP CUSTOMER FOCUSED ORGANIZATIONS FROM BECOMING CUSTOMER – OBSESSED CUSTOMERS PROFITABLE UNPROFITABLE TARGETED SEGMENT RETAIN TRANSFORM UNTARGETED MONITOR ELIMINATE SEGMENT  RETAIN PROFITABLE CUSTOMERS IN TARGETED SEGMENTS  UNPROFITABLE CUSTOMERS IN TARGETED SEGMENTS REPRESENTS OPPORTUNITIES TO TRANSFORM THEM INTO PROFITABLE CUSTOMERS  PROFITABLE CUSTOMERS IN UNTARGETED SEGMENTS CERTAINLY ARE TO BE RETAINED, BUT NEED TO BE MONITORED TO ASSESS NEW DEMANDS FOR SERVICE / FEATURES / CHANGES IN THE VOLUME & MIX OF PRODUCTS / SERVICES THEY PURCHASE DO NOT BECOME UNPROFITABLE  THE UNPROFITABLE CUSTOMERS IN UNTARGETED SEGMENTS SHOULD NOT BE PAID ANY ATTENTION BEYOND THE CORE: MEASURING CUSTOMER VALUE PROPOSITION  CUSTOMER VALUE PROPOSITION REPRESENT THE ATTRIBUTES THAT SUPPLYING COMPANIES PROVIDE, THROUGH THEIR PRODUCTS / SERVICES, TO CREATE LOYALTY / SATISFACTION IN TARGETED CUSTOMER SEGMENTS  VALUE PROPOSITION ARE THE DRIVERS OF CORE MEASUREMENTS OF SATISFACTION / ACQUISITION / RETENTION / MARKET / ACCOUNT SHARE  THE FOLLOWING COMMON SET OF ATTRIBUTES ARE APPLICABLE TO ALL THE INDUSTRIES: • PRODUCTS / SERVICE / CUSTOMER RELATIONSHIP / IMAGE & REPUTATION PRODUCT / SERVICE ATTRIBUTES
  29. 29.  ENCOMPASSES THE FUNCTIONALITY OF THE PRODUCT / SERVICE, ITS PRICE, ITS QUALITY CUSTOMER RELATIONSHIP:  IT INCLUDES THE DELIVERY OF THE PRODUCT / SERVICE TO THE CUSTOMER, INCLUDING THE RESPONSE & DELIVERY TIME DIMENSION, & HOW THE CUSTOMER FEELS ABOUT PURCHASING FROM THE COMPANY  THE RELATIONSHIP DIMENSION ALSO ENCOMPASSES LONG TERM COMMITMENTS LIKE SHARING INFORMATION WITH CUSTOMERS / PREFERRED SUPPLIER WHEREAS NO THE MATERIAL SUPPLIED IS TAKEN ON PRODUCTION LINE WITHOUT INCOMING INSPECTION IMAGE & REPUTATION:  IT REFLECTS THE INTANGIBLE FACTORS THAT ATTRACT A CUSTOMER TO A COMPANY  THE IMAGE / REPUTATION DIMENSION ENABLES A COMPANY TO PROACTIVELY DEFINE ITSELF FOR ITS CUSTOMERS PERFORMANCE DRIVERS FOR CUSTOMER SATISFACTION  REPRESENTATIVE MEASURES THAT CAN CAPTURE THE TIME / QUALITY / PRICE DIMENSIONS OF ITS CUSTOMER RELATIONSHIPS TIME:  A MAJOR COMPETITIVE WEAPON IN TODAY’S COMPETITION  IT IS RESPONDING RAPIDLY / RELIABLY TO CUSTOMER’S REQUEST. IT IS NECESSARY IN ORDER TO OBTAIN / RETAIN VALUABLE CUSTOMERS’ BUSINESS QUALITY:  IT CONTINUES TO REMAIN A CRITICAL COMPETITIVE DIMENSION  IT IS TAKEN FOR GRANTED PRICE:
  30. 30.  CUSTOMERS WILL ALWAYS BE CONCERNED WITH THE PRICE THEY PAY FOR THE PRODUCT / SERVICE INTERNAL – BUSINESS – PROCESS PERSPECTIVE INTRODUCTION:  IDENTIFY THE PROCESSES THAT ARE MOST CRITICAL FOR ACHIEVING CUSTOMER / SHAREHOLDER OBJECTIVES  ALL COMPANIES ARE NOWADAYS ATTEMPTING TO IMPROVE QUALITY / REDUCE CYCLE TIMES / INCREASE YIELDS / MAXIMIZE THROUGHPUT / LOWER COSTS FOR THEIR BUSINESS PROCESSES  UNLESS ONE CAN OUTPERFORM COMPETITORS ACROSS THE BOARD ON ALL BUSINESS PROCESSES, IN QUALITY / TIME / PRODUCTIVITY / COST; SUCH IMPROVEMENTS WILL FACILITATE SURVIVAL; BUT WILL NOT LEAD TO DISTINCTIVE & SUSTAINABLE COMPETITIVE ADVANTAGES  IN THE BSC THE OBJECTIVES / MEASURES FOR THE INTERNAL BUSINESS PROCESS PERSPECTIVE ARE DERIVED FROM EXPLICIT STRATEGIES TO MEET SHAREHOLDER & TARGETED CUSTOMER EXPECTATIONS  WITH A SUCH A PROCEDURE, IDENTIFIED FOR THE INTERNAL BUSINESS PROCESS PERSPECTIVE, NEW PROCEDURES THAT WOULD LEAD TO BREAKTHROUGH PERFORMANCE FOR CUSTOMERS / SHAREHOLDERS THE INTERNAL BUSINESS PROCESS VALUE CHAIN  EACH BUSINESS HAS A UNIQUE SET OF PROCESSES FOR CREATING VALUE FOR CUSTOMERS & PRODUCING FINANCIAL RESULTS  THE FOLLOWING ARE THE THREE PRINCIPAL BUSINESS PROCESSES:  INNOVATION / OPERATIONS / POST SALE SERVICE
  31. 31.  IN THE INNOVATION PROCESS, THE BUSINESS UNIT RESEARCHES THE EMERGING / LATENT NEEDS OF CUSTOMERS, & THEN CREATES THE PRODUCTS / SERVICES THAT WILL MEET THESE NEEDS  IN THE OPERATIONS PROCESS, THE EXISTING PRODUCTS / SERVICES ARE PRODUCED & DELIVERED TO CUSTOMERS.  IN POST SALE SERVICE, WE TALK ABOUT THE SERVICE PROVIDED TO THE CUSTOMER, AFTER THE ORIGINAL SALE / DELIVERY OF A PRODUCT / SERVICE INNOVATION PROCESS:  IT IS A CRITICAL INTERNAL PROCESS  IDENTIFY & NURTURE NEW MARKETS, NEW CUSTOMERS, & THE EMERGING & LATENT NEEDS OF EXISTING CUSTOMERS  THE COMPANIES DESIGN & DEVELOP THE NEW PRODUCTS / SERVICES THAT ENABLE THEM TO REACH THE NEW MARKETS / CUSTOMERS & TO SATISFY CUSTOMERS’ NEWLY IDENTIFIED NEEDS  IT CONSISTS OF TWO COMPONENTS: 1. UNDERTAKE MARKET RESEARCH TO IDENTIFY THE SIZE OF THE MARKET, THE NATURE OF CUSTOMER’S PREFERENCES, & PRICE POINTS FOR THE TARGETED PRODUCT / SERVICE. IDENTIFY NEW OPPORTUNITIES / MARKETS FOR PRODUCTS / SERVICES THAT ORGANIZATION COULD SUPPLY. DO NOT SATISFY CUSTOMERS, BUT AMAZE THEM 2. INFORMATION ON MARKETS / CUSTOMERS PROVIDES THE INPUT FOR THE ACTUAL PRODUCT / SERVICE DESIGN & DEVELOPMENT PROCESSES. DURING THIS STEP, THE ORGANIZATION’S RESEARCH & DEVELOPMENT GROUP DEVELOPS NEW PRODUCTS / SERVICES FOR DELIVERING VALUE TO CUSTOMERS. EXPLOITS EXISTING TECHNOLOGY FOR THE NEXT GENERATION OF PRODUCTS / SERVICES. PUTS
  32. 32. DEVELOPMENTAL EFFORTS TO BRING NEW PRODUCTS / SERVICES TO MARKET  FOR THIS; THE ORGANIZATION HAS TO SPEND MORE MONEY ON R&D PROCESSES THE OPERATIONAL PROCESS:  IT STARTS WITH RECEIPT OF CUSTOMER ORDER & FINISHES WITH DELIVERY OF THE PRODUCT / SERVICE TO THE CUSTOMER  THIS PROCESS STRESSES EFFICIENT CONSISTENT & TIMELY DELIVERY OF EXISTING PRODUCTS / SERVICES TO EXISTING CUSTOMERS  BESIDES HAVING FINANCIAL MEASURES LIKE STANDARD COSTS / BUDGETS / VARIANCES, NEW PRACTICES LIKE TQM, JIT, SHOULD SUPPLEMENT THE FINANCIAL MEASURES  INCORPORATE ANY ATTRIBUTES OF THE PRODUCT / SERVICE INTO THE OPERATING PROCESS WHICH CREATES VALUE TO CUSTOMERS OPERATIONS PROCESS: TIME / QUALITY / COST: PROCESS TIME MEASUREMENT:  CUSTOMERS VALUE SHORT LEAD TIMES, & RELIABLE LEAD TIMES  PRODUCTION PROCESS SHOULD RESPOND RAPIDLY TO CUSTOMERS ORDERS  MANUFACTURING COMPANIES SHOULD REDUCE CYCLE OR THROUGHPUT TIMES OF INTERNAL PROCESSES
