Strategy Maps and Alignment Using BSC

CCE Training Center
Prepared by M. Toha, Ph. D.

What is the Value and How is It Created?
Mission
Why We Exist

Values
What’s important to us

Vision
What we want to be

Strategy
Our Game Plan

Strategy Map
Translate the Strategy

Balanced Scorecard
Measure and Focus

Targets and Initiatives
What We Need to Do

Personal Objectives
What I need to do.

Strategic Outcomes
Satisfied Shareholder s Delighted Customers Efficient and Effective Processes Motivated and Prepared Workforce

Strategy Map an Overview
Strategy: describes how an organization intends to create sustained value for its shareholders. Strategy Maps: describe the logic of the strategy, showing clearly the objectives for critical internal processes that create value and the intangible assets required to support them. It’s a visual representation of the cause-and-effect relationships among the components of an organization’s strategy.
Private Sector Organizations
The Strategy Financial Perspective Customer Perspective Internal Perspective Learning and Growth
If we success, how will we look to our shareholders? To achieve our vision, how must we look to our customers? To satisfy our customers (and financial donors), which processes must we excel at? To achieve our vision, how must our organization learn and improve

Public-Sector and Nonprofit Organizations
The Mission

Customer Perspective

Fiduciary Perspective

Internal Perspective Learning and Growth

If we success, how will we look to our taxpayers (donors)?

Remember: Balance Scorecard

The Balanced Scorecard:
Measures, Targets, and Initiatives Translate Strategy into Action
Strategy Map
Process: Operation Management Thema: Ground Turnaround Profits and Financial RONA Perspective
Grow revenues Fewer planes

Balanced Scorecard
Objectives
• Profitability • Grow revenues • Fewer planes

Action Plan
Initiative Budget

Measurement
• Market value • Seat revenue • Plane lease cost • Repeat customers • Customers growth • FAA on-time arival rating • Customer ranking • On-ground time • On-time depature Strategic job rediness Info system availability Strategic awareness % ground crew stockholders

Target
30% CAGR 20% CAGR 5% CAGR 70% 12% p.a. 1 1 30 minutes 90% Yr1-70%; Yr390%; Yr-3-100% 100% 100% 100%

Customer Perspective
On-time service

Attract and retain more customers
Lowest prices

• Attract and retain more customers. • Flight is on time.
• Lowest prices

Implement CRM System Quality management Customer loyalty program Cycle time optimization

$ xxx $ xxx $ xxx $ xxx

Internal Perspective Learning and Growth Perspective

Fast ground turnaround

• Fast ground turnaround • Develop the necesary skills • Develop the support system • Ground crew aligned with strategy

Ground new training Crew scheduling system rollout Communication program Employee stock ownership Total budget

$ xxx $ xxx $ xxx $ xxx $ xxx

Strategic job Ramp agent Strategic systems Crew scheduling Ground crew alignment

What business the corporation should be in.Business and Corporate Strategy Business Strategy • How to improve company’s or unit’s products or services competitive position • How the company or its units should compete or cooperate in each industry Corporate Strategy (Diversified Company) What makes the corporate whole add up to more than the sum of its business unit parts. How the corporate office should manage the array business. .

Operational Excellence Focus on total cost and quality using existing product technology Product leadership 2.Discipline of Market Leader Discipline of Market Leader (Tracy. 1988) 1. Customer Intimacy Deliver solution to customers Operational Excellence Customer Intimacy System Lock-in . Product Leadership Innovate new products with new features and technology 3.

How Can You Create Value? Value Creation = CustomerDerived Value + EnterpriseDerived Value Value Creation Strategy = Customer Value Proposition + Enterprise Value Proposition • • • • Best Total Cost Product Leader Customer Solution System Platform Enterprise aligns the activities of disparate business units and its support units .

Customer Value Proposition and Strategy Maps .

4 3 4. 4.Customer Value Proposition 1. 3. 3. Internal Processes Operation Management Customer Management Innovation Regulatory and Social 2. 2 Low Total Cost Product Leadership Complete Solution Customer 2. . System Lock In Strategic Themes 1 1.

Customer Management Processes 3.Internal Perspective: Value Creating Processes 1. Operation Management Processes 2. Regulatory and Social Processes . Innovation Processes 4.

Strategy Maps using Balanced Scorecard Productivity Strategy Financial Perspective Improve cost structure Long-term share holder value Increase Asset Utilization Expand Revenue Opportunities Growth Strategy Enhance Customer Value Customer Perspective Customer Value Proposition Pric e Qualit y Availability Selectio n Functionalit y Servic e Partnership Brand Product/Service Attribute Relationship Innovation Processes • • • • Opportunity ID R&D Portfolio Design/Develop Launch • • • • Image Internal Perspective Operation Management Processes • • • • Supply Production Distribution Risk Management • • • • Customer Management Processes Selection Acquisition Retention Growth Regulatory and Social Processes Environment Safety and Health Employment Community Learning and Growth Perspective Human Capital Information Capital Culture Leadershi p Organization Capital Alignment Teamwork .

