Alignment

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
Whats 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. Its a visual representation of the cause-and-effect relationships among the components of an organizations 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%
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
Business and Corporate Strategy

Business Strategy How to improve companys or units 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.
What business the corporation should be in.
How the corporate office should manage the array business.
Discipline of Market Leader

Discipline of Market Leader (Tracy, 1988)
1. Operational Excellence
Focus on total cost and quality using existing product technology
Product leadership
2.
Product Leadership
Innovate new products with new features and technology
3.
Customer Intimacy
Deliver solution to customers
Operational Excellence
Customer Intimacy
System Lock-in
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
1.
2
Low Total Cost Product Leadership Complete Solution Customer
2. 3.
4 3
4.
System Lock In
Strategic Themes
1.
Internal Processes
Operation Management Customer Management Innovation Regulatory and Social
2. 3. 4.
Internal Perspective: Value Creating Processes 1. Operation Management Processes 2. Customer Management Processes 3. Innovation Processes 4. Regulatory and Social Processes
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

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
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.
Long-term share holder value Productivity Strategy Improve cost structure Increase Asset Utilization Growth Strategy Expand Revenue Opportunities Enhance Customer Value


Processes that create new products and services Opportunity ID R&D Portfolio Design/Develop Launch
Image

Processes that produce and deliver products and services Supply Production Distribution Risk Management

Processes that enhance customer value Selection Acquisition Retention Growth
Processes that improve communities and the environment Environment Safety and Health Employment Community
Customer Objective for Different Value Proposition

Best Total Cost
Offer products and services that are consistent, timely, 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, Accuracy, Wheight, .. 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

Operations management processes are the basic, day-to-day processes by which companies produce their existing products and services and deliver them to customers. Develop and sustain supplier relationship. Four Operations Management Processes Produce products and services. Distribute and deliver products and services to customers. Manage risk.
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, receiving, inspecting, storing, and coping with defects) Cost of purchasing as percentage of total purchase price. Pecent of purchases made electronically (EDI or Internet) Supplier ratings: quality, delivery, cost. Lead time from order to receipt. On-time delivery percentage. Percent of the late orders Percent of orders delivered directly to production process by suppliers.
Develop high-quality supplier capability
Part-per-million or percent of defects, 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, non-core products and services
Risk Management
1. 5 ways risk management can create shareholder value 2. 3. Reduce the costs associated with financial distress; such as bankruptcy. Moderate the risk faced by important nondiversified investors and stakeholders. Decrease taxes
4.
5.
Reduce monitoring cost.

Lower the cost of capital.
1. 2. 3.
Modify its operations, Adjust its capital structure, Employ targeted financial instruments such as derivatives.

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

Long-term share holder value

Expand Revenue Opportunities Customer Value Proposition
Growth Strategy
Improve Sales Productivity
Enhance Customer Value
Pric e
Qualit y
Availability
Selectio n
Functionalit y
Servic e
Partnership
Brand
Relationship Customer Retention

Premium customer service Sole source partnerships Service excellence Lifetime customers
Image
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
Improve Productivity
Increase Customer Value Revenue from Integrated Products
Build the Franchise

Lower Life-Cycle Product Cost $/bbl Seamless Professional Management Shared Goals and Reward
Image of a System Integrator
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
Innovation Processes
Innovation means taking an idea and transforming it into reality (Smith, 1997 p. 169179). Innovation processes develop new products, processes, and services, often enabling the company to penetrate new market and customer segments. 1. 2. 3. 4. Identify opportunities for new products and services. Manage the research and development portfolio. Design and develop the new products and services. Bring the new products and services to the market.
Four Innovation Processes

Regulatory and social processes help organizations continually earn the right to operate in the communities and countries in wich they produce and sell. 1.
Four Dimension of Regulatory and Social Processes
Environment Safety and health Employment practice Community investment
2. 3. 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)
Learning and Growth: Strategic Alignment of Intangible Assets

The fourth perspective of Balanced Scorecard strategy map, learning and growth, describes the organizations intangible assets and their role in strategy
Human Capital
The availability of skills, talent, and know-how required to support the strategy. The availability of information systems, networks, 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
Intangible Assets Must Be Alligned with the Strategy to Create Value


Expand Revenue Opportunities
Increase Asset Utilization


Image



Creating Alignment
Strategic Job Families

Human Capital Skills Training Knowledge
Strategic IT Portfolio
Information Capital Systems Databases Networks
Organization Change Agenda
Creating Readiness
Organizational Capital Culture Alignment Leadership Teamwork
Alignment
Alignment
Corporate Support Units
Finance
Enterprise Strategy Map
BOC
2
1 Enterprise Strategy Update
IT HR
3
Corporate Functional Strategy Map
Functional Strategy
Corporate Planning Process
SBU Strategy Map
Corporate Functional Strategy Map
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
Aligning Financial and Holding Company Model

Investment Acuity of Principal Owners
Ability to identify undervalued or turnaround company situation.
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.
Learning and Growth Internal Processes Customers
Financial
Holding Company Model Case: ACTIVA

Objective Measure
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, capabilities, or information through individual entities)
Distinctive Competencies Branding Strategy Customer and Internal Objectives

