2. Why Do Organizations Struggle So Hard With Strategy? 1 in 10 organizations execute their strategies successfully Fortune Magazine, 1998 72% of CEOs believe that executing their chosen strategy is more difficult than developing a good strategy Malcolm Baldrige CEO Survey, 2002
4. Problem with Strategic Management Process #5 The Problem: The Strategic Management Process Is Missing in Most Organizations STRATEGY 60% of organizations don’t link strategy & budgets 85% of management teams spend less than one hour per month on strategy issues test the hypotheses update the strategy Strategic Learning Loop BALANCED SCORECARD BUDGET 78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget reporting funding Management Control Loop 92% of organizations do not report on lead indicators PERFORMANCE Output(Results) Input(Resources) Initiatives & Programs
5. “Strategy-Focused Organizations” STRATEGY:They made strategy the central organization agenda FOCUSED:They created incredible focus on the strategy ORGANIZATION: They mobilized their employees to act in fundamentally different ways, guided by the strategy Management STRATEGY Process The Balanced Scorecard Is a Performance Management Program That Puts Strategy at the Center of the Process
6. A brief background of Balanced Scorecard The Nolan Norton Institute sponsored one year multi-company study in 1990 on measuring performance in the organization of the future. The study was motivated by a belief that existing performance measurement approaches, primarily relying on financial accounting measures were becoming obsolete.
7. A brief background of Balanced Scorecard (Contd..) The findings of the study was summarized in article in Harvard Business Review (Jan to Feb 1992) in an article – ‘The Balanced Scorecard – measures that drive performance. Today, about 70% of the Fortune 1000 companies utilize the Balanced Scorecard to help manage organizational performance.
8. New Operating Environment in Information age organizations Information age environment for both manufacturing and service organizations require new capabilities for competitive success. The ability of a company to mobilize and exploit its intangible assets has become far more decisive than investing and managing tangible assets. Some of the typical characteristics of information age organizations are : Operates with integrated business processes that cuts across traditional business functions. Enables all organizational units along with value chain to realize enormous improvements in cost, quality and response time. Are able to offer customize products and services to its diverse customer segments.
9. Comparison of Balanced Scorecard with Airline Cockpit A pilot will require information on all the following for the task of navigating and flying an airplane Information on fuel Information on air specs Information on altitudes Information on environment Information on destination etc. Balanced Scorecard can be compared with the dials and indications in airplane cockpit. Reliance on only one indicator/ information can be fatal. Similarly the complexity of managing an organization today requires that Managers be able to view performance in several areas simultaneously. Managers like pilots need instruments about many aspects of their environment and performances to monitor the journey towards excellent future outcomes.
10. What is it? The balance scorecard is a comprehensive framework which enables the management to translate an organization’s vision and strategy into a coherent set of performance measures. The Balanced Scorecard is a tool that: Translates the strategy to operational terms. Aligns the organization to the strategy. Makes strategy everyone’s job. Makes strategy a continual process.
11. How is it Balanced? A balance between financial and non-financial measures. A balance between external and internal measures. A balance between lagging and leading indicators. A balance of short and long term objectives. It is balanced between easily quantified outcome measures and performance drivers, somewhat judgmental in nature.
12. Why does Business need a Balanced Scorecard? To achieve strategic objectives. To link multiple scorecard measures to a single strategy. To provide quality with fewer resources. To align customer priorities and expectations. To track progress. To evaluate process changes. To continually improve. To increase accountability.
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16. Employee stockholder programFinancial Profitability More customers Fewer planes Customer Flight Is on time Lowest prices Internal Fast ground turnaround Learning Ground crew alignment The Balanced Scorecard Should Tell the Story of the Strategy Illustrative Example: Southwest Airlines
27. Linking multiple Scorecard measures to a single strategy Multiple measures on a properly constructed Balanced Scorecard should consist of a linked services of objectives and measures that are both consistent and mutually reinforcing. The metaphor should be a flight simulator and not a dashboard of instrument dials. The linkage should incorporate both cause and effect relationship and a mixture of outcome measures lagging indications and performance drivers (leading indicators).
28. The Context of Measurement Performance Measurement is a process by which an agency objectively assesses and evaluates the extent to which it is accomplishing a specific objective, goal, or mission. Performance measurement alone is incomplete. Performance Management is a systematic link between company strategy, Investments, and processes. Performance Management is a comprehensive management process.
