Communication Session on

Balanced Scorecard

to support
“Kausaban”
(The PMS System)
At GSPI, Philippines

ABHAY THALE
HR DIVISION
Introduction

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 Today’s session will cover

• Overview of the PMS project

• Understand the Balanced Scorecard framework

• Cascading the Balanced Scorecard

• Measures & Targets against the Balanced Scorecard

• Gaps of BSC against the Business/ Corporate Plan

• Aligning BSC to EVA

• Identify your role

• Plan the way forward

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Overview of PMS

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 Kausaban = Change...

• Re-configure itself to face the challenges of a mature industry

• Consolidate the Business strategy that is commonly understood, accepted and

shared across the organisation

• Introduce new organisation-wide initiatives across different operating processes

and systems to support the business strategy

• Re-orient itself and make a concerted effort towards addressing key people
issues

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 Objectives of PMS

• To ensure that evaluation is done in a transparent manner

• Evaluation on measures based on responsibilities and key tasks

• Ensure a fair process for setting of targets against measures

• Establish processes to allow for mid year correction of targets

• Ensure that performance levels of employees are clearly captured

• Ensure linkage of performance to other HR systems

– Training need identification

– Career development

– Rewards
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 Components of PMS

GSPI Goals

Linkage to other HR systems Division Goals and Targets Balanced Scorecard

Tool
Section Goals and Targets
Career Development
Individual Targets
Rewards

Training needs identification Documentation of the

targets in the Performance
evaluation Form

Review after a definite time period

Final Rating on based on the targets (i.e.. quarterly) of achievement of
PMS Process the targets
achieved

Correction of targets to take into

account the market changes

Updating the Performance

evaluation form on status on
achievement of targets
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Understand Balanced
Scorecard

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 What is a Balanced Scorecard

The Balanced Scorecard is a way of using financial and non-financial measures to

provide a well-rounded report on past performances as well as an indication of future
performance

Financial
Main Driver of Performance
How do we look
against the Secondary Influence
financial objectives
of our owners?

Customer
Internal Process
How do we look Mission
What must we
to the customers Values
excel at for our
that we want to Vision customers?
attract?

Learning &
Growth
How do we get
better at
improving?
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 Key benefit of using Balanced Scorecard is to align
performance to strategy

Measure business performance using a set of key result areas that are
based on business drivers and linked to the business strategy

Easy communication of strategy throughout the organisation

Assist in the close alignment and prioritisation of current and proposed

strategic initiatives

Assist in the definition of objectives and scope for key projects

Improved employee satisfaction through aligned reward and recognition

schemes and better two-way communication

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 The perspective provide a balanced view
Customer Perspective
• How do customers see the
organisation
• Mix of internal & external
measures
• May reflect customer concerns
such as time, quality,
performance, service and costs
Internal Perspective
• What is it that we must excel at
• Should directly impact
employees so that clear targets
are specified
• May include cycle time,
productivity, quality etc.
Financial Perspective
• How do we appear before our
shareholders
• Measures a product of robust
financial control systems
• May include cash flow, quarterly
results, sales growth, operating
income, market share, ROE etc
Learning & Growth Perspective
• Can we continue to improve and
create value
• Designed to measure the
company’s capacity to innovate
• May include new products, new
customers, new markets etc
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 Key characteristics of a Balanced Scorecard

Gives managers an ability to view performance in several areas

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simultaneously

Limits the number of measures used, hence makes organisation

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focus on critical measures

Lets company examine if changes in one area is at the expense

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of another

4 Brings diverse characteristics of performance in a single report

The Balanced Scorecard gives a well-rounded perspective to how an

organisation manages performance in relation to its strategy
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 What is “Balanced” in a Balanced scorecard...

Short term Long term

Drivers Outcomes

Financial Non-Financial

Internal External
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 So how did we go about doing the same?

Develop a clear Develop a

Develop the Articulate Institutionalise
strategy to robust
desired future strategy as the processes
achieve the measurement
state strategic themes and systems
future state system

• Vision • Value drivers • Projects/ • Balanced • Reward

initiatives Scorecard systems
• Mission • Business
model • Processes • Cascading • Technology
• Core
• Technology setup
Values • Differentiators
• People • Transition
management

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Cascading the BSC

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 The strategy articulation map for GSPI, Philippines
ISPAT Corporate Strategy Map

Financial Strategy Shareholder wealth creation

Topline Growth Prudent Financial Management Cost reduction

Customer Strategy Value for money

Standard products Reliable supplier Right Pricing

Maintain relationships

Process Strategy Operational Excellence

Expand markets Focus on business intelligence Reduce input costs

Applying new technology Enhance productivity

Learning & Growth

Strategy Build capabilities for the future
Technological Innovation Build Competencies Managing Change

