Strategy Map & Balanced

Scorecard
Session 15 and 16
Agenda
2
1. Understanding the SM System
2. Strategy Maps and Balanced Scorecard
Strategy at various levels
3
Corporate
External Environment
Internal Environment
Stakeholders Expectations
Business
External Environment
Internal Environment
Resource & Capability analysis
Functional
Financial Strategy
Marketing Strategy
R&D Strategy
IT Strategy etc.
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Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996.
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Source: Kaplan & Norton, HBR, Jan 2008.
Agenda
6
1. Understanding the SM System
2. Strategy Maps and Balanced Scorecard
What is the Balanced Scorecard (BSC)?
An alternative approach linking operational and
strategic control, developed by Robert Kaplan and
David Norton.
The balanced scorecard is a management system (not
only a measurement system) that enables companies
to clarify their strategies, translate them into action,
and provide meaningful feedback.
How is the BSC approach different from KPIs ?
KPIs are a list of important things to measure
May not have relationship to strategic priorities
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Strategy Maps and BSC in the Strategy Continuum
Mission
Why we exist
Core Values
What we believe in
Vision
What we want to be
Strategy
Our Game plan
Strategy Map
Translate the Strategy
Targets and Strategic Initiatives
What we need to do
Personal Objectives
What I need to do
Strategic Outcomes
Satisfied
Shareholders
Delighted
Customers
Effective
Processes
Motivated
Workforce
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Balanced Scorecard
Measure & Focus
BSC complements traditional financial control perspective
Objectives Measure Targets Initiatives
FINANCIAL
To succeed financially, how
should we appear to our
shareholders?
Objectives Measure Targets Initiatives
INTERNAL PROCESS
To satisfy our shareholders and
customers, what business
processes must we excel at?
Objectives Measure Targets Initiatives
LEARNING & GROWTH
To achieve our vision, how will we
sustain our ability to change and
improve?
Objectives Measure Targets Initiatives
CUSTOMER
To achieve our vision, how
should we appear to our
customers?
Balanced View of
Performance
in line with
Strategy and
Vision
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Strategy Map: Correlating the 4 perspectives
Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996. 10
Accounts
receivables
ROCE
Operating
expense
Customer
satisfaction
Rework
Employees
morale
Employees
suggestions
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Expand and build
strategic skills,
capabilities & expertise
Develop leadership and
execution driven culture
Enable and require
continuous learning and
sharing of knowledge
Improve quality, cost and
flexibility of processes
Expand channels,
offerings and markets
Excel at technology
product development
and life cycle mgmt.
Be a leader in quality
and reliability
Provide valued service,
applications, expertise
and support
Introduce innovative
high-performance
products and solutions
Improve productivity
Increase revenues in
existing segments and
markets
Grow revenues in new
products and services
Increase return on capital
Create a high performance culture
Improve operating
quality & efficiency
Grow high value
customer relationships
Accelerate product
innovation
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Ex: Themes
Source: Kaplan & Norton, HBR, Jan 2008.
Strategy Map: Capture Cause Effect Relationships
Return on Capital
Lower Cost
at outlet
On Spec,On Time
Lower Mfg. Cost
Develop
Dealer/
Distributor
Develop
Products &
Services
Dealer
Satisfaction
Customer
Satisfaction
Cash Flow
Revenue Growth
Leader in profitability
Access to Strategic
Information
Core
Competencies
& Skills
Org.
Involvement
Plant Performance
Inventory Mgmt.
Financial
Internal
Customer
Learning
and
Growth
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Some Techniques for Building Strategy Maps
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Increasing
connects
Splitting the
Perspective
General Rule of Thumb to ensure strategy map is developed
both vertically and horizontally
Way of pulling out both drivers and outcomes that match up
against the core competencies of the business model
Customer Growth Customer Satisfaction Retention Rate
Timely Delivery Pricing Quality Service Reputation
Customer Perspective
Outcomes
Drivers
Weak Strong
Exercise 1: My Departments Simple Strategy Map
Please focus on any one non-financial
perspective and write down the map
elements
( Time: 5 minutes )
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Extending the Strategy Map to BSC
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Strategy Map Balanced Scorecard Action Plan
Objectives Measures Targets Initiative
Profits
Revenues
Less assets
Mkt. Value
Prod. Rev
Ast.Cost
50% cagr
20% cagr
10% cagr
Customer
Quality
Price
No. Cust
Rating
Ranking
25% cagr
1
1
CRM system
Loyalty
programme
Fast and low
error
production
Time
Error
20% dec
6 sigma
Cycle time
reduction
TQM
Skill
development
Capability
measure
ment
100% Training
Communicati
on
Alignment and
skilling
Process and Value
Map Analysis
Lean
Processes
Quality
Low price
Attract & Retain
Revenue Growth
Fewer assets
Profits
Source: Adapted from Kaplan & Norton, Strategy Maps, p53
Some Tools for Determining What to Measure
Inputs
Process/
System
Output
Intermediate
Outcomes
End
Outcome
Program Logic Model
Desired
Outcome
Causal Analysis
Process Flow
Results
Of
Testing
Not Acceptable Acceptable
Prototype
Product
Back to
Laboratory
To Market
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Cascading the balanced scorecard
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Corporate
Business
Division
Sub-Division
Objective Measures Targets Initiatives Budget
0
1
2
3
Aligning the scorecard objectives An example
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Adopt best
practices
Lean
processes
Process
efficiency
Streamline
processes
Expand global
reach
Improve Asian
footprint
Grow market
share
Expand range
Expand skill
base
Develop the
workforce
Highly skilled
workers
Improve
employee
competencies
Corporate
Business
Division
Sub-
Division
Suggestions for successful BSC implementation
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Identify cause effect relationships
Ensure full top management support
Determine key objectives
Translate objectives into measures and targets
Plan initiatives
Install a simple and fast tracking system
Link performance measures to rewards
Link balanced scorecards at all levels
Communicate the balanced scorecard effectively
Link strategic planning, BSC and budgeting process
Source: Pandey I.M., Balanced Scorecard: Myth and Reality, Vikalpa
Example BSC Development Timeline
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1 4 8 12 16 20 24 26
Clarify
Vision
Communicate
to middle
managers
Eliminate non-
strategic
investments
Launch Corporate
change programs
Develop SBU
scorecards
Review SBU
scorecards
Refine Vision
Communicate
across
company
Establish
individual
performance
objectives
Update long
range plan &
budget
Conduct monthly
and quarterly
reviews
Conduct annual
strategy reviews
Link everyone's
performance to
the balanced
scorecard
Months
Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996.