WHY DO STRATEGIC

PLANS FAIL?
 Vision Barrier
 People Barrier

 Resource Barrier

 Management Barrier
BALANCED SCORE
CARD
WHAT IS THE BALANCED
SCORECARD?

The Balanced Scorecard is a set of measures that

are directly linked to the company’s strategy. It
directs a company to link its own long-term
strategy with tangible goals and actions.
- developed in early 1990’s by Robert Kaplan
(HBS) and David Norton.
Balanced Scorecards tell you the knowledge, skills
and systems that your employees will need
(learning and growth) to innovate and build the
right strategic capabilities and efficiencies
(internal processes) that deliver specific value to
the market (customer) which will eventually lead
to higher shareholder value (financial).
– “Having Trouble with Your Strategy? Then Map
It” by Robert S. Kaplan and David P. Norton -
Harvard Business Review
 With balanced scorecards, strategy reaches
everyone in a language that makes sense.
 When strategy is expressed in terms of
measurements and targets, the employee can
relate to what must happen. This leads to much
better execution of strategy.
If you want strong financial results,
you must have….
TYPES OF LONG-TERM
OBJECTIVES
 Profitability

 Productivity

 Competitive position
 Employee development

 Employee relations

 Technological leadership

 Public responsibility
FACTORS FUELLING THE NEED FOR
PERFORMANCE MEASUREMENT
1) the series of corporate accounting scandals,
2) a longstanding reliance on financial measures of
performance as the one true way to gauge success,
3) the inability of many organizations to successfully
execute their strategies.
 What to Measure?
 Measure outcomes not activity
 Begin with efficiency measures
 Develop metrics geared towards your
organization’s goals and strategies
 Establish metrics to monitor key HR practices
proven to grow human capital
 Use metrics that will encourage change and
help us make better decisions about human
capital
WHY EXECUTING
STRATEGY...
Is the greatest challenge for organizations
 Vision
 - only 5% of workforce gets it
 People
– 25% of managers have incentives linked to strategy
 Management
– 85% of executive teams spend less than 1 hour/mo
discussing strategy
 Resource
– 60% of organizations don’t link budgets to strategy
 LAG INDICATORS- feedback measures on
current performance
 LEAD INDICATORS- drivers of long term
value
 CAUSE AND EFFECT RELATIONSHIPS
Lag Indicators Lead Indicators
 Return on Investment
Learning Internal C ustom er Financial
•Return on Investment
Revenue Growth
•Revenue growth
 Customer Retention  Customer Satisfaction
 Share of Wallet • Customer
Survey Satisfaction Survey
•Customer Retention
 Customer Complaints
• Customer Complaints and
and Returns
Returns
 On-time Delivery  Cycle Time
 Yield, Variability
•On-time delivery •Cycle Time
•Yield, Variability
 Employee Satisfaction  Employee Teams
 Employee Skills  Employee Training
•Employee Satisfaction •Employee Teams
•Employee Skills •Employee Training
 BALANCED PERFORMANCE
MEASUREMENT
1) How should strategy be implemented in our firm?- how
the firm generates value.

Asking this question focuses the org on two

dimensions-
a) Breadth: attend to more than financials. The value
creation must focus on performance drivers or key
success factors
b) Causal flow: series of linkage among financial and
non financial determinants of firm performance.
Such activity pushes managers to think beyond
financials and focus on other success indicators.
2) What performance measures capture this broadly
defined strategy implementation process?

- attach metrics to the conceptual foundation that they

envisioned after understanding the value-creation
process.
 BSC enables organizations to clarify their vision
and strategy and translate them into action.
 It provides feedback around both internal
business processes and external outcomes in
order to continuously improve strategic
performance and results.
“ The BSC retains the traditional financial measures. But
financial measures tell the story of the past events, an
adequate story for industrial age companies for which
investments in long-term capabilities and customer
relationships were not critical for success.
These financial measures are inadequate, however, for
guiding and evaluating the journey that information
age companies must make to create future value
through investment in customers, suppliers,
employees, processes, technology, and innovation.”
 THE FOUR PERSPECTIVES IN A
BALANCED SCORECARD
1) Financial performance
2) Customer knowledge
3) Internal business processes
4) Learning and growth
 THE BALANCED SCORECARD
Financial
‘To succeed financially,
how should we appear
to our shareholders?”
Customer Internal Business
“To achieve Process
our vision, Vision “To satisfy our
how should we and shareholders and
appear to our Strategy customers, what
customers?” business processes
must we excel at?”

Learning and Growth

To achieve our vision,
How will we sustain our
ability to change and
improve?
 Perspective Measure
Financial operating income, return on capital
(ROCE) employed , economic value
added (EVA), ROI
Customer customer satisfaction, customer
retention and market share in target
segments
Internal/ Business process Cost, response time, new product
introduction, throughput and quality.
These are for business processes such
as procurement, production and order
fulfillment
Learning and Growth Employee satisfaction, employee
retention, skill sets, information
systems available
THE BSC REFLECTS THE BALANCE
BETWEEN:
 Short term and long term objectives
 Financial and non-financial measures

 Lagging and leading indicators

 External and internal performance perspectives

 BALANCED SCORECARD
PERSPECTIVES
Financial
How do we Objectives Measures Targets Initiatives
appear to our
Stockholders?

