Building Strategy Focused Organizations with the Balanced Scorecard

Dr. Robert S. Kaplan
Marvin Bower Professor of Leadership Development HARVARD BUSI ESS SCHOOL and Chairman BALA CED SCORECARD COLLABORATIVE

The Balanced Scorecard Describes How the Strategy Will Be Executed
Strategic Theme: Internal Product Development
Strategy Map Objective • Grow Revenue from new products Measure • Annual Revenue Growth • Percent Revenues from New Products Target +25% • xx Initiative

Financial

Revenue Growth

30%

• xx

Customer

Innovative Products

• Satisfy Customer Needs for Stateof-Art Capabilities

• Customer Retention

80%

• Relationship Management Program • Gain Sharing Program

• Share of Account

40%

Internal

World Class Internal Product Development

• Accelerate New Product Development

• Product Functionality

#1 in indy.

• University Liaison/ Technology Transfer

• Time to Market

9 mos. • Development Cycle Time Reengineering

Learning & Growth

Stable HighTalent Workforce

• Acquire, Develop and Retain Strategic Skills

• Specialized Competency Availability • Key Staff Retention

100%

• Competency Model • New Hiring Program

95%

• Supervisory Training • Benefits Program

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

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Balanced Scorecard Users Have Been Executing Their Strategies Reliably and Rapidly
Mobil: orth America 1993 1995-99 – Last in industry – #1 in profitability CIG A Property & Casualty 1993 – 1998 – – ATT Canada 1995 – 1998 – 1999 – Southern Citrus 33% 31% +$15M #1
1995 1998

$275 loss Top Quartile $3b spin-off

Saatchi & Saatchi Shareholder Value: 1997 – $500m 2000 – $2.5b Duke Childrens Hospital • • • • Cost per patient Length of stay Net margin Customer Satisfaction

$300M loss Customer base doubles $7b spin-off

• • • •

Shipments on Spec Rework Absenteeism Cost per Pound (¢)

70% 6% 10% 29

97% 2% 1% 19

UC / San Diego Winner of 1999 RIT / USA Today Quality Cup for Education

GTE (Verizon) Human Resources • Reduced employee turnover during merger

+ $23M

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

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Inc and Robert S. All rights reserved. Kaplan.Balanced Scorecard Hall of Fame: orth America ©2002 Balanced Scorecard Collaborative. 4 .

Kaplan. British Telecom Coca-Cola / Sweden General Motors of Europe Shell International Siemens / Germany Whirlpool of Europe Winterthur ©2002 Balanced Scorecard Collaborative. 5 . Inc and Robert S.Balanced Scorecard Success Stories: Europe ABB Switzerland ABN / Amro Borealis Bank of Ireland British Broadcasting Corp. All rights reserved.

Inc and Robert S.A Gap Existed Between Mission-Vision-Strategy and Employees’ Everyday Actions MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to do ©2002 Balanced Scorecard Collaborative. 6 . Kaplan. All rights reserved.

Focus and Align STRATEGIC INITIATIVES What are the priorities TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE ©2002 Balanced Scorecard Collaborative. Inc and Robert S. 7 .The Balanced Scorecard Links Vision and Strategy to Employees’ Everyday Actions MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Translate. Kaplan. All rights reserved.

5. 8 . Ernst & Young LLP. Kaplan. Inc and Robert S. 3.Strategy Execution is the #1 on-Financial Factor Driving Shareholder Valuations 35% of valuation decision is based on non-financial data The Non-Financial Factors That Influence Shareholder Valuations 1. All rights reserved. 2. 4. Strategy Execution Management Credibility Quality of Strategy Innovation (New Products) Attract Talented People Source: “Measures That Matter”. 1998 ©2002 Balanced Scorecard Collaborative.

The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate . Inc and Robert S. Mgmt.Shared Services External Partners • • • • • • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS Linked to Budgeting Linked to Ops. Kaplan. Management Meetings Feedback System Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative.SBU SBU . 9 . All rights reserved.

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. Inc and Robert S. not to control. Measurement is used to communicate. Strategy can be described as a series of cause and effect relationships "If we succeed. how will we look to our shareholders?” Customer Perspective "To achieve my vision. 10 .#1 Principles of the Strategy Focused Organization: TRA SLATE THE STRATEGY TO OPERATIO AL TERMS The Strategy Financial Perspective Measurement is the language that gives clarity to vague concepts. All rights reserved. how must my organization learn and improve?” ©2002 Balanced Scorecard Collaborative. Kaplan.

alignment . All rights reserved. .A Strategy Map Describes How The Organization Intends to Create Value Long Term Shareholder Value Financial New Revenue Sources Increase Customer Value Improve Cost Structure Improve Asset Utilization Traditional financial framework for describing shareholder value creation Customer Value Proposition Customer Price Quality Timeliness Features Service Relationships Brand Customer value proposition establishes context for value Innovation Process Internal Build the Franchise Customer Management Process Increase Customer Value Operations Process Social & Environmental Processes Be a Good Citizen Provide Operational Excellence Internal processes describe how value is created and sustained Role & status of intangible assets – people. Kaplan. Inc and Robert S. systems.is articulated 11 Learning & Growth Strategic Competencies Strategic Technologies Climate for Action Leadership & Governance ©2002 Balanced Scorecard Collaborative.

Internal Processes Deliver Value Over Different Time Horizons Strategic Objective short-wave Sustained Growth in Shareholder Value mid-wave 1-2 yrs Operational Effectiveness Strategies 2-3 yrs Customer Management Strategies 3-5+ yrs Product Innovation Strategies long-wave Shareholder Value ($) product innovation customer management operational effectiveness 1 2 3 4 5 Time (years) ©2002 Balanced Scorecard Collaborative. Inc and Robert S. Kaplan. 12 . All rights reserved.

Industry Premium Ratio Customer Perspective Share of Targeted Segment Mystery Shopper Score Non-Gasoline Revenue & Margin “Delight the Consumer” Basic Clean Safe Quality Product Trusted Brand Speedy Purchase “Win-Win Dealer Relations” Differentiators Friendly Helpful Employees Recognize Loyalty More Consumer Products Help Develop Business Skills Dealer Profit Growth Dealer Satisfaction “Build the Franchise” Create NonGasoline Products & Services New Product Acceptance Rate “Increase Customer Value” Understand Consumer Segments “Achieve Operational Excellence” Improve Hardware Performance Yield Gap Unplanned Downtime On-Spec On-Time Improve Inventory Management Inventory Levels Run-Out Rate Industry Cost Leader Activity Cost vs. industry) Productivity Strategy Become Industry Cost Leader Cash Expense (cpg) vs. Health and Safety Environment Incidents Safety Incidents Best-In-Class Franchise Teams Dealer Quality Rating A Motivated and Prepared Workforce Climate for Action Competencies • Functional Excellence • Leadership Skills • Integrated View Strategic Skill Coverage Ratio Technology • Process Improvement Learning & Growth Perspective • Aligned • Personal Growth Personal BSC Employee Feedback Systems Milestones ©2002 Balanced Scorecard Collaborative. 13 . Industry Maximize Use of Existing Assets Cash Flow Increase Customer Profitability Through Premium Brands Volume vs. Kaplan. All rights reserved. Inc and Robert S. Competition “Be a Good Neighbor” Internal Perspective Improve Environmental.Mobil AM&R Strategy Map Increase ROCE to 12% Financial Perspective Revenue Growth Strategy New Sources of NonGasoline Revenue ROCE Net Margin (vs.

Inc and Robert S.ew Source of Revenues and Customer Loyalty Attractive Convenience Store ©2002 Balanced Scorecard Collaborative. 14 . Kaplan. All rights reserved.

Kaplan. All rights reserved. 15 . Inc and Robert S.Internet Banking Company: “Add and Retain High Value Customers” Theme “Add and Retain High Value and High Potential Value Customers” “Increase Revenue per Customer” “Reduce Cost per Customer” Financial Grow Revenue Increase Revenue/ Customer Maximize Profit Reduce Cost Per Customer Add & Retain High Value Customers Customer Migrated Value Proposition Basic Requirements Differentiators New • • • • Time Savings Security Price Reliability • • • • Multiple Channels Service Features/Ease of Use Products Maximiz e Reliabilit y Manag e Attritio n Develop Superior Products and Features Internal Effective Marketing Programs Develop Superior Service Learning & Growth Attract and Retain Key Employees Enhance Bench Strength and Succession Planning Increase Managerial & Technical Competencie s Develop Organizatio n and Culture Deploy Scorecard ©2002 Balanced Scorecard Collaborative.

Internet Banking Company: “Increase Revenue per Customer” Theme “Add and Retain High Value and High Potential Value Customers” “Increase Revenue per Customer” “Reduce Cost per Customer” Financial Grow Revenue Increase Revenue/ Customer Cross-Sell Existing Products/ Services Maximize Profit Reduce Cost Per Customer Customer Grow Revenue s from New Services Increas e Fees and Balance s Internal Develop Individualized Marketing Programs Develop Third Party Relationship s Learning & Growth Attract and Retain Key Employees Enhance Bench Strength and Succession Planning Increase Managerial & Technical Competencie s Develop Organizatio n and Culture Deploy Scorecard ©2002 Balanced Scorecard Collaborative. Kaplan. Inc and Robert S. 16 . All rights reserved.

Inc and Robert S.Internet Banking Company: “Reduce Cost per Customer” Theme “Add and Retain High Value and High Potential Value Customers” “Increase Revenue per Customer” “Reduce Cost per Customer” Financial Grow Revenue Increase Revenue Per Customer Maximize Profit Reduce Cost Per Customer Customer Migrate Customer s to OFS Migrate Mass Consumer s to Online Increase Customer s Use of On-Line Increase Efficienc y Manage Alliance Costs Develop Customer SelfService Streamline Manual Processes Automate OFS Processes Develop Custome r SelfHelp Learning & Growth Attract and Retain Key Employees Enhance Bench Strength and Succession Planning Increase Managerial & Technical Competencies Develop Organizatio n and Culture Deploy Scorecard ©2002 Balanced Scorecard Collaborative. All rights reserved. Kaplan. 17 .

