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Balanced Scorecard : Brief Understanding
- 1. Balanced Scorecard Why do we need it, and How it helps us to manage performance Dexa Overseas Business Unit Meeting, 6 December 2010 Satrio Pramudono CRM - AAM
- 2. Pre Work • Write down your top 5 problems in managing performance of your team / business. • How do you communicate the Company Vision to the team? • What do you usually discuss in the periodical meeting?
- 3. The Picture looks Good isn’t it?
- 4. 1) Paradigm
- 5. • "The digital watch didn't come from established watch companies, • the calculator didn't come from slide rule or adding machine companies, • video games didn't come from board-game manufacturers Parker Bros or Mattel, • the ballpoint pen didn't come from fountain pen manufacturers, and • Google didn't come from the Yellow Pages" Bob Seidensticker, Futurehype
- 6. Side notes on BSC 1. BSC should be a Thought Process and a Tool not a Religion (e.g. Excel™ vs. Budgeting) 2. BSC ≠ Appraisal 3. New BSC implementations should start linking with Budgeting right from the beginning 4. The ‘proper’ BSC approach should rightly fully be heavily customized to the organization 5. ‘Strategic Planning’ trainings should be provided before ‘BSC’ trainings 6. Clear definitions for Accountability vs. Impact vs. Influence vs. Assistance
- 7. The fundamental questions Financial perspective Customer perspective Process perspective Learning perspective “To achieve our vision, how will we sustain our ability to change and improve?” “To satisfy our shareholders and customers, what business processes must we excel at?” “To succeed financially, how should we appear to our shareholders?” “To achieve our vision, how should we appear to our customers?”
- 8. To achieve our vision, how will we sustain our ability to change and improve?
- 9. Balanced Scorecard is a Management System Not just a measurement system
- 10. You do not just measure your heart beat
- 11. You use the heart rate monitor to manage your exercise
- 12. In order to Last longer Feel good Improve fitness Control weight …
- 13. … and to improve learning Rule #1: Exercise boosts brain power Dr. John Medina Brain Rules
- 14. Mission statement • tells you what the company is now
- 15. Vision statement • outlines what a company wants to be
- 16. Strategy • is a long term plan of action designed to achieve a particular goal, most often "winning"
- 17. A map is handy to communicate (=Strategy map) how you plan to get (=Strategy) from where you are (=Mission) to where you want to be (=Vision)
- 19. And should be used in management meetings
- 20. 100% Management commitment to build and use a management system
- 21. 2) Step-by-Step
- 23. UNDERSTAND THE TERMS A desired future outcome of an organization The reason of organization’s existence, what we do today to achieve vision Standard of belief and behaviors that guide people’s actions : : :VALUES MISSION VISION
- 24. It is a deliberate process of choosing a set of activities differently from competitors, in order to deliver a unique mix of value :STRATEGY STRATEGY MAP An interrelationship among strategy objectives in cause-effect format that reflects the “journey” of an organization’s strategy : STRATEGIC OBJECTIVES A concise statement describing the major activities that an organization must do well in order to execute its strategy. A cause-effect mapping of SO is termed as strategy map. : INITIATIVES/ ACTION PLAN Specific projects that need to be implemented in order to support the achievement of strategic objectives. A project normally has a beginning and ending points. : UNDERSTAND THE TERMS (cont’d)
- 25. Assessment Step One of the scorecard building process starts with an assessment of the organization’s Mission and Vision, challenges (pains), enablers, and values. Step One also includes preparing a change management plan for the organization, and conducting a focused communications workshop to identify key messages, media outlets, timing, and messengers. 1. ASSESSMENT
- 26. Developing Strategy External Analysis Threats and opportunities in environment Key success factors Creation of strategy by top management Social responsibility Top management values Evaluation and choice of strategy Implementation of strategy Internal Analysis Strengths and weaknesses of organization Distinctive competences Macro Industry Vision Mission Stakeholder Expectation 2. STRATEGY