Long-term share holder value Productivity Strategy Improve cost structure Increase Asset Utilization Growth Strategy Expand Revenue Opportunities Enhance Customer Value Financial Perspective Customer Perspective Customer Value Proposition Pric e Qualit y Availability Selectio n Functionalit y Servic e Partnership Brand Product/Service Attribute Relationship Innovation Processes Processes that create new products and services • • • • Opportunity ID R&D Portfolio Design/Develop Launch Image Internal Perspective Operation Management Processes Processes that produce and deliver products and services • • • • Supply Production Distribution Risk Management Customer Management Processes Processes that enhance customer value • • • • Selection Acquisition Retention Growth Processes that improve communities and the environment • Environment • Safety and Health • Employment • Community Regulatory and Social Processes .Internal Perspective Internal process accomplish two vital components of an organization strategy: (a) they produce and deliver the value proposition for customers. and (2) they improve processes and reduce cost for the productivity component in the financial perspective.

Accuracy. and low-cost” Lowest-Cost Supplier Consistenly High Quality Speedy Purchase Appropriate Selection Product Leader “Products and services that expand existing performance boundaries into highly desirable” High-Performance Products: Speed. Size.. “Provide the best total solution to our customers” Quality of Solutions Provided Number of Products/Service s per Customer Customer Retention Customer Lifetime Profitability First to Market Penetrate New Market Segments Complete Customer Solutions System Lock-in “High switching costs to end-use customers” Provide Provide a Offer Broad Innovation Widely Selection and on a Used Convenient Stable Standard Access Platform “Add Value to Complementors” Provide Larger Customer Base Offer Easy-toUse Platform and Standar5d .Customer Objective for Different Value Proposition Best Total Cost “Offer products and services that are consistent. timely. Wheight. .

– Manage risk. Four Operations Management Processes – Produce products and services.Operation Management Processes Operations management processes are the basic. – Develop and sustain supplier relationship. – Distribute and deliver products and services to customers. . day-to-day processes by which companies produce their existing products and services and deliver them to customers.

Pecent of purchases made electronically (EDI or Internet) Supplier ratings: quality. incoming orders Percent of suppliers qualified to deliver without incoming inspection Percent of perfect orders received Number of innovations from suppliers Number of supplier providing services directly to customers Number of outsourcing relationships Benchmarked performance of outsourcing partners Use new ideas from suppliers Achieve supplier partnership Outsource mature. inspecting. Develop high-quality supplier capability • • • • • • • Part-per-million or percent of defects. Percent of the late orders Percent of orders delivered directly to production process by suppliers. cost. Lead time from order to receipt. non-core products and services . and coping with defects) Cost of purchasing as percentage of total purchase price. On-time delivery percentage. receiving.Develop and Sustain Supplier Relationship Objectives Lower the cost of ownership • • • • Achieve just-in-time supplier capability • • • • Measures Activity-based cost of acquiring materials and services (includes cost of ordering. delivery. storing.

Risk Management 1. Moderate the risk faced by important nondiversified investors and stakeholders. 5. Reduce the costs associated with financial distress. . Employ targeted financial instruments such as derivatives. 3. Decrease taxes 4. Reduce monitoring cost. 5 ways risk management can create shareholder value 2. Adjust its capital structure. Modify its operations. 3. 2. such as bankruptcy. Lower the cost of capital. 1.

Customer Management Processes Customer management process focused on transactions – promoting and selling the enterprise’s products. – Select customers Four Customer Management Processes – Acquire customers – Retain customers – Grow relationships with customers. .

Customer Management Processes Productivity Strategy Financial Perspective Long-term share holder value Expand Revenue Opportunities Customer Value Proposition Growth Strategy Improve Sales Productivity Enhance Customer Value Customer Perspective Pric e Qualit y Availability Selectio n Functionalit y Servic e Partnership Brand Product/Service Attribute Relationship Customer Retention • • • • Premium customer service “Sole source” partnerships Service excellence Lifetime customers • • • • Image Internal Perspective Customer Selection • • Understand segments Screen unprofitable customers Target high value customers Manage the brand • • • • Customer Acquisition Communicate value proposition Customize mass marketing Acquire/convert leads Develop dealer networks Customer Growth Cross-selling Solution selling Partnering/integrated management Customer education. • • .

