Webinar on Balanced Scorecard

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Slide Deck for The Balanced Scorecard - Implementing Strategy Webinar conducted by BMGI India Consultants in Feb 2010.

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Published in: Business, Economy & Finance

Webinar on Balanced Scorecard

  1. 1. The Balanced Scorecard -Implementing Strategy Webinar February 2, 2010
  2. 2. Agenda • Driving growth: need for strategy and effective deployment • Understanding the Balanced Scorecard (BSC) and its benefits – The four perspectives of the BSC • Building the BSC: Steps of the BSC process • Cascading the BSC in the organization
  3. 3. Webinar – Ground Rules• Please disable pop up blockers.• Please keep your self on mute.Asking Questions• Use the “Raise Hand” icon or “Question / Chat” box in the lower right corner.• Submit questions as they occur to you by typing in the box, then click submit• Questions will be answered during Q&A session at the end of the presentation.
  4. 4. Webinar – Ground RulesQuestions & Answers• We will do our best to answer as many questions as possible in the allotted time.• Answer to unanswered questions will be answered on our website/forum soon.• We shall notify you when they are availablehttp://www.bmgi.groupsite.comhttp://www.bmgindia.com
  5. 5. Growth: Need for Strategy andEffective Deployment
  6. 6. Where Do We Want to Be in 5 Years? Vision Statements – Do they really provide the direction needed?
  7. 7. Strategy Is Intended Strategy Deliberate Strategy Realized Strategy Intended = Realized? Unrealized Strategy Emergent Strategy
  8. 8. Strategy fails if it is little more than….. Hope Extrapolation Fabrication Vision? Rationalization Paper Exercise Self-Defense
  9. 9. Strategic Vs Operational Management STRATEGIC MANAGEMENT OPERATIONAL MANAGEMENT • Long term future horizons • Short to medium term • Building sustainable • Seeking operational competitive advantage improvements • External focus • Internal focus • Thinking Strategically • Fire fighting
  10. 10. The Ambidextrous Nature of Business Managing Create the Current Business Future Business Selectively Abandon the Past Focus: Doing things Focus: Doing things Better Different 10
  11. 11. The Ambidextrous Apple Managing Finding the FutureCurrent Business 11
  12. 12. Preservation and Evolution Phase 3 Maturity Phase 2 Growth Phase 4 Improving Reinventing the Future Growth Phase1 Innovation Time 12
  13. 13. Channels for Growth Growth is #1 agenda for almost every CEO Primary Vehicle for Growth is through Organic Growth or Mergers & Acquisitions (M&A) Several Studies have shown that most M&A fail (One study showed that over 62% of the time M&A destroy shareholders wealth) However delivering Organic Growth consistently and repeatedly has been challenging due to poor success rates with implementation of strategy 13
  14. 14. Forbes List of 100 Largest Companies • To celebrate the 70th anniversary, in 1987 Forbes published its “Forbes 100” list of largest American companies and then compared it to its original list from 1917. • However, only 18 of the original companies managed to stay in “Top 100” list through 1987. Sixty one of them no longer existed and twenty one fell off the “Top 100” list. • The overall long-term return to the shareholders from this is group of 18 companies was 20% less than that of the overall market. • Only two companies, General Electric and Kodak performed better than the overall market. Since then Kodak’s performance deteriorated significantly. 14
  15. 15. Can We Beat The Odds? Current Business Future Business • 80% of all venture capital investments fail • Over 90% of companies fail to sustain above-average shareholder return for longer term • 75% of all new products that established companies put into their markets fail 15 Sustaining Growth is Difficult in the Long Term
  16. 16. Classical Management Control System Strategy & Focus on Financial Vision Measures Personal Review & Incentives Budget Reorient Planning & Capital Allocation Designed Around Short-term Control Oriented Financial Framework
  17. 17. The Alignment Paradox Only 5% of the work force understands the strategy 85% of executive Only 25% of 9 of 10 teams spend less managers have Companies Fail than one hour per incentives linked to to Execute month discussing strategy Strategy strategy 60% of organizations don’t link budgets to strategy You Can’t Manage Strategy With a System Designed for Operational Control Source: Fortune Magazine Survey
  18. 18. Strategy Implementation – Need of a Framework Vision Long Term Goals Balanced Framework: End Strategy Everyone’s Results and Drivers of Job Performance
  19. 19. Benefits of BSC – Evidence? • Survey conducted with the US Institute of Management Accountants’ members in 2006, the results of which included: – 88% of members from organizations regularly using the Balanced Scorecard reported improvements in performance; and – 66% stated that they also achieved increase in profits
  20. 20. The Balanced Scorecard Strategy Implementation Using Measurement To Communicate, Focus, Review And Align
  21. 21. Background Conceived In 1991 Robert Kaplan: Harvard Professor David Norton: Management Consultant Several insights into the process based on work done
  22. 22. Balanced Scorecard: Evolved Framework The Vision & Strategy The Vision & Strategy Financial To satisfy our shareholders, Effect what financial objectives must we accomplish? Customer To achieve our financial goals, Results what customer needs must we satisfy? Internal Business Process Cause To satisfy our customers, in which internal business processes must we excel? Innovation, Learning & Growth Actions To achieve and maintain a competitive position, how must the organization learn and improve?