- 27. Intro: Market Discipline "Exactly what I need" Customized products Personalized communications "They're very responsive" Preferential service and flexibility Recommends what I need "I'm very loyal to them" Helps us to be a success "They are the most innovative" "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service Product Leadership Operational Excellence Customer Intimacy 2. STRATEGY
- 28. Operational Excellence • Competitive price • Error free, reliable • Fast (on demand) • Simple • Responsive • Consistent information for all • Transactional • 'Once and Done' Customer Intimacy • Management by Fact • Easy to do business with • Have it your way (customization) • Market segments of one • Proactive, flexible • Relationship and consultative selling • Cross selling Strategy: Value Disciplines Product Leadership • New, state of the art products or services • Risk takers • Meet volatile customer needs • Fast concept-to- counter • Never satisfied - obsolete own and competitors' products • Learning organization 2. STRATEGY
- 29. Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 Product Leadership (best product) Customer Intimacy (best total solution) Strategy: Disciplines HP well-balanced portfolio, mass customization Acer super lean cost structure, aggressive pricing Apple powerful products, premium pricing, limited range Still Doing well in 2009 2. STRATEGY
- 30. Financial Perspective “To Succeed financially, how should we appear to our shareholders?” Customer Perspective “To achieve our vision, how should we appear to our customers?” Internal Business Process Perspective “To satisfy our shareholders, and customers, what business processes must we excel at?” Learning & Growth Perspective “To achieve our vision, how will we sustain our ability to change and improve?” VISION & STRATEGY Source: Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System” Yesterday Today Today Future BALANCED SCORECARD: FOUR PERSPECTIVES 3. OBJECTIVES
- 31. CAUSE & EFFECT RELATIONSHIP: FAST FOOD RESTAURANT Profitability Customer Loyalty Quality Food Fast Service Employee Skills & Attitude Financial Customer Internal Business Process Learning & Growth 4. STRATEGY MAP
- 33. THE FINANCIAL PERSPECTIVE PROVIDES THE TANGIBLE DEFINITION OF VALUE Productivity Strategy Improve Cost Structure Increase Asset Utilization Short Term Financial Perspective Growth Strategy Expand Revenue Opportunities Enhance Customer Value Long Term Long-Term Shareholder Value • Reduce cash expenses • Eliminate defects; improve yields • Manage capacity from existing assets • Make incremental investments to eliminate bottlenecks • New sources of revenue (new products, markets, partners) • Improve profitability of existing customers 4. STRATEGY MAP
- 34. MEASURING STRATEGIC FINANCIAL THEMES Strategic Themes Revenue Growth & Mix Cost Reduction/ Productivity Improvement Asset Utilization Sales growth rate by segment Percentage revenue from new product, services, and customers Revenue/Employee Investment (percentage of Sales) R&D (percentage of sales) Share of targeted customers and accounts Cross-selling Percentage revenues from new applications Customer and product line profitability Cost versus competitors’ Cost reduction rates Indirect expenses (percentage of sales) Working capital ratios (cash- to-cash cycle) ROCE by key asset categories asset utilization rates Customer and product line profitability Percentage unprofitable customers Unit costs (per unit of output, per transaction) Payback Throughput BusinessUnitStrategy Growth 4. STRATEGY MAP
- 35. UNDERSTANDING CUSTOMER PERSPECTIVE 4. STRATEGY MAP
- 36. THE CUSTOMER PERSPECTIVE - CORE MEASURES Market Share Customer Satisfaction Customer Retention Customer Acquisition Customer Profitability Market Share Customer Acquisition Customer Retention Customer Satisfaction Customer Profitability Reflects the proportion of business in a given market (in terms of number of customers, dollars spent, or unit volume sold) that a business unit sells. Measures, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business. Tracks, in absolute or relative terms, the rate at which a business unit retains or maintains ongoing relationships with its customers. Assesses the satisfaction level of customers along specific performance criteria within the value proposition. Measures the net profit of a customer, or a segment, after allowing for the unique expenses required to support that customer. 4. STRATEGY MAP
