Balanced Scorecard - Kaplan - Material HSM 2008

Robert Kaplan
P ROFITABILITY
& S TRATEGY
Measuring and Managing the

Profitability of Your Strategy
Robert Kaplan
Measuring and Managing the

Profitability of Your Strategy
Dr. Robert S. Kaplan

Baker Foundation Professor, Harvard Business School
Chairman, Professional Practice Group, The Palladium Group
Balanced Scorecard Collaborative/Palladium • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com
Most organizations have problem executing their strategy.
Less than 10% of Only 15% of the 794

strategies effectively programs reviewed in
formulated are effectively Fiscal 2005 were rated
executed. effective.
- Fortune Magazine - Barron’s
Our problem is not about the strategy itself but about our
execution of it.
– Tony Hayward, CEO, BP
I’d rather have a mediocre strategy that is well executed than a
brilliant strategy executed poorly.”
- Jamie Dimon, CEO, J.P. Morgan Chase
Companies on average realize only 60% of the financial performance their

strategies promise... more than one-third of executives surveyed placed the
figure at less than 50%.
- Harvard Business Review 2
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Robert Kaplan
A Conference Board’s 2007 survey identifies

strategy execution as CEO’s #1 and #3 issue
Top 10 Challenges Overall
Relative Cite challenge as being
Ranking of “greatest concern”
1 Excellence in execution 38.4%
2 Sustained and steady top-line growth 36.8
3 Consistent execution of strategy by top management 31.8
4 Profit growth 28.4
5 Finding qualified managerial talent 27.2
6 Customer loyalty / retention 26.3
7 Speed, flexibility, adaptability to change 25.4
8 Corporate reputation 23.7
9 Stimulating innovation / creativity/ 18.7

enabling entrepreneurship
10 Speed to market 18.2
N – 769. Weighted by regional representation in global GDP (Asia, 21.7 percent; Europe, 35.1 percent; the United States, 28 percent; and other, 15.2
percent). GDP data from the International Monetary Fund, World Economic Outlook Database, September 2006.
Organizations with a formal strategy execution process in place are

dramatically outperforming organizations without formal processes.
Do you have a formal strategy Yes No

execution process in place? (54%) (46%)
Describe your organization’s current

performance.
….We have breakthrough results 12% 7%
…we are performing better than our peer group 58% 20% Winners
Sub-Total 70% 27%
…performing at the same level as our peer group. 18% 30%

…performing at a lower level than our peer group 9% 27%
Losers
…not performing at a sustainable level 3% 16%
Sub-Total 30% 73%
Source: BSCol Research (Survey of 143 performance management professionals, drawn from BSCol On-Line Community, March 2006)
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Robert Kaplan
A New Six Stage Management System Links

Strategic Planning and Operational Execution
June 2008
Harvard Business Review January 2008
5
Balanced Scorecard Hall of Fame for Executing Strategy

By Industry 2000 – 2007
© 2007 Balanced Scorecard Collaborative/Palladium Group, Inc. 6
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Robert Kaplan
Hall of Fame Results: Brazilian companies
y 19.6% CAGR in net income between y Net sales income increased 31% in 2003
1999 (the year of BSC adoption) and compared with 2002, and 29% in 2004.
2002.
y The company’s 2003 gross profit was 45%
y In 2002, the insurance unit was #2 in higher than the previous year’s, and 56%
quality and customer satisfaction in its higher in 2004 than in 2003.
industry
y 2003 EBITDA was 29% higher than in 2002;
y The customer base of Unibanco grew in 2004, it was 56% higher than in 2003.
256%, from 3.7 million in 1999 to 13.2
y AMT became a national benchmark in a
million in 2002
corporate-climate survey by Hay-Brazil;
y 2006 net income 70% higher than 2002; every employee can “give answers
Return on equity 15-20% higher. regarding the company’s strategy.”
y In two years, reduced product y Revenue rose from $380 million to $1.5
development cycle time by 28%, from billion; Net profit increased from $18
4.6 to 3.6 months. million to $211 million from 2002 to 2005.
y In 2004, increased net income 126% y The accident rate fell significantly from
over the previous year. Net sales grew 2002 to 2005.
almost 9%, nearly twice that of the
y The percentage of “engaged” employees
company’s largest competitor.
increased from 78% in 2003 to 83% in
y A customer feedback mechanism 2005.
boosted sales to one strategic customer
y Innovation improved – 72 new products
by 25%.
were developed between 2003 and 2005,
y Employee satisfaction rose 4 percentage compared with 45 developed between
points, in one year, to 78% in 2004. 2000 and 2002.
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Robert Kaplan
The Management System for Strategy Execution

Links Strategic Planning and Operational Excellence
2
TRANSLATE THE STRATEGY DEVELOP THE STRATEGY
1
• Strategy Map / Themes • Mission, Values, Vision
• Measures / Targets • Strategic Analysis
• Initiative Portfolios • Strategy Formulation
• Funding / Stratex
TEST & ADAPT 6

3 ALIGN THE ORGANIZATION
• Profitability Analysis
• Business Units Strategic Plan
• Support Units performance measures • Strategy Correlations
• Strategy Map • Emerging Strategies
• Employees
• Balanced Scorecard
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Sales Forecast performance measures • Strategy Reviews
• Key process improvement • Resource Requirements • Operating Reviews
• Sales planning • Dashboards
• Resource capacity plan • Budgets
• Budgeting
results
EXECUTION
Process
Initiative
Stage 1 of the Management System: Develop The Strategy
2
TRANSLATE THE STRATEGY DEVELOP THE STRATEGY 1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Dashboards performance measures • Strategy Reviews
• Key process improvement • Sales Forecast • Operating Reviews
• Sales planning • Resource Requirements
• Budgeting
results
EXECUTION
Process
Initiative
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Robert Kaplan
The Mission describes the fundamental purpose of the entity,

especially what it provides to customers and clients
We want to discover, develop and successfully market

innovative products to prevent and cure diseases, to ease
suffering and to enhance the quality of life. We also want to
provide a shareholder return that reflects outstanding
performance and to adequately reward those who invest ideas
and work in our company.
Novartis
Organize the world’s information and make it universally

accessible and useful.
Google
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The core values of a company prescribe the attitude,

behavior, and character of the organization.
Earthlink, an internet service provider,

• We respect the individual, and believe that individuals who are treated with
respect and given responsibility respond by giving their best.
• We are frugal. We guard and conserve the company’s resources with at least
the same vigilance that we would use to guard and conserve our own personal
resources.
• In all our dealings we will strive to be friendly and courteous, as well as fair and
compassionate.
• We feel a sense of urgency on any matters related to our customers. We own

problems and we are always responsive. We are customer-driven.
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Robert Kaplan
The vision is a concise statement that defines the 3 to 5 year goals

of the organization. It should contain a stretch objective, a time
frame, and a strategic “niche”
Cigna Property and Casualty:

“be a top-quartile specialist within 5 years.”
Wells Fargo Online Financial Services:

“have one-million on-line customers by the end of the decade.”
University of Leeds:
“By 2015, our distinctive ability to integrate world class research, scholarship,
and education will have secured us a place among the top 50 universities in
the world.”
US Space program (1962: John F. Kennedy):

“land a man on the moon and return him safely to earth before the end of
the decade.”
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Finally, companies select their strategy. They can use the

OAS framework to describe their strategy
Objective (O): (similar to the Vision Statement)

the ends that the strategy is designed to achieve;
quantitative target and time frame
Advantage (A):
the means by which the enterprise will achieve its objective
what the enterprise will do differently, better or uniquely compared to
competitors
the value proposition the company will offer to attract customers
the “strategy canvas” or value curve (Blue Ocean strategy)
Scope (S):
the domain (niche) in which the enterprise intends to operate
customer segment, product line breadth, technologies employed, geographic
locations served, or degree of vertical integration (which value chain activities it
will perform)
M. Rukstad and D. Collis, “What is your strategy?” Harvard Business Review (April 2008) 13
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Robert Kaplan
A Possible OAS Statement for Southwest Airlines