Online Financial Services: Complete Strategy Map “Add and Retain High Value and High Potential Value Customers” “Increase Revenue per Customer” “Reduce Cost per Customer” Financial Grow Revenue Increase Revenue Per Customer Cross-Sell Existing Products and Services Maximize Profit Reduce Cost Per Customer for the Bank Add & Retain High Value Customers Customer Migrated New Value Proposition Basic Requirements Differentiators • • • • Time Savings Security Price Reliability • • • • Multiple Channels Service Features/Ease of Use Products Grow Revenues from New Products and Services Migrate Mass Consumers to On-line Migrate Wells Fargo Customers to OFS Increase Fees and Balance s Grow Internal Revenue s Increase Customer s’ Use of On-Line Maximiz e Reliabilit y Manag e Attritio n Internal Implement Cost Effective Marketing Programs Develop Individual Marketing Programs Increase Efficiency Manage Alliance Costs Streamline Manual Processes Automate Processes Develop Third Party Relationships Develop Customer SelfService Develop Customer Self-Help Enhance Product and Features Develop Superior Service Capability Learning & Growth Attract and Retain Key Employees Enhance Succession Planning Increase Manager and Employee Competencies Develop Organization and Culture Deploy Scorecard throughout Division ©2002 Balanced Scorecard Collaborative. Kaplan. 18 . All rights reserved. Inc and Robert S.

©2002 Balanced Scorecard Collaborative. All rights reserved. m otivated em ployees w ill be know n for provid ing qu ality and valu e in all areas of service. health and qu ality of life of its citizens. Kaplan. We w ill id entify and respond to com m u nity need s and focu s on the custom er throu gh: ♦ ♦ ♦ Creating and m aintaining effective partnerships Attracting and retaining skilled m otivated emp loyees Using strategic business planning. Skilled . 19 .City of Charlotte Had a Mission and Vision “Public Service is Our Business” Mission Statement The m ission of the City of Charlotte is to ensu re the d elivery of quality public services that prom ote the safety. We w ill partner w ith citizens and businesses to make this a community of choice for living. Vision Statement The City of Charlotte w ill be a m od el of excellence that pu ts the citizens first. Inc and Robert S. We w ill be a platform for vital econom ic activity that gives Charlotte a com petitive ed ge in the marketplace. w orking and leisure activities.

Charlotte: Five Strategic Themes • • • • • Community Safety Transportation City Within a City Restructuring Government Economic Development ©2002 Balanced Scorecard Collaborative. Inc and Robert S. 20 . Kaplan. All rights reserved.

21 .City of Charlotte: City Council Focus Areas Community Safety City Within a City Restructuring Government Transportation Economic Development The Corporate Level Scorecard Customer Perspective Reduce Crime Increase Perception of Safety Strengthen Neighborhoods Improve Service Quality Availability of Safe. Convenient Transportation Maintain Competitive Tax Rates Promote Economic Opportunity Financial Accountability Perspective Expand Non-City Funding Maximize Benefit/Cost Grow Tax Base Maintain AAA Rating Internal Process Perspective Increase Positive Contacts Promote Community Based Problem Solving Secure Funding/Service Partners Improve Productivity Streamline Customer Interactions Increase Infrastructure Capacity Promote Business Mix Learning and Growth Perspective Enhance Knowledge Management Capabilities Close Skills Gap Achieve Positive Employee Climate ©2002 Balanced Scorecard Collaborative. Kaplan. All rights reserved. Inc and Robert S.

All rights reserved. Kaplan. Inc and Robert S. 22 .Several Different Types of “Balanced Scorecards” Have Emerged in Practice Strategy Card Stakeholder Card KPI Card ©2002 Balanced Scorecard Collaborative.

23 . All rights reserved. Kaplan. Inc and Robert S.A KPI Scorecard: The Four “P’s” • • • • Profits Portfolio (loan volume) Process (ISO certification) People (diversity) ©2002 Balanced Scorecard Collaborative.

All rights reserved. 24 • • • . Inc and Robert S.What’s missing from the 4P’s KPI scorecard? • • • Where are the customers? What is the value proposition? How does ISO certification lead to increases in loan volume? How does a more diverse work force lead to ISO certification? Is there no role for information technology? Is innovation not important? ©2002 Balanced Scorecard Collaborative. Kaplan.

Kaplan. 25 . customer) and performance drivers (value proposition. All rights reserved. internal processes.A Good Balanced Scorecard Tells the Story of Your Strategy • • • Every measure is part of a chain of cause and effect linkages All measures eventually link to organizational outcomes A balance exists between outcome measures (financial. learning & growth) ©2002 Balanced Scorecard Collaborative. Inc and Robert S.

The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate . Kaplan. 26 . Mgmt. All rights reserved. Management Meetings Feedback System Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative. Inc and Robert S.SBU SBU .Shared Services External Partners • • • • • • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS Linked to Budgeting Linked to Ops.

#4. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs. All rights reserved. Plans and BSC’s define relationships with external partners consistent with SBU strategy. Good Neighbor 7. Financial Growth 2. #1. Strategies Are Executed Through Business Units. ©2002 Balanced Scorecard Collaborative. Each SBU develops a long-range plan and BSC consistent with corporate strategic agenda. A Corporate Scorecard defines overall strategic priorities. Quality xxx xxx xxx xxx xxx xxx xxx 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. Inc and Robert S. Competitive Supplier 6. 27 . The Strategies of the Business Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved. Safe & Reliable 5.#2 Principles of the Strategy Focused Organization: LI K A D ALIG THE ORGA IZATIO AROU D ITS STRATEGY #3. Kaplan. Delight the Consumer 3. Motivated & Prepared 8. CORPORATE CORPORATE SCORECARD (Shared Strategic Agenda) Themes Measures SBU A LINE BUSINESSES SBU B SBU C SBU D SUPPORT UNITS EXTERNAL PARTNERS 1. Win-Win Relationships 4.

Kaplan.Conglomerate Independent Operating Companies FMC Performance Chemicals Industrial Chemicals Machinery & Equipment Defense Systems Agricultural Food Ingredients Pharmaceutical Lithium Alkali Peroxyn Phosphorus Energy Food Machinery Transportation Ground Systems Armaments • • No Corporate Balanced Scorecard Each Operating Company Develops an Independent BSC for its Strategy and Operations ©2002 Balanced Scorecard Collaborative. 28 . Inc and Robert S. All rights reserved.

Kaplan. Inc and Robert S. ©2002 Balanced Scorecard Collaborative.” one that is capable of transforming our clients’ businesses. before becoming a lead office. with best-in-category creative capabilities.Saatchi & Saatchi: Achieve Worldwide Alignment Common Client Objective: Create PICS (Permanently Infatuated Clients) • A lead office is an “ideas company. brands. and reputations! • All country offices must be capable of creating and delivering traditional advertising. All rights reserved. 29 .

each with own BSC strategy map template 1. 30 2. UK): Product Leadership Award winning. become financially viable.Saatchi & Saatchi: Achieve Worldwide Alignment Common Client Objective: Create PICS (Permanently Infatuated Clients) Three types of country offices. Inc and Robert S. Kaplan. Lead Markets (US. creative shops Prosper Markets (Continental Europe): Operational Excellence Reverse losses. support global clients in local country Drive Markets (Developing nations (Brazil)) Establish presence ©2002 Balanced Scorecard Collaborative. 3. All rights reserved. .

Inc and Robert S.Charlotte Dept. All rights reserved. Kaplan. Convenient Transportation Promote Economic Opportunity Financial Accountability Perspective Expand Non-City Funding Maximize Benefit/Cost Grow Tax Base Maintain AAA Rating Internal Process Perspective Secure Funding/Service Partners Streamline Customer Interactions Promote Community Based Problem Solving Improve Productivity Increase Positive Contacts Increase Infrastructure Capacity Promote Business Mix Learning and Growth Perspective Enhance Knowledge Management Capabilities Close Skills Gap Achieve Positive Employee Climate ©2002 Balanced Scorecard Collaborative. 31 . of Transportation Identified its Objectives from the City Scorecard Customer Perspective Reduce Crime Increase Perception of Safety Strengthen Neighborhoods Improve Service Quality Maintain Competitive Tax Rates Availability of Safe.

32 . Inc and Robert S. Kaplan.CDOT Balanced Scorecard Cus tom er Maint ain t he transport ation system Operate the transport ation system Develop t he transport ation system Determine optimal system design Improve service quality Financial Expand nonCity funding Maximize benefit/cost Inte rnal Process Increase infrastructure capacity Secure funding/service partners Improve product ivity Increase positive contacts Learning Enhance automated info systems Enhance “field” technology Close skills gap Empower employees ©2002 Balanced Scorecard Collaborative. All rights reserved.

