Balanced Scorecard & Strategic Management

Strategic Planning Model 1. Where are we now? 2. Where do we want to be? 3. How do we measure our progress? 4. How do we get there? AND 5. How do we track our progress?

Strategic Planning Model Vision & Mission SWOT Analysis Balanced Scorecard Strategic Objectives Key Performance Indicators Budgets & Resources Initiatives Objectives & Measures Outputs and Outcome

Strategy Map (Logic Model) Strategic Plan Perspective Strategy Map (Logic Model) Corporate Scorecard Action Plan Strategy Map Objective Measure Target Initiative Budget Financial Run the Business Customer Serve the customer Internal Process Manage the process Learning & Growth Build capacity

Chem-Pro Corporate Scorecard Objective Measurement Target Initiative F1:Exceed market growth F2: Profitable growth Sales growth Margin Growth +2% +5 points C1: Perceived value for money C2: Relationship at multiple levels Customer survey #contacts with targeted sponsors Rated #1 by 75% 100% Focus group program Account penetration program I1: Maximum retention I2: Develop regional market I3: Identify profitable new market Win/loss rate Potential revenue in sales pipeline #potential customers arrived first #surprises Exceed 60% in targeted segments Increase by 30% Double current # in 2 years Reduce by 50% in 2 years Critical opportunity sales support Reference sell program Pull marketing and image program Target marketing program L1: Develop marketing skill L2: Develop customer database Percent of strategic skills available Percent of customers with key attributes known 100% in 2 years 80% in 2 years Selling skills program Customer database Sales learning system Kaplan and Norton, 1996

Strategy Map A diagram describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationship with each other in the four BSC perspectives. All of the information is contained on one page; this enables relatively easy strategic communication.

Strategy Map Max. Profit Inc. Rev. Reduce Cost Inc. rev New Cust Inc. rev per Cust Cust Acquisition Cust Satisfaction Product Quality Fast Service On-time Delivery Production Process Cust Mgt. Process Logistic Process Skill Personnel Motivated Culture Excellent IT/IS Financial Perspective Customer Internal Process Learning & Growth

What are the main principles behind Strategy Maps? Strategy balances contradictory forces. Strategy is based on a differentiated customer value proposition. Value is created through internal business processes. Strategy consists of simultaneous, complementary themes. Strategic alignment determines the value of intangible assets. www.valuebasedmanagement.net

Strategy map Kaplan and Norton, 2004

Strategic Alignment

Strategic Alignment “Alignment is the essence of management” (Smith, Chairman of Federal Express, cited in Labovitz and Rosansky, 1997) Strategic Alignment—the process of linking strategy with corporate vision, goals, objectives, and actions—fit and integration Using Balance Scorecard to create corporate synergies

BUDGETS AND CAPITAL INVESTMENTS Question: How can complex organizations achieve results like this in such short periods of time? Answer: Alignment! The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy STRATEGY BUSINESS UNITS EXECUTIVE TEAM HUMAN RESOURCES INFORMATION TECHNOLOGY BUDGETS AND CAPITAL INVESTMENTS Kaplan and Norton, 2001

Strategy-focused Organizations Operationalizing the strategy – use balanced scorecard and strategy to map and identify significant strategies for creating sustainable competitiveness. Aligning the organization to the strategy – align both strategic units and shared service units with organizational strategy. Making strategy everyone’s everyday job – facilitate top down communication that helps employees understand how their day-to-day jobs contribute to strategy. Making strategy a continual process – build double-loop process to manage strategy by (1) linking strategy to the budgeting process, (2) making effective management meeting to reviewing strategy, and (3) learning and adopting strategies as they evolve. Mobilizing the leadership for change – leaders must enable their staff to understand why change is needed and lead them through the stated vision to its accomplishment.