  33. 33.  SERVICE COMPANIES SHOULD ELIMINATE WASTE TIME IN SERVICE DELIVERY PROCESS PROCESS QUALITY MEASUREMENT:  FOLLOWING ARE THE VARIETY OF PROCESS QUALITY MEASUREMENTS:  PROCESS PART PER MILLION DEFECT RATES  YIELDS [RATIO OF GOOD ITEMS PRODUCED TO GOODS ITEMS ENTERING TE PROCESS]  WASTE  SCRAP  REWORK  RETURNS  % OF PROCESSES UNDER STATISTICAL PROCESS CONTROL  SERVICE ORGANIZATIONS SHOULD IDENTIFY THE DEFECTS IN THEIR INTERNAL PROCESSES THAT COULD ADVERSELY AFFECT COSTS / RESPONSIVENESS / CUSTOMER SATISFACTION  MAKING DEFECT FREE PRODUCT SHOULD BE AIMED IN PROCESS QUALITY MEASUREMENT PROCESS COST MEASUREMENT:  NORMALLY ONE MEASURES THE EXPENSES & EFFICIENCIES OF INDIVIDUAL TASKS / OPERATIONS / DEPARTMENTS  WE SHOULD ALSO FOCUS ON COST AT PROCESS LEVELS LIKE ORDER FULFILLMENT / PURCHASING / PRODUCTION PLANNING & CONTROL WHICH USES RESOURCES
  34. 34. POST SALE SERVICE:  INCLUDES WARRANTY / REPAIR ACTIVITIES, TREATMENT OF DEFECTS & RETURNS, & THE PROCESSING OF PAYMENTS, SUCH AS CREDIT  CYCLE TIME FROM CUSTOMER REQUEST TO ULTIMATE RESOLUTION OF THE PROBLEM CAN MEASURE THE SPEED OF RESPONSE TO FAILURE  COST METRICS CAN EVALUATE THE EFFICIENCY – THE COST OF RESOURCES USED – FOR POST SALE SERVICE PROCESSES  FIRST – PASS YIELDS CAN MEASURE WHAT % OF CUSTOMER REQUESTS ARE HANDLED WITH A SINGLE SERVICE CALL, RATHER THAN REQUIRING MULTIPLE CALLS TO RESOLVE THE PROBLEM LEARNING & GROWTH PERSPECTIVE INTRODUCTION:  THIS PERSPECTIVE DEVELOPS, OBJECTIVES & MEASURES TO DRIVE O LEARNING & GROWTH
  35. 35.  OBJECTIVES IN THE LEARNING & GROWTH PERSPECTIVE ARE THE DRIVERS FOR ACHIEVING EXCELLENT OUTCOMES IN THE FIRST THREE SCORECARD PERSPECTIVE  THE BSC STRESSES THE IMPORTANCE OF INVESTING FOR THE FUTURE & NOT JUST TRADITIONAL AREAS FOR INVESTMENT  THE FOLLOWING ARE THE THREE PRINCIPAL CATEGORIES FOR THE LEARNING & GROWTH PERSPECTIVE:  EMPLOYEE CAPABILITIES  INFORMATION SYSTEMS CAPABILITIES  MOTIVATION, ENVIRONMENT, & ALIGNMENT EMPLOYEE CAPABILITIES:  THE ROUTINE & REPETITIVE WORK WERE SPECIFIED IN DETAIL; STANDARDS WERE ESTABLISHED; MONITORING SYSTEM WERE ESTABLISHED TO ENSURE THAT WORKERS PERFORMED THESE TASKS JUST AS DESIGNED  EMPLOYEES WERE HIRED TO DO PHYSICAL WORK & NOT TO THINK  TODAY MACHINE HAS REPLACED ROUTINE WORK.  EFFICIENCY / PRODUCTIVITY HAS TO BE CONSTANTLY IMPROVED  IDEAS FOR IMPROVING PROCESSES & PERFORMANCE, FOR CUSTOMERS MUST INCREASINGLY COME FROM LINE EMPLOYEES WHO ARE CLOSEST TO INTERNAL PROCESSES & O’S CUSTOMERS  THERE CANNOT B STANDARD FOR CURRENT / FUTURE PERFORMANCE  THIS SHIFT REQUIRES MAJOR RESKILLING OF EMPLOYEES SO THAT THEIR MINDS / CREATIVE ABILITIES CAN BE MOBILIZED FOR ACHIEVING O OBJECTIVES
  36. 36. CORE EMPLOYEE MEASUREMENT GROUP  THE FOLLOWING ARE THE THREE CORE EMPLOYEE MEASUREMENTS:  EMPLOYEE SATISFACTION  EMPLOYEE RETENTION  EMPLOYEE PRODUCTIVITY  THE EMPLOYEE SATISFACTION OBJECTIVE IS GENERALLY CONSIDERED THE DRIVER OF THE OTHER TWO MEASURES, EMPLOYEE RETENTION, & EMPLOYEE PRODUCTIVITY MEASURING EMPLOYEE SATISFACTION:  NOWADAYS O CONSIDERS EMPLOYEE MORALE / OVERALL JOB SATISFACTION AS HIGHLY IMPORTANT  SATISFIED EMPLOYEES ARE PRECONDITION FOR INCREASING PRODUCTIVITY, RESPONSIVENESS, QUALITY, & CUSTOMER SERVICE  TO HAVE HIGH LEVEL OF CUSTOMER SATISFACTION; IT IS ESSENTIAL TO HAVE SATISFIED EMPLOYEES  ELEMENTS IN AN EMPLOYEE SATISFACTION SURVEY COULD INCLUDE THE FOLLOWING:  INVOLVEMENT WITH DECISIONS  RECOGNITION FOR DOING A GOOD JOB  ASSESS TO SUFFICIENT INFORMATION TO DO THE JOB WELL  ACTIVE ENCOURAGEMENT TO BE CREATIVE & USE INITIATIVE  SUPPORT LEVEL FROM STAFF FUNCTIONS  OVERALL SATISFACTION WITH THE COMPANY  COMPANIES TYPICALLY MEASURE EMPLOYEE SATISFACTION WITH AN ANNUAL SURVEY IN WHICH A SPECIFIED % OF RANDOMLY CHOSEN EMPLOYEES IS SURVEYED EACH MONTH
  37. 37.  AN AGGREGATE INDEX OF EMPLOYEE SATISFACTION COULD BE POSTED ON THE BSC MEASURING EMPLOYEE RETENTION:  EMPLOYEE RETENTION CAPTURES AN OBJECTIVE TO RETAIN THOSE EMPLOYEES IN WHOM THE O HAS A LONG TERM INTEREST  UNWANTED DEPARTURES REPRESENTS A LOSS IN THE INTELLECTUAL CAPITAL OF THE BUSINESS  LOYAL EMPLOYEES CARRY THE VALUES OF THE ORGANIZATION, KNOWLEDGE OF O PROCESSES, & SENSITIVITY TO THE NEEDS OF THE CUSTOMERS  IT IS GENERALLY MEASURED BY % OF KEY STAFF TURNOVER MEASURING EMPLOYEE PRODUCTIVITY: -  EMPLOYEE PRODUCTIVITY IS AN OUTCOME OF THE AGGREGATE IMPACT FROM ENHANCING EMPLOYEE SKILLS & MORALE, INNOVATION, IMPROVING INTERNAL PROCESSES, & SATISFYING CUSTOMERS  MANY WAYS TO MEASURE THE EMPLOYEES PRODUCTIVITY  THE SIMPLEST IS REVENUE PER EMPLOYEE. HOW MUCH OUTPUT CAN BE GENERATED PER EMPLOYEE? THIS SYSTEM HAS FOLLOWING LIMITATIONS:  COSTS ASSOCIATED WITH REVENUE ARE NOT INCLUDED. PROFITS DECREASES WHEN ADDITIONAL BUSINESS IS ACCEPTED AT BELOW THE COST  A RATIO IS USED TO MEASURE AN OBJECTIVE. EITHER INCREASE THE NUMERATOR [INCREASING REVENUE WITHOUT INCREASING MANPOWER], OR DECREASE THE DENOMINATOR [DOWNSIZING]. INCREASING NUMERATOR IS PREFERRED TO DECREASING DENOMINATOR
  38. 38.  OUTSOURCE THE FUNCTIONS. THIS ENABLES THE O TO SUPPORT THE SAME LEVEL OF OUTPUT [REVENUE] BUT WITH FEWER INTERNAL EMPLOYEES.  IF THIS MEASURE IS USED THEN IT MUST BE BALANCED WITH OTHER MEASURES OF ECONOMIC SUCCESS SO THAT TARGETS FOR THE MEASURE ARE NOT ACHIEVED IN DYSFUNCTIONAL WAYS SITUATION SPECIFIC DRIVERS OF LEARNING & GROWTH  ONCE THE PARAMETER LIKE SATISFACTION; RETENTION; & PRODUCTIVITY ARE IDENTIFIED, THEN IDENTIFY THE SITUATION - SPECIFIC UNIQUE DRIVERS IN THE LEARNING & GROWTH PERSPECTIVE  THE DRIVERS TEND TO BE DRAWN FROM THREE CRITICAL ENABLERS:  RESKILLING THE WORK FORCE  INFORMATION SYSTEMS CAPABILITIES  MOTIVATION, EMPOWERMENT, & ALIGNMENT RESKILLING THE WORKFORCE:  EMPLOYEES SHOULD TAKE UP NEW RESPONSIBILITIES; IN ORDER TO SURVIVE & GROW IN A COMPETITIVE ENVIRONMENT  EMPLOYEES ARE TRAINED FOR SPECIFIC STRATEGIC JOBS RELATIVE TO ANTICIPATED O NEEDS  THE QUALIFICATIONS FOR A GIVEN POSITION ARE DEFINED SO THAT EMPLOYEES IN THIS POSITION CAN DELIVER CAPABILITIES FOR ACHIEVING PARTICULAR CUSTOMER & INTERNAL BUSINESS PROCESS OBJECTIVES  COMPETENCIES ARE MEASURED ALONG FOLLOWING DIMENSIONS:  KNOWLEDGE / SKILL / ATTITUDE  ANOTHER IMPORTANT FACTOR IS THE TIME REQUIRED TO TAKE THE EXISTING EMPLOYEES TO THE NEW REQUIRED LEVELS OF COMPETENCY