29. Why Measure Performance? Enables decision making Manage by results Promote accountability Distinguish between program success and failure Allow for organizational learning and improvement Justify budget requests Optimize Investments Provide means of performance comparison Fulfill mandates Establish catalysts for change And so on…
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31. Effectively making and supporting decisions regarding Investments, plans, policies, schedules, and structure
36. Some Basic Guidelines forGood Performance Measures You should have at least one measurement for each objective. Measurements define or explain objectives in quantifiable terms: Vague => We will improve customer service Precise => We will improve customer service by reducing response times by 30% by year end. Measurements should drive change and encourage the right behavior. Should be able to influence the outcome.
44. TIMELY - use and report data in a usable timeframe
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46. Financial Perspective - Revenue Growth & Mix a) New Products Percentage of revenue from new products and services introduced within a specified period, say two to three years. b) New Application Percentage of sales in new application. c) New customers and Markets Percentage of revenue from new customer, market segments and geographic regions. d) New Relationship Amount of revenue generated from co-operative relationship across multiple business units. e) New Product & Service mix Growth of sales in the targeted segments
47. Financial Perspective - Cost Reduction/ Productivity Improvement a) Increase revenue productivity Revenue per employee b) Reduce unit cost Cost per unit (gallon/ MT etc) Cost per customer c) Reduce operating expenses Percentage of operating expenses to total cost or revenue
48. Customer perspective Enables companies to align their core customer outcome measures – satisfaction, loyalty, retention, acquisition and profitability to targeted customers and market segments. It enables to identify and measure the value proposition they will deliver to targeted customers and market segments. If business units are to achieve long term superior financial performance, they must create and deliver products and services that are valued by customers.
49. Customer Perspective - Core Measurement The core measurement group of customer is generic across all kinds of organizations. They include measures of the following: Market share Customer retention Customer acquisition Customer satisfaction Customer profitability This reflects the proportion of business in a given market (in terms of no. of customers, rupees spent or unit volume sold) that a business unit sells. A financial institution (like a Bank) can measure its share of wallet by its percentage of targeted customers to the financial transaction or accounts. A beverage food company could measure its share of targeted customers total purchases of beverages. An apparel retailer could measure its share of customer’s total clothing purchases.
50. Customer Perspective - Core Measurement Customer Retention Tracks in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business. Companies that can readily identify all of their customers – industrial product companies, banks, credit card companies, telephone companies etc can readily measure customer retention.
51. Customer Perspective – Core Measurement Customer Acquisition Measures in absolute terms. The rate at which a business unit attracts or wins new customers or business. Could be measured either by no. of new customers or the total sales to new customers in these segments. Customer Satisfaction Assesses the satisfaction level of customers along specific performance criteria within the value proposition. Provide feedback on how well the company is doing. Level of satisfaction obtained through surveys. Customer Profitability Measures the net profit of a customer or a segment, after allowing for the unique expenses required to support that customer.
52. Customer Perspective - Measuring customer value proposition Customer Value propositions represent the attributes that supplying companies provide, through their products and services, to create loyalty and satisfaction in targeted customer segments through Product/service attributes Customer relationships Image and reputation. Product and service attributes encompass the functionality of the product/service, its price and quality – choice between customers – reliable low cost producer vs differentiated supplier. The customer relationship dimension includes the delivery of the product/ service to the customer including the response and delivery time dimension e.g knowledgeable people, convenient access, responsiveness. Image and reputation dimension reflects the intangible factors that attracts a customer to a company. Some companies are able to generate customer loyalty well beyond tangible aspects of the product and service. Eg. Theme park (Disneyland), Cigarettes (Marlboro), Soft drink (Coca-Cola / Pepsi)
53. Internal Business Process Perspective In this perspective, executives identify the critical internal processes in which the organization must excel. These processes enable the business unit to Deliver the value propositions that will attract and retain customers in targeted market segments. Satisfy shareholder expectations and excellent financial returns. A generic model would be: Innovation Operations Postsale service
54. Internal Business Process Perspective The Innovation Process In the Innovation process, the business unit researches the emerging or latent needs of customers and then creates the product or services that will meet these needs. Two crucial questions – What range of benefits will customers value in tomorrow’s products? How might we, through innovation pre-empt competitors in delivering those benefits to the marketplace? Advanced Micro services, a leading semiconductor manufacturer had following measures: 1. Percentage of sale from new product, 2. Percentage of sales from proprietary products, 3. New product introduction vs competitors 4. Time to develop next generation product.