(in less than 40 words)
(O) To be the most profitable US-based airline
(A) by offering the speed of airline travel at a price, frequency,

and reliability of cars, buses and trains
(S) to price-sensitive travelers who value convenient flights
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Stage 2 of the Management System: Plan the Strategy
2
1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Dashboards performance measures • Strategy Reviews
• Key process improvement • Sales Forecast • Operating Reviews
• Sales planning • Resource Requirements
• Budgeting
results
EXECUTION
Process
Initiative
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Robert Kaplan
Sample Strategy Map Illustrating Strategic Themes
Vision: BY 2010, become the leading company in our industry
F1 – Increase return on
capital
Financial
F2 – Improve F3 – Increase F4 – Grow revenues

productivity revenues in existing in new products
segments and markets and services
Improve Operating Quality Grow High Value Accelerate Product

and Efficiency Customer Innovation
Relationships
Customer
C2 – “Provide C3 – “Introduce
C1 – “Be a leader in valued service, innovative, high
quality and reliability” applications performance
expertise and products and
support” solutions”
I3 – Optimize
P1 – Improve customer I6 – Excel at
supply chain profitability technology, product
efficiency and development and
Process
effectiveness life cycle

I4 – Expand management
channels,
offerings and
markets
P2 – Improve I7 – Identify next
quality, cost and generation
flexibility of I5 – Build and market
operating maintain strong opportunities
processes customer
relationships
Create a High Performance Culture

& Growth
Learning
L1 – Expand and build

L3 – Enable and require
strategic skills, L2 – Develop leadership and
continuous learning and
capabilities and an execution-driven culture
knowledge sharing
expertise
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Robert Kaplan
Strategy Map for a New Customer Solutions Strategy:

Community Banking Inc.
“Our success comes from…

F2 – F3 – F1 – F4 –
Financial
Maximize Grow Achieve Manage financial

traditional non-traditional sustainable double resources for maximum
revenue revenue digit net income risk-adjusted
sources sources growth return
… delivering great financial services,…

Customer
C1 – C3 –
C2 –
Understand me Appreciate me C4 –
Give me convenient
and give me the and get things done Be involved in
access to the
right information easily, quickly, my communities
right products
and advice and right
…which is all about developing and managing enduring relationships…

Internal Process
Grow
Acquire High-Potential and Increase Quality and
New Relationships Retain High-Value Productivity
Relationships
and Growth
Learning
…and being a great place to work!”
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Robert Kaplan
Community Banking Group Strategy Map
“Our success comes from

F2 – F3 – F4 –
Financial
F1 –
Maximize Grow Manage financial
Achieve
traditional non-traditional resources for maximum
sustainable double digit
revenue revenue risk-adjusted
net income growth
sources sources return
delivering great financial services,

Customer
C1 – C3 –
C2 –
Understand me Appreciate me C4 –
Give me convenient
and give me the and get things done Be involved in
access to the
right information easily, quickly, my communities
right products
and advice and right
which is all about developing and managing enduring relationships

Acquire New Relationships Grow High-Potential and Increase Quality and Productivity
Retain High-Value Relationships
I4 – I7 – Provide I11 – Consistently deliver
Sell the right products premium service to the Allfirst value proposition
at the right time delight and retain at the right cost
valuable customers
Internal Process
I3 – Communicate I6 – Demonstrate I10 – Maximize

the Allfirst brand and the Allfirst efficiency and quality of
value proposition value proposition business processes
I1 –
I2 – I5 – I9 –
Segment I8 –
Effectively Identify Enhance
markets and Focus
develop and recognize critical internal
target prospects on the
products and high-potential and external
for new critical
access relationships partnerships
opportunity fewer
and being a great place to work!”

and Growth
Learning
L1 – “L2 – L3 – L4 –
“We develop We’re “We understand “We have the
recognize, retain developing the the strategy and information and
and hire great skills we need know what we tools we need to
people.” to succeed.” need to do.” do our jobs.”
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Robert Kaplan
Strategic Themes help to split the Value Gap in the Vision

into achievable financial targets
Financial Perspective
t
Increase net income
by $100M in 5 years
Operations Customer
Management Management Growth
Strategic
Improve productivity Enhance demand Add and retain high Theme
and customer loyalty through customer value customers
through operational partnerships
excellence.
• Annual Cost Per • Annual Revenue Per • Number of High Macro

Customer Customer Value Customers Measure
• From $100 to $75 • From $200 To $300 Target

• From 200,000
To 600,000
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Each strategic theme achieves its target at a different rate
Productivity Increase Growth

Net
Financial Income
Perspective Reduce Increase Increase
Cost per Revenue per Number of
Customer Customer Customers
Product/Service Attributes Relationship Growth

Customer Integrated Financial One Market
Price Quality Offering
Perspective Advisor Stop Share
Operations Customer
Growth
Management Management Net
Reduce Increase Revenue / Increase Number of Income
Yr. Cost/Customer Customer Customers
Process
0 $100 $200 200K $20M
Perspective 1 90 200 250 27
2 80 220 335 47
3 75 260 520 96
4 75 280 580 119
5 $75 300 600 $135M
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Robert Kaplan
The Strategy Map and Balanced Scorecard should

represent a complete program of action
Strategy Map Balanced Scorecard Action Plan
Theme: Operating Efficiency Objective Measurement Target Initiative Budget
Financial Profits • Profitability • Market Value • 30% CAGR
& RONA • Grow revenues • Seat Revenue • 20% CAGR
Grow Fewer • Fewer planes
Revenues Planes • Plane Lease Cost • 5% CAGR
Customer Attract & Retain • Flight is on-time • FAA On-Time Arrival • #1 • Customer Loyalty
More Customers • Lowest prices Rating • #1 Program • $XXX
• Customer Ranking • 70%
On-time Lowest • Attract and retain
more customers • # Repeat Customers • Increase 12%
Service Prices
• # Customers annual
Fast Ground • Fast ground • On Ground Time • 30 Minutes • On Ground Cycle • $XXX
Internal turnaround Time Optimization
Turnaround • On-Time Departure • 90%
• Quality Management • $XXX
• Ground crew aligned • % Ground Crew • 100% • ESOP • $XXX
Learning Ground with strategy Stockholders
Crew • Ground Crew • $XXX
Alignment • Develop the necessary • 100%
• Strategic Awareness Training
skills
• Yr 1 - 0% • $XXX
• Develop the support • Strategic Job Readiness Yr 3 - 90% • Crew Scheduling
system Yr 5 - 100% System Rollout
Strategic Systems Strategic Job
• Info System Availability • CRM System • $XXX
Crew Scheduling Ramp Agent • 100%
Total Budget $XXXX
Communicate Measure Execute 21
Companies test the alignment of their initiatives to

strategic themes and objectives.
Procurement redesign
Sales force training
Warehouse upgrade
identification
Quality needs
funnel
Product development
restructuring
Financial system
connectivity
Customer call center
Initiative “n”
Programs/Projects
Strategic Themes/
Initiative Portfolios
Enhance Service Delivery
Objective One X Initiative X
Objective Two serving no
Grow Partner themes
Relationships
Objective Three X X
Objective Four
Drive Future Value

Objective Five X
Theme with
Meet Regulatory Standards no initiatives
Grow our customer focus

capabilities
Objective Seven X X
Objective Eight
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Robert Kaplan
Scoring Initiatives for a Strategic Theme’s Portfolio
Criterion 1 (50%) Criterion 2 (30%) Criterion 3 (20%)

Strategic Relevance and Benefit Resource Demands Risks
Screen for strategic relevance FTEs and Duration Cost Project risk (complexity, multiple
Map to objectives and determine Number of people Investment units, implementation and
impact operational issues)
Quantity of resources SG&A
Determine strategic benefit Budget exposure
Project duration
Staff and skills availability
1. Not well aligned to strategy, 1. Requires many valuable 1. High risk
little strategic benefit resources to implement and
3. Aligned to strategy, modest sustain
3. Medium risk
strategic benefit 3. Requires some resources to
9. Aligned to strategy, major implement and sustain
9. Low risk
strategic benefit 9. Requires few resources to
implement and sustain
Each initiative is ranked on a 1 to 9 scale for the three criteria. Each criterion is weighted. The
initiative’s criterion rank is multiplied by the criterion weight, and summed across criteria to arrive at a
total score. The higher the score, the more promising the initiative.
23
Management authorizes a budget for Strategic Initiatives (STRATEX)
Strategy
• Strategy Map
Balanced Scorecard
Integrated • Themes • Targets
• Objectives • Accountability
Strategic • Measures
Plan Strategic Initiatives
Theme 3
Rolling Forecast (Budget) Theme 2
Strategy Map Balanced Scorecard Action Plan
$$ % Measure Target Initiative Budget
Revenue XX 100% Broaden Revenue

• Revenue Mix New = +10%
Mix • Revenue Growth +25%

• Direct Expense (XX) (40)
Theme: “Cross-Sell the Product Line”
Gross Margin XX 60% Increase

Customer
• Share of Segment 25% • Segmentation Initiative $ XXX
• Share of Wallet 50%