  39. 39. INFORMATION SYSTEMS CAPABILITIES:  FOR AN EMPLOYEE TO BE EFFECTIVE IN TODAY’S COMPETITIVE ENVIRONMENT THEY NEED EXCELLENT INFORMATION ON CUSTOMERS, ON INTERNAL PROCESSES, & OF THE FINANCIAL CONSEQUENCES OF THEIR DECISIONS  EMPLOYEES NEED RAPID, TIMELY, & ACCURATE FEEDBACK ON THE PRODUCT / SERVICE PROVIDED TO THE CUSTOMER  FEEDBACK WILL RESULT IN CONTINUOUS IMPROVEMENT MOTIVATION, EMPOWERMENT, & ALIGNMENT:  EMPLOYEES SHOULD ALSO BE MOTIVATED TO ACT IN THE BEST INTERESTS OF AN O  THEY MUST BE GIVEN FREEDOM TO MAKE DECISIONS & TAKE ACTIONS MEASURES OF SUGGESTIONS MADE & IMPLEMENTED:  MOTIVATED & EMPOWERED EMPLOYEE WILL ALWAYS OFFER NUMBER OF SUGGESTIONS  IT CAPTURES ONGOING PARTICIPATION OF EMPLOYEES IN IMPROVING THE O’S PERFORMANCE  IMPLEMENTING SUGGESTIONS TALKS OF QUALITY OF SUGGESTIONS, AS WELL AS COMMUNICATING TO THE EMPLOYEE THAT THEIR SUGGESTIONS ARE VALUED, & TAKEN SERIOUSLY  FOLLOWING INITIATIVES WILL GIVE IMPETUS TO SUGGESTION SCHEMES:  PUBLISHING SUCCESSFUL SUGGESTIONS TO INCREASE THE VISIBILITY & CREDIBILITY OF THE PROCESS  ILLUSTRATED THE BENEFITS & IMPROVEMENTS THAT HAD BEEN ACHIEVED THROUGH EMPLOYEE SUGGESTIONS
  40. 40.  & COMMUNICATED A NEW REWARD STRUCTURE FOR IMPLEMENTED SUGGESTIONS MEASURES OF IMPROVEMENTS:  BESIDES EXPENSIVE SAVINGS, O CAN ALSO LOOK FOR IMPROVEMENTS IN QUALITY / TIME / PERFORMANCE IN PROCESS  ONE OF THE MODEL IS HALF LIFE METRIC; WHEREIN THE LENGTH OF TIME REQUIRED FOR PROCESS PERFORMANCE TO IMPROVE BY 50%  THE HALF LIFE METRIC CAN BE APPLIED TO ANY PROCESS METRIC SUCH AS COST / QUALITY / TIME THAT THE O WANTS TO REDUCE TO ZERO MEASURES OF INDIVIDUAL & O ALIGNMENT:  THE DEPARTMENTS & INDIVIDUALS SHOULD HAVE THEIR GOALS ALIGNED WITH THE COMPANY OBJECTIVES ARTICULATED IN BSC  IT IS NOT THE GOALS BUT ALSO THE REWARD & RECOGNITION SYSTEMS MUST BE ALIGNED WITH BUSINESS OBJECTIVES  ALL MEASURES OF PERFORMANCE SHOULD BE TEAM BASED ALIGNMENT: TOP DOWN MANAGEMENT ROLLOUT:  THE SENIOR MANAGEMENT ESTABLISHES THE CONTEXT & FRAMEWORK FOR THE BSC AS A MEANS TO COMMUNICATE SHARED OBJECTS  BUILD UNDERSTANDING & ACCEPTANCE OF THE BSC  ENGAGE MANAGERS TO DEVELOP MEASURES FOR THEIR AREAS OF RESPONSIBILITY  ENGAGE MANAGERS TO TRACK PERFORMANCE TO ESTABLISH A BASELINE OF INFORMATION FOR ESTABLISHING TARGETS
  41. 41.  ENGAGE MANAGERS TO DEVELOP & EXECUTE AN IMPLEMENTATION PLAN FOR CASCADING THE SCORECARD APPROACH DOWNWARD WITHIN THEIR O EMPLOYEE ROLLOUT:  COMMUNICATE CONTEXT, ORGANIZATIONAL STRATEGIES & NEW INITIATIVES  INTRODUCE THE BSC -  WHAT IS IT  HOW IS IT BEING USED  WHAT’S THE IMPLEMENTATION PLAN  WHAT’S BEEN ACCOMPLISHED  WHAT ARE THE NEXT STEPS PROFIT PLAN / TARGET SETTING  IMPLEMENT TOP DOWN PROCESS FOR DEFINING FINANCIAL TARGETS  IMPLEMENT BOTTOM UP PROCESS FOR ESTABLISHING TARGETS FOR NON-FINANCIAL MEASURES PERSONAL GOALS ALIGNMENT:  EACH EMPLOYEE ESTABLISHES A STRATEGY ALIGNED GOAL BY IDENTIFYING AN ACTIVITY WHICH THEY PERFORM [& OR MEASURE] WHICH WILL IMPACT A MEASUREMENT ON THE SCORECARD  PERSONAL GOALS ESTABLISHED THROUGH NEGOTIATION PROCESS WITH MANAGEMENT MEASUREMENT APPROACH: MEASURES EVOLVE THROUGH IMPLEMENTATION:
  42. 42.  % OF TOP MANAGERS EXPOSED TO BSC  % OF STAFF EXPOSED TO BSC  % OF TOP MANAGERS WITH PERSONAL GOALS ALIGNED TO BSC  % OF STAFF WITH PERSONAL GOALS ALIGNED TO BSC % OF EMPLOYEES WHO ACHIEVED PERSONAL GOALS CONCLUSIONS:  THE O ALIGNMENT MEASURES IS THE % OF THE BUSINESS UNITS THAT HAD SUCCESSFULLY COMPLETED THIS ALIGNMENT PROCESS  MEASURE THE PROGRESS IN GAINING AWARENESS & COMMITMENT TO THE OBJECTIVES & MEASURES FOR THE BSC; & IDENTIFY AREAS THAT ADDITIONAL EFFORT & ATTENTION MEASURE TEAM PERFORMANCE:  NOWADAYS O ARE TURNING TO TEAMS TO ACCOMPLISH IMPORTANT BUSINESS PROCESSES  THESE O WANT OBJECTIVES & MEASURES TO MOTIVATE & MONITOR THE SUCCESS OF TEAM BUILDING & TEAM PERFORMANCE
  43. 43. CHAPTER VII LINKING BSC MEASURES TO YOUR STRATEGY INTRODUCTION:  THE OBJECTIVE OF ANY MEASUREMENT SYSTEM SHOULD BE TO MOTIVATE ALL EMPLOYEES TO IMPLEMENT SUCCESSFULLY THE BUSINESS UNIT’S STRATEGY  THE BSC COMMUNICATES THE FOLLOWING BUSINESS UNIT’S STRATEGY:  DESCRIBES THE VISION. CREATES SHARED UNDERSTANDING.  CREATES HOLISTIC MODEL OF THE STRATEGY THAT ALLOWS ALL EMPLOYEES TO SEE THEIR CONTRIBUTION TOWARDS THE O SUCCESS. WITHOUT SUCH LINKAGE, THE INDIVIDUALS & DEPARTMENTS CAN OPTIMIZE THEIR LOCAL PERFORMANCE BUT NOT CONTRIBUTE TO ACHIEVING STRATEGIC OBJECTIVES  THE BSC FOCUSES CHANGE EFFORTS. IF THE RIGHT OBJECTIVES & MEASURES ARE IDENTIFIED SUCCESSFUL IMPLEMENTATION WILL LIKELY OCCUR. IF NOT INVESTMENTS & INITIATIVES WILL BE WASTED  A BSC SHOULD BE SENSITIVE & TRANSPARENT.. IT SHOULD LINK STRATEGY TO OBJECTIVES & MEASURES LINKING THE BSC MEASURES TO STRATEGY:  THERE ARE THREE PRINCIPLES THAT ENABLE AN O’S BSC TO BE LINKED TO ITS STRATEGY:
  44. 44.  CAUSE & EFFECT  PERFORMERS DRIVERS  LINKAGE TO FINANCIALS CAUSE & EFFECT:  STRATEGY IS A SET OF HYPOTHESIS OF CAUSE & EFFECT  C & E RELATIONSHIP IS EXPRESSED BY A SEQUENCE. FOR EXAMPLE A LINK BETWEEN IMPROVED SALES TRAINING OF EMPLOYEES & HIGHER PROFITS CAN BE ESTABLISHED THROUGH FOLLOWING SEQUENCE OF HYPOTHESIS:  INCREASE EMPLOYEE’S TRAINING  RESULT EMPLOYEES MORE KNOWLEDGEABLE ABOUT THE FULL RANGE OF PRODUCTS THEY CAN SELL  RESULT SALES WILL IMPROVE  RESULTS AVERAGE MARGINS WILL INCREASE  EVERY MEASURE SELECTED FOR A BSC SHOULD BE AN ELEMENT OF A CHAIN OF C&E RELATIONSHIPS THAT COMMUNICATES THE MEANING OF THE BUSINESS UNIT’S STRATEGY TO THE O OUTCOME & PERFORMANCE DRIVERS:  A BSC USES CERTAIN GENERIC MEASURES  THESE GENERIC MEASURES TEND TO BE CORE OUTCOME MEASURES, WHICH REFLECT THE COMMON GOALS OF MANY STRATEGIES AS WELL AS SIMILAR STRUCTURES ACROSS INDUSTRIES & COMPANIES  THESE GENERIC OUTCOME MEASURES TEND TO BE A LAG INDICATORS SUCH AS PROFITABILITY, MARKET SHARE, CUSTOMER SATISFACTION, CUSTOMER RETENTION, & EMPLOYEE SKILLS
