Balanced scorecard orientation (intro public)

C O N S U L T I N G

A L i m i t e d L i a b i l i t y C o m p a n y

ParCon Consulting, LLC Measuring the Impact of Your Strategy

A ParCon Consulting Learning Module

Discipline: Strategy Execution

February 10, 2014

Revision (5.1)

2 © Copyright ParCon Consulting, LLC

SECTION ONE

Introduction to the Balanced Scorecard

Developing a working knowledge of this powerful management tool

3 © Copyright ParCon Consulting, LLC A ParCon Learning Module

Introduction to the Balanced Scorecard When creating a strategic measurement system makes sense…

Before discussing ways to measure the impact of strategy; it’s valuable to discuss why leaders seek out strategic measures in addition to the standard financial metrics already used in managing the business.

Research shows that the greatest challenge with any strategy is its successful execution. The most common cause of failure is the inability of companies to both run the business and change the business in parallel.

To overcome the challenges of these opposing forces, leaders must first define the strategic changes in terms that are clear enough to support action. These take the form of strategic initiatives.

They then need a way to “keep score” – to monitor, assess and share the progress of change efforts in a way that helps creates urgency in the minds of the people charged with driving strategy.

This demand for a visible “scoreboard” for that highlights strategic success is the foundation for building a strategic measurement system.

The Strategy Changing the Business

Important but not urgent

Long term benefit

New skills & capabilities

Leaders’ support can vary

Demands additional time

Creates long-term value

The Whirlwind Running the Business

Feels constantly urgent

Short term impact

What “I” do every day

Cultural reinforcement

Takes 100% of your time

Keeps business running

A Clash of Two Opposing Forces

“People are not stupid and they are not lazy;

they are just incredibly busy”


Introduction to the Balanced Scorecard What is a Balanced Scorecard?

Introduced as an advanced performance measurement by Dr. Kaplan & Norton in 1992

Expanded to mainstream business leaders via The Balanced Scorecard 1996

Concept extended from measurement into a strategic management system in 2002

Identified by Bain Consulting as the most widely adopted strategy management framework in western business 2005

2013 BSC continues to undergo refinement and linkage with new management practices like Hoshin Konri and TQM

The Balanced Scorecard is a performance management tool designed to assist business leaders in managing the execution of their strategy by monitoring the impact of key initiatives as well as the aggregate results.

It is designed to blend traditional financial metrics with strategic non-financial performance indicators to provide executives with a more balanced view of not only how the company is performing but how well it is able to sustain that performance over time.

History of the Balanced Scorecard

Vision & Strategy

Perspectives of Balanced Scorecard

2002 1996


Introduction to the Balanced Scorecard What attributes mark a well designed scorecard?

Using a set of 15-30 carefully selected strategic measurements that assist leaders to evaluate & monitor the “vital signs” of their enterprise,

Combining classic financial results (lag) with predictive (lead) indicators to track current performance and help shed light on expected future results,

Extending measurement & tracking beyond purely financial results to incorporate elements like; market & client performance, process improvements or human capital which tend to predict sustained success,

Insuring that “owners”, units of measure, collection frequency, data quality, and expected results (targets) are explicitly defined,

Incorporating a visual “dashboard” and performance icons that help executives evaluate whether their strategy is working “at a glance,”

Using a disciplined & well designed governance (review) process that insures consistent, action oriented reviews coupled with disciplined follow-up.

A Balanced Scorecard is designed to focus your organization’s attention on the results that matter most in the execution of your strategy. It does this by:

A recent Bain & Company survey of more than

708 companies on five continents found that

the BSC was used by 62 percent of responding

organizations, a higher adoption rate than

some other well-known management tools like

Total Quality Management, Supply Chain

Integration or Activity Based Management.

