Building the Balanced Scorecard

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Building the Balanced Scorecard
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Introduction

• Balanced Scorecards provide a framework for
  communicating strategy in operating terms
  (measurements and targets).
• You must communicate strategy in operating terms
  if you expect people to execute on your strategy.
• When people are asked about strategy, they reach
  for their balanced scorecard.

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Agenda

• This slide presentation will outline the major
  steps for building a balanced scorecard.
• 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.

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Overview

• Balanced Scorecards are constructed from
  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 the
  scorecard.

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Why the Balanced Scorecard

• 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

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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

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Strategic Goals

• The first components of your strategy are goals.
• Strategic goals establish direction in concrete
  terms.
• Strategic goals anchor the rest of the process.
• Strategic goals should fit with the vision and
  mission of the organization.

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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

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Strategic Objectives

• Once we establish our first anchor (goals), we
  can develop a set of strategic objectives.
• Strategic objectives define what actions must be
  taken to reach the strategic goals.
• Objectives are critical to future success. For
  example, in order to grow revenues, we must
  introduce new products and expand our market
  share.

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Objective 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

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Strategic Themes

• Based on strategic goals, three to five strategic
  themes should emerge.
• From these themes, we will develop a strategic
  map.
• Four common strategic themes are Operating
  Efficiencies, Customer Relations, Product
  Innovation, and Growing the Business.

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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.

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Four Perspectives

• Before 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.

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Strategic Mapping

• Strategic Maps are the foundation of the Balanced
  Scorecard.
• You will need one strategic map for each
  strategic theme.
• Maps are constructed over four perspectives.
• Strategic objectives are mapped over the four
  perspectives, linked together.

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Linking

• Strategic objectives 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.

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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.

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Measurements

• For each strategic objective, you need one
  measurement.
• 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.

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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.

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Good Measurements

• Customer satisfaction
• - Response time to service customer
• - Satisfaction survey scores
• Process Efficiency
• - Cycle time
• - Downtime
• - Number of Restarts

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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
• Balanced scorecards should include both leading
  and lagging type measurements

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Targets

• 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.

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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

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Initiatives

• 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 strategic objectives.
  This closes the loop, everything is now linked
  and away we go!

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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.

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Templates

• Throughout this process, we will use templates
  to capture, analyze and document data. Templates
  are used for strategic mapping, defining
  measurements, etc.

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Other Important Steps

• Scorecards are built around three teams
  Leadership Team (upper level management), Core
  Team (middle level management) and Measurement
  Team (lower level functional personnel).
• Scorecards are built around at least four group
  meetings Kick Off Meeting followed by at least
  one meeting for each of the three teams.

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Implementation

• The minimum time for developing a balanced
  scorecard is three months.
• Full deployment of scorecards throughout the
  entire organization can take more than one year.
• The best place to start building a scorecard is
  where all components of the value chain are in
  place Customer, Innovation, Production,
  Delivery, Services, etc.

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Summary

• Balanced Scorecards are the best way of
  communicating strategy.
• Scorecards rely on a fully integrated approach
  Goals, Objectives, Mapping, Measurements,
  Targets, and Initiatives.
• The building of a balanced scorecard can be
  experimental, whereby you test your strategies,
  refine, and make changes as you get feedback and
  learn what works.

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Where to Get More Information

• Formal training in balanced scorecards is
  available through the Balanced Scorecard
  Collaborative (www.bscol.com)
• Consulting services are available. My training in
  balanced scorecards comes directly from the
  Balanced Scorecard Collaborative. If you have
  questions, feel free to email me.