The Balanced ScorecardPresented ToAdnan AlshihaPresented ByAlaoula Board Member

Workshop Outline

Introduction to the Balanced ScorecardWhat is it? Why do it?1-3Brayer BreakBalanced Scorecard FundamentalsThe Four Perspectives Measures, Targets and InitiativesRoles and Responsibilities

Business Strategy

The Balanced ScorecardWhat 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.

Balanced Scorecard HistoryMeasurement and ReportingAlignment and CommunicationEnterprise-wide Strategic Management

The Balanced Scorecard is the main management tool that has been used by successful organizations in various fieldsPrivate 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 activitiesIn this workshop, we will learn more about strategy- focused organizations, and how to develop Balanced Scorecards

The Strategy-Focused-Organization

Organizations Often Have A Gap Between Strategy and ActionStrategy Is a Step In a ContinuumMISSIONWhy we existVALUESWhats important to usVISIONWhat we want to beSTRATEGYOur game planSTRATEGIC OUTCOMESSatisfied SHAREHOLDERSDelighted CUSTOMERSEfficient and Effective PROCESSESMotivated & Prepared WORKFORCE

The Balanced Scorecard Is A Bridge To Close That GapStrategy Is a Step In a Continuum

The Balanced ScorecardWhat 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.

Measurement is the language that gives clarity to vague conceptsMeasurement is used to communicate, not simply to controlFinancial PerspectiveProfitabilityGrowth Shareholder ValueThe VisionCustomer PerspectivePriceServiceQualityInternal PerspectiveLearning and GrowthNew SkillsContinuous ImprovementIntellectual AssetsIf we succeed, how will we look to our shareholders?To achieve our vision, what customer needs must we serve?To satisfy our customers and shareholders, at which business processes must we excel?To excel in our processes, what must our organization learn?Cycle TimeProductivityCostThe Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms

The Revenue Growth StrategyImprove stability by broadening the sources of revenue from current customersThe Productivity StrategyImprove operating efficiency by shifting customers to more cost-effective channels of distributionImprove ReturnsImprove Operating EfficiencyBroaden Revenue MixIncrease Customer Confidence in Our Financial AdviceIncreaseCustomer Satisfaction Through Superior ExecutionIncreaseEmployee ProductivityAccess to Strategic InformationDevelop Strategic SkillsAlign Personal GoalsFinancialPerspectiveCustomerPerspectiveInternalPerspectiveLearning PerspectiveCross-Sell the Product LineShift to Appropriate ChannelProvide Rapid ResponseDevelop New ProductsMinimize ProblemsUnderstand Customer SegmentsA Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy

A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect HypothesesF1 - Improve ReturnsF2 - Broaden Revenue Mix

F3 - Reduce Cost StructureC1 - Increase Customer Satisfaction With Our Products & People

C2 - Increase Satisfaction After the SaleI1 -Understand Our CustomersI2 -Create Innovative Products

I3 -Cross-Sell Products

I4 -Shift Customers to Cost-Effective ChannelsI5 -Minimize Operational ProblemsI6 -Responsive ServiceL1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal Goals Return on Investment Revenue Growth

Deposit Service Cost ChangeShare of Segment

Customer Retention

New Product Revenue

Cross-Sell Ratio

Channel Mix Change

Service Error Rate

Request Fulfillment TimeEmployee SatisfactionRevenue per EmployeeStrategic ObjectivesStrategic Measurements(Lag Indicators)(Lead Indicators)

Revenue Mix

Depth of Relation

Satisfaction Survey

Product Development Cycle

Hours with CustomersStrategic Job Coverage RatioStrategic Info Availability RatioPersonal Goals Alignment (%)FinancialCustomerInternalLearning

Theme Example from Southwest Airlines Balanced Scorecard

The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & BudgetingObjectivesMilestonesPromote ABC Culture ModelEmployee Satisfaction SurveyEvaluate survey response

InternalLearningCustomerAccountableHR Committee$ xxxxResource Alloc.TargetsInitiativesMeasuresThemes/ GoalsVisionMissionMeet access expectations3rd available appointment (% met)02 xx%03 xx%04 xx%Access projectMeet monthly targetDeadline metMkg. Team$ xxxxABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing shareServe the needs of patients excellently1. Strengthen innovation2. Improve customer satisfaction3. Assure consistent high quality4. Provide operational excellenceLonger Term (3-5 year) ViewShorter Term (Annual) ViewStrategicTactical% patient mix02 = 39%03 = 40%04 = 41%Mix Margins ProjectDept. ChairsComplete by 2003$ xxxxAssure optimum patient mix02 xx%03 xx%04 xx%FinancialGrow revenue from patient care% patient care revenue growth02 xx%03 xx%04 xx%

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.

The Balanced ScorecardWhy 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.

