2Workshop Outline 1-3 Introduction to the Balanced Scorecard What is it?Why do it?1-3Brayer BreakBalanced Scorecard FundamentalsThe Four PerspectivesMeasures, Targets and InitiativesRoles and ResponsibilitiesBusiness Strategy
3The 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.
4Balanced Scorecard History Measurement and ReportingEnterprise-wide Strategic ManagementAlignment and Communication199219962000Articles in Harvard Business Review:“The Balanced Scorecard — Measures that Drive Performance” January - February 1992“Putting the Balanced Scorecard to Work” September - October 1993“Using the Balanced Scorecard as a Strategic Management System” January - February 199619962000Acceptance and Acclaim:“The Balanced Scorecard” is translated into 18 languagesSelected by Harvard Business Review as one of the “most important management practices of the past 75 years.“
5The Strategy-Focused-Organization The Balanced Scorecard is the main management tool that has been used by successful organizations in various fieldsPrivate and Public SectorFor- Profit and Not For- ProfitDifferent industriesThese 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
6Organizations Often Have A Gap Between Strategy and Action Strategy Is a Step In a ContinuumMISSIONWhy we existVALUESWhat’s important to usVISIONWhat we want to beSTRATEGYOur game plan(11) Does a strategic focus make sense in a tactical business world?STRATEGIC OUTCOMESSatisfied SHAREHOLDERSDelighted CUSTOMERSEfficient and Effective PROCESSESMotivated & Prepared WORKFORCE
7The Balanced Scorecard Is A Bridge To Close That Gap Strategy Is a Step In a ContinuumMISSIONWhy we existVALUESWhat’s important to usVISIONWhat we want to beSTRATEGYOur game planBALANCED SCORECARDImplementation & FocusSTRATEGIC INITIATIVESWhat we need to doSTRATEGIC OUTCOMESSatisfied SHAREHOLDERSDelighted CUSTOMERSEfficient and Effective PROCESSESMotivated & Prepared WORKFORCEPERSONAL OBJECTIVESWhat I need to do(11) Does a strategic focus make sense in a tactical business world?
8The Balanced Scorecard What is it? Balances financial and non-financial measuresBalances short and long-term measuresBalances 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.
9Measurement is the language that gives clarity to vague concepts The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational TermsThe VisionFinancial PerspectiveProfitabilityGrowthShareholder Value“If we succeed, how will we look to our shareholders?”Measurement is the language that gives clarity to vague conceptsMeasurement is used to communicate, not simply to controlCustomer Perspective“To achieve our vision, what customer needs must we serve?”PriceServiceQualityInternal Perspective“To satisfy our customers and shareholders, at which business processes must we excel?”Cycle TimeProductivityCostLearning and GrowthNew SkillsContinuous ImprovementIntellectual Assets“To excel in our processes, what must our organization learn?”
10The Revenue Growth Strategy The Productivity Strategy A Good Balanced Scorecard Strategy Map Tells the Story of Your StrategyThe Revenue Growth StrategyThe 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 ReturnsFinancialPerspectiveImprove Operating EfficiencyBroaden Revenue MixIncrease Customer Confidence in Our Financial AdviceIncreaseCustomer Satisfaction Through Superior ExecutionCustomerPerspectiveInternalPerspectiveUnderstand Customer SegmentsDevelop New ProductsCross-Sell the Product LineShift to Appropriate ChannelProvide Rapid ResponseMinimize ProblemsIncreaseEmployee ProductivityLearning PerspectiveDevelop Strategic SkillsAccess to Strategic InformationAlign Personal Goals
11A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect HypothesesStrategic ObjectivesStrategic Measurements(Lag Indicators)(Lead Indicators)F1 - Improve ReturnsF2 - Broaden Revenue MixF3 - Reduce Cost StructureReturn on InvestmentRevenue GrowthDeposit Service Cost ChangeRevenue MixFinancialC1 - Increase Customer Satisfaction With Our Products & PeopleC2 - Increase Satisfaction “After the Sale”Share of SegmentCustomer RetentionDepth of RelationSatisfaction SurveyCustomerI1 - Understand Our CustomersI2 - Create Innovative ProductsI3 - Cross-Sell ProductsI4 - Shift Customers to Cost-Effective ChannelsI5 - Minimize Operational ProblemsI6 - Responsive ServiceNew Product RevenueCross-Sell RatioChannel Mix ChangeService Error RateRequest Fulfillment TimeProduct Development CycleHours with CustomersInternalL1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal GoalsStrategic Job Coverage RatioStrategic Info Availability RatioPersonal Goals Alignment (%)Employee SatisfactionRevenue per EmployeeLearning
