BSC Amara Raja_Feb 12-13

8/4/2019 BSC Amara Raja_Feb 12-13

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1

Balanced Score Card:Understand Practice - Apply:

12 13 February 2010

P.P.Sukumaran J.Sathiyaseelan

Centre for Excellence in Organization Pvt. Ltd.,India Malaysia Dubai

www.exploreceo.com


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Ground Rules

2

Non ParticipationOnly during lunchcoffee and tea

Stick to the timing

Walking

The Talk

You must speakfor yourself

ApplicationPromise

Avoid Cross Talks

DuringCoffee/TeaLunch


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3

A brief about us CEO Group
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4

= Organization

SuccessVision

Vision Values

Values Strategy

Strategy Resources/Processes

Resources/Processes Capability

CapabilityMotivation &

Feedback

Motivation &Feedback Money

Money

= ConfusionLACK OFVision

= CorruptionNO

Values

= DiffusionLACK OFStrategy

= FrustrationLACK OFProcess

= FatigueLACK OF

Capability

= LossLACK OFMoney

= CrawlLACK OFMotivation

Key to Organization Success
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5

Strategic Plan / Down to Action

Mission

Vision

Goals

Objectives

Measures

Why we exist

What we want to be

Indicators andMonitors of success

Desired level of

performance & timelines

Planned Actions to

Achieve Objectives

O1 O2

AI1 AI2 AI3

M1 M2 M3

T1 T1 T1

Specific outcomes expressed in

measurable terms (NOT activities)

Strategic Plan

Action Plans

Evaluate Progress

Targets

Initiatives

What we must achieve to be successful
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6

Why I am here

today

?

Needed a

break from

the grind

I wanted

to Learn

More

My boss

made me

come

Just like

that !!!
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Expectation mapping

What do you expect as a take away from this workshop?
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First Things First

Organizational effectiveness-doing right things-

Organizational efficiency-doing things right-

There is surely nothing quite so useless as doing with great

efficiency what should not be done at all

Peter F. DruckerManaging for Business Effectiveness

Harvard Business Review, 1963
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Yet to start just

planning

Have launched but

early stages

Process under way,

want to fine tune

Diverse Spectrum & the learning

challenges

Want to have

some insights

Private Sector

Manufacturing

Service

Knowledge


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End in Mind : Today & Tomorrow

Make sure everyone Understand the major stepsfor building a balanced scorecard.

Practice constructing components of the scorecard

Apply the learning to implement in yourorganization How you execute these steps will depend upon many

factors contextual to your company such asCompany culture, tolerance for change, leadership, etc.However the process with the tool kit would help inrolling out the process.
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Program Flow

S. No Activity Details Timing (hrs)

Day 1

1 Introduction About the program 09.30 - 09.40

2 Expectations Mapping Participant's expectations from the program 09.40 - 09.50

3 Strategic Planning Process Importance, relevance, macro picture, stepsfollowed.

09.50 - 10.30

4 Balanced Scorecard - Concept Origin, evolution, fundamentals 10.30 - 11.00

5 Measures and Metrics Importance, types, lead & lag measures 11.15 - 11.45

6 Perspectives and Strategy Maps Importance, cause & effect relationship 11.45 - 12.15

7 Scorecards & Initiatives Basics, approach construction, how differentfrom traditional methods of goal setting

12.15 - 13.00

8 Case Analysis (simulation) Evolving strategy map & scorecard 14.00 - 16.00

9 Group Exercise (real-time case) Evolving strategy map for company & SBU 16.00 - 17.00


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Program Flow

S. No Activity Details Timing (hrs)

Day 2

10 Recap of day-1 learning Participant's sharing 09.30 - 09.40

11 Group Exercise (real-time case) Evolving scorecard & initiatives for company &SBU

09.40 - 11.30

12 Group Exercise (real-time case) Evolving scorecard & initiatives for a department(cascading process)

11.45 - 15.00

13 Integration Process Linking scorecards to PMS, reward &recognition

15.00 - 15.30

14 Experience Sharing Sharing the learning's from organizations thatfollows BSC methodology

15.30 - 16.00

15 Implementation & Sustenance Strategies, challenges, IT enablement, audit 16.00 - 16.45

16 Conclusion Feedback & reflections 16.45 - 17.00
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13

BSC - History

How did it originate?