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)

The Results are Widespread1993 $275 loss1998 Top Quartile $3b spin-offBrown & Root Engineering (Rockwater)Saint Marys/ Duluth Clinic Health SystemDuke Childrens HospitalSouthern CitrusCIGNA Property & CasualtyChemical BankATT Canada1993 Losing money1996 # 1 in Niche (growth & profits)19951998Profits1993 X1998 20X1995 $300M loss1998 Customer base doubles1999 $7b spin-offShipments on SpecOn Time DeliveryReworkAbsenteeismEmployee TurnoverCost per Pound ()70%89%6%10%10028.897%98%2%1%3118.9Mobil US Marketing & Refining Competitive Rank (out of 7,profit)19931995199619971998#6#1#1#1#163Readmission Rate25Length of Stay11Family Satisfaction25Operating Margin% ImprovementMeasure15%Overall Hospital Point SatisfactionDecrease 16 daysDays in AR$18M since BSC implementationOperating MarginImprovementMeasure

Mission: What we do

Vision: What we aspire to be

Strategies: How we accomplish our goals

Measures: Indicators of our progressThe Strategy Focused Organization

..the question..?

What is our strategy?

Environmental ScanStrengths WeaknessesOpportunities ThreatsValuesMission &VisionStrategic IssuesStrategic PrioritiesObjectives, Initiatives, and EvaluationA Model forStrategicPlanning

Business Strategy

Business Strategy

Corporate Culture

Corporate CultureThe beliefs and values shared by people who work in an organisationHow people behave with each otherHow people behave with customers/clientsHow people view their relationship with stakeholdersPeoples responses to energy use, community involvement, absence, work ethic, etc.How the organisation behaves to its employees training, professional development, etc.

Corporate CultureMay be driven by:Vision where the organisation wants to go in the futureMission Statement summary of the beliefs of the organisation and where it is now

Corporate CultureMay be reflected in:Attitude and behaviour of the leadershipAttitude 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 worldIts attitude to change

Corporate CultureWhat corporate culture do you think the following businesses have managed to develop?

Virgin GroupCopyright: Joshua2150, http://www.sxc.huThe Body ShopCopyright: fadaquiqa, http://www.sxc.huMcDonaldsCopyright: alexallied http://www.sxc.huNikeCopyright: alexbol http://www/sxc.hu

Strategic Planning

Strategic PlanningFirst Stage of Strategic Planning may involve:Futures ThinkingThinking about what the business might need to do 1020 years aheadStrategic IntentsThinking about key strategic themes that will inform decision makingThe 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

Strategic PlanningThe VisionCommunicating to all staff where the organisation is going and where it intends to be in the futureAllows the firm to set goalsAims and Objectives:Aims long term targetObjectives the way in which you are going to achieve the aim

Strategic PlanningOnce the direction is identified:Analyse positionDevelop and introduce strategyEvaluate:Evaluation is constant and the results of the evaluation feed back into the vision

Analysis

SWOTStrengths identifying existing organisational strengthsWeaknesses identifying existing organisational weaknessesOpportunities what market opportunities might there be for the organisation to exploit?Threats where might the threats to the future success come from?

PESTPolitical: 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!

PESTExamples:Growth of China and India as manufacturing centresConcern over treatment of workers and the environment in less developed countries who may be suppliersThe future direction of the interest rate, consumer spending, etc.The changing age structure of the populationThe popularity of fads like the Atkins DietThe move towards greater political regulation of businessThe effect of more bureaucracy in the labour market

Five-ForcesDeveloped 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?

Required InputsChanging 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 requiredCapital the type of capital and the cost of the capital needed to fulfil the strategy

Evaluation

EvaluationData 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

Types of Strategy

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

Types of StrategyMarket Dominance:Achieved through:Internal growthAcquisitions mergers and takeovers New product development: to keep ahead of rivals and set the paceContraction/Expansion focus on what you are good at (core competencies) or seek to expand into a range of markets?

Types of StrategyPrice Leadership through dominating the industry others follow your price leadGlobal seeking to expand global operationsReengineering thinking outside the box looking at news ways of doing things to leverage the organisations performance

Types of StrategyInternal business level strategies Downsizing selling off unwanted parts of the business similar to contractionDelayering flattening the management structure, removing bureaucracy, speed up decision makingRestructuring complete re-think of the way the business is organised

The Five Principles

Translate the strategy to operational terms.

Align the organization to the strategy.The Strategy Focused OrganizationSource: The Strategy Focused Organization, Norton & Kaplan

The Five Principles (cont.)

Make strategy everyones job.

Make strategy a continual process.

Mobilize change through executive leadershipThe Strategy Focused OrganizationSource: The Strategy Focused Organization, Norton & Kaplan

The Balanced Scorecard and The Big PictureActivity Based CostingEconomic Value AddedForecastingBenchmarkingMarket ResearchBest PracticesSix SigmaStatistical Process ControlReengineeringISO 9000Total Quality ManagementEmpowermentLearning OrganizationSelf-Directed Work TeamsChange Management

Strategic DirectionCreate Environment For ChangeStrategic Performance Management SystemLinking it all together.Communicate StrategiesDefine ObjectivesImplement BSCBalanced ScorecardMeasure PerformanceImprove ProcessesEvaluate and AdjustContinuous ImprovementRedefine Initiatives

FINANCIAL/REGULATORYTo satisfy our constituents, what financial & regulatory objectives must we accomplish?