55. Internal Business Process Perspective The Operation Process In this process the existing products and services are produced and delivered to customers. It starts with receipt of a customer order and finishes with delivery of the product or service to the customer. This process stresses efficient, consistent timely delivery of existing products and services to existing customers. Some of the areas of measurement - Operating processes quality Operating process cycle time Operating process cost Companies that can identify differentiating characteristics of the products and services (measured by accuracy, size, speed, clarity or energy consumption) will certainly want the focus and attention that measurement on the Balance Scorecard can commence.
56. Internal Business Process Perspective The Postsale Service This is the service to the customer after the original sale or delivery of a product or service. Postsale Service includes warranty, repair, treatment of defects and returns, processing of payments such as credit card administration. Companies attempting to meet their targeted customer’s expectations for superior postsale service can measure their performance by applying some of the same time, quality and cost metrics. Cycle time – from customer request to ultimate resolution of the problem can measure the speed of the response time. Cost metrics can evaluate the efficiency – the cost of resource used. The first Pass yields can measure what percentage of customer request are handled with a single service call rather than requiring multiple calls.
57. Learning & growth perspective This perspective identifies the infrastructure that the organization must build to create long term growth and improvement. The objectives in the first three perspective will reveal large gaps between the existing capabilities of people, systems and procedures. To close these gaps, businesses will have to invest in reskilling employees, enchanting information technology and systems aligning organizational procedures. Organizations must also invest in their infrastructure other than equipment, plant and machinery and R&D. There are three principal categories under Learning & Growth: 1. Employee capabilities, 2. Information system capabilities, 3. Motivation, empowerment and alignment.
58. L&G -Core Employee Measurement Employee satisfaction. Employee retention. Employee productivity Measuring employee satisfaction Satisfied employees are a precondition for increasing productivity, responsiveness, quality and customer service. This is measured with an annual survey or a rolling survey in which a specified percentage of randomly chosen employer is surveyed. 2. Measuring employee retention The theory underlying this measure is that the organization is making long term investments in its employees so that any unwanted departures represent in the intellectual capital of the business. Employee retention is generally measured by percentage of key staff turnover.
59. L&G - Measuring Employee Productivity Employee productivity is an outcome measure of the aggregate impact from enhancing employee skills and morale, innovation, improving internal processes and satisfying customers. The objective is to relate the output produced by employees to the number of employees used to produce that output. The simplest productivity measure is revenue per employee. This measure represents how much output can be generated per employee. L&G - Information system capabilities If employees are to be effective in today’s competitive environment, they need excellent information – on customers, or internal processes and of the financial consequence of their decisions. Measures of strategic information availability could be: a) percentage of processes with real time quality and cycle time. b) percentage of customer facing employees having online access to information about customers.
60. L&G - Motivation, Empowerment and alignment Even skilled employees provided with superb access to information will not contribute to organizational success if they are not motivated to get in the best interest of an organization or if they are not given freedom to make decisions and take actions. L&G - Measures of suggestions made and implemented This measure captures the ongoing participation of employees in improving the organization’s performance. Such a measure can be reinforced by a complementary measure, number of suggestions implemented, which tracks the quality of the suggestions being made as well as communicating to the workforce that its suggestions are valued and taken seriously.
61. L&G - Measures of Improvement Organizations can also look for improvements in quality, time or performance for specific interval and customer processes. The rest of improvement actually occurring in critical processes are good outcome measures indicating employee participation in improvement activities.
62. L&G - Measures of Individual and organizational alignment The performance drivers for individual and organizational alignment focus on whether department individuals have their goals aligned with the company objective articulated in the Balanced Scorecard. Some measures that can be tracked : No. of major activities of the business unit aligned to the scorecard. No. of employees covered by the BSC communication cascading process. Alignment of individual performance goals to the scorecard.
63. L&G - HR performance driver measures Average change in performance-appraisal rating over time. Employee competency growth. Extent of cross-functional teamwork. Extent to which employees have ready access to the information and knowledge that they need. Extent to which employees are clear about the firm’s goals and objectives. Extent to which employees are clear about their own goals. Extent to which HR is helping to develop necessary leadership competencies. Extent to which HR measurement systems are seen as credible. Extent to which firm has turned its strategy into specific goals/objectives that employees can act on in the short and long run. Extent to which the firm has turned its strategy into specific goals/objectives that employees can act on in the short and long run. Extent to which top management shows commitment and leadership around knowledge sharing issues throughout the firm. Percentage of employees making suggestions. Percentage of intern conversion to hires. Percentage of workforce that is promotable. Percentage of retention of high-performing key employees..
64. L&G - HR measures for x company Financial Customer Operations Strategic
