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BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT
Case Study, Concepts and Debatable Ideas

Kenny Ong CNI Holdings Berhad
www.myCNI.com.my
www.OOBEY.com
Intro: CNI
1. 20 years old 2. Core Business: MLM 3. Others: Contract Manufacturing, F&B Retail, Export/Trading, eCommerce, Shared Services 4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam 5. Staff force: 500 6. Distributors: 200,000 7. Products: Consumer Goods and Services
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Introduction to Balanced Scorecard and Strategy
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"The digital watch didn't come from established watch companies, the calculator didn't come from slide rule or adding machine companies, video games didn't come from board-game manufacturers Parker Bros or Mattel, the ballpoint pen didn't come from fountain pen manufacturers, and Google didn't come from the Yellow Pages"
Bob Seidensticker, Futurehype
Whats wrong with Strategic Planning Today? Long-term Plans Objectives Strategies Enablers Resources Also known as L.O.S.E.R.
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Whats wrong with Strategic Planning Today?

1. Biggest Threats often come from OUTSIDE your normal industry 2. Planning from the base of an Existing organization vs. zero-based 3. Traditional Analysis (e.g. SWOT) based only on known or existing assumptions or knowledge 4. Spending too much time in market research and analysis 5. Defining the company from a Product/Service perspective vs. Category vs. JTBD (e.g. Coca-cola) 6. Wrong Benchmark already successful vs. what made them successful 7. Implementing BSC and PMS to improve Business Model and Strategy 8. New strategy, same people
Why BSC? Reason 1: Balanced Reason 2: Cause-and-Effect
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Balanced Scorecard: Corporate

Financial To satisfy our stakeholders, what Financial objectives must we accomplish? Customer Who are our target customers? What is our value proposition? Internal Process To satisfy our customers, in which internal business processes must we excel?"
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Learning & Growth What capabilities and tools do our employees require to help them execute our strategy?
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Balanced Scorecard: NGOs, Non-Profits, Governments

Internal Process To satisfy our targets, in which internal processes must we excel?" Financial To fulfill the Mission, what Financial, how do we fund Internal Processes?
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Mission Who are our targets? What is our value proposition?
Learning & Growth What capabilities and tools do our staff require to help them execute our strategy?
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Side notes on BSC

1. BSC should be a Thought Process and a Tool not a Religion (e.g. Excel vs. Budgeting) 2. BSC Appraisal 3. New BSC implementations should start linking with Budgeting right from the beginning 4. The proper BSC approach should rightly fully be heavily customized to the organization 5. Strategic Planning trainings should be provided before BSC trainings 6. Clear definitions for Accountability vs. Impact vs. Influence vs. Assistance
Todays Agenda
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Summary: Todays presentation 1. Business Model + BSC = Boundaries 2. Strategy + BSC = How 3. PMS + BSC = Execution
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What is the Business Model? Google Air Asia Tata Nano

USP
Profit Model
Market Discipline
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What is the Business Model?
USP
Profit Model
Market Discipline
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Business Model: Profit Model
Revenue Assets Cost
Cash Flow
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Margin
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Strategy + BSC
Financial
Revenue
Cost
Margin
Cash Flow
Asset
Customers
Internal Process
Learning & Growth
www.myCNI.com.my
www.OOBEY.com
What is the Business Model?
USP
Profit Model
Market Discipline
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Intro: Market Discipline

Product Leadership
"They are the most innovative" "Constantly renewing and creative" "Always on the leading edge"
Customer Intimacy "Exactly what I need" Customized products Personalized communications "They're very responsive" Preferential service and flexibility Recommends what I need "I'm very loyal to them" Helps us to be a success
"A great deal!"
Operational Excellence
Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Reliable product and service
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Strategy: Value Disciplines

