Balanced Scorecards and Strategy Maps

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Balanced Scorecards and Strategy Maps
Presented by
Deb Feldpausch Director of P/C PHSMichigan Farm
Bureau
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An Overview of theBalanced Scorecards and
Strategy Maps
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Agenda

• Overview of Balanced Scorecard
• Farm Bureau, Michigan Case Example of Applying
  Balanced Scorecard
• Q A

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What is a balanced scorecard?

• The balanced scorecard is a strategic planning
  system that is used extensively in organizations
  worldwide to align business activities to the
  vision and strategy of the organization, improve
  internal and external communications, and monitor
  organization performance against strategic goals.
  It was originated by Drs. Robert Kaplan (Harvard
  Business School) and David Norton as a
  performance measurement framework that added
  strategic non-financial performance measures to
  traditional financial metrics to give managers
  and executives a more 'balanced' view of
  organizational performance. 

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Key Concept

• The balanced scorecard is not a replacement for
  an organizations day-to-day measurement system.
  The scorecard measures are chosen to direct the
  attention of managers and employees to those
  factors expected to lead to competitive
  breakthroughs for an organization. - Kaplan
  and Norton

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Why create a Strategy Map/Balanced Scorecard?

• Increase focus on strategy and results
• Improve organizational performance by measuring
  what matters
• Align the focus across divisions/departments
• Align organizational strategy with the work
  people do on a day-to-day basis
• Improve communication on the organizations
  Vision and Strategy
• Prioritize projects/initiatives

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Mission Why we exist
Values What is important to us
Vision What we want to be
5-Year Strategy Game plan
Strategy Map Translate and communicate
The Metrics Continuum
Balanced Scorecard Measure and focus
Division Strategy and Plans
Targets and Initiatives
Personal Objectives
Alignment Working together across silos
Based on Kaplan and Norton
Outcomes
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Strategy Maps

• Strategy maps are communication tools used to
  tell a story of how value is created for the
  organization. 

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Why a Strategy Map?Translate and Communicate

• Places the strategies into four perspectivesa
  common language
• Shows a Cross-functional view of the business
• Allows silos to identify their role and impact
• Shows expected importance of different strategies
• Is one page
• Is a graphica picture is worth a thousand words
• Is supported by the plan and analysis
• Can include the big initiatives underway to
  demonstrate their role and impact
• Translates and communicates the strategy into
  what I need to do

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Our Strategy Map
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Our Balanced Scorecard
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Four Perspectives

• The balanced scorecard suggests that we view the
  organization from four perspectives, and to
  develop metrics, collect data and analyze it
  relative to each of these perspectives

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The Learning Growth Perspective

• This perspective includes employee training and
  corporate cultural attitudes related to both
  individual and corporate self-improvement. In a
  knowledge-worker organization, people -- the only
  repository of knowledge -- are the main resource.
  In the current climate of rapid technological
  change, it is becoming necessary for knowledge
  workers to be in a continuous learning mode.
  Metrics can be put into place to guide managers
  in focusing training funds where they can help
  the most. In any case, learning and growth
  constitute the essential foundation for success
  of any knowledge-worker organization.

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The Learning Growth Perspective

• Kaplan and Norton emphasize that 'learning' is
  more than 'training' it also includes things
  like mentors and tutors within the organization,
  as well as that ease of communication among
  workers that allows them to readily get help on a
  problem when it is needed. It also includes
  technological tools.

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The Business Process Perspective

• This perspective refers to internal business
  processes. Metrics based on this perspective
  allow the managers to know how well their
  business is running, and whether its products and
  services conform to customer requirements (the
  mission). These metrics have to be carefully
  designed by those who know these processes most
  intimately with our unique missions these are
  not something that can be developed by outside
  consultants.

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The Customer Perspective

• Recent management philosophy has shown an
  increasing realization of the importance of
  customer focus and customer satisfaction in any
  business. These are leading indicators if
  customers are not satisfied, they will eventually
  find other suppliers that will meet their needs.
  Poor performance from this perspective is thus a
  leading indicator of future decline, even though
  the current financial picture may look good.
• In developing metrics for satisfaction, customers
  should be analyzed in terms of kinds of customers
  and the kinds of processes for which we are
  providing a product or service to those customer
  groups.