Desire customer outcomes: brand image and customer acquisition,
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. The alignment scorecard can help for this approach.
Aligning Internal Process: Shared Processes and Services
Economic of Scale Source of Financial Synergy: Holding Company Model Centralized Resource Having Specialized Knowledge and Expertise
Learning and Growth: Strategic Alignment of Intangible Assets

The fourth perspective of Balanced Scorecard strategy map, learning and growth, describes the organizations intangible assets and their role in strategy
Human Capital
The availability of skills, talent, and know-how required to support the strategy. The availability of information systems, networks, 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
Intangible Assets Must Be Alligned with the Strategy to Create Value


Expand Revenue Opportunities
Increase Asset Utilization


Image



Creating Alignment
Strategic Job Families

Human Capital Skills Training Knowledge
Strategic IT Portfolio
Information Capital Systems Databases Networks
Organization Change Agenda
Creating Readiness
Organizational Capital Culture Alignment Leadership Teamwork
Objectives
1. 2. 3.

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.

Intengible Assets
Aligning Intangible Assets to Enterprise Strategy Human Capital Readiness Information Capital Readiness Organization Capital Readiness
Value from Intangible Assets

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

Value is indirect Value is contextual
Value is potential
Assets are bundled
Balance Scorecard: Financial Perspective Customer Perspective Internal Perspective Learning and Growth Perspective
The BSC retains the financial perspective as ultimate objective for profit-maximizing companies.
Financial strategies: Selling More Spending Less

Growth Strategy
Improve cost structure Reduce cash expenses Eliminate defects; 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, markets, partners)
Enhance Customer Value
Improve profitability of existing customers
Describes how the organization will create differentieted, sustainable value to targeted segments.
Strategy is based on a differentiated value proposition.
Productivity Strategy Long-term share holder value Growth Strategy Enhance Customer Value Customer Retention
Increase Asset Utilization Customer Profitability Market Share Account Share
Expand Revenue Opportunities Customer Acquisition

Servic e

Pric e Qualit y Availability Selectio n Functionalit y Partnership Brand
Relationship
Image
Customer Satisfaction
Four Basic Strategies

Old, Existing Strengths Compete (wisely)
1. KFS
New and Creative Strengths

3. Aggressive initiatives
1. KFS (Key Factors for Success)

2. Relative superiority 3. Aggressive initiatives 4. Strategic degree of freedom
Intensify functional differentiation 2. Relative superiority
Ask why-whys 4. Strategic degree of freedom
Avoid head on competition

Exploit competitors weakness
Maximize user benefit
Porters Generic Strategy
Competitive Advantage Lower Cost Broad Target Differentiation
The Eight Dimensions of Quality (Garvin, 1988)

1. Performance 2. Feature
Competitive Scope
Cost Leadership
Differentiation
3. Reliability 4. Conformance 5. Durability
Narrow Target
Cost Focus
Differentiation Focus
6. Serviceability 7. Aesthetics
8. Perceived Quality

Alignment

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Alignment

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Strategy Maps and Alignment Using BSC

CCE Training Center

What is the Value and How is It Created?

Targets and Initiatives

Strategy Map an Overview

Public-Sector and Nonprofit Organizations

Internal Perspective Learning and Growth

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

Remember: Balance Scorecard

The Balanced Scorecard:

Attract and retain more customers

Attract and retain more customers. Flight is on time.

$ xxx $ xxx $ xxx $ xxx

Internal Perspective Learning and Growth Perspective

Fast ground turnaround

$ xxx $ xxx $ xxx $ xxx $ xxx

Business and Corporate Strategy

What business the corporation should be in.

How the corporate office should manage the array business.

Discipline of Market Leader

How Can You Create Value?

Value Creation Strategy

Customer Value Proposition

Enterprise Value Proposition

Best Total Cost Product Leader Customer Solution System Platform

Customer Value Proposition and Strategy Maps

Customer Value Proposition

Low Total Cost Product Leadership Complete Solution Customer

Operation Management Customer Management Innovation Regulatory and Social

Strategy Maps using Balanced Scorecard

Improve cost structure

Growth Strategy Enhance Customer Value

Customer Value Proposition

Relationship Innovation Processes

Operation Management Processes

Customer Management Processes

Regulatory and Social Processes

Learning and Growth Perspective

Customer Value Proposition

Relationship Innovation Processes

Operation Management Processes

Customer Management Processes

Regulatory and Social Processes

Customer Objective for Different Value Proposition

Complete Customer Solutions System Lock-in

Add Value to Complementors Provide Larger Customer Base

Offer Easy-toUse Platform and Standar5d

Operation Management Processes

Develop and Sustain Supplier Relationship

Develop high-quality supplier capability

Part-per-million or percent of defects, incoming orders

Reduce monitoring cost.

Customer Management Processes

Acquire customers Retain customers Grow relationships with customers.

Customer Management Processes

Long-term share holder value

Improve Sales Productivity

Enhance Customer Value

Relationship Customer Retention

Case: Marine Engineering

Increase Customer Value Revenue from Integrated Products

Build the Franchise

Customer Value Proposition