Balanced Scorecard - building, implementing, aligning and sustaining for optimal strategic results

1. BALANCED BUSINESS
SCORECARDS – BUILDING,
IMPLEMENTING, ALIGNING AND
SUSTAINING
CHARLES COTTER
3-6 NOVEMBER 2014

2. TRAINING PROGRAMME OVERVIEW
 Introduction and Background
 Defining the fundamental concepts
 Defining the 4 perspectives of the Balanced Scorecard (BSC)
 Building a business case for BSC
 Diagnosis of Best Practice guidelines
 Applying the 9-step, BSC building and implementing process
 Sustaining the BSC

3. ORIGIN AND HISTORY OF THE BSC
 It was originated by Drs. Robert Kaplan & David Norton (Harvard Business
School) as a performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give
managers and executives a more 'balanced' view of organizational
performance.
 These non-financial metrics are so valuable mainly because they predict future
financial performance rather than simply report what’s already happened.
 Their article (1996), describes how the balanced scorecard can help senior
managers systematically link current actions with tomorrow’s goals, focusing
on that place where, in the words of the authors, “the rubber meets the sky.”
 Predecessors to the BSC:
 Tableau de Bord (Dashboard)
 Early Metric-Driven Incentives (MDIs)

4. MODERN APPLICATION OF THE BSC
 The “new” balanced scorecard transforms an organization’s strategic plan from
an attractive, but passive document into the "marching orders" for the
organization on a daily basis.
 It provides a framework that not only provides performance measurements, but
helps planners identify what should be done and measured. It enables
executives to truly execute their strategies.
 Given the insight and wisdom provided by Kaplan & Norton, the balanced
scorecard is a management system (not only a measurement system) that
enables organizations to clarify their vision and strategy and translate them into
action.
 It provides feedback around both the internal business processes and external
outcomes in order to continuously improve strategic performance and results.
 When fully deployed, the balanced scorecard transforms strategic planning from
an academic exercise into the nerve center of an enterprise.

5. BSC MEASURES

6. OBJECTIVES OF THE BSC
 Enables organizations to clarify their vision and strategy and translate them
into action.
 Aligns business activities to the vision and strategy of the organization
 Provides a balanced view of the organizational value and performance
 Enables business planners to identify what should be done and measured,
thus enabling effective execution of business strategies
 Provides feedback around both the internal business processes and
external outcomes in order to continuously improve strategic performance
and results
 Monitors organization performance against strategic goals

7. BSC PERSPECTIVES/DIMENSIONS
 The balanced scorecard suggests that we view the organization
from four (4) perspectives, and to develop metrics, collect data
and analyze it relative to each of these perspectives:
Learning, Innovation and Growth
Business (Internal) Processes
Customer
Financial

8. ILLUSTRATION: BSC
PERSPECTIVES/DIMENSIONS

10. LEARNING, INNOVATION AND
GROWTH PERSPECTIVE
 Strategic question:
 “To achieve our vision, how will sustain our ability to change and improve?”
 Examples (measurable indicators):
 Time to develop new generation of products
 Life cycle to product maturity
 Time to market versus competition
 Is there the correct level of expertise for the job?
 Employee turnover
 Job satisfaction
 Training/Learning opportunities
 Value Outcome:
 Organizational knowledge and growth capacity

11. COMPONENTS OF LEARNING,
INNOVATION AND GROWTH

13. BUSINESS (INTERNAL) PROCESS
 Strategic question:
 “To satisfy our shareholders and customers, what business processes must we excel at?”
 Examples (measurable indicators):
 Cycle time
 Unit cost
 Yield
 New product introductions
 Number of activities per function
 Duplicate activities across functions
 Process alignment (is the right process in the right department?)
 Process bottlenecks
 Process automation
 Value Outcome:
 Efficiency
PERSPECTIVE

15. CUSTOMER PERSPECTIVE
 Strategic question:
 “To achieve our vision, how should we appear to our customers?”
 Examples (measurable indicators):
 Percent of sales from new products
 On time delivery
 Share of important customers’ purchases
 Ranking by important customers
 Delivery performance to customer
 Quality performance for customer
 Customer satisfaction rate
 Customer percentage of market
 Customer retention rate
 Value Outcome:
 Customer satisfaction

