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Excellence in Financial Management The Balanced Scorecard
Basic Concepts  ,[object Object],[object Object],[object Object],[object Object]
Basic Concepts ,[object Object],[object Object],[object Object],[object Object]
So why do strategic plans fail? According to the Balanced Scorecard Collaborative, there are four barriers to strategic implementation   ,[object Object],[object Object],[object Object],[object Object]
Balanced Scorecard Collaborative ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
“   Having Trouble with Your Strategy? Then Map It ”  by Robert S. Kaplan and David P. Norton –  Harvard Business Review ,[object Object]
Terminology ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Overall Process ,[object Object],[object Object]
Phase I: The Strategic Foundation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Phase II: Three Critical Components  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Phase III: Deployment  ,[object Object],[object Object],[object Object],[object Object]
Phase I: The Strategic Foundation  ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
The Strategy Focused Organization  by Robert S. Kaplan & David P. Norton ,[object Object]
Step 1: Strategic Alignment ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 1: Strategic objectives expressed in relation to action and activities ,[object Object],[object Object],[object Object],Three examples of strategic objectives
[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Effective communication is the Achilles Heel in this entire process. Therefore, extensive and continuous communication is vital to getting the organization aligned around its strategy. ,[object Object],[object Object],[object Object]
The following exhibit illustrates how shareholder value flows up across the four perspectives of the Balanced Scorecard: Support Systems & Personnel Learning Customer Marketing & Service Programs Processes More Customers  Customer Revenue Growth Financial Shareholder Value
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Step 2: Strategic Areas ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The following exhibit illustrates how a strategic goal leads us into a strategic area: ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Step 3: Strategic Grids ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 5: Flowing strategic objectives within the Financial Perspective  High Utilization of Assets  Lower Costs  Increase Customer Profitability  New Sources of Revenues    Operating Improvements Grow Revenues   Shareholder Value
[object Object],[object Object]
Next, we move down to the Customer Perspective ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 6: Linking customer objectives to financial objectives    Leader in Pricing    Acquire More Customers Customer    Grow Revenues Shareholder Value Financial
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Referring back to the Customer Perspective, we could choose between three strategies   ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
Exhibit 7: Linking objectives down to Internal Processes Reduce Non Core Activities Knowledge Based System Cost Reduction Program   Improve Operational Efficiency Internal Processes   Become the Price Leader   Acquire More Customers Customer   Grow Revenues   Shareholder Value Financial
This brings us to the final perspective, Learning and Growth. ,[object Object],[object Object],[object Object],[object Object],[object Object]
If we go back to our strategic grid ( Exhibit 7 ), we must decide on what strategic objectives are required for meeting the three objectives defined in the Internal Processes Perspective. Therefore, we can extend our grid as follows: Re-align organization with core competencies Database network on operational performance Training - Best practices in cost management Learning and Growth Reduce Non Core Activities Knowledge Based System Cost Reduction Program   Improve Operational Efficiency Internal Processes   Become the Price Leader   Acquire More Customers Customer   Grow Revenues   Shareholder Value Financial
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Exhibit 9: Summarize Phase I Link strategic objectives into grids across four perspectives 5 th   Limit the strategic areas to no more than five 4 th Align the organization around the strategy 3 rd Communicate the strategy 2 nd Establish a clear strategy (objectives & targets) 1 st Five Major Milestones – Phase I
Phase II: Three Critical Components   ,[object Object],[object Object]
Step 4: Measurements ,[object Object],[object Object],[object Object],[object Object],[object Object]
Measurement allows us to quantify our strategic objectives, asking the question: How well are we doing? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 10: Measurement Template ___ IT Support  ___ Finance Support ___ Other Support Required => ___  Available  ___ Not Available  ___ Requires Change Availability => Sources => Assumptions => Frequency of Measurement => Unit of Measurement => Define Type / Formula => Describe the Measurement => Strategic Objective =>
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 11: Cause Effect Relationship between Leading and Lagging Indicators   Reputation Image Price Time Quality   Leading Indicators – Value Attributes to Customers : Customer Satisfaction  Customer Retention  Market Share   Lagging Indicators are desired results: Customer Perspective
The Internal Process Perspective can be broken down into three result categories:   ,[object Object],[object Object],[object Object]
The Learning and Growth Perspective will emphasize three result categories: Employees, Systems, and Organization   ,[object Object],[object Object],[object Object]
Mesurements ,[object Object],[object Object],[object Object],[object Object],[object Object]
Example of indexing a measurement: ,[object Object],[object Object],[object Object],[object Object],[object Object]
Example of indexing a measurement: ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
Step 5: Targets ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 12: Setting targets based on strategic goals   $ 224,000 $ 195,000 $ 172,000 $ 160,000 Year 2004 Target Year 2003 Target Year 2002 Target Goal: We will grow sales by 40% over the next 3 years Current Year Sales Revenues
[object Object],[object Object],[object Object]
Exhibit 13: Adding Measurements and Targets to the Balanced Scorecard   68% 77% 4.8 65% 75% 4.5 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Learning & Growth 14m 69% 64% 80% 15m 68% 66% 77% ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Internal Processes 75% 88% 40% 75% 85% 35% ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Customer 13% 8% +11%  12% 7% +11% ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Financial Targets 2002  2003 Measurements Objectives Perspectives