Product Leadership (best product)
Operational Excellence (low cost producer)
Customer Intimacy (best total solution)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www.myCNI.com.my
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Operational Excellence Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent information for all Transactional 'Once and Done' Product Leadership New, state of the art products or services Risk takers Meet volatile customer needs Fast concept-tocounter Never satisfied obsolete own and competitors' products Learning organization
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Customer Intimacy Management by Fact Easy to do business with Have it your way (customization) Market segments of one Proactive, flexible Relationship and consultative selling Cross selling
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The McPlaybook*
Make it easy to eat 50% drive-thru Meals held in one hand Make it easy to prepare High Turnover Tasks simple to learn & repeat
Make it quick Make what customers want Fast Food Prowls market for new products Tests new products for Cooking Times Monitored field tests
*Adapted from: Businessweek , Februrary 5th 2007
Strategy: Disciplines
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Strategy: Disciplines
Apple powerful Product Leadership (best product) products, premium pricing, limited range Still Doing well in 2009
Acer super lean cost structure, aggressive pricing

HP well-balanced portfolio, mass customization

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What is the Business Model? Google Air Asia Tata Nano

USP
Profit Model
Market Discipline
www.myCNI.com.my
www.OOBEY.com
Summary: Todays presentation 1. Business Model + BSC = Done Boundaries 2. Strategy + BSC = How 3. PMS + BSC = Execution
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2. Strategy + BSC = How

Hope is not a strategy
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What is your Goal?
1. Cost Reduction 2. Growth 3. Both?
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Growth Strategy
Double-Digit Growth, Michael Treacy
1.Base Retention 5.New Business

GROWTH
2.Share Gain
4.Adjacent Market
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3.Positioning
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Growth Strategy
Double-Digit Growth, Michael Treacy
Increase switching cost Customize products Preempt Defections Brand
1. Base Retention
5. New Business
GROWTH
Promising Market? Make or Buy?
2. Share Gain
Neutralize Competitor advantages Superior Value Buy market share
4. Adjacent Market
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3. Positioning
Spot growth opportunities Organized search
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How Markets determine Growth Strategies (1)

Growth Rate Growth Strategy Rate Fast 1. Market Positioning 2. Share Gain 3. Base Retention Flat 1. Base Retention 2. Share Gain (Acquisitions)
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Why? Maintain market share in strategic segments Prepare for market decline Competitors focus too much on getting new customers Lose customers slower than competitors Create scale economics, squeeze costs
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Churn Rate
Churn Rate Low Strategy 1. Share Gain (Acquisitions) 2. Adjacent Markets 1. Base Retention 2. Share Gain 3. Adjacent Market Why? Buying customer base is cheaper than own efforts New products, old customers strategy Lose customers slower than competitors Customers are always open to the best value and offer Desperate to gain revenue
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High
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Example: XYZ Sector
Fast Growth, 1.Market Positioning Low Churn 2.Share Gain 3.Base Retention 4.Adjacent Markets
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Side Notes on Cost Reduction Strategy

30% 80%
Cost Reduction
5% 30%
Business Model
Operational
Finance, HR, IT Supply Chain R&D Sales & Marketing
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USP Profit Model Market Discipline Invest/Divest

www.myCNI.com.my
Strategy + BSC
Financial
Revenue
Cost
Margin
Cash Flow
Asset
Customers Base Retention Share Gain
Satisfactio n Positioning
Adjacent Market
New Business
Internal Process
Learning & Growth
www.myCNI.com.my
www.OOBEY.com
Strategy: Disciplines, Priorities, and KPIs

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Strategy: Disciplines, Priorities, and KPIs