12Theme Example from Southwest Airlines’ Balanced Scorecard Strategic Theme: Operating EfficiencyProfitabilityFinancialLearningIncreaseRevenueGround crewalignmentLowestpricesLower CostsCustomerInternalFast groundturnaroundStrategy Map: Diagram of thecause-and-effect relationshipsbetween strategic objectivesFlightis on timeObjectivesFast ground turnaroundStatement of what strategy must achieve and what’s critical to its successMeasurementOn Ground TimeOn-Time DepartureHow success in achieving the strategy will be measured and trackedTarget30 Minutes90%The level of performance or rate of improvement neededCycle time optimizationKey action programs required to achieve objectivesInitiative
13Longer Term (3-5 year) View Shorter Term (Annual) View The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & BudgetingLonger Term (3-5 year) ViewShorter Term (Annual) ViewMissionVisionThemes/ GoalsObjectivesMeasuresTargetsInitiativesMilestonesAccountableResource Alloc.Grow revenue from patient care% patient care revenue growth‘02 xx%‘03 xx%‘04 xx%FinancialMeet access expectations3rd available appointment (% met)Access projectMeet monthly targetMkg. Team$ xxxx‘02 xx%‘03 xx%‘04 xx%CustomerABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share2. Improve customer satisfaction3. Assure consistent high quality4. Provide operational excellence1. Strengthen innovationServe the needs of patients excellentlyAssure optimum patient mix% patient mix’02 = 39%’03 = 40%’04 = 41%Mix Margins ProjectComplete by 2003Dept. Chairs$ xxxxInternal(11) Does a strategic focus make sense in a tactical business world?Promote ABC Culture ModelEmployee Satisfaction Survey‘02 xx%‘03 xx%‘04 xx%Evaluate survey responseDeadline metHR Committee$ xxxxLearningTacticalStrategic
14The 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.
15The 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 didn’t 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 don’t overreact nearly as much as we used to.”
16Execution 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 age’s 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 isn’t [bad strategy]…. It’s bad execution.”Why CEO’s Fail Ram Charan and Geoffrey Colvin Fortune (6/21/99)
17The Results are Widespread CIGNA Property & CasualtyChemical Bank1993 – $275 loss1998 – Top Quartile– $3b spin-offProfits1993 – X1998 – 20XBrown & Root Engineering (Rockwater)ATT Canada1993 – Losing money1996 – # 1 in Niche (growth & profits)1995 – $300M loss1998 – Customer base doubles1999 – $7b spin-offSaint Mary’s/ Duluth Clinic Health SystemSouthern Citrus19951998MeasureImprovementShipments on SpecOn Time DeliveryReworkAbsenteeismEmployee TurnoverCost per Pound (¢)70%89%6%10%10028.897%98%2%1%3118.9Operating Margin$18M since BSC implementationDays in ARDecrease 16 daysOverall Hospital Point Satisfaction15%Duke Children’s HospitalMobil US Marketing & RefiningMeasure% ImprovementCompetitive Rank (out of 7,profit)Operating Margin2519931995199619971998#6#1Family Satisfaction11Length of Stay25Readmission Rate63
18The Strategy Focused Organization Mission: What we doVision: What we aspire to beStrategies: How we accomplish our goalsMeasures: Indicators of our progress
20Mission & Vision Environmental Scan A Model for Strategic Planning Strengths WeaknessesA Model forStrategicPlanningOpportunities ThreatsValuesMission &VisionStrategic IssuesStrategic PrioritiesObjectives, Initiatives, and Evaluation
24Corporate 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 stakeholdersPeople’s responses to energy use, community involvement, absence, work ethic, etc.How the organisation behaves to its employees – training, professional development, etc.
