Finalizing Finalizing Measures andMeasures and

Developing Cause-Developing Cause-and-Effectand-EffectLinkagesLinkages

Presented to: Prof. Dr. Ahmad Presented to: Prof. Dr. Ahmad GalalGalal

Prepared by: Radwa M. RoushdyPrepared by: Radwa M. Roushdy

AgendaAgenda

The importance of cause-and-effect.The importance of cause-and-effect. Definition of cause-and-effect linkages & its Definition of cause-and-effect linkages & its

relation to the BSC.relation to the BSC. How to develop cause-and-effect linkages?How to develop cause-and-effect linkages? Questions to ask for the cause-and-effect Questions to ask for the cause-and-effect

linkages?linkages? Importance of telling the strategic map as a Importance of telling the strategic map as a

story.story. Basic contents of story of the strategic mapBasic contents of story of the strategic map

Importance of cause & Importance of cause & effecteffect

““Shallow men believe in luck. Strong Shallow men believe in luck. Strong men believe in cause and effect.” men believe in cause and effect.”

Ralph Waldo Emerson Ralph Waldo Emerson

Telling the story of your strategy Telling the story of your strategy through a series of linked measures through a series of linked measures is what really separates the BSC is what really separates the BSC from other performance from other performance management systems.management systems.

Definition of the cause & Definition of the cause & effect in the context of the effect in the context of the

BSCBSC It is the process of linking your measures It is the process of linking your measures

through a series of cause-and-effect through a series of cause-and-effect relationships that unite to describe your relationships that unite to describe your strategy.strategy.

It allows the organization to not only It allows the organization to not only measure the implementation of its measure the implementation of its strategy, but also describe the all strategy, but also describe the all important “how” of value creation (i.e. important “how” of value creation (i.e. procedures for strategy execution). procedures for strategy execution).

Why Cause-and-Effect Why Cause-and-Effect Linkages Are Critical to the Linkages Are Critical to the

BSC?BSC? The cause-and-effect linkages or “strategy maps” The cause-and-effect linkages or “strategy maps”

serve as the recipe of your success. serve as the recipe of your success.

Based on Kaplan and Norton: Based on Kaplan and Norton: ““Strategy implies the movement of an organization Strategy implies the movement of an organization

from its present position to a desirable but from its present position to a desirable but uncertain future position. Because the uncertain future position. Because the organization has never been to this future place, organization has never been to this future place, the pathway to it consists of a series of linked the pathway to it consists of a series of linked hypotheses. hypotheses.

A strategy map specifies these cause and effect A strategy map specifies these cause and effect relationships, which makes them explicit and relationships, which makes them explicit and testable.”testable.”

Importance of Cause-and-Importance of Cause-and-Effect Linkages Effect Linkages

Cause-and-effect linkages also serve Cause-and-effect linkages also serve as a highly effective diagnostic tool as a highly effective diagnostic tool to examine your newly created BSC.to examine your newly created BSC.

Only by analyzing the chain of cause Only by analyzing the chain of cause and-effect linkages you can begin to and-effect linkages you can begin to see possible gaps or missing see possible gaps or missing ingredients in your recipe of ingredients in your recipe of success.success.

Understanding the relation Understanding the relation between cause & effect to between cause & effect to

BSCBSCAccording to Margaret J. WheatleyAccording to Margaret J. Wheatley

““We cannot understand a system by looking only We cannot understand a system by looking only at its parts. We need to work with the whole of a at its parts. We need to work with the whole of a system, even as we work with individual parts or system, even as we work with individual parts or isolated problems.” isolated problems.”

““If we hold awareness of the whole as we study If we hold awareness of the whole as we study the part, and understand the part in its the part, and understand the part in its relationship to the whole, profound new insights relationship to the whole, profound new insights become available.” become available.”

And finally, “To make a system stronger, we need And finally, “To make a system stronger, we need to create stronger relationships’’.to create stronger relationships’’.

How to Develop Cause-and-How to Develop Cause-and-Effect Linkages?Effect Linkages?

The cause-and-effect linkages in the The cause-and-effect linkages in the BSC is built through telling the story BSC is built through telling the story of our strategy.of our strategy.