p ilo ts. n o. o f Partn e rs : n u m b er o f p ar tn er s I-3 S tree t M ain te n an ce Co st : co st/ la n e m i. 33 . All rights reserved.. Kaplan. I-3 Tran sit Passe n g e r Co st :co st/ p a ss’g er I-4 Cu sto m e r S u rv e y s : su r v ey r esu lts co n cer n in g ser v ice q u a lity L-1 En h a n ce a u to m a ted in fo r m a tio n sy stem s L-1 IT In frastru ctu re : co m p lete r ela tio n a l d a ta b ase a cr o ss C D O T L-3 S k ills Id e n tifie d : k ey sk ills id en tified in str a teg ic fu n ctio n s L-4 Em p lo y e e Clim ate S u rv e y : r esu lts o f em p lo y ee su r v ey Le arn in g L-2 En h a n ce “ field ” tech n o lo g y L-3 C lo se th e sk ills g a p L-4 Em p ow er em p loy ees L-1 In fo rm atio n A cce ss : str a teg ic In fo r m a tio n a v a ila b le v s. u ser r eq u ir em en ts L-2 In fo rm atio n To o ls : str a teg ic to o ls a v aila b le v s.Charlotte Dept. o f h ig h a ccid en t lo ca tio n s C -3 Basic M o b ility : a v a ila b ility o f tra n sit C -4 Plan Pro g re ss : % co m p lete o n 2015 Tra n sp or ta tio n P la n C -5 Co m m u te Tim e : a v era g e co m m u te tim e o n selected r oa d s C -6 e ig h b o rh o o d -O rie n te d Pro g ram s: p r og r a m s im p lem en ted a s a r esu lt o f C o m m u n ity -b a sed p r o b lem so lv in g F-1 Fu n d in g Le v e rag e : d o lla r v a lu e fr o m n on -C ity so u r ces F-1 e w Fu n d in g S o u rce s : d o lla r v a lu e fr o m so u r ces n o t p r ev io u sly a v a ila b le Cu sto m e r C -3 D ev elo p th e tra n sp o r ta tio n sy stem C -4 D eter m in e th e o p tim a l sy stem d esig n C -5 Im p r o v e ser v ice q u ality C -6 Str en g th en n eig h b o r h o o d s F-1 Exp an d n on -C ity fu n d in g Fin an cial F-2 M a xim iz e b en efit / co st F-2 Co sts : co sts co m p ar ed to o th er m u n icip a lities a n d p r iv a te secto r co m p etitio n I-1 G a in in fr a str u ctu r e ca p a city I-2 Secu r e fu n d in g / ser v ice p a r tn er s In te rn al Pro ce ss I-3 Im p r o v e p r o d u ctiv ity I-4 In cr ease p o sitiv e co n ta cts w ith C o m m u n ity I-1 Cap ital In v e stm en t : $ allo ca ted to ca p ita l p r o jects in ta rg eted ar ea s I-2 Lev e rag e fu n d in g /se rv ice p artn e rs : n ew fu n d in g / r eso u r ce p ar tn er s id en tified I-3 Co st p e r U n it : co st p er u n it I-3 Co m p e titiv e S o u rcin g : % o f Bu d g et b id I-3 Pro b le m Id e n tificatio n : so u r ce & a ctio n I-4 Cu sto m e r Co m m u n icatio n s : n o . r eq u ir ed b y 2015 P lan I-2 o . o r p ro g r a m sp ecifica tio n s C -5 Re sp o n siv e n e ss : % o f citiz en co m p la in ts an d r eq u ests r esolv ed a t th e C D O T lev el C -6 Issu e Re sp o n se : d efin ed situ a tio n s w h er e C D O T id en tifies. Inc and Robert S. I-1 Cap acity Ratio s : in cr em en ta l ca p a city b u ilt v s. u ser r eq u ir em en ts L-3 S k ills Tran sfe r: sk ill ev id en ce in jo b L-4 Em p lo y e e G o al A lig n m e n t : tr ain in g / ca r eer d ev elo p m en t a lig n ed w / M ission ©2002 Balanced Scorecard Collaborative. resp o n d s to n eig h b o rh o o d tr a ffic & m o b ility issu es La g M ea sure C -1 H ig h Q u ality S tree ts : co n d itio n o f la n e m iles ≥ 90 ra tin g C -2 S afe ty : city -w id e a ccid en t ra te.ty p e.fr eq . of Transportation: Balanced Scorecard P ersp ect iv e O bject iv e C -1 M ain ta in th e tr an sp o r ta tio n sy stem C -2 O p era te th e tr an sp o r ta tio n sy stem Lea d M ea sure C -1 Re p air Re sp o n se : r ep a ir r esp o n se a ctio n C -1 Trav e l S p ee d : a v er ag e tr a v el sp eed b y fa cility an d selected lo ca tio n C -2 O n -Tim e Bu se s : p u b lic tr a n sit o n -tim e C -3 Pro g ram s In tro d u ce d : n ew ly in tr od u ced p r og r a m s.

Kaplan. Delight the Consumer 3. Plans and BSC’s define relationships with external partners consistent with SBU strategy. #4. Win-Win Relationships 4. ©2002 Balanced Scorecard Collaborative. Each SBU develops a long-range plan and BSC consistent with corporate strategic agenda. 34 . Safe & Reliable 5. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs. Inc and Robert S. Good Neighbor 7. A Corporate Scorecard defines overall strategic priorities. Competitive Supplier 6.Principles of the Strategy-Focused Organization: LI K A D ALIG THE ORGA IZATIO AROU D ITS STRATEGY #3. Motivated & Prepared 8. #1. Financial Growth 2. CORPORATE CORPORATE SCORECARD (Shared Strategic Agenda) Themes Measures SBU A LINE BUSINESSES SBU B SBU C SBU D SUPPORT UNITS EXTERNAL PARTNERS 1. All rights reserved. Quality xxx xxx xxx xxx xxx xxx xxx 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.

Brady President FMC Corporation ©2002 Balanced Scorecard Collaborative. we should probably outsource the function.Shared (Corporate) Services We have done very little to define our strategy for corporate staff utilization. How does staff provide competitive advantage? Are they offering low cost or differentiated services. All rights reserved. 35 . Kaplan. Inc and Robert S. -Larry D. If they are offering neither.

All rights reserved. 36 .Creating Shared Service Unit Linkages SBU 3 Linkage Scorecard Shared Service Unit • Define the SBU objectives and measures that the support unit is expected to help achieve. Kaplan. Inc and Robert S. Shared Service Unit Scorecard “A Business In a Business” 2 1 Service Agreement Customer Financial Mission Internal Customer Satisfaction Feedback L&G 4 Shared Service Unit strategies and scorecards must also reflect the linkage to its “internal customers” ©2002 Balanced Scorecard Collaborative.

All rights reserved.” Human Capital Readiness Report HR Organization Scorecard Strategy Focused Management Process ©2002 Balanced Scorecard Collaborative. Quality Measures xxx xxx xxx xxx xxx xxx xxx xx xx xx xx } } } } } } } { { { { { { { Convenience Store Marketing Gasoline Marketing Manufacturing Services Supply Programs Environment and Safety Information Technology Human Resources SBU A BUSINESS UNITS SBU B SBU C SBU D SHARED SERVICES 8.” Human Capital Development Program C Develop SSU Strategy / Scorecard “Align resources with strategic requirements. Kaplan. 37 . Win-Win Relationship 4. Competitive Supplier 6.Align & Integrate Support Units . Motivated and Prepared xxx A Define the SBU Human Capital Strategy “What is the impact of human capital on the strategy?” B Install Integrated Strategic Management Process “Jointly manage strategic initiatives. Delight the Consumer 3.Human Resources with the Strategy CORPORATE CORPORATE SCORECARD (Shared Strategic Agenda) Themes 1. Inc and Robert S. Financial Growth 2. Good Neighbor 7. Safe and Reliable 5.

Strategic HR Management 38 .B Linking the HR Organization to Enterprise Strategy The Enterprise Strategy Map The HR Organization Strategy Map Shareholder Value Productivity HR Effectiveness HR Efficiency Shareholder Value Growth Financials Financials Customer (External) Customer Value Proposition Internal Processes Innovation Customer Management Operations Excellence Good Neighbor Learning & Growth Strategic Skills Leadership Culture Alignment Learning Human Capital Readiness Report Strategic Skills Leadership Culture Alignment Learning Clients & Employees Human Capital Development Program Competency Development Leadership Development Climate Goals & Incentives Teams & Integration HR Processes HR Skills & Leadership HR Systems HR Climate HR Org. Kaplan. Inc and Robert S. All rights reserved. Learning & Growth Strategic Human Capital Planning ©2002 Balanced Scorecard Collaborative.

CORPORATE CORPORATE SCORECARD (Shared Strategic Agenda) Themes Measures SBU A LINE BUSINESSES SBU B SBU C SBU D SUPPORT UNITS EXTERNAL PARTNERS 1. #1. Good Neighbor 7. Kaplan. Quality xxx xxx xxx xxx xxx xxx xxx 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.Principles of the Strategy-Focused Organization: LI K A D ALIG THE ORGA IZATIO AROU D ITS STRATEGY #3. All rights reserved. ©2002 Balanced Scorecard Collaborative. Win-Win Relationships 4. Financial Growth 2. Plans and BSC’s define relationships with external partners consistent with SBU strategy. 39 . #4. Each SBU develops a long-range plan and BSC consistent with corporate strategic agenda. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs. Inc and Robert S. Safe & Reliable 5. Competitive Supplier 6. Motivated & Prepared 8. Delight the Consumer 3. A Corporate Scorecard defines overall strategic priorities.

All rights reserved. Kaplan.Executive Teams Manage Strategic Themes Defining the Balanced Scorecard for Strategic Themes: Managing the Virtual Organization Mayor City Council City Manager Customer Perspective City Within A City Strengthen Neighborhoods Support Units • Budget & Evaluation • Business Support Services • Finance • Human Resources Business Units • Aviation • Planning Commission • Police • Utilities • Engineering & Property Mgmt. 40 . Inc and Robert S. • Fire • Neighborhood Development • Solid Waste Services • Transportation Leadership Team Strategic Themes Community Safety Financial Accountability Perspective Expand New-City Funding Grow Tax Base City in a City Internal Process Perspective Secure Funding/ Service Partners Promote Community Based Problem Solving Increase Infrastructure Capacity Transportation Restructuring Government Enhance Knowledge Management Capabilities Achieve Positive Employee Climate Economic Development Learning & Growth Perspective Close Skills Gap ©2002 Balanced Scorecard Collaborative.

Inc and Robert S.. A train wreck • Fractured governance . transportation improvements and land use changes stopped or curtailed – i. All rights reserved.or – no government or private entity make “take” any salmon ..Washington State: The Salmon Recovery Problem • • Endangered Species Listing of 18 Species Federal Approval of Recovery Plans -.thus – forestry. hydro power production.e. 41 . agriculture.who is in charge? ©2002 Balanced Scorecard Collaborative. Kaplan.

or have a High Potential for Future Listing Under the Endangered Species Act Upper Columbia River Puget Sound Chinook listed as “threatened” 3/16/99 Hood Canal Summer Chum listed as “threatened” 3/16/99 Northeast Washington Bull Trout listed as “threatened” 6/10/98 Spring-run Chinook listed as “endangered” 3/16/99 Steelhead listed as “endangered” 8/18/97 Bull Trout listed as “threatened” 6/10/98 Washington Coastal Lake Ozette Sockeye listed as “threatened” 3/16/99 Lower Columbia River Chinook listed as “threatened” 3/16/99 Chum listed as “threatened” 3/16/99 Steelhead listed as “threatened” 3/19/98 Bull Trout listed as “threatened” 6/10/98 New listing as of March 16. 42 . Kaplan. Walla Walla County added 3/16/99 Sockeye listed as “endangered” 4/22/92 Spring/Summer-run Chinook listed as “threatened” 8/22/92 Fall-run Chinook listed as “threatened” 8/22/92 Bull Trout listed as “threatened” 6/10/98 ©2002 Balanced Scorecard Collaborative. Proposed for Listing.Salmon Recovery Regions Areas with Salmon. Trout. or Steelhead that are Listed. 1999 Previous listings Middle Columbia River Steelhead listed as “threatened” 3/16/99 Bull Trout listed as “threatened” 6/10/98 Snake River Steelhead listed as “threatened” 8/18/97. Inc and Robert S. All rights reserved.