CUSTOMERTo achieve our vision, what customer needs must we serve?

INTERNALTo satisfy our customers and stakeholders, in which business processes must we excel?

LEARNING & GROWTHTo achieve our goals, how must we learn, communicate and grow?

THE BALANCED SCORECARD

Customer Perspective

Customer Satisfaction (Average) Satisfaction Gap Analysis (Satisfaction vs. Level of Importance) Satisfaction Distribution (% of each area scored)Possible Performance MeasuresTo achieve our vision, what customer needs must we serve?

Financial / Regulatory Perspective Cost / Unit Unfunded Requirements or Projects Cost of Service Budget Projections and TargetsPossible Performance MeasuresTo satisfy our constituents, what financial and regulatory objectives must we accomplish?

Internal Perspective Cycle Time Completion Rate Workload and Employee Utilization Transactions per employee Errors or ReworkPossible Performance MeasuresTo satisfy our customers, in which business processes must we excel?

Learning and GrowthTo 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

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

Measurements Should:Translate customer expectations into goals.

Evaluate the quality of processes.

Track our improvement.

Focus our efforts on our customers.

Support our strategies.

Targets

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

TargetsTargets 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

TargetsCareful 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.

InitiativesOnce 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.

The Leadership TeamDevelops the divisions vision, strategy and goalsDevelops organizational objectives and targetsProvides leadership, endorsement and vision for the projectClears barriers to scorecard progress

The Core TeamDrafts 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

Strategy MapFinance and Administrative Services

FINANCIAL

CUSTOMERINTERNAL PROCESSLEARNING & GROWTHHum. Rscrs.Univ. PoliceFacilitiesPoliceParkingLink it together.Measure: Satisfaction IndexCurrent: 3.0 Target: 4.0DIVISIONDEPT.FUNCTION

The Strategy Map: Cause and Effect RelationshipsWhat will drive margins?Managed growth in high margin programs/service linesHow?Attract targeted patient population through targeted referring physicians who value leading edge technology & expertiseWhat will the internal focus be?Ensure clinical excellence through leading edge programs and techniques in focused specialty areasAlign research priorities to support leading programs and stay out front in treatment methodsWill our people be prepared to do that?Yes, with appropriate technologyYes, by recruiting critical expertiseMaximize High MarginOpportunitiesStrong Financial BaseFinancialCustomerSpecialty Care PatientsReferring ProvidersLeading EdgeTechnologyLeading EdgeExpertiseInternal Continually DevelopClinical Excellence

Develop LeadingEdge Programs/TechniquesLearning & Growth

Develop Critical StaffingResource Plans

Align ResearchPrioritiesImplement Technologyto Support Processes and ProgramsImplement Managed Growth

The Balanced Scorecard as a Management SystemBSC reviewed regularly to enhance operational decision-makingSuccess of initiatives assessed based on DATA not opinionsLeading indicators evaluated to confirm accuracy of assumptions

The Balanced Scorecard as a Management SystemThe 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?

Rapid Deployment Case Study: Major Federal OrganizationNeedApproachBenefitsDefinition of Corporate strategyRapid roll-out and broad reachDevelop internal capabilities to sustain momentumDevelop Corporate Balanced ScorecardDefine template for rolling out BSCTrain subordinate unitsStreamline project managementQuality checksOnline educationClear guidance from CorporateActive involvement from client teamsRapid deployment with minimal resourcesQuality control

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

Thank You

*Welcome and Introductionsv*** *(11) Does a strategic focus make sense in a tactical business world?*(11) Does a strategic focus make sense in a tactical business world?

* *(11) Does a strategic focus make sense in a tactical business world?

*The Balanced Scorecard, when focused on driving strategy, is the recipe for success, bringing together varying departments, all working to accomplish an overall mission. The Balanced scorecard will take your vision and translate that into terms and goals for all levels of the organization.

Use the Balanced Scorecard to assist in breaking down barriers between departments. Use of strategic themes link separate operational units.

*It is important to communicate and educate everyone in the organization. Understanding of the strategy is key, as well as how each individual contributes to the achievement of the strategy.

Use regular management meetings to review status of measures and address the need to modify the strategic initiatives if performance is not improving. These meetings should be used as a learning opportunity, focused on team problem solving and adaptation to new situations.

Improvement is the ultimate goal, and cannot be attained without executive leadership. Effective leaders provide an environment that values creativity and accepts risk taking as an integral part of change management. Executives also need to use the Balanced Scorecard to communicate successes and opportunities for improvement.

*Charts the strategic direction of the organizationGood strategic plan looks 3-5 years outThe BSC is strategic vs. operationalDevelops organizational objectives and targetsLinks objectives to the vision/mission statementsClears barriers to scorecard progressRunning interference when needed*The Core Team is ideally a cross-functional, mid-level management team that understands operational issues.

Should include subject matter experts as needed.*SMDC was trying to work with a performance measurement tool in advance of crafting a focused business strategy

Balanced Scorecard Collaborative was hired to help get SMDC on the right track with their BSC