• Indirect Expense Confidence in Our
Financial Advice • Customer Satisfaction 90% • Satisfaction Survey $ XXX
– Sales (XX) (10)
Operational – Prof. Dev. (XX) (5)
• Cross-Sell Ratio 2.5 • Financial Planning Initiative $ XXX
Plan/Budget – G+A (XX) (15) Cross-Sell the

Product Line
• Hours with Customer 1hr/Q • Integrated Product Offering $ XXX
Contribution XX 30% Strategic Job

• Human Capital
Readiness
100% •
•
Relationship Management
Certified Financial Planner
Financial Planner
$ XXX
• R&D (XX) (5) Strategic Systems

• Strategic Application 100% • Integrated Customer File
$ XXX
$ XXX
Portfolio Planning Readiness • Portfolio Planning Application
• STRATEX (XX) (5) $ XXX
Create Organization • Goals Linked to BSC 100% • MBO Update $ XXX

Readiness • Incentive Compensation $ XXX
EBITDA XX 20% Total Budget $XXX
• ITDA (XX) (5)

Total Strategic Investment $ XX
Net Income XX 15%
Cost Management Investment Management

• OPEX • CAPEX
24
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Robert Kaplan
Theme Teams Manage Strategy Execution for each Strategic Theme
Features of a “Theme Team”

Executive Leadership. Team is chaired and
sponsored by a member of the Executive
Committee.
Funding. Stratex is earmarked for the Theme

initiatives.
Staffing. A core group, the theme team, is

assigned to support the theme.
A cross-business team
empowered to execute the
objectives of a strategic theme at
an operational level.
25
Comprehensive Case Study. The burning platform – a critical

situation for the State of Rio Grande do Sul, Brazil.
The bankruptcy of the State Export oriented economies, like RS, suffered
Government brought public a negative impact from the strengthening of
investment to the lowest level the national currency - the export sectors
in the last 35 years and the that have been growing in the country are
State is not capable of not the ones that prevail in RS.
inducing any sort of economic
recovery. Bankruptcy of Strengthening
the Government of national
currency
Critical
Natural situation Worst
disasters economical
Recurring droughts have had a performance
negative impact on the in the state’s The State was historically one
agricultural production. history
Impact on of the fastest growing
social economies in Brazil. In the last
development years, it has been growing
below the Brazilian average.
Historically, the State of RS had the best social

indicators in Brazil, but they have been
deteriorating quickly as a result of economic
slowdown
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Robert Kaplan
State Fiscal burden: 45 percent of tax revenues pay for the past.
32% of tax revenues are committed 12,7% of tax revenues are commited Low public investment
to pensions to debt payments capacity
RR 0,3 AP 3,0
AP 0,9 DF 3,1
PI 6,1
RS 6,7
AM 2,6 RR 5,3
RJ 8,3
TO 2,9 PA 5,6
SP 8,4
RO 4,4 RN 6,5
MG 9,3
AC 8,2 AM 6,7
PR 10,4
DF 9,3 AC 7,0
MT 10,8
NA 11,3 ES 7,1
RN 11,6
MT 11,8 SE 7,5
DF 12,1
Percentual da despesa com inativos sobre a Receita
Percentual de Investimento da Receita

MA 12,5 TO 8,1 SE 12,1
MS 12,8
Percentual da Receita Líquida destinada ao pagamento

PE 9,3 GO 12,2
CE 14,2 PR 10,1 RO 13,4
SE 14,8 MS 10,4 AL 13,5
Corrente Líquida
PR 15,1 SP PB 14,7
10,4
ES 15,2 MG 10,6 MS 14,9
PA 15,6 PE 15,2
das dívidas
RO 10,6
GO 16,9 GO 10,7 SC 15,4
AL 18,4
RJ 10,8 RR 15,8
PI 18,5 CE 11,7 MA 16,1
RN 19,1 BA 16,7
AL 12,1
RJ 19,4 PA 16,7
SC 12,1
PE 19,4 AP 16,8
PB 12,3
PB 20,0 AC 17,6
RS 12,7
SC 20,6 AM 21,2
BA 13,0
SP 20,9 CE 23,5
PI 13,9
ES 25,3
MG 26,4
MA 14,0
TO 46,3
RS 32,0
MT 14,8
- 10,0 20,0 30,0 40,0 0 20 40 60
- 5,0 10,0 15,0 20,0
Fonte: Secretaria do Tesouro Nacional, Execução Orçamentária dos Estados, 2004 27
A heavy burden to carry.
The current situation was

Bankruptcy of the foreseeable 35 years ago. The
Strengthening of
Government
national currency problems of the State were
clear, the solutions were
thoroughly discussed, but
Critical never implemented.
Natural disasters situation
Worst economical
performance in the
state’s history
Impact on social
development
One Government after
another tried to implement
the necessary reforms, but
they have consistently failed.
It was clear that Government
alone was not capable of
solving the structural
problems of the State.
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Robert Kaplan
Citizens and Institutions takes the lead.
Bankruptcy of the
Strengthening of
Government
national currency
Citizens and institutions decide
to reverse their traditionally
passive role in public policy.
Critical
They would take a central role
Natural disasters situation
Worst economical
in a constructive process for
performance in the
state’s history
social and economic
development
Impact on social
development
Participants:
• Community Representatives
• Unions
• Associations
• Corporate Leadership
• Universities
• NGOs
• Government
• Public Institutions
• Others
29
Project Overview: Developing a Strategy for Rio Grande do Sul Province, Brazil.
Alignment of societal interests

for a common vision
Future Vision
Meeting “O Rio Grande que Queremos”
(March 8th and 9th)
Translate the future vision into
strategic objectives
The Strategy
“Strategy Map of RS”
April 26th Workshop
Creation of a results monitoring
system and definition of proposals
Infra- Market
Education Environment to reach the objectives
structure Development
11 Thematic Forums (examples)

Proposal validation by the thematic
forums
“Measures, Targets, Projects”
July 11th Workshop
“Governance Model – Strategic Agenda” Guarantee the continuity of the

Strategic Agenda until 2020 (from
August 9th Workshop project to process)
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Robert Kaplan
Future Vision Search – March 8th and 9th
The Future Vision

“O Rio Grande que Queremos” Meeting
(March 8th and 9th)
Activities done
State diagnosis;
Shared future vision;
Main challenges to overcome
Participants
More than 850 people
representing major
stakeholders
31
Future Vision Search – Pictures
32
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Robert Kaplan
Survey – Pictures
33
The best state to live and work.
Competitive Society
Economic Social and
Quality of Life
Growth Regional Equality
Differentials
Benchmark in Benchmark in inno- The best state to
human capital vation and technology do business
Growth Processes
Market Regional Innovation and

development Development Technology
Public
Administration
Infrastructure
Institutional Financial Citizenship and

Development
Foundations
and regulatory resources social Environment

environment availability responsibility
Education Health
34
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Robert Kaplan
The best state to live and work.
Society
Social and
Economic Growth Quality of Life
Regional Equality
Differentials
Competitive
Benchmark in
Benchmark in The best state to
innovation and
human capital do business
technology
Market Regional Innovation Public

Development Development and Technology Administration
Capacitate for entre- Promote technology

preneurship, management Augment the State’s
centers that are aligned
and quality, and innovation investment capacity through
with a state plan
and technology fiscal equilibrium
Guarantee a
regional and
integrated Establish and execute
Growth Processes
Stimulate exports with a strategic plan investment policies and
focus on value added with social stimulus for innovation Reduce the State’s tax burden
activities participation, and technology
assuring the
continuity of
public policies Integrate companies,
Attract and strengthen research institutes, Modernize and enhance the
companies in strategic universities and the efficiency of the public
sectors, diversifying the Government in leading administration, including a size
regions´ production matrix edge technology efforts adjustment
Infrastructure
Guarantee transparency in
Establish public-private public administration via a
Implement an integrated Guarantee the
partnerships and societal monitoring system
transportation logistics efficient use and
concessions with
network with a focus on availability of energy
guaranteed contractual
greater efficiency at competitive prices
assurances
Institutional and Financial Resources Citizenship and

Regulatory Environment Availability Social Responsibility Environment
Combat Incent and Balance Promote

Guar- guarantee means environmental society's
informality, Incent Facilitate
antee of societal partici- preservation with environ-
piracy and tax the credit
public pation in public development, mental
evasion formation access
safety administration through clear and commit-
of public with
Development Foundations
and stable rules and ment thru