  45. 45.  THE PERFORMANCE DRIVERS THE LEAD INDICATORS ARE THE ONES THAT TEND TO BE UNIQUE FOR A PARTICULAR BUSINESS UNIT.  THE PD REFLECT THE UNIQUENESS OF THE BUSINESS UNIT’S STRATEGY  A GOOD BSC SHOULD HAVE A MIX OF OUTCOME MEASURES & PERFORMANCE DRIVERS  PD TELLS US WHETHER THE STRATEGY HAS BEEN ACHIEVED OR NOT LINKAGE TO FINANCIALS:  OPERATIONAL IMPROVEMENTS SHOULD BE LINKED TO ECONOMIC RESULTS  ANY IMPROVEMENT PLAN SHOULD BE LINKED TO SPECIFIC TARGETS FOR CUSTOMER & EVENTUALLY FINANCIAL PERFORMANCE  IF THIS DOES NOT HAPPEN; THE O WILL BECOME DISILLUSIONED ABOUT THE LACK OF TANGIBLE PAYOFFS FROM THEIR IMPROVEMENT PLANS STRATEGIC VERSUS DIAGNOSTIC MEASURES: HOW MANY MEASURES ON A BSC?  STRATEGIC MEASURES DEFINE A STRATEGY; DESIGNED FOR COMPETITIVE EXCELLENCE  WHILE DIAGNOSTIC MEASURES MONITOR WHETHER THE BUSINESS REMAINS IN CONTROL & CAN SIGNAL WHEN UNUSUAL EVENTS ARE OCCURRING THAT REQUIRE IMMEDIATE ACTION  THE OUTCOME & PD MEASURES ON THE BSC ARE BASED ON NEW INFORMATION ABOUT THE COMPETITORS, CUSTOMERS, MARKETS, TECHNOLOGIES, & SUPPLIERS.  OUT OF THE MEASURES SO SELECTED FOR PD, MANY SHOULD BE NEW MEASUREMENTS
  46. 46.  THE BSC IS NOT A REPLACEMENT FOR AN O’S DAY-TO-DAY MEASUREMENT SYSTEM. THE SCORECARDS MEASURES ARE CHOSEN TO DIRECT THE ATTENTION OF MANAGERS & EMPLOYEES TO THOSE FACTORS EXPECTED TO LEAD TO COMPETITIVE BREAKTHROUGHS FOR AN O HOW BAD THINGS HAPPEN TO GOOD MEASURES: USING DIAGNOSTIC MEASURES TO BALANCE STRATEGIC MEASURES  EVEN THE BEST OBJECTIVES & MEASURES CAN BE ACHIEVED IN BAD WAYS.  SCORECARD GUARDS AGAINST SOME OF THE MYOPIC SUB OPTIMIZATION THAT OCCURS WHEN ONLY A SINGLE MEASURE ESPECIALLY A FINANCIAL ONE IS USED TO MOTIVATE & EVALUATE BUSINESS UNIT PERFORMANCE.  SUB OPTIMIZATION IS NOT UNIQUE ONLY TO FINANCIAL MEASURES  A COMPANY’S TOTAL MEASUREMENT SYSTEM SHOULD NOT ENCOURAGE SUB OPTIMIZATION ALONG ANY SINGLE MEASURE OR PERSPECTIVE  DESIGNERS SHOULD ATTEMPT TO ANTICIPATE THE SUB OPTIMIZATION THAT MIGHT OCCUR FOR A GIVEN METRIC ON THE BSC & PROVIDE SUPPLEMENTAL METRICS THAT DISCOURAGE ACHIEVING THE PRIMARY SCORECARD OBJECTIVE IN UNDESIRABLE WAY  RATHER THAN CLUTTER UP THE SCORECARD WITH ADDITIONAL NON-STRATEGIC MEASURES, COMPANIES CAN USE DIAGNOSTIC MEASURES TO BALANCE THE STRATEGIC MEASURES ON THE SCORECARD
  47. 47. CONCLUSIONS:  THE BEST BSC SHOULD TELL THE STORY OF THE STRATEGY, SO WELL THAT THE STRATEGY CAN BE INFERRED BY THE COLLECTION OF OBJECTIVES & MEASURES & THE LINKAGES AMONG THEM
  48. 48. CHAPTER VIII STRUCTURE & STRATEGY: BUSINESS UNIT VERSUS CORPORATE STRATEGY:  THE DEVELOPMENT OF CORPORATE – LEVEL SCORECARDS IS STILL IN ITS EARLY DEVELOPMENT STAGES. TO DATE THE CORPORATE CAN CLARIFY THE FOLLOWING TWO ELEMENTS: 1. CORPORATE THEMES: VALUES, BELIEFS, & THEMES THAT REFLECT THE CORPORATE IDENTITY & MUST BE SHARED BY ALL SBUS. EXAMPLE: SAFETY, INNOVATION, ETHICS 2. CORPORATE ROLE: ACTIONS MANDATED AT THE CORPORATE LEVEL THAT CREATE SYNERGIES AT THE SBU LEVEL. EXAMPLE: CROSS – SELL CUSTOMERS ACROSS SBUS, SHARE COMMON TECHNOLOGIES, CENTRALIZE A SHARED SERVICE  CORPORATE SCORECARD ARTICULATES AS TO HOW THE CORPORATION ADDS VALUE TO ITS COLLECTION OF STRATEGIC BUSINESS UNITS.  SUCH CORPORATE VALUE ADDED CAN ARISE FROM SEVERAL SOURCES, INCLUDING COMMON THEMES THAT PERVADES ALL BUSINESS UNITS SHARED CORPORATE SERVICES & EXPLICIT INTERACTIONS & TRANSACTIONS AMONG BUSINESS UNITS THAT CREATE UNIQUE COMPETITIVE ADVANTAGE IN MARKET SEGMENTS  THESE THEMES & SYNERGIES SHOULD BE EXPLICITLY IDENTIFIED, COMMUNICATED WITH CORPORATE SCORECARD, & LINKED TO BUSINESS UNIT SCORECARDS PART TWO
  49. 49. MANAGING BUSINESS STRATEGY: INTRODUCTION:  SCORECARD ENABLES AN O TO BRIDGE A MAJOR GAP [DEVELOPMENT & FORMULATION OF STRATEGY & ITS IMPLEMENTATION] THAT FORMERLY EXISTED IN THEIR O  IN THE TRADITIONAL MANAGEMENT SYSTEMS, THE O USED TO:  ESTABLISH & COMMUNICATE STRATEGY & DIRECTIONS  ALLOCATE RESOURCES  DEFINE DEPARTMENTAL TEAM & INDIVIDUAL GOALS & DIRECTIONS  PROVIDE FEEDBACK  THE FOLLOWING ARE THE BARRIERS TO EFFECTIVE STRATEGY IMPLEMENTATION:  VISIONS & STRATEGIES THAT ARE NOT ACTIONABLE  STRATEGIES THAT ARE NOT LINKED TO DEPARTMENTAL, TEAM, & INDIVIDUAL GOALS  STRATEGIES THAT ARE NOT LINKED TO LONG / SHORT TERM RESOURCE ALLOCATION  FEEDBACK THAT IS TACTICAL, NOT STRATEGIC  EACH OF THE ABOVE BARRIER CAN BE OVERCOME BY INTEGRATING THE BSC INTO A NEW STRATEGIC MANAGEMENT SYSTEM BARRIER # 1: VISION & STRATEGY NOT ACCEPTABLE:  THE PROCESS OF BUILDING A BSC CLARIFIES THE STRATEGIC OBJECTIVES & IDENTIFIES THE FEW CRITICAL DRIVERS FOR STRATEGIC SUCCESS  THE PROCESS CREATES A CONSENSUS & TEAM WORK AMONG ALL SENIOR MEMBERS
  50. 50.  THE SCORECARD TRANSLATES A VISION INTO KEY STRATEGIC THEMES THAT CAN BE COMMUNICATED & ACTED UPON THROUGHOUT THE O BARRIER # 2: STRATEGY NOT LINKED TO DEPARTMENTAL TEAM & INDIVIDUAL GOALS  USE THE BSC TO COMMUNICATE THE NEW STRATEGIES TO ALL EMPLOYEES & THEN ALIGN DEPARTMENTAL, TEAM, & INDIVIDUAL GOALS TO SUCCESSFUL IMPLEMENTATION OF THE STRATEGY BARRIER # 3: STRATEGY NOT LINKED TO RESOURCE ALLOCATION:  THE CRITICAL ELEMENTS OF A PROGRAM THAT TRANSLATES STRATEGY INTO ACTION:  ESTABLISH LONG TERM QUANTIFIABLE, & STRETCH GOALS FOR SCORECARD MEASURES  IDENTIFY THE INITIATIVES [INVESTMENTS & ACTION PROGRAMS] & RESOURCES FOR THESE INITIATIVES THAT WILL ENABLE THE LONG TERM TARGETS ON THE SCORECARD TO BE ACHIEVED  COORDINATE THE PLANS & INITIATIVES ACROSS RELATED O UNITS  ESTABLISH SHORT TERM MILESTONES THAT LINK THE LONG TERM SCORECARD TARGETS TO SHORT TERM BUDGETED MEASURES BARRIER # 4: FEEDBACK THAT IS TACTICAL, NOT STRATEGIC:  A STRATEGIC FEEDBACK & LEARNING PROCESS BASED ON THE BSC HAS FOLLOWING THREE ESSENTIAL INGREDIENTS:  STRATEGY IS SHARED WITH EMPLOYEES, WHICH ENABLES INDIVIDUAL TO SEE HOW THEIR ACTIVITIES CONTRIBUTE TO ACHIEVING THE OVERALL STRATEGY
