Balanced Scorecard

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The Balanced Scorecard
Presented To
Alaoula Board Member
Presented By
Adnan Alshiha
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Workshop Outline
Introduction to the Balanced Scorecard What is it? Why do it? 1-3
Brayer Break
Balanced Scorecard Fundamentals The Four Perspectives Measures, Targets and Initiatives Roles and Responsibilities
Business Strategy
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The Balanced Scorecard What is it?

• Definition
• The Balanced Scorecard is a management tool
  that provides stakeholders with a comprehensive
  measure of how the organization is progressing
  towards the achievement of its strategic goals.

4
Balanced Scorecard History
Measurement and Reporting
Enterprise-wide Strategic Management
Alignment and Communication
5

The Strategy-Focused-Organization

• The Balanced Scorecard is the main management
  tool that has been used by successful
  organizations in various fields
• Private and Public Sector
• For- Profit and Not For- Profit
• Different industries
• These successful organizations placed their
  strategies at the centre of their operations.
  Their strategies, guided Their day- to- day
  activities
• In this workshop, we will learn more about
  strategy- focused organizations, and how to
  develop Balanced Scorecards

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Organizations Often Have A Gap Between Strategy
and Action
Strategy Is a Step In a Continuum
MISSION Why we exist
VALUES Whats important to us
VISION What we want to be
STRATEGY Our game plan
STRATEGIC OUTCOMES
SatisfiedSHAREHOLDERS
Delighted CUSTOMERS
Efficient and EffectivePROCESSES
Motivated PreparedWORKFORCE
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The Balanced Scorecard Is A Bridge To Close That
Gap
Strategy Is a Step In a Continuum
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The Balanced Scorecard What is it?

• The Balanced Scorecard
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading indicators)
  with outcome measures (lagging indicators)
• Should contain just enough data to give a
  complete picture of organizational performance
  and no more!
• Leads to strategic focus and organizational
  alignment.

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The Balanced Scorecard Provides a Four
Perspective Framework to Translate Strategy Into
Operational Terms
The Vision
Financial Perspective

• Profitability
• Growth
• Shareholder Value

If we succeed, how will we look to our
shareholders?

• Measurement is the language that gives clarity to
  vague concepts
• Measurement is used to communicate, not simply to
  control

Customer Perspective
To achieve our vision, what customer needs must
we serve?

• Price
• Service
• Quality

Internal Perspective
To satisfy our customers and shareholders, at
which business processes must we excel?

• Cycle Time
• Productivity
• Cost

Learning and Growth

• New Skills
• Continuous Improvement
• Intellectual Assets

To excel in our processes, what must our
organization learn?
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A Good Balanced Scorecard Strategy Map Tells the
Story of Your Strategy
The Revenue Growth Strategy
The Productivity Strategy
Improve stability by broadening the sources of
revenue from current customers
Improve operating efficiency by shifting
customers to more cost-effective channels of
distribution
Improve Returns
Financial Perspective
Improve Operating Efficiency
Broaden Revenue Mix
Increase Customer Confidence in Our Financial
Advice
Increase Customer Satisfaction Through Superior
Execution
Customer Perspective
Internal Perspective
Cross-Sell the Product Line
Shift to Appropriate Channel
Provide Rapid Response
Develop New Products
Understand Customer Segments
Minimize Problems
Increase Employee Productivity
Learning Perspective
Develop Strategic Skills
Align Personal Goals
Access to Strategic Information
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A Good Balanced Scorecard Tells the Story of Your
Strategy Through A Set of Linked Cause and Effect
Hypotheses
Strategic Measurements
StrategicObjectives
(Lag Indicators)
(Lead Indicators)

• Return on Investment
• Revenue Growth
• Deposit Service Cost Change

• Revenue Mix

F1 - Improve Returns F2 - Broaden Revenue Mix F3
- Reduce Cost Structure
Financial
C1 - Increase Customer Satisfaction With Our
Products People C2 - Increase Satisfaction
After the Sale