Guarantee the and better
trust in greater efficiency environ-
stability and private orien-
insti- Promote social of regulating mental
execution of savings tation
tutions responsibility bodies education
rules
Education Health
Expand the Capacitate for the Promote

network of full- market and citizenship, Amplify the Promote
Define and family
day schools with the help of effectiveness health
implement an planning and
universities and of the health through
educational colleges, schools, infant
network with preven-
model focused NGOs, and govern- mortality
Invest in teacher service quality tive
on quality ment and amplifying reduction
qualification improvement actions
professional teaching initiatives
35
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Robert Kaplan
A public event sealed the commitment of the 2 candidates to the

state governement, Yeda Crusius and Olívio Dutra, with the
presentation of “The 20 Key Issues of the Agenda”.
36
Organizing by Strategic Theme

Society
Social and
Economic Growth Quality of Life
Regional Equality
Differentials
Competitive
Benchmark in
Benchmark in The best state to
innovation and
human capital do business
technology
Public Administration
Market Regional Innovation Public
Development Development and Technology Administration
Capacitate for entre-

preneurship, management
Promote technology
centers that are aligned
Augment the State’s Augment the State’s investment
and quality, and innovation investment capacity through
and technology Guarantee a
regional and
with a state plan
fiscal equilibrium
capacity through fiscal
integrated Establish and execute
equilibrium
Growth Processes
Stimulate exports with a strategic plan investment policies and

focus on value added with social stimulus for innovation Reduce the State’s tax burden
activities participation, and technology
assuring the
continuity of
public policies Integrate companies,
Attract and strengthen
companies in strategic
research institutes,
universities and the
Modernize and enhance the
efficiency of the public Reduce the State’s tax burden
sectors, diversifying the Government in leading administration, including a size
regions´ production matrix edge technology efforts adjustment
Infrastructure
Modernize and enhance the
Establish public-private
Implement an integrated
transportation logistics
partnerships and
concessions with
Guarantee the
efficient use and
public administration via a
societal monitoring system efficiency of the public
network with a focus on availability of energy
greater efficiency
guaranteed contractual
assurances
at competitive prices administration, including a size
adjustment
Institutional and Financial Resources Citizenship and
Regulatory Environment Availability Social Responsibility Environment
Incent and Balance Promote

Guar-
antee
Combat
informality, Incent Facilitate guarantee means
of societal partici-
environmental
preservation with
society's
environ-
piracy and tax the credit
public
evasion formation access pation in public development, mental
public administration via a
Development Foundations
safety administration through clear and commit-

of public with
and stable rules and ment thru
and
trust in
insti-
Guarantee the
stability and private
savings
better
orien- Promote social
greater efficiency
of regulating
environ-
mental
societal monitoring system
tutions execution of tation responsibility
rules bodies education
Education Health
Expand the Capacitate for the Promote

network of full- market and citizenship, Amplify the
Define and family Promote
day schools with the help of effectiveness
implement an planning and health
universities and of the health
educational colleges, schools, infant through
network with
model focused NGOs, and govern- mortality preventiv
Invest in teacher service quality
on quality ment and amplifying reduction e actions
qualification improvement
professional teaching initiatives
37
23
Robert Kaplan
Setting priorities for strategic projects within a theme.
First wave of implementation – 2007

Second wave of implementation – 2008-2010
Third wave of implementation – from 2011 on
5. Transparency in 7. Implementation 8. Administrative

3. Publicize the public of public private reform
State’s non- administration partnerships
exclusive and delegated
services 1. Reforma da Previdência
high
services
1. Social
Security 4. Wage ceiling and 2. Restruturação da dívida
Reform fiscal
Strategic impact
responsibility law 11. Tax reform 12. Municipalize the

educational system
2. Study the
State’s 9. Modernize public
withdrawal administration
medium
from market 6. Review the budget 10. Reduce ICMS taxes

services allocation model on basic products
13. Eliminate tax

low
substitute
Given the lack of fiscal equilibrium in the State, we chose to prioritize projects that seek
cost reductions and only later address the reduction in tax burden.
high medium
urgency low
38
Strategic Theme Teams Meet Quarterly to Review Progress

and Suggest Actions
39
24
Robert Kaplan
Theme Team Forums
Participation of 350 specialists in each of the themes
2 to 4 rounds of meetings per forum (May/June)
Total of 11 Thematic Forums
Measures:
• 36 objectives
• 76 measures
90 Projects:
• 40 projects in the first wave of implementation (2006-2007)
• 44 projects in the second wave of implementation (2008-2010)
• 6 projects in the third wave of implementation (from 2011 on)
Currently
11 strategic theme forums (one for each strategic theme inside the Strategy Map)
meet every quarter to align action plans and discuss tactics to address critical issues
with the government.
40
Stage 3 of the Management System: Align the Organization
2
1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Budgeting
results
EXECUTION
Process
Initiative
41
25
Robert Kaplan
Enterprises Require Vertical and Horizontal Alignment
Scorecard Cascade
Headquarters
Scorecard
Shared Services
Business and
Regional Units
Departments
Teams &
Individuals
42
Canadian Blood Services Used Strategic Themes

to Align its Organization by
E1 = Develop Safety Operational Excellence Plan for Tomorrow
our skills, C2. “CBS manages an effective, efficient
C3. “CBS will provide us with safe C3. “CBS helps us meet future
talents and products and services” and trusted blood system for needs”
knowledge. Canadians”
S5. Deliver the S6. Deliver

E2 = Support S2. Protect right product, at efficiency and S8. Create, develop or adopt new
the business against risks the right place, at productivity knowledge, products and services
the right time gains
through
information S1. Monitor known and S7. Anticipate long term changes
S4. Optimize S3. Promote the in future needs for products and
technology. emerging hazards donor recruitment optimal utilization services
and retention of product
E3 = Develop
the quality Develop strategic assets Develop strategic assets Develop strategic assets
system and E1 + E2 + E3 E1 + E2 + E3 E1 + E2 + E3
culture.
Canadian Blood Services operates Canada’s blood supply in a manner that gains the trust,
commitment and confidence of all Canadians by providing a safe, secure, cost-effective,
Fulfill our
mission
to
affordable and accessible supply of quality blood, blood products and their alternatives.
Each Business Unit Develops Its Own
ensure Safety Operational Excellence Plan for Tomorrow
we
Customer Fulfill our

mission
commitment and confidence of all Canadians by providing a safe, secure, cost-effective,
affordable and accessible supply of quality blood, blood products and their alternatives.
Strategy Map Objectives Within the
Service
Excellence
which
S2. Protect against
risks
to
ensure
we
Safety Operational Excellence Plan for Tomorrow
Corporate Strategic Themes
drive commitment and confidence of all Canadians by providing a safe, secure, cost-effective,
Customer Fulfill our affordable and accessible supply of quality blood, blood products and their alternatives.
the Service mission
Strategic S1. Monitor known and Excellence
Actions emerging hazards S2. Protect against to
risks ensure Safety Operational Excellence Plan for Tomorrow
enable we Canadian Blood Services operates Canada’s blood supply in a manner that gains the trust,
which
us to drive commitment and confidence of all Canadians by providing a safe, secure, cost-effective,
execute Customer Fulfill our affordable and accessible supply of quality blood, blood products and their alternatives.
the Service mission
Our Develop strategic assets Develop strategic assets
Strategic Develop strategic assets
Enabling S1. Monitor known and Excellence
Actions emerging
Resources E1 + E2 + E3 E1 + E2 + E3 E1 + hazards
E2 + E3 S2. Protect against to Safety Operational Excellence Plan for Tomorrow
risks ensure
enable we Canadian Blood Services operates Canada’s blood supply in a manner that gains the trust,
which
us to drive commitment and confidence of all Canadians by providing a safe, secure, cost-effective,
execute Customer Fulfill our affordable and accessible supply of quality blood, blood products and their alternatives.
the Service mission
Actions emerging
E1 + hazards
E2 + E3 to
Resources E1 + E2 + E3 E1 + E2 + E3 S2. Protect against Safety Operational Excellence Plan for Tomorrow
risks ensure
enable we
which
us to drive
execute Customer
the Service
Actions emerging
E1 + hazards
E2 + E3
Resources E1 + E2 + E3 E1 + E2 + E3 S2. Protect against
risks
enable which
us to drive
execute
the
Enabling S1. Monitor known and
Actions emerging
E1 + hazards
E2 + E3
Resources E1 + E2 + E3 E1 + E2 + E3
enable
us to
execute
Our Develop strategic assets Develop strategic assets Develop strategic assets
Enabling
Resources E1 + E2 + E3 E1 + E2 + E3 E1 + E2 + E3
43
26
Robert Kaplan
Every division has the same common architecture for its strategy map.
commitment and confidence of all Canadians by providing a safe, secure, cost-effective, The CBS mission
Fulfill our affordable and accessible supply of quality blood, blood products and their alternatives. rests atop every
mission
strategy map.
to Safety Operational Excellence Plan for Tomorrow
ensure
we Every map will
Customer
contain the three
Service common strategic
Excellence themes.
S2. Protect against
risks
which Mandatory
drive corporate objectives
the will use a different
Strategic S1. Monitor known and color schemes so
Actions emerging hazards
they can be easily
enable
distinguished.
us to
execute
Every map will adopt
Our Develop strategic assets Develop strategic assets Develop strategic assets the same Human
Enabling
Resources E1 + E2 + E3 E1 + E2 + E3 E1 + E2 + E3 Capital, Information
Capital and Quality
measures.
44
Align Employees to Make Strategy Everyone’s Job
Create Strategic awareness: “Communicate seven times seven different ways”

