Just to recap some important points about the strategy map: Summarizes the critical values we want to provide for our stakeholders. This gives us good strategic focus. Shows how one outcome leads to another, depicting the cause-effect relationship between the four major views of organizational performance. As we cascade the scorecard down into the organization, balanced scorecards link all components together.
Research by Harvard Business School suggests four major benefits to using a Strategy Map within the Public Sector: Helps build consensus on what the agency must do strategically. Effectively communicates strategy across the agency. Helps ensure that all components in the agency are aligned around strategy. Promotes strategy outside the agency to others who have a vested interest in the agency’s strategy.
Here is a basic example of how everything should connect and link up from goal to objective, objective to measurement, measurement to target, and finally, close the loop with an initiative to drive strategic execution upstream. We want a good solid, tight model where everything is aligned together.
And now for another multiple choice question.
And the answer is d: Our measurements should link directly to targets.
Here are some examples of performance measurements by balanced scorecard perspective.
Building a Strategic Framework
Building A MetricManagementAn alternative to Balanced ScorecardARRIFFIN MANSOR
Introduction Metric management provide a framework for management measurements and targets. Strategies are defined in metric terms for proper communication and execution. When asked about strategy, managers reach for their metric charts and maps. 2 04/01/12
Agenda This slide presentation will outline the major steps for building a metric management plans. How you execute these steps will depend upon many factors: Company culture, tolerance for change, leadership, etc. However, please try to follow the same sequence, focusing on the strategic maps. 3 04/01/12
Overview Metrics are used in management from planning to controls Link these metrics into strategic maps Throughout the process, we will refer back to these maps, making sure everything is linked. This is very important since we want to capture a “cause and effect” relationship in building metrics. 4 04/01/12
Why metric management? Improves how you communicate strategy Superimposes a discipline whereby you capture cause-effect; otherwise you create pockets of under-performance. Also forces you to think about strategic measurement as opposed to tactical or operating type measurements 5 04/01/12
Start with Strategy Begin with your strategic plan – what things are critical to future success? Focus on customers – what values will we add to our customers Define the processes – how will we deliver these services to our customers Build the organization – what capabilities must we put in place 6 04/01/12
Strategies Once we establish our first anchor (goals), we can develop a set of strategies. Strategies define what actions must be taken to reach the goals. Strategies are critical to future success. For example, in order to grow revenues, we must introduce new products and expand our market share. 7 04/01/12
Goals The first components of your strategy are goals. Goals establish direction in concrete terms. Goals anchor the rest of the process. Goals should fit with the vision and mission of the organization. 8 04/01/12
Goal Attributes Very short statement Directly relates to the mission Broad in scope Covers long time period (such as 3 years) Examples: - Improve Customer Service - Leverage Core Competencies - Develop more innovative products 9 04/01/12
Strategy Map: Capture a Cause EffectRelationship from the Bottom Up Stakeholder More rapid and Improved Returns on accessible services Investments Internal Process Economic Model Reduce Re-Activities Establish Web Based Process thru ABC/M Self Services& GrowthLearning Expand Global Leadership Knowledge Facility Reach Development Management Investments Facilities and Fixed IT Infrastructure Assets Human Capital
Key Benefits of Strategy Maps Articulates how the organization creates value for its constituents and legitimizing authority Displays key priorities and relationships between outcomes (the "what") and performance enablers or drivers (the "how") Provides a clear view of "how I fit in" for sub-organizations, teams, and individuals "Cascading the scorecard throughout the organization, and clearly mapping the various units and functions back to the organization or agency-wide map is critical to leveraging and ensuring alignment"