In other words; to achieve such In other words; to achieve such linkage you need both the graphical linkage you need both the graphical map and a short accompanying map and a short accompanying narrative articulating that map.narrative articulating that map.

How to Develop Cause-and-How to Develop Cause-and-Effect Linkages? Effect Linkages? (Cont.)(Cont.)

An earlier stage which was done, during the An earlier stage which was done, during the development of performance measures, this development of performance measures, this stage is the construction of a map consisting of a stage is the construction of a map consisting of a series of cause and-effect relationships.series of cause and-effect relationships.

On re-examining this step do not feel that there On re-examining this step do not feel that there was a waste of time in measures that will not be was a waste of time in measures that will not be used in story telling. used in story telling.

Alternatively, they may be considered Alternatively, they may be considered “operational” or “diagnostic” measures and “operational” or “diagnostic” measures and tracked outside of the BSC.tracked outside of the BSC.

How to Develop Cause-and-How to Develop Cause-and-Effect Linkages? Effect Linkages? (Cont.)(Cont.)

Another possibility when devising the map Another possibility when devising the map is the addition of entirely new measures in is the addition of entirely new measures in order to make your strategic story order to make your strategic story coherent.coherent.

A good BSC should contain a mix of core A good BSC should contain a mix of core outcome measures (lagging indicators) outcome measures (lagging indicators) and the performance drivers that lead to and the performance drivers that lead to improved performance on those metrics improved performance on those metrics (leading indicators).(leading indicators).

How to Develop Cause-and-How to Develop Cause-and-Effect Linkages? Effect Linkages? (Cont.)(Cont.)

The logical sequence of the measures: The logical sequence of the measures: begin with financial aspirations and begin with financial aspirations and tunneling downward through customer, tunneling downward through customer, internal process, and ultimately, employee internal process, and ultimately, employee learning and growth measures.learning and growth measures.

Then the leading indicators of performance Then the leading indicators of performance for each perspective can be considered for each perspective can be considered without concern if these indicators of without concern if these indicators of performance will easily link together performance will easily link together through the 4 perspectives or not.through the 4 perspectives or not.

Objectives Objectives MeasuresMeasures

Lag LeadLag Lead

FinancialFinancial

Build the businessBuild the businessRevenue Revenue growthgrowth

CustomerCustomer

Develop customer Develop customer loyaltyloyalty

Customer Customer loyaltyloyalty

*Hours spent *Hours spent with customers.with customers.

*Solutions *Solutions offered.offered.

Int. Process Int. Process

Improve knowledge Improve knowledge of customersof customers

Additions to Additions to solutionsolution

databasedatabase

*System *System downtime.downtime.

*Ease of system *Ease of system useuse

Learning & growthLearning & growth

Increase employee Increase employee productivityproductivity

CompetencyCompetency

attainmentattainment*Training *Training resultsresults

*PDP goals *PDP goals completedcompleted

Questions to Ask When Questions to Ask When Building Cause-and-Effect Building Cause-and-Effect

LinkagesLinkages

FinancialFinancial Do the financial objectives Do the financial objectives andand

measures describe how we measures describe how we will satisfywill satisfy

shareholder expectations of shareholder expectations of ourour

organization?organization?

CustomerCustomer Do the customer objectives Do the customer objectives andand

measures reflect the value measures reflect the value propositionproposition

we will pursue to achieve our we will pursue to achieve our financialfinancial

goals?goals?

Questions to Ask When Questions to Ask When Building Cause-and-Effect Building Cause-and-Effect

Linkages Linkages (Cont.)(Cont.)Internal Internal ProcessProcess

• • Have we identified the key Have we identified the key internal processes we must excel internal processes we must excel at in order to meet customer and at in order to meet customer and financial expectations?financial expectations?

• • Will the achievement of these Will the achievement of these measures lead to improved measures lead to improved customer and financial results?customer and financial results?

Employee Employee Learning and Learning and GrowthGrowth

Do the employee learning and Do the employee learning and growthgrowth

objectives and measures describe objectives and measures describe thethe

skills, information infrastructure, skills, information infrastructure, andand

alignment that will enable us to alignment that will enable us to excelexcel

at our internal processes?at our internal processes?

