1. Introducing Global Standards to Build a Strategy-
Based Culture at Bank of Tokyo-Mitsubishi
BSCol North American BSC Summit Presentation
October 7-10, 2003
Takehiko Nagumo, VP, Corporate Planning Group, Planning Office
for the Americas, HQA
Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com

2. Discussion Topics
• Background and Context
– Overview of BTM for the Americas
– Japanese and American corporate culture
• The Balanced Scorecard design and re-design process
– Initial Design: Taking a “bottom up” assessment
– Re-Design: Re-aligning strategy from the “top down”
• Implementation: Linking the BSC to key programs
– COSO-based control self-assessment
– HQA committee structure
– Regional banking network
• Key takeaways
2

3. BTM Overview: The NY-based regional headquarters of BTM, BTM HQA manages
Overview
one of the largest foreign-owned wholesale banking businesses in the Americas.
• BTM is the largest subsidiary of Mitsubishi
Tokyo Financial Group, a bank holding
company listed on the Tokyo, Osaka, NY
and London stock exchanges.
• Formed in 1996 by the merger between
Bank of Tokyo and Mitsubishi Bank, BTM is
•Subsidiary: 6
a leading Japanese bank providing retail,
•Branch/Agency: 8
commercial, and investment banking
•Loan Production Office: 2
products and services.
•Rep Office: 2
• BTM operates in 44 countries and
territories with more than 350 offices
located in all of the major commercial
centers of the world.
• In the Americas region, BTM focuses on
•Subsidiary: 4
wholesale banking business with 11
•Branch: 3
branches/agencies, 10 subsidiaries, 2 loan
•Rep Office: 4
production offices, and 4 representative
offices.
3

4. BTM for the Americas Organizational Structure
Level I
BTM for the Americas
BTM for the Americas
[Enterprise Level]
[Enterprise Level]
Business
Business Business Business
Business Business
Business
Level II
Business Unit 2:
Unit 2: Unit 3: Unit 4:
Unit 3: Unit 4:
Unit 1:
Unit 1: Global
Global
Investment Corporate
Investment Corporate
Corporate
Corporate
Treasury
Treasury Banking Center
Banking Banking Center
Banking
Division 1
Division 2
Division 2
Division 3
Division 1
Division 3
Division 1
Division 2
Division 3
Division 1
Division 2
Division 3
Level III
Level IV
Groups
Groups Groups Groups
4

5. Why Introduce the BSC at BTM? - BTM needed a modern corporate governance
framework to cope with 7 major organizational challenges.
7 Major Challenges
Diversified Cultures Expatriate vs. Local
4 Business Units housed in a single legal entity, each reporting
Complex Organization
independently to respective Head Office in Tokyo
Sub-Optimized Network Centralized direction vs. Local Autonomy
Tug-of-War Misalignment between business promotion and credit approval
Red Tape Ambiguous goal-setting in support and oversight functions
Bottleneck Insufficient communication along the supply chain
Accountability Insufficient internal controls in some areas
5

6. What is Strategy for BTM?: In many ways, BTM’s Headquarters for the Americas
(BTM HQA) represents the merging of two distinct cultures.
Japanese companies American companies
Defined
Vague Mission and Vision
Grand Design
Incremental Strategy Formulation Process
Differentiation / Uniqueness
Operational Efficiency Competitive Edge
Bottom Up
Top Down
Decision Making
(or Middle-Up-Down)
Explicit / Verbal / Open
Implicit / Nonverbal / Closed Communication Style
Outcome Orientation
Process Orientation Performance Evaluation
Diversified Culture /
Single Culture / Cooperative Work culture
Competitive
Adapted from “Essence of Failure,” by I. Nonaka
6

7. BSC Initiative at BTM: BTM adopted the Balanced Scorecard to create strategic
BTM
alignment, improve risk management, and enhance corporate governance.
Balanced Scorecard Vision at BTM
• Clarify and articulate strategy at Strategy Execution Level
multiple levels in the organization.
• High
Integrate risk control framework into
Good
the Balanced Scorecard.
Corporate
Governance
• Use measurement to ensure greater
accountability and promote
collaboration.
• Enhance internal and external
communication of the BTM strategy.
Low
• Link compensation and performance Low High
evaluation to strategy.
Risk Management Level
7