Kaplan. 43 .Multiple Governments Involved Alaska 27 Tribes Oregon Montana CA Idaho Canada ©2002 Balanced Scorecard Collaborative. All rights reserved. Inc and Robert S.

Federal Agencies Involved
Department of Agriculture
• Natural Resource Conservation Service • Forest Service

Department of Commerce
• National Marine Fisheries Service

Department of Interior
• Fish & Wildlife Service • Bureau of Reclamation

Environmental Protection Agency State Department Council on Environmental Quality

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

44

State Agencies Involved
Indirect reporting
Natural Resources Transportation Fish & Wildlife State Parks NW Power Planning Council Salmon Recovery Funding Board

Direct reporting
Health Ecology Agriculture Community, Trade and ED Salmon Recovery Team Puget Sound Water Quality Conservation Commission Interagency Comm for Outdoor Recreation

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

45

Local Governments Involved

• • • • • • • • •

39 Counties 277 Cities 44 Sewer Districts 125 Water Districts 36 Irrigation Districts 32 Public Utility Districts 14 Port Districts 48 Conservation Districts 170 Municipal Water Suppliers

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

46

State & State Agencies Water Legislation Independent Science Panel MFS Recovery Team MFS Salmon “Evolutionarily Significant Units” HB2514 WRIA Planning HB2496 Restoration Projects SRF Board Salmon Sec 7 Consultation Salmon Sec 4(d) Rules Watershed Councils US/Canada Treaty Salmon. Kaplan. and Hydropower Development Tri-Co Early Action Package Bull Trout Sec 4(d) Rules Bull Trout Sec 7 Consultation FWS Bull Trout “Definable Population Segments” 47 Tribes SSHIAP GO’s and Enhancement Groups ©2002 Balanced Scorecard Collaborative. Environmental Quality. All rights reserved. Inc and Robert S. Bull Trout. .

Kaplan. We will meet the requirements of the Endangered Species Act/Clean Water Act. Inc and Robert S. Collaboration: We are engaged with citizens and our salmon recovery partners. All rights reserved. • • We will reach out to citizens Salmon recovery roles are defined and partnerships strengthened.Salmon Recovery Scorecard Goal: Restore salmon. 48 . harvest. Enhance compliance with resource protection laws. ©2002 Balanced Scorecard Collaborative. technical assistance. Freshwater and estuarine habitats are healthy and accessible Rivers and streams have flows to support salmon. Customer: To protect an important element of Washington’s quality of life • • We will have productive and diverse wild salmon populations. and trout populations to healthy and harvestable levels and improve habitats on which fish rely. and funding they need to be successful. Water is clean and cool enough for salmon Harvest management actions protect wild salmon. salmon recovery partners and state employees have timely access to the information. hatchery. steelhead. and hydropower activities will benefit wild salmon. Processes: • • • • • Our habitat. Financial and Infrastructure: Our building blocks for success include • • • Achieve cost-effective recovery and efficient use of government resources Use best available science and integrate monitoring and research with planning and implementation Citizens.

opportunities for integration and synergies. and shared measures • Cooperation and greater synergy between business units and staff and shared service functions becomes formalized through the Scorecard ©2002 Balanced Scorecard Collaborative. Inc and Robert S.Summary:Top-to-Bottom Strategy Alignment Unleashes Full Organization Potential • The Corporate Strategy is communicated to Business Units through key themes. 49 . All rights reserved. Kaplan.

The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate . Management Meetings Feedback System Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative. All rights reserved. Kaplan. Mgmt. Inc and Robert S.SBU SBU . 50 .Shared Services External Partners • • • • • • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS Linked to Budgeting Linked to Ops.

#3 Principles of the Strategy Focused Organization: MAKE STRATEGY EVERYO E’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 The Strategy Focused Workforce Bottom-Up Process to Internalize & Execute the Strategy ©2002 Balanced Scorecard Collaborative. Inc and Robert S. 51 . All rights reserved. Kaplan.

Inc and Robert S.Making Strategy Everyone’s Job Creating a Climate to Support Strategic Change 1 Create Strategic Awareness • Insure that each individual has sufficient understanding of the strategy (You can’t execute what you don’t understand) • Insure that each individual knows where they fit into the overall game plan 2 Align Personal Objectives 3 Align Incentive Compensation • Reinforce desired behavior and increase intensity of awareness ©2002 Balanced Scorecard Collaborative. 52 . Kaplan. All rights reserved.

1993 1994 Target 1993 1994 Target Dealer/Mobil Gross Profit USM&R Strategic Measures . Mystery Shopper • The Mystery Shopper program rates how well each of our stations is delivering the “best buying experience. 1993 1994 Target 1993 1994 Target 1993 1994 Target 1993 1994 Target Delight the Customer Understand our consumers’ needs better than anyone and offer them products and services which exceed their expectations. Kaplan.. 1993 1994 Target 53 . will guide us to our vision and are defined above each graph. Laid-down Cost • Survey of employees to measure how people perceive the Mobil workplace environment. Win/Win Relationship Improve Dealer/Wholesale Marketer profitability through customer-driven products and services and by developing their business competencies.. Environmental Index • Composite of: .reportable spills . that will keep us focused on achieving USM&R’s strategic themes are explained in the graphs and the bulleted text accompanying them.community reported incidents. 12% 8% 7% Safe & Reliable Maintain a leadership position in safety while keeping our refineries fully utilized. USM&R Days Away From Work Manufacturing Reliability Index On Spec On Time Provide quality products supported by quality business processes that are on time and done right the first time. Competitive Supplier Provide product to our terminals at a cost equal to or better than the competitive market maker.. lowest cost provider. Quality Index • Composite of incidents of: . Financially Strong Reward our shareholders by providing a superior longterm return which exceeds that of our peers.cost of rework.customer complaints .reportable releases to air and water . Good Neighbor Protect the health and safety of our people.order shipped late . • Total profit earned at Mobil outlets and split between our dealers/whole-sale marketers and Mobil. Motivated & Prepared Develop and value teamwork and the ability to think Mobil. act locally.. Inc and Robert S.” • Our cost to deliver product to the terminal vs. the communities in which we work.product off spec .USM&R Strategic Themes . Climate Survey 1993 1994 Target 1993 1994 Target ©2002 Balanced Scorecard Collaborative. ROCE • Income divided by capital employed including all allocations. All rights reserved.business process errors . and the environment we all share.

All rights reserved. Inc and Robert S.Employee Innovations: Mobil Speedpass™ ©2002 Balanced Scorecard Collaborative. 54 . Kaplan.

‘96. ©2002 Balanced Scorecard Collaborative.Building Strategic Awareness Requires a Comprehensive Communications and Education Program The Communication Channel Continuum • Rich Channels One-on-One / Face-to-Face Communications Hallway / Coffeepot Communications Small Group Meetings Video Conferencing Telephone Conversations Voice mail E-mail Large Group Meetings Hand-Written Personal Notes Advanced Copies of Agendas Faxes Interoffice Memos Formal Speeches Letters Newsletters Reports Best Practice Examples Personal Communication • Hilton Hotels Town Hall Meetings • Mobil NAM&R E-mail (Open Door) • Motorola Strategy Maps • Ann Taylor Management Development • Novacor BSC Newsletter • Rockwater 55 • • • • • • • • • • • • • • • Reference: Jos Miniace & Elizabeth Falter. All rights reserved. Jan-Feb. Kaplan. Planning Review. Inc and Robert S. Communication: A Key Factor in Strategy Implementation. Lean Channels .

56 .Making Strategy Everyone’s Job Creating a Climate to Support Strategic Change 1 Create Strategic Awareness • Insure that each individual has sufficient understanding of the strategy (You can’t execute what you don’t understand) • Insure that each individual knows where he or she fits into the overall game plan 2 Align Personal Objectives 3 Align Incentive Compensation • Reinforce desired behavior and increase intensity of awareness ©2002 Balanced Scorecard Collaborative. Kaplan. All rights reserved. Inc and Robert S.

57 . Kaplan. All rights reserved.Employee Innovations: Mobil Speedpass™ ©2002 Balanced Scorecard Collaborative. Inc and Robert S.

©2002 Balanced Scorecard Collaborative. All rights reserved.Building Strategic Awareness Requires a Comprehensive Communications and Education Program The Communication Channel Continuum • Rich Channels One-on-One / Face-to-Face Communications Hallway / Coffeepot Communications Small Group Meetings Video Conferencing Telephone Conversations Voice mail E-mail Large Group Meetings Hand-Written Personal Notes Advanced Copies of Agendas Faxes Interoffice Memos Formal Speeches Letters Newsletters Reports Best Practice Examples Personal Communication • Hilton Hotels Town Hall Meetings • Mobil NAM&R E-mail (Open Door) • Motorola Strategy Maps • Ann Taylor Management Development • Novacor BSC Newsletter • Rockwater 58 • • • • • • • • • • • • • • • Reference: Jos Miniace & Elizabeth Falter. ‘96. Communication: A Key Factor in Strategy Implementation. Inc and Robert S. Lean Channels . Planning Review. Kaplan. Jan-Feb.

59 . Inc and Robert S. Kaplan. All rights reserved.Making Strategy Everyone’s Job Creating a Climate to Support Strategic Change 1 Create Strategic Awareness • Insure that each individual has sufficient understanding of the strategy (You can’t execute what you don’t understand) • Insure that each individual knows where he or she fits into the overall game plan 2 Align Personal Objectives 3 Align Incentive Compensation • Reinforce desired behavior and increase intensity of awareness ©2002 Balanced Scorecard Collaborative.