  51. 51.  A FEEDBACK IS COLLECTED ABOUT THE PERFORMANCE, RELATIONSHIP BETWEEN STRATEGIC OBJECTIVES & INITIATIVES TAKEN IS TESTED  A PROBLEM SOLVING TEAM PROCESS, ANALYZES, & LEARNS FROM THE PERFORMANCE DATA, & ADAPTS THE STRATEGY TO EMERGING CONDITIONS & ISSUES CHAPTER IX ACHIEVING STRATEGIC ALIGNMENT: FROM TOP TO BOTTOM INTRODUCTION:  IMPLEMENTING STRATEGY BEGINS BY EDUCATING & INVOLVING THE PEOPLE WHO MUST EXECUTE IT  O ENCOURAGES EMPLOYEES TO SUGGEST WAYS BY WHICH THE VISION & STRATEGY CAN BE ACHIEVED  EVERY PERSON IN THE O FROM THE BOARD ROOM TO THE BACK ROOM SHOULD UNDERSTAND THE STRATEGY & HOW THEIR ACTIONS SUPPORT THE “BIG PICTURE”  THE BSC PERMITS SUCH A TOP TO BOTTOM ALIGNMENT  STRATEGY SHOULD ALSO BE SHARED WITH CERTAIN KEY VENDORS / SUPPLIERS  SHARING CREATES COMMITMENT AMONG ALL THE EMPLOYEES OF THE O METHODS OF SHARING STRATEGIES:  THE ALIGNMENT OF SHARED VISION & COMMON DIRECTION IS DONE BY USING THE FOLLOWING THREE MECHANISMS: 1. COMMUNICATION & EDUCATION PROGRAMS:
  52. 52.  EVERY ONE IN THE O SHOULD UNDERSTAND THE STRATEGY & THE REQUIRED BEHAVIOR TO ACHIEVE THE STRATEGIC OBJECTIVES. FOR THIS THE O HAS CONTINUING EDUCATION PROGRAM ON STRATEGY & REINFORCES THE EDUCATION WITH FEEDBACK ON ACTUAL PERFORMANCE 2. GOAL SETTING PROGRAMS:  ONCE ALL THE EMPLOYEES UNDERSTAND THE STRATEGY, AND THEN TRANSLATE THE STRATEGIC OBJECTIVES INTO PERSONAL & TEAM OBJECTIVES. LINK PA TO OBJECTIVES & MEASURES ARTICULATED IN THE BSC 3. REWARD SYSTEM LINKAGE:  ALIGNMENT OF THE O TOWARD THE STRATEGY MUST BE MOTIVATED THROUGH INCENTIVE & REWARD SYSTEM [INCENTIVE COMPENSATION SYSTEM] CHAPTER X TARGETS, RESOURCE ALLOCATION, INITIATIVES, & BUDGETS INTRODUCTION:
  53. 53.  THERE ARE FOUR STEPS NEEDED TO USE THE SCORECARD IN AN INTEGRATED LONG RANGE STRATEGIC PLANNING & OPERATIONAL BUDGETING PROCESS:  SET STRETCH GOALS  IDENTIFY & RATIONALIZE STRATEGIC INITIATIVES  IDENTIFY CRITICAL CROSS BUSINESS INITIATIVES  LINK TO ANNUAL RESOURCE ALLOCATION & BUDGET SET STRETCH GOALS  BSC IS EFFECTIVE IF USED FOR BRINGING ABOUT O CHANGE  TO COMMUNICATE THE NEED FOR CHANGE, MANAGERS SHOULD ESTABLISH TARGETS FOR THEIR PERFORMANCE, WHICH SHOULD BE ACHIEVABLE WITHIN 3-5 YEARS  THE TARGETS SHOULD REPRESENT DISCONTINUITY IN BUSINESS UNIT PERFORMANCE. EXAMPLE: DOUBLING YOUR SALES IN A PERIOD OF 4 YEARS  SENIORS ARE NOT SHY ABOUT SETTING STRETCH GOALS; BUT THE STRETCH GOALS ARE QUESTIONED BY THOSE WHO HAVE TO ACHIEVE IT  WHEN STRETCH GOALS ARE SET; SIMULTANEOUSLY PROVIDE THE EMPLOYEES WITH KNOWLEDGE / TOOLS / MEANS TO ACHIEVE SUCH AMBITIOUS GOALS  BSC BECOMES A POWERFUL TOOL FOR ACHIEVING AGGRESSIVE TARGETS BECAUSE IT STRESSES THE LINKAGES FOR ACHIEVING OUTSTANDING PERFORMANCE.  THE INCLUSION OF PERFORMANCE DRIVERS & LEAD INDICATORS ON THE SCORECARD ENABLE MANAGERS TO IDENTIFY THE OPERATIONAL FACTORS SUCH AS STRATEGIC INVESTMENTS, MARKET RESEARCH, INNOVATIVE PRODUCTS / SERVICES, RESKILLED EMPLOYEES, & ENHANCED EMPLOYEE INFORMATION SYSTEMS THAT
  54. 54. MUST BE CREATED IF THE AMBITIOUS FINANCIAL TARGETS ARE TO BE ACHIEVED  THE SCENARIO PLANNING PROCESS ENABLES A SEEMINGLY IMPOSSIBLE OBJECTIVE TO BE DECOMPOSED INTO A SERIES OF SMALLER OBJECTIVES THAT TAKEN TOGETHER WOULD ENABLE THE REVENUE GROWTH TARGET TO BE ACHIEVED  BY DEFINING THE KEY DRIVERS FOR THE REVENUE GROWTH OBJECTIVE, & BY COMMITTING TO TARGETS & INITIATIVES FOR EACH DRIVER, ENABLES THE EMPLOYEES TO REACH THE STRETCH TARGET FOR REVENUE GROWTH  THE SCORECARD PROVIDES A TOOL TO MONITOR, HOW WELL THE STRATEGY IS BEING IMPLEMENTED IDENTIFY STRATEGIC INITIATIVES:  ONCE THE FINANCIAL, CUSTOMER, INTERNAL PROCESS, & LEARNING & GROWTH MEASURES HAVE BEEN ESTABLISHED; ASSESS WHETHER CURRENT INITIATIVES WILL HELP ACHIEVE THESE AMBITIOUS TARGETS OR WHETHER NEW INITIATIVES ARE REQUIRED  TO ACHIEVE THE STRETCH PERFORMANCE TARGETS, REQUIRES CREATIVITY  THERE ARE THREE WAYS IN WHICH A PLANNING PROCESS BASED ON BSC CAN IMPROVE, & CHANNEL THIS CREATIVITY: 1. THE MISSING MEASUREMENT PROGRAM 2. CONTINUOUS IMPROVEMENT PROGRAMS 3. STRATEGIC INITIATIVES, SUCH AS REENGINEERING
  55. 55. THE MISSING MEASUREMENT PROGRAM:  EVERY ACTIVITY SHOULD RESULT IN ACHIEVING A PURPOSE  FOR THIS WE NEED DATA. IF THE DATA DOES NOT EXIST, THEN WE WILL NOT KNOW WHETHER THE MANAGEMENT PROCESS FOR A KEY STRATEGIC OBJECTIVE IS LIKELY TO BE INADEQUATE OR NON EXISTENT  INSTITUTING A PROCESS OF COLLECTING DATA, LEADS THE O TO DEVELOP STRATEGIC INITIATIVES, & FACILITATES BETTER MANAGEMENT OF CRITICAL INTERNAL PROCESS. BOTH FACTORS ARE ESSENTIAL TO SUPPORT SUPERIOR PERFORMANCE CONTINUOUS IMPROVEMENT PROGRAMS LINKED TO RATE OF CHANGE OF METRICS  DETERMINE WHETHER STRETCH GOALS CAN BE ACHIEVED THROUGH CONTINUOUS IMPROVEMENT PROGRAMS  IF THE ANSWER IS YES, THEN THE RATE OF IMPROVEMENT SHOULD BE USED FOR TRACKING WHETHER ON RIGHT DIRECTION OR NOT  WHATEVER THE FACTORS ONE USES FOR CONTINUOUS IMPROVEMENT, EACH OF THE FACTOR; ESTABLISH A TARGETED RATE OF IMPROVEMENT STRATEGIC INITIATIVES DIRECTED TO RADICAL IMPROVEMENT OF PERFORMANCE DRIVERS:  TO ACHIEVE THE STRETCH TARGETS, DEVELOP / DEPLOY NEW WAYS OF ACCOMPLISHING THEM  RATHER THAN JUST APPLYING FUNDAMENTAL PROCESS REDESIGN TO ANY LOCAL PROCESS, WHERE GAINS CAN BE EASILY OBTAINED,
  56. 56. DEVELOP OR REENGINEER PROCESSES THAT WILL BE CRITICAL FOR THE O STRATEGIC SUCCESS  AND UNLIKE CONVENTIONAL REENGINEERING PROGRAMS WHERE OBJECTIVE IS MASSIVE COST CUTTING, THE OBJECTIVE FOR A REENGINEERING / TRANSFORMATION PROGRAM NEED NOT BE MEASURED BY RUPEES SAVED  THE TARGETS FOR THE STRATEGIC INITIATIVE CAN BE DRAMATIC TIME REDUCTIONS IN ORDER FULFILLMENT CYCLES, SHORTER TIME TO-MARKET IN PRODUCT DEVELOPMENT PROCESSES, & ENHANCED EMPLOYEE CAPABILITIES  THE O SHOULD FOCUS ON ISSUES THAT CREATE GROWTH [WEALTH] & NOT JUST THOSE THAT REDUCE COSTS & INCREASES EFFICIENCY  THE KEY INGREDIENT FOR SETTING PRIORITIES FOR REENGINEERING PROGRAMS IS THE CAUSE & EFFECT RELATIONSHIPS  COMPANIES SHOULD REVIEW ALL THEIR CURRENT INITIATIVES TO DETERMINE WHETHER THEY ARE CONTRIBUTING TO ACHIEVEMENT OF ONE OR MORE SCORECARD OBJECTIVES  ORGANIZATIONS SHOULD ALSO LINK THEIR INVESTMENT DECISIONS TO THEIR STRATEGIC PLANS  ONCE THE BSC HAS ARTICULATED THE STRATEGY & IDENTIFIED THE DRIVERS FOR ACCOMPLISHING THE STRATEGY, COMPANIES CAN: 1. IDENTIFY NEW STRATEGIC INITIATIVES 2. FOCUS A MULTITUDE OF STRATEGIC INITIATIVES, LIKE CONTINUOUS IMPROVEMENTS, REENGINEERING, & TRANSFORMATION PROGRAM 3. AND ALIGN INVESTMENT & DISCRETIONARY SPENDING PROGRAMS