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 Guiding principles to cascade measures down the
organisation

• Top level measures must be further broken down into tangible, distinct
measures lower down the organisation
• Alignment should occur at different levels, including department, division and
section
• Participation, communication and sharing of knowledge are key to a robust
cascading process
• Provide clear accountabilities, guidelines and personal assistance
• Use knowledge that is available (e.g. business plans) and understood by the
organisation

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 How do you cascade the scorecard

Corporate Scorecard
Perspective Objective Measure Target

Increase Customer 75%

customer Loyalty
loyalty - Rating
Customer move beyond
‘satisfied’ to
‘loyal’
customers
Marketing Department Scorecard
Perspective Objective Measure Target

Increase Redesigned 5
customer customer
loyalty - processes,
Internal move beyond number of
processes ‘satisfied’ to such
‘loyal’ processes
customers
Marketing IT Support Scorecard
Perspective Objective Measure Target

Effective Service 500

desktop requests,
support, number of
Internal provide desktop
processes support for service
CS&M requests
employees completed

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 Advantages of cascading

Builds awareness of the Balanced Scorecard

Generates commitment on the Balanced Scorecard

Increases comprehension of aligned scorecards

Offers a clear line of sight from employee goals to organisation

strategy

Builds support for the goal setting process

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 Division Objectives and Initiatives - Marketing
ISPAT Corporate Sales & Marketing Division Initiatives
ScoreCard Sales & Marketing Division Objectives supporting objectives
Objectives Initiative 1 Initiative 2 Initiative 3
Financial Strategy
Shareholder wealth creation
Topline Growth - To sell full production (--) on completion Develop and expand to new markets
of Ph II Expand current share of wallet with existing
- Maximise contribution customers Develop new customers
Prudent Financial - Minimise work ing capital
Management Minimise total FG inventory Minimise debtors
Cost reduction Minimise selling costs per tonne
Reduce administrative costs per tonne at HO Reduce administrative costs per branch per
(travel, communication etc.) tonne (travel, communication, employee etc.)

Customer Strategy
Value for money
Standard products
Reliable supplier
Right Pricing
- Meet customer needs by customising
product width, grade & order quantity
- Enhance customer satisfaction on
reliability of supply & quality
- Obtain best price for goods supplied
Aggregate customer order to facilitate longer
production sequence
Ensure delivery as per customer requirements
Analyse competition on price, performance,
terms and availability
Organise customer visits at plant to improve
uinderstanding of customer needs
Prompt settlement of customer complaints
Create value for spot sales
Improve Customer Satisfaction Index
Commit delivery schedule as part of terms
of sale

Maintain relationships - Invest in long-term customer Creation of comprehensive customer database Organise periodic customer meet Organise frequent visits of employees to
relationships customer site

Process Strategy
Operational Excellence
Expand markets
Focus on business intelligence - Institutionalise business intelligence
Applying new technology
Enhance productivity
Reduce input costs
- Develop facilitative processes to support Create appropriate organisation to support
expansion plan increased base
Develop KM system to increase extent of
systems and processes Create & strengthen Business Intelligence cell knowledge sharing
- Enhance technology levels to increase Integrating CRM with SAP to increase customer Increase access to technology across the
customer focus satisfaction S&M organisation
- Improve sales throughput Identify mechanisms to ensure uniform cash Introduce Performance Index (branch,
Reduce total cycle time for key customers flow zone etc.)

Learning & Growth Strategy

Build capabilities for the future
Technological Innovation
Build Competencies
Managing Change
Application engineering Enhance quality & volume of web-enabled
- Identify & complete innovationprojects transactions
- Develop appropriate employee sk ills and Relationship management skills for KAMs Presentation/ Time management skills Product training
capabilities
- Develop appropriate HR systems & Develop second line of leadership (sucession Career development Outlining empowerment & delegation of
policies plan) powers
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Measures & targets
in the BSC

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 Obtaining Measures and Targets

Strategic
Measures Targets
Themes

Through the above exercise, we have developed a database of Corporate,

Division and Department measures and targets, which will be used
to identify individual KRAs

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 Measures should be...

