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Btm Presentation New Orleans

  1. 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 •
  2. 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. 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 products and services. •Loan Production Office: 2 •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. 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 1: Unit 3: Unit 4: Unit 1: Global Global Corporate Corporate Investment Investment Corporate Corporate Treasury Treasury Banking Banking Banking Banking Center Center 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. 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. 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 Vague Mission and Vision Defined Incremental Strategy Formulation Process Grand Design Operational Efficiency Competitive Edge Differentiation / Uniqueness Bottom Up Decision Making Top Down (or Middle-Up-Down) Implicit / Nonverbal / Closed Communication Style Explicit / Verbal / Open Process Orientation Performance Evaluation Outcome Orientation Diversified Culture / Single Culture / Cooperative Work culture Competitive Adapted from “Essence of Failure,” by I. Nonaka 6
  7. 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. • Integrate risk control framework into High the Balanced Scorecard. Good 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. 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 Soul Searching Awakening Alignment Test Run First Reporting Improvement “Strategy “Strategy is “Good. But “What is our “See if it “OK. Let’s try should be everybody’s some metrics strategy?” works…” new version” Top Down!” job!” are weak…” Internalize Make Our Measure Own Balanced performance Scorecards Review Socialize Cascade Advisory support from BSCol consultants CEO’s Completed Discuss strategy Balanced Improvements (Top Down) Scorecards 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. 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. 1Q03 2Q03 3Q03 4Q03 • Tokyo Head Office Tokyo Head Office Expansion Accomplishment Going Global has established a has established a 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 BSC as our Feel the study on BSC. study on BSC. common cultural language change • BTM has started a BTM has started a Socialize Moving onto a new project to new project to new stage: enhance linkages enhance linkages Globalization between BSC and between BSC and CSA. CSA. Externalize Combine Complete the Enhance BSC- new BSC-CSA CSA linkages approach • BTM is developing BTM is developing its proprietary BSC- its proprietary BSC- CSA application CSA application software software 9
  10. 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 Financial Increase in Net Ex am • Over 30 groups and Income through Increased Transaction pl e departments built Increase in Fee Volume Increase in Interest Revenue from strategy maps (like Revenue Deposit these) within a 30 day Customer period. Ability to Recognition Ability to Secure Accurate Process- as a Stable Source of Competitive Pricing Provide Account Information Liquidity on Profitable Terms • Only a handful of ing Credit Promptly employees in the Internal Process organization had Align to Study Promote STP Build Relationships experience building Strategy of Improve Operation Credit Divisions Competitors’ Pricing Improve Operation Collaborate with Industry Counter- Balanced Scorecards. with Bene. in Charge Trends System parties Learning & Growth Develop and • In many cases, Rationalize/ Streamline Organization Retain Experienced individuals worked Re-engineer Operation Structure for Global Correspondent Align Individuals’ Assignments to the Staff Members independently to center Overall Strategy Banking Business complete the exercise. 10
  11. 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 perspective lacked a sufficient • Re-group or re-define objectives description of the key processes according to a limited number of required for success. themes. • The interdependencies between groups • Categorize objectives according to topic was not clear on the scorecards, and organize them according to type – suggesting the need for making common, shared, or unique. horizontal alignment more explicit on the strategy maps. 11
  12. 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 #1: Category #2: Category #2: Category #3: Category #3: Financial Financial Revenue Revenue Ris k Ris k Eff iciency Eff iciency ••Interest Income Interest Income ••Credit Costs Credit Costs ••Reduce Costs Reduce Costs ••Non-Interest Income Non-Interest Income ••Litigation Costs Litigation Costs ••Incr ease Pr oductivity Incr ease Pr oductivity Customer: Internal // External (Descr iption) Customer: Internal External (Descr iption) Category #1: Category #1: Category #2: Category #2: Category #3: Category #3: Customer Customer Relationship Relationship Product Product Service Service ••Understanding customer needs Understanding customer needs ••Features Features ••Timely Timely ••Being a trusted advisor Being a trusted advisor ••Price Price ••Accurate Accurate Theme #1: Theme #1: Theme #2: Theme #2: Theme #3: Theme #3: GROW REVENUE GROW REVENUE MANAGE RISK MANAGE RISK ENHANCE ENHANCE PRODUCTIVITY PRODUCTIVITY Internal Process Internal Process •• Customer Relationships Customer Relationships •• CO SO Self-Assessment CO SO Self-Assessment •Cross-selling eff orts •Cross-selling eff orts •• Regulatory Risk Regulatory Risk •• Reengineering Reengineering •• Market Research Market Research •• Technology Risk Technology Risk •• IIT Init iatives T Init iatives •• Etc. Etc. •• Etc. Etc. •• Q ualit y Control Q ualit y Control •• Etc. Etc. Human Category #1: Category #2: Category #3: Capital Human Category #1: Category #2: Category #3: Capital Skills Skills Work Environment Work Environment Com pe ns ation Com pe ns ation ••Tr aining, sucession planning, etc. Tr aining, sucession planning, etc. ••Ethics, culture, etc. Ethics, culture, etc. Pay-for -performance, etc. Pay-for -performance, etc. 12