Translate the strategy to operational terms #1 The Strategy Measurement is the language that gives clarity to vague concepts. Measurement is used to communicate, not to control. Building the scorecard develops consensus and teamwork throughout the organization Financial Perspective "If we succeed, how will we look to our shareholders?” Customer Perspective "To achieve my vision, how must I look to my customers?” Internal Perspective "To satisfy my customer, at which processes must I excel?” Organization Learning "To achieve my vision, how must my organization learn and improve?” Kaplan and Norton, 2001

Link and align the organization around its strategy #2 #3. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs. #1. A Corporate Scorecard defines overall strategic priorities. CORPORATE CORPORATE SCORECARD (Shared Strategic Agenda) LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS Themes Measures SBU A SBU B SBU C SBU D 1. Financial Growth 2. Delight the Consumer 3. Win-Win Relationships 4. Safe & Reliable 5. Competitive Supplier 6. Good Neighbor 7. Motivated & Prepared 8. Quality xxx xx xx xx xx Finance Marketing Distribution Procurement Purchasing Safety Human Resources Information Technology Customer Scorecards Distributor Scorecard Joint Venture Scorecard Vendor Scorecard New Venture Scorecard Outsourcer Scorecard #2. Each SBU develops a long-range plan and BSC consistent with corporate strategic agenda. #4. Plans and BSC’s define relationships with external partners consistent with SBU strategy. Strategies Are Executed Through Business Units. The Strategies of the Business Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved. Kaplan and Norton, 2001

Make Strategy Everyone’s Everyday Job #3 Make Strategy Everyone’s Everyday Job HR Processes Are Essential for Moving Strategy From the Top to the Bottom CORP SBU Top-Down “Bridging Process” To Share the Strategy & Align the Workforce EDUCATION PERSONAL GOAL ALIGNMENT BALANCED PAYCHECKS Bottom-Up Process to Internalize & Execute the Strategy The Strategy Focused Workforce Kaplan and Norton, 2001

Strategy Deployment Who are responsible for the targets? Strategic Goals Measures Unit Team Individual

Issues on Strategy Deployment Corporate/Department KPI Matrix Cascade to department or staff Mandatory KPI How to Weight KPIs Routine/Administrative Job

Making Strategy a Continual Process #4 Imbed the Strategy in Ongoing Management Processes 1 Establish stretch targets; Select initiatives, Align operational improvement programs (TQM, Six Sigma, Activity Based Management); Allocate resources to projects Integrate Strategy with Planning and Budgeting 2 Introduce the New Reporting System Develop systems for data collection, analysis, and reporting 3 Conduct the New Management Meeting Open discussion of performance shortfalls; team problem-solving; adapting and learning Kaplan and Norton, 2001

To Succeed, the Executive Leader Must be Engaged in the Strategic Change Process… #5 Unfreeze Change Breakthrough and Sustain Achieve commitment and momentum at the top Align and focus the organization on change Institutionalize capabilities and culture required for breakthrough results “The Case for Change” “Early Wins” “Irreversible Momentum” “A successful Balanced Scorecard program is a transformation process not a “metrics” project.” Kaplan and Norton, 2001

Strategic Learning

Learning as a new paradigm of control Command & Control Learn & Adapt Ultimate intent of managing by measuring is not to control people but to influence them to make decisions and take actions that are likely to be consistent with organizational goals

Strategic Learning System Strategy map Perspective Financial Perspective Customer Perspective Internal Learning Perspective Update the Strategy Test the Hypothesis 2. Strategy Management Balanced Scorecard Financial Strategic Objectives Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable Competitive Supplier Motivated & Prepared Strategic Measures Return of Capital Employed Mystery Shopper Rating Dealer/Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs. Best Competitive Ratable Supply Strategic Competency Availability Cust Reporting Internal L&G 1. Project Management Review Resource Managing Operations Loop OPERATIONS Output Inputs Kaplan and Norton, 2001

Strategy Map as a Learning Device Max. Profit Inc. Rev. Reduce Cost Inc. rev New Cust Inc. rev per Cust Cust Acquisition Cust Satisfaction Product Quality Fast Service On-time Delivery Production Process Cust Mgt. Process Logistic Process Skill Personnel Motivated Culture Excellent IT/IS Financial Perspective Customer Internal Process Learning & Growth

Double Loop Learning System Strategic Management: Strategic Planning + Strategy Implementation Monitoring and Learning Strategy Content Management Project Management

Management Cockpit A Dashboard—Management Information System for effective making decision Information will be updated regularly and presented in the clarity, summary, and predetermined and sequenced basis

Management Cockpit Source: Chulalongkorn University, Thailand

Suwit Srimai Faculty of Technology & Management Prince of Songkla University, Thailand e-mail : suwit.s@psu.ac.th