4. Individual Measures 1. Reduce our 5-year average finding & development costs by 20%. 60 . Kaplan. we will be a top quartile competitor ame: Location: 5. Increase our earnings by an average of 20% a year Achieve an internal rate of return 2% above the cost of capital. Shift Supervisor • • • If we can achieve all these business objectives. Increase production by 10% by 1997. Team and Individual Goals and Objectives Are Aligned to the Strategy A performance model provides the framework for cascading and aligning personal goals Customer Example Corporate Parent • Customer Satisfaction • Customer retention • On time delivery • First Pass Yield • Schedule Adherence • Line Availability • Schedule adherence Division Financial Example A personal scorecard focuses individuals on the part of the performance model they can impact Corporate Measures Balanced Scorecard Financial Business Unit Measures 1993 1994 1995 1996 Targets 1997 1. Individual Goals And Near Term Action Steps • Operating Margin • Operating Margin • Variable Costs • Period Expenses • Variable Costs • Mfg Overhead • Scrap rate • Labor/ Unit 1993 1994 1995 1996 Targets 1997 100 100 100 120 450 85 160 200 80 180 210 75 Targets 250 225 70 • Earnings • Net Cash Flow • Overhead & Operating Expense Operating 64 82 110 • Overhead & Operating Costs • Finding & Development Costs • Total Annual Production (Indexed: 1993=100) Targets 2. Inc and Robert S. 2. Reduce our overhead & operating costs by a further 30% by 1997. 4. All rights reserved. Plant Manager Corporate Objectives • • • • Double our value in 10 years. Reach the top quartile of industry profitability by 1997.Ultimately. 5. 3. 100 100 100 75 97 105 73 93 108 70 90 109 VP of Opns 3. ©2002 Balanced Scorecard Collaborative.

©2002 Balanced Scorecard Collaborative. Planning Review. Inc and Robert S. All rights reserved. Lean Channels . Communication: A Key Factor in Strategy Implementation. Jan-Feb. ‘96.Building Strategic Awareness Requires a Comprehensive Communications and Education Program The Communication Channel Continuum • Rich Channels One-on-One / Face-to-Face Communications Hallway / Coffeepot Communications Small Group Meetings Video Conferencing Telephone Conversations Voice mail E-mail Large Group Meetings Hand-Written Personal Notes Advanced Copies of Agendas Faxes Interoffice Memos Formal Speeches Letters Newsletters Reports Best Practice Examples Personal Communication • Hilton Hotels Town Hall Meetings • Mobil NAM&R E-mail (Open Door) • Motorola Strategy Maps • Ann Taylor Management Development • Novacor BSC Newsletter • Rockwater 61 • • • • • • • • • • • • • • • Reference: Jos Miniace & Elizabeth Falter. Kaplan.

Kaplan.Making Strategy Everyone’s Job Creating a Climate to Support Strategic Change 1 Create Strategic Awareness • Insure that each individual has sufficient understanding of the strategy (You can’t execute what you don’t understand) • Insure that each individual knows where he or she fits into the overall game plan 2 Align Personal Objectives 3 Align Incentive Compensation • Reinforce desired behavior and increase intensity of awareness ©2002 Balanced Scorecard Collaborative. All rights reserved. 62 . Inc and Robert S.

Kaplan. All rights reserved. Inc and Robert S.Mobil Lubricants (Lubes) Had Each Employee Build a Personal Balanced Scorecard • • • At least one objective/measure per perspective o more than 15 measures Personal scorecard must support supervisor’s scorecard Every supervisor must have an objective and measure for coaching and employee development Scorecard must include an objective and measure that supports another part of the business ©2002 Balanced Scorecard Collaborative. 63 • • .

727 • LOG Book Violations • Completed CEO Market Surveys • Customer Assessment Inventory Accuracy Employee Development Plans Completed (%) Attendance Employee Development Plans Completed (%) Develop Plan Climate Survey Employee Development Plans Completed (%) • Employees Trained ISO 9000 Certification L&G Create a high performance organization by equipping our people to succeed. Safety Index Environmental Index Continuous Improvement Cost Reduction ($MM) Develop/Implement Capital Plan Safety Index Environmental Index Develop/Implement Standard Offering Asset Utilization Refinery Capacity (%) Network vs. Plan Develop/Implement Marketing Comp. 731.Creating Line-of-Sight Alignment at Mobil Lubes Level 1 Level 2 VP – Order Fulfillment Level 3 Manager of Plant Operation Level 4 Facility Manager Level 5 Delivery Supervisor Level 6 Terminal Coordinator Level 7 MV Driver Strategic Themes Financial Reward our shareholders by providing a long-term return which exceeds our peers. All rights reserved. Division President ROCE (%) Cash Flow ($MM) Integrated Cost ($MM) Integrated Income ($MM) FA & Inv. Market Share . Plan SBU Scorecard ©2002 Balanced Scorecard Collaborative. Plan Distrib/Logistics Comp. Comp. 601. Value ($MM) Inventory Carrying Cost LOB Integrated Cost ($MM) Transformation Cost ($MM) Line 44 / CPG Net Integrated Income ($MM) Formulation Giveaway $M Line 25 CPG Backhaul $ Line 2 CPG Unavailable Hours Backhauls Savings Line 2 CPG Idle Time Out of Route Miles GPM Customer Provide valueadded business solutions to our customers and channel partners.Finished Percent Perfect Orders Distributor Survey Develop/Implement Customer Survey Percent Perfect Orders Distributor Survey Develop/Implement Customer Survey Percent Perfect Orders Percent Perfect Orders % On-Time Delivery Service Failures of Strategic Product Lines Develop Market Info Survey % On-Time Delivery • Empty Drums Returned % On-Time Delivery • Returns Drums Internal Develop market focused strategies and become operationally excellent. Employee Development Plans Completed (%) Develop / Implement / Measure progress of Change Program Training on CCE Develop Personal Imp. 64 . Kaplan. Plan Product Mgt. Optimum (%) Inventory Accuracy Employee Development Plans Completed (%) Safety Index Environmental Index Complexity Index DAFW • Hits • Off-Spec Receipts • Transfers to Move Excess Base Stock • Motor Vehicle Accidents • DAFW Complete Environmental Self Audit • Safety Meetings Complete • % Attendance Safety Meeting Accurate Reporting Repts. Inc and Robert S.

Inc and Robert S. All rights reserved. Kaplan.Making Strategy Everyone’s Job Creating a Climate to Support Strategic Change 1 Create Strategic Awareness • Insure that each individual has sufficient understanding of the strategy (You can’t execute what you don’t understand) • Insure that each individual knows where he or she fits into the overall game plan 2 Align Personal Objectives 3 Align Incentive Compensation • Reinforce desired behavior and increase intensity of awareness ©2002 Balanced Scorecard Collaborative. 65 .

” Brian Baker.” Gerry Isom. All rights reserved.which the BSC is . We could not have got the same focus on the scorecard if we didn’t have the link to pay. Mobil “It would be hard to get people to accept a totally different way of measurement .Linking Compensation to the Balanced Scorecard Experience with successful BSC users indicates that linking the BSC to incentive compensation is essential to success Executive Perspectives “People got that scorecard out and did the calculations to see how much money they were going to get. Inc and Robert S.if you don’t reinforce that change through incentive compensation. CIGNA Supported by Research Mercer survey of compensation practices in 214 companies (1999) • 88% of responding companies consider the use of balanced scorecard measures linked to reward systems to be effective. ©2002 Balanced Scorecard Collaborative. 66 . Kaplan.

Inc and Robert S. Factor Goal * ©2002 Balanced Scorecard Collaborative.03 1.06 0.03 1.00 1.06 1.00 82 824 15% 30% 15% 30% 10% 5% 9% 5% 9% 3% 1.8 103% 101.06 1.10 1.5% 100% “Net” W eight Perf.ew England Sales & Distribution . Kaplan.00 1. All rights reserved.00 4 2 20% 20% 20% 20% 20% 7% 7% 7% 7% 7% 0.500 527 19 16 20 60% 40% 9% 6% 1.00 1.96 1.06 1.06 12. 67 .1995 Compensation Linkage Weight s Fi na nci al (30%) Net Profit After Tax Full C ost Per Gallon Gasoline Volume Growth Lubes Growth R ate Premium P roduct Cus tom er (15%) Mys tery S hopper Rating Customer C omplaints I nte rnal (35%) Gross Profit/Store # of Commitment Stations Environmental I ncidents Days A bsent From Work Accid ents Le ar ni ng & Gr ow th (20%) Climate Survey Developmental Plans Total Index Performance F actor 50% 50% 10% 10% 100% 1.96 22 6.

00 (L2) Information Technology 5 Upgrade Computer Literacy ©2002 Balanced Scorecard Collaborative. Surveys.00/Share Bonus x 50 Business Shares + 10 Performance Shares = $840. Kaplan. All rights reserved. 68 .00) Strategic Objective (F1) Shareholder Expectations (F2) Operating Performance % Weight 20 Financial Measures Net Operating Income Non-Financial Measures Example #1 $5. Inc and Robert S.00/Share Bonus x 50 Business Shares + 100 Performance Shares = 150 Shares = $750.The Incentive Compensation System at CIG A P&C Total Shares = Business Shares + Performance Shares Share Value Determined from BSC (Par Value = $10.) (I2) Underwrite Profitability 20 U/W Practice Reviews Example #2 $14. etc.00 15 Accident Year Combined GWP (F3) Growth 20 (E1) Producer Relationship 20 Producer Feedback (Councils.

Kaplan.The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate .SBU SBU . 69 . All rights reserved. Inc and Robert S.Shared Services External Partners • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS • Linked to Budgeting • Linked to Operational Improvements • Management Meetings • Feedback System • Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative.

Setting Stretch Targets: If you’re not careful .you’ll get what you measure! ©2002 Balanced Scorecard Collaborative. Inc and Robert S. Kaplan. 70 . All rights reserved.

Inc and Robert S. ©2002 Balanced Scorecard Collaborative. Kaplan.Business Unit & Shared Service Unit Heads Discuss BSC Targets With Executive Leadership Team Coach Time Frame: December 1 . measures. 71 . plan. level of difficulty and rationale • Review alignment to NAM&R Reverse Engineer Template BU/SSU Leadership Team BU/SSU Leadership Team .January 31 NAM&R BSC Coordinator Metric Owners What takes place at the ELT Coach Review? ELT Coach • Review current year BSC results to set stage for proposed Business Unit/Strategic Partner Scorecard • Review proposed BSC in terms of strategy. All rights reserved.