Linked to the business strategy

• Absence of the link may cause lack of clarity and confusion

• However, should also include some ‘diagnostic’ measures that need
not necessarily be directly linked to strategy
• A threshold level of performance needs to be ensured for these
measures
• For example, Subkishka is a discount chain. Being cost effective is
a necessity. However, the product it offers cannot be below par
compared to the market

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 Measures should be…(cont’d)

Relevant
• The measure should accurately depict the process or objective you are attempting to evaluate
• A test of a good measure is whether the results are actionable are not
• Avoid compound indices as much as possible. They tend to hide the details

Common Definition

• The meaning of the measures chosen should be understood by

the entire organisation in the same manner

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 Measures should be…(cont’d)

Quantitative

• Quantifying removes subjectivity and hence convey the same

meaning to all involved

Accessibility
• Data should be easily accessible to measure the parameter
• The measure should not involve setting in place a very costly system to just collect
data against it

Easily understood
• This is a key factor in success of the chosen measures
• If the chosen measure is difficult to understand/ communicate it would not provide
the desired result in terms of reaction

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 Measures should include lag as well as lead indicators
Lag Indicators
• Measures focussing on results at the
end of a time period, normally
characterising historical performance
• Normally easy to identify and capture
• Historical in nature and do not reflect
current activities; lack of predictive
power
Lead Indicators
• Measures that drive or lead
performance, normally measuring
intermediate processes and activities
• Predictive in nature and allow the
organisation to make adjustment
based on results
• May prove difficult to identify and
capture

Examples Examples
• Market Share • Hours spent with customers
• Sales • Proposal written
• Employee satisfaction • Absenteeism
• Raw material Quality • Response time

Good scorecards should have a mix of lead and lag performance indicators
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 The key activity is to successfully develop the right
measures
Objectives Measures
Financial

Revenue Evolution Index

Growth

Repeat Percentage of Sales from existing customers

Customer

Business

Loyal Customer satisfaction

Customers

Number of products in the pipeline

Internal

New product
development Cycle time for developing new product
& Growth
Learning

Training coverage
Employee
training Hours of training inputs per person per year

The alignment is enforced through clear cause-effect linkages...

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Corporate Action
Cost reduction
Prudent Financial Management
Topline Growth
Maintain relationships
Reliable supplier
Department Initiatives - Marketing (Domestic)
Division Action Division Measure Department Action
Reduce administrative costs per tonne at HO (travel,
communication etc.) Administrative costs per tonne at HO Administration cost to be reduced
Authority of settling disputes at various levels.
Maximise on-line communication
Minimise debtors Average debtors outstanding Monitoring & Minimise debtors
Minimise total FG inventory Average FG Inventory Minimise FG stock
Orders to logged - in with proper financial arrangements only
Number of new customers identified per
Develop new customers segment/product / Revenue per new customer Avoid payment delays by settling disputes
Best NSR net of extra cost in the avaliable product mix.
Best possible commercial terms
Pricing to be linked to market trends
Expand current share of wallet with existing
customers Revenue per existing customer Continuos updation of market database & identify new products
Long terms MOU's with strategic customers
Product mix of exsiting customers to be studied & standarised to
increase the share of business.
Product mix of new customers to be studied & standarised to target
further business.
Use of inputs from the strategy group.
Creation of comprehensive customer database Completion of the customer database within timelines Customer loyalty to be developed
Frequent interations
Loyalty discounts/rewards
% of ontime delivery / Percentage of off-spec
Ensure delivery as per customer requirements deliveries Adhire 100% to committed orders w.r.t to quality,price,delivery etc..
Continuoes monitoring of CSI.
In case of minor compalints self certification by regular customers to
allowed.
Orders to be booked with total transperancy & clarity
Prompt settlement of complaints
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Corporate Action
Right Pricing
Standard products
Applying new technology
Enhance productivity
Expand markets
Focus on business intelligence
Build Competencies
Managing Change
Technological Innovation
Department Initiatives - Marketing (Domestic)
Division Action
Analyse competition on price, performance, terms and Completion of the analysis of competition on price,
availability
Aggregate customer order to facilitate longer
production sequence
Increase access to technology across the S&M
organisation
Integrating CRM with SAP to increase customer
satisfaction
Reduce total cycle time for key customers
Create appropriate organisation to support increased Employee feedback on effectiveness of the
base
Create & strengthen Business Intelligence cell
Relationship management skills for KAMs
Develop second line of leadership (sucession plan)
Application engineering
Division Measure
performance, terms and availability within timelines
Average length of the production sequence /
Average capacity utilisation
Completion of projects within timelines
Completion of projects within timelines
Total order cycle time for key customers
organization structure in the employee survey
Completion of Business Intelligence projects within
timelines
Behavioural training hours per employee
Timely completion as per schedule
Completion of projects within timelines
Department Action
Analysis of market scenario w.r.t demand,supply ,competitors etc.
Create value for spot sales.
Pricing as per market trends
Market data base of customers to be built
Markets of customers to be studied on continueos basis
Regular techno commercial interactions with customers
Use of SAP features for business monitoring & development.
Use of SAP features for business monitoring & development.
CSI Monitoring
Repeat Customer orders
Repeat orders
Creating appropriate organisation with all people in place.
Review of exsisiting manpower resources
Customer market Intelligence
Customer process intelligence
Market Intelligence
Technical upgradation of KAM w.r.t to production process of
Dolvi/KLM.
Imparting of Suitable training
Self training needs identification
Training w.r.t to CRM,SCM,6 Sigma,SAP etc.
Clarity of career growth plan
CRM implementation
Customer support Intiatives
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 Balanced Scorecard - A Recap..