8. Program Timeline: BTM first attempted“Bottom-up”approach, but soon shifted to
Timeline
“Top-down.” Now, everyone has a strong sense of BSC ownership.
3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
Awakening Alignment
Soul Searching Test Run Improvement
First Reporting
“Strategy is “Good. But
“Strategy “OK. Let’s try
“See if it
“What is our
everybody’s some metrics
should be new version”
works…”
strategy?”
job!” are weak…”
Top Down!”
Internalize
Make Our
Measure
Own Balanced
performance
Scorecards
Review
Socialize
Cascade
Advisory support from BSCol consultants
Discuss
Completed
CEO’s
Improvements
Balanced
strategy
Scorecards
(Top Down)
Externalize Combine
Link to Many facilitated
existing discussion sessions
processes
Map your Determine and
Externalize
strategy map CEO’s
New Ideas
(Bottom Up) strategy
8

9. Program Timeline: Now, BTM’s BSC is moving toward a new stage:
Timeline
globalization - Tokyo and UK are conducting a feasibility study on BSC.
• Tokyo Head Office
4Q03 Tokyo Head Office
1Q03 2Q03 3Q03
has established a
has established a
Accomplishment Going Global
Expansion
BSC Project Team at
BSC Project Team at
corporate level
corporate level
“Let‘s apply “We have “Recommend The BSC story
BSCs in Latin become an BSCs to HO” Continues….
•
America” SFO!” The European
The European
Headquarters has
Headquarters has
Internalize
started a feasibility
started a feasibility
study on BSC.
BSC as our study on BSC.
Feel the
common cultural
language change
• BTM has started a
BTM has started a
Socialize
new project to
new project to
Moving onto a
enhance linkages
new stage: enhance linkages
Globalization between BSC and
between BSC and
CSA.
CSA.
Externalize Combine
Complete the
Enhance BSC-
new BSC-CSA
• BTM is developing
BTM is developing
CSA linkages
approach
its proprietary BSC-
its proprietary BSC-
CSA application
CSA application
software
software
9

10. Initial BSC Design Process: The initial bottom-up approach revealed the need for
Process
greater consistency and improved horizontal and vertical alignment.
Strategy Theme：Increase in Net Income Through Increased
Transaction Volume
• Over 30 groups and
Ex
am
Financial Increase in Net
departments built
Income through
pl
e
Increased Transaction
strategy maps (like
Volume
Increase in Interest
Increase in Fee
Revenue from
Revenue
these) within a 30 day
Deposit
period.
Customer
Ability to
Ability to Secure
Recognition
•
Provide
Only a handful of
Accurate Liquidity on
as a Stable Account
Competitive
Process- Profitable Terms
Source of Information
Pricing
ing
employees in the
Credit Promptly
organization had
Internal Process
experience building
Promote
Build
Align to STP
Study Relationships
Strategy of
Balanced Scorecards.
Improve Competitors’ Improve with Industry
Credit Collaborate
Operation Pricing Operation Counter-
Divisions with Bene.
Trends System parties
in Charge
• In many cases,
Learning & Growth
Develop and
individuals worked
Retain
Streamline
Rationalize/
Experienced
Organization
Re-engineer
independently to
Align Individuals’ Staff
Structure for Global
Operation Assignments to the Members
Correspondent
center Overall Strategy
complete the exercise.
Banking Business
10

11. Initial BSC Design Process: While the initial effort to design scorecards
Process
demonstrated a lot of progress, several key gaps in alignment were apparent.
Observations Decisions
• •
Beyond the four perspectives, the Re-build maps from the top-down.
scorecards lacked a unifying structure.
• Focus on a high-level story of the
• The expression of cause and effect strategy (Strategy maps should describe
through arrows created confusion. cause and effect generally, not
precisely).
• On most strategy maps, the internal
• Re-group or re-define objectives
perspective lacked a sufficient
according to a limited number of
description of the key processes
themes.
required for success.
• Categorize objectives according to topic
• The interdependencies between groups
and organize them according to type –
was not clear on the scorecards,
common, shared, or unique.
suggesting the need for making
horizontal alignment more explicit on the
strategy maps.
11