16. FINANCIAL PERSPECTIVE
 Strategic question:
 “To succeed financially, how should we appear to our shareholders?”
 Examples (measurable indicators):
 Cash flow
 Sales growth
 Operating income
 Return on Equity (RoE)
 Return On Investment (ROI)
 Return on Capital Employed (RoCE)
 Financial Results (Quarterly/Yearly)
 Value Outcome:
 Financial performance/profitability

17. DEFINING FUNDAMENTAL
 Balanced Scorecard (BSC)
 Strategic Planning
 Strategic Plan
 Strategic Management and Execution
 Steps in Strategic Planning and Management
 Strategy Mapping
CONCEPTS

19. PURPOSES OF THE BSC
 Articulate the business's vision and strategy
 Identify the performance categories that best link the business's vision and strategy to its
results (e.g., financial performance, operations, innovation, employee performance)
 Establish objectives that support the business's vision and strategy
 Develop effective measures and meaningful standards, establishing both short-term
milestones and long-term targets
 Ensure company-wide acceptance (ownership) of the measures
 Create appropriate budgeting, tracking, communication, and reward systems
 Collect and analyze performance data and compare actual results with desired
performance
 Take action to close unfavourable gaps

20. STRATEGIC UTILITY AND FUNCTIONAL
VALUE OF BSC’S
 Clarify or update a business's strategy
 Link strategic objectives to long-term targets and annual budgets
 Track the key elements of the business strategy
 Incorporate strategic objectives into resource allocation processes
 Facilitate organizational change
 Compare performance of geographically diverse business units
 Increase company-wide understanding of the corporate vision and strategy

22. 4-STEP STRATEGIC MANAGEMENT
PROCESS

23. STRATEGY MAPPING
 Strategy maps are communication tools used to tell a story of how
value is created for the organization.
 They show a logical, step-by-step connection between strategic
objectives (shown as ovals on the map) in the form of a cause-and-effect
chain.
 Generally speaking, improving performance in the objectives found in
the Learning & Growth perspective (the bottom row) enables the
organization to improve its Internal Process perspective Objectives
(the next row up), which in turn enables the organization to create
desirable results in the Customer and Financial perspectives (the top
two rows).

24. ILLUSTRATION: STRATEGY MAP

25. SYNDICATE GROUP LEARNING
ACTIVITY 1
 Refer to page 25 in Learner Guide
 By means of a cost-benefit analysis, develop a business case
for BSC.
Viability
Feasibility
Sustainability
 Present a summary of group discussion

26. BEST PRACTICE GUIDELINES FOR
 #1: BSC is aligned with organization’s strategic business plans
 #2: BSC is future-focused, adopting a strategic, medium to long-term approach
 #3: BSC is pro-active, sensitive and responsive to (internal and external)
environmental change and trends
 #4: BSC enjoys company-wide acceptance (ownership) of the measures and
processes
 #5: BSC is organized, well-coordinated and systematic approach
 #6: BSC is a collaborative and partnering effort (managers have co-opted
business partners to the process)
 #7: BSC is integrated (with other business management and administrative)
and cohesive process
BSC

27. BEST PRACTICE GUIDELINES FOR
BSC
 #8: BSC generates meaningful business intelligence which informs business
planning and supports strategic decision-making
 #9: BSC integrates both scientific (metrics and analytics) and artistic (planning)
principles
 #10: BSC utilizes cutting-edge and innovative technology and software
 #11: BSC is continuously monitored, reviewed, evaluated and adapted
 #12: BSC yields a positive business ROI, with tangible/demonstrable outcomes
and impact – creates sustainable competitive advantages and organizational
change
 #13: BSC incorporates strategic objectives into resource allocation processes
e.g. financing/budgeting
 #14: BSC is a logical and rational process making use of cause-effect logic