Strategy Maps – A Better Way to Communicate Strategy Executive consensus and Educate and Communicate: accountability: Build awareness and Building the map eliminates understanding of organization ambiguity and clarifies strategy across the responsibility. workforce. Promote Transparency: Ensure Alignment: Communicate with and Each sub-unit and individual educate constituents, partners, link their objectives oversight bodies, and the to the map. general public.Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan, April 21, 2004,pg. 20
Extend the Map into Measurements, Targets and Initiatives Strategy MapStakeholder Detailed statement How success in The level of Key action Faster Service Access of what is critical to achieving the performance or programs successfully strategy will be rate of required to achieving the measured and improvement achieve strategy tracked needed objectives Self Service ApplicationsInternal Process Objective Measure Target Initiative Lean Processes Description Eliminate waste, Number of Reworks 2 per setup per Lean / Six Sigma reworks, and other month each Process and Value errors in our Outlet Office Map Analysis processesL&G Web Enable Technologies Investments Invest in IT
Alignment of Scorecard Components Make sure the components of your scorecard fit together. We want to create a tight model for driving execution of your strategy. Goal Objective Measurement Target InitiativeAchieve Reduce Cost per Outlet 5% - Year 1 ActivityAgency Operational Office, Cost per 10% - Year 2 Basedoperational Service Costs by Region, Cost per 15% - Year 3 Costing /efficiencies 50% over the FTE Managementwith best next 5 yearspractices inthe private Reduce identified Waste Volume Waste stream Lean / Sixsector re-activities Charts, Rework reductions of Sigma within primary Tracking, Cycle 5% each year, processes by Time End to End Reworks cut in 80% over the in S-LX (5 of 7 half for next 3 next 3 years Regions) years, cycle time cut by 75%
Multiple Choice Question –Create a Tight ModelThe Balanced Scorecard process captures a cause and effectrelationship based on having all parts linked together.Strategic goals link down to objectives, objectives linkdown to measurements, and measurements link to: a. Mission b. Goals c. Budgets d. Targets
Multiple Choice Question –and the answer is . . .d – Measurements should be linked to targets. We want a one-to-one relationship so that measurements are actionable to the Agency.
Key Result Areas A concentrated or focused minimum area of work that would give you the maximum intended outcome. A major component of the outcome A pareto activity that gives 20:80 outcome. The most sensitive inputs that give maximum outputs. 17 04/01/12
Strategy Attributes Longer statement than goal statement More specific than goal statement Indirect relationship to mission Covers shorter time period than goal (such as 6 months or 1 year) Example: - We will expand call center services to include technical support 18 04/01/12
Programs (initiatives) Based on the goals, three to five programs should emerge. From these programs, we will develop a strategic map. Four common programs are: Operating Efficiencies, Customer Relations, Product Innovation, and Growing the Business. 19 04/01/12
Strategic Model Strategic Models can emerge from four principles:1. Translate strategies into operating terms.2. Link strategies throughout the entire organization.3. Commit everyone to implementing strategy.4. Make strategizing a continuous process of learning and adjusting to change. 20 04/01/12
Four PerspectivesBefore we build strategic maps, we need to define four perspectives: Financial: Top layer in the map, represents financial outcomes (profits, revenues, etc.) Customer: Next layer down, enables financial results (service, image, price, quality, etc.) Internal Processes: The values added to customers, such as delivery, production, distribution, etc. Learning & Growth: The people, systems, and organization that enable processes. 21 04/01/12
Before we can map yourstrategy . . . Get down to a set of quantifiable strategic objectives: Too vague Improve Customer Service More precise Reduce average customer wait times by 30% by year end Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.