00 0. .90 0.25 means target equals the top of the competitive group Subjective: 7 1.80 1 0. Inc and Robert S.06 1. Intensity Factor Variable Pay Percent 20 Performance Factor 1.75 Below Average Internal Benchmark 1.03 Qualitative BEST IN CLASS Well Above Average How to think about performance factors: Objective: Above Average Average External Benchmark 1. ©2002 Balanced Scorecard Collaborative.00 means the difficulty of the dive is average Determining the difficulty of achieving results sets the tone .12 1.25 1. 72 . Kaplan.Mobil AM&R: Setting Performance Ranges Business Group Variable Pay Opportunity .09 1.00 means target equals the average of competition 1. . . . . All rights reserved.15 1. .20 1. .

All rights reserved.Achieving Stretch Target Performance May Require • • • • • • Strategic Initiatives Capital Investments New Products/Services New Customers New Regions New Partners ©2002 Balanced Scorecard Collaborative. Inc and Robert S. Kaplan. 73 .

. etc. Other Projects. etc. All rights reserved. Marketing Projects. Development Projects. Activities.The Scorecard Process Provides Rigor for Selecting and Managing Initiatives —1— Identify All Potential Candidates for Strategic Initiative Consideration OFS Projects. etc. Activities. etc. Inc and Robert S. Criteria Initiative: Strategic Thrust(s): Primary Strategic Objective: —2— Screen Candidates to Identify Those That Qualify as “Strategic” E-Bill Presentment Area Strategic Importance Cost Benefit Required for Other Initiatives/Dependencies Time to Implement Overall Score AC/IR/RC Continue Leadership in Superior Products Score Points 8 -2 4 1 -2 9 Comments • The “killer” application •X •$ •$ •X • # months •X Ranking Initiiative Strategic Thrust(s) and Objectives(s) AC/IR/RC Cont. Activities. Leadership in Superior Products Strategic Importance Cost Benefit Required for Other Initiatives/ Time to Implement Dependencies Overall Score Overall Points —3— Select Strategic Initiatives 1 E-Bill Presentment 9 2 A 9 3 B 8 4 C 8 5 D 7 6 E 7 Prioritized List of Strategic Initiatives 74 7 F 7 N G X ©2002 Balanced Scorecard Collaborative. Activities. Kaplan.

many organizations are likely to have both too many and too few initiatives! ©2002 Balanced Scorecard Collaborative. learning & growth perspectives had no initiative designed to improve it Action: Add several new strategic initiatives Redeploy resources to new initiatives Conclusion: Without the guidance of the BSC. Kaplan.Linking Initiatives to Scorecard Measures • Many initiatives even if successfully implemented would not improve any BSC measure Action: Eliminate or consolidate • Several BSC measures. especially in internal. 75 . All rights reserved. Inc and Robert S.

All rights reserved. Kaplan.Strategic Planning and the BSC • The Planning and Management System Based on the Balanced Scorecard Effectively Addresses Critical Failures in Previous Strategic Planning Systems: – Targets are set to achieve breakthrough performance – Initiatives and capital investments are identified to achieve the strategic targets – Many non-strategic investments and initiatives are eliminated – Resources are supplied for strategic investments and initiatives – Short-term targets are established for the financial and nonfinancial Balanced Scorecard measures – Operational reviews assess progress on the strategic trajectory ©2002 Balanced Scorecard Collaborative. 76 . Inc and Robert S.

77 . All rights reserved. Inc and Robert S. Kaplan.Using the BSC to Link Strategy to Operational Management Activity-Based Costing • Cost of Internal Processes • Customer Profitability • Activity-based Budgeting Shareholder Value • Explicit Value Proposition • Path for Revenue Growth Strategy Quality Programs • Link to Customer and Financial Outcomes • Identify New Processes. Set Priorities • Integrated Strategic Management Approach ©2002 Balanced Scorecard Collaborative.

The Balanced Scorecard Strategy Map Improve Shareholder Value Financial Perspective Revenue Growth Strategy Shareholder Value ROCE Productivity Strategy Build the Franchise New Revenue Services Increase Customer Value Customer Profitability Improve Cost Structure Cost per Unit Improve Asset Utilization Asset Utilization Customer Acquisition Customer Retention Customer Profitability Product Leadership Customer Intimacy Customer Perspective Price Customer Value Proposition Product/Service Attributes Quality Time Function Service Operational Excellence Image Brand Relationship Relations Customer Satisfaction “Build the Franchise” “Increase Customer Value” (Customer Management Processes) “Achieve Operational Excellence” (Operations & Logistics Processes) “Become a Good Neighbor” (Regulatory & Environmental Processes) Internal Perspective (Innovation Processes) Learning & Growth Perspective A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action ©2002 Balanced Scorecard Collaborative. Inc and Robert S. 78 . Kaplan. All rights reserved.

Kaplan. Inc and Robert S. 79 .Integrating ABM into the BSC Framework • Internal Perspective: Measuring the Cost of Critical Internal Processes Customer Perspective: Measuring the Cost-to-Serve to Reveal Customer Profitability Activity-Based (Operational) Budgeting • • ©2002 Balanced Scorecard Collaborative. All rights reserved.

Quality.Measurements for Internal Business Processes Customer Management Process Internal Business Processes Innovation Process Operations Process Supply-Chain Management Operations Efficiency: Cost. 80 . Kaplan. Cycle Time Capacity Management ©2002 Balanced Scorecard Collaborative. All rights reserved. Inc and Robert S.

000 .000 ©2002 Balanced Scorecard Collaborative. Supplies Process customer orders Purchase materials Schedule production ActivityBased Costing Occupancy $120. Salaries and Fringes Occupancy Eqpmt & Tech. Inc and Robert S.000 Move materials Set up machines Inspect items Maintain product information Equipment & Technology $75.Activity-Based Costing: From Expense Categories to Activities Salaries and Fringes $250. 81 . All rights reserved.000 Resolve quality problems TOTAL $480.000 TOTAL $480. Kaplan.000 Perform engineering changes Expedite orders Introduce new products Supplies $35.

Integrating ABM into the BSC Framework • Strategy Formulation: Identify Profitable Customer and Market Segments Financial Perspective: Measuring the Cost and Profitability of Customer Segments Internal Perspective: Measuring the Cost of Critical Internal Processes Customer Perspective: Measuring the Cost-to-Serve to Reveal Customer Profitability Activity-Based (Operational) Budgeting ©2002 Balanced Scorecard Collaborative. 82 • • • • . Inc and Robert S. Kaplan. All rights reserved.

Inc and Robert S. 83 .The Balanced Scorecard Strategy Map Improve Shareholder Value Financial Perspective Revenue Growth Strategy Shareholder Value ROCE Productivity Strategy Build the Franchise New Revenue Services Increase Customer Value Customer Profitability Improve Cost Structure Cost per Unit Improve Asset Utilization Asset Utilization Customer Acquisition Customer Retention Customer Profitability Product Leadership Customer Intimacy Customer Perspective Price Customer Value Proposition Product/Service Attributes Quality Time Function Service Operational Excellence Image Brand Relationship Relations Customer Satisfaction “Build the Franchise” “Increase Customer Value” (Customer Management Processes) “Achieve Operational Excellence” (Operations & Logistics Processes) “Become a Good Neighbor” (Regulatory & Environmental Processes) Internal Perspective (Innovation Processes) Learning & Growth Perspective A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action ©2002 Balanced Scorecard Collaborative. Kaplan. All rights reserved.

Inc and Robert S. Kaplan. All rights reserved. .Activity-Based Costing Reveals Hidden Profit and Hidden Cost Customers Revenues Hidden Costs Apparent Profits Costs Hidden Profits Customer A Customer B Customer A Customer B Traditional Costing Accurate Costing 84 ©2002 Balanced Scorecard Collaborative.

Measuring Customer Profitability High Cost-to-Serve Customers •Order custom products •Small order quantities •Unpredictable order arrivals •Customized delivery •Change delivery requirements •Manual processing •Large amounts of pre-sales support (marketing. Kaplan. 85 Low Cost-to-Serve Customers •Order standard products •High order quantities •Predictable order arrivals •Standard delivery •No changes in delivery requirements •Electronic processing (EDI) •Little to no pre-sales support (standard pricing and ordering) •No post-sales support •Little inventory support required •Pay on time . warranty. technical. field service) •Require specialized inventory •Pay slowly (high accounts receivable) ©2002 Balanced Scorecard Collaborative. Inc and Robert S. training. All rights reserved. and sales resources) •Large amounts of post-sales support (installation.

Customer Profitability Customer Profits Most Profitable Customers Customers Most Unprofitable Customers ©2002 Balanced Scorecard Collaborative. 86 . Kaplan. All rights reserved. Inc and Robert S.

Options for Managing Customers Types of Customers Profits Hi Customers that are above the cost-plus diagonal are more profitable Passive: •Product is crucial •Good supplier match Net (ABC) Margin Realized Costly to service. Rangan. Moriarty and Ross. but pay top dollar Price-sensitive and few special demands Low Low Aggressive: •Leverage their buying power •Low Price and lots of customized service and features Hi Cost to Serve Losses Profitability depends on whether and how much the net product margins recover the customer-specific costs. Inc and Robert S. ©2002 Balanced Scorecard Collaborative. “Manage Customers for Profits (Not Just Sales)” Harvard Business Review (Sept-Oct 1987). Kaplan. 87 . All rights reserved. Source: Shapiro.

CUSTOMER PERSPECTIVE: Actions from Integrating ABC and BSC Customers Profitable Targeted BSC Untargeted Monitor Easy (Fire) Easy (Retain) ABC Unprofitable Transform ©2002 Balanced Scorecard Collaborative. Kaplan. Inc and Robert S. All rights reserved. 88 .

Inc and Robert S.Integrating ABM into the BSC Framework • Strategy Formulation: Identify Profitable Customer and Market Segments Financial Perspective: Measuring the Cost and Profitability of Customer Segments Internal Perspective: Measuring the Cost of Critical Internal Processes Customer Perspective: Measuring the Cost-to-Serve to Reveal Customer Profitability Activity-Based (Operational) Budgeting ©2002 Balanced Scorecard Collaborative. All rights reserved. Kaplan. 89 • • • • .