28. SYNDICATE GROUP LEARNING
ACTIVITY 2
 Refer to page 27 in Learner Guide
 Critically evaluate your organization’s current Balanced
Scorecard processes and systems against the best practice
criteria.
 Identify gaps and recommend improvement strategies.
 Present a summary of group discussion

29. HIERARCHY OF BALANCED
SCORECARD COMPONENTS
 The balanced scorecard is a strategic planning and management system that
helps everyone in an organization understand and work towards a shared
vision.
 Starting at high “strategic altitude”, Mission, Vision, and other planning
elements are translated into desired Strategic Results.
 The organization’s “Pillars of Excellence”, or Strategic Themes, are selected
to focus effort on the strategies that matter the most to success.
 Strategic Objectives are used to decompose strategy into actionable
components that can be monitored using Performance Measures.
 Finally, Strategic Initiatives translate strategy into a set of high-priority
projects that need to be implemented to ensure the success of strategy.
Once the strategic thinking and necessary actions are determined, annual
program plans and projects can be developed and translated into budget
requests.

30. ILLUSTRATION: HIERARCHY OF
BALANCED SCORECARD COMPONENTS

32. THE 9-STEP BSC BUILDING AND
IMPLEMENTING PROCESS

33. STEP 1: ASSESSMENT - INTERNAL AND
EXTERNAL STRATEGIC ASSESSMENT
 Step one of the scorecard building process starts with an assessment of the
organization’s Mission and Vision, challenges (pains), enablers and values.
 The following strategically-relevant items form the scope to be scrutinized by
business managers:
 The company'smission statement
 The company's strategic plan/vision
 The financial status of the organization
 How the organization is currently structured and operating
 The level of expertise of their employees
 Customer satisfaction level
 Tools:
 SWOT Analysis
 PESTEL Analysis

34. THE NATURE OF THE BUSINESS
ENVIRONMENT – V-U-C-A

35. A WINNING STRATEGY
 CAPITALIZE ON STRENGTHS
 MINIMIZE WEAKNESSES
 EXPLOIT OPPORTUNITIES
 COUNTERACT THREATS

36. SYNDICATE GROUP LEARNING
ACTIVITY 3
 Refer to pages 32-34 in Learner Guide
 By utilizing a SWOT Analysis Matrix and PESTEL analysis, perform an
environmental scan/analysis of both the internal and external environments for
your organization. Internally, identify organizational strengths and weaknesses
and externally identify opportunities and threats.
 In particular, focus on the following key organizational factors:
 Strategy (plan, vision and mission)
 Finances
 Customer
 Internal business processes
 Learning and growth (people and skills)
 Present a summary of group discussion

38. STEP 2: STRATEGY - CUSTOMER VALUE,
STRATEGIC THEMES AND RESULTS
 In Step Two, elements of the organization’s strategy, including
Strategic Results, Strategic Themes and Perspectives, are
developed by managers to focus attention on customer needs
and the organization’s value proposition.

39. STRATEGIC THEMES
 Strategic themes are the main, high-level business strategies that form the basis for the
organization’s business model.
 Reference to themes as “pillars of excellence”.
 The strategic themes are very broad in scope.
 They apply to every part of the organization and define what major strategic thrusts the
organization will pursue to achieve its vision.
 A strategic theme is an area in which your organization must excel in order to achieve
your vision.
 Themes also represent deliberate strategic directional decisions made by the leadership
team.
 Taken together, one can look at the proposed set of strategic themes and ask this
question: “If we excel in these 3-4 areas, will we achieve our vision?” and receive a
resounding answer of “Yes!”

40. STRATEGIC RESULTS
 Each theme has a “strategic result” associated with it - this is a statement of a desired
end-state.
 The result is stated in such a way that you will clearly recognize success when you see it.
 Strategic results are measurable and explicitly defined using outcome language.
 Examples include:
 Business Growth
 Operational Excellence
 Customer Service Excellence
 Innovation
 Sustainability
 The strategic differentiator lies in the strategic result - the specificity of the result gives
guidance to organizational transformation.
 Can be measured by compound measures of current and future-looking indicators.