Strategic Mapping Strategic Maps are the foundation of the Balanced Scorecard. You will need one strategic map for each programs (initiatives) Maps are constructed over four perspectives. Strategies are mapped over the four perspectives, linked together. 23 04/01/12
Linking Strategies need to be placed in the Strategic Map according to which perspective fits with the objective. Objectives may cross over more than one perspective. We usually start at the top with outcomes and work our way down, looking at what enables (drives) the outcome. 24 04/01/12
Approval Once you have completed the strategic maps, you will need to get approval from executive management. Does this map accurately tell the “story” of our strategy? If management disagrees with the map, go back and redo the maps. We need to get this step right since it represents the foundation for the entire scorecard. 25 04/01/12
Measurements For each you need one measurement. (KPI) Measurement provides us with feedback on meeting the strategic objective. Most organizations will use many of their existing measurements. Organizations requiring major change should include driver type measurements. 26 04/01/12
The Measurement Pyramid GoalStrategic/GPRA GoalsEnd-Outcomes Outcome Performance MeasuresLonger-Term Intermediate ProgramOutcomes Program Performance MeasuresShorter-Term Program ComponentsIntermediateOutcomes Program Component Performance Measures& Outputs ActivitiesOutputs& Inputs Activity Performance Measures
Examples of Measurements by PerspectiveStakeholder / Customer Internal Processes • Current customer satisfaction level • Number of unscheduled maintenance calls • Improvement in customer satisfaction • Production time lost because of maintenance • Customer retention rate problems • Frequency of customer contact by customer • Percentage of equipment maintained on schedule service • Average number of monthly unscheduled outages • Average time to resolve a customer inquiry • Mean time between failures • Number of customer complaintsLearning and Growth Investments • Percentage employee absenteeism • % of facility assets fully funded for upgrading • Hours of absenteeism • % of IT infrastructure investments approved • Job posting response rate • # of new hire positions authorized for filling • Personnel turnover rate • % of required contracts awarded and in place • Ratio of acceptances to offers • Time to fill vacancy
Key Performance Indicators The best KPI is a ratio of inputs and outputs. It indicates efficiency at all processes along the value chain i.e inputs, process, outputs and outcomes. The most important KPI is at the outcome phase which should supercede those of earlier KPIs in the value chain. 29 04/01/12
Measurement Criteria Measurements should drive change, providing teeth to our strategy. Measurements define objectives in specific terms. A good measurement should tell you what your objective is – this is an indicator of good linkage. Measurements should be repeatable, quantifiable, and verifiable. 30 04/01/12
Measurements Outcome efficiency Customer satisfaction: - Response time to service customer - Satisfaction survey scores Process Efficiency: - Cycle time - Downtime - Number of Restarts Input efficiency 31 04/01/12
Lead and Lag Measurements Leading measurements are drivers behind performance and provide some predictability (forward looking) Lagging measurements are usually final outcomes that look back, such as customer satisfaction or return on investment Metrics should include both leading and lagging type measurements 32 04/01/12
Targets (KPS) Once you establish measurements, you need to set a target for each measurement. Targets push the organization to a required level of performance. Targets put focus on the strategy, expressing the specifics of the strategy. When an organization hits its targets, then it has successfully implemented its strategy. 33 04/01/12
Characteristics of Initiatives Leader Sponsored Requires Investments – people, funding, technology, etc. Has designated owners Includes deliverables or milestones Usually has time deadlines May be difficult to launch – not resourced Could encounter obstacles – people are confused, conflicts with other functions
Initiatives should enable strategic execution Initiatives Goals or ObjectivesValue Mapping Project Improve identification and delivery of all agency services across the full stakeholder spectrumEmployee Rotation Program Improve the employee turnover and satisfaction scoresWeb Self Service Portal Reduce agency costs and streamline our services for more direct service deliveryCommon Knowledge Center Expand the overall knowledge base so that inter-functions can learn from one anotherCustomer Survey and Develop a more systematic process acrossAnalysis Tool Program the entire agency to better connect to our customersShared Service Center Reduce reworks and overlaps between ourTracking System seven shared service centers
Examples of TargetsAverage Turnaround Times 8 days 7.5 days 6.8 daysat Docking Sites FY05 FY06 FY07Utilization Rate for Self 10% FY05 18% FY06 25% FY07Serve Web PortalRotation Internship 1,800 FY05 2,500 FY06 3,900 FY07Participation RatesGlider integration mapping Establish 8 per sets 10 per setstool used for geo-sets baseline% of agency SES Levels 30% FY05 40% FY05 65% FY05following IRPS from end toend for the entire year% funding through SEPCO 30% FY05 35% FY06 45% FY07for space mapping