• Share of Segment
• Customer Retention

• Depth of Relation
• Satisfaction Survey

Customer
I1 - Understand Our Customers I2 - Create
Innovative Products I3 - Cross-Sell Products I4
- Shift Customers to Cost-Effective Channels I5
- Minimize Operational Problems I6 - Responsive
Service

• New Product Revenue
• Cross-Sell Ratio
• Channel Mix Change
• Service Error Rate
• Request Fulfillment Time

• Product Development Cycle
• Hours with Customers

Internal

• Strategic Job Coverage Ratio
• Strategic Info Availability Ratio
• Personal Goals Alignment ()

L1 - Develop Strategic Skills L2 - Provide
Strategic Info L3 - Align Personal Goals

• Employee Satisfaction
• Revenue per Employee

Learning
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Theme Example from Southwest Airlines Balanced
Scorecard
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The Balanced Scorecard Supports a Complete
Strategic Management System by Linking Long Term
Strategy and Measures to More Tactical Planning
Budgeting
Longer Term (3-5 year) View
Shorter Term (Annual) View
Vision
Objectives
Milestones
Accountable
Initiatives
Themes/ Goals
Mission
Resource Alloc.
Targets
Measures

• 02 xx
• 03 xx
• 04 xx

• Grow revenue from patient care

• patient care revenue growth

Financial

• Meet access expectations

• 3rd available appointment ( met)

• Access project

• Meet monthly target

• Mkg. Team

• xxxx

• 02 xx
• 03 xx
• 04 xx

Customer
1. Strengthen innovation 2. Improve customer
satisfaction 3. Assure consistent high quality 4.
Provide operational excellence
ABC Hospital System will provide excellent care
in our selected specialty areas while maintaining
margin and growing share
Serve the needs of patients excellently

• patient mix

• 02 39
• 03 40
• 04 41

• Mix Margins Project

• Dept. Chairs

• Complete by 2003

• xxxx

• Assure optimum patient mix

Internal

• Promote ABC Culture Model

• Employee Satisfaction Survey

• Evaluate survey response

• HR Committee

• xxxx

• 02 xx
• 03 xx
• 04 xx

• Deadline met

Learning
Tactical
Strategic
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The Balanced Scorecard Why do it?

• To achieve strategic objectives.
• To provide quality with fewer resources.
• To eliminate non-value added efforts.
• To align customer priorities and expectations
  with the customer.
• To track progress.
• To evaluate process changes.
• To continually improve.
• To increase accountability.

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The Balanced Scorecard Why do it?

• It works!
• In just 90 days, Sandia Labs was able to
  redirect 190,000 in savings by dropping
  initiatives that didnt fit their overall
  strategy.
• The BSC has forced our management team to
  focus beyond financial measures too often in the
  past we would get sucked into short-term
  thinking.
• The BSC dramatically improved our data
  analysis we dont overreact nearly as much as we
  used to.

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Execution of Strategy Has Become the Corporate
Challenge of Our Times!

• Strategy has never been more important
• Business Week
• Less than 10 of strategies effectively
  formulated are effectively executed
• Fortune Magazine
• The problem is that our ages fascination with
  strategy and vision feeds the mistaken belief
  that developing the right strategy will enable a
  company to rocket past competitors. In reality,
  strategy is less than half the battle. .. In the
  majority of cases we estimate 70 the real
  problem isnt bad strategy. Its bad
  execution.
• Why CEOs Fail Ram Charan and Geoffrey
  Colvin Fortune (6/21/99)

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The Results are Widespread
CIGNA Property Casualty
Chemical Bank
1993 275 loss 1998 Top Quartile
3b spin-off
Profits 1993 X 1998 20X
Brown Root Engineering (Rockwater)
ATT Canada
1993 Losing money 1996 1 in Niche
(growth profits)
1995 300M loss 1998 Customer base
doubles 1999 7b spin-off
Saint Marys/ Duluth Clinic Health System
Southern Citrus
1995
1998
Improvement
Measure

• Shipments on Spec
• On Time Delivery
• Rework
• Absenteeism
• Employee Turnover
• Cost per Pound ()

70 89 6 10 100 28.8
97 98 2 1 31 18.9
18M since BSC implementation
Operating Margin
Decrease 16 days
Days in AR
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Overall Hospital Point Satisfaction
Duke Childrens Hospital
Mobil US Marketing Refining
Competitive Rank (out of 7,profit)
Improvement
Measure
1993 1995 1996 1997 1998
6 1 1 1 1
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Operating Margin
11
Family Satisfaction
25
Length of Stay
63
Readmission Rate
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The Strategy Focused Organization
Mission What we do Vision What we aspire to
be Strategies How we accomplish our
goals Measures Indicators of our progress
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..the question..?