41. SYNDICATE GROUP LEARNING
ACTIVITY 4
 Refer to page 38 in Learner Guide
 Refer to the preceding learning activities. Apply step 2 of the BSC
Building and Implementing process by developing a strategic value
proposition for your organization.
 Concentrate on the following key dimensions:
 Strategic Themes
 Associated strategic results
 Present a summary of group discussion

42. STEP 3: OBJECTIVES - STRATEGY
ACTION COMPONENTS
 The strategic elements developed in Steps one and two are
decomposed into Strategic Objectives, which are the basic
building blocks of strategy and define the organization's
strategic intent.
 Metrics must also be aligned with the company's strategic plan.
 The metrics set up also must be S-M-A-R-T

43. SYNDICATE GROUP LEARNING
ACTIVITY 5
 Refer to page 40 in Learner Guide
 Refer to the preceding learning activities. Apply step 3 of the
BSC Building and Implementing process by formulating
strategic objectives for your organization. Ensure that these
objectives comply with the SMART criteria.
 Present a summary of group discussion

45. STEP 4: STRATEGY MAP - CAUSE-EFFECT
 In Step Four, the cause and effect linkages between the enterprise-wide
Strategic Objectives are formalized in an enterprise-wide Strategy Map.
 The previously constructed theme Strategy Maps are merged into an overall
enterprise-wide Strategy Map that shows how the organization creates
value for its customers and stakeholders.
 Apply cause-effect logic
 A Strategy Map highlights that delivering the right performance in the one
perspective (e.g. financial success) can only be achieved by delivering the
objectives in the other perspectives (e.g. delivering what customers want) -
basically creating a map of interlinked objectives
 It allows companies to create a truly integrated set of strategic objectives
on a single page.
LINKS

46. EXAMPLE: STRATEGY MAP

47. EXAMPLE: STRATEGY MAP

48. SYNDICATE GROUP LEARNING
ACTIVITY 6
 Refer to page 43 in Learner Guide
 Refer to the preceding learning activities. Apply step 4 of the
BSC Building and Implementing process by crafting a 1-page
strategy map for your organization. Ensure that the strategy
map uses cause-effect logic and establishes interdependent
linkages.
 Present a summary of group discussion

50. STEP 5: PERFORMANCE MEASURES -
MEASURES AND TARGETS
 Leading and lagging measures are identified
 Lagging indicators are typically “output” oriented, easy to measure but
hard to improve or influence
 Leading indicators are typically input oriented, hard to measure and easy to
influence
 Expected targets and thresholds are established
 Baseline and benchmarking data is developed
 Key Performance Indicator (KPI) and Performance Measure
Development

51. GOOD PERFORMANCE MEASURES
 Provide a way to see if our strategy is working
 Focus employees' attention on what matters most to success
 Allow measurement of accomplishments, not just of the work that is
performed
 Provide a common language for communication
 Are explicitly defined in terms of owner, unit of measure, collection
frequency, data quality, expected value (targets), and thresholds
 Are valid, to ensure measurement of the right things
 Are verifiable, to ensure data collection accuracy

52. 5 STEPS TO FIND THE RIGHT
MEASURES

53. SYNDICATE GROUP LEARNING
ACTIVITY 7
 Refer to page 48 in Learner Guide
 Refer to the preceding learning activities. Apply step 5 of the
BSC Building and Implementing process by developing
performance measures for your organization. Ensure that
these performance measures comply with the criteria for good
measures.
 Present a summary of group discussion

54. STEP 6: INITIATIVES - STRATEGIC
PROJECTS
 Strategic Initiatives are developed that support the Strategic
Objectives.
 To build accountability throughout the organization, ownership
of Performance Measures and Strategic Initiatives is assigned
to the appropriate staff and documented in data definition
tables.
 Development of strategic project plans

56. STRATEGIC PROJECT ACTION PLAN
(TEMPLATE)

57. SYNDICATE GROUP LEARNING
ACTIVITY 8
 Refer to pages 49-50 in Learner Guide
 Refer to the preceding learning activities. Apply step 6 of the
BSC Building and Implementing process by developing
initiatives (strategic projects) for your organization. Utilize the
provided Action Plan template.
 Present a summary of group discussion

58. STEP 7: PERFORMANCE ANALYSIS -
SOFTWARE, PERFORMANCE REPORTING AND
ANALYSIS
 The implementation process begins by applying performance
measurement software to get the right performance
information to the right people at the right time.
 Automation adds structure and discipline to the system and
helps people make better business decisions.