25Corporate Culture May 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
26Corporate Culture May 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 organisationThe image it presents to the outside worldIts attitude to change
27Corporate CultureWhat corporate culture do you think the following businesses have managed to develop?NikeCopyright: alexbolMcDonaldsCopyright: alexalliedVirgin GroupCopyright: Joshua2150,The Body ShopCopyright: fadaquiqa,
29Strategic Planning First Stage of Strategic Planning may involve: Futures ThinkingThinking about what the business might need to do 10–20 years aheadStrategic IntentsThinking 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,
30Strategic Planning The Vision Aims and Objectives: Communicating 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
31Strategic Planning Once the direction is identified: Analyse position Develop and introduce strategyEvaluate:Evaluation is constant and the results of the evaluation feed back into the vision
33SWOT Strengths – identifying existing organisational strengths Weaknesses – 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?
34PESTPolitical: 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!
35PEST Examples: Growth of China and India as manufacturing centres Concern 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
36Five-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?
37Required 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
39EvaluationData 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 dataInformation from a wide variety of sources can help to measure and inform the impact and direction of the strategy.Copyright: Mad7986,
41Types 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.
42Types of Strategy Market Dominance: Achieved through:Internal growthAcquisitions – mergers and takeoversNew 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?
43Types 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 organisation’s performance
44Types 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
45The Strategy Focused Organization The Five Principles Translate the strategy to operational terms.Align the organization to the strategy.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.Source: The Strategy Focused Organization, Norton & Kaplan
46The Strategy Focused Organization The Five Principles (cont.) Make strategy everyone’s job.Make strategy a continual process.Mobilize change through executive leadershipIt 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.Source: The Strategy Focused Organization, Norton & Kaplan
47The Balanced Scorecard and The Big Picture Activity Based CostingEconomic Value AddedForecastingBenchmarkingMarket ResearchBest PracticesSix SigmaStatistical Process ControlReengineeringISO 9000Total Quality ManagementEmpowermentLearning OrganizationSelf-Directed Work TeamsChange Management
48Strategic Performance Management System Strategic DirectionCreate EnvironmentFor ChangeCommunicate StrategiesDefine ObjectivesImplement BSCBalanced ScorecardMeasure PerformanceImprove ProcessesEvaluate and AdjustContinuous ImprovementRedefine InitiativesLinking it all together….
49THE BALANCED SCORECARD FINANCIAL/REGULATORYTo satisfy our constituents,what financial & regulatoryobjectives mustwe accomplish?CUSTOMERTo achieve our vision,what customer needs mustwe serve?INTERNALTo satisfy our customers andstakeholders, in which businessprocesses must we excel?LEARNING & GROWTHTo achieve our goals, howmust we learn, communicateand grow?
50Customer Perspective To achieve our vision, what customer needs must we serve?Possible Performance MeasuresCustomer Satisfaction (Average)Satisfaction Gap Analysis (Satisfaction vs.Level of Importance)Satisfaction Distribution (% of each area scored)
51Financial / Regulatory Perspective To satisfy our constituents, what financial andregulatory objectives must we accomplish?Possible Performance MeasuresCost / UnitUnfunded Requirements or ProjectsCost of ServiceBudget Projections and Targets
52Internal Perspective To satisfy our customers, in which business processes must we excel?Possible Performance MeasuresCycle TimeCompletion RateWorkload and Employee UtilizationTransactions per employeeErrors or Rework
53Learning and GrowthTo achieve our goals and accomplish core activities, how must we learn, communicate and work together?Possible Performance MeasuresEmployee SatisfactionRetention and TurnoverTraining Hours and ResourcesTechnology Investment
54Why 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
55Measurements Should: Translate customer expectations into goals. Evaluate the quality of processes.Track our improvement.Focus our efforts on our customers.Support our strategies.
56Targets“If you don’t know where you’re going, you’re probably not gonna get there.”Forrest Gump
57Targets Targets need to be set for all measures Should have a “solid basis”Give personnel something for which to aimIf achieved will transform the organization
58Targets 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.
59InitiativesOnce 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.