Case: Marine Engineering Increase share holder value Financial Perspective Improve Productivity Increase Customer Value Revenue from Integrated Products Build the Franchise Customer Perspective Customer Value Proposition Lower Life-Cycle Product Cost $/bbl Seamless Professional Management Shared Goals and Reward Image of a System Integrator Product/Service Attribute Relationship Customer Acquisition Educate Strategic Accounts on GainSharing Partnerships Image Customer Growth Create Integrated Management System • New management system available Internal Perspective Objective Customer Selection Focus Only on Strategic Accounts • • Strategic Accounts No-bid decision • Customer Retention Create “Sole Source” Partnership • % revenue from sole source contracts Measure Proposal success rate .

and services. 169179). Bring the new products and services to the market. 4. Identify opportunities for new products and services. processes. Manage the research and development portfolio. 2. 1997 p. Design and develop the new products and services. Four Innovation Processes . 3. Innovation processes develop new products.Innovation Processes Innovation means taking an idea and transforming it into reality (Smith. 1. often enabling the company to penetrate new market and customer segments.

1.Regulatory and Social Processes Regulatory and social processes help organizations continually earn the right to operate in the communities and countries in wich they produce and sell. 3. Four Dimension of Regulatory and Social Processes Environment Safety and health Employment practice Community investment 2. 4. .

Internal Process Deliver Value over Different Time Horizons Long-term Growth in Shareholder Value Operations Management Processes Customer Management Processes Regulatory & Social Processes Good Citizen Innovation Processes Shareholder Value Product Innovation Customer Management Operation Effectiveness 1 2 3 4 5 6 Time (years) .

and know-how required to support the strategy. and infrastructure required to support the strategy The availability of the organization to mobilized and sustain the process of change required to execute the strategy Information Capital Organization Capital . The availability of information systems. networks. describes the organization’s intangible assets and their role in strategy Human Capital The availability of skills. learning and growth.Learning and Growth: Strategic Alignment of Intangible Assets The fourth perspective of Balanced Scorecard strategy map. talent.

Intangible Assets Must Be Alligned with the Strategy to Create Value Productivity Strategy Financial Perspective Long-term share holder value Expand Revenue Opportunities Growth Strategy Enhance Customer Value Improve cost structure Increase Asset Utilization Customer Perspective Customer Value Proposition Pric e Qualit y Availability Selectio n Functionalit y Servic e Partnership Brand Product/Service Attribute Relationship Innovation Processes • • • • Opportunity ID R&D Portfolio Design/Develop Launch • • • • Image Internal Perspective Operation Management Processes • • • • Supply Production Distribution Risk Management • • • • Customer Management Processes Selection Acquisition Retention Growth Regulatory and Social Processes Environment Safety and Health Employment Community Creating Alignment Strategic Job Families Human Capital • • • Skills Training Knowledge • • • Strategic IT Portfolio Information Capital Systems Databases Networks Organization Change Agenda Creating Readiness Learning and Growth Perspective • • Organizational Capital Culture • Alignment Leadership • Teamwork .

Alignment .

Alignment Corporate Support Units Finance Enterprise Strategy Map BOC 2 Enterprise Strategy Map 1 Enterprise Strategy Update Enterprise Strategy Map IT HR 3 Corporate Functional Strategy Map Functional Strategy Corporate Planning Process Enterprise Strategy Map 4 SBU Strategy Map Corporate Functional Strategy Map 8 Business Unit Functional Map Finance Customers Vendors/ Alliances 6 7 Enterprise Strategy Update SBU Strategy Map IT HR Business Planning Process 5 Support Unit Services Functional Strategy Support Units .

Enterprise-BU Alignment .

Conceptual Development Corporate Enterprise Value Proposition Line Business Financial Synergies Financial Synergies Internal Process Synergies Internal Process Synergies Learning and Growth Synergies Learning and Growth Synergies Customer-Derived Value Customer Synergies Customer Synergies .

Source of Financial Synergy: Holding Company Model Operating an Effective Governance System • Holding company assists in the acquisition and assignments of key personnel. Diversified Companies: • • Enterprise Value Proposition: Superior ability to allocate capital and manage risks in its divers business. The financial objectives include common high level metrics such as economic value added and return on net capital employed.Aligning Financial and Holding Company Model Investment Acuity of Principal Owners • Ability to identify undervalued or turnaround company situation. .

Learning and Growth Internal Processes Customers Financial Holding Company Model Case: ACTIVA Objective Measure .

capabilities. . or information through individual entities) Distinctive Competencies Branding Strategy Customer and Internal Objectives Desire customer outcomes: brand image and customer acquisition.Financial Synergy Presented Selected Information to Leverage Resources Financial Synergy: Corporate Brands and Themes Executives’ ability to operate internal capital markets better than external market mechanisms do (leveraging resources.