- 37. BUILDING THE STRATEGY MAP: STRATEGY PROPOSITION Price Quality Time Selection Brand Operational Excellence Strategy Product/Service Attributes Relationship Image Quality and selection in key categories with unbeatable prices “Smart Shopper” Customer Intimacy Strategy Service Relationships Brand Product/Service Attributes Relationship Image “Trusted Shopper” Personal service tailored to produce results for customer and build long-term relationships” Adapted from: “The Strategy Focused Organization” Robert S. Kaplan, David P. Norton 4. STRATEGY MAP
- 38. Product Leadership Strategy Time Functionality Brand Product/Service Attributes Relationship Image “The Best Product” Unique products and services that “push the envelope”” Differentiator General Requirement Adapted from: “The Strategy Focused Organization” Robert S. Kaplan, David P. Norton BUILDING THE STRATEGY MAP: STRATEGY PROPOSITION 4. STRATEGY MAP
- 39. INTERNAL BUSINESS PROCESS PERSPECTIVE 4. STRATEGY MAP
- 40. Executive Management THE ACCOUNTABILITY DILEMMA P R O C E S S Func Mgmt Func Mgmt Func Mgmt Func Mgmt Order Generation Order Fulfillment Developing New Products/Services On-going Customer Support C U S T O M E R 4. STRATEGY MAP
- 41. IDENTIFYING STRATEGIC INTERNAL BUSINESS PROCESSES Innovation Processes Customer Management Processes Operational Processes • Invention • Product • Development • Exploitation (speed to market) • Supply Chain Management • Operations Efficiency: Cost, Quality, Cycle Time • Capacity management • Solution Development • Customer Service • Relationship management • Advisory Services Strategy Product Leadership Customer Intimacy Operational Excellence Strategic Practices Meet Basic Requirements Adapted from: “The Strategy Focused Organization” Robert S. Kaplan, David P. Norton 4. STRATEGY MAP
- 42. LEARNING AND GROWTH PERSPERCTIVE (FUTURE) 4. STRATEGY MAP
- 43. AT THE END OF THE DAY, YOU BET ON PEOPLE, NOT ON STRATEGIES. STRATEGIES ARE INTELLECTUALLY SIMPLE, THEIR EXECUTION IS NOT. YOUR STRATEGIES WILL NOT MAKE YOU A BETTER COMPANY.” Allied Signal CEO: Lawrence Bossidy 4. STRATEGY MAP
- 44. LEARNING AND GROWTH PERSPECTIVE • Reflect strategy in learning and growth • Consists of three principal categories: Human Capital Information Capital Organization Capital • “People aspect” in Balanced Scorecard 4. STRATEGY MAP
- 45. LEARNING & GROWTH MEASUREMENT FRAMEWORK Results Employee Satisfaction Employee Productivity Employee Retention Technology Infrastructure Climate for Action Staff Competencies Core Measurements Enablers 4. STRATEGY MAP
- 46. 3) Examples
- 47. Before we start… Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies? • already know our priorities, aware of all strategy options available • creating something UNIQUE, INNOVATIVE and DISRUPTIVE e.g. Air Asia • conducting a business Turnaround e.g. MAS 5. MEASURES
- 48. Before we start… Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies? • want to find out possible strategies, • determine our priorities first thru selection of important KPIs; • growing through ‘normal’ business, not a Turnaround. 5. MEASURES
- 49. Example: Selection of KPIs for BSC • Customer satisfaction • Customer loyalty • Market share • Customer complaints • Complaints resolved on first contact • Return rates • Response time per customer request • Price relative to competition • Total cost to customer • Average duration of customer relationship • Customers lost • Customer retention • Customer acquisition rates • Percentage of revenue form new customers • Number of customers • Annual sales per turnover • Win rate (sales closed/sales contact) • Customer visits to the company • Hours spent with customers • Marketing cost as a percentage of sales • Number of ads placed • Number of proposals made • Brand recognition • Response rate • Number of trade shows attended • Sales volume • Share of target customer spending • Sales per channel • Average customer size • Customers per employee • Customer service expense per customer • Customer profitability • Frequency (number of sales transactions) 5. MEASURES
- 50. Wrong KPIs “What is the moral of the story?” 5. MEASURES