Step 6: Programs ,[object Object],[object Object],[object Object],[object Object],[object Object]
Programs usually have certain characteristics: ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 14: Compare Programs with Strategic Objectives for Strategic Impact
[object Object],[object Object],[object Object],[object Object]
Exhibit 15: Supplement the Balanced Scorecard with Programs
Phase III: Deployment  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Best Practices ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 16: The ultimate payoff – going from strategic planning to strategic thinking ,[object Object],[object Object],[object Object],[object Object],A natural and intuitive process of seeing through the competition, anticipating future trends, and comprehending future changes required for the organization. A formal structured process of researching and analyzing the competition in an effort to identify strengths, weaknesses, opportunities, and threats. Strategic Planning  Strategic Thinking
[object Object],[object Object],[object Object],[object Object],[object Object]
Cross Functional Team Approach ,[object Object],[object Object],[object Object],[object Object],[object Object]
Delivers critical data used within the Balanced Scorecard, such as measurements. Manages the overall project, builds the scorecard, coordinates the process with other levels within the organization. Sponsors the Balanced Scorecard, approves the final scorecard, and advocates the concept to other parts of the organization. Lower Levels Middle Management Executive Level Cross Functional Development of the Balanced Scorecard
Templates ,[object Object],[object Object],[object Object],[object Object],[object Object]
Template
The Performance Prism  ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
24 / 7 Innovation  by Stephen M. Shapiro, McGraw-Hill ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Exhibit 21: Cause Effect Relationship for the Performance Prism ,[object Object],[object Object],5 th : Finally, align the organization around stakeholders, building alliances so that the organization can create the capabilities identified in step 4.  4 th : Next, determine the required capabilities that must be developed for implementing the processes identified in step 3. 3 rd : Next, identify the business processes to execute your strategies. 2 nd : Once you understand your stakeholders, develop strategies to meet their needs and requirements. 1 st : Identify your stakeholders and determine their requirements. 5  Steps to Developing the Performance Prism
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Document Summary  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
Conclusion ,[object Object],[object Object],[object Object],[object Object]

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Excellence In Financial Management

  • 1. Excellence in Financial Management The Balanced Scorecard
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  • 27. The following exhibit illustrates how shareholder value flows up across the four perspectives of the Balanced Scorecard: Support Systems & Personnel Learning Customer Marketing & Service Programs Processes More Customers Customer Revenue Growth Financial Shareholder Value
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  • 38. Exhibit 5: Flowing strategic objectives within the Financial Perspective  High Utilization of Assets  Lower Costs  Increase Customer Profitability  New Sources of Revenues  Operating Improvements Grow Revenues  Shareholder Value
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  • 42. Exhibit 6: Linking customer objectives to financial objectives  Leader in Pricing  Acquire More Customers Customer  Grow Revenues Shareholder Value Financial
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  • 46. Exhibit 7: Linking objectives down to Internal Processes Reduce Non Core Activities Knowledge Based System Cost Reduction Program   Improve Operational Efficiency Internal Processes   Become the Price Leader   Acquire More Customers Customer   Grow Revenues   Shareholder Value Financial
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  • 48. If we go back to our strategic grid ( Exhibit 7 ), we must decide on what strategic objectives are required for meeting the three objectives defined in the Internal Processes Perspective. Therefore, we can extend our grid as follows: Re-align organization with core competencies Database network on operational performance Training - Best practices in cost management Learning and Growth Reduce Non Core Activities Knowledge Based System Cost Reduction Program   Improve Operational Efficiency Internal Processes   Become the Price Leader   Acquire More Customers Customer   Grow Revenues   Shareholder Value Financial
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  • 51. Exhibit 9: Summarize Phase I Link strategic objectives into grids across four perspectives 5 th Limit the strategic areas to no more than five 4 th Align the organization around the strategy 3 rd Communicate the strategy 2 nd Establish a clear strategy (objectives & targets) 1 st Five Major Milestones – Phase I
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  • 55. Exhibit 10: Measurement Template ___ IT Support ___ Finance Support ___ Other Support Required => ___ Available ___ Not Available ___ Requires Change Availability => Sources => Assumptions => Frequency of Measurement => Unit of Measurement => Define Type / Formula => Describe the Measurement => Strategic Objective =>
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  • 60. Exhibit 11: Cause Effect Relationship between Leading and Lagging Indicators Reputation Image Price Time Quality   Leading Indicators – Value Attributes to Customers : Customer Satisfaction Customer Retention Market Share   Lagging Indicators are desired results: Customer Perspective
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  • 70. Exhibit 12: Setting targets based on strategic goals $ 224,000 $ 195,000 $ 172,000 $ 160,000 Year 2004 Target Year 2003 Target Year 2002 Target Goal: We will grow sales by 40% over the next 3 years Current Year Sales Revenues
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  • 76. Exhibit 14: Compare Programs with Strategic Objectives for Strategic Impact
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  • 78. Exhibit 15: Supplement the Balanced Scorecard with Programs
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  • 89. Delivers critical data used within the Balanced Scorecard, such as measurements. Manages the overall project, builds the scorecard, coordinates the process with other levels within the organization. Sponsors the Balanced Scorecard, approves the final scorecard, and advocates the concept to other parts of the organization. Lower Levels Middle Management Executive Level Cross Functional Development of the Balanced Scorecard
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