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The Financial Perspective

• Kaplan and Norton do not disregard the
  traditional need for financial data. Timely and
  accurate funding data will always be a priority,
  and managers will do whatever necessary to
  provide it. In fact, often there is more than
  enough handling and processing of financial data.
  The current emphasis on financials leads to the
  "unbalanced" situation with regard to other
  perspectives.

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Who Needs a Balanced Scorecard?

• Harris poll revealed
• Only 37 of U.S. full-time employees have a clear
  understanding of what their organization is
  trying to achieve and why.
• Only 9 believe their work teams have clear
  measurement goals.
• Kaplan and Norton documented the single, greatest
  driver of performance success using balanced
  scorecards is successfully cascading the
  scorecard.

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Who Needs a Balanced Scorecard? (cont.)

• How does it do that?
• Brings understanding of the strategy.
• Brings understanding of goals.
• Brings dialogue on results.
• Helps to harness the most powerful competitive
  advantage a company can have.
• How can we, at our level, help the organization
  reach the organizational strategy goals?

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Concepts in Selecting Measures

• Lagging The end result, our traditional way of
  looking at results combined ratio
• Leading (also called drivers) Key to affecting
  behavior and to drive the results

New Agents Appointed
Target Mailings
Calls Converted to Quotes
NB Production
Leading Drives Results
Lagging Result
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Underlying Concepts

• Strategy at its core is a statement of the value
  proposition, how we are different, why the
  customer will buy from us.
• Getting the right people on the bus, going in the
  right direction, is still important. That is done
  by the alignment of our process, our people, and
  technology and cultural to the strategy.

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Underlying Concepts

• We operate with assumptions that need to be
  continually tested. Measures help us test
• Are we doing the right things?
• Are we doing them correctly?
• Are they getting us the results?

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Underlying Concepts

• When people participate in the development
  process, ownership and increased sense of
  accomplishment and satisfaction occursand we get
  better results.
• Keep the message simple, keep the message clear,
  keep the message consistent.
• This is about cause and effect, about assumptions
  and hypothesis these need to be continually
  tested.

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Farm Bureau Insurance Overview

• Central Location Lansing, Michigan
• Founded in 1948, began operations in March 1949
• Licensed in Michigan Only
• 530,000 Property Casualty and Life policies in
  force
• Serving insured through 400 Career Agents
• Provide Property Casualty and Life / Annuity
  products

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Starting Point

• Training (3 staff)
• Attended 2 Seminars
• Using Strategy Maps and the Balanced Scorecard
• Business Process Management and the Balanced
  Scorecard
• Read books on the Balanced Scorecard
• Kaplan / Norton
• Ralph Smith
• Agreement on Purpose of the Balanced Scorecard

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Stage I -

• Developed Corporate Strategy Map
• Developed Corporate Scorecard
• Promoted Strategy Map Balanced Scorecard
• All Employee Kick-Off Meeting
• Booklet on Strategy BSC to all employees
• Company Portal Page
• Began meeting monthly with executive team still
  do today.

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Stage II - Implement and Cascade

• Created Divisional Strategy Maps
• Developed in a 3-hour workshop
• Linked to Corporate Map
• Create a dictionary of all Measures
• How does measure link to Strategy Map
• Brief Description of Measure
• Rationale behind measure
• Formula
• Owner of Data
• Example of how it will appear on Scorecard

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Stage II - Implement and Cascade (Cont.)

• Departmental Scorecards
• Utilizes divisional strategy map
• Developed in a 3-Hour workshop
• Participation of all employees

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The result

• Keeps the Strategy alive
• Discussions on how to obtain results
• Discussions on working across divisions and
  departments to achieve results
• Bigger focus on the Learning Growth (People
  Path)

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Lessons Learned

• Fewer measures are better
• The monthly meetings should be on strategy not
  review
• Directors/Managers using and understanding the
  tool before taking it to their departments
• Link Corporate Projects to Strategy Map

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Lessons Learned

• Tool can be used before measures are available
• Support by CEO and Executive team is huge
• Dont make it to complicated/difficult to create
  or interpret
• Major divisional reorganizations can cause
  updates to strategies and recascading of
  measurements.

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Lessons Learned (Cont.)

• Identify a data owner in each team
• Large departments (20 or more) should be broken
  out for the workshops
• Clearly explain the purpose and objective of
  using the Strategy Map and BSC tools
• Keep communicating and engaging employees

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Q A