Who were the people behind this?
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How did BSC originate?

The origin can be traced to 1990 when the Nolon Norton

Institute sponsored a 1 year multicompany study

motivated by a belief that the existing performance

measurement approaches (relying on financialaccounting) are were becoming obsolete.

David Norton, CEO of Nolan Norton was the study leader

and Robert Kaplan was as an academic consultant.

The team interacted with representatives from different

companies - both manufacturing and service.
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How did BSC originate?

These bi-monthly meetings gave birth to what was

labeled as Balance Scorecard, the name reflecting

balance between short term and long term objectives,

between financial and non financial measures, betweenlagging and leading indicators and between external and

internal performance perspectives.
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Nissan GT-R at a Motor Show Carlos Ghosn


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17

Points to Ponder

Was there a need for change?

Who felt the need for change?

Was there a sense of urgency?

Who initiated and anchored change? What were the key focus areas for Ghosn and his

team to tackle in the short term?

Was there a long term plan as well?

Was there some kind of a method in the journeyof Change?

Was there a resistance to change? How did theyovercome it?
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18

Points to Ponder

Some of the areas they focused were on: Reduce debt

Reduce costs

Reduce purchase costs

Improve margins Reduce no. of suppliers

Reduce number of plants

Vendor development

Form Cross Functional Teams
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19

Points to Ponder

Re-look at recruitment practice

Re-look at performance appraisal systems

Visits to customers

New product design and development

Re-look at reward and recognition systems Reduce number of plants

Vendor development

Form Cross Functional Teams

Shared vision

Building a common vision

Communication of strategy

Empowerment

Faster Decision making
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Few other areas to look at

Shared vision

Building a common vision

Communication of strategy

Empowerment Faster Decision making
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BSC - Fundamentals

What is this tool?

Why do we need?

Where it all started?
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The Evolution

1992 1996 2000

Measurementand

Reporting

Alignment andCommunication

Enterprise-wideStrategic

Management

Articles in Harvard Business Review:

The Balanced Scorecard Measures that Drive PerformanceJanuary - February 1992

Putting the Balanced Scorecard toWork September - October 1993

Using the Balanced Scorecard asa Strategic Management SystemJanuary - February 1996

19962000

Acceptance and Acclaim:

The Balanced Scorecardis translated into 18languages

Selected by Harvard

Business Review as one ofthe most importantmanagement practices ofthe past 75 years.

2005
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The Source of Value has Shifted

23

62%62%

38%38%

85%85%

15%15%

In-Tangible

Tangible

The 80s The 90s Now

Brookings Institute & Baruch Lev Analysis Of S&P 500Source: The Balanced Scorecard Collaborative Inc.

38%38%

62%62%


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24

The word strategy would be used at many

instances throughout the two-day discussions.

Therefore it is important to have a common

understanding.

Can each one of you articulate your understanding

of what strategy means?
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What is Balanced Score Card

Balanced Scorecard is a tool, which is intended to link &

align short-term operational & financial targets on long-

term vision & strategy of business

It helps to translate the vision of the company into

actionable operating plans, which can be measured over

time during implementation


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What is Balanced Score Card

Balanced Scorecard helps in creating specific action plans

with clearly defined measures & responsibilities for

balancing and exceeding all the stakeholders needs

instead of only focusing on profit figures.

Thus, Balanced Scorecard helps organizations in

integrating the changing needs & expectations of all its

key stakeholders, viz, customers, shareholders &employees into a company program.


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Why Balanced Score Card

Need more balanced approach to look at performance, bothtactical and strategic. Only 5% of a workforce tends to understand their companys

strategy

86% of executive teams spend less than one hour per month

discussing strategy.

Superimpose a discipline whereby you capture cause-effect; otherwise you create pockets of under-performance.

Also forces you to think about strategic measurement asopposed to tactical or operating type measurements


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28

Introduced in 1992, by Robert Kaplan and David Norton, theBalanced Scorecard is the most commonly used frameworkfor ensuring that organizations execute their strategies.Today, about 70% of the Fortune 1,000 companies utilizethe Balanced Scorecard to help manage performance.