  23. 23. The Strategy Map
  24. 24. Constructing The Scorecard
  25. 25. BSC Addresses Barriers to Strategy Implementation Translating Vision & Strategy Translation Through Objectives and measures Communicating & Linking Feedback & Learning Aligning Organization, Review Strategy In Departmental and Balanced The Light Of Recent Individual Scorecard Performance Objectives Planning & Resource Allocation Driven By Strategy Business Planning A Management System Built On Strategy: Goal is to enable effective corporate management
  26. 26. Benefits of Implementing BSC • It makes strategy operational • Translates strategy into performance measures and targets • Brings to focus drivers of future performance – Focused measurement for “success” • Umbrella/filter for a variety of diverse corporate programs • Aligns employees to strategy execution
  27. 27. Keeping Up With Change Sustaining mechanisms to build on success Benefit of Balanced Change Scorecard Failure of changeOngoing business management systems to exploit benefits
  28. 28. The Four Perspectives of BSC
  29. 29. The Financial Perspective “Results”
  30. 30. The Financial Perspective Return On Investment Revenue Strategy Productivity Strategy Asset Utilization Cost Strategy Strategy Consideration of risk management strategies is critical
  31. 31. Financial Objectives – Examples • Increase product portfolio • Establishing new services • Reduce cost • Improve asset utilization • Increase revenue (organic/ inorganic) • Improve productivity
  32. 32. The Customer Perspective
  33. 33. The Customer Perspective Market Share Customer Customer Customer Acquisition Profitability Retention Customer Satisfaction
  34. 34. Enhancing Customer Value Functionality Quality Customer Product / Service Attributes Value Price Schedule Image Relationship Basic Differentiators
  35. 35. Customer Objectives – Examples • Increase geographical reach • Increase customer base • Enhance brand image • Build end to end solutions • Enhance client relationships • Providing value-added services
  36. 36. The Internal Process Perspective
  37. 37. Internal Process Perspective Innovation Customer Supply Chain Regulatory Management Management Management Management Product Customer Operational Good Service Intimacy Excellence Neighbor Leadership % New Product Sales Target Segment Share Quality Regulatory New Product Intro. Vs Competitors’ Contact Cost Legal / Ethical Management Process Capability Schedule Community Complaints Time to Market
  38. 38. Internal Process Objectives – Examples • Improve supply chain performance • Reduce waste • Improve value creation • Improve regulatory compliance • Improve technology absorption • Improve NPD performance (time to market/ success rate)
  39. 39. The Learning & Growth Perspective
  40. 40. Learning & Growth Perspective Employee capability Information systems Technology capability Infrastructure Motivation, empowerment and alignment
  41. 41. Learning & Growth Objectives – Examples • Enhance employee morale • Develop leadership • Improve knowledge management • Build key/strategic competencies • Improve communication • Build required infrastructure • Institutionalize strategic thinking
  42. 42. Building the Balanced Scorecard: Steps
  43. 43. Building the BSC Translating the Mission and Vision into Desired Outcomes Mission Why we exist Vision What we want to be Core Values What we believe in Strategy Our game plan Balanced Scorecard Implementation and focus Strategic Initiatives What we need to do Personal Objectives What I need to do Strategic Outcomes Strategic Delighted Effective Motivated and Shareholders Customers Processes Prepared Workforce
  44. 44. Step 1: LT Goals – Definition • Long Term Goals (LT Goals) – Statements (quantitative/ qualitative) that give tangible shape to aspirations based on the Vision • 3 to 5 year time horizon • Directional • Will not include aspects of actions/ how to – Example • Achieve revenues of 1000 cr • Be a global player/ number one in market – Not a LT Goal • Increasing sales • Improve market share • Enter a new market
  45. 45. Step 2: Strategic Objectives – Definition • Strategic Objectives – Provide a direction for meeting the Long-Term goals – They are high level hows which can hold in there umbrella a series of strategic initiatives • Example – Expanding geographical reach – Entering into strategic alliances This assumes that – Deliver first time on time the strategy of the • Not Objectives organization is articulated based – Open an office on which the objectives can be – Appoint an agent defined. – Change a vendor
  46. 46. Step 3: Strategic Metrics – Definition • Finalization of Strategic Metrics and Targets – For each strategic objective • The targets associated with each metric will need to be finalized based on baseline performance which will need to be ascertained
  47. 47. Types Of Strategic Measures Strategic Objective Outcome Measures Performance Drivers Common Measures Strategy Dependent Across The Industry Unique Measures Lagging Measures Leading Measures To Gauge Outcomes Of To Understand processes Strategy And Activities
  48. 48. Selecting Measures • Caution • Do not select what “can” be measured: select what “should” be measured • Counter balance the measures to prevent strategy distortion • Restrict the number of measures to the level of control / action Lag / Lead Existing / Strategic Measure Degree Of Cultural Change New Impact Cycle Diff Shift Quantum