Customer Vision Internal Business Process

How do we Objectives Measures Targets Initiatives
appear to our
& At what internal Objectives Measures
processes must
Targets Initiatives

Customers? Strategy we excel?

Learning and Growth

How do we Objectives Measures Targets Initiatives
sustain our
ability to change
& grow?
OBJECTIVES, MEASURES, TARGETS,
AND INITIATIVES
For each perspective of the Balanced Scorecard four
things are monitored (scored):
 Objectives: major objectives to be achieved, for
example, profitable growth.
 Measures: the observable parameters that will be used to
measure progress toward reaching the objective. For
example, the objective of profitable growth might be
measured by growth in net margin.
 Targets: the specific target values for the measures, for
example, 7% annual decline in manufacturing
disruptions.
 Initiatives: projects or programs to be initiated in order
to meet the objective. eg training
THE BALANCED SCORECARD
APPROACH

Train and Communicate Strategy

Set goals, select performance measures and link

measures to incentives
Feed
Forward
Learning
Set target for each goal and re-deploy resources to
activities and initiatives to achieve targets

Provide feedback on performance and

learn from results
 BUILDING
An example of A BALANCE
SCORECARD
7-10 weeks

Agree Critical Implementation

Confirm Define Success Develop Establish
Critical of
Vision Factors & Performance Performance
Success Strategic Roll-out
& Measures Targets
Factors Linkages Plan
Strategy

Example activities
 Executive  Workshop #1  Workshop # 2  Workshop # 3
interviews

1-2 Weeks 2-3 Weeks 2-3 Weeks 2 Weeks

• framework for performance measures

• Consistent management team consensus and understanding
• Detailed implementation plan including technology and
dependencies on other enablers e.g. rewards
 ILLUSTRATIVE BUSINESS MODEL
Improvement / Learning Business Process Customer / Consumer Financial

Gain & Share Manage Provide

Best Practices Supply Chain Enhanced
Complexity Value To
Market x
Achieve
Growth

Build and
Increase Maintain Become
Staff Strong Preferred
Competence Customer Supplier
Maximize
Relationships in Market Y
Value
Creation
Drive For
Innovation

Achieve
Gain Business Increase
Consumer
Environment Cost
Brand
Intelligence Efficiency
Preference

Build Strong
Brand

Validate through the ‘How’ & ’Why’ Test!

 INCREASE STAFF COMPETENCE
Improvement / Learning Business Process Customer/Consumer Financial
Gain and
Share best
practices

Build and
Increase Staff maintain strong
competence customer
relationship

Gain business
Env intelligence

Objective : Critical Activities : Leading Measure :

Improve employee • Define required skills / • % of managers with
skill level in key competencies personal ‘new’ personal
areas of the • Assess current skill set development plan
business model, • Schedule training needs
through training and • Define recruiting needs Lagging Measure :
recruitment • Follow training program • % of managers with
• Monitor skill level personal development
plan on track
 STRATEGIC MEASURES - ILLUSTRATIVE

Improvement / Learning Business Process Customer / Financial

Consumer
Manage Supply Achieve organic
Provide enhanced value
Increase staff Chain Complexity value growth
competence Leading:
Leading: • growth in sku’s Leading:
Leading: • number of listing • customer churn
• percentage people sku’s in range • distribution Lagging:
with competence Lagging: percentage • sales growth
profile defined • order fill rate Lagging: • sales margin
Lagging: • market share trend
• percentage people
with training program
on track

Gain business
Drive for innovation Achieve consumer Maximize value
environment intelligence
brand preference creation

Leading: Leading: Leading: Leading:

• number of targeted • number of running • price gap relative • forecasted
sources accessible innovation to competition economic profit
Lagging: projects Lagging: Lagging:
• information system user Lagging: • brand preference • actual
satisfaction index • percentage sales rating economic profit
from new products
LINKING THE BALANCED SCORECARD TO
STRATEGY

Return on
Financial Investment

Customer Customer Loyalty

On-time Delivery

Internal Processes Process Quality Process Cycle Time

Learning and Growth Employee Skills

BENEFITS OF THE BALANCED
SCORECARD

Kaplan and Norton cite the following benefits of the usage of

the Balanced Scorecard:
 Focusing the whole organization on the few key things needed
to create breakthrough performance.
 Helps to integrate various corporate programs. Such as: quality,
re-engineering, and customer service initiatives.
 Breaking down strategic measures towards lower levels, so that
unit managers, operators, and employees can see what's
required at their level to achieve excellent overall performance.
CLASS EXERCISE
BALANCED SCORECARD EXAMPLE
Strategic Theme:
Objectives Measurement Target Initiative
Operating Efficiency
Financial
Profitability • Profitability • Market Value • 30% CAGR
• More • Seat Revenue • 20% CAGR
More
Fewer Planes Customers
Customers • Plane Lease • 5% CAGR
• Fewer planes Cost
Customer • Flight is on • FAA On Time • #1 • Quality
Flight Lowest -time Arrival Rating management
Is on Time Prices • Lowest prices • Customer • #1 • Customer
Ranking (Market loyalty
Survey) program
Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast Ground turnaround • On-Time • 90% optimization
Turnaround Departure program

Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP

alignment trained yr. 3 90%
Ground Crew yr. 5 100%
• Ground crew
Alignment • % Ground crew training
stockholders