• What is our strategy?

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Environmental Scan
Strengths Weaknesses
A Model for Strategic Planning
Opportunities Threats
Values
Mission Vision
Strategic Issues
Strategic Priorities
Objectives, Initiatives, and Evaluation
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Business Strategy
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Business Strategy
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Corporate Culture
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Corporate Culture

• The beliefs and values shared by people who work
  in an organisation
• How people behave with each other
• How people behave with customers/clients
• How people view their relationship with
  stakeholders
• Peoples responses to energy use, community
  involvement, absence, work ethic, etc.
• How the organisation behaves to its employees
  training, professional development, etc.

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Corporate Culture

• May be driven by
• Vision where the organisation wants to go in
  the future
• Mission Statement summary of the beliefs of
  the organisation and where it is now

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Corporate Culture

• May be reflected in
• Attitude and behaviour of the leadership
• Attitude to the role of individuals in the
  workplace open plan offices, team based
  working, etc.
• Logo of the organisation
• The image it presents to the outside world
• Its attitude to change

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Corporate Culture

• What corporate culture do you think the
  following businesses have managed to develop?

Virgin Group Copyright Joshua2150,
http//www.sxc.hu
The Body Shop Copyright fadaquiqa,
http//www.sxc.hu
McDonalds Copyright alexalliedhttp//www.sxc.hu
Nike Copyright alexbolhttp//www/sxc.hu
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Strategic Planning
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Strategic Planning

• First Stage of Strategic Planning may involve
• Futures Thinking
• Thinking about what the business might need to do
  1020 years ahead
• Strategic Intents
• Thinking about key strategic themes that will
  inform decision making
• The thicker the planning document, the more
  useless it will be
• (Brent Davies 1999)

Taking time to think and reflect may be more
important than many businesses allow time
for! Copyright Intuitives, http//www.sxc.hu
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Strategic Planning

• The Vision
• Communicating to all staff where the organisation
  is going and whereit intends to be in the future
• Allows the firm to set goals
• Aims and Objectives
• Aims long term target
• Objectives the way in which you are going to
  achieve the aim

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Strategic Planning

• Once the direction is identified
• Analyse position
• Develop and introduce strategy
• Evaluate
• Evaluation is constant and the results of the
  evaluation feed back into the vision

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Analysis
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SWOT

• Strengths identifying existing organisational
  strengths
• Weaknesses identifying existing organisational
  weaknesses
• Opportunities what market opportunities might
  there be for the organisation to exploit?
• Threats where might the threats to the future
  success come from?

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PEST

• Political local, national and international
  political developments how will they affect the
  organisation and in what way/s?
• Economic what are the main economic issues
  both nationally and internationally that might
  affect the organisation?
• Social what are the developing social trends
  that may impact on how the organisation operates
  and what will they mean for future planning?
• Technological changing technology can impact on
  competitive advantage very quickly!

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PEST

• Examples
• Growth of China and India as manufacturing
  centres
• Concern over treatment of workers and the
  environment in less developed countries who may
  be suppliers
• The future direction of the interest rate,
  consumer spending, etc.
• The changing age structure of the population
• The popularity of fads like the Atkins Diet
• The move towards greater political regulation of
  business
• The effect of more bureaucracy in the labour
  market

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Five-Forces

• Developed by Michael Porter forces that shape
  and influence the industry or market the
  organisation operates in.
• Strength of Barriers to Entry - how easy is it
  for new rivals to enter the industry?
• Extent of rivalry between firms how
  competitive is the existing market?
• Supplier power the greater the power, the less
  control the organisation has on the supply of its
  inputs.
• Buyer power how much power do customers in the
  industry have?
• Threat from substitutes what alternative
  products and services are there and what is the
  extent of the threat they pose?