Personal relevance (WIIFM) brings the strategy to life
Sustained communication uses different channels to get the message across
• Leadership meetings
• CEO random visits to employees
• Dear Colleague Quarterly Letter in Mellon News
• Learning lunches & informal discussions
• Intranet
• Working groups facilitated by HR
• Staff briefings
Source: Presented by Jack Klinck, Vice Chairman, Mellon Europe at BSCol European Summit, June 2005 45
27
Robert Kaplan
Unibanco: Communicating Strategy Best Practice
2001
Institutional Communication: 1st Step - Awareness and Involvement
BSC = Painel de Gestão* (PDG)

* Management Panel
Teasers Ads and Articles at “Revista Unibanco”
£ Internal media: Corporative web-portal, Unibanco Review (internal magazine),

TV Unibanco, e-mails sent to managers.
46
2002
Institutional Communication: 2nd Step - Sustainability and Alignment
47
28
Robert Kaplan
2003
Institutional Communication: 3rd Step - Reward and Feedback
“Success Routes”: Recognition of individuals or teams that achieved significant results

(measured by the KPI’s) by translating the challenges described in the strategy maps into
action
“WALTER MOREIRA SALLES AWARD”: Annual reward for initiatives that achieved
breakthrough results aligned to the company’s strategic themes
48

2004
Institutional Communication: 4th Step – “2-10-20”
80 years
Celebration
Internal Television
49
29
Robert Kaplan
Employees Develop Personal Objectives Aligned with Strategic

Objectives
Corporate Parent
(CEO)
Division (Pres.)
Operations (VP)
Machine Personal
Operator Objectives
Plant Manager
Cascaded BSCs Financial • Reduce cost of
Shift Supervisor downtime
Customer • On-time transfer of
finished goods to next
Machine Operator
work station
Process • Reduce changeover
times
• Reduce machine
Personal Scorecards breakdowns
Learning and • Obtain certification in
Growth machine maintenance
50
Unibanco: Aligning Employees
2002
Management Agreement with Employees in all the Units
PDG
Support Units UNIBANCO Support Units
PDG PDG PDG PDG

Wholesale Bank Retail Bank Insurance Wealth Management
Management Management Management Management

Agreement Agreement Agreement Agreement
51
30
Robert Kaplan
2002
Unibanco Management Agreement with Employees
Management Agreement - Example

NAME : CIF : CONCEPT :
AREA : PERIOD :
FUNCTION : TOTAL (1+2):
EVALUATOR :
UNIBANCO’S STRATEGIC THEMES

• Aggressive search for scale
• Continuous efficiency maximization
• Obtain excellence in Human Capital Management
• Effective domain of the credit and collect cycle
YOUR UNIT’S STRATEGIC THEMES
YOUR DEPARTMENT’S OBJECTIVES
52

2002
Management Agreement - Example
WORK PLAN
Self- Manager Final
YOUR GOALS FOR THE YEAR % evaluation evaluation evaluation
FINANCIAL
CUSTOMERS
INTERNAL
PROCESS
Technology
People &
Total
53
31
Robert Kaplan
Stage 4 of the Management System: Plan Operations
2
1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Budgeting
results
EXECUTION
Process
Initiative
54
Linking Process Management to BSC Strategic Processes
Strategy Map
SER RENTÁVEL EM 23% DO CAPITAL INVESTIDO E AUMENTAR O VALOR DA EMPRESA PARA US$ 300 MILHÕES EM 5 ANOS
Garantir rentabilidade Aumentar o

e atratividade do valor da
negócio empresa
Perspectiva
Financeira Ter custos Aumentar
Manter níveis Garantir plena
competitivos participação de
adequados de utilização das
segundo padrões produtos de maior
endividamento plantas
internacionais valor agregado
RELATIVE OFFERING LEVEL
TO-BE VALUE PROPOSITION
Important value attributes A completely new set of value
To achieve this strategic process objective,

fixes attributes
Atuação diferenciada nos mercados doméstico e internacional AS-IS VALUE PROPOSITION
Aumentar
Sustentar Explorar novos
participação de Fortalecer imagem da
Export Support
Investment in Physical Space /
Yield / Scrap Benchmarks

Distribution Margin
Small Quantities
Material Selection (Rubber, Other
Quality Control and Testing Procedures
General Mgmt Training
Equipment Maintenance Support
Second Hand Equipment Trading

Taxes
Operating procedures
Formulation support
“Rubber University”
Equipment Selection Support
Capacity Trading
crescimento na negócios de forma

outros clientes de marca Petroflex
Indústria Geral seletiva
pneus
Inventory
Chemicals)
Perspectiva
Mercado Buscar diferenciais
competitivos percebidos e
valorizados pelos mercados
KEY-ATTRIBUTES
how must we improve?
Excelência Operacional Gestão de Clientes Desenvolvimento Aplicado Responsabilidade Social
e Corporativa
Utilizar recursos Otimizar custos Perseguir boas

Fortalecer
com eficiência fixos práticas de
presença no
Governança
mercado externo Ser ágil e efetivo no Corporativa
Perspectiva desenvolvimento de
de Processos soluções orientadas
Internos Desenvolver
Logística aos clientes
Estreitar Sustentar níveis
integrada com relacionamento
Garantir de excelência
níveis com centros de
flexibilidade em segurança,
adequados de decisão dos
Operacional saúde e meio
capital de giro clientes chave ambiente
APPLIED
Perspectiva Prover tecnologia Reenergizar CUSTOMER MGMT
Aprendizado e
Crescimento
de informação que
sustente os
pessoas
fortalecendo a
Desenvolver
competências
Conscientizar
pessoas para atuar DEVELOPMENT
de forma
requisitos do gestão por estratégicas
responsável
negócio resultados
16. HAVE A
STRONG
PRESENCE AT
EXTERNAL
18. BE AGILE AND
MARKET EFFECTIVE ON THE
DEVELOPMENT OF
CUSTOMER-
17. SEARCH LONG ORIENTED
TERM SOLUTIONS
RELATIONSHIPS
ALONG WITH
TARGET CUSTOMERS
21. SUPPLY
INFORMATION 22. EMPOWER 24. AWARE
23. DEVELOP
TECHNOLOGY THAT PEOPLE AND PEOPLE TO ACT IN
SUPPORTS FORTIFY VALUE-
STRATEGY CRITICAL SUCCESS FACTORS
A RESPONSIBLE
COMPETENCIES
BUSINESS ORIENTED MGMT MANNER
REQUIREMENTS
HAVE AN IN-DEPTH HAVE A
BE CONTINUOUSLY UNDERSTANDING CONTINUOUS
INNOVATIVE ON ABOUT OUR MONITORING
OUR PRODUCT MARKETS AND PROCESS RELATED
LINES THEIR TARGET- TO OUR
SEGMENTS PRODUCTS
PERFORMANCE
55
32
Robert Kaplan
Linking a Balanced Scorecard R&D Strategic Objective

to Critical Success Factors and Metrics
Strategic Objective and 18. BE AGILE AND

EFFECTIVE ON THE
Metrics DEVELOPMENT OF z RDEI - R&D Effectiveness Index
CUSTOMER-ORIENTED
z Time-to-Market
SOLUTIONS
Critical Sucess HAVE AN IN-DEPTH HAVE A CONTINUOUS