12. BSC Re-Design Process: To align the organization vertically, BTM established a
Process
strategic foundation upon which all scorecards would be built.
BTM Strategy Map Foundation
BTM Strategy Map Foundation
Increase Net Income
Increase Net Income
Category #1: Category #2: Category #3:
Category #1: Category #2: Category #3:
Financial
Financial
Revenue Ris k Eff iciency
Revenue Ris k Eff iciency
••Interest Income ••Credit Costs ••Reduce Costs
Interest Income Credit Costs Reduce Costs
••Non-Interest Income ••Litigation Costs ••Incr ease Pr oductivity
Non-Interest Income Litigation Costs Incr ease Pr oductivity
Customer: Internal // External (Descr iption)
Customer: Internal External (Descr iption)
Category #1: Category #2: Category #3:
Category #1: Category #2: Category #3:
Customer
Customer
Relationship Product Service
Relationship Product Service
••Understanding customer needs ••Features ••Timely
Understanding customer needs Features Timely
••Being a trusted advisor ••Price ••Accurate
Being a trusted advisor Price Accurate
Theme #1: Theme #2: Theme #3:
Theme #1: Theme #2: Theme #3:
GROW REVENUE MANAGE RISK ENHANCE
GROW REVENUE MANAGE RISK ENHANCE
PRODUCTIVITY
PRODUCTIVITY
Internal Process
Internal Process
•• Customer Relationships •• CO SO Self-Assessment
Customer Relationships CO SO Self-Assessment
•• Reengineering
•Cross-selling eff orts •• Regulatory Risk Reengineering
•Cross-selling eff orts Regulatory Risk
•• Market Research •• Technology Risk •• IIT Init iatives
Market Research Technology Risk T Init iatives
•• Etc. •• Etc. •• Q ualit y Control
Etc. Etc. Q ualit y Control
•• Etc.
Etc.
Human
Category #1: Category #2: Category #3:
Capital
Human
Category #1: Category #2: Category #3:
Capital
Skills Work Environment Com pe ns ation
Skills Work Environment Com pe ns ation
••Tr aining, sucession planning, etc. ••Ethics, culture, etc. Pay-for -performance, etc.
Tr aining, sucession planning, etc. Ethics, culture, etc. Pay-for -performance, etc.
12

13. BSC Re-Design Process: In revising their strategy maps, each group defined its
Process
strategic objectives according to bank-wide themes, categories, and types.
Key steps:
1. Referring to the BTM strategic foundation (on the preceding page) as a starting point,
each group created a customized version according to how its goals align to the
themes and categories defined in the foundation.
2. Each group discussed and agreed upon how to express its strategic objectives within
this framework. (For each perspective, questions were provided in a workbook to
guide answers.)
3. Each group re-built its strategy map so that its objectives corresponded to the strategic
themes and categories defined on the foundation page. Objectives were depicted in
three types of ovals:
Type Definition Example
Bank-wide objectives, mandated throughout the “Enhance cost efficiency” (financial
perspective objective)
Common organization on every scorecard
Inter-divisional objectives shared between two or more “Streamline credit approval process”
units expected to cooperate in order to achieve the result (internal perspective operational
Shared
efficiency objective)
Intra-divisional objectives describing an activity expected “Maintain know your customer files”
to be fulfilled independently by that group (internal risk management theme
Unique
objective for Treasury)
13

14. BSC Re-Design Process: Using the strategic foundation, strategy maps were re-
Process
built from the top-down. Interdependent groups shared objectives.
Increase net income
Increase net income
Financial
Perspective
Maximize
Maximize
Sample
Enhance
Sample
Enhance
Increase fee Minimize
income from
Increase fee Minimize
income from cost
cost
income credit costs
core
income credit costs
core efficiency
efficiency
customers
Strategy Map
customers
Strategy Map
Customer Be #1 foreign Provide Provide
Be #1 foreign Provide Provide
Be a reliable
Perspective Be a reliable
wholesale global speedy and
wholesale global speedy and
source of
source of
bank in the network accurate
bank in the network accurate
credit
credit
Americas banking service
Americas banking service
Grow Revenues Manage Risk Enhance Productivity
Grow Revenues Manage Risk Enhance Productivity
Tie-up between
Tie-up between
business strategy
business strategy Execute major
Execute major
and risk appetite
and risk appetite Bankwide common objective
technology and
technology and
Strategically Proactive risk
Strategically Proactive risk efficiency projects
efficiency projects
focus on regional management and
focus on regional management and
Internal opportunities compliance
opportunities compliance
Process Enhance
Enhance
Perspective Close collaboration
Close collaboration
Enhance risk
Enhance risk
collaboration throughout
collaboration throughout Objective unique to GCBU
management in
management in
between RMs supply chain
between RMs supply chain
Latin America
Latin America
and POs*
and POs*
Enhance disaster
Enhance disaster
Segmentation Streamline credit
Segmentation Streamline credit
recovery/business
recovery/business
and tier up approval process
and tier up approval process
continuity plan
continuity plan
Predetermined shared objective
Provide Competitive
Human Provide Competitive
Develop
Develop training on environment: Competitive
Capital training on environment: Competitive
succession
succession
Perspective credit and teamwork, compensation
credit and teamwork, compensation
plan
plan products safe and fair
products safe and fair
14