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Required Inputs

• Changing strategy will impact on the resources
  needed to carry out the strategy
• Specifically the impact on
• Land opportunities for acquiring land for
  development green belt, brownfield sites,
  planning regulations, etc.
• Labour ease of obtaining the skilled and
  unskilled labour required
• Capital the type of capital and the cost of the
  capital needed to fulfil the strategy

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Evaluation
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Evaluation

• Data from sales, profit, etc. used to evaluate
  the progress and success of the strategy and to
  inform of changes to the strategy in the light of
  that data

Information from a wide variety of sources can
help to measure and inform the impact and
direction of the strategy. Copyright Mad7986,
http//www.sxc.hu
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Types of Strategy
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Types of Strategy

• Competitive Advantage something which gives the
  organisation some advantage over its rivals
• Cost advantage A strategy to seek out and
  secure a cost advantage of some kind - lower
  average costs, lower labour costs, etc.

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Types of Strategy

• Market Dominance
• Achieved through
• Internal growth
• Acquisitions mergers and takeovers
• New product development to keep ahead of rivals
  and set the pace
• Contraction/Expansion focus on what you are
  good at (core competencies) or seek to expand
  into a range of markets?

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Types of Strategy

• Price Leadership through dominating the
  industry others follow your price lead
• Global seeking to expand global operations
• Reengineering thinking outside the box
  looking at news ways of doing things to leverage
  the organisations performance

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Types of Strategy

• Internal business level strategies
• Downsizing selling off unwanted parts of the
  business similar to contraction
• Delayering flattening the management structure,
  removing bureaucracy, speed up decision making
• Restructuring complete re-think of the way the
  business is organised

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The Strategy Focused Organization

• The Five Principles
• Translate the strategy to operational terms.
• Align the organization to the strategy.

Source The Strategy Focused Organization,
Norton Kaplan
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The Strategy Focused Organization

• The Five Principles (cont.)
• Make strategy everyones job.
• Make strategy a continual process.
• Mobilize change through executive leadership

Source The Strategy Focused Organization,
Norton Kaplan
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The Balanced Scorecard and The Big Picture

• Activity Based Costing
• Economic Value Added
• Forecasting
• Benchmarking
• Market Research
• Best Practices
• Six Sigma
• Statistical Process Control
• Reengineering
• ISO 9000
• Total Quality Management
• Empowerment
• Learning Organization
• Self-Directed Work Teams
• Change Management

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Strategic Performance Management System
Strategic Direction Create Environment For Change
Communicate Strategies Define Objectives Implement
BSC
Balanced Scorecard Measure Performance Improve
Processes
Evaluate and Adjust Continuous Improvement Redefin
e Initiatives
Linking it all together.
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THE BALANCED SCORECARD
FINANCIAL/REGULATORY To satisfy our
constituents, what financial regulatory
objectives must we accomplish?
CUSTOMER To achieve our vision, what customer
needs must we serve?
INTERNAL To satisfy our customers and
stakeholders, in which business processes must
we excel?
LEARNING GROWTH To achieve our goals, how
must we learn, communicate and grow?
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Customer Perspective
To achieve our vision, what customer needs must
we serve?
Possible Performance Measures

• Customer Satisfaction (Average)
• Satisfaction Gap Analysis (Satisfaction vs.
• Level of Importance)
• Satisfaction Distribution ( of each area scored)

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Financial / Regulatory Perspective
To satisfy our constituents, what financial and
regulatory objectives must we accomplish?
Possible Performance Measures

• Cost / Unit
• Unfunded Requirements or Projects
• Cost of Service
• Budget Projections and Targets

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Internal Perspective
To satisfy our customers, in which business
processes must we excel?
Possible Performance Measures

• Cycle Time
• Completion Rate
• Workload and Employee Utilization
• Transactions per employee
• Errors or Rework

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Learning and Growth
To achieve our goals and accomplish core
activities, how must we learn, communicate and
work together?
Possible Performance Measures

• Employee Satisfaction
• Retention and Turnover
• Training Hours and Resources
• Technology Investment

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Why Measure?