59. SYNDICATE GROUP LEARNING
ACTIVITY 9
 Refer to page 51 in Learner Guide
 Demonstration of the software applications for step 7 of the
process.
 Present a summary of learning sights of software applications.

60. STEP 8: ALIGNMENT - CASCADING TO
UNIT AND INDIVIDUAL SCORECARDS
 The organizational level scorecard (the first Tier) is translated into business
unit or support unit scorecards (the second Tier) and then later to team
and individual scorecards (the third Tier).
 Cascading translates high-level strategy into lower-level objectives,
measures and operational details and is the key to organization alignment
around strategy.
 The organization alignment should be clearly visible through strategy,
using the strategy map, performance measures and targets, and initiatives.
 Scorecards are used to improve accountability through objective and
performance measure ownership and desired employee behaviours are
incentivized with recognition and rewards.

61. 3-TIER BALANCED SCORECARD
CASCADING

62. SYNDICATE GROUP LEARNING
ACTIVITY 10
 Refer to page 53 in Learner Guide
 Refer to the preceding learning activities. Apply step 8 of the
BSC Building and Implementing process by cascading Tier 1
strategies to Tiers 2 and 3 for your organization.
 Present a summary of group discussion

63. STEP 9: EVALUATION - STRATEGY
RESULTS AND REVISED STRATEGIES
 During this evaluation, the organization tries to answer
questions such as:
 Are our strategies working?
 Are we measuring the right things?
 Has our environment changed?
 Are we budgeting our money strategically?

64. STRATEGY EVALUATION – BSC
FRAMEWORK

65. SYNDICATE GROUP LEARNING
ACTIVITY 11
 Refer to page 55 in Learner Guide
 Refer to the preceding learning activities. Apply step 9 of the
BSC Building and Implementing process by evaluating the
Balance Scorecard for your organization. Ensure that the
fundamental evaluation questions are addressed.
 Present a summary of group discussion

66. SUSTAINING THE BSC
 Critical implementation success factors
 Applying the control process

67. 10 CRITICAL IMPLEMENTATION SUCCESS
FACTORS
 Balanced Scorecard is a transformation journey and change initiative, not a
once off project - ensure that you have designed a Change Management
plan which should run parallel to the Balanced Scorecard.
 Maintain a committed and engaged leadership - change should be driven
from the top
 Develop an organizational culture based on results by establishing a
strategy management office
 Focus the organization on strategy by holding review meetings organized
around strategy
 Enhance individual accountability for results through objective ownership

68. 10 CRITICAL IMPLEMENTATION
SUCCESS FACTORS
 Align the organization, systems and employee performance around
strategy through a rewards and recognition programme
 Create a performance, results oriented culture
 Link budget formation, cost accounting and performance results
 Emphasize continual improvement
 Link key organization initiatives to the balanced scorecard
development process

69. APPLYING THE CONTROL PROCESS

70. SYNDICATE GROUP LEARNING
ACTIVITY 12
 Refer to page 58 in Learner Guide
 Refer to the preceding learning activities. Describe how you
will ensure sustainability and continuous improvement of the
BSC Building and Implementing process for your organization.
Ensure that you include the critical success factors and the
control methods and process that will be followed.
 Present a summary of group discussion

71. CONCLUSION
 Summary of the key learning points
 Questions
 Conclusion
 Good luck with the building, implementing, aligning and
sustaining your BSC.

72. CONTACT DETAILS
 CHARLES COTTER
 084 562 9446
 charlescot@polka.co.za
 LINKED IN
 TWITTER: Charles_Cotter