BE CONTINUOUSLY
Factors UNDERSTANDING ABOUT MONITORING PROCESS
INNOVATIVE ON OUR
OUR MARKETS AND THEIR RELATED TO OUR
PRODUCT LINES
TARGET-SEGMENTS PRODUCTS PERFORMANCE
% Performance-
# of Protected # of Co- Controlled
Business Processes
Ideas created Products
Metrics Proposals
NEW PRODUCTS
PLAN AND STRATEGY
DEVELOPMENT SCHEDULLING, SALES AND
BUDGETING NEW
IDEAS PROPOSALS
TESTING DEVELOPMENT
AND PRODUCTS
PRIORITIES DEVELOPMENT
ESTABLISH ESTABLISHING EVALUATION
PRIORITIES AND
PROTECT NEW
PRODUCT IDEAS
56
Dashboards articulate the critical link between strategy

management and operations management.
Cause-and-Effect
Web-based Dashboard of
Strategy Map Model of Each Key
metrics used to manage a
Process
Key Process
THEME linked to
PROCESS
PROCESS linked to
METRICS
PROCESS supports METRICS improve
THEME PROCESS
• Identify operational processes key to executing strategy and manage those

processes using analytical models rather than instincts
• Analytical models identify drivers to the process and display these drivers on a
dashboard accessible to managers that can make an impact
• Drivers include not only financial (lagging) metrics, but operational,
environmental, demographic, and other situational leading indicators
57
33
Robert Kaplan
Link strategic planning to resource allocation with rolling forecasts

and time-driven activity-based budgeting (TDABC)
Step 1: Calculate Resource Quantities, Capacities, and Cost Rates for Towerton Financial
Total Productive Capacity

Annual Monthly Monthly Monthly Monthly Hours per Cost Rate
Compensation Compensation Occupancy IT Cost Cost Month ($/hour)
Brokers (225) $ 65,000 $ 5,417 $ 837 $ 539 $ 6,800 130 $ 52
Account Managers (15) 91,000 7,583 837 539 9,000 130 69
Financial Planners (18) 84,500 7,042 837 539 8,400 130 65
Principals (40) 130,000 10,833 837 539 12,200 130 94
Customer Service
Representatives (50) 41,600 3,467 314 206 4,000 140 28
IT Consultants (75) 52,000 4,333 314 206 4,900 140 35

58
Towerton Financial TDABC Step 2: Use Time Equations

to Estimate Resource Demands by Transactions and Products
Broker’s time (minutes) = 60 minutes/new account opened +

5 minutes/trade (stock or mutual fund) +
20 minutes/meeting w. existing customer
Investment Manager’s time = 240 minutes/new account opened +

60 minutes/meeting w. existing customer +
4 minutes/trade
Financial Planner’s time = 600 minutes/new account opened +

90 minutes/existing account per month
Customer Service Rep time = 12 minutes {setup new stock or mutual fund account} +
18 minutes {setup new investment mgmt or financial
planning account} +
5 minutes/trading call + 7 minutes/IM call +
10 minutes/financial planning call
59
34
Robert Kaplan
Towerton Does Rolling Forecasts of Sales and Operations
Stock Mutual Fund Investment Financial

Trading Trading Management Planning
Forecasted Monthly Sales (000) $3,636 $2,031 $919 $756
Number of transactions 275,000 49,000 5,500 6,300
Number of new accounts opened 750 400 130 100
Number of calls to customer service center 11,000 20,000 21,500 8,500
Number of meetings opening new accounts 750 400 130 100
Number of meetings servicing existing

800 200 500 540
accounts
a
Peak MIPS Utilized 419,690 56,212 60,835 11,457
Off-Peak MIPS Utilized 89,501 197,276 45,390 11,493
a
MIPS is a measure of computing capacity
60
Towerton Financial Estimates Resources Required

to Fulfill the Operating Plan
Time Utilization (Hours)
Mutual
Stock Fund Investment Financial Total
Resource Category Trading Trading Management Planning Hours
†
Brokers 23,933 4,550 28,483
Account Managers 1,387 1,387
Financial Planners 1,810 1,810
Principals 2,325 459 868 975 4,627
Customer service 1,067 1,747 2,547 1,447 6,807

representatives
IT consultants 5,880 2,919 1,236 286 10,321
Peak MIPS Utilized 419,690 56,212 60,835 11,457 548,194
Off-Peak MIPS Utilized 89,501 197,276 45,390 11,493 343,660
†
Total Hours of Broker = 5 minutes*(# Transactions on Existing Accounts) + 60*(# Accounts Opened)
Usage for Stock Trading + 20* (# Meetings with Existing Customers)
= [5 * 275,000 + 60 * 750+ 20 * 800] / 60 = 23,933 hours
61
35
Robert Kaplan
Towerton Calculates the Quantity of Resources Required to

Implement Next Period’s Operating Plan
Available
hours/month
Resource per resource Resource Resource Capacity
Category Total hours unit units required units supplied Utilization
Brokers 28,483 130 219.1 225 97%
Account
1,387 130 10.7 12 89%
Managers
Financial
1,810 130 13.9 15 93%
Planners
Principals 4,627 130 35.6 36 99%
Customer
6,807 140 48.6 55 88%
service reps
IT consultants 10,321 140 73.7 75 98%
Peak MIPS
548,194 7,920 69.2 72 96%
Utilized
62
Towerton Financial Forecasts Monthly Resource Costs
Resource units Monthly resource Total monthly

supplied cost per unit resource cost (000)
Brokers 225 $6,790 $1,528
Account Managers 12 9,050 109
Financial Planners 15 8,415 126
Principals 36 12,207 439

Customer Service
55 3,985 219
Representatives
Information Technology
75 4,852 374
Consultants
Servers 72 3,168 228
63
36
Robert Kaplan
Towerton Financial concludes its budgeting process by

forecasting next period’s product-line income statement.
Stock Mutual Fund Investment Financial Resources Unused Income

Trading Trading Management Planning Used Capacity Statement
Sales $ 3,636 $ 1,225 $ 919 $ 756 $ 6,535
Personnel: Brokers 1,250 238 1,488 40 1,528
Personnel: Account Managers 97 97 12 109
Personnel: Financial Planners 117 117 9 126
Material Expenses 221 40 8 9 277 555
Contribution Margin $ 2,165 $ 948 $ 814 $ 630 $ 4,556 $ 61 $ 4,218
Indirect Support Expenses

Computer server expenses 142 45 25 5 217 11 228
Occupancy costs-conference rooms 12 5 14 21 52 6 57
Principals 218 43 82 92 434 5 439
Customer service representatives 30 50 73 41 194 25 219
Information technology consultants 204 101 43 10 358 16 374
Total Indirect Support Expenses $ 606 $ 243 $ 236 $ 169 $ 1,254 $ 64 $ 1,318
Margin $ 1,559 $ 705 $ 578 $ 461 $ 3,302 $ 402 $ 2,900

Margin % 43% 58% 63% 61% 44%
S, G & A (Unallocated Corporate Expenses) 1,500
Operating Income 1,400
Operating Margin 21%
Towerton replicates this calculation for each quarter of a five quarter rolling forecast horizon.
64
Stage 4: Link strategic planning to resource allocation with rolling

forecasts and time-driven activity-based budgeting (TDABC)
• Translate strategy’s revenue growth target into next quarter’s sales

forecast
• Develop detailed sales and operating plans
• Run a TDABC model, with the projected sales and operating plans to
forecast resource capacity (people, equipment, technology, space)
required to deliver on strategic plan
• Develop forecast (budget) for next period’s operational and capital

spending
• Calculate pro-forma profitability, with detailed breakdown by product,

customer, channel, and region
65
37
Robert Kaplan
Stage 5 of the Management System: Monitor and Learn
2
1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Budgeting
results
EXECUTION
Process
Initiative
66
Companies use strategy scorecards and operational dashboards

to inform their different management meetings.
Operational Review Meetings: Role for KPI Dashboards

Frequent (daily, twice weekly, weekly)
Departmental and functional personnel
Identify and solve operational problems (late deliveries, equipment downtime,
supplier problems)
Promote continuous improvement (better, faster, cheaper)
Strategy Review Meetings: Role for Balanced Scorecard

Monthly
Management team; cross functional, multiple business units
Discuss and solve problems with strategy implementation
Manage product and customer profitability
67
38
Robert Kaplan
The leadership team uses the BSC to review performance,

examine strategic initiatives, make informed decisions,
and assign accountability.
1
I03 Identify Adverse Trends

2 3
5
Objective:
Discussion/Update:
Recommendations/Required Actions:
6
Person(s) Responsible: Due Date: Priority (A, B, C):
7
Action Item Detail:
1.
2.
3.
Use of a BSC Report in Strategy Review Meetings