Kaplan.Operational and Strategic Budgeting BSC Strategic Initiatives Strategic Initiatives Enhancement Maintenance 10% 25% Activity-Based Budgeting for Operations Infrastructure Operations 65% ©2002 Balanced Scorecard Collaborative. Inc and Robert S. 90 . All rights reserved.

All rights reserved. Inc and Robert S.Activity-Based Budgeting (ABB) reverses the relationships of an ABC model ABC Resources ABB Resources Resource Drivers Resource Drivers Activities Activities Activity Cost Drivers Products Products Activity Cost Drivers ©2002 Balanced Scorecard Collaborative. Kaplan. 91 .

but also accomplished a lot more.Product and customer costing Investment management .Trend reporting & 5 quarter outlook . Inc and Robert S.Borealis introduced a new process to replace what the budget did. 92 .Non Non-financial targets & measurements . and with fewer resources Rolling Financial Forecast .Quarterly update .Annual plan . All rights reserved.Annual outlook BUDGET . Kaplan.Rolling 5 quarters outlook Balanced scorecard .Financial targets & measurement .Decentralised decisions .Improved cost understanding .Financial targets relative to market .Annual outlook Controlling fixed costs .Activity accounting and product costing .Limited cost understanding .Link to strategy .Frames if needed ©2002 Balanced Scorecard Collaborative.

Economic Value Added (EVA): The Basics Net sales Operating expenses Operating profit (EBIT: earnings before interest & tax) Taxes Net operating profit after tax (NOPAT) Capital charges (Invested capital × Cost of capital) Economic Value Added (EVA) EVA® is a registered trademark of Stern Stewart & Co. ©2002 Balanced Scorecard Collaborative. Kaplan. All rights reserved. 93 . Inc and Robert S.

Kaplan. improve yields Improve Asset Utilization • Manage capacity from existing assets • Incremental investments to eliminate bottlenecks EVA® is a registered trademark of Stern Stewart & Co. 94 . ©2002 Balanced Scorecard Collaborative. All rights reserved. Inc and Robert S.Financial Perspective: Shareholder Value (EVA) and BSC Shareholder Value/EVA® Financial Strategy Revenue Strategy Productivity Strategy Build The Franchise • New sources of revenue Increase Customer Value • Improve profitability of existing customers Improve Cost Structure • Reduce cash expenses • Eliminate defects.

Typical EVA Actions • • • Reduce Costs Invest when OPAT > cost of capital Disinvest when OPAT < cost of capital (sell off under-performing and underutilized assets) Financial strategies to reduce cost of capital (share repurchase. Kaplan. 95 . All rights reserved. increase financial leverage through higher debt/equity ratio) • ote: OPAT = et Operating Profit After Taxes ©2002 Balanced Scorecard Collaborative. Inc and Robert S.

Inc and Robert S. All rights reserved. Kaplan.Adding the BSC to EVA • • Revenue Growth Explicit Objectives. Systems and Organizational Alignment • • • ©2002 Balanced Scorecard Collaborative. 96 . Measures and Targets for Customers The Customer Value Proposition Internal Business Processes for Innovation and Enhanced Customer Relationships Infrastructure Investments in People.

. All rights reserved. Cycle Time Capacity Management Customer Value Proposition: Rapid Lead Times On-Time Delivery Zero Defects 97 ©2002 Balanced Scorecard Collaborative. Inc and Robert S. Quality. Kaplan.Impact of Quality Programs Internal Business Processes Innovation Process Customer Management Process Operations Process Responsive Conform to Customer Requests Supply-Chain Management Operations Efficiency: Cost.

Inc and Robert S. Kaplan. 98 .BSC Adds to Total Quality Programs • Explicit Causal Links from Operational Improvements to a Customer-Based Value Proposition Explicit Linkages to Productivity Enhancements and Financial Outcomes Identify Entirely New Processes for Improvement Set Strategic Priorities for Resources to Enhance Process Improvements • • • ©2002 Balanced Scorecard Collaborative. All rights reserved.

Using the BSC to Link Strategy to Operational Management
• Activity-Based Costing • Cost of Internal Processes • Customer Profitability • Activity-based Budgeting Shareholder Value • Explicit Value Proposition and Path for Revenue Growth Strategy Quality Programs • Link to Customer and Financial Outcomes • Identify New Processes • Set Priorities
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 99

Business Excellence in Two Steps: Combining Business Excellence and Strategy Focused Management Allows Organiztions to Do the Right Things Right

BSC Objectives

-100 -200 do things right
Time (TBM) Quality (TQM) Cost (ABM)

do the right things

-1000

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

100

BSC Adds to Total Quality Programs
• Explicit Causal Links from Operational Improvements to a Customer-Based Value Proposition Explicit Linkages to Productivity Enhancements and Financial Outcomes Identify Entirely New Processes for Improvement Set Strategic Priorities for Resources to Enhance Process Improvements

• •

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

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Using the BSC to Link Strategy to Operational Management • Activity-Based Costing • Cost of Internal Processes • Customer Profitability • Activity-based Budgeting Shareholder Value • Explicit Value Proposition and Path for Revenue Growth Strategy Quality Programs • Link to Customer and Financial Outcomes • Identify New Processes • Set Priorities ©2002 Balanced Scorecard Collaborative. Kaplan. Inc and Robert S. 102 • • . All rights reserved.

Inc and Robert S.Business Excellence in Two Steps: Combining Business Excellence and Strategy Focused Management Allows Organiztions to Do the Right Things Right BSC Objectives -100 -200 do things right Time (TBM) Quality (TQM) Cost (ABM) do the right things -1000 ©2002 Balanced Scorecard Collaborative. 103 . All rights reserved. Kaplan.

SBU SBU . Kaplan.Shared Services External Partners • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS • Linked to Budgeting • Linked to Operational Improvements • Management Meetings • Feedback System • Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative.The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate . 104 . All rights reserved. Inc and Robert S.

Strategic Control Replacing the budget with the Balanced Scorecard is a step in the right direction… Mobil’s Balanced Scorecard FINANCIAL Strategic Objectives Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable Competitive Supplier Good Neighbor Quality Motivated & Prepared Strategic Measures Return on Capital Employed Mystery Shopper Rating Dealer / Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs. Kaplan. 105 . Inc and Robert S. Best Competitive Ratable Supply Environmental Index Quality Index Strategic Competency Availability corrections INTERNAL CUST result L&G Performance Initiatives & Programs input output It creates strategic focus but not strategic learning ©2002 Balanced Scorecard Collaborative. All rights reserved.

The following assessments have been provided by initiative owners: a. 106 . John Dark c.Performance Management Software Facilitates Strategic Reporting and Learning Measures $ Q1 Q2 Q3 Initiatives Target Marketing Effort for Southwest Region On schedule On schedule Delayed Assessment Recent Performance in the Business Growth area has been at or above performance for the past three quarters. Marianne Ritchie 9/25/96 11/14/96 1/15/97 ©2002 Balanced Scorecard Collaborative. Anne Sullivan b. Inc and Robert S. All rights reserved. Kaplan.

Performance Overview in Red and Green

Shareholder
Relative Operating Profit Total Fixed Costs

Cash Flow

Customer

Development Projects

Complaints Handling

Business Processes

Operability

Technical Tests Passed

LTA

People
Target Reached Performance Review's Target not reached

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

107

The ew Management Meeting: Strategic Review Process
PRESENT (Event-Driven Learning)
Review Strategic Issues (20%) • • Discuss Implications (40%)

FUTURE (Continuous Learning)
Provide input to strategic issues currently being worked Dialog about performance – explain anomalies – suggest solutions – identify issues Identify strategic issues for discussion at next group meeting

Review Strategic Issues (60%) )

Review Performance (40%) )

Review performance data (available on-line)

Discuss Implications (30%) Review Performance (10%)

THE MONTHLY STAFF MEETING

BETWEEN THE MEETING

THE QUARTERLY STRATEGIC REVIEW MEETING

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

108

Using the Feedback System to Facilitate Cultural Change
Who can use the system?
Privileged few • Strategy is everyone’s job Open Reporting to All

Communicating problems
“The only thing worse than “Better dead than red” bad news is bad news late.” • Admit your problems • How can we help

Competition vs. Cooperation
To be the best individual “Strategy is a team sport.” To be on the best team

Reducing Reports
Produce data and reports just-in-case • Fewer reports • Focused reports
109

“I will not read your old reports.”
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

” Pamela Syfert.City of Charlotte: City Manager’s Four Key Questions • How are you doing running your business? • How are you building the community and contributing to the city’s strategic themes? • How are you building your people? • How are you contributing to looking to the future? “The balanced scorecard has become the common theme that unites discussions across all these questions. Inc and Robert S. Kaplan. All rights reserved. 110 . Charlotte City Manager ©2002 Balanced Scorecard Collaborative.

Kaplan. 111 . Inc and Robert S.The ew Management Meeting: Strategic Learning Replaces Control The Shift In Focus (At City of Charlotte) Control Is the project… on-time? on-budget? Learning What is the impact of the project on… – neighborhoods – jobs – transportation ©2002 Balanced Scorecard Collaborative. All rights reserved.

” Pamela Syfert. 112 .City of Charlotte: City Manager’s Four Key Questions • How are you doing running your business? • How are you building the community and contributing to the city’s strategic themes? • How are you building your people? • How are you contributing to looking to the future? “The balanced scorecard has become the common theme that unites discussions across all these questions. Inc and Robert S. All rights reserved. Kaplan. Charlotte City Manager ©2002 Balanced Scorecard Collaborative.

The ew Management Meeting: Strategic Learning Replaces Control The Shift In Focus (At City of Charlotte) Control Is the project… on-time? on-budget? Learning What is the impact of the project on… – neighborhoods – jobs – transportation ©2002 Balanced Scorecard Collaborative. 113 . Inc and Robert S. All rights reserved. Kaplan.