Balanced Scorecards are used as the roadmap for creating theStrategic Management System. And this will drive overallperformance of the organization as a whole.

Where it started . . .
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Balanced Scorecards tell you the knowledge, skills and

systems that your employees will need (learning and

growth) to innovate and build the right strategic

capabilities and efficiencies (internal processes) thatdeliver specific value to the market (customer) which will

eventually lead to higher shareholder value (financial).

Having Trouble with Your Strategy? Then Map It by Robert S. Kaplan and David P. Norton -Harvard Business Review

This is how the author defines
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Fundamental Aspects of BSC

Quantifies the organization strategy in measurable terms

Strategy is summarized on a Strategy Map over four viewsof performance (perspectives)

Captures cause-effect relationship between strategicobjectives over the four perspectives on the Strategy Map.

Critical Components include:- Measurements- Targets

- Initiatives

Everything must be linked: Goals to Objectives, Objectivesto Measurements, Measurements to Targets, Targets toActions.


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The Chain and the missing link

Courtesy: BSC Collaborative
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The dilemma !!

Most Asian companies do not have a holistic strategy

Who owns a strategic initiative? Finance !! HR !!! Strategic Planning !!!!

Every thing has to be approved by CEO

In out part of world Measurement often scares anddoesnt motivate

Worried more about exception rather than the principle/rule

Lots of Initiatives with no or never ending time lines andless ownership


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Understand

Linkage

Measurement

Targets

Initiatives

Strategic Goals

Strategic Objectives

Perspectives

Strategy Mapping
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The Planning & Controlling Loop

StrategicPlanning Loop

Initiatives &Programs

test thehypotheses

Output(Results)

reportingManagement Control

Loopfunding

Input(Resources)

update thestrategy

PERFORMANCE

85% of managementteams spend lessthan one hour permonth on strategy

issues

92% of

organizations donot report on lead

indicators

60% oforganizations dont

link strategy &budgets

78% of organizationslock budgets to an

annual cycle20% of organizations

take more than 16 weeksto prepare a budget

STRATEGY

BALANCEDSCORECARD

BUDGET

Courtesy: BSC Collaborative
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Changing Shareholders Views

35

5. Attract Talented People5. Attract Talented People

4. Innovation (New Products / Services)4. Innovation (New Products / Services)

3. Quality Of Strategy3. Quality Of Strategy

2. Management Credibility2. Management Credibility

1. Strategy Execution1. Strategy Execution

35% Of Shareholder ValuationDecision Is Based On Non-

Financial Data

Measures That Matter Ernst & Young LLP, 1998
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Unlocking Intangible Assets

36

RevenuesRevenues

Contemporary

Technologyincluding IT

ContemporaryTechnology

including IT

Product /ServiceQuality

Product /ServiceQuality

CustomerConfidence

CustomerConfidence

CustomerRetention

CustomerRetention

OperatingProcesses

OperatingProcesses

Trained &

MotivatedStaff

Trained &Motivated

Staff

Raw MaterialQuality

Raw MaterialQuality


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37

The Balanced Scorecard Framework

Start withStrategy

Objectives

Measures

Targets

Initiatives

Objectives

Measures

Targets

Initiatives

Objectives

MeasuresTargets

Initiatives

Objectives

Measures

Targets

Initiatives

Strategy

Vision -> Goals -> Themes

Financial Perspective

What financial results are

required for meeting the

expectation of our shareholders

Learning Perspective

What organizational values are

critical for meeting our strategic

goals and objectives

Customer Perspective

What customer needs must we

satisfy for meeting shareholder

expectations

Internal Perspective

What processes must we deliveron for meeting customer and

shareholder expectations


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Strategic Goals

The first components of your strategy are goals.

Strategic goals establish direction in concreteterms.

Strategic goals anchor the rest of the process.

Strategic goals should fit with the vision andmission of the organization.


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Strategic Objectives

Once we establish our first anchor (goals), we candevelop a set of strategic objectives.

Strategic objectives define what actions must be

taken to reach the strategic goals.

Objectives are critical to future success. For example, in order to grow revenues, we must

introduce new products and expand our market share.