60The Leadership Team Develops the division’s vision, strategy and goals Develops organizational objectives and targetsProvides leadership, endorsement and vision for the projectClears barriers to scorecard progressCharts 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
61The Core Team Drafts the strategy map and scorecard Works with employees to develop measures supporting strategic objectivesWorks with the Leadership Team to plan and implement the Balanced Scorecard in the FAS DivisionThe Core Team is ideally a cross-functional, mid-level management team that understands operational issues.Should include subject matter experts as needed.
62FY1999 CORPORATE LEVEL BALANCED SCORECARD FinancialCustomerOperationalPeopleTechnicalIndica-torTar-getFY99FinalTargetStat-usStat-usAdjustedDischarges23,89023,592PatientSatis-factionChoose keyfocus areasforimprove-mentCArrangingCareDetermine outpatientphone model,conduct pilotsCulturalDevelop-Completecommuni-cationsstrategyQualityImprove-Implementsystem-widegovernancestructureEncounters912,188892,243Employersurveydevelop-ment in CY1999CYmodel forregistration &schedulingphysicianexternal qualityreport in CYCost perDischarge6,9647,535HEDISIndicatorsSelectindicatorsment planMProvidingDetermine model forpatient deliverysystem for clinicaldivisionsemployeeMeet or exceedstandards forSMDCaccreditationEncounter215252Com-munityServicereportingprocess andinventoryComplete systemstrategy forambulatory surgeryplan tomaintainCatholic-ityInforma-tionTechnol-ogyComplete ITstrategic planin CY 1999OperatingMargin2.01.3Commun-ity Aware-nesssurveyinCY 1999Docu-mentingandTrackingComplete plan fordecentralized codingand charge entryEmployeeRelationsStrategyAccom-plish “payequity”Complete Y2Kcompliance by12/99Excess3.83.3MarketSharebaselineInnova-tion andProgramComplete feasibilitystudy for a women’shealth centerSynchro-nizebenefitsMedicalEducation& Researchreport offunded grantspublicationsDays Cashon Hand103.6108.6Complete plan for ageriatrics programFacilitiesPlanningPerkins & WillplanDays inAccountsReceivable77.782.8Return onInvestment3.42.9“C” = task completed; “CY” = Calendar Year 1999 task; “M” = task modifiedFinance section:Targetmet;Target not metSMDC was trying to work with a performance measurement tool in advance of crafting a focused business strategyBalanced Scorecard Collaborative was hired to help get SMDC on the right track with their BSC
63Finance and Administrative Services Strategy Map
66Link it together…. DIVISION CUSTOMER FINANCIAL INTERNAL PROCESS LEARNING & GROWTHDEPT.Hum. Rscrs.Univ. PoliceFacilitiesPoliceParkingFUNCTIONMeasure: Satisfaction IndexCurrent: Target: 4.0
67The Strategy Map: Cause and Effect Relationships FinancialStrong Financial BaseWhat 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 expertiseImplement ManagedGrowthMaximize High MarginOpportunitiesCustomerSpecialty Care PatientsReferring ProvidersLeading EdgeTechnologyLeading EdgeExpertiseContinually DevelopClinical ExcellenceInternalDevelop LeadingEdge Programs/TechniquesAlign ResearchPrioritiesLearning & GrowthImplement Technologyto Support Processesand ProgramsDevelop Critical StaffingResource Plans
68The Balanced Scorecard as a Management System BSC reviewed regularly to enhance operational decision-makingSuccess of initiatives assessed based on DATA… not opinionsLeading indicators evaluated to confirm accuracy of assumptions
69The 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?
70Rapid Deployment Case Study: Major Federal Organization Definition of “Corporate” strategyRapid roll-out and broad reachDevelop internal capabilities to sustain momentumNeedApproachDevelop Corporate Balanced ScorecardDefine template for rolling out BSCTrain subordinate unitsStreamline project managementQuality checksOnline educationBenefitsClear guidance from CorporateActive involvement from client teamsRapid deployment with minimal resourcesQuality control
71Advantages to this Approach Simple to Use and UnderstandBased on Vision and StrategyMultidimensionalQuantitative and Qualitative MeasuresCurrent and FutureProvides Measurement of and Method for Improving our ServicesTies QI initiatives togetherServes as a Communication Tool