15. Implementation – Linking COSO to the BSC: With strategies clearly articulated,
BSC
BTM integrates COSO-based risk management framework into BSC.
• Once BTM articulated the strategy for all
Strategy-Risk Management Double Loop
levels of the organization from the top-
down, it became easier to identify and
assess risks associated with
Proactive Risk
Proactive Risk
Management and
Management and
implementing strategy.
Compliance
Compliance
Corporate level
• COSO-based control risk assessment
(CSA) was introduced on a bankwide
Cascading Aggregating basis to proactively manage risks
Strategy Risk derived from the strategy execution
BU level
(Top-down) (Bottom-up) process. This process was adopted as a
bank-wide common objective called
“Proactive Risk Management and
Compliance” in Balanced Scorecards.
Division 1
• CSA was conducted at the lowest
Division 2
organization level and CSA results were
aggregated from the bottom.
Division 3
• The BSC-CSA linkage created a
Strategy-Risk management double loop
for BTM.
15

16. Implementation – Linking COSO to the BSC: Risks in the strategy execution
BSC
process are proactively identified and controlled through COSO-based CSA.
Goals & Performance
Goals & Performance
Execution Process
Execution Process
Objectives Evaluation
Objectives Evaluation
Financial
COSO-Based CSA:
Financial
• Business environment risk
Customer
Customer
• Legal and compliance risk
• Data security risk
Internal Process:
Internal Process:
• Technology risk
“Grow Revenue”
“Grow Revenue”
“Manage Risk”
• Business continuity risk
“Manage Risk”
“Enhance Productivity”
“Enhance Productivity”
• People risk
• etc. Human Capital
Human Capital
Feedback
16

17. Implementation – Linking Compensation to the BSC
• Linking compensation to the BSC, of
which COSO is a key strategic priority,
Business
encourages all employees to consider Risk
the balance between business and
risk. BSC COSO
• One powerful metric being used is
“share of issues identified by business
lines”, which has a target of 50%.
This metric immediately had the effect
of making the business lines
Compensation
Compensation
proactively identify risks they had
previously ignored or waited to react
to. The associated metric “share of Reward
issues closed during period” (target:
100% by deadline) is now forcing The idea of linking COSO to the Balanced
Scorecard is considered unique among
quicker resolution of risk issues.
financial institutions – even in the United States
17

18. Implementation – Committees: Major meetings were not explicitly linked to strategy;
Committees
now they are clearly linked to the strategic themes and goals of the organization.
Discussions at all major periodic management meetings focus on relevant areas of the
scorecard; all areas are reviewed quarterly at the Business Strategy Committee meeting.
Business Monthly Operations Bankwide Human
Committee Credit Risk IT Steering
Compliance
Strategy Profit Control Risk Mgmt Resources
Mgmt Committee
Theme Committee
Committee Review Committee Committee Committee
Committee
Frequency Quarterly Monthly Monthly Monthly Monthly Quarterly
Monthly Quarterly
Financial
Customer
Grow Revenues
Manage Risk
Improve
Productivity
Human Capital
18

19. Implementation – Rollout to Branches: BTM HQA has already begun cascading
Branches
its scorecards by business area to the branches.
• Balancing centralized HQA
business policy and local Financial
Perspective
60%
autonomy at branches 60%
– HQA determines objectives and
weighting of emphasis by Customer
5%
5%
Perspective
perspective.
Grow Manage Enhance
Grow Manage Enhance
– The predetermined objectives revenues risk Produc-
revenues risk Produc-
and weighting work as “rules of tivity
tivity
Internal
the game” for branches to Process
Perspective
compete among each other.
30%
– Branches have autonomy to
select metrics and weighting /
emphasis within perspective.
Human
• Weighting may change over time – 5%
Capital
5%
Perspective
depends on business environment
19

20. Key Takeaways (1 of 2)
Key Challenge Resulting Changes and Improvements
• BTM successfully articulated and communicated its strategy to
Diversified Culture both cultures (multicultural environment).
• Through the BSC Initiative, the CEO’s strategy for the Americas
Complex
was clearly cascaded down to all areas of the organization
Organization
beyond the organizational boundary and shared among
employees.
• Rollout to branches helps clarify which items should be governed
Sub-Optimized
centrally versus locally.
Network
• The vertical and horizontal alignment promoted cooperation
between the business promotion side and the credit approval
Tug-of-War side – parties that were formerly isolated. This increased efforts
to make service to the customer more consistent.
20

21. Key Takeaways (2 of 2)
Key Challenge Resulting Changes and Improvements
• Support and oversight functions (HR, audit, credit examination,
etc.) are now familiar with quantitative approaches to managing
Red Tape performance. They are more focused on the bottom line, and
senior management has better control over what they are doing.
• Front, middle, and back offices cooperated more proactively to
Bottleneck enhance productivity and minimize operational errors.
• Employees realize that performance against strategy has to be
measured and rewarded – Balanced Scorecard is not just a
Accountability
conceptual exercise.
21