- 51. BANK XYZ STRATEGY MAP The Revenue Growth Strategy “Improve stability by broadening the sources of revenue from current customers.” Financial Perspective Customer Perspective Internal Perspective Learning & Growth Perspective Improve ROE Broaden Revenue Mix Improve Operating Efficiency Increase Customer Confidence in Our Financial Advice Increase Customer Satisfaction Through Superior Execution Understand Customer Segements Develop New Product Cross-Sell the Product Line Shift to Appropriate Channel Minimize Problems Provide Rapid Response Increase Employee Productivity Access to Strategic Information Develop Strategic Skills Align Personal Goals The Productivity Strategy “Improve operating efficiency by shifting customers to more cost- effective channels of distribution.” 5. MEASURES
- 52. Objectives Measures Weight Target Initiatives Financial F1 - Improve ROE F2 - Broaden Revenue Mix F3 - Improve Operating Efficiency Customer C1 - Increase Customer Confidence C2 - Increase Customer Satisfaction Through Superior Execution Internal I1 - Understand Customer Segment I2 - Develop New Products I3 - Cross-sell the Product Line I4 - Shift to Appropriate Channel I5- Minimize Problems I6 - Provide Rapid Response Learning & Growth L1 - Develop Strategic Skills L2 - Access to MIS L3 - Align Personal Goals F1a. ROE F2a. Revenue Growth F2b. Revenue Mix F3a. Cost per account C1. Depth of Relationship C2a. Customer Retention C2b. Customer Satisfaction Survey I1. Mind-share survey I2a. New Product Revenue I2b. Product Development Cycle I3. No products per customer I4. % new channels I5. Service Error Rate I6. Request Fulfillment Time L1. Strategic Skills Training Days L2. MIS Availability Ratio L3. Personal Goal Alignment (%) Completion time Budget BANK XYZ BALANCED SCORECARD 5. MEASURES
- 53. Strategic Objectives Strategic Initiatives PIC Completion Date Budget Week 1 2 3 4 5 6 7 8 9 … 52 F2. Perluasjenisproduk yangdijual High SalesPerformance Campaign to all branches National Sales Director Jan 30, 2003 Rp. 150,000,000 C2. Tingkatkankepuasan pelanggan atas pelayanan CustomerLoyalty Awards(Network Director) BBD 2003 Rp. 750,000,000 Best Branchin Retention Incentives BBD 2003 Rp. 1,500,000,000 Objectives Measures PIC Period* Base line & Target Unit of Measure Strategic Initiative (PIC) 2001 2002 2003 2004 F1. Tingkatkan ROE F1. ROE CFO Q 8 10 12 14 % F2. Perluas jenis produk yang dijual F2a. Tingkat pertumbuhan pendapatan Sales & Mktg Dir M 7.8 15 20 20 % High-Sales-Performance campaign to all branches (National Sales Coordinator) (to be completed) (to be completed) C2. Tingkatkan kepuasan pelanggan atas pelayanan C2a. Retensi pelanggan Branch Banking Director (BBD) M 65 85 90 95 % Customer Loyalty Awards (BBD) Best Branch in Retention incentives (BBD) (to be completed for the rest of the scorecard) FROM STRATEGY TO MEASURES AND ACTIONS 38 Strategi Pertumbuhan Penjualan “Tingkatkan konsistensi penghasilan dengan perluas produk yang dijual.” Strategi Produktivitas “Kurangi biaya dengan meningkatkan efisiensi pelayanan.” Financial Perspective Customer Perspective Internal Perspective Learning & Growth Perspective Tingkatkan ROE Perluas Jenis Produk yang Dijual Tingkatkan Efisiensi Operasi Tingkatkan Kepercayaan Pelanggan Tingkatkan Kepuasan Pelanggan atas Pelayanan Tingkatkan Kualitas Pemasaran Bentuk Produk Baru Cross-Sell Jenis Produk Bentuk Saluran Pelayanan Baru Kurangi Masalah Tingkatkan Waktu Tanggapan Tingkatkan Produktivitas Karyawan Akses ke MIS Kembangkan Ketrampilan Strategis Seimbangkan SistemPengukuran Kinerja PETA STRATEGI BSC INSTITUSI KEUANGAN: BANK XYZ 5. MEASURES
- 54. What is the Strategic Objective? Measure Results? Measure the Results Measure the Next Best Indicator Y Yes (exact) No (proxy) Measure Activity? N Measure the Activities/Inputs that Produce the Results Quantity Quality Revenue Cost Time Y Measure Initiatives? Measure the Progress of Initiatives N Y Will the Agreed Measures Encourage the Right Behaviours? The Process for KPI Selection Acknowledges that KPIs Can Be Developed at Three Levels Furthest Fit Closest Fit 5. MEASURES
- 55. What is the Strategic Obj? Measure Results? Y Exact Proxy Measure Process? N Y Measure Initiatives N Y Furthest Fit Closest Fit Improve Customer Satisfaction Customer Satisfaction Index No. of Complains Number of customer events Number of Satisfaction Review Meeting Customer Satisfaction Monitoring Systems Implementation Project KPIs (Milestones) 55 5. MEASURES