  13. 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 Common organization on every scorecard perspective objective) Inter-divisional objectives shared between two or more “Streamline credit approval process” Shared units expected to cooperate in order to achieve the result (internal perspective operational efficiency objective) Intra-divisional objectives describing an activity expected “Maintain know your customer files” Unique to be fulfilled independently by that group (internal risk management theme objective for Treasury) 13
  14. 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 Increase fee Increase fee income from income from Minimize Minimize Enhance Enhance cost cost Sample Sample income income core core credit costs credit costs efficiency efficiency customers customers Strategy Map Strategy Map Customer Be #1 foreign Provide Provide Perspective Be #1 foreign Be a reliable Provide Provide wholesale Be a reliable global speedy and wholesale source of global speedy and bank in the source of network accurate bank in the credit network accurate Americas credit banking service Americas banking service Grow Revenues Grow Revenues Manage Risk Manage Risk Enhance Productivity 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 Strategically Proactive risk Proactive risk efficiency projects efficiency projects focus on regional focus on regional management and management and Internal opportunities opportunities compliance compliance Process Enhance Enhance Perspective Close Close collaboration collaboration Enhance risk Enhance risk collaboration collaboration throughout throughout management in management in Objective unique to GCBU between RMs between RMs supply chain supply chain Latin America Latin America and POs* and POs* Enhance disaster Enhance disaster Segmentation Segmentation Streamline credit Streamline credit recovery/business recovery/business and tier up and tier up approval process approval process continuity plan continuity plan Predetermined shared objective Human Provide Provide Competitive Competitive Develop Develop Capital training on training on environment: environment: Competitive Competitive succession succession Perspective plan credit and credit and teamwork, teamwork, compensation compensation plan products safe and fair products safe and fair 14
  15. 15. Implementation – Linking COSO to the BSC: With strategies clearly articulated, BSC BTM integrates COSO-based risk management framework into BSC. Strategy-Risk Management Double Loop • Once BTM articulated the strategy for all levels of the organization from the top- down, it became easier to identify and Proactive Risk Proactive Risk assess risks associated with Management and Management and Compliance Compliance implementing strategy. 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 Division 1 Compliance” in Balanced Scorecards. Division 2 • CSA was conducted at the lowest 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. 16. Implementation – Linking COSO to the BSC: Risks in the strategy execution BSC process are proactively identified and controlled through COSO-based CSA. Goals & Goals & Performance Performance Execution Process Execution Process Objectives Objectives Evaluation 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 Human Capital • etc. Human Capital Feedback 16
  17. 17. Implementation – Linking Compensation to the BSC • Linking compensation to the BSC, of which COSO is a key strategic priority, encourages all employees to consider Business 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 proactively identify risks they had Compensation Compensation 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 quicker resolution of risk issues. Scorecard is considered unique among financial institutions – even in the United States 17
  18. 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. Committee Business Monthly Operations Bankwide Credit Risk Human Compliance IT Steering Strategy Profit Control Risk Mgmt Mgmt Resources Theme Committee 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. 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 autonomy at branches 60% 60% – HQA determines objectives and weighting of emphasis by Customer Perspective 5% 5% perspective. Grow Grow Manage Manage Enhance Enhance – The predetermined objectives revenues revenues risk risk Produc- Produc- and weighting work as “rules of Internal tivity tivity 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 – Capital Perspective 5% 5% depends on business environment 19
  20. 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). Complex • Through the BSC Initiative, the CEO’s strategy for the Americas Organization was clearly cascaded down to all areas of the organization beyond the organizational boundary and shared among employees. Sub-Optimized • Rollout to branches helps clarify which items should be governed Network centrally versus locally. • 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. 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 Accountability measured and rewarded – Balanced Scorecard is not just a conceptual exercise. 21