• The alignment scorecard can help for this approach.Synergy from Shared Customers • Company can create value of synergy in selling products to the same customers. • Company can shift it strategy from product driven to customer relationship approach that emphasized total solution. .

Aligning Internal Process: Shared Processes and Services Economic of Scale Source of Financial Synergy: Holding Company Model Centralized Resource Having Specialized Knowledge and Expertise .

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learning and growth. networks. describes the organization’s intangible assets and their role in strategy Human Capital The availability of skills. and infrastructure required to support the strategy The availability of the organization to mobilized and sustain the process of change required to execute the strategy Information Capital Organization Capital .Learning and Growth: Strategic Alignment of Intangible Assets The fourth perspective of Balanced Scorecard strategy map. The availability of information systems. and know-how required to support the strategy. talent.

Intangible Assets Must Be Alligned with the Strategy to Create Value Productivity Strategy Financial Perspective Long-term share holder value Expand Revenue Opportunities Growth Strategy Enhance Customer Value Improve cost structure Increase Asset Utilization Customer Perspective Customer Value Proposition Pric e Qualit y Availability Selectio n Functionalit y Servic e Partnership Brand Product/Service Attribute Relationship Innovation Processes • • • • Opportunity ID R&D Portfolio Design/Develop Launch • • • • Image Internal Perspective Operation Management Processes • • • • Supply Production Distribution Risk Management • • • • Customer Management Processes Selection Acquisition Retention Growth Regulatory and Social Processes Environment Safety and Health Employment Community Creating Alignment Strategic Job Families Human Capital • • • Skills Training Knowledge • • • Strategic IT Portfolio Information Capital Systems Databases Networks Organization Change Agenda Creating Readiness Learning and Growth Perspective • • Organizational Capital Culture • Alignment Leadership • Teamwork .

– – – – Intengible Assets Aligning Intangible Assets to Enterprise Strategy Human Capital Readiness Information Capital Readiness Organization Capital Readiness . – – – – Strategy Maps an Overview Strategy Maps using Balanced Scorecard Value Creating Processes Operation Management Processes Customer Management Processes Innovation Processes Regulatory and Social Processes 4. 2. 3.Objectives 1.

Value from Intangible Assets – Value is indirect Value is contextual Value from Intangible Assets – – – Value is potential Assets are bundled Balance Scorecard: – – – – Financial Perspective Customer Perspective Internal Perspective Learning and Growth Perspective .

Value from Intangible Assets – Value is indirect Value is contextual Value from Intangible Assets – – – Value is potential Assets are bundled Balance Scorecard: – – – – Financial Perspective Customer Perspective Internal Perspective Learning and Growth Perspective .

partners) Enhance Customer Value • Improve profitability of existing customers . Long-term share holder value Financial strategies: • Selling More • Spending Less Growth Strategy Financial Perspective Productivity Strategy Improve cost structure • Reduce cash expenses • Eliminate defects. markets. improve yields Increase Asset Utilization • Manage capacity from existing assets • Make incremental investments to eliminate bottlenecks Expand Revenue Opportunitie s • New sources of revenue (new products.Financial Perspective The BSC retains the financial perspective as ultimate objective for profit-maximizing companies.

sustainable value to targeted segments. Productivity Strategy Long-term share holder value Growth Strategy Enhance Customer Value • Customer Retention Financial Perspective Improve cost structure Increase Asset Utilization • Customer Profitability • Market Share • Account Share Expand Revenue Opportunities • Customer Acquisition Servic e Customer Perspective Customer Value Proposition Pric e Qualit y Availability Selectio n Functionalit y Partnership Brand Product/Service Attribute Relationship Image • Customer Satisfaction .Customer Perspective Describes how the organization will create differentieted. Strategy is based on a differentiated value proposition.

Aggressive initiatives 1. Strategic degree of freedom Avoid head on competition Exploit competitor’s weakness Maximize user benefit . Aggressive initiatives 4.Four Basic Strategies Old. Existing Strengths Compete (wisely) 1. KFS New and Creative Strengths 3. Strategic degree of freedom Intensify functional differentiation 2. KFS (Key Factors for Success) 2. Relative superiority 3. Relative superiority Ask “why-whys” 4.

Conformance 5. 1988) 1. Serviceability 7. Perceived Quality . Feature Competitive Scope Cost Leadership Differentiation 3. Aesthetics 8.Porter’s Generic Strategy Competitive Advantage Lower Cost Broad Target Differentiation The Eight Dimensions of Quality (Garvin. Durability Narrow Target Cost Focus Differentiation Focus 6. Reliability 4. Performance 2.