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An Introduction to the Balanced Scorecard and the Strategy Focused Organization

TEC March 6, 2005

Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com

Inc. 1998 72% of CEOs believe that executing their chosen strategy is more difficult than developing a good strategy Malcolm Baldrige CEO Survey. 2002 BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative.Why Do Organizations Struggle So Hard With Strategy? 1 in 10 organizations execute their strategies successfully Fortune Magazine.com 2 . • bscol.

• bscol.com 3 . Inc.#5 MAKE STRATEGY A CONTINUAL PROCESS The Problem: The Strategic Management Process Is Missing in Most Organizations STRATEGY 60% of organizations don’t link strategy & budgets update the strategy Strategic Learning Loop test the hypotheses 85% of management teams spend less than one hour per month on strategy issues BALANCED SCORECARD BUDGET 78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget funding Management Control Loop reporting PERFORMANCE Input (Resources) Initiatives & Programs 92% of organizations do not report on lead indicators Output (Results) BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative.

com 4 BSCol – 01497 COE Document – 02/18/03 . ©2003 Balanced Scorecard Collaborative. by Larry Bossidy.Strategy Development or Strategy Execution? Organizations Need Both Strategic success requires going beyond successful 1 strategy formulation to successful strategy execution Strategy Formulation Sound Missed Opportunity Strategic Success Flawed Doomed From The Start At Risk Flawed Strategy Execution Sound Source: 1Execution: The Discipline of Getting Things Done. • bscol. Inc. 2002.

customers. Inc. processes.Strategy Execution Challenge There are generally accepted tools to manage finances.com 5 . But what about strategy? Financial Management Tools EVA Balance Sheets Income Statements Shareholder Value Analysis Process Management Tools Six Sigma Supply Chain Integration Cycle Time Reduction TQM Strategy Management Tools Customer Management Tools Customer Satisfaction Measurement Customer Relationship Management Segmentation Analysis ? People Management Tools Core Competencies Knowledge Management One-to-One Marketing Pay for Performance HRIS The Balanced Scorecard is the vehicle that fills the Strategy Management Gap BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative. • bscol. and people.

Cap $2.Balanced Scorecard Organizations Are Achieving Breakthrough Results BREAKTHROUGH RESULTS Private Sector Mobil • From last to first in industry • ROI 6% --> 16% Public Sector Shareholder Value SMDC Health System • Profitability up $23m • Customer Satisfaction Wendy’s International • Mkt. • bscol.2B more requisitions for its customers BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative.com 6 .5 --> $4b • Stock Price up 75% Profitable Growth City of Charlotte • Customer Satisfaction = 70% • Public Official Award Customer Satisfaction UPS • Revenues • Net Income 9% 33% Duke Children’s Hospital Organizational Alignment • Customer Satisfaction #1 • Cost/Case 33% Hilton Hotels • Customer Loyalty 5% • EDITDA margins 3% above average Defense Logistics Agency Cost Reduction • $130MM in Savings in FY2002 • Processed $2. Inc.

com 7 .How Did They Do It? They Created “Strategy-Focused Organizations” STRATEGY: They made strategy the central organization agenda FOCUSED: They created incredible focus on the strategy ORGANIZATION: They mobilized their employees to act in fundamentally different ways. guided by the strategy STRATEGY The Balanced Scorecard Is a Performance Management Program That Puts Strategy at the Center of the Process BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative. • bscol. Inc.

. • bscol.. Skills...…Reflecting a “Natural Cause and Effect Logic” of Business Performance And Realize the Vision Financial Results To Drive Financial Success. Systems. and Tools Equip our People. Customer Benefits Needed to Deliver Unique Sets of Benefits to Customers. Internal Capabilities To Build the Strategic Capabilities. BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative. Knowledge..com 8 .. Inc..

The Balanced Scorecard Should Tell the Story of the Strategy Illustrative Example: Southwest Airlines Strategic Theme: Operating Efficiency Financial Profitability Fewer planes Customer What will drive operating efficiency?” More customers • More customers on fewer planes How will we do that? Flight Is on time Lowest prices • Attract targeted customer segments who value price and on time arrivals What must the internal focus be? • Fast turnaround Will our people do that? Internal Fast ground turnaround Learning Ground crew alignment • Educate and compensate ground crew regarding how they contribute to the firm’s success • Employee stockholder program BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative. • bscol.com 9 . Inc.

Inc.com 10 .Let’s Take a Minute to Agree Upon Some Common Vocabulary Diagram of the cause and effect relationships between strategic objectives (Strategy Map) Strategic Theme: Operating Efficiency Financial Profitability Fewer planes Customer Flight Is on time Lowest prices More customers Statement of what strategy must achieve and what’s critical to its success How success The level of in achieving performance the strategy or rate of will be measured and improvement needed tracked Key action programs required to achieve objectives Objectives Internal Fast ground turnaround Measurement Target Initiative • Fast ground turnaround • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization Learning Ground crew alignment BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative. • bscol.