Operational Excellence Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent information for all Transactional 'Once and Done' Product Leadership New, state of the art products or services Risk takers Meet volatile customer needs Fast concept-tocounter Never satisfied obsolete own and competitors' products Learning organization
www.OOBEY.com
Customer Intimacy Management by Fact Easy to do business with Have it your way (customization) Market segments of one Proactive, flexible Relationship and consultative selling Cross selling
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Move know-how from top performing units to others Benchmark against best in class Ensure operations training for all employees Use disciplines like TQM for continuous learning to reduce costs and improve quality
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Customer Intimacy
Capture knowledge about customers Understand customer needs Empower front line employees Ensure that everyone knows the customer Make company knowledge available to customers
Product Leadership
Reduce time to market Commercialize new products fast Ensure that ideas flow Reuse what other parts of the company have already learned Ensure there are multiple sources of funding
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Strategy + BSC
Financial
Revenue
Cost
Margin
Cash Flow
Asset
Adjacent Market
New Business
Internal Process Operational Excellence Learning & Growth Product Leadership Customer Intimacy
Investment Strategy
www.myCNI.com.my
www.OOBEY.com
Alignment: 4-Wheels Model
Business Person Structure Culture Leadership Resources

Model Strategic Planning
Alignment: Framework
Culture
Focus point Alignment Quality Innovation & Differentiation Risk taking Performance Management Corporate obsession Decision making
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Alignment: Framework
Structure
Org Structure Job Design C&B Policies & procedures Decision making Job fit Management Systems BSC and KPIs Decentralized & Empower
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Strategy: Framework
Leadership
Role modeling Vision/Mission/Philosophy Leadership Style Delegation & Empowerment C&B, Promotions Sense of Urgency Speak regularly about Performance
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Strategy: Framework
Recognition Recruitment Training Profit sharing Values Motivation Self Efficacy Awareness Useful Competencies Career aspirations Attribution (control)
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Person
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Strategy: Framework
Enablers Resources Technology Equipment Materials Human Intellectual Property Partners Property
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Funding CAPEX OPEX
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Each Discipline Requires Different Priorities & Resources
Organization, jobs, skills Culture, values, norms Information and systems
Product Leadership
Customer Intimacy
Management systems
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Organization, jobs, skills Culture, values, norms Central authority, low level of empowerment High skills at the core of the organization Disciplined Teamwork Process, product- driven Conformance, 'one size fits all' mindset
Information and systems
Integrated, low cost transaction systems The system is the process
Management systems
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Command and control Quality management

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Each Discipline Requires Different Priorities & Resources Product Leadership

Organization, jobs, skills
Ad hoc, organic and cellular High skills abound in loose-knit structures Concept, future-driven Experimentation and 'out of the box' mindset Person-to-person communications systems Technologies enabling cooperation Rewarding individuals' innovative capacity Risk and exposure management Product Life Cycle profitability
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Culture, values, norms
Information and systems Management systems

www.myCNI.com.my

Customer Intimacy
Organization, jobs, skills Culture, values, norms Empowerment close to point of customer contact High skills in the field and front-line Customer-driven Variation and 'have it your way' mindset
Information and systems
Strong customer databases, linking internal and external information Strong analytical tools Customer equity measures like life time value Satisfaction and share management Focus on Share of Wallet
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Management systems
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Strategy + BSC
Financial
Revenue
Cost
Margin
Cash Flow
Asset
Adjacent Market
New Business
Internal Process Operational Excellence Learning & Growth Competencies Information Systems Product Leadership Customer Intimacy
Investment Strategy
Motivation, empowerment, alignment www.OOBEY.com
www.myCNI.com.my
Summary: Todays presentation 1. Business Model + BSC = Done Boundaries 2. Strategy + BSC = How Done 3. PMS + BSC = Execution
www.myCNI.com.my
www.OOBEY.com
3. PMS + BSC = Execution

KPIs and PMS
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Reminder: Why BSC? Reason 1: Balanced Reason 2: Cause-and-Effect
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Before we start
Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies?
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Before we start

already know our priorities, aware of all strategy options available creating something UNIQUE, INNOVATIVE and DISRUPTIVE e.g. Air Asia conducting a business Turnaround e.g. MAS
Before we start

want to find out possible strategies, determine our priorities first thru selection of important KPIs; growing through normal business, not a Turnaround.
Example: Selection of KPIs for BSC