Covers shorter time period than goal (such as 6months or 1 year)
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The Perspectives

Internal Process

To satisfy our customers, in which internalbusiness processes must we excel?

Customer

To satisfy our shareholders, whatfinancial objectives must weaccomplish?

The Vision & StrategyThe Vision & Strategy

Financial

To achieve our financial goals, whatcustomer needs must we satisfy?

Learning & Growth

To achieve and maintain a competitiveposition, how must the organizationlearn and improve?

Cause

Results

Actions

Effect
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The Concept

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Vision & Strategy

Financial Perspective

Customer Perspective

Internal Process Perspective

Learning & Growth PerspectivePeople, Systems & Technology

The Four Perspectives
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The Four Perspectives


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Four Perspectives

Financial: Top layer in the map, representsfinancial outcomes (profits, revenues, etc.)

Customer: Next layer down, enables financial

results (service, image, price, quality, etc.)

Internal Processes: The values added tocustomers, such as delivery, production,

distribution, etc.

Learning & Growth: The people, systems, andorganization that enable processes.


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44

Strategic Mapping

Strategic Maps are the foundation of the BalancedScorecard.

Maps are constructed over four perspectives.

Strategic objectives are mapped over the fourperspectives, linked together.


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45

Linking

Strategic objectives need to be placed in theStrategic Map according to which perspective fitswith the objective.

Objectives may cross over more than oneperspective.
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46

Measurements

For each strategic objective, there requires atleast one measurement.

Measurement provides us with feedback on

meeting the strategic objective.

Most organizations will use many of their existingmeasurements.

Organizations requiring major change shouldinclude lead indicators (type) as measurements.


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47

Lead and Lag Measurements

Leading measurements are drivers behindperformance and provide some predictability(forward looking)

Lagging measurements are usually final outcomesthat look back, such as customer satisfaction orreturn on investment

Balanced scorecards should include both leadingand lagging type measurements


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48

Targets

Once you establish measurements, you need toset a target for each measurement.

Targets push the organization to a required level

of performance.

Targets put focus on the strategy, expressing thespecifics of the strategy.

When an organization hits its targets, then it hassuccessfully implemented its strategy.


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49

Initiatives

In order for actions to take place towards strategyexecution, initiate major projects or programs. For example, improving customer service may require a

new customer management system.

Once the appropriate initiatives are launched, theorganization should be able to meet its strategicgoals.

This closes the loop, everything is now linked andforward we go !


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50

Implementation

Generally the time needed for developing abalanced scorecard is two to three months.

In large size organizations full deployment of

scorecards may take place in phased manner overa period of 2-3 years.

The best place to start building a scorecard is

where all components of the value chain are inplace: Customer, Innovation, Production, Delivery,Services, etc.
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Strategic Plan / Down to Action

Mission

Vision

Goals

Objectives

Measures

Why we exist

What we want to be

Indicators andMonitors of success

Desired level of

performance & timelines

Planned Actions to

Achieve Objectives

O1 O2

AI1 AI2 AI3

M1 M2 M3

T1 T1 T1

Specific outcomes expressed in

measurable terms (NOT activities)

Strategic Plan

Action Plans

Evaluate Progress

Targets

Initiatives

What we must achieve to be successful
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Practice

Where do we start for

implementation?
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53

Fundamental Questions to Ask

Where are we now? Current state Assessment

Where do we want to be?

Gap / Future End State

How will we close the gap Strategic Plan

How will we execute our strategy & monitorprogress

Balanced Score Card
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A B C D E

Environmental Scan

Assessment

BackgroundInformation

SituationalAnalysis

SWOTSystemsthinkingapproach

Situation Past,Present andFutureSignificantIssues

Align / Fitwith

Capabilities

Mission &Vision

Values /GuidingPrinciplesMajor Goals

SpecificObjectives

ConstructBSC

Targets /Standards ofPerformanceInitiativesand Projects

Baseline Components

PerformanceManagement

ReviewProgress BalancedScorecard

TakeCorrective

Actions

Down toSpecifics

Evaluate

Where we are Where we want to be How we will do it How are we doing

Gaps Action Plans Feedbackupstream revise plans
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BSC Amara Raja_Feb 12-13