Examples of Targets Total Time to Recruit New Employees: Less than 40 days by year-end Utilization of rental facilities: Increase to 85% during peak summer months Growth in top line revenues: 10% increase over last year Improve overall customer satisfaction: Total scores exceed 90% 37 04/01/12
Initiatives (programs) In order for things to happen in an organization, you must initiate major projects or programs. For example, improving customer service may require a new customer management system. Once you launch appropriate initiatives, you should be able to meet your objectives. This closes the loop, everything is now linked and away we go! 38 04/01/12
Initiative Attributes Sponsored by senior management Designated owners manage project(s) Includes deliverables or milestones Usually has some time deadlines Could be difficult to launch – lack of support, no funding, poorly defined, etc. 39 04/01/12
Templates Strategic Map for Strategic Theme #1: FinancialThroughout thisprocess, we will use Customertemplates to capture,analyze and documentdata. Templates areused for strategicmapping, defining Internalmeasurements, etc. Learning 40 04/01/12
Other Important Steps Metrics are built around three teams: Leadership Team (upper level management), Core Team (middle level management) and Measurement Team (lower level functional personnel). Metrics are built around at least four group meetings: Kick Off Meeting followed by at least one meeting for each of the three teams. Metrics are cascaded to the individual level at performance planning meeting 41 04/01/12
Some Tools for DeterminingWhat to Measure Program Logic Model Process/ Intermediate End Inputs System Output Outcomes Outcome Process Flow Causal Analysis Prototype Product Desired Outcome Acceptable Not Acceptable Results Back to To Market Of Laboratory Testing
Implementation The minimum time for developing a metric management is three months. Full deployment of metrics throughout the entire organization can take more than one year. The best place to start building a metric managemnt is where all components of the value chain are in place: Customer, Innovation, Production, Delivery, Services, etc. 43 04/01/12
Summary Metrics are the best framework of management today. It communicates strategies. A fully integrated approach: Goals, Objectives, Mapping, Measurements, Targets, and Initiatives. Metrics can be experimental, whereby you test your strategies, refine, and make changes as you get feedback and learn what works. 44 04/01/12
Components of MetricManagement Goals and objectives definition Key result areas (Strategies) – cause effect relationship Strategic Programs (initiatives) Strategic Mapping Key Performance Indicators – lead and lag indicators Key Performance Standards & Benchmarkings 45 04/01/12
Installing corporate metrics Define corporate goals in Du Pont ROE format. Identify critical performance gaps and strengths Identify Critical success factors Refine above into strategic maps Developing programs and people identified Cascading metrics to operating departmental heads 46 04/01/12
Performance improvement framework Performance Gaps Targeted Output Identify Critical Gaps The rightCurrent Gap Analysis performance NewPractices Best Practices improvement Practices Training strategies Other management changes Innovation STANDAR Company Industry Innovation DS Evaluate Performance through measurements Linking metrics through the strategic maps Adopt participative performance planning and appraisal cycle
RETURN ON EQUITY 20% 4 2 160% PROFIT SALES ASSET PROFIT X X S = SALES ASSETS EQUIT EQUITY Y PROFIT ASSET EQUITY RETURN MARGIN TURNOVE MULTIPLI ON R ER EQUITY 48
FINANCIAL KPIsINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency ratios No produced Average cost per transactionResearch Productivity Value produced ROIdev expense ratiosInventory Average lead RETURN ONturnover time EQUITY Waste Reduction 49
MARKETINGINPUT PROCESS OUTPUT OUTCOMEMaterial Response rate No of customersLabour Marketing costs % Sales volumeOverhead Efficiency ratios Customers ProfitabilityResearch Productivity Product ROA marketingdev expense ratios profitability Average cost per Customer acquisition Return on Sales transactionInventory Average lead time Customer retentionturnoverPrice rel to comp Waste Reduction Revenue growth Delivery Channel 50
INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOMEMaterial variancesLabourOverhead Efficiency No produced Average cost per ratios transactionResearch Productivity Value ROIdev expense ratios producedInventory Averageturnover lead time Waste Reduction 51
HRM KPIsINPUT PROCESS OUTPUT OUTCOMEIncentives variances Turnover ratioHours Efficiency No produced Profit per employee ratiosTraining Productivity Value ROI ratios producedSalary Average Turnover Revenue per lead time employeeSkill Waste Reduction Employee Value added percompetency productivity employee 52
Performance Tools Du Pont ROE Analysis – KPI standards – industry or past – Variance Analysis – Critical Performance Gaps Input Output Evaluation – KPI BSC perspective to determine learning needs Strategic Maps Performance improvement matrix ROI Training 53