- 56. GUIDELINES for TARGET SETTING • Be SMART-C: – Specific – Measurable – AGREEABLE (between you and superior/team) – REALISTIC (achievable, yet challenging) – Time-bound – CONTINUOUSLY IMPROVE • Benchmark against: Last year, competitors, or best in field • Differentiate Target and Alarm – Target as agreed in your budget (Green threshold) – Alarm (Red threshold), normally 80% of Target (and 120% in case of stabilization) 5. MEASURES
- 57. Process: Operations Management Theme: Ground Turnaround - Profitability - Market value - 30% CAGR - Grow revenues - Seat revenue - 20% CAGR - Fewer planes - Plane lease cost - 5% CAGR - Attract and retain - # repeat customers - 70% - Implement CRM - $XXX more customers - # customers - Increase system 12% annually - Quality - $XXX - Flight is on time - FAA on-time arrival - #1 management rating - Customer loyalty - $XXX - Lowest price - Customer ranking - #1 program - Fast ground - On-ground time - 30 minutes - Cycle-time - $XXX turnaround optimization - On-time departure - 90% - Develop the - Strategic job - Yr. 1-70% - Ground crew - $XXX necessary skills readiness Yr. 2-90% training Yr. 3-100% - Develop the support - Info system - 100% - Crew scheduling - $XXX system availability system rollout - Ground crew aligned - Strategic - 100% - Communications - $XXX with strategy awareness program - % ground crew - 100% - Employee Stock - $XXX stockholders Ownership Plan Initiative Budget Action PlanStrategy Map Objectives Balanced Scorecard Measurement Target Profit and RONA Grow revenues Fewer planes Attract and retain more customers On-time service Lowest prices Fast ground turnaround Strategic job Ramp agent Strategic systems Crew scheduling Ground crew alignment Source: Strategy Maps, by Rober S. Kaplan & David Norton 5. INITIATIVES
- 58. Problems, problems and more problems… 6. AUTOMATION
- 59. 6. AUTOMATION 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 implementing the Balanced Scorecard system, helps transform disparate corporate data into information and knowledge, and helps communicate performance information. In short, automation helps people make better decisions because it offers quick access to actual performance data.
- 60. B2B/B2G BSC Matching Revenue Base Retention Share Gain Positioning Adjacent Market New Business Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset Operational Excellence Product Leadership Customer Intimacy Investment Strategy Competencies Information Systems Motivation, empowerment, alignment Satisfaction Customer/Client/ Government BSC Revenue Base Retention Share Gain Positioning Adjacent Market New Business Financial Learning & Growth Internal Process Customers Cost Margin Cash Flow Asset Operational Excellence Product Leadership Customer Intimacy Investment Strategy Competencies Information Systems Motivation, empowerment, alignment Satisfaction Your BSC 1. Draw your ‘customer’s’ BSC 2. Match their CP/IP with your CP 3. Identify IPs that support/conflict 7. CASCADE
- 61. Cascading Customer Perspective Goals Strategies Targets Direct Indirect Base Retention Mkt Share Gain Mkt New Business BD 7. CASCADE
- 62. E3 – Department BSC Customer Perspective – Marketing Department Goals Strategies Targets CAPEX OPEX Base Retention Share Gain Budgeting 7. CASCADE
- 63. Individual MBO Employee A – Marketing Executive KRAs Action Plans Targets Weight (%) Score Class A Customer Retention Class B Customer Retention Competition Crossovers Re: Base Retention 7. CASCADE
- 64. An Evaluation of the completed scorecard is done. 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?’ and ‘Are we budgeting our money strategically?’. 9. EVALUATION
- 65. This is not The End BSC cycle runs continuously as the business dynamically improved
- 66. Step-by-Step Summary No. Activities Remarks 1 Assessment Vision, Mission, Values 2 Strategy Operational Excellence, Customer Intimacy, Product Leadership 3 Objective Objectives for each F, C, I, L perspectives 4 Strategy Map Draw a cause-effect map 5 Performance Measure SMART KPI 6 Initiatives Activities / Process / Project to support Objectives 7 Automation Tools / System / Monitoring 8 Cascade Translate company vision to individual performance 9 Evaluation Use BSC in the regular meeting for improvement plan
- 67. Post Test • How do you define “Balanced Scorecard”? • How do you communicate Company Vision to the team? • How will BSC help you improve organization performance?
- 68. End of Workshop Thank You