  49. 49. Step 4: Strategic Initiatives – Definition • Strategic Initiatives – Specific actions which help realize the strategic objective and achieve associated target – Operationalize objectives on a daily work / project level basis – One or more initiatives will be typically needed for achieving an objective • Example – Objective is: Improve project management – Initiatives could be: • Create project planning templates • Establish method for tracking risks • Establish method for interdependency management
  50. 50. LT Goals – Objective – Initiatives Quality Organization Sales – 1.5 bn USD LT Goals & International Standards on QHSE Customer Deliver first time on Process Increase win-rate Objective Objective time • Hiring people from customer/competition • Set up interdependency • Influence design of tender Initiatives management document so that it favours USP • Reduce execution defects in of Organization process
  51. 51. Prioritizing Strategic Initiatives Development Quality Projects, Projects, Activities, etc. –1– Activities, etc. Corporate Identify Marketing Projects, Projects, Activities, etc. Initiatives Activities, etc. Financial Perspective –2– Screen Customer Perspective Initiatives Internal Perspective Organization Learning Output: Short List of Strategically Aligned Initiatives
  52. 52. Managing Dependencies
  53. 53. XYZ Strategy Map LT Goals Financial Initiative 1 Objective 1 Objective 2 Objective 3 Initiative 2 Perspective Customer Objective 1 Objective 2 Objective 3 Objective 4ProcessInternal Objective 1 Objective 2& GrowthLearning Objective 1 Objective 2 Objective 3
  54. 54. XYZ Group Strategy MapFinancial Enhance Long-term Shareholder Value Double Sales In 4 Yrs No. 1, 2 or 3 Market Player Double Profits In 3 yrs Customer loyalty / value New Customers / Markets Brand EquityCustomer Business Review Process Finance Review ProcessBusiness Reputation Management Business ExcellenceProcessesLearning & Growth Leadership Talent Retention / Company / Employee Development Mobilization Alignment Strategic Thinking Code Of Conduct Internal Communication
  55. 55. BSC – Example Objective Initiative Owne Lead Target Lag Metric Target r& Metric TeamIndustry wise Identifying and a) % sales a) 15% a) No of new a) 5 /focused selling developing increase / b) 25 % applications industry industrial specialist industry hit rate > developed / / annum (Pilot in one area- b) No of 1L Industry b) No b) 100 Power/ Defense ) application business of applications % where s shown for applicabl transplante transplant/ e d/ Industry industryEnhance product Identification and Business > 100 L / a) No of a) 10 /portfolio through finalization of generated annum agencies monthnew agencies agencies (> 100L through interacted / b) 2/ potential business ) new month b) No of annum agency agencies identified and launchedEnhance business Formation of JVs % increase Rs 50 L / No of JVs / 1/Annuby JV workshops in turnover JV / Division / Year m from JVs annum
  56. 56. Cascading the BSC
  57. 57. Align All Levels Of The Organization Step 2. Step 1. Each SBU develops A Corporate Scorecard Corporate / Group a long-range plan defines overall strategic and BSC consistent with the priorities and context corporate strategic agenda SBU SBU SBU C A B Support Functions Step 4. Step 3. Departments, teams Each Support Unit and individuals develop develops a scorecard to Teams and scorecards consistent support the internal with their organization’s customers Individuals strategy
  58. 58. Org Strategy Map Final Draft Target 2012 Target 2012 •XY bn USD Turnover •Major Player in rrr regions •12% + PBIT /Year •International standard on QHSE •ROCE – 40% •New products - mnp Financial F1 - Increase revenue F2 - Cost (international & competitiveness domestic) Perspective Customer C1 - Focus on new products, services and regionsProcessInternal P3 - Reduce cost and time over-run& GrowthLearning Indicate cause and effect linkage
  59. 59. Sample SBU - Strategy Map: Target 2012Cascaded from Corporate •ZZ Bn USD Turnover •8% + PBIT /Year •Best regional service provider (MENA) Financial F1 - Establish the F3 – Cost presence in the segment Competitiveness (grow revenue) Perspective CustomerProcessInternal P3 - Improve adherence to internal project milestones& GrowthLearning
  60. 60. Example of Strategic Initiatives for Procurement 1. Identify and source from low cost countries (including India) P F1 Enable Cost for competitive sourcing, and establish and implement the Competitiveness for process Organization 2. Create the infrastructure to make skids in-house 3. Develop alternate vendors in single source situation
  61. 61. Performance Appraisal Aligned to BSC Performance Planning for Development Appraisal Planning Strategic Other SkillStrategic KRAs Routine KRAs Competencies Gaps BSC Routine Job based on JD
  62. 62. BSC Tracking
  63. 63. BSC – Performance Tracking Corporate BSC Objectives Initiatives SBU/ JV/ BE BSC SBU/ JV/ BE BSC Objectives Objectives Initiatives Initiatives
  64. 64. Validation of Assumptions • Collect information on actual status on assumptions made at the time of defining each Objective/ initiative • Ratify assumption – Assumption incorrect • Possibility of initiative failure
  65. 65. BSC – Performance Tracking • Review mechanism – Integrated with business review – Coordinated by BSC coordinators – Use of defined templates and presentations – Compilation prior to review meet • Outcomes – Mid-course corrections

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