Customer satisfaction yCustomer loyalty yMarket share yCustomer complaints yComplaints resolved on first contact yReturn rates yResponse time per customer request yPrice relative to competition yTotal cost to customer yAverage duration of customer relationship yCustomers lost yCustomer retention yCustomer acquisition rates yPercentage of revenue form new customers yNumber of customers
www.myCNI.com.my turnover yAnnual sales per
Win rate (sales closed/sales contact) Customer visits to the company yHours spent with customers yMarketing cost as a percentage of sales yNumber of ads placed yNumber of proposals made yBrand recognition yResponse rate yNumber of trade shows attended ySales volume yShare of target customer spending ySales per channel yAverage customer size yCustomers per employee yCustomer service expense per customer yCustomer profitability yFrequency (number of sales transactions)
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Wrong KPIs
What is the moral of the story?

KPIs and Behavior
Before: Handle Time Per Call

Motivated Call Centre staff to transfer callers, getting rid of complainers, making them someone elses problem Callers at 45% chance of being transferred 7,000 customers each week suffered transfers 7 times or more
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KPIs and Behavior
After: Minutes Per Resolution of a problem

Resolution in ONE CALL become the core goal Reduced probability of call transfers from 45% to 18%
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Cause and Effect

Financial
Revenue
Cost
Margin
Cash Flow
Asset
Adjacent Market
New Business
Internal Process Operational Excellence Learning & Growth Competencies Information Systems Product Leadership Customer Intimacy
Investment Strategy
Motivation, empowerment, alignment www.OOBEY.com
www.myCNI.com.my
Cause and Effect: An Example

Financial Customers / Distributors Market Value Revenue Growth Productivity
Products/ Services
Channel Strategies
Target Markets
Internal Process
Supplier & Alliances
Department Operations
External Involvement
Learning & Growth
Technology Human Resources Systems & Processes Information & Intelligence

www.OOBEY.com
www.myCNI.com.my
Sample: Other 1st Level KPIs across industries

Financial Services Maximize ARPU Minimize Churn Mutichannel customer service Retail Understand customer behavior related to customer conversion, acquisition, and retention Single view of customer Multichannel customer experience Personalized customer experience Travel & Leisure Increase customer loyalty and preference Maximize customer revenue Improve service quality and efficiency Capture and close sales opportunities Telecommunications Anticipate and prevent churn despite compensation Increase number of products per customer Turn call center information opportunity to up-sell and cross-sell Increase customer satisfaction and loyalty Manufacturing Single view of customers across supply chain Zero-error order capture Streamline opportunity to cash processes Leverage investment in ERP and backoffice systems www.OOBEY.com
Hospitality Personalized customer experience Maximize share of wallet Player/customer loyalty Multichannel customer service www.myCNI.com.my
Sample KPIs for Each Discipline

Price Selection Convenience Zero Defects Growth
Product Leadership
Marketing Functionality # of Successes # of Failures Learn from key users Interdisciplinary teams Pipeline
Customer Intimacy
Customer Knowledge Solutions Offered Penetration Customer Data Customer-success focus
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3. Identify IPs that support/conflict 2. Match their CP/IP with your CP

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Cascading
Customer Perspective Goals Base Retention Share Gain New Business Strategies Targets Direct Indirect
Mkt Mkt BD
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E3
Department BSC
Customer Perspective Marketing Department Goals Base Retention Share Gain Strategies Targets CAPEX OPEX
Budgeting
Individual MBO
Employee A Marketing Executive KRAs Class A Customer Retention Class B Customer Retention Competition Crossovers
Re: Base Retention Weight (%) Score
Action Plans
Targets
Whats In Between Planning and Execution?

Business Model BSC KPIs Budgeting + Planning
Performance Management System

Differentiation Talent Management Succession Planning (Business Continuity)
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Whats In Between Planning and Execution?