  57. 57. IDENTIFY CRITICAL CROSS BUSINESS & CORPORATE INITIATIVES:  AN IMPORTANT ELEMENT IN THE PLANNING PROCESS IS TO IDENTIFY THE LINKAGES OF THE SBUS TO THE OTHER SBUS IN THE CORPORATION, & TO FUNCTIONAL ACTIVITIES DONE AT THE CORPORATE LEVEL  THE LINKAGE TO OTHER SBUS PROVIDES OPPORTUNITIES FOR MUTUALLY REINFORCING ACTION & SHARING OF BEST PRACTICES  THESE OPPORTUNITIES INCLUDE DEVELOPING / SHARING “K” ABOUT CRITICAL TECHNOLOGIES & CORE COMPETENCIES, COORDINATING MARKETING EFFORTS TO COMMON CUSTOMERS, & SHARING PRODUCTION & DISTRIBUTION RESOURCES WHERE SIGNIFICANT ECONOMIES OF SCALE / SCOPE EXIST  ONE OF THE CORPORATE LEVEL FUNCTIONS IS TO PROVIDE MECHANISMS WHEREBY SUCH OPPORTUNITIES FOR SYNERGY ACROSS DECENTRALIZED SBU CAN BE IDENTIFIED / EXPLOITED  THE BSC PROVIDES SUCH MECHANISM  THE SCORECARD PROVIDES A COMMON FRAMEWORK FOR ORGANIZING THE PLANNING PROCESS OF CORPORATE SUPPORT DEPARTMENTS
  58. 58.  IT ENABLES THESE DEPARTMENTS TO UNDERSTAND THE STRATEGIES OF THE ENTIRE CORPORATION & THE INDIVIDUAL SBUS SO THAT THE SUPPORT DEPARTMENTS CAN DEVELOP / DELIVER BETTER SERVICES THAT HELP THE OPERATING UNITS & CORPORATION ACHIEVE THEIR STRATEGIC OBJECTIVES LINK TO ANNUAL RESOURCE ALLOCATION & BUDGETS  STRATEGIC PLANNING & OPERATIONAL BUDGETING PROCESSES ARE TOO IMPORTANT TO BE TREATED AS INDEPENDENT PROCESS  S.P. MUST BE LINKED TO OPERATIONAL BUDGETING IF ACTION IS TO BE TIED TO VISION  THE TARGETING PROCESS SETS ASPIRATIONS FOR WHAT THE BUSINESS UNIT MUST ACHIEVE FOR BREAKTHROUGH PERFORMANCE IN THE STRATEGIC MEASURES IN THE FOUR SCORECARD PERSPECTIVES  RESOURCES & INITIATIVES ARE DEPLOYED TO START THE JOURNEY, TO CLOSE THE GAP BETWEEN CURRENT PERFORMANCE & THE STRETCH TARGETS TO BE ACHIEVED DURING THE NEXT 3-5 YEARS  SINCE THE PERIOD IS TOO LONG, TO VALIDATE THE STRATEGY, SHORT-TERM TARGETS FOR THE SCORECARD SHOULD BE FORMULATED.  THESE SHORT TERM TARGETS ARE THE TANGIBLE EXPRESSION ABOUT THE SPEED & IMPACT OF CURRENT PROGRAMS & INITIATIVES ON STRATEGIC MEASURES  THIS PROCESS EXPANDS THE TRADITIONAL BUDGETING PROCESS TO INCORPORATE STRATEGIC AS WELL AS OPERATIONAL TARGETS  THE BUDGETING PROCESS SHOULD ENCOMPASS THE EXPECTED SHORT-TERM PERFORMANCE ON THE STRATEGIC OBJECTIVES & MEASURES OF THE OTHER THREE SCORECARD PERSPECTIVES
  59. 59. CHAPTER 11 FEEDBACK & THE STRATEGIC LEARNING PROCESS: FROM COMMAND & CONTROL TO STRATEGIC LEARNING  STRATEGIES FOR TODAY’S INFORMATION AGE O CANNOT BE LINEAR OR STABLE.  SENIORS NEED FEEDBACK, FOR STRATEGIES ARE BEING IMPLEMENTED IN TURBULENT ENVIRONMENT  O NEED THE CAPACITY FOR DOUBLE LOOP LEARNING, THE LEARNING THAT OCCURS WHEN MANAGERS QUESTION THEIR ASSUMPTIONS, & REFLECT ON WHETHER THE THEORY UNDER THEY WERE OPERATING IS STILL CONSISTENT WITH THE CURRENT EVIDENCE, OBSERVATIONS, & EXPERIENCE  THEY NEED ON OCCASION TO BE ABLE TO DEVISE NEW STRATEGIES TO CAPITALIZE ON NEW OPPORTUNITIES OR TO COUNTER NEW THREATS THAT WERE NOT ANTICIPATED WHEN THE INITIAL STRATEGIC PLAN WAS ARTICULATED  FREQUENTLY IDEAS FOR SEIZING NEW OPPORTUNITIES COME FROM MANAGERS FURTHER DOWN IN THE O  THE FOLLOWING ARE THE KEY ASPECTS OF THIS EMERGENT VIEW OF STRATEGY:  STRATEGIES ARE INCREMENTAL & EMERGE OVER TIME  INTENDED STRATEGIES CAN BE SUPERSEDED  STRATEGY FORMULATION & IMPLEMENTATION ARE INTERWINED  STRATEGIC IDEAS CAN ARISE THROUGHOUT THE O  STRATEGY IS A PROCESS
  60. 60.  MANAGEMENT PROCESSES BUILT AROUND THE STRATEGY ARTICULATED IN THE BSC MUST PROVIDE REGULAR OPPORTUNITIES FOR DOUBLE LOOP LEARNING:  BY COLLECTING DATA ABOUT THE STRATEGY  TESTING THE STRATEGY  REFLECTING ON WHETHER THE STRATEGY IS STILL APPROPRIATE IN LIGHT OF RECENT DEVELOPMENTS, & SOLICITING IDEAS THROUGHOUT THE O ABOUT NEW STRATEGIC OPPORTUNITIES & DIRECTIONS TOWARD A STRATEGIC LEARNING PROCESS:  AN EFFECTIVE STRATEGIC LEARNING PROCESS HAS THREE ESSENTIAL INGREDIENTS 1. A SHARED STRATEGIC FRAMEWORK THAT COMMUNICATES THE STRATEGY & ALLOWS EACH PARTICIPANT TO SEE HOW HIS / HER ACTIVITIES CONTRIBUTE TO ACHIEVEMENT OF THE OVERALL STRATEGY 2. A FEEDBACK PROCESS THAT COLLECTS PERFORMANCE DATA ABOUT THE STRATEGY & ALLOWS THE HYPOTHESIS ABOUT INTERRELATIONSHIPS AMONG STRATEGIC OBJECTIVES & INITIATIVES TO BE TESTED 3. A TEAM PROBLEM-SOLVING PROCESS THAT ANALYZES & LEARNS FROM THE PERFORMANCE DATA & THEN ADOPTS THE STRATEGY TO EMERGING CONDITIONS & ISSUES SHARED STRATEGIC FRAMEWORK  THE BSC IS A REPRESENTATION OF THE O’S SHARED VISION  THE SCORECARD’S OBJECTIVES & MEASURES CLARIFY & COMMUNICATE THE VISION TO MOBILIZE & FOCUS THE O  A SHARED VISION DEFINES IN CLEAR & OPERATIONAL TERMS THE RESULTS THAT THE WHOLE O IS ATTEMPTING TO ACHIEVE
  61. 61.  BSC ESTABLISHES A COMMON MODEL OF PERFORMANCE & COMMUNICATES A HOLISTIC APPROACH TO LINKING INDIVIDUAL EFFORTS & ACCOMPLISHMENTS TO BUSINESS UNIT OBJECTIVES  THIS SHARED VISION & SHARED PERFORMANCE MODEL STRUCTURED AROUND BSC PROVIDES THE FIRST ELEMENT FOR A STRATEGIC LEARNING PROCESS STRATEGIC FEEDBACK  A STRATEGIC FEEDBACK SYSTEM SHOULD BE DESIGNED TO TEST, VALIDATE, & MODIFY THE HYPOTHESIS EMBEDDED IN A BUSINESS UNIT STRATEGY  THE CAUSE & EFFECT RELATIONSHIPS EMBODIED IN A BSC ENABLE EXECUTIVES TO ESTABLISH SHORT TERM TARGETS THAT REFLECT THEIR BEST FORECAST ABOUT THE LAGS & IMPACTS BETWEEN CHANGES IN PERFORMANCE DRIVERS & ASSOCIATED CHANGES IN ONE OR MORE OUTCOMES  FOR EXAMPLE:  WHAT IS THE IMPACT OF A 10% IMPROVEMENT IN ON TIME DELIVERY ON CUSTOMER SATISFACTION?  HOW LONG IS THE DELAY BETWEEN QUALITY IMPROVEMENTS & INCREASES IN CUSTOMER RETENTION  THE FOLLOWING APPROACHES HAVE BEEN USED TO PROMOTE STRATEGIC LEARNING 1. CORRELATION ANALYSIS: 2. MANAGEMENT GAMING / SCENARIO ANALYSIS 3. ANECDOTAL REPORTING 4. INITIATIVE REVIEW 5. PEER REVIEW 6. CROSS FUNCTIONAL TEAMS 7. STRATEGIC REVIEW MEETING 8. CONTINUAL DOUBLE LOOP LEARNING ABOUT STRATEGY