Scorecards Drive Performance,

Not Just Measure It


Introduction to the Balanced Scorecard The BSC is an important link in the journey from data to wisdom

Financial Reporting

Operational Results

Business Analytics and

KPI

Benchmarks & Performance

Standards

Balanced

Scorecards Customer & Market Reporting

Financial Data

Operational Data

Market Data

Competitive Data Management Dashboards

Data Information Knowledge Wisdom

Strategic Insight

Perspective

Decision Support

Strategic Measures, Key

Metrics, Advanced Modeling

Standard historical reporting

Process analysis

Discussion & experimentation

Insight & understanding Management & design

Integrity & timeliness

Business Simulation &

Advanced Modeling


Introduction to the Balanced Scorecard Why do leaders adopt this method of performance management?

Quickly Evaluate and Refine Strategy

A well designed Balanced Scorecard forces strategic planners to be very clear on what results the strategy and its major components are expected to achieve

Has proven better at predicting future results than using purely financial metrics

A Balanced Scorecard helps to highlight the impact of strategic initiatives on business performance and can be an important test of the validity of a chosen strategy or set of initiatives

Can assist executives in gaining clarity about underlying causes of financial and business results

Motivate & Align Key Participants

Instills & supports an enhanced strategic perspective by the leadership team helping them to stay focused working “on” the business, not just “in” the business

Performance reviews are more productive; exception based with a focus on root causes and action plans

The Balanced Scorecard helps to align individual activities with business and enterprise strategies

Measures function as a tool to align desired behavior, by helping to communicate (in tangible terms) exactly what executives expect to happen as a result of the strategy

Studies show that people respond to what’s inspected (measured), not what’s expected

According to a 2003 study conducted by M.I.T. professors and published in the Harvard Business Review, companies that utilize strategic measures tied to “driver models” had on average a 2.93% better ROA and 5.14% better ROE than peers who utilized only classic financial measures.

“We measure everything but understand nothing..”

Jack Welsh

“If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction and cash flow.”


Introduction to the Balanced Scorecard Who benefits from adopting an advanced strategic measures system?

The Balanced Scorecard has proven to be a highly flexible management tool successfully deployed in organizations of all sizes, industries, and business models. Research shows that certain organizations tend to realize higher benefits including;

Large and/or Growing Organizations: As firms grow, challenges in communication, alignment & control increase as does the need to rely on more sophisticated information systems that use more diverse measures. The BSC represents a management tool that helps leaders coordinate cross-functional and cross business decisions and activities.

Companies Facing Uncertain Environments: Environmental uncertainty places added pressure on organizations and their strategies. Uncertainty requires a broader range of information incorporating non-financial and future oriented metrics that help to address volatility by supporting the development, evaluation and rapid implementation of successful competitive strategies.

Knowledge & Service Oriented Organizations: Companies with significant intellectual capital (talent, patents, knowledge) tend to adopt the BSC because of its integration of non-financial (learning and growth) measures.

Leaders in High Change Situations: Leaders charged with driving significant changes in their organization via strategy gravitate toward the BSC because of the “forward looking” components coupled with the ability to leverage it as both an alignment and change management tool.

“People and their managers

are working so hard to be sure things are done right,

that they hardly have time to

decide if they are doing the right things.” Dr. Steven Covey

Scorecards Enhance Perspective


Introduction to the Balanced Scorecard Is a Balanced Scorecard right for our organization?

Will a Balanced Scorecard Work for Us?

Use the checklist below to honestly evaluate whether a BSC effort is right for your organization. While it’s a powerful tool, it is also one that requires effort and sustained commitment to realize the benefits.

We have a well defined strategy that clarifies our long-term goals as well as the key initiatives that we believe will help us realize them.

We’ve considered “cause & effect” elements of our strategy; that is what actions we believe will drive the desired goals and results.

Our leaders & managers are aligned, engaged and committed to driving strategy.

Our people understand the strategy and are excited about the potential impact. They are ready to help if they can.

We see strategy as an integral part of how we intend to manage our business going forward.

We are (or desire to be) a metrics and performance driven organization that values the insights that meaningful measures can give to our leaders and people.

Quantifiable results have allot to do with how our people get rewarded and recognized and we expect that strategy would be no different.

Deciding whether a Balanced Scorecard

makes sense for your organization is a

decision that shouldn’t be taken lightly. Our

experience is that scorecards “say” easy but

they “do” hard. Do they work? Yes!! But the

journey to success can be more challenging

than you imagine.

Making the Right Call