• Framework for articulation of corporate strategy

• Development of strategic initiatives along 4 themes - Financial, Customer, Internal

Process and Learning & Growth

• Deriving the Division objectives and initiatives from the corporate objectives and
initiatives

• Cascading the Division objectives and goals into the department objectives and
initiatives

• Carrying on this process to identify the individual scorecard that is aligned to the
corporate goals

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 Gaps in the
Business Plan

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 Gaps Identification

Production • For Production Divisions, the plan is partially adequate for

Divisions all KRA's articulated for the division.

• For support functions, there is no mention of any targets/

achievements in the Corporate Plan. This include Divisions like
Support
Divisions
CRG, Finance, Corporate Affairs & Commercial. Thus fixing targets
against KRAs in the scorecard would be difficult to articulate for
these Divisions based on the Corporate Plan

• While Financial & Internal Process dimension are covered fairly

Learning & adequately for most Divisions, Customer and Learning & Growth
Growth are not. This would present a difficulty in completing targets against
these dimensions in the BSC for all Divisions

Customer • The Corporate Plan is operations plan, viz. sales targets are driven by
Facing Production estimates. This is inconsistent with the articulated vision,
Divisions where organization is structured to meet customer requirements.
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Aligning BSC to EVA

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 What is EVA..

EVA = Operating Profit - Opportunity Cost of Running the Business

Sales
The return foregone by not investing in a
Cost of Sales comparably risky portfolio of projects—the
Overhead weighted average cost of debt and equity
capital.
EBIT
Tax on Operations Capital Charge = Cost of capital x Capital
NOPAT

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 How is it different..

• Takes all capital costs into account, including the cost of equity and EVA
shows the dollar amount of wealth a business has created or destroyed in each
reporting period. In other words, EVA is profit the way shareholders define it.

For example : If the shareholders expect, say, a 10% return on their

investment, they "make money" only to the extent that their share of after-
tax operating profits exceeds 10% of equity capital.

• Takes a fair view of the money that a company spends on activities like R&D
and employee training. Those are investments meant to pay off for years, but
accounting rules say you can't treat them that way; you have to call them
expenses, like the amounts you spend on electricity. EVA proposes that for
internal purposes, consider these things as: capital investments. The useful life
can be estimated a best guess-say five years. It's better than calling them
expenses.

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 Advantages

• Improve efficiency, and thus returns.

• Grow, but only if new investments can earn the cost of capital.

• Redeploy capital from underperforming operations.

• Manage risk, and therefore the cost of capital.

In short :
EVA helps the managers put in incentive and monitoring systems
which will increase the possibility of the managers will run the firm
that in consistent with the creation of shareholder value

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 What it means to become an “EVA company”

2 Key Ingredients
• A comprehensive framework for evaluating all business
decisions and activities based on their respective
contribution to shareholder value (“Value-Based
Management”)
• Coordination of VBM activities through EVA, or Economic
Value Added

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 What it means to become an “EVA company”

• A cohesive definition of success

• A shared language for each area of financial management
• A fundamental reformulation of the way the company structures
incentives
• The tools and understanding to make EVA line-of-sight, and thus
part of day-to-day decision-making

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 EVA and Balanced Scorecard- the Linkage

Objective of combining the two tools is to enhance the value by using the EVA to
drive the definitions of the categories of measures in the financial measure of BSC

Financial EVA Measure and Targets

Customer Implementation of EVA by

driving Internal Process
Internal Processes measures and Learning and
Growth in measures in line with
the EVA goals and measures
Learning and Growth

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Your Role & way
forward

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 Your Role

• You will be

– Champions for Balanced Scorecard within the Department/

Section
– Responsible for creating awareness about the concept and
implementation of Balanced Scorecard
– enable target setting through initiatives like six sigma.
– target setting with divisional heads for learning & growth strategies.

– Responsible for ensuring completion of the target & responsibility

setting for Department / Section level based gaps identified vis-à-
vis the Business Plan
– Responsible for explaining to people and clarifying doubts in your
respective departments

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 The way forward..
• Implement the PMS system from next year onwards, using
Balanced Scorecard.

• Internalise the PMS process

• Ownership of PMS by line, HRD as a facilitator only

• Visible and transparent linkage with rewards and other HR

systems

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