Identify Performance Issues:
n Focus on the performance of objectives NOT measures.
Analyze Objective Performance:

o What are the measures telling us? Are the measures driving change and adding focus?
p What are the root causes of what’s occurring? What are the expectations for the future?
And, are current initiatives sufficient to close the performance gap?
q Are initiative on track to deliver expected value? If not, why and what can be done
to remedy issues?
r What action steps – including additional or different initiatives – are required to

improve performance going forward?
Take Action:
s Discuss and agree on how to remedy issues.
t Assign accountability to ensure decisions are implemented.
68
39
Robert Kaplan
Strategy Map 2006 - 2010
HSBC Rail Strategic Destination by 2010: Transition from

being capital intensive to making a more efficient use of
capital (color evaluations for illustrative purposes only).
F1. Deliver x% pa
Capital growth in ROC
Efficiency over next 5 years
Dave Customer Relationship Operational Excellence

Management Capital Efficiency
F2. Target & F3. Increasing F4. Maximise F5. F6. Improve
support net income from long term Continuously the capital
advisory based existing assets value of assets improve efficiency of
and on balance and related productivity the business
sheet business. services Amber Amber Amber
Amber Amber
Customer
Relation-
Government Operator & Government Operator
ship
Manage- C1. Provide
C2. Provide
C4. Provide
me with value C3. Provide me me with the
ment for money off me with an with a value assets &
balance sheet enduring for money service
Robert finance and proactive & total cost of portfolio to
long term professional
asset ownership support my
relationship business
management
services Green Amber Amber
Amber
IP1. Develop a responsive

organisation that is light on its feet
Amber
Operational IP6. Deliver highly
Excellence effective, customer
IP2. Build strong focused supplier
relationships & value-added
develop value relationships
William adding solutions Green
Red IP7. Focus on IP5. Restructure
business process capital base
IP3. Improve excellence to deliver
market improvement in Amber
intelligence that Amber productivity
positions us to
be the supplier IP8. Continue to
of choice selectively invest in
Amber
Amber our assets
IP4. Share and implement best practices

Learning & Amber
Growth
LG1. Develop & retain the LG2. Build teamwork LG4. Build strategic
Nick right people in our at all levels to LG3. Live the awareness &
structure that meets the implement our vision and values engagement
Red strategic needs Amber business strategy Green Green
69
40
Robert Kaplan
Agenda for HSBC Rail Strategy Review Meeting
Time Item Detail Duration Responsibility

10.10 Action Log Review Status 5 mins Paul
10:15 Overview Review Strategy Map 10 mins Peter
Highlight Key Issues
Review Initiatives
Review Measures
10.25 Theme Assessment Capital Efficiency 60 mins Dave
11.25 Break 10 mins
11.30 Theme Summary Learning and Growth 5 mins Nick
11.35 Theme Summary Customer Relationship Management 5 mins Robert
11.40 Theme Summary Operational Excellence 5 mins William
11.45 Hot Topic Resourcing Challenge 30 mins Peter
12.15 Meeting Review Communication Summary 10 mins Peter

12.25 Meeting Review Feedback 5 mins Peter
12.30 Action Log Review of new items 5 mins Paul
12.35 AOB and Meeting Close
Next Meeting Theme Assessment: CRM
70
Stage 6 of The Management System: Test and Adapt
2
1
TEST & ADAPT 6

• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Budgeting
results
EXECUTION
Process
Initiative
71
41
Robert Kaplan
Stage 6: Strategy Testing and Adapting Meetings
Analyze External, Competitive Information and Internal Information

(Balanced Scorecard, ABC)
Annually (perhaps quarterly for fast-moving industries)
Senior management team; functional and planning specialists
Test and adapt strategy based on causal analytics and product-line and
channel profitability
Establish strategic and operational plans, authorize resource spending, targets,
and initiatives
72
The Dark Side: Not all innovation strategies are profitable strategies.
Case Study: Sanac Logistics
Family-owned distributor of plant-care products in Belgium
Sales: € 62 million
25 trucks
Warehouse of 22,500 pallets
Operating and Competitive Environment
~7,000 customers
~7,000 products
298,000 order lines
Seasonal demand
Fierce competition, pressure on prices, demand for more services
New Strategy: from low cost supply to total customer solutions
Establish long term relationships with the customers
Provide superior customer service 73
Sanac’s Strategy Problem
Sales growing -
Gross margins stable :-|
Profits decreasing /
Largest Customer had a 14 percent loss on sales.

74
42
Robert Kaplan
Sanac adopted Activity-Based Costing to measure customer

cost-to-serve; not all customers were profitable customers.
Hidden Costs
Revenues Apparent Profits
Hidden
Profits
Costs
Customer Customer Customer Customer

A B A B
Traditional Costing Activity-Based Costing

75
Unprofitable customers can cost companies between

50 and 200 percent of profits.
20% most profitable 20% least profitable

generate 180% of Operating Profit Profile lose 80% of net
profits profits
*
* Benchmar
Benchmark
ark data acros
ar across
ss 100 compan
companies,
nies, 400 facilities,
facilit
ities, 10 industries
it indust
s ries ranging ffrom
rom $25M tto
o $20B
76
43
Robert Kaplan
Sanac Customer Profitability Scorecard
Summary Amount % Total Revenue Company Average

Turnover 1,141,926 € 101.8% 100.6%
Returns -20,335 € -1.8% -1.7%
Total Revenue 1,121,591 € 100.0% 100.0%
Cos t of Goods Sol d 775,348 € 69.1% 70.9%
Di rect Ma rketi ng Cos ts 10,879 € 1.0% 3.8%
Accounts Recei va bl e 11,396 € 1.0% 2.3%
Total Direct Cost 797,623 € 71.1% 76.9%
Gross Profit 323,968 € 28.9% 23.2%
Total Activity Cost 343,265 € 30.6% 20.5%
Profit -19,297 € -1.7% 2.6%
Activities Amount % Total Revenue Company Average
Sales & Marketing 85,679 € 7.6% 4.6%
Account Ma na gement 25,465 € 2.3% 1.8%
Cus tomer vi s i ts 37,564 € 3.3% 2.0%
Prepa ri ng Offers 22,650 € 2.0% 0.8%
Administration 35,265 € 3.1% 3.3%
Order i nta ke 18,569 € 1.7% 1.7%
Invoi ci ng 6,756 € 0.6% 0.4%
Returns Ha ndl i ng 3,216 € 0.3% 0.5%
Cl a i ms Ha ndl i ng 3,287 € 0.3% 0.4%
Credi t Notes Ha ndl i ng 3,437 € 0.3% 0.3%
Warehousing & Logistics 222,321 € 19.8% 12.7%
Pi cki ng 58,365 € 5.2% 3.5%
Loa di ng Trucks 35,265 € 3.1% 2.1%
Tra ns port 42,569 € 3.8% 3.0%
Del i very 75,458 € 6.7% 3.1%
Returns 10,664 € 1.0% 1.0%
Source: B&M Consulting: W. Bruggeman, “Using Time-driven ABC to become a Profit Focused Organization” 77
Sanac Actions
Renegotiate contracts with high loss customers
Spend more sales effort on profitable customers
Renegotiate contracts with suppliers
Introduce minimum order value policies
Introduce new maximum discount policies
Optimize delivery routings
Profits improve substantially

Sanac acquired by largest competitor at an attractive price.
78
44
Robert Kaplan
Testing strategy: Store 24, a chain of retail convenience stores, introduced

an innovative strategy to build customer intimacy: “Ban Boredom”.
GROWTH PRODUCTIVITY
Sales Growth* Gross Profit $ / Labor $
Financial ROCD*
ROI
Perspective
EBITA*
EBITDA
Gross
Profit
Gross Profit Growth*
New New Asset
Concepts Customers Contribution
Utilization
Net gross profit from Growth in core Contribution $ Inventory turns*
concepts <2 years old* categories* And % change* Hurdle rate on
Customer count* projects*
Customer Basic Requirements Differentiators

Value Quality, Value, Survey:
Enjoyable Interesting Enjoyable
Proposition Cleanliness, Friendly
Selection Experience Promotions experience
Internal Build the Franchise Increase Customer Value

Operational Excellence
Perspective Continually develop Enhance the customer
Focus on store, in stock,
and successfully roll experience with
out new and flawless and associate productivity
innovative programs implementation
In stock average*
Roll-out rating (Ban Pride rides*
Gross profit $ / labor $*
Boredom Programs)* Mystery shoppers*
Gross profit $ / labor hour*
Learning
& Growth
Climate for Action
Perspective Competencies Technology
Ability to implement
Required competencies Focus on technology
relies heavily on
are built on tenure and is on information
employee
capability rating systems use
satisfaction
Tenure* Technology Gallup poll*