  62. 62. CORRELATION ANALYSIS:  VALIDATE CAUSE & EFFECT RELATIONSHIPS BY MEASURING THE CORRELATION BETWEEN TWO OR MORE MEASURES  CORRELATIONS AMONG THESE VARIABLES PROVIDE POWERFUL CONFIRMATION OF THE BUSINESS UNIT’S STRATEGY  IF HYPOTHESIZED CORRELATIONS ARE NOT FOUND OVER TIME THE O HAS EVIDENCE THAT THE THEORY UNDERLYING ITS STRATEGY IS NOT WORKING  SEE THE EXAMPLE ON PAGE 256-258 OF THE TEXT BOOK MANAGEMENT GAMING / SCENARIO REPORTING  ON THE FIRST ANNIVERSARY OF THE SCORECARD’S IMPLEMENTATION BUT PRIOR TO UPDATING THE MODEL FOR THE SUBSEQUENT YEAR, DO THE FOLLOWING: 1. COMPILE STATISTICAL DATA FROM THE PREVIOUS YEAR, STRESSING THE CORRELATIONS BETWEEN THE VARIABLES 2. EVALUATE THE PREVIOUS YEAR’S STRATEGY &IDENTIFY ANY FATAL FLAWS IN IT 3. IF RESULTS WERE NOT ACHIEVED ON SCORECARDS MEASURES, DETERMINE THE LIKELY CAUSE 4. THIS WILL RENEW & STIMULATE THEIR THINKING ABOUT THE DRIVERS OF STRATEGIC SUCCESS
  63. 63. ANECDOTAL REPORTING  STRATEGIC LEARNING SHOULD PROVIDE EARLY INDICATORS AS TO WHETHER THE STRATEGY IS WORKING  SUPPLEMENT YOUR QUANTITATIVE PERFORMANCE REPORTS WITH STORIES ABOUT STRATEGIC RELATIONSHIPS WITH CUSTOMERS, AS TO HOW THESE OBJECTIVES HAVE BEEN ESTABLISHED, & THE LESSONS THAT COULD BE LEARNED  BY TELLING STORIES ONE GETS INFORMAL FEEDBACK THAT THE STRATEGY WAS WORKING, AS WELL EDUCATE THE O ON THE INTENTION & SPECIFIC DETAILS OF THE STRATEGY  IN THIS WAY THE O USE PAST PERFORMANCE TO INFLUENCE FUTURE PERFORMANCE INITIATIVE REVIEW:  WE REQUIRE STRATEGIC INITIATIVE TO ACHIEVE STRETCH TARGETS FOR ITS SCORECARD MEASURES  THESE INITIATIVES SHOULD BE REVIEWED DURING STRATEGIC LEARNING PROCESS  THIS KNOWLEDGE KEEPS THE O FOCUSED ON IMPLEMENTING THE INITIATIVES & ASSESSING WHETHER THEY ARE STILL EXPECTED TO LEAD TO ACHIEVEMENT OF AMBITIOUS TARGETS PEER REVIEW:
  64. 64.  ANOTHER EFFECTIVE MECHANISM FOR LEARNING IS TO GAIN PERSPECTIVE FROM INDEPENDENT OUTSIDERS. CALL SENIORS FROM OTHER DIVISION TO REVIEW THE BSC OF YOUR DIVISION  THE PEER REVIEW TEAM REVISITED THE STRATEGY, THE OBJECTIVES, & MEASURES & THE STRATEGIC INITIATIVES  THE TEAM ALSO SPOKE TO EMPLOYEES AT RANDOM LOCATIONS IN THE O TO DETERMINE THE PROGRAM’S AWARENESS LEVEL& PENETRATION  THE TEAM SUBMITTED AN INDEPENDENT & OBJECTIVE EVALUATION OF THE SCORECARD STRUCTURE & PROCESS CROSS FUNCTIONAL TEAMS  MAINTAINING A CROSS FUNCTIONAL PERSPECTIVE IS AN IMPORTANT COMPONENT OF THE LEARNING PROCESS  AVOID REVERTING TO FUNCTIONAL SPECIALIZATION  FOR EXAMPLE O NOT ASSIGN THE VP FINANCE THE RESPONSIBILITY FOR FINANCIAL PERSPECTIVE. SIMILARLY DO NOT ASSIGN THE VP MARKETING THE RESPONSIBILITY OF CUSTOMER PERSPECTIVE  RESPONSIBILITY OF ACHIEVING THE MEASURES & MOBILIZING THE INITIATIVES SHOULD BE SHARED ACROSS THE ENTIRE MANAGEMENT GROUP STRATEGIC REVIEW MEETING:  A FORMAL, PERIODIC STRATEGIC REVIEW MEETING PLAYS A CRITICAL ROLE IN THE EXECUTIVE TEAM STRATEGIC LEARNING PROCESS
  65. 65.  BESIDES FOCUSING ON OPERATIONAL ISSUES ALSO FOCUS ON STRATEGIC ISSUES  FOR STRATEGIC REVIEW MEETINGS TO BE EFFECTIVE, THEY SHOULD BE SEPARATED IN BOTH TIME / PLACE FROM OPERATIONAL REVIEW MEETINGS  STRATEGIC REVIEW MEETINGS SHOULD BE DONE ONCE IN A QUARTER  THE QUARTERLY STRATEGIC REVIEW MEETING SHOULD FOCUS ON ISSUES, NOT PERFORMANCE OF FUNCTIONAL DEPARTMENTS, WITH A GOAL OF REFINING THE STRATEGY & ITS IMPLEMENTATION  THE IDENTIFICATION OF STRATEGIC ISSUES THAT REQUIRE FURTHER EXPLORATION & CLARIFICATION CLOSES THE LOOP ON STRATEGIC LEARNING PROCESS  QUARTERLY REVIEWS BECOME OPPORTUNITIES TO LEARN ABOUT THE VALIDITY OF THE STRATEGY & HOW WELL ITS BEING EXECUTED  THE LEARNING PROCESS CAN BE FURTHER ENHANCED BY LINKING OPERATIONAL & STRATEGIC REVIEW MEETINGS  THE LINKAGES BETWEEN OPERATIONAL & STRATEGIC REVIEWS ALLOW MANY SUCH ISSUES TO BE IDENTIFIED & ACTED UPON AS THEY EMERGE SO THAT BOTH STRATEGY & OPERATIONS CAN EVOLVE ACCORDINGLY CONTINUAL DOUBLE LOOP LEARNING ABOUT STRATEGIES:
  66. 66.  FACE-TO-FACE CONTACT AT THE STRATEGIC REVIEW MEETING IS IMPORTANT ELEMENT OF THE TEAM BUILDING & PROBLEM SOLVING PROCESSES REQUIRED FOR STRATEGIC LEARNING. IN A TYPICAL MEETING TIME IS SPENT ON SOMEONE REVIEWING & EXPLAINING THE NUMBERS  TO ENHANCE STRATEGIC LEARNING PROCESS, WE CAN MOVE FROM EVENT DRIVEN LEARNING TO A CONTINUAL LEARNING PROCESS. PUT REPORTS ON NETWORK TO BE REVIEWED AT INDIVIDUAL’S CONVENIENCE. THE NETWORK ALSO PROVIDES ONGOING DIALOGUES, & THE SHARED TIME CAN BE USED TO FOCUS ON ISSUES & INTERPRETATION  THE PROCESS OF DATA GATHERING, HYPOTHESIS TESTING, REFLECTION. STRATEGIC LEARNING & ADAPTATION IS FUNDAMENTAL TO HE SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY  THIS CAPACITY FOR ENABLING STRATEGIC LEARNING AT THE EXECUTIVE LEVEL MAKES THE BSC THE CORNERSTONE OF A STRATEGIC MANAGEMENT SYSTEM CHAPTER 12 IMPLEMENTING A BSC MANAGEMENT PROGRAM LAUNCHING THE BSC PROGRAM  ADOPT BSC FOR A SPECIFIC STRATEGIC PURPOSE.  IT DOES NOT RELATE SOLELY TO IMPROVE THE MEASUREMENT SYSTEM, BUT MOBILIZES O TO A NEW STRATEGIC DIRECTION. THE DYNAMICS: MOBILIZING THE O:  THE STEPS IN THE IMPLEMENTING THE BSC: 1. CLARIFY THE VISION:
  67. 67. a. FORM A NEW EXECUTIVE TEAM TO WORK TOGETHER FOR A PERIOD OF 3 MONTHS b. LET THE TEAM MEMBERS BE THE FUNCTIONAL HEADS c. TRANSLATE A GENERIC VISION INTO A STRATEGY d. COMMUNICATE THE SAME SO THAT THE SAME COULD BE UNDERSTOOD e. THE ABOVE PROCESS BUILDS CONSENSUS, & COMMITMENT TO THE STRATEGY f. THIS PROCESS TAKES ABOUT 3 MONTHS 2. COMMUNICATE TO MIDDLE MANAGERS: a. THE SENIOR MEMBERS OF THE MANAGEMENT ARE BROUGHT TOGETHER TO LEARN ABOUT & DISCUSS THE NEW STRATEGY b. THIS PROCESS SHOULD TAKE ABOUT 2 MONTHS 3. DEVELOP BUSINESS UNIT SCORECARDS: a. USING THE CORPORATE SCORECARD AS A TEMPLATE, EACH BUSINESS UNIT TRANSLATES ITS STRATEGY INTO ITS OWN SCORECARD b. THIS PROCESS SHOULD TAKE ABOUT 6-9 MONTHS 4. ELIMINATE NONSTRATEGIC INVESTMENTS: a. THE CORPORATE SCORECARD CLARIFIES STRATEGIC PRIORITIES b. IT ALSO IDENTIFIES MANY ACTIVITIES THAT ARE NOT CONTRIBUTING TO THE STRATEGY 5. LAUNCH CORPORATE CHANGE PROGRAMS: a. THE CORPORATE SCORECARD IDENTIFIES THE NEED FOR CROSS-BUSINESS CHANGE PROGRAMS b. THEY ARE LAUNCHED WHILE THE BUSINESS UNITS PREPARE THEIR SCORECARDS 6. REVIEW BUSINESS UNIT SCORECARDS:
  68. 68. a. THE CEO & THE EXECUTIVE TEAM REVIEW THE INDIVIDUAL BUSINESS UNITS’ SCORECARDS b. THE REVIEW PERMITS THE CEO TO PARTICIPATE KNOWLEDGEABLY IN SHAPING BUSINESS UNIT STRATEGY c. THIS PROCESS TAKES ABOUT 3 MONTHS 7. REFINE THE VISION: a. THE REVIEW OF BUSINESS UNIT SCORECARDS IDENTIFIES SEVERAL CROSS BUSINESS ISSUES NOT INITIALLY INCLUDED IN THE CORPORATE STRATEGY b. THE CORPORATE SCORECARD IS UPDATED c. THIS PROCESS TAKES ABOUT 1 MONTH 8. COMMUNICATE THE BSC TO THE ENTIRE COMPANY: a. AT THE END OF ONE YEAR, WHEN THE MANAGEMENT TEAMS ARE COMFORTABLE WITH THE STRATEGIC APPROACH, THE SCORECARD S DISSEMINATED TO THE ENTIRE O 9. ESTABLISH INDIVIDUAL PERFORMANCE OBJECTIVES: a. THE MANAGEMENT LINKS THEIR INDIVIDUAL OBJECTIVES & INCENTIVE COMPENSATION TO THEIR SCORECARDS b. THIS PROCESS TAKES ABOUT 2 MONTHS 10. UPDATE LONG RANGE PLAN & BUDGET: a. FIVE YEAR GOALS ARE ESTABLISHED FOR EACH MEASURE b. THE INVESTMENTS REQUIRED TO MEET THESE GOALS ARE IDENTIFIED & FUNDED c. THE FIRST YEAR OF THE FIVE YEAR PLAN BECOMES THE ANNUAL BUDGET 11. CONDUCT MONTHLY & QUARTERLY REVIEWS: a. AFTER CORPORATE APPROVAL OF THE BUSINESS UNIT SCORECARDS, A MONTHLY REVIEW PROCESS, SUPPLEMENTED BY QUARTERLY REVIEWS THAT FOCUSES ON STRATEGIC ISSUES BEGINS
  69. 69. 12. CONDUCT ANNUAL STRATEGY REVIEW: a. AT THE START OF THE THIRD YEAR, THE INITIAL STRATEGY HAS BEEN ACHIEVED & THE CORPORATE STRATEGY REQUIRES UPDATING b. THE EXECUTIVE COMMITTEE LISTS TEN STRATEGIC ISSUES c. EACH BUSINESS UNIT IS ASKED TO DEVELOP A POSITION ON EACH ISSUE AS A PRELUDE TO UPDATING ITS STRATEGY & SCORECARD 13. LINK EVERYONE’S PERFORMANCE TO THE BSC: a. ALL EMPLOYEES ARE ASKED TO LINK THEIR INDIVIDUAL OBJECTIVES TO THE BSC b. THE ENTIRE O’S INCENTIVE COMPENSATION IS LINKED TO THE SCORECARD c. THE BSC IS NOW A ROUTINE PART OF THE MANAGEMENT PROCESS BUILDING AN INTEGRATED MANAGEMENT SYSTEM:  THE INTRODUCTION OF BSC CREATES PRESSURE TO BROADEN ITS ROLE IN THE MANAGEMENT SYSTEM  TO GET TANGIBLE BENEFITS OF BSC TIE THE SCORECARD INTO OTHER MANAGEMENT PROGRAMS, SUCH AS BUDGETING, SETTING OF PERSONAL TARGETS, ALIGNMENT OF STRATEGIC INITIATIVES  THE BSC PROVIDES A VEHICLE TO INTRODUCE STRATEGIC THINKING INTO ONGOING MANAGEMENT PROCESSES
  70. 70. STRATEGY FORMULATION & STRATEGIC ISSUE UPDATE:  SENIOR MANAGEMENT CAN EITHER INITIATE THE DEVELOPMENT OF A BSC LINKED TO A NEW LONG RANGE PLAN, OR IT CAN UPDATE THE STRATEGY ANNUALLY LINK TO PERSONAL OBJECTIVES & REWARDS:  AS COMPANIES ATTEMPT TO IMPLEMENT NEW STRATEGIES LIKE  BUILDING RELATIONSHIPS  DEVELOPING NEW TECHNOLOGIES  ACCESSING NEW CUSTOMERS / CONSUMERS MANAGERS MUST CONTINUALLY TAKE RISKS & EXPERIMENT SO THAT THEY CAN LEARN & GROW  EXECUTIVES MUST ENCOURAGE THIS INNOVATIVE BEHAVIOR BY LINKING IT TO PERSONAL OBJECTIVES & REWARDS  INCENTIVE COMPENSATION MOTIVATES PERFORMANCE  BEFORE TYING BSC TO COMPENSATION. MANAGEMENT MUST GAIN SOME EXPERIENCE IN MANAGING THE BSC  CONSEQUENCES SHOULD BE EXPLICITLY TIED TO THE BALANCED SET OF OBJECTIVES, MEASURES, & TARGETS ON CORPORATE & BUSINESS SCORECARDS LINK TO PLANNING, RESOURCE, ALLOCATION, & ANNUAL BUDGETS  LINK THE STRATEGIC PLANNING TO BUDGETED TARGETS  THE BUDGETING PROCESS SHOULD TRANSLATE THE STRATEGIC PLANNING INTO AN OPERATIONAL BUDGET FEEDBACK & STRATEGIC LEARNING:  THIS PROCESS LINKS MONTHLY OPERATIONAL REVIEWS, & QUARTERLY STRATEGIC REVIEWS THAT EXAMINE  BY INTEGRATING THE FOCUS SHIFTS FROM TACTICS TO STRATEGY, & EFFECTIVELY TRANSLATE STRATEGIES INTO ACTIONS
  71. 71. SOME CAUTIONS: IT’S NOT AS SIMPLE AS IT SEEMS:  THE FOLLOWING FACTORS CONTRIBUTE TO THE FAILURE OF BSC:  STRUCTURAL DEFECT  MANY O SUPPLEMENT FINANCIAL MEASURES WITH NON FINANCIAL ONES  THESE NON-FINANCIAL MEASURES ARE LAGGING MEASURES.  THEY REPORT HOW WELL THE O’S STRATEGY WORKED IN THE PAST  THEY ARE GENERIC. ALL THE COMPANIES ARE TRYING TO IMPROVE ALONG THESE DIMENSIONS  THEY DO NOT TELL THE EMPLOYEES WHAT THEY MUST EXCEL TO WIN FUTURE COMPETITIVE GAMES ORGANIZATIONAL DEFECTS:  DELEGATING DEVELOPMENT OF BSC TO MIDDLE MANAGEMENT TASK FORCE  BSC TO BE EFFECTIVE MUST REFLECT THE STRATEGIC VISION OF THE SENIOR EXECUTIVE GROUP MANAGING THE BSC STRATEGIC MANAGEMENT SYSTEM:  TWO TYPES OF CHANGE AGENTS ARE REQUIRED FOR EFFECTIVE IMPLEMENTATION OF ANY NEW SYSTEM: 1. O NEEDS TRANSITIONAL LEADERS, WHO WILL FACILITATE THE BUILDING OF THE SCORECARD, & EMBED ITS AS A NEW MANAGEMENT SYSTEM 2. O WILL NEED A DESIGNATED MANAGER TO OPERATE THE STRATEGIC MANAGEMENT SYSTEM ON AN ONGOING RECURRING BASIS
  72. 72.  BOTH THE TRANSITIONAL LEADER & MANAGER OF THE ONGOING SYSTEM HAVE TO WORK FULL TIME ON EMBEDDING THE BSC AS A STRATEGIC MANAGEMENT SYSTEM TRANSITIONAL MANAGEMENT:  THE FOLLOWING ARE THE THREE CRITICAL ROLES OF A TRANSITIONAL LEADER: 1. ARCHITECT 2. CHANGE AGENT 3. COMMUNICATOR  ARCHITECT: a. MUST UNDERSTAND THE BSC b. MUST BECOME PASSIONATE ABOUT IT c. RESPONSIBLE FOR BUILDING THE BSC d. RESPONSIBLE FOR INTRODUCING THE SCORECARD INTO THE MANAGEMENT SYSTEM e. CAPABLE OF EDUCATING THE EXECUTIVE TEAM f. GUIDE THE TRANSLATION OF STRATEGY OF STRATEGY INTO SPECIFIC OBJECTIVES, & MEASURES. SHOULD DO IT IN SUCH A WAY, THAT IT DOES NOT TRIGGER DEFENSIVE REACTIONS g. RUN THE PILOT PROGRAM  CHANGE AGENT: a. EMBED THE SCORECARD INTO ONGOING MANAGEMENT PROCESS b. SHOULD REPORT TO THE CEO c. HELP MANAGERS TO REDEFINE THEIR ROLE  COMMUNICATOR: a. IS RESPONSIBLE FOR GAINING THE UNDERSTANDING, BUY IN & SUPPORT OF ALL O MEMBERS
  73. 73. b. THE NEW STRATEGIES REQUIRES NEW VALUES, & WAYS OF DOING WORK, THAT ARE BUILD AROUND THE FOUR PERSPECTIVE c. SHOULD MOTIVATE EMPLOYEES & TEAM TO PROVIDE FEEDBACK ABOUT WHETHER THE PROPOSED STRATEGY IS FEASIBLE & DESIRABLE MANAGING THE ONGOING STRATEGIC MANAGEMENT PROCESS:  THE CHIEFS OF STRATEGIC PLANNING, HR, FINANCE, & INFORMATION SYSTEMS ARE THE TRADITIONAL “OWNERS” OF PIECES OF THE STRATEGIC MANAGEMENT PROCESS  ONCE THE EMBEDDING OF BSC INTO AN O’S ONGOING MANAGEMENT PROCESS IS OVER, WHO TAKES UP THE RESPONSIBILITY FOR THE OPERATION OF THE OF THE TOTAL SYSTEM  THE CEO OF THE BUSINESS UNIT IS THE ULTIMATE PROCESS OWNER.  THE ONGOING OPERATION OF THE SYSTEM MUST BE ASSIGNED TO PARTICULAR PERSON, OTHERWISE GAPS WILL DEVELOP IN MEASUREMENT, REPORTING, & MONITORING THE END

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