Questions to Ask When Questions to Ask When Building Cause-and-Effect Building Cause-and-Effect

Linkages Linkages (Cont.)(Cont.) Do we have an appropriate mix of lagging Do we have an appropriate mix of lagging

and leading measures on Scorecard?and leading measures on Scorecard?

To sustain our improvement, the SC To sustain our improvement, the SC should contain measures that will lead to should contain measures that will lead to short-, intermediate-, and long-term value short-, intermediate-, and long-term value creation. Have we considered the timing creation. Have we considered the timing of our linkages?of our linkages?

Does this BSC tell the whole story of our Does this BSC tell the whole story of our strategy?strategy?

The importance of telling The importance of telling strategy map as a storystrategy map as a story

A story will respect sequence (clarifying A story will respect sequence (clarifying all cause-and-effect linkages) & put it in all cause-and-effect linkages) & put it in an easy way to understand.an easy way to understand.

Why are stories so effective? Because they Why are stories so effective? Because they tend to captivate the audience, engage tend to captivate the audience, engage them and draw them into the subject.them and draw them into the subject.

Stories help to imagine a course of action, Stories help to imagine a course of action, imagine its effects on others, and decide imagine its effects on others, and decide whether or not to do it.”whether or not to do it.”

3 M style of strategic 3 M style of strategic mappingmapping

““Stories are a habit of mind at 3M, Stories are a habit of mind at 3M, and it’s through them—through the and it’s through them—through the way they make us see ourselves and way they make us see ourselves and our business operations in complex, our business operations in complex, multidimensional forms—that we’re multidimensional forms—that we’re able to discover opportunities for able to discover opportunities for strategic change. Stories give us strategic change. Stories give us ways to form ideas about winning.”ways to form ideas about winning.”

Basic contents of story of Basic contents of story of the strategic mapthe strategic map

Every story is composed of a basic format: conflict, Every story is composed of a basic format: conflict, transition, climax & close.transition, climax & close.

ConflictConflict implies defining the current situation, implies defining the current situation, analyzing your market, and discussing the current analyzing your market, and discussing the current tensions that make change inevitable. This is the tensions that make change inevitable. This is the “burning platform” section of the story, explaining why “burning platform” section of the story, explaining why it is imperative that you change to stay ahead of the it is imperative that you change to stay ahead of the competition.competition.

The transition phaseThe transition phase of your narrative introduces the of your narrative introduces the BSC system, provides an overview of the methodology, BSC system, provides an overview of the methodology, and supplies evidence of its success. Your objectives for and supplies evidence of its success. Your objectives for launching a BSC would also be found in the transition launching a BSC would also be found in the transition phase.phase.

Basic contents of story of Basic contents of story of the strategic map the strategic map (Cont.)(Cont.)

Your story’sYour story’s climaxclimax describes the performance describes the performance measures you’ve chosen, and lucidly outlines the measures you’ve chosen, and lucidly outlines the cause-and-effect relationships that will drive your cause-and-effect relationships that will drive your performance. It is here that you provide the performance. It is here that you provide the reader with sufficient background on the reader with sufficient background on the assumptions you have made in drafting the map.assumptions you have made in drafting the map.

CloseClose your narrative with a discussion of how your narrative with a discussion of how you believe the BSC you have crafted will lead to you believe the BSC you have crafted will lead to the successful execution of your strategy and the successful execution of your strategy and bring you closer to your mission and vision.bring you closer to your mission and vision.

Strategy Map for McCord Travel Strategy Map for McCord Travel ManagementManagement

ATAeBusiness Strategic ATAeBusiness Strategic MapMap

In conclusionIn conclusion

““A key feature of the Balanced A key feature of the Balanced Scorecard . . . is its ability to bridge Scorecard . . . is its ability to bridge the gap, holistically, between the gap, holistically, between strategic goals set by executive strategic goals set by executive management and the frontline staff management and the frontline staff whose daily performance is whose daily performance is absolutely critical to reaching those absolutely critical to reaching those goals.”goals.”

Thank You Thank You