Business Model BSC KPIs Budgeting + Planning
a.k.a. Strategy Planning
Performance Management System

Differentiation
a.k.a. Strategy Implementation
Talent Management Succession Planning (Business Continuity)
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Performance Execution Clarity

A B C D E Excellent Good Average Poor Useless
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A B C D E Excellent Good Average Poor Useless Good
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A B C D E Excellent Good Average Poor Useless Excellent Very Good Good Not Good Commit Suicide
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A B C D Excellent
Consistently achieved 4 for 3 quarters
Very Good Higher than planned results Good Not Good

Achieved Planned Results Did not fully meet planned results Unacceptable performance
E
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Commit Suicide
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Performance and Pay Clarity Pay for Service Pay for Job Pay for Performance Pay for Competency
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Performance and Pay Clarity Increment Bonus Promotion
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Compa Ratio Table

Use this if your company: Pays for Performance, and Pays for Job rates Def: Mid-Point = Mid Point of Pay Grade
Grade E2 Min RM2,000
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MID RM2,500
Max RM3,000
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Performance and Pay Clarity

< 0.7 5 4 3 2 1 9 8 7 6 5 0.7 0.9 8 7 6 5 4 >0.9 <1.1 7 6 5% 4 3 1.1 1.3 6 5 4 3 2 > 1.3 5 4 3 2 1
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Performance and Pay Clarity

< 0.7 5 4 3 2 1 20 18 9 1 0 0.7 0.9 15 12 7 1 0 >0.9 <1.1 12 9 5% 1 0 1.1 1.3 8 5 4 0 0 > 1.3 5 3 3 0 0
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Curse of the Bell Curve
A Staff
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B Staff
C Staff
D Staff
E Staff
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End Notes
Tying it all up
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Review processes
1. 2. 3. 4. 5. 6. 7. 8. 9. Result Planning schedule inc. BSC, Budget Quarterly Performance Appraisals Sales performance reviews Non-sales performance reviews Annual Appraisals Specialized KPI committees CAR, PAR, SCAR KPI improvements Internal Audit & MSD process problems HRM & TND people problems
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Problems, problems and more problems
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Thank You.
soft copy of slides: www.totallyunrelatedrandomanddebatable. blogspot.com

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BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT

Case Study, Concepts and Debatable Ideas

Introduction to Balanced Scorecard and Strategy

Whats wrong with Strategic Planning Today?

Why BSC? Reason 1: Balanced Reason 2: Cause-and-Effect

Balanced Scorecard: Corporate

Balanced Scorecard: NGOs, Non-Profits, Governments

Mission Who are our targets? What is our value proposition?

Side notes on BSC

What is the Business Model? Google Air Asia Tata Nano

What is the Business Model?

Business Model: Profit Model

Revenue Assets Cost

Learning & Growth

What is the Business Model?

Intro: Market Discipline

"A great deal!"

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Acer super lean cost structure, aggressive pricing

HP well-balanced portfolio, mass customization

What is the Business Model? Google Air Asia Tata Nano

2. Strategy + BSC = How

What is your Goal?

1. Cost Reduction 2. Growth 3. Both?

1.Base Retention 5.New Business

How Markets determine Growth Strategies (1)

How Markets determine Growth Strategies (2)

How Markets determine Growth Strategies (3)

Side Notes on Cost Reduction Strategy

USP Profit Model Market Discipline Invest/Divest

Customers Base Retention Share Gain

Learning & Growth

Strategy: Disciplines, Priorities, and KPIs

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Disciplines, Priorities, and KPIs

Strategy: Value Disciplines

Strategy: Value Disciplines

Strategy: Value Disciplines

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Value Disciplines

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Customers Base Retention Share Gain

Alignment: 4-Wheels Model

Business Person Structure Culture Leadership Resources

Model Strategic Planning

Funding CAPEX OPEX

Alignment: 4-Wheels Model