Capability evaluation sheet*
evaluation*
* Measures
79
45
Robert Kaplan
Strategic Feedback and Learning at Store24
Q1 FY Q3 FY Q4 FY Q1 FY
1998 1999 1999 2000
• Monitors Surveys Focus groups Store24
customer suggest confirm switches to
feedback about strategy strategy not Efficiency
strategy not resonating with strategy
resonating customers
• Monitors same- with
store sales customers
growth
80
Store24 Reverts Back to Its Previous Strategy: Fast and Efficient
Updated Strategy: “Cause You Just Can’t Wait”
Financial ROCD*
ROI
Perspective
EBITA*
EBITDA
Gross
Profit
Gross Profit Growth*
New New Asset
Items Customers Contribution
Utilization
Net sales from Growth in core Contribution $ Inventory turns*
new items* categories* And % change* Hurdle rate on
Customer count* projects*
Customer Basic Requirements Differentiators

Value Quality, Value, Survey:
Cleanliness, Friendly Fast & Efficient Enjoyable
Proposition experience
Selection
Internal
Increase Customer Value Operational Excellence
Perspective Build the Franchise
Enhance the customer Focus on store, in stock,
Rapid rollout of new
experience of speed and and associate productivity
merchandise
efficiency
In stock average*
New item program Average in|out time*
Gross profit $ / labor $*
rating* Gross profit $ / labor hour*
Learning
Climate for Action
& Growth Competencies Technology
Ability to implement
Required competencies Focus on technology
Perspective relies heavily on
are built on tenure and is on information
employee
capability rating systems use
satisfaction
Capability evaluation* Technology Gallup poll*

* Measures evaluation sheet*
81
46
Robert Kaplan
Testing the Strategy
Operating Profit VS. Ban Boredom Execution

Average Effect
90,000.00
80,000.00
Operating Profit
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
30 40 50 60 70 80 90 100 110 120 130
Ban Boredom Execution
82
Why? Implementation of Strategy versus Formulation of Strategy
GROWTH PRODUCTIVITY
Financial ROI
perspective
EBITDA
Gross
profit
New Asset
Customers Contribution utilization
• Quality of Strategy • Is having fun, entertaining stores

a good strategy?
Customer Enjoyable Interesting Survey: Enjoyable

perspective experience promotions experience
• Quality of Implementation • Are differentiated operating facilities leading

customers to view stores as entertaining, fun
places to shop?
Internal Store Level Strategy

perspective Implementation
83
47
Robert Kaplan
Lessons learned about success of innovation strategies.
Companies need activity-based costing to tell whether:
– ∆ Value created from innovation > ∆ Costs required to accomplish the innovation?
– Where is the innovation strategy leading to higher profits and where are profits
declining?
Then take targeted actions to transform unprofitable products and customers into
profitable ones
Companies should retain all their BSC data so that they can statistically test the
causal linkages in their strategies:
– Are the expected correlations occurring between drivers and outcomes?

– Is the strategy flawed or is the implementation of the strategy faulty?
84
Summary of Three Types of Management Review Meetings
Meeting Type
Operational Strategy Strategy testing
review review and adapting
Information Dashboards for key Strategy map and Balanced Strategy map, Balanced
requirements performance indicators; Scorecard reports Scorecard, ABC profitability
weekly and monthly financial reports, analytic studies of
summaries strategic hypotheses, external
and competitive analyses,
emergent strategies
Frequency Daily, twice weekly, weekly, or Monthly Annually (perhaps quarterly
monthly, depending on for fast-moving industries)
business cycle
Attendees Departmental and functional Senior management team, Senior management team,
personnel; senior strategic theme owners, strategic theme owners,
management for financial strategy management officer functional and planning
reviews specialists, business unit
heads
Focus Identify and solve operational Issues in strategy Test and adapt strategy based
problems implementation, progress of on causal analytics
strategic initiatives
Goal Respond to short-term Fine-tune strategy; make Improve or transform strategy
problems and promote midcourse adaptations
continuous improvements
85
48
Robert Kaplan
A Strategy Management Officer Coordinates the Six Stage

Management System that Links Strategy and Operations
2
1
• Initiative Portfolios • Strategy Formulation Plan the Strategy:
Develop, Translate and Align
TEST & ADAPT 6 (Stages 1-3)
• Employees
• Stratex
results
Operating Plan
MONITOR & LEARN 5
4 PLAN OPERATIONS
• Sales Forecast performance measures • Strategy Reviews SMO
• Budgeting
Execute the Strategy:
results
Link to Operations, Monitor,
EXECUTION Learn and Test
Process
Initiative (Stages 4-6)
86
The Office of Strategy Management must design and oversee the

closed-loop strategy management / governance process
DEVELOP THE • Mission, Vision, Values • Strategic Analysis

Strategy Update
STRATEGY • Strategic Goals • Strategy Formulation
• Strategy Map/Themes
PLAN THE
• Measures/Targets
STRATEGY
• Strategic Initiatives
Organization Organization Alignment

• Corporate-SBU aligned
Alignment • SBU - support unit aligned
Financial Planning/Budgeting
Resource • Stratex
ALIGNMENT
Alignment • Operating Budget
Human Capital Human Capital Alignment

• Personal goals
Alignment • Incentives
• Personal development
IT IT Alignment
Alignment • Applications
• Infrastructure
Process Key Process Alignment
Alignment
Strategy Communication
EXECUTE THE Quality Management Programs
STRATEGY Initiative Management
Best Practice Sharing
Operational Operating Reviews
FEEDBACK &
Reviews
LEARNING
Strategy Reviews
Strategy Testing
Q1 Q2 Q3 Q4 Q1 Q2
This Year Next Year
87
49
Robert Kaplan
Measuring and Managing the Profitability of Your Strategy
QUESTIONS?
88
50

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Robert Kaplan

Measuring and Managing the

Measuring and Managing the

Dr. Robert S. Kaplan

Most organizations have problem executing their strategy.

Less than 10% of Only 15% of the 794

- Fortune Magazine - Barron’s

Companies on average realize only 60% of the financial performance their

A Conference Board’s 2007 survey identifies

2 Sustained and steady top-line growth 36.8

3 Consistent execution of strategy by top management 31.8

4 Profit growth 28.4

5 Finding qualified managerial talent 27.2

6 Customer loyalty / retention 26.3

7 Speed, flexibility, adaptability to change 25.4

8 Corporate reputation 23.7

9 Stimulating innovation / creativity/ 18.7

10 Speed to market 18.2

Organizations with a formal strategy execution process in place are

Do you have a formal strategy Yes No

Describe your organization’s current

…performing at the same level as our peer group. 18% 30%

A New Six Stage Management System Links

Balanced Scorecard Hall of Fame for Executing Strategy

© 2007 Balanced Scorecard Collaborative/Palladium Group, Inc. 6

Hall of Fame Results: Brazilian companies

The Management System for Strategy Execution

TEST & ADAPT 6

Stage 1 of the Management System: Develop The Strategy

TEST & ADAPT 6

The Mission describes the fundamental purpose of the entity,

We want to discover, develop and successfully market

Organize the world’s information and make it universally

The core values of a company prescribe the attitude,

Earthlink, an internet service provider,

• We feel a sense of urgency on any matters related to our customers. We own

The vision is a concise statement that defines the 3 to 5 year goals

Cigna Property and Casualty:

Wells Fargo Online Financial Services:

US Space program (1962: John F. Kennedy):

Finally, companies select their strategy. They can use the

Objective (O): (similar to the Vision Statement)

A Possible OAS Statement for Southwest Airlines

(O) To be the most profitable US-based airline

(A) by offering the speed of airline travel at a price, frequency,

(S) to price-sensitive travelers who value convenient flights

Stage 2 of the Management System: Plan the Strategy

TEST & ADAPT 6

Sample Strategy Map Illustrating Strategic Themes

Vision: BY 2010, become the leading company in our industry

F2 – Improve F3 – Increase F4 – Grow revenues

Improve Operating Quality Grow High Value Accelerate Product

effectiveness life cycle

Create a High Performance Culture

L1 – Expand and build

Strategy Map for a New Customer Solutions Strategy:

“Our success comes from…

Maximize Grow Achieve Manage financial

… delivering great financial services,…

…which is all about developing and managing enduring relationships…

…and being a great place to work!”

Community Banking Group Strategy Map

“Our success comes from