• To determine how effectively and efficiently the
  process or service satisfies the customer.
• To identify improvement opportunities.
• To make decisions based on FACT and DATA

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Measurements Should

• Translate customer expectations into goals.
• Evaluate the quality of processes.
• Track our improvement.
• Focus our efforts on our customers.
• Support our strategies.

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Targets

• If you dont know where youre going, youre
  probably not gonna get there.
• Forrest Gump

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Targets

• Targets need to be set for all measures
• Should have a solid basis
• Give personnel something for which to aim
• If achieved will transform the organization

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Targets

• Careful not to develop measures/targets in
  
• a fragmented approach
• i.e. Asking people to increase customer
  satisfaction has to be backed up with the
  knowledge, tools, and means to achieve that
  target.

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Initiatives

• Once measures and targets are established, it is
  the responsibility of management to determine HOW
  the organization will achieve its goals.
• Measures are used to determine the effectiveness
  of strategic initiatives.

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The Leadership Team

• Develops the divisions vision, strategy and
  goals
• Develops organizational objectives and targets
• Provides leadership, endorsement and vision for
  the project
• Clears barriers to scorecard progress

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The Core Team

• Drafts the strategy map and scorecard
• Works with employees to develop measures
  supporting strategic objectives
• Works with the Leadership Team to plan and
  implement the Balanced Scorecard in the FAS
  Division

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Finance and Administrative Services
Strategy Map
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Link it together.
DIVISION
CUSTOMER
 FINANCIAL
INTERNAL PROCESS
 LEARNING GROWTH
Hum. Rscrs.
Univ. Police
Facilities
DEPT.
Police
Parking
FUNCTION
Measure Satisfaction Index Current 3.0
Target 4.0
       
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The Strategy Map Cause and Effect Relationships
Strong Financial Base
Financial

• What will drive margins?
• Managed growth in high margin programs/service
  lines
• How?
• Attract targeted patient population through
  targeted referring physicians who value leading
  edge technology expertise
• What will the internal focus be?
• Ensure clinical excellence through leading edge
  programs and techniques in focused specialty
  areas
• Align research priorities to support leading
  programs and stay out front in treatment methods
• Will our people be prepared to do that?
• Yes, with appropriate technology
• Yes, by recruiting critical expertise

Implement Managed Growth
Maximize High Margin Opportunities
Customer
Specialty Care Patients Referring Providers
Leading Edge Technology
Leading Edge Expertise
Continually Develop Clinical Excellence
Internal
Develop Leading Edge Programs/ Techniques
Align Research Priorities
Learning Growth
Implement Technology to Support Processes and
Programs
Develop Critical Staffing Resource Plans
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The Balanced Scorecard as a Management System

• BSC reviewed regularly to enhance operational
  decision-making
• Success of initiatives assessed based on DATA
  not opinions
• Leading indicators evaluated to confirm accuracy
  of assumptions

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The Balanced Scorecard as a Management System

• The BSC is a Living Document that requires
  regular revision of objectives, measures and
  initiatives
• How are we doing?
• Are we measuring the right things?
• What initiatives do we need to get us where we
  want to go?
• Have our organizational goals changed?

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Rapid Deployment Case Study Major Federal
Organization

• Definition of Corporate strategy
• Rapid roll-out and broad reach
• Develop internal capabilities to sustain momentum

Need
Approach

• Develop Corporate Balanced Scorecard
• Define template for rolling out BSC
• Train subordinate units
• Streamline project management
• Quality checks
• Online education

Benefits

• Clear guidance from Corporate
• Active involvement from client teams
• Rapid deployment with minimal resources
• Quality control

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Advantages to this Approach

• Simple to Use and Understand
• Based on Vision and Strategy
• Multidimensional
• Quantitative and Qualitative Measures
• Current and Future
• Provides Measurement of and Method for
  Improving our Services
• Ties QI initiatives together
• Serves as a Communication Tool

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Thank You