Inc and Robert S. Best Competitive Ratable Supply Operational Control Loop Performance L&G Motivated & Prepared Strategic Competency Availability input Initiatives & Programs output 114 ©2002 Balanced Scorecard Collaborative. Kaplan.Effective Strategic Management Is Based Upon a “Double Loop” Learning Approach The Strategy Financial Perspective Customer Perspective Strategic Feedback That Encourages Learning Internal Perspective update the strategy Learning Perspective incorporate learning • Test hypotheses about your strategy • Assess changes in the environment Strategic Learning Loop Balanced Scorecard Financial • Identify emerging strategies result Strategic Objectives Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable Strategic Measures Return of Capital Employed Mystery Shopper Rating Dealer/Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate corrections Internal Cust Competitive Supplier Laid Down Cost vs. . All rights reserved.

Selection Friendly Enjoyable Experience Differentiators Interesting Promotions Survey: Enjoyable experience Internal Perspective Build the Franchise Continually develop and successfully roll out new and innovative programs Roll-out rating (Ban Boredom Programs)* Increase Customer Value Enhance the customer experience with flawless implementation Pride rides* Mystery shoppers* Operational Excellence Focus on store. Cleanliness. and associate productivity In stock average* Gross profit $ / labor $* Gross profit $ / labor hour* Learning & Growth Perspective Competencies Required competencies are built on tenure and capability rating Tenure* Capability evaluation* Technology Focus on technology is on information systems use Climate for Action Ability to implement relies heavily on employee satisfaction Gallup poll* Technology evaluation sheet* * Measures ©2002 Balanced Scorecard Collaborative.Store 24 Introduced an Innovative Strategy to Build Customer Intimacy: “Ban Boredom” GROWTH Sales Growth* Financial Perspective ROI ROCD* PRODUCTIVITY Gross Profit $ / Labor $ EBITA* EBITDA Gross Profit Gross Profit Growth* New Concepts Net gross profit from concepts <2 years old* New Customers Growth in core categories* Customer count* Contribution Contribution $ And % change* Asset Utilization Inventory turns* Hurdle rate on projects* Customer Value Proposition Basic Requirements Quality. All rights reserved. Inc and Robert S. in stock. Kaplan. Value. 115 .

Testing the Strategy in Real Time Leads to Strategic Learning Updated Strategy: “Cause You Just Can’t Wait” Financial Perspective ROI ROCD* EBITA* EBITDA Gross Profit Gross Profit Growth* New Items Net sales from new items* New Customers Growth in core categories* Customer count* Contribution Contribution $ And % change* Asset Utilization Inventory turns* Hurdle rate on projects* Customer Value Proposition Basic Requirements Quality. Value. 116 . Cleanliness. Selection Friendly Differentiators Fast & Efficient Competitive comparison* Internal Perspective Build the Franchise Rapid rollout of new merchandise New item program rating* Increase Customer Value Enhance the customer experience of speed and efficiency Average in/out time* Operational Excellence Focus on store. in stock. All rights reserved. Inc and Robert S. Kaplan. and associate productivity In stock average* Gross profit $ / labor $* Gross profit $ / labor hour* Learning & Growth Perspective Competencies Required competencies are built on tenure and capability rating Capability evaluation* Technology Focus on technology is on information systems use Climate for Action Ability to implement relies heavily on employee satisfaction Gallup poll* * Measures Technology evaluation sheet* ©2002 Balanced Scorecard Collaborative.

All rights reserved. Kaplan. 117 .SBU SBU . Inc and Robert S.Shared Services External Partners • • • • • EXECUTIVE LEADERSHIP CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS • Linked to Budgeting • Linked to Operational Improvements • Management Meetings • Feedback System • Learning Process BALANCED SCORECARD EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative.The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives ORGANIZATION ALIGNMENT • • • • Corporate Role Corporate .

Done Only for Compensation ©2002 Balanced Scorecard Collaborative. Held at the Top: For Senior Management Only 4. Middle Management Team: Lack of Senior Management Commitment (“Bacon and Eggs Breakfast”) 2. Done by One or Two Individuals 3. All rights reserved. 118 . Led by Inexperienced Consultants 7. Too Long a Development Process: “Best Becomes the Enemy of the Good” 5.Pitfalls 1. Inc and Robert S. Kaplan. Treating the Balanced Scorecard as a Systems Project 6.

1 • Establish executive consensus on strategic issues • Review draft Balanced Scorecard objectives and strategy map Workshop No. Inc and Robert S. All rights reserved. 119 . Targets and Initiatives Develop Implementation Plan ©2002 Balanced Scorecard Collaborative. 3 • Review implementation plan • Discuss implications on change management Core Team Analysis & Preparation Task 1 Task 2 Task 3 Task 4 Define Balanced Scorecard Architecture Develop Objectives and Strategy Map Develop Measures.An Effective Balanced Scorecard Development Process Encourages Focused Participation by Leadership Team and Leverages Knowledge Within the Organization The Balanced Scorecard Design Program Leadership Team Workshops Workshop No. Kaplan. 2 • Finalize objectives and measures • Review strategic initiatives and high level targets Workshop No.

Inc and Robert S.Value is Added Throughout the Process Task 1. Develop Implementation Plan Deliverables • Balanced Scorecard rollout plan Deliverables • Project plan • Financial gap • Balanced Scorecard architecture • Value Chain Frameworks for strategic architecture & measurement system Strategy architecture case studies Strategy map Strategic themes Measurement frameworks Target setting approaches Initiatives alignment Strategic feedback and learning model Implementation approaches • Management process • Communications & alignment • Strategic initiatives planning/implementation ©2002 Balanced Scorecard Collaborative. Kaplan. Develop Measures. All rights reserved. Define Balanced Scorecard Architecture Task 2. Targets & Initiatives Deliverables • Scorecard measures • High-level targets • Strategic initiatives • Feedback system demo Task 4. Draft the Balanced Scorecard Deliverables • Draft Balanced Scorecard – Preliminary objectives – Strategy Map Task 3. 120 .

Kaplan.Typical Balanced Scorecard Project Schedule Week Task 1: Define Strategic Architecture Project Kickoff Task 2: Draft the Balanced Scorecard Workshop I Task 3: Develop Measures. All rights reserved. Inc and Robert S. 121 . High Level Targets & Initiatives Workshop II Task 4: Develop Implementation Plan Workshop III 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 2 Wks 4 Wks 4 Wks 2 Wks ©2002 Balanced Scorecard Collaborative.

Inc and Robert S.to full-day workshops • One 90-minute briefing/ interview • Consultations/ pre-presents as needed BSCol Project Team 1-2 Consultants (full-time) Client Core Team Staff knowledgeable of business strategies and organization • 1-2 staff • 2-3 days/week • Briefings with others as needed ©2002 Balanced Scorecard Collaborative. 122 . All rights reserved.Balanced Scorecard Project Team BSCol Engagement Officer/ Principal (part-time) Executive Sponsor/ Steering Committee • Overall project ownership • Consultations/pre-presents as needed BSCol Project Leader (full-time) • 2 days/week Client Project Leader Executive Leadership Team • 3 half. Kaplan.

All rights reserved.BSCol’s Framework for Building the SFO 4 –6 Weeks 12-16 Weeks Assessment Phase 0 Phase I: BSC Design and Mobilization 1 .5 . 123 Stream 2 .2 Years Phase II: Build the SFO Business Process Improvements Stream 1 Order Fulfillment Customer Service/CRM Stream 3 Product Innovation Stream 4 Infrastructure • HR • IT • Etc ©2002 Balanced Scorecard Collaborative. Inc and Robert S. Kaplan.2 Years •Rapid BSC Cascading and Deployment •Planning and Budgeting •Governance •Feedback and Learning •Performance Management 0.

Rate Your Organization’s Readiness to Execute Its Strategy EXECUTIVE LEADERSHIP ORGANIZATION ALIGNMENT • • • • • CEO Sponsor Executive Team Engages “New Way of Managing” Accountable for Strategy A Performance Culture TRANSLATE STRATEGY • • • Corporate Corporate – SBU SBU – Shared Services • • • • • Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives CONTINUAL PROCESS EVERYONE’S JOB • • • Strategic Awareness Goal Alignment Linked Incentives Rate Yourself E D C B A “Best Practice” We’re OK Moving Slowly Thinking About It Clueless • • • • • Linked to Budgeting Linked to Ops. Management Meetings Feedback System Learning Process ©2002 Balanced Scorecard Collaborative.Based On What You Have Learned in This Conference. Mgmt. Inc and Robert S. 124 . All rights reserved. Kaplan.

The SFO Readiness Profile: Plot Yourself TRANSLATE STRATEGY Develop strategy maps and Balanced Scorecards E D C B A EXECUTIVE LEADERSHIP Mobilize the organization ORGANIZATION ALIGNMENT Cascade the scorecard to create linkage CONTINUAL PROCESS Feedback systems to facilitate learning Communicate Personal Scorecard Incentives EVERYONE’S JOB Mobilize Change through Executive Leadership ©2002 Balanced Scorecard Collaborative. A B Thinking C D OK E Clueless Moving Slowly Best Practice 125 . Kaplan. Inc and Robert S. All rights reserved.

Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY #1 EXECUTIVE LEADERSHIP ORGANIZATION ALIGNMENT CONTINUAL PROCESS Communicate Personal Scorecard Incentives EVERYONE’S JOB A B Thinking C D OK E Clueless ©2002 Balanced Scorecard Collaborative. All rights reserved. Moving Slowly Best Practice 126 . Inc and Robert S. Kaplan.

Moving Slowly Best Practice 127 . Inc and Robert S. All rights reserved. Kaplan.Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY Top-down First Wave of Results #2 #1 EXECUTIVE LEADERSHIP #2 ORGANIZATION ALIGNMENT #2 CONTINUAL PROCESS Communicate Personal Scorecard Incentives EVERYONE’S JOB A B Thinking C D OK E Clueless ©2002 Balanced Scorecard Collaborative.

Kaplan. Inc and Robert S. All rights reserved. Moving Slowly Best Practice 128 .Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY Top-down First Wave of Results #2 #1 EXECUTIVE LEADERSHIP #2 ORGANIZATION ALIGNMENT #2 #4 CONTINUAL PROCESS #5 #3 #4 #4 Bottoms-up Communicate Sustained Results Personal Scorecard Incentives EVERYONE’S JOB A B Thinking C D OK E Clueless ©2002 Balanced Scorecard Collaborative.

Inc and Robert S..For More Information.com ©2002 Balanced Scorecard Collaborative. Kaplan. 129 .